The Andersons' (ANDE) CEO Patrick Bowe on Q4 2016 Results - Earnings Call Transcript

| About: The Andersons, (ANDE)

The Andersons, Inc. (NASDAQ:ANDE)

Q4 2016 Results Earnings Conference Call

February 16, 2017, 11:00 AM ET


James Burmeister - VP, Finance and Treasurer

Patrick Bowe - CEO

John Granato - CFO


Farha Aslam - Stephens

Sandy Klugman - Vertical Research

Ken Zaslow - Bank of Montreal

Heather Jones - Vertical Group


Good day, ladies and gentlemen, and thank you for standing by. Welcome to The Andersons 2016 Fourth Quarter and Year End Conference Call. [Operator Instructions]

And now we'd like to turn the call to the Vice President, Finance and Treasurer, Mr. James Burmeister. Please go ahead.

James Burmeister

Good morning, everyone. And thank you for joining us for The Andersons fourth quarter and full year 2016 conference call. For the purposes of today's discussion, we have provided a slide presentation that will enhance our talking points. If you are viewing the presentation via our webcast, the slides and audio should be in sync. This webcast is being recorded and it's supporting slides will be made available on the Investor page of our website at

Certain information discussed today constitutes forward-looking statements and actual results could differ materially from those presented in those forward-looking statements as a result of many factors, including general economic conditions; weather; competitive conditions; conditions in the Company’s industries, both in the United States and internationally; and additional factors that are discussed in the Company’s publicly filed documents, including its 1934 Act filings and the prospectuses prepared in connection with the Company’s offerings.

Today’s call includes financial information for which the Company’s independent auditors have not completed their review. Although the Company believes that the assumptions upon which the financial information and its forward-looking statements are based on are reasonable, it can give no assurance that these assumptions will prove to be accurate.

This presentation and today’s prepared remarks contain non-GAAP financial measures related to the 2015 results. We believe that the adjusted pretax income attributable to The Andersons is a meaningful measure for investors to compare our results from period to period, reconciliations of the 2015 non-GAAP to GAAP measures will be found within the financial tables of our earnings release.

On the call with me today are Pat Bowe, our Chief Executive Officer; and John Granato, our Chief Financial Officer. Pat, John, and I will answer questions that you may have at the end of our prepared remarks.

Now, I will turn the floor over to Pat for his opening comments. Pat?

Patrick Bowe

Thank you, Jim, and good morning, everyone. Thank you for joining our call this morning to review our performance in the fourth quarter and full year of 2016. I’ll also make some comments about our 2017 outlook at the end of our prepared remarks.

2016 was a year with significant challenges in many of our markets but also a year in which we made great progress in addressing underperforming areas and setting the path forward to improve the long-term performance of the company. We focused our attention on three main areas. First, we managed our portfolio.

In the second quarter we exited underperforming grain assets in Iowa. In the fourth quarter we closed two cob facilities to consolidate and optimize the performance of that product line. And a few weeks ago, we announced our plans to exit the retail business. These actions are allowing us to focus our time and our capital on higher performing assets in areas with larger long-term opportunities.

Second, we made great strides toward the productivity culture. We have streamlined the organization and improved operational efficiency to drive a leaner operating model. Early in the year we reduced senior corporate leadership positions and throughout the year we've been making improvements to our process and structure, as well as leveraging improvements in our IT infrastructure.

Over the year, we reduced our workforce by over 400 or 10%. In the beginning of year we communicated a goal to reduce our run rate costs by $10 million by the end of 2017. I am pleased to report that we've surpassed this target a year ahead of schedule achieving over $10 million in run rate savings. Some of these savings are being reinvested in the business and some offset inflation with a balance falling to the bottom line.

And third, we continue to make targeted investments in our core businesses. The extension of our ethanol plant in Albion, Michigan has progressed safely on time and on budget. We have started to achieve benefits from our IT investments in the Grain Group and we currently are configuring the Plant Nutrient Group IT Solution with an initial deployment targeted for late 2017.

