The Andersons - Q2 2024

Transcript

Operator (participant)

Good morning, ladies and gentlemen. Welcome to The Andersons 2024 second quarter earnings conference call. My name is Alan, and I will be your coordinator for today. At this time, all participants are in listen-only mode. Later, we will facilitate a question-and-answer session. As a reminder, this conference is being recorded for replay purposes. If you'd like to ask a question, please press Star, then one on your touch-tone phone. I will now hand the presentation to your host for today, Mr. Mike Hoelter, Vice President, Corporate Controller, and Investor Relations. Please proceed.

Mike Hoelter (VP of Investor Relations)

Thanks, Alan. Good morning, everyone, and thank you for joining us for The Andersons second quarter earnings call. We have provided a slide presentation that will enhance today's discussion. If you are viewing this presentation from our webcast, the slides and commentary will be in sync. This webcast is being recorded, and the recording and the supporting slides will be made available on the Investors page of our website at andersonsinc.com shortly. Please direct your attention to the disclosure statement on slide two, as well as the disclaimers in the press release related to forward-looking statements. Certain information discussed today constitutes forward-looking statements that reflect the company's current views with respect to future events, financial performance, and industry conditions. These forward-looking statements are subject to various risks and uncertainties.

Actual results could differ materially as a result of many factors, which are described in the company's reports on file with the SEC. We encourage you to review these factors. This presentation and today's prepared remarks contain non-GAAP financial measures. Reconciliations of the GAAP to non-GAAP measures are included within the appendix of this presentation. On the call with me today are Pat Bowe, Chairman and Chief Executive Officer, Brian Valentine, Executive Vice President and Chief Financial Officer, and Bill Krueger, Chief Operating Officer. After our prepared remarks, we will be happy to take your questions. I will now turn the call over to Pat.

Pat Bowe (CEO)

Thanks, Mike, and good morning, everyone. Thank you for...

Operator (participant)

Pardon the interruption, everyone. We are having some technical issues with the phone. Please hold for just a moment.

Pat Bowe (CEO)

Can we do a test now? Testing 1, 2, 3.

Operator (participant)

Yes, sir, I can hear you. Please proceed.

Pat Bowe (CEO)

Okay, I'll go back to where I left off. This is Pat Bowe, giving the introductory comments. Results in Trade were up, with improvements on wheat basis income in our eastern assets and within our growing premium food and pet food ingredient business. As expected, merchandising opportunities were lower year-over-year in these well-supplied markets. Farmers have been slow to sell grain at prices well below what they experienced in recent years, and a high percentage of last year's crop remains in on-farm storage. We expect much of this grain to move off-farm prior to harvest. Operating performance in the Renewables business was very good, with continued very strong performance at our ethanol plants. We had record second quarter production in our current operations, benefiting from higher ethanol yields and well-managed costs. Ethanol margins were higher than last year on lower corn basis at our plants.

The teams at our facilities executed very well, but overall results continue to be impacted by lower values of feed grades, which follow closely to the price of corn. Our renewable diesel feedstock merchandising business continues to grow its volumes, but it's seeing margin compression on industry fundamentals. Our Nutrient and Industrial business was solid, but negatively impacted by lower fertilizer price volatility and delayed application season that resulted in a decline in both volume and margin. When we look at the first half of 2024 compared to 2023, our volumes are comparable, but it reduced margins in a lower fertilizer price environment this year. Brian will now cover some key financial data, and after that, I'll be back to discuss our outlook for the remainder of 2024. Brian?

Brian Valentine (EVP and CFO)

Thanks, Pat, and good morning, everyone. We're now turning to our second quarter results on slide 5. In the second quarter of 2024, the company reported net income attributable to The Andersons of $36 million, or $1.05 per diluted share, and adjusted net income of $39 million, or $1.15 per diluted share. This compares to net income of $55 million or $1.61 per diluted share and adjusted net income of $52 million or $1.52 per diluted share in the second quarter of 2023. Adjusted pre-tax earnings were $45 million for the quarter, compared to $72 million in 2023, with Trade showing improvement and the other businesses generating solid results, but were unable to match an outsized prior year.

Adjusted EBITDA for the second quarter of 2024 was $98 million, compared to adjusted EBITDA of $144 million in 2023. Trailing twelve months adjusted EBITDA totaled $355 million. Our effective tax rate varies each quarter, based primarily on the amount of income or loss attributable to non-controlling interests. This quarter also was impacted by the reversal of uncertain tax positions relating to research and development and other tax credits. We recorded taxes for the quarter at a 90% effective tax rate. We now expect a full year adjusted effective tax rate between 14% and 18%. Next, we'll move to slide six to discuss cash, liquidity, and debt.

