An Eventful Year For The Andersons

Pat Bowe The Andersons

Pat Bowe was appointed President/CEO of the The Andersons in November 2015.

On November 2, 2015, Patrick Bowe was formerly appointed the new President/CEO of The Andersons, Inc. He became the first non-family member to head the Maumee, OH-based agricultural giant in the company’s nearly 70-year history, having previously served as an executive at Cargill, Inc.

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“I am excited to have the opportunity to lead such an outstanding organization,” said Bowe at the time of his appointment. “I have long admired The Andersons and I look forward to capitalizing on the unique opportunities that lie ahead for the company.”

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Of course, almost no one could have predicted just how many of these “unique opportunities” would surface during the next 12 months. This included navigating through a lingering agricultural market downturn, overseeing company acquisitions and divestitures — not to mention an unsolicited takeover attempt by a holding company.

“It certainly has been an interesting year, for The Andersons and agriculture in general,” says Bowe. “But through it all, I believe we’ve been able to stay true to of our company’s mission statement focusing on service and integrity. These are the cornerstones of The Andersons brand that I wouldn’t want to see change. There are lots of things I do want to change, but not our integrity or how we work with our trading partners, suppliers, and customers.”

In many ways, Bowe believes his own personal history somewhat prepared him for the role he now holds with The Andersons. He grew up in Stockton, CA, in Northern California’s fertile San Joaquin Valley, where agriculture and the grain business were the ways of life. “My father owned and operated a local business called the Phil O’Connell Grain Co.,” says Bowe. “He sold seed and bought grain, so I grew up with that business as a part of my background.”

After high school, the 6 foot, 7-inch Bowe went to Stanford University in 1976, obtaining his degree while playing tight end for the Cardinal football team (catching passes from various quarterbacks including John Elway under the guidance of Coach Bill Walsh). When he graduated — and after a brief stint with the NFL’s Green Bay Packers — Bowe decided to make grain trading his career choice. He initially went to work for Louis Dreyfus, trading grain in Central Illinois, where he first did business with The Andersons.

A few years later in 1982, Bowe returned to Stanford to obtain his Master’s Degree from the university’s Food Research Institute. Then in 1984, he joined Cargill, working as a grain trader at the Board of Trade in Chicago, IL, before moving to Cargill Investment Services, a commodities brokerage firm for the agricultural giant.

Moving Around at Cargill

In the early 1990s, Bowe spent some time trading in common metals for Cargill before being named Vice President of the company’s corn milling operations in Brazil in 1994. Now back in the U.S., he oversaw the construction of a new corn milling plant in Blair, NE, as part of his time with this group. By 1999, Bowe was named head of the Corn Wet Milling Division, which he grew three times to become a $6 billion revenue business.

Eight years later in 2007, Bowe accepted the role of Corporate Vice President for Cargill’s $30-billion Food Ingredients and Platform Division. And this was the position he held in 2015 when The Andersons contacted him regarding its President/CEO job.

In truth, says Bowe, his long tenure at Cargill definitely helped him prepare for managing a company such as The Andersons and its myriad business interests. “Cargill is a private company, but it’s run more like a public company because of its massive size; The Andersons is a public company, but it’s run more like a private company because of the family influence and history,” he says. “But both have longstanding, classy reputations in their marketplaces, where your word is your bond. In the agricultural business, if you don’t have that kind of integrity in place, customers won’t do business with you. It’s that simple.”

Ag’s Up-and-Down Cycles

Unfortunately, for virtually all of agricultural marketplace, business has been anything but simple in recent years. Between the time Bowe first assumed Corporate Vice Presidential duties for Cargill in 2007 and 2014, agriculture was in what market observers would call a “super-cycle” — commodity prices were high and growers were earning nice profits year-over-year, spending on all kinds of products for their operations accordingly. But by the time Bowe had joined The Andersons in late 2015, the situation had basically reversed itself. An oversupply of crops had depressed commodity prices and most growers were scrambling to cut their costs across the board.

“It’s an undeniable fact that agriculture goes through these up-and-down cycles over and over again,” says Bowe. “And it impacts every one of us that does business in this market, and that’s likely not going to change.”

At The Andersons today, the overall business is divided into five separate groups — grain, plant nutrients, rail, ethanol, and retail stores. According to Bowe, many have been impacted by the current “down” cycle.