We consolidated our core business and corporate functions by moving into new headquarters building in September. This has provided a much-needed improvement to help make our employees more productive, as well as to attract and retain strong talent for the company. I will speak later in the call about our outlook for 2017 and some of the actions we're taking to improve our performance this year.

John will now walk you through a more detailed review of our financial results.

John Granato

Thanks Pat, and good morning everyone.

In the fourth quarter of 2016, the company generated net income attributable to The Andersons of $10.1 million or $0.36 per diluted share on revenues of $1.1 billion. This compares to the reported fourth quarter of 2015 when our revenues of $1.2 billion generated a net loss of $47 million or $1.68 per diluted share.

Adjusted 2015 fourth quarter net income was $5 million or $0.18 per diluted share. For the full year 2016 revenue was $3.9 billion about 7% lower than the $4.2 billion in revenue last year and was driven by lower commodity prices. Net income attributable to The Andersons was $11.6 million in 2016 or $0.41 per diluted share. This compares to the reported net loss of $13.1 million incurred in the same period of the prior-year or $0.46 per diluted share into the adjusted net income of $41.2 million in 2015 or $0.145 per diluted share. We have provided a slide in the appendix of this presentation that shows a walk from 2015 reported pretax income to adjusted pretax income.

We next present bridge graph that compared 2015 adjusted pretax income to 2016 reported pretax income year-over-year for the fourth quarter and the full year. In the fourth quarter we saw improved year-over-year pretax income from the Grain Ethanol and Rail Group's. The decline in Retail Group results was driven by $6.5 million asset impairment charge related to the announced plans to close our four remaining stores, as well as $1.4 million of expense incurred to close the Sylvania, Ohio, store in the fourth quarter.

Finally the Plant Nutrient Group's results included about $3.3 million of cost to close two comp processing facilities as we are consolidating operations for the product line to improve performance.

Our full-year results are reflective of the significant challenges we experienced primarily in our grain business earlier in the year. For the year grain showed a $29.6 million decline in pretax income versus adjusted pretax income for 2015. The year-over-year decline in our Rail Group's pretax income was primarily due to the gain on early lease termination settlement.

The Rail Group finished the year with a solid performance generating $9.7 million of pretax income in the fourth quarter compared $6.8 million last year. Full-year pretax results were $32.4 million compared to 2015s, $50.7 million. As noted previously, 2015 included unusually large early lease termination settlement of nearly $11 million which did not reoccur this year. Average lease rates were steady year-over-year. Utilization rates averaged 87.8% for the year compared to 92.4% in 2015.

Improved performance in our repair and fabrication businesses help raise service and other pretax income by $2.3 million compared to last year which was offset by $2.3 million of lower pretax income from railcar sales. The Ethanol Group performed well in an improving market environment. Ethanol margins improved as the year progressed in part due to lower corn prices and other input costs. Later in the year cost to acquire corn at our eastern facilities were higher due to localized incidents of vomitoxin in the Eastern Corn Belt.

Chinese tariffs and the impact of vomitoxin in distillers dried grain led to lower pricing during the fourth quarter. Despite these challenges the Group turned in good results with fourth quarter pretax income reaching $11.7 million a more than 50% improvement over the $7.7 million the group earned in the fourth quarter of 2015. Full-year pretax income was $24.7 million a little below the $28.5 million the Group earned in 2015.

Our Grain Group continued to improve year-over-year in the fourth quarter delivering pretax income of $12.9 million up from adjusted pretax income of $9.8 million earned in the same period of 2015. Fourth quarter performance was not enough to offset the large losses incurred in the first half of the year resulting in a full-year pretax loss of $15.7 million.

By comparison the Group earned adjusted pretax income of $13.9 million for the full year 2015. Crop production in our core markets was substantially better than the prior year. As a result, our base grain operations were able to purchase grain at more normal basis levels. Base grain earned pretax income of $15.9 million in the fourth quarter but had a pretax loss of $5.7 million for the full-year. For comparison base grain earned pretax income of $6.2 million for the fourth quarter and $600,000 for the full year in 2015.