We generated cash flows from operations before changes in working capital of $89 million in the second quarter of 2024, demonstrating our ability to generate consistent operating cash flows in a less volatile market. This strong cash flow generation, combined with lower commodity prices and delayed farmer engagement, resulted in a cash position of more than $500 million and negligible short-term borrowings at the end of the quarter. Next, we'll take a look at capital spending and long-term debt on slide 7. We continue to take a disciplined, responsible approach to capital spending and investments, which we expect to be in the range of $150-$175 million for the year, roughly half of which is typically related to maintenance capital.

Our long-term debt to EBITDA is approximately 1.6 times, which is well below our stated target of less than 2.5 times. We have a strong balance sheet with significant capacity to support growth investments that meet our strategic and financial criteria. We continue to evaluate growth projects in our pipeline, including several M&A opportunities at various stages of completion. This includes the recently announced intent to acquire an ownership interest in Skyland Grain, LLC, pending completion of diligence and negotiations. Our project pipeline remains very active, and we are excited about additional capital investment and M&A opportunities that align with our growth strategy. Now we'll move on to a review of each of our businesses, beginning with Trade on slide 8.

Trade reported pre-tax income of $5 million and adjusted pre-tax income of $9 million, compared to adjusted pre-tax income of $7 million in the second quarter of 2023. We had a slight improvement in our operating results in our Trade business portfolio when compared to last year. The financial results for our grain assets were up, driven by wheat income opportunities, but domestic producers are still hesitant to forward sell due to lower commodity prices, combined with limited basis appreciation to start the year. Our assets are well positioned to support the needs of our customers when the grains are brought to market. With the reduction in commodity prices and limited forward selling by producers, financing costs supporting inventory and forward contracts have also declined.

Our premium food and pet food ingredients business has shown growth year-over-year, with recent acquisitions and internal growth projects providing positive impacts to these product lines. As Pat mentioned earlier, merchandising businesses are being impacted by an oversupplied grain market with lower commodity prices and less volatility. As expected, we saw a decline in results of these businesses in the current quarter as compared to 2023. Trade's Adjusted EBITDA for the quarter was $24 million, compared to $27 million for the second quarter of 2023. Moving to slide 9. Renewables had another solid quarter, generating pre-tax income attributable to the company of $23 million, compared to $39 million and $32 million on an adjusted basis in the second quarter of 2023. Ethanol prices remained favorable in the quarter, and our operating performance resulted in record production in our four plants.

But overall profitability was negatively impacted by the values of co-products, including feed and corn. Renewable diesel feedstock volumes continue to grow, but margins are down year-over-year due to overall industry fundamentals. Feed ingredient demand remains strong, but at lower values as prices are tied to the value of corn. Renewables had EBITDA of $52 million in the second quarter, compared to $81 million and $74 million on an adjusted basis in the second quarter of last year. Turning to slide 10. The Nutrient and Industrial business reported pre-tax income of $23 million, compared to an outsized $43 million in 2023. Overall, fertilizer prices declined in the quarter after several years of higher prices and market volatility.... In addition, a late and wet spring planting season in much of the core geography that we serve negatively impacted sales volume.

This was offset in part by improvements in our manufactured products as we continued to streamline our operations. Nutrient and Industrial had EBITDA of $32 million for the quarter, compared to $52 million in 2023. With that, I'll turn things back over to Pat for some comments about our outlook for the remainder of 2024.

Pat Bowe (CEO)

Thanks, Brian. Overall, we remain optimistic about our 2024 outlook. Our Trade business outlook remains solid, with the expectation of sizable grain volume to handle in the upcoming harvest. We completed smaller but good quality wheat harvest in July in the eastern assets and expect to continue to earn basis income on the grain we've accumulated. We're also very pleased with the growth in our premium food and feed ingredient products and anticipate continued growth, both organically and through acquisitions. Merchandising opportunities remain, but we expect that they will continue to be muted compared to results in times of higher commodity prices and market volatility. Our Renewables segment continues to expect strong ethanol prices on good demand from a growing export market. We expect values of our feed-grade co-products to remain soft as they follow lower corn prices.

