Green Plains: 2015 outlook strong in spite of Q1 dip in profits

By Susanne Retka Schill | April 29, 2015

In spite of a first quarter net loss overall and its ethanol segment breaking even on an EBITDA basis, Todd Becker, CEO of Green Plains Inc., remains confident the company will see a strong performance overall for 2015. “After generating well over $200 million in net income over the past two years,” Becker said in the quarterly earnings call, “one down quarter had a De Minimis impact on our financial strength, long-term commitment to the industry and to markets in which we trade. We expect to return to profitability in the second quarter and full year, based on current market conditions.”

Net loss for the quarter was $3.3 million, or negative 9 cents per diluted share, compared to net income of $43.2 million, or $1.04 per diluted share, for the same period in 2014. Revenues were $738.4 million for the first quarter of 2015 compared to $733.9 million for the same period in 2014.

"As we indicated in February, U.S. ethanol industry margins were compressed during the first quarter of 2015 as energy prices declined. Domestic and global ethanol prices have adjusted to remain very competitive with wholesale gasoline," Becker said. "Consumer demand for transportation fuels has continued to strengthen providing a more positive outlook for the balance of the year."

"Industry fundamentals remain solid domestically and internationally, driven by increases in U.S. fuel consumption and global protein consumption. Based on the current forward curve, we expect profitable results for the first half and full year of 2015," stated Becker.

During the first quarter, Green Plains' ethanol production totaled 232.5 million gallons, or approximately 92.4 percent of its daily average production capacity. The company made a conscious decision to slow down and run for yield, Becker said, boosting its yield to 2.83 gallons of ethanol per bushel of corn, compared to the 2.81 rate achieved in the same quarter a year ago.  

Non-ethanol operating income from the corn oil production, agribusiness, and marketing and distribution segments was $19.0 million in the first quarter of 2015 compared to $41.1 million for the same period in 2014. Green Plains had $420.5 million in total cash and equivalents and $154.2 million available under committed loan agreements at subsidiaries (subject to borrowing base restrictions and other specified lending conditions) at March 31, 2015. First quarter 2015 EBITDA, which is defined as earnings before interest, income taxes, depreciation and amortization, was $18.8 million compared to $94.1 million for the same period in 2014.

The company invested $14 million in capital improvements in the first quarter which includes the installation of fine grind technology at one of the plants, added grain storage at another plant and other projects to add 100 million gallons of capacity across the Green Plains plants by the end of the year. Becker added the cost per gallon for the current round of improvements will be higher than the debottlenecking efforts done over the past five years.

Little extra detail was given on Green Plains Partners LP, a newly formed subsidiary that filed a confidential draft registration statement for a proposed initial public offering. Becker commented,  "We also remain focused on completing our proposed initial public offering of Green Plains Partners LP which will own our downstream ethanol transportation and storage assets."

In commentary regarding the industry outlook, Becker suggested gasoline demand is now headed towards seasonal highs at the same time ethanol production moves toward its seasonal lows, which should help to bring ethanol inventories in line. After a short period late last year when ethanol was priced above gasoline, it had returned to a more normal discount to gasoline.  The slide presentation accompanying the investor call added more details to the continued strength of domestic demand for ethanol. It outlined that refiners save at least 4 cents per gallon on average by refining for CBOB, and with the refiners configured to produce 84 octane gas, they need to blend. Ethanol remains the lowest-cost octane, by about 50 cents per gallon to its closest rival, up to nearly a $1 spread from the most costly alternative. In addition, the refiner wants the renewable identification number (RIN) to demonstrate compliance.

In addition to domestic ethanol demand being expected to hold up, Becker said the outlook for export demand continues to be promising. “While there is concern about the dollar gaining strength against foreign currencies, we still believe the U.S. ethanol industry will export between 800 million and 1 billion gallons in 2015. U.S. ethanol is still priced very competitively to Brazilian ethanol.” Becker told the investors on the call that export grade ethanol shipments accounted for 20.5 percent of first quarter production, about 5 percent better than previous record 4th quarter of 2014. “The pace of the ethanol exports in the first quarter is a strong indication to us that the export market remains solid. The second quarter will not be as big at our plants, but we are in striking distance of these numbers and we’ve seen interest as far out as first quarter 2016, further validating the competitiveness of our product globally.”