Grains affiliates Lansing Trade Group and Thompson Limited incurred a combined pretax loss of $3 million in the fourth quarter and $10 million for the year compared to pretax earnings of $3.6 million and $13.3 million for the same period in the prior-year. As a reminder, the Group's 2015 GAAP pretax income included a $46.4 million charge in the fourth quarter for the impairment of goodwill which was offset in part by $23.1 million gain from the partial redemption and dilution of the company's ownership in Lansing Trade Group.

We adjusted pretax income for both of these items in 2015 results for purposes of comparability. In 2016 the Plant Nutrient Group incurred a pretax loss of $3.8 million in the fourth quarter compared to fourth quarter 2015 adjusted pretax income of $2.1 million. A lower performance in 2016 was driven by compressed margins and lower volume year-over-year. For the full-year Plant Nutrient achieved similar results on adjusted basis registering adjusted pretax income of $14.8 million in 2015 and $14.2 million in 2016.

While the fourth quarter and full-year 2016 results included $3.3 million of expenses related to the closure of two cob facilities as we consolidated operations to improve the performance of that product line.

The performance of our base nutrients and specialty product lines both struggled in 2016 due to an environment of market oversupply, falling prices and lower net farm income. On the positive side, our lawn business within the other products line had a record year earning $8.9 million in pretax income.

The Group's 2015 GAAP pretax income including goodwill impairment charges of $7.8 million in the fourth quarter and $9.8 million for the full year and one-time Nutra-Flo acquisition costs of $2.4 million in the fourth quarter and $4.9 million for the full year. We adjusted pretax income for both of these items in 2015 results for purposes of comparability.

As we announced last month, the company has decided to close its remaining four retail stores and exit the retail business in the second quarter of 2017. As a result, the Retail Group recorded a pretax asset impairment charge of $6.5 million writing down its long-lived assets to fair value.

Including that charge, the Group posted the fourth quarter pretax loss of $6.2 million compared to pretax income of $1 million in the fourth quarter of 2015. For the full-year of retail results were pretax loss of $8.8 million in 2016 compared to a 2015 loss of $500,000. For the fourth quarter and full-year 2016 figures included $1.4 million of expenses associated with closing Sylvania food store during the fourth quarter.

As we announced earlier, we expect to record pretax charges of between $9 million and $14 million in 2017 related to the closing process. As earlier referred to the great progress we've made on our cost savings and productivity initiatives, we have build good momentum in our continuously working towards a leaner more scalable infrastructure. We reduced our full and part-time headcount during 2016 by more than 400 positions. Some of those reductions were related to assets that we sold or closed during the year, the majority were the result of productivity initiatives.

The $10 million of pretax savings to-date have come from a product mix of categories. It was about half drive from operating, general and administrative expenses and the other half from reductions in cost of sales. A larger portion of these savings were achieved in our Grain and Plant Nutrient Group and we continue to make good traction from the Ethanol and Rail Group, as well as Corporate Services.

Savings delivered this year more than offset wage inflation. We also reinvested some of the savings back into our businesses and infrastructure needed to wake the company more productive and competitive in the future. Cost incurred in 2016 to achieve these reductions included an increase of $3 million to $4 million in severance expense compared to 2015.

I will now turn the call back over to Pat for a few comments on our 2017 outlook.

Patrick Bowe

Thanks John.

As we look forward to our 2017 year, we expect our overall company results to improve significantly over those of 2016. More specifically will continue our focus on operating efficiency by lower our cost to server and thus improve the performance of our core businesses. We’ll continue to look to improve our portfolio via asset optimization and investment in our core and targeted growth areas.

Rail continued to feel the impact from lower rail traffic in 2016. So far in 2017 carload movements and railroad efficiency data suggested that we may be seeing the bottom of this downturn. We expect our utilization rates to continue to feel the impact of last year's lower traffic through mid-2017 after which we expect conditions to improve.

Our railcar fleet is highly diversified in terms of equipment types, customer base, commodities carried and the lease term expiration and as such is well-positioned for solid performance over the rail cycle.