Our production volumes have remained very strong, and we believe this should continue. We remain focused on improving and maintaining our four production facilities for optimal efficiency. Third-party merchandising of ethanol, feed ingredients, and renewable diesel feedstock will also continue to be an important component of the business, and we expect continued volume growth in renewable diesel feedstocks. The Renewables business is an important part of our longer-term growth strategy, and we continue to make progress on plans to lower the carbon intensity of our ethanol. This includes enhancements at our production facilities as well as developing supportive farmer programs that should position us to acquire lower CI corn as a feedstock in the future. The outlook for this business remains strong. The Plant Nutrient business near-term outlook is mixed, with continued low grain prices and reduced farmer income.

The timing of harvest and market fundamentals will influence post-harvest fertilizer applications. We're also focused on continued operational enhancements in our manufactured products facilities. With our strong balance sheet position and the desire for continued growth, we're excited about the significant opportunities in each of our three segments. I already mentioned renewables opportunities that are longer term and even additional. We continue to work on the Skyland Grain, LLC opportunity, which can significantly expand the geographic reach of our grain business and increase the size of our farm center fertilizer business within Nutrient and Industrial. We're also evaluating a number of organic growth initiatives, and the pipeline remains robust. We're focusing on organic and acquisition opportunities within our core businesses of commodities, premium ingredients, ethanol, renewable diesel feedstocks, and nutrients.

We'll continue to make responsible decisions that benefit our customers and maximize shareholder value as we execute on growth opportunities within our stated strategy. With that, I'll turn it back over to our operator, and we can take your questions.

Operator (participant)

We will now begin the question-and-answer session. To ask a question, you may press star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw it, please press star then two. We will pause momentarily to assemble our roster. Our first question comes from Ben Klieve of Lake Street Capital Markets. Please go ahead.

Ben Klieve (Senior Equity Research Analyst)

All right, thanks for taking my questions. And, congratulations. Nice quarter here in the face of, some suboptimal conditions in the market. So, congratulations on the quarter, on the quarter here. A handful of questions. First, on this dynamic you have all discussed on the, elevated level of inventories throughout the grain complex. I'm wondering if, first of all, if you can, if you have an expectation that this is, that this is gonna work its way through truly, by, you know, by harvest time, or if there's a risk of elevated inventory levels and old crops staying in bins, you know, even after the new harvest, comes in. And then second, as that unwinds, do you guys expect, to see some, you know, kind of an increase in volatility?

Or is this kind of stable state something that you're expecting for the foreseeable future?

Pat Bowe (CEO)

I'll get started, Ben, and turn it over to Bill. I think the shift in the markets does some good things for us, and mainly in the East. We had not as big a soft red wheat harvest as we had in past years, but a very good quality one. So we were able to purchase a lot of soft wheat at harvest and have that in storage where we're earning carry now, including Ontario SRW. So that's a good thing. And as carry has moved into the corn market, that's a good thing for elevator operators like ourselves.

We think the farmer will need to come to market because we have very high on-farm storage right now, and as they see their current crops, which by the way, look really good, these Midwest rains of late have been a really nice boost to the crop this year. I think we're going to see a big harvest this year, but farmers will be needing to move grain to market here before we get to full harvest. Maybe Bill can comment on this.

Bill Krueger (COO)

Yeah, morning, Ben. I would agree with Pat. We have a near record on-farm stocks for corn, and we're looking at potentially a record-breaking corn yield. So I think it would be very hard to make the assumption that the producer's not going to move their corn that's on-farm before harvest.

Ben Klieve (Senior Equity Research Analyst)

Got it. Okay. That's very helpful from you both. And then I guess, as a follow-up to this, you know, in the last quarter call, you guys noted an expectation that the Trade group is gonna see some seasonality shift to later in the year. I guess, has this shift been slower than you maybe anticipated a few weeks, excuse me, a few months ago? And then, you know, on a full year basis, can you kind of comment on your expectations for the Trade group, especially in the merchandising side of the business for 2024 versus 2023?

Bill Krueger (COO)

Yeah, I'll take that one. No, but I think that our expectations at the end of Q1 are playing out like we thought they would. You know, at that time, we weren't nearly as confident in the upcoming corn crop. So I do think that we are gonna remain in these lower price environment. But I do believe that we should have an opportunity to handle even more fall harvest crops as the crop does continue to look good, as of in early August. The other thing is, we have to really pay attention to the value of the wheat, of U.S. wheat compared to competitors around the globe, and I think that's gonna provide some opportunity for us also.

