Pacific Ethanol releases 2017 results, reports improved margins

By Erin Voegele | March 02, 2018

On Feb. 28, Pacific Ethanol Inc. released fourth quarter and 2017 financial results. During an investor call, Neil Koehler, president and CEO of the company, provided an update of plant operations and said product margins are currently improving.

For the fourth quarter, Pacific Ethanol reported net sales of $395.3 million, down from $441.7 during the same quarter of 2016. The decrease was primarily driven by a lower average ethanol sales price per gallon during the quarter. Total gallons sold during the quarter reached 240 million, down slightly from 240.9 million during the fourth quarter of the previous year. The company, however, achieved record production gallons sold of 150.4 million, up from 123.1 million.

Gross loss for the fourth quarter was $2 million, compared to a gross profit of $27.3 million during the same quarter of 2016. Operating loss was $10.6 million, compared to operating income of $18.8 million. Net loss available to common stockholders was $13.6 million, or 32 cents per share, compared to a net income available to common stockholders of $12.6 million, or 30 cents per share. Adjusted EBITDA was negative $273,000, compared to $64.3 million.

For the full year, Pacific Ethanol reported net sales of $1.63 billion, up from $1.62 billion in 2016. The company sold a record 952 million gallons, up from 924.5 million gallons in 2016. A new record was also set for production gallons sold, which reached 527.2 million, up from 484.1 million in 2016.

Gross profit for the year was $5.9 million, down from $54.4 million. Operating loss was $25.3 million, compared to operating income of $23.5 million. Net loss available to common stockholders was $36.2 million, or 85 cents per share, compared to net income available to common stockholders of $148,000, or zero cents per share. Adjusted EBITDA was $13.6 million, compared to $58.9 million.

“In 2017, we strengthened our platform by further diversifying our product mix with the acquisition of ICP and gaining efficiencies through consolidating 250 million gallons of ethanol and high-quality alcohol production at one site in Pekin, Illinois,” Koehler said. “We remain focused on reducing costs at all of our facilities, optimizing the profitability of our marketing business, and maintaining a strong balance sheet.”

“In 2018, we are seeing an improvement in production margins with exports off to a strong start and demand for transportation fuels increasing as we approach the summer driving season,” he continued. “With our success in enhancing our operations and marketing performance we believe we are well positioned to capitalize on these promising trends.”

During an investor call, Koehler explained that losses experienced during the fourth quarter were primarily driven by a sharply lower average ethanol sales price per gallon, which compressed production margins. He also said the industry’s historically high inventory levels negatively impacted ethanol margins during the fourth quarter. “Only recently have we begun to see reductions in industry inventory levels resulting from lower ethanol production and higher domestic and export demand,” Koehler added.

In response to high inventory levels and lower margins, Koehler said Pacific Ethanol moderated production at locations that were most impacted by margin compression and where the company wasn’t otherwise contractually committed. The company also began to reduce contractual sales of third party gallons and focus its sales efforts on its production assets, he added.

According to Koehler, Pacific Ethanol’s focus on managing production and rationalizing marketing volumes has, in part, contributed to improving margins and correcting supply and demand imbalances. He said industry ethanol inventories hit a record high at the beginning of the year, running 20 percent higher than the prior year. Those levels, however, are now slightly lower than at the same time last year. Koeher said margins have improved by about 15 cents per gallons since the lows experienced in December.

Koehler also said that domestic gasoline demand for 2018 is currently running more than 5 percent higher year-to-date than in 2017, and noted that ethanol exports reached a record 1.37 billion gallons in 2017, up 17 percent from 2016. “We expect strong growth again in 2018,” he said.

Also in 2018, Koehler said Pacific Ethanol expected to see continued incremental growth in E15 availability and sales. At the beginning of the current year, E15 was available at more than 1,200 stations across 29 states. By the end of the year, Koehler said he expects the number of stations to increase to more than 2,000.

Regarding plant operations, Koehler said the one of the two natural gas-fired cogeneration units at the company’s Stockton, California, plant is now fully commissioned, with power being generated and used in production at the plant. The second unit is still in the commissioning stage. Koehler said the innovative system allows Pacific Ethanol to supplement natural gas with waste gases from the plant’s production process. Once fully operational, the system is expected to reduce energy costs by $4 million annually and help lower the plant’s carbon and nitrogen oxide emissions.

The Madera, California, facility has received an updated Low Carbon Fuel Standard pathway from the California Air Resources Board, Koehler said. The new pathway incorporates the benefits of the industrial-scale membrane system installed at the plant. He said the facility is realizing a 5 percent reduction in natural gas use at the Madera plant as a result of the membrane technology, and noted the company is in the process of evaluating the technology for potential implementation at other Pacific Ethanol plants.

According to Koehler, Pacific Ethanol is currently producing cellulosic ethanol at its Stockton and Madera facilities, along with its Idaho-based Magic Valley plant. The installation of a solar photovoltaic system at the Madera plant is moving ahead on budget and on schedule, pending interconnection with the local utility, Koehler added. That system is expected to reduce utility costs by $1 million annually and lower the facility’s carbon score.