Ethanol 2017 is off to a better start than a year ago. However Q1 margins are off substantially from Q4 as is typical for this time of the year. The strong margins seen in the fourth quarter have fallen off in the New Year. Gasoline demand has been near five-year lows in January. It has started to rebound somewhat here in February.

As we entered the quarter the group has head to a little more than half of its first quarter production before margins began to decline. Today we're experiencing weak spot margins and continue to face challenges from vomitoxin issues around our Eastern plants which reduces the value of distillers dried grains.

Overall we believe our ethanol facilities are well-positioned geographically with efficient technology which allows the group to perform well 2017. The group continues to focus on driving operational efficiencies, achieve higher yield and lower cost. We expect that we will complete the project to double the Albion capacity annual new capacity at Michigan up to 130 million gallons and will be running at full capacity by the end of the second quarter. We have built strong relationships with local corn suppliers and regional ethanol customers which will help this investment.

The Grain Group is poised for a much better year in 2017 after completing one of the most difficult year that the group has experience. A return to more normal grain production last fall in the Eastern Corn Belt has established higher ending stocks than in the prior year which should be a positive contributor to 2017 space income.

We estimate that the US farmer will plant 90 million to 93 million acres of corn in 2017 which would be below the 94 million acres planted in 2016. This still is a strong number. Our soy bean forecast is positive. We think 87 million to 99 million acres will be planted which would be a 5% higher than last year's 83 million acres.

Replanted acres have been reported at 50 million acres down approximately 5 million acres from last year as a result of high 2016 ending stocks. Weather conditions and crop yields that are comparable to those of 2016 should provide good opportunities for the Grain Group to sustain its recovery.

Looking forward to 2017 in our plant nutrient group based on early signs of improved market conditions. The solid planning forecast bodes well for nutrient sales in the spring planting season and our order book is improved compared to the same time last year. We anticipate better results from higher margin specialty nutrient products as we approach the peak sales season in the second quarter. Specialty nutrients are key elements supporting precision and sustainable agriculture in the U.S. The Andersons bring a broad line of value-added products to support our farming customers forward.

As we forward in our productivity initiatives we are targeting an additional $10 million of pretax run rate savings by the end of 2018. We've harvested much of the lower hanging fruit in 2016 and the next level of productivity will take extra efforts. We're hard at work on programs that will continue to help optimize the performance of our business with a focus on improved procurement and back office practices. While 2016 was a disappointing first year as CEO, we've laid the foundation for improved performance and I’m optimistic about our business going forward.

And now I'll hand it back to our operator so we can take any of your questions.

Question-and-Answer Session


[Operator Instructions] And our first question is from the line of Farha Aslam with Stephens.

Farha Aslam

Hi, good morning. Could you talk about the vomitoxin issue in the fourth quarter and kind of how much that cost you, and how long it will take the ethanol group to work through it and how we should think about it for 2017?

Patrick Bowe

Sure, did you address that to John or to me for I didn’t wasn’t clear, but either way we’ll get started but - one of the challenges we faced this fall in vomitoxin and in some of the Eastern states where our plant - three plants are in the East as you know really hurts our DDG returns because not only it impacts the corn inbound as we have to kind of shuffle around to get the right corn in position for our ethanol plants, but also it resides in the finished product in DDGs and thus creates a discount.

I don’t think we want to give a specific number, but as for the DDG net returns of percent of corn as maybe you’d see in the Western corn-belt so and it’s something that stays with you for a while. Because that's what was growing in that region its body it’s in every single grower, nor every single state, but it has impacted our three Eastern plants this year.

Farha Aslam

That's helpful. And then, if we look at ethanol in broader context. Could you share your thoughts on the recovery of ethanol as we progress through the year and your thoughts on exports?

Patrick Bowe

As you know we had a very good export year last year and signs are pointing for that to continue to be $1 billion up to $1.2 billion in U.S. exports. We hope we continue to see good free trade in ethanol we’re going to be positioned well from a corn cost and plants across the country to be able to supply in active export market.

We had a very strong finished in the fourth quarter that’s tailed off as I mentioned here in January quite dramatically but little bit lower driving than we had seen historically which was disappointing. But gasoline prices are relatively low and we should see a return to a good utilization rates for ethanol as we get to the spring and summer driving season. So that gives us some optimism.