To your last question, we do think that the last half of 2024 will be more challenging than the last half of 2023 was, just because we're in a lower price environment and volatility is a little lower.

Ben Klieve (Senior Equity Research Analyst)

Got it. Okay, that's very helpful. Thanks, Bill. On the renewable side, question on the renewable diesel initiative. You noted that volumes were up, margins were down. Can you comment on overall, you know, earnings from that initiative? Did the volume growth more than offset the margin declines, or was the opposite true?

Bill Krueger (COO)

I would tell you that the volume growth was not offset and did not offset the reduction in overall margins produced on the renewable diesel feedstock.

Ben Klieve (Senior Equity Research Analyst)

Okay. Very good. And then last. Oh, sorry, go ahead, Pat.

Pat Bowe (CEO)

Yeah, I'm just gonna comment on that. As you know, new RD plants came online, we still continue to see robust demand for. We like the diversity of our portfolio, and we see this as a business opportunity to continue to be important for The Andersons. Like all commodity markets, it's gonna have some ups and downs and balances of supply and demand, and that plays right into our merchandising capabilities. So it's a business we're committed to continue to grow.

Ben Klieve (Senior Equity Research Analyst)

Got it. And last one for me, you guys talked about considering a few different M&A opportunities at kind of various stages of the diligence process. The Skyland Grain acquisition seems to be a sizable one, but I'm wondering if you can characterize these opportunities that you're in diligence for from the perspective of, you know, are these—do you have multiple acquisitions in your pipeline that are, you know, really advancing your towards your 2025 EBITDA targets, or are the other things you're considering beyond Skyland kind of more talking in nature?

Brian Valentine (EVP and CFO)

Sure, Ben, this is Brian. I'll start, and then maybe Bill can add some color. I would say, yeah, our pipeline does remain pretty robust. We've seen it be even more active this year. We're seeing more deal, more deal flow, probably in part due to the higher interest rate environment over the past year or two. And so I would say there are various stages of completion. And I would probably characterize more of them as, you know, we've talked about singles in the past. I would call more of these doubles, triples, as we think about some of the growth projects, both internal growth as well as some of the M&A growth.

We're gonna continue to be disciplined, and I know, you know, with regard to the $475 million run rate target that's out there, we've talked about in these sort of changing and dynamic ag markets over the past several quarters. It'll require, you know, it'll require more M&A to get there, but we're gonna continue to be, continue to be disciplined and responsible and make sure that we're gonna generate appropriate returns for our shareholders. And Bill, maybe you want to comment about some of the, some of the deal flow as well.

Bill Krueger (COO)

Yeah. I would second Brian's comment there around it. We'll take maybe more M&A than we'd originally expected to achieve the $475 million, but we are seeing the opportunities that both tie directly into our core business. Skyland's a very good example of that, where geographically and product mix, it fits right at the center of our core. We're also taking a look at where the industry's gonna be at in 2-3 years' time and trying to get in front of those opportunities, which would also be larger in size compared to what we've done the last 3 years.

Ben Klieve (Senior Equity Research Analyst)

Got it. Got it. Very good. All right, well, I appreciate you guys taking my questions, and I'll get back in queue.

Operator (participant)

Our next question comes from Scott Fortune of Roth Capital Partners. Please go ahead.

Scott Fortune (Managing Director and Senior Research Analyst)

Yeah, good morning, afternoon, and thanks for the questions. Just wanna follow up a little bit on the, scale and your focus at kind of the northern portion of the U.S., and just provide a little more color strategically on the footprint with, with the Skyland kind of more in the Midwest. Just kind of a little more color on the focus of those assets and as they become integrated within your, your footprint, from expanding footprint. Just kind of take us through that a little bit more. That'd be great.

Pat Bowe (CEO)

Sure, sure, Scott. This is Pat. I think, as you know, that The Andersons' original footprint was an Eastern Grain Belt footprint, you know, here, towards Maumee, Ohio, very big, Iowa, Michigan, Indiana, in Illinois. So Eastern Grain Belt, and with the acquisition of Lansing in 2019, we moved quite a bit sizably into the Western Corn Belt, as far out as Idaho and down south into Louisiana. But we don't have a big physical presence with assets in Texas and Southwest Kansas, and those are the hard wheat state, milo country and into the Panhandle, where we have a big growing demand for dairy and feedlot demand for grain. So it's a very active part of the country, and for us to expand geographically into that region would be attractive.