Perhaps hardest hit has been the company’s grain group. According to its own financial statements, The Andersons reported a pre-tax loss of $17.4 million in the grains sector for the first quarter of 2016. “There were excessive rains in many parts of the Eastern Corn Belt during 2015, and that really hurt grain production,” says Bowe. “Normally, the grain basis will pick up later in the season in these cases, but that never happened last year.”

As part of a larger strategy to improve the performance of its grain business, The Andersons decided to divest some of its assets in this group. In April, the company agreed to sell eight of its grain/agronomy locations in Iowa to MaxYield Cooperative. “We have referenced performance issues in our Western grain assets during several recent investor calls,” said Bowe at the time of the sale. “We anticipate this sale will improve our prospects and provide a pathway to profitability for this area of our business.”

In addition to this move, Bowe is working to broaden The Andersons’ grain handling operations to more organic and non-GMO products to appeal to overseas buyers in places such as Japan (where the company already handles specialty soybeans for export) and select domestic food manufacturers. Fortunately, overall grain fortunes appear much brighter for the 2016 season. “This year, the growing conditions across the grain belt have been much improved, so we are expecting much better grain volumes coming from our farmer-customers,” he says.

Also impacted by the agricultural downturn, to a lesser degree, has been The Andersons rail group. Unlike grain, this group reported a pre-tax profit of $9.4 million during the first quarter of 2016 even with less grain moving through the system. Despite this fact, Bowe still sees reasons to make a few changes to the nation’s eighth largest privately-owned rail fleet in North America. “We’re going to get bigger,” he says. During 2016, Bowe hopes to take advantage of weaknesses in the rail sector to acquire more railcars for The Andersons fleet. The rail industry also has its cycles which create opportunities.

As for the company’s ethanol group, the past year has also been unkind, profit-wise. According to Bowe, 2015 “wasn’t that great a margin year” for ethanol in spite of lower corn prices. Still, The Andersons has been invested in the ethanol business since the early 2000s and continues to operate four plants across the Midwest in partnership with Marathon Petroleum. “Our focus going forward is to have top performing plants, in the right locations using the latest technology to produce the ethanol in locations advantageous to our customers,” says Bowe. “And we already foresee more demand coming in the next few years.”

The Andersons has decided to double the ethanol output of its one production facility in Albion, MI. This will increase from 55 million gallons of ethanol per year currently to 110 million gallons by the end of 2016. “Michigan is a corn surplus and ethanol deficit state, so it is a good location for us to grow,” says Bowe.

Plant Nutrient Group The Andersons

The Plant Nutrient Group is one of five divisions at The Andersons — and one of the company’s biggest in terms of size.

In terms of size, The Andersons Plant Nutrients Group is one of the company’s biggest. But according to Bowe, fundamentally, it isn’t too different than the Grain Group in how business tends to be conducted in a down agricultural cycle as today. “In both these businesses, grain and fertilizer, you have to learn how to effectively manage risk,” he says. “But with fertilizer, you need to learn how and when to bring new products or offerings to your customers.”

In many ways, The Andersons has already begun this process. Just before Bowe joined the company, The Andersons made an acquisition, purchasing the Nutra-Flo fertilizer business of Nebraska for $125.6 million. This included a state-of-the-art research and development laboratory and three manufacturing and distribution assets with more than 100,000 tons of tank storage. At the time of the acquisition, Nutra-Flo was producing more than 200,000 tons of liquid fertilizers for the agricultural marketplace.

“With Nutra-Flo, we are able to offer our customers a low-salt liquid fertilizers and micronutrients,” says Bowe. “Ultimately, this should help us further diversify our overall crop nutrients business.” He adds that The Andersons will also try to branch out into other specialty fertilizers during the next year or so as well.

Unwanted Attention

When added altogether, 2015 was not a kind year for The Andersons’ bottom line. For the year, the company’s revenues slipped nearly 7%, from $4.5 billion in 2014 to $4.2 billion. This resulted in The Andersons incurring its first annual loss, $13.5 million, since the company became a publicly-traded entity back in 1996.

Given these circumstances and financial results, The Andersons found itself a potential takeover target. Beginning in January, diversified holding company HC2 Holdings, Inc. began making overtures to acquire The Andersons for $37 per share, or a total purchase price of $1.043 billion, plus the assumption of $402 million in debt. “An acquisition of The Andersons is consistent with our strategy of pursuing cash flow positive businesses that enhance the overall shareholder value for the company,” wrote Philip Falcone, HC2 Chairman, President, and CEO, in a letter to The Andersons Chairman Michael Anderson in May.