Farha Aslam

That's helpful. My final question has to do with the Grain Group. In terms of the recovery and earnings for 2017, how should we think about the harvest in your area and the extra carry on wheat as we model the Grain Group?

Patrick Bowe

I think what you were pointing that for us - we had a good harvest in our area that’s probably wouldn't be as bigger bumper crop as we saw in some other Western states but this was a big recovery in Michigan, Ohio, Indiana areas tributary to us. We had a very good harvest, a tremendous bean yields and we took in a much a stronger flow of beans at harvest time with farmers selling beans at harvest.

Corns has been a little more quiet we haven't seen quite the uptake in basis from the fall here to early winter, but storage rates are good and there is some carries back in the market which bodes well for us for the long-term. And we do see in the traditional states like we mentioned there is 90 million to 93 million acres planted in the corn states with a 257 corn bean ratio and a $4 new crop corn right now. We think corn will still be planted in good fashion across a corn belt.

We could see spring wheat be reduced in the states that are on the fringe to see more switching to soybeans with a good cash soybean price. So I think that the point is we want to stay really focused on our operations in grain and look for opportunities to elevate and make margin later in this year.

Farha Aslam

And the carry in wheat, are we still going to have that extra?

Patrick Bowe

Wheat will still be a surge we talked about that length on previous calls, so we’re still in the position with various storage rate income for wheat. We still continue globally to have ample wheat stocks around the world and wheat’s a little bit on the glut situation. So we think will be able to still earn storage income on wheat throughout the year.

Farha Aslam

That’s helpful. Thank you.


And our next question comes from the line of Sandy Klugman with Vertical Research. Please go ahead.

Sandy Klugman

Thank you. Good morning. In Plant Nutrients could you discuss the composition of your forward order book as it relates to the demands split between your specialty and commodity of fertilizers. And then, with the stabilization we're seeing in the commodity fertilizer space are you seeing better margin opportunities for Kay Flo and more willingness on the part of dealers and growers to lock in at an earlier point in time?

John Granato

Sandy, it’s John. I would tell you that our order book is a better this year than it has - than it was last year at this time and we are starting to - and continue to see farmer interest. As you know particularly with the Kay-Flo products and the low-salt liquid fertilizers and the demand in the peak season is Q2, we have seen some demand for those products but I think that the story will really be told here over the next six weeks.

Sandy Klugman

Okay, great, thank you and then on ethanol, the 1.2 billion gallon export projection that you have, how much, or is there anything assumptions you're making around Chinese demand for ethanol in 2017?

Patrick Bowe

Yes it's a good question and I said 1 billion to 1.2 billion so the range there. China would be the question mark right so there had been a good importer to the grid. I guess you could look at it on a positive side saying if gallons were restrained from shipping into China and that went to from Brazil origins maybe the U.S. would then plug-in to another place and may be Brazil will satisfying that will be the cup half full answer. If we had a complete blockade on ethanol shipments to China obviously that would hurt the export numbers some.

Sandy Klugman

Great. Thank you very much.


And our next question comes from the line of Ken Zaslow with Bank of Montreal.

Ken Zaslow

Good morning, everyone. Just a couple of questions. One is, what is your view on the production side of ethanol and why do you think it's increased as much as it has? Second part in terms of ethanol is, what's your view on E15 and acceptance of that through the system?

Patrick Bowe

Ken I think a lot of people have done what we have had, we all focus very much on efficiency and how we can get the right gallons produced and you’ll see when margins are good we’ll really focus on production you can kind of shape your production with enzyme use and how much you want to optimize production. You’ve also seen when prices turned down we go the other way and we go for a cheaper production route which maybe we don't get as much efficiency and production.

So I think the market responds to SMD somewhat which is probably a good thing overall for the industry. But there has been investment in new technologies and optimizing the assets that are in the industry.

John Granato

I would just add on you know low corn prices have helped contribute to that and people are running but I think the key is what Pat has said people have made these marginal investments that increase yield at the facilities and production levels.