As Bill mentioned earlier, we think a perfect fit with our overall portfolio. We can't really comment more on it. We're in the middle of due diligence, but strategically, from our direction of the company and geographically, it's a really nice fit for The Andersons.

Scott Fortune (Managing Director and Senior Research Analyst)

Perfect, thanks. And then just kind of switching to the opportunity, kind of update on the ethanol business, kind of turn a little bit and crush margins there. But outlook on ethanol as we head into the fall and the inventory levels there and production across the industry versus demand. And then just to follow up, just kind of an update on ethanol jet fuel opportunity, your sense of the farmers starting to kind of implement various initiatives towards the opportunity, just kind of sense of that timing overall, as we focus on the ethanol side.

Pat Bowe (CEO)

Before I let Bill get started with something ethanol, before I go, correctly, just said that this was a California kid talking about. I said Southeast Kansas, and I should have said Southwest Kansas, and I apologize about that. The difference of Panhandle in Southwest Kansas. I want to get my geography correct on what I said a few minutes ago.

At a high level, I think I'm understanding your line of thought here, Scott, as we mentioned in our script our commitment to the future of our four ethanol plants, and it's not just only about carbon intensity, which is a big part of it, and looking at sequestration projects of the like, and working with growers on renewable ag, but we have been really working on efficiency, both how we run our combined heat and power of our plants, how we get better yields and more productivity. And those investments that we've continued to make in those plants have put us in the top quartile or top decile of the industry. And I think if you look at our continued production performance and yield performance and profitability, ethanol plants, you can see we're maybe one of the leaders in the industry here.

We want to continue to be that, so we're going to continue to invest in those plants and make them as low CI, as well as most modern, efficient and large scale as we can. So that's a focus of bolt-on capital projects, and we'll continue to do at our ethanol plants. I'm gonna let Bill comment a little bit more about the other parts of ethanol you're bringing up.

Bill Krueger (COO)

Yes. Thanks, Scott, for the question. First, I'd like to start with, we believe alcohol-to-jet is, you know, a few years down the road. And, from The Andersons' perspective, I think we've demonstrated over the last several quarters that we're able to operate in the renewable space, specifically our ethanol plants, very efficiently and profitably. We're not gonna wait until we have more clarity around SAF from ethanol. We really want to grow in this space now, and so we're looking at opportunities from growing our current footprint to acquisitions and other opportunities to take advantage of an area that we feel is really core to our company. And that comes from not just running the ethanol plants, it's the understanding of originating corn, selling DCO, selling DDGS, and selling the ethanol.

So we see opportunities there before we get to a SAF product from ethanol and really want to take advantage of it sooner than that.

Pat Bowe (CEO)

This is back to Pat again here. I wanted to, Scott, comment. I think you were asking about our outlook for the ethanol margin, outlook for the balance this year, and we're really in good shape as an industry this year. You know, we had some very high margins last year. The reduction of corn has impacted co-product volumes, but overall, ethanol demand has really been strong, and that's mostly been boosted by exports. Year to date, we're at 963 year-to-date exports. Last year, we finished the year at 1.43. Range and estimates are 1.7-1.9.

For the year, we think it can be all of 19, and with that kind of a boost in exports, ethanol value in the global market, it's very inexpensive for U.S. ethanol. And so we see strong demand and thus the bullish upside to ethanol margins going into the balance of the year. So it's been a solid year for ethanol results, and we think that will continue through year end.

Scott Fortune (Managing Director and Senior Research Analyst)

I appreciate that color. And then, one last one, if possible. Just kind of along those lines, kind of update on the Trade business and the carry in the market, kind of with the largest crops here, is just a little more color on the Trade contribution as we see in the second half on pre-tax earnings, kind of into the second half of 2024? Just kind of more, a little bit of expectations there from your guy's sense.

Bill Krueger (COO)

Sure, I'll take that one. As I mentioned earlier, we see a lot of opportunity coming out of our grain assets, capturing elevation margins and space income going forward. All expectations are we're gonna have a large crop, which will benefit us from our assets. And then when you look at the opportunities in the merchandising, you know, it's gonna be a little slower than it has been historically. But, you know, the thing that we always consider is the fact that our end users want to buy grain from us, so we're gonna have the opportunity. It's just how much opportunity we create from the volatility, it will be the question in the last half. But I think elevation margins are gonna be higher than we assumed and likely offset by some lower opportunities with our merchandise.

