Green Plains reports Q4, 2016 profits, good prospects for 2017

By Susanne Retka Schill | February 09, 2017

Green Plains Inc. reported profitable fourth quarter and year-end results, with earnings before taxes and depreciation of $174.4 million and a net income of $10.7 million, or 28 cents per diluted share. The company saw a 21 percent increase in ethanol production compared to 2015 at 1.1 billion gallons.

For Q4, earnings before taxes and depreciation totaled $83.5 million. The consolidated ethanol crush margin was $81.6 million, or 24 cents per gallon. That compares with 11 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.

The company’s 17 facilities produced a company record of 334.2 million gallons of ethanol in Q4, 894,000 tons of distillers grains and 77.4 million pounds of corn oil. The quarter was the first to include three former Abengoa plants acquired in late September.  Yield was 2.86 gallons of ethanol per bushel of corn. Export sales accounted for 11 percent of the company’s ethanol production, 18 percent of distillers grains and 68 percent of corn oil.

"Green Plains finished 2016 on a strong note, generating $74.3 million of segment operating income in the fourth quarter as we successfully integrated the acquisitions of three ethanol plants and Fleischmann's Vinegar Co. into our platform," said Todd Becker, president and CEO. "Each of our business units performed well during the quarter and the year, delivering strong results by continuing to focus on executing our long term strategy of diversification and achieving scale in all of our businesses."

Consolidated revenues increased $192.2 million for the three months ended Dec. 31, 2016, compared with the same period in 2015. Revenues were impacted by an increase in ethanol volumes sold and a higher average price realized for ethanol along with an increase in volumes of cattle sold, plus the addition of Fleischmann's Vinegar in the quarter. The increase in revenues were partially offset by lower volumes and average realized prices for grain sold.

Operating income increased $43.3 million for the three months ended Dec. 31, 2016, compared with the same period last year primarily due to increased margins on ethanol production.  Interest expense increased $8.3 million for the three months ended Dec. 31, 2016, compared with the same period last year primarily due to higher average debt outstanding. Income tax expense was $12.2 million for the three months ended Dec. 31, 2016, compared with $4.1 million for the same period in 2015.

Earnings before interest, income taxes, depreciation and amortization (EBITDA) for the fourth quarter of 2016 was $83.5 million compared with $32.5 million for the same period last year.

With the addition of Fleischmann's Vinegar Company in the fourth quarter of 2016, Green Plains restructured its operating segments. The four segments include: ethanol production, agribusiness and energy services, food and food ingredients and partnership.

In his comments during the investor call, Becker stressed that while ethanol stocks are currently higher than at this time last year in absolute terms, increases in demand mean those stocks now represent 21 days of ethanol demand compared to 26 days at this time a year ago, which the market is beginning to notice. The winter months, historically, are when the ethanol supply builds to handle the strong summer season driving demand which coincides with lower ethanol production due to warm weather conditions.

Becker added that Green Plains has done its part to strengthen markets by maximizing the amount of ethanol in short-term storage, tightening supplies some, which is also aided by strong exports.

Gasoline demand for 2017 is expected to require 14.5 billion to 14.6 billion gallons for 10 percent blend. E15 is expected to add an incremental 200 million gallons. Another large retail chain is reportedly adding E15 and expectations are for 1,000 stations offering the blend by the end of 2017. Prime the Pump and the USDA program helped get E15 going, Becker said, “but now competition is working. Some who said they’d never do it are starting to look at it.”

Exports are forecast to be strong again in 2017, Becker said, at around 1.1 billion gallons, bringing total demand to around 15.5 billion gallons. “In our view for 2017, Canada and Brazil lead the way. They’re not incented to make ethanol in Brazil right now, but fully incented to make sugar. Canada will lead the way with better volumes than last year.”  China, India and the Philippines also will be among top importers.

In DDGS, the market had factored in the Chinese tariff well before it was officially announced, Becker said. “Prices have settled down to 75 to 80 percent the value of corn and we are starting to see better inclusion rates because of the value of protein around the world.”

When asked about the impact of the new administration, Becker said, “Our belief is President Trump is highly supportive of our industry.”  The freeze on upcoming regulations was routine, he said, and although it was unfortunate the RVO was caught up in it, he does not expect it to be long-term. As for the discussion on the point of obligation, Becker said, “It is hard to believe that it will be a priority item.”  The coalition put together to support no change in the rule includes groups from all sides of the RFS debate that have never worked together before, he pointed out. Becker added, however, that he does not expect that the companies pushing for the change to the point of obligation will give up easily.