Patrick Bowe

And you saw that this year we made another record production over last year and that comes from debottlenecking and optimizing our asset. So we will be expanding as you know the Albion facility we mentioned so that will come online at the end of the second quarter.

John Granato

As far as the second part of your question around E15 uptake I think to see that we’re really going to need more infrastructure build out, but as the older cars come off the road and the potential liabilities associated with ethanol related to older cars diminish the economic should take over and we should see E15 get built out we’re already seeing pretty good uptake from E85 we think it's going to take time for that infrastructure to get though.

Ken Zaslow

So what’s your general view on the supply demand dynamic do you think we’re going to be in state of oversupply you think we’re going to be balanced by when and what’s the drivers?

Patrick Bowe

Yes, let me right now we’re in a state of oversupply I mean every winter it's a very difficult time in January no one wants to shutdown a plant driving miles or down, they were down harder than we thought for January so that was disappointing. But I think as we get into the spring season we said we should see a more balanced supply and demand picture. And hopefully we can continue to see these stable exports, which is a nice short in the arm for the industry.

Ken Zaslow

And then my last question is, in terms of Lansing can you talk about when that will actually turn and what the outlook for that is?

John Granato

Ken obviously they had a pretty challenged year and we do expect Lansing to improve starting now in 2017. So we typically don't give a ton of detail on Lansing but we are expecting improved results in 2017 from Lansing.

Ken Zaslow

And driven by what though just making sure I mean I’m not?

Patrick Bowe

A couple things for Lansing they took some pretty good shots last year they were one of the bigger DDG exporters out of the country particularly targeting to China. So that they took some pretty tough shots on that in the middle of last year so that hasn’t helped them. They also have a segment of their business there is fracking sand and elevates frac sand and that business was tough some of that has come back especially in the Permian so they have seen better performance there. And they’re like us or others in the Midwest grain business where some of the margins were squeezed and so if we see some recovery in elevations and storage that should help them in the Western grain belt.

John Granato

And if I could just add that relative to both frac sand and DDG situation they adjusted their operating model to account for those and those issues we believe should be behind them in 2017.

Ken Zaslow

Great, appreciate it. Thank you.


Thank you. And our last question is from the line of Heather Jones with Vertical Group. Please go ahead.

Heather Jones

Good morning. Sticking with the Lansing question, you're saying that because we've not only had China essentially disappear from the market but also Vietnam. So you're saying they've adjusted their model so they could perform better in 2017 despite the absence of those countries from our export volumes?

Patrick Bowe

Exactly so and they've obviously would hurt them around the year was when China did some walking techniques on the DDG exports and that hurt them at the time. They won't take that same shot this year and have had to react and move their export channels to different markets maybe the total volume would be quite as good. So overall we expect them not have the kind of negative shocks that they had a year ago.

Heather Jones

Okay. And then going to the vomitoxin issue. So, it sounds like you clearly said it was a negative but have you all not been able to get a lower price on the corn you're buying to offset the reduced realization on the DDG's?

Patrick Bowe

Obviously you have the more important thing is getting corn supply to your plants which is the first thing. So we have to adjust and take it from would be nearby tributary corn suppliers may be we’ve take it from a further out location. So the first negative Heather is that, it impacts the corn price we buy so that's why we mentioned that.

Also there is a discounts involved in vomitoxin across the industry, the bigger issue is though the discounts to DDGs and that does impact our net income at those three Eastern plants and that will be with us for some time. So that - overall DDG markets if you took national averages are down from where they were a year ago mainly related to China. Our Eastern plants are further impacted somewhat again it’s not every single low but it's impacted by the vomitoxin that is present in that market.

Heather Jones

So, sounds as if you're saying demand for corn is strong enough that you're not able to get the price discount on that vomitoxin's impact of corn to offset the DDG's?