Scott Fortune (Managing Director and Senior Research Analyst)

Thanks. I'll jump back in the queue. Appreciate the color.

Operator (participant)

Our next question comes from Ben Bienvenu of Stephens Inc. Please go ahead.

Ben Bienvenu (Managing Director and Senior Equity Research Analyst)

Hey, good morning, guys. Thanks for taking the question. Was wondering if you could talk about the demand you are seeing from the animal feed side, and, can you also talk about the shift between premium and value pet food channels? Just trying to get a sense of what you're seeing in terms of demand. Thanks.

Bill Krueger (COO)

Thank you, Ben. I will start with the animal numbers. Obviously, pork industry has had a little bit of struggles. Beef industry is doing very well. And in our specific areas, let's talk about the Western Corn Belt. We're seeing a definite pickup in demand from the beef cattle, dairy markets, and expect to see probably in the first half of 2025 on pork. And so I think we have a real good opportunity there. And what was the second part of your question? Sorry, Ben.

Ben Bienvenu (Managing Director and Senior Equity Research Analyst)

Yeah. So also just trying to get a sense of the demand between the premium and value pet food channels. Like, do we see a shift to premium, or are we seeing a shift to value? And how does that translate to your business model?

Bill Krueger (COO)

Yeah, I apologize for that. Yeah, we are definitely seeing a shift from the premium, a continued shift from the premium to the value products, and that actually fits The Andersons' special ingredients model better than the premium. We're able to hit some of our key customers with the products that they need for those value products versus the premium ones.

Pat Bowe (CEO)

I think, Ben, this is Pat again. Just, it kind of essentially, it's what we do as a company. We're, you know, merchandisers of domestic grains, and we've worked for, you know, decades with these customers in the swine, beef, cattle, poultry, as well as ethanol, flour milling or pet food ingredient customers. And, whether the prices are high or low on, on the board, margin level, but we really focus on that domestic supply for those individual customers, and that kind of demand is very robust, and those relationships are very strong. So that's, that's critical for us to continue to supply those customers what they need.

Ben Bienvenu (Managing Director and Senior Equity Research Analyst)

Great. And if I could just ask one more, and I believe it was sort of asked before, but I just wanna return to it. So I'm just wondering the various ways that the ag market can sort of correct itself to higher prices. Like, does this just happen? Are we just waiting on an exogenous shock, or can the industry, does the industry really have the wherewithal to correct oversupply in corn, for instance?

Pat Bowe (CEO)

You know, it's interesting, Ben. I'm the senior merchant here, over 40 years in this business. When I started, corn was under $2 in the 1980s, and it always is in reaction to supply and demand globally. And we've continued to increase demand on a global scale, and we've continued to increase production on a global scale. And Mother Nature will always throw us a curveball in one part of the world or another. This last season, though, we've had, you know, good crops globally, coming off the shock and the Ukraine war and the imbalance we saw in some parts of the world where prices skyrocketed. We had a 3-year period with elevated prices and elevated farmer income. It was great for the U.S. farmer. Now we have abundant stocks and abundant crops, and so the market adjusts.

And I think for people like us, so our big focus is on merchandising and how we can manage that risk and work with our customers all the time, so if it's a high price or a low price, and I think the market will correct by itself. It's. No one can do anything to make the market change in that regard. It's gonna be what production and supply and demand is. It looks as though, going into the fall, we're gonna have a big corn crop in the Midwest, so it should keep very muted sense to especially corn prices going into 2025. So that's the environment we're in right now, more softer overall commodity price.

Ben Bienvenu (Managing Director and Senior Equity Research Analyst)

Great. Thank you for the color. I'm gonna hop back in the queue.

Operator (participant)

The next question comes from Jason Miner of Bloomberg Intelligence. Please go ahead.

Jason Miner (Senior Equity Research Analyst)

Thanks. Good morning, everybody. First, just on the renewable diesel feedstock trading, I know we were sort of on the path to 2 billion pounds, and I'm just wondering about the sort of the give and take here. I wonder if we're building up some pent-up activity that could mean a pop later on. Or just your thoughts on the path to sort of 2 billion pounds.

Bill Krueger (COO)

Yeah, I'll take that. Thank you for the question. We are as confident today as ever that we will get to 2 billion pounds. The opportunities as we're getting closer to what I'm going to say is max capacity in renewable diesel, now is gonna shift to better utilization and having runtimes increase at those plants. But we continue to see quarter-over-quarter volume increases that would indicate that we are going to be able to achieve that and likely even exceed it.

