Green Plains reports strong first quarter

By EPM Staff | May 03, 2017

Green Plains Inc. announced its financial results for the first quarter of 2017 Tuesday. Net loss attributable to the company was $3.6 million—9 cents per diluted share—for the first quarter of 2017, compared with net loss of $24.1 million for the same period a year ago.

Revenues were nearly $888 million for the first quarter compared with $749 million for the same period last year. The company had $17.4 million of operating income—a $40 million improvement over the first quarter of last year—which company President and CEO Todd Becker called “better, but still on the weak side.”

Becker said first-quarter EBITDA in each of the company’s three segments—energy services, food and ingredients and its partnership—was more than double that of the same quarter last year.

"We reported a nearly $50 million improvement in EBITDA year over year despite a seasonally soft first quarter," Becker said. "We had solid earnings contributions from our non-ethanol businesses during the quarter, with both Green Plains Cattle and Fleischmann's Vinegar reporting record quarters. We continue to diversify our revenue and income streams with a more balanced portfolio of businesses to minimize the impact of a soft ethanol quarter.”

Becker said the results show that Green Plains’ diversification strategy is working and, in fact, helped minimize the effects of a weaker ethanol quarter.

During Q1, Green Plains produced 326.4 million gallons of ethanol compared with 247.0 million gallons for the same period in 2016. The consolidated ethanol crush margin was $37.7 million, or 12 cents per gallon, for the first quarter, compared with $4.1 million for the same period in 2016. “This was much improved,” Becker said.

The three ethanol plants Green Plains acquired late last year are running well and contributing to the company’s overall ethanol platform, Becker said, adding that Fleischmann's Vinegar is also performing better than expected and continues to see solid growth in its base business as well as the antimicrobials and specialty vinegar markets.

The company produced ethanol at 90 percent of capacity utilization in the first quarter. “We ran slower this quarter due to several factors,” Becker said. “Almost 20 percent of our production was exported, and we slowed down to make that specification. And we slowed down production in the middle part of the first quarter because a weakened margin environment. We are running harder for the second quarter, but since this is a big plant maintenance quarter, we currently expect to run at approximately 90 percent of stated capacity, and that could get better.”

The integrated ethanol producer also made 877,000 tons of distillers grains and 74.4 million pounds of corn oil in the first quarter, processing 3.2 million tons of corn. “Our yield was 2.88 gallons of ethanol per bushel of corn for the quarter, which ties the company’s yield record set in the fourth quarter of 2015,” Becker said. “We continue to see yield improvements because of the investments we have made over the years.”

The ethanol margin environment helped Green Plains in the first quarter, compared to a year ago. Gasoline demand is trending better over the last two weeks, Becker said, and ethanol blending remains strong going back to September.   

"We believe 2017 could develop into a favorable year for ethanol margins as the forward curve is stronger going into the summer driving season compared with 2016,” Becker said. “Our focus is to drive free cash flow in the current environment and further strengthen our balance sheet in 2017." 

Due to a better margin environment, Becker said it appears that spring seasonal maintenance of plants have been pushed deeper into the second quarter, or further.  

The company expects U.S. ethanol exports for the first quarter to be around 380 million gallons, the second-best quarter behind the fourth quarter of 2011. “We believe the industry will still export between 1.1 and 1.2 billion gallons, or more, this year,” Becker said, adding, "U.S. ethanol exports have started 2017 stronger than any year on record and we have continued to focus on international markets, exporting approximately 20 percent of our production in the first quarter. Global demand for each of the products we produce, whether ethanol, corn oil or distillers grains, is strong and we are well positioned to benefit from these opportunities."

The company continues to monitor ethanol production inventories closely. “While we are the first to acknowledge that the numbers published are the numbers that drive the market, we do believe that weekly (EIA) numbers are suspect,” Becker said. “We say this because the adjustments made to the months of January and February—between a net 25,000 to 30,000 barrels a day correction—was in our favor, as production was lower and demand was higher in the true ups. While stocks are not changing, the EIA is just playing with the intransient number. Especially as seasonal demand picks up, if production is lower than the weekly numbers reported, draws will be expected.”

In the Q&A session of the call, Becker said his team is expecting ethanol production in 2017 to reach about 15.8 billion gallons, with gasoline demand for the year in the 143 billion gallon range—roughly the same as last year. “So we have to clear out 1.4 billion gallons to not build stocks from year end to year end,” he said. “We believe, right now, we are tracking very strongly toward a 1.1 billion gallon export number. But in recent weeks we’ve been seeing demand growth in a number of promising areas and that number could be better.” Becker added that E15 sales could consume the remaining volume.

“We believe gasoline demand will be flat, to slightly increased, in 2017 compared to 2016,” he said. “Exports continue to be strong and we continue to see ethanol blending not experienced in our industry in prior years. We believe this is the effect of E15 in the market and we continue to see more retailers signing up for E15. Right now, the industry has over 800 locations in 29 states selling the product, including major national chains, and the rollout continues.”

Green Plains’ ethanol and logistics unit handled 321.1 million gallons of ethanol throughput volume at its ethanol storage facilities in the first quarter, nearly 74 million gallons more than the first quarter of last year.

 

Cattle Feedlot Acquisition Update

Last week, Green Plains Cattle Company LLC entered into an asset purchase agreement to acquire two cattle-feeding operations for $36.7 million, excluding working capital. The transaction includes feed yards located in Leoti, Kansas, and Yuma, Colorado, which together add 155,000 head to the company's operations. The deal is supported by a multi-year offtake agreement with Cargill Meat Solutions. The transaction is expected to be completed in May.

“Our cattle feeding operation had another solid quarter, and with the announced expansion of our feeding operation, we believe the business can generate annual operating income before depreciation of $30 to $40 million in 2018,” Becker said. “Global beef demand remains strong with the U.S. exporting more than expected beef this year.”

Becker explained that Cargill will continue to own the existing cattle in the two acquired feedlots. Green Plains will replace those animals with its own as the existing head are brought to market.

“Our philosophy for managing the cattle business is very straightforward,” Becker said. “We treat it like any other processing business. We calculate the cattle crush margin and make decisions based on returns and profitability. Having a supply agreement with Cargill further stabilizes one side of that structure and we know what we need to do every day to operate profitably.”

Moving ahead, Green Plains feedlots will use over 300,000 tons of company-produced distillers grains. Additionally, the company will use about 50 million pounds of corn oil at its feedlots. “Our cattle business will be the largest, or close to the largest, customer for each of these products,” Becker said.

All in all, Becker says, Green Plains’ combined businesses have the ability to generate between $60 million and $80 million of EBITDA per year, starting in 2018.