Green Plains reports record Q2 production, improved earnings

By Susanne Retka Schill | August 02, 2016

Green Plains Inc. produced a record 274.3 million gallons of ethanol in the second quarter, realizing a net income of $8.2 million, or 21 cents per diluted share.  That was up from the same quarter of 2015, which reported net income of $7.8 million or 19 cents per share. Revenues in Q2 2016 were $887.7 million compared to $744.5 million for the same period last year.

"We are pleased with our performance in the second quarter of 2016, which resulted in a $50 million increase of operating income compared with the first quarter," said Todd Becker, president and chief executive officer. "Our agribusiness and marketing and distribution segments reported strong results and the partnership segment generated its best results since going public in June of 2015. During the second quarter of 2016, we produced record ethanol volumes and with the current ethanol margin environment, we expect stronger production levels in the last half of the year."

The 274.3 million gallons of ethanol produced in Q2 compared with 238.7 million gallons for the same period in 2015. The consolidated ethanol crush margin was $45.3 million, or 17 cents per gallon, for Q2 2016 compared with $46.5 million, or 20 cents per gallon, for the same period in 2015. The consolidated ethanol crush margin is the ethanol production segment's operating income before depreciation and amortization, which includes corn oil production, plus intercompany storage, transportation and other fees, net of related expenses.

Revenues were $1.6 billion for the six-month period ended June 30, 2016, compared with $1.5 billion for the same period in 2015. Net loss for the six-month period ended June 30 was $15.9 million, compared with net income of $4.5 million for the same period in 2015.

Green Plains Partners LP, spun out last year as a separate entity, reported ethanol storage and throughput revenues of $13.9 million and rail transportation services revenues of $7.9 million for the second quarter.  Q2 revenues increased $1.7 million over Q1, primarily due to the incremental throughput volumes from Green Plains. Adjusted EBITDA for the partners amounted to $16 million and net income was $14 million, or 43 cents per common unit.  

Becker expressed optimism for the remainder of the year. "Ethanol demand continues to grow, supported by a 3 percent growth in domestic ethanol consumption and a 6 percent increase in U.S. ethanol exports year-to-date," he said. "We continue to execute on our core strategy of capital allocation with an intense focus on growing our company, including both organic and acquisitive opportunities."

Two recent investments were highlighted in the investor call. The company has agreed to acquire two 90 MMgy Abengoa ethanol plants, located in Madison, Illinois, and Mount Vernon, Indiana, for $200 million in cash. The stalking horse bid is subject to bidding procedures should a better bid be offered at the bankruptcy auction. The auction is set for Aug. 22 followed by a court hearing planned for Aug. 29. “If we’re the winning bid, we expect to close the end of September,” Becker said. The plants have been operating throughout the proceedings and the transition should be seamless, he said. He added that the company expects to continue acquiring one or two plants a year as opportunities arise.

The other investment announced this quarter is a 50-50 jointed venture with Jefferson Gulf Coast Energy Partners to construct and operate an intermodal export and import fuels terminal in Beaumont, Texas. Strategically located for rail and Gulf access, it is being welcomed by those hoping it will provide an alternative to congestion in Houston. A planned terminal in Arkansas announced earlier has been delayed due to local siting issues that has the company looking for another location in the state.

Asked about the outlook, Becker said the fundamentals are in the industry’s favor.  Strong export demand is expected to continue, reaching between 800 million and 1 billion gallons this year.  Good sugar markets mean Brazil crushers are likely to shift production towards more sugar than ethanol, and aiding U.S. ethanol prospects, Becker said, stressing ethanol remains the most economical octane in global markets.

Becker predicted this year’s poor first quarter will not be repeated. Domestic demand remains stronger than last year due to lower retail gas prices, and is likely to call for 14.5 billion gallons, he said. D6 RINs prices are incentivizing nonobligated parties to blend ethanol, helping to drive E15 sales, which are likely to reach 150 million gallons. Becker noted that while recent production levels have topped 1 million barrels a day, the inventory is not building, indicating supply and demand are in balance.

“The margin environment is telling you to run as hard as you can. We had a good draw last week. There’s good export demand, good domestic demand, and we’re not growing inventory levels, even at this production rate,” he said. With fall maintenance turnarounds coming up, weekly production levels should drop into the mid- to low-900s, which may draw inventories down into the 18 million to 19 million-barrel range, he added.

Fielding another question, Becker reported the company saw one of its best quarters ever for ethanol yield at 2.87 gallons per bushel of corn processed. “That’s been driven by all our improvements we’ve been going after mechanically, enzymatically and now through Enogen,” he said. “We invested plenty in fine grind, SMT and now Enogen. If you put all those together, it is impacting our yield, and not just one variable.” The company expects to add about 80 million gallons of capacity across its ethanol plants by the end of the year in a series of Phase 1 improvements, exiting 2016 with a 1.26 billion gallons in total capacity.