Jason Miner (Senior Equity Research Analyst)

Great. You know, I'll stick on that for just a second. There's a little bit of investigation, it looks like, underway on some possible counterfeit used cooking oil imports. I was wondering if there's some action taken against some of those, would that create opportunities or maybe even hinder some of your feedstock trading, or is it just unrelated?

Bill Krueger (COO)

I would tell you it's unrelated. The one net effect, if there is a restriction put into place on UCO, which is what I think you're referencing there, that should drive DCO prices higher. And that will benefit us not only with our RD feedstock business, but it'll also help us on our ethanol profitability at the plant level. So, yeah, we see whichever way that comes down, we don't think that affects The Andersons' RD feedstock business, and if it does come down against the UCO, likely will increase our ethanol results.

Pat Bowe (CEO)

Jason, this is Pat. We're not involved in any importation of any oil or this alleged used cooking oil imports that are coming in, so it's something we don't participate in at all. But we do support our domestic suppliers of UCO and other products that can feed the renewable diesel customers. So however that gets straightened out is probably a good thing overall for the market.

Jason Miner (Senior Equity Research Analyst)

Got it. Thanks for that. Very clear. So just one other one, kind of stepping back, and I think you touched on a lot of this already, but when you look at this result, you kind of look at the second half of this year, how are you feeling about the path to the 2025 EBITDA targets? And it sounds like more M&A, I'm hearing you say, but, you know, what's moving around and how do the buckets that get us there look?

Brian Valentine (EVP and CFO)

Yeah, this is Brian. I'll start and then maybe add some color, Bill. I think as mentioned before, yeah, we have, well, our trailing twelve months was about $355 million EBITDA. So to get to that run rate target goal by the end of next year is gonna require more M&A than we originally expected. You know, our pipeline remains active and robust, and so if, you know, if two or three of these things are able to come to fruition, we can make really good progress. But at the same time, we're gonna continue to be disciplined and responsible. We have a stage gate process that we use to review projects.

We're gonna make sure that they fit strategically and are close to our core and also are gonna generate appropriate shareholder returns. We're actually in the process of doing some strategy refresh update work. You probably recall that three years ago, we did a deeper dive that ultimately led to us divesting the rail segment. This is more a refresh update, but there's been a lot of market trends that have changed over the past two years. When you think about all the trends in renewables and you think about EV penetration rates, and, you know, the Inflation Reduction Act was not, was not, was not in place three years ago. So there's a lot of exciting opportunities in place.

But then, you know, the timing and sequencing is gonna be in a very disciplined, logical manner. So I don't know if, Pat or Bill, if you want to add any?

Pat Bowe (CEO)

Yeah, just to add on, Jason mentioned earlier, volatility came in our market and with very high commodity prices, and, you know, that's correctly coming in this year. You've heard that from other companies as well. There's no surprise to that. Our strategy and where we want to play, those are very consistent, and we see opportunities in the ag supply chain for us to grow. And now, as Brian commented earlier, the interest rate environment has maybe brought some things to market that could fit for us well. And so we see this opportunity to deploy the cash that we've generated over the last three years into good investments, to grow the company, as well as improve the assets we have. Talked about ethanol plants earlier.

So we see the North American ag supply chain is a really good opportunity for growth long term, and we want to continue to invest in that and think that we can reach our EBITDA targets by investing against that. So the $475 million is still our goal that we think we can achieve. We came off over $400 million a year ago. It's dipped somewhat in this lower commodity price environment now, but we're optimistic about the long term as we're before. So we're pretty positive about how we can deploy capital and make good returns for that investment.

Jason Miner (Senior Equity Research Analyst)

Great. Well, looking forward to seeing what materializes. Thanks very much. I'll hop back in queue.

Operator (participant)

This concludes our question and answer session. I would like to turn the call back over to Mike Hoelter for closing remarks.

Mike Hoelter (VP of Investor Relations)

Thanks, Alan. We want to thank you all for joining us this morning. Our next earnings conference call is scheduled for Tuesday, November 5, 2024, at 11 A.M. Eastern Time, when we will review our third quarter results. As always, thank you for your interest in The Andersons, and we look forward to speaking with you again soon.

Operator (participant)

Conference is now concluded. Thank you for attending today's presentation. You may now disconnect.