Patrick Bowe

No I think - what we’re saying is that, as we draw in the areas around the Eastern ethanol facilities we need to screen corn and make sure that we try and limit the vomitoxin that comes in that corn through the door that in and of itself reduces the available clean corn for our ethanol facilities and despite that we’re still having and are buying some vomitoxin, some corn with vomitoxin but net-net it’s not a positive for us because of the reduced availability of what I’ll call vomitoxin free or virtually vomitoxin free corn.

Heather Jones

Okay, that makes sense.

Patrick Bowe

Does that make sense?

Heather Jones

It does. On the VSR. Let's just say that the numbers that I'm looking at it seems like you've gotten some narrowing basis in the wheat market but yet it hasn't been enough to take you away from the VSR. So you're still getting these two ticks but it seems like you're also getting some appreciation on the basis. Which, am I evaluating the market correctly and if so, should we anticipate wheat to be a meaningful contributor to your grain earnings in 2017?

Patrick Bowe

I think you're right around hook there. The important thing is look at the spreads right, so we’ve continued to keep reasonable carry in the market for wheat, mainly that as I said glut of wheat. The bad side of that is there isn’t been a big demand for wheat so we haven't seen an appreciation on premiums to really drive elevation to makes some margin on wheat shipments here domestically. So we’re kind of the whole market is sort of working through a glut of supply. That’s not bad when it comes to making carry but it doesn’t allow you to make basis appreciation.

So it’s little bit of a plus and a minus. In general having wheat in storage we can earn storage income and you can factor that into our earnings. We'd like to see some elevations come around for wheat where we can make some blending margin and shipping margins.

Heather Jones

Okay. I mean if basis appreciation is better than last year because it seemed like it was to me but maybe misinterpreting something.

Patrick Bowe

I think it’s early to tell quite frankly it's been quite quiet, so let’s just stay tuned on that to later in the year.

Heather Jones

Okay. And my final question is, you made a comment about asset optimization. So you all have exited retail, you divested the Iowa assets. Which areas of your business do you think still needs some optimization?

Patrick Bowe

I think it's a good point. Just to clarify we’re exiting retail, we've announced it and we'll be closing that out through the end of the second quarter of this year. The Iowa assets have been sold and we're looking at all aspects of our business and I like to maybe talk a little bit our productivity initiatives and something I thought it brought to the company when we got here is one simple example.

We focus a lot on safety and maybe this isn't something that financial analyst pay a lot of attention to but a safe company is a more efficient company and a more profitable company. We've reduced for the whole company 42% in lost time injuries last year and at 32% reduction in reportable injury. So we've got a major improvement in safety and we're implementing a behavioral based safety program across the whole company. I am saying that an example of how you can show continuous improvement.

And on that continuous improvement on the $10 million pretax run rate reduction was our target that we had a year early, they're coming in various ways. For example our SAP people productivity in grain was almost $1 million by taking 20 people out of processing, the back office for grain. We do it in the plants like in Plant Nutrient we use flex labor between grain sharing with Plant Nutrient took out $0.5 million, saved $700,000 on chemical processing changes and standardization in the plants. We got another $550,000 on throughput improvements in our granulation facilities.

My point is, we’re looking at opportunities to optimize our facilities by reducing costs and trade efficiency and a whole productivity culture that makes the whole machine a little faster. And so that's a big part of what we’re focused on. There may be opportunities for us to optimize an asset and if an asset doesn't, we can get it fixed that isn't fitting our portfolio we would look to sell it.

We feel pretty good about where we’re at right now. So it's really more about fine-tuning and we’re not talking about any major landscape change like we made with the decision of exiting retail. That was a mouthful but I hope that puts it in context for you.

Heather Jones

No, it’s very helpful. Thank you so much.


And ladies and gentlemen this concludes our Q&A session for today. I will turn the call back to James Burmeister for final remarks.

James Burmeister

We want to thank you all for joining us this morning. I also want to mention that the presentation and slides with additional supporting information will be made available later today on the Investors page of our website at Our next earnings call is scheduled for Thursday, May 4, at 11 AM Easter Standard Time to review our first quarter 2017 results. We hope you’re able to join us again for that call. Have a great day.


Ladies and gentlemen, thank you for participating in today's conference. This concludes the program and you may all disconnect.

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