In mid-May and again in June, The Andersons formally rejected the HC2 bid as significantly understating the company’s true value and “not credible or in the best interests of The Andersons shareholders.”

Since that time, there has been no update on the HC2 situation, and Bowe believes the firm’s proposal is not compelling for The Andersons. “They are the wrong buyer at the wrong time and at the wrong price,” he says. “And three wrongs don’t make a right.”

Industry Challenges, Opportunities

Of course, part of dealing with the agricultural marketplace in general involves issues. Take water, for instance. A few years ago, The Andersons own backyard, so to speak, the area dealt with a severe algae bloom outbreak in nearby Lake Erie. This summer event caused a restriction to be placed on drinking water to the entire city of Toledo, OH — just down the road from Maumee — that affected hundreds of thousands of consumers. This also put agriculture and crop nutrient usage squarely in the cross-hairs of several environmental groups and regulators.

The Andersons on The Maumee River

The Andersons is working with trade organizations such as The Fertilizer Institute to promote good water management practices in agriculture.

“This is a major issue of us all, and it involves many groups — municipalities, agriculture input suppliers, farmers, government officials, and the public — so it’s not a problem that just one particular group can solve alone,” says Bowe. “Some have said farmers should just cut down or eliminate the amount of crop nutrients they use, but you and I both know you have to have products such as nitrogen, potassium, and phosphorous in agriculture if you are going to raise good, healthy crops. You can’t just not use them.”

So The Andersons is working with trade organizations such as The Fertilizer Institute (TFI) to promote good water management practices in agriculture. The company has worked with TFI to get several of its ag retail locations to obtain 4R certification (promoting the right time, the right source, the right place, and right rate). The Andersons is also helping its grower-customers spread the word among local communities by promoting sustainable agriculture and using technology to get a better read on where crop nutrients should be applied in their crop fields.

“I recently visited a farmer in Ohio that had started to use unmanned aerial vehicles in his operation to image his fields and figure out where he could plant cover crops to conserve water run-off,” says Bowe. “Embracing these kinds of new technology tools will be critical to successfully addressing this water issue, I believe. We all have to work together to solve it, as we should.”

Actually, the continuing evolution and expansion of technology in agricultural operations is one of the major opportunities Bowe sees for the industry to grow moving forward. “I’ve seen tremendous growth of precision agriculture with farmers over the years, and it seems to be accelerating very rapidly,” he says. “And here at The Andersons, we are introducing new software and app tools to help our managers and customers better manage their risk on the grain side of the business, using handheld devices to share as much information as possible and make more informed decisions.”

All these changes are just part of doing business in agriculture today and will dictate how The Andersons moves forward, says Bowe. “As a newcomer, I have to understand the speed of change in this business,” he says. “There are some things I want to change to keep the business growing and be more productive. But I also have to keep remembering the legacy of the past this company was built upon.”

As part of this effort, Bowe has announced a plan to eliminate $10 million in costs from The Andersons operations over the next two years. The company has also been updating its computer management systems in an effort to reduce waste. “We need to take costs out of the system and really listen to our customers,” he says.

The Andersons is also looking to recruit new talent for employment as many older workers reach retirement age, similar to what other agricultural firms are seeing happen with their own workforces. “We have a summer intern program to attract students at the colleges in our region looking for a possible career in the agricultural market,” says Bowe. “We also have our Leadership Institute in-house, which is a program to help develop up-and-coming leaders with The Andersons to lead the company in the future.”

A New Headquarters

Another way The Andersons hopes to recruit new workers to its offices is by updating them. To do this, the company is building a brand new headquarters facility in Monclova Township — not too far from the current headquarters. According to Bowe, this new $53-million building is needed because The Andersons’ existing headquarters “is 30 years old, and something designed more for the modern workplace environment should help appeal to today’s younger generation of talent.”

Longer term, Bowe is hopeful that when the time comes for him to leave The Andersons, his time spent as President/CEO will have translated into helping the company move easily forward into its next 70 years. “Looking back at The Andersons history, one of the biggest common denominators among my predecessors is they all helped the company grow,” says Bowe. “Through their efforts, they built The Andersons into a diversified company that touches many of the areas that help agriculture thrive in this country. I very much want that trend to continue. I believe we can be more efficient and productive than we are today and build a strong base to continue to grow.

“And I would like for us to grow into new areas we haven’t been into before,” he continues. “I’m not saying we will start making televisions or something like that, but businesses that are adjacent to what we know and will benefit our agricultural customers, similar to what we’ve done with our recent acquisition of Nutra-Flo.”

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