Green Plains releases Q3 results, discusses E15, exports markets

By Erin Voegele | November 08, 2018

Green Plains Inc. has released third quarter financial results, reporting a $12.5 million net loss. The company also discussed the sale of several assets, plant improvement projects, and the importance of E15 and export markets to the industry.

During an investor call, Todd Becker, president and CEO of Green Plains, noted the consolidated crush margin was 11 cents per gallon for the third quarter, which was 2 cents better than during the second quarter, but below the 15 cent-per-gallon crush margin reported for the third quarter of 2017.

According to Becker, Green Plains produced approximately 305 million gallons of ethanol during the third quarter. Year-to-date, he said the company has exported approximately 18.5 percent of its production. During the fourth quarter, Green Plains expects nearly 20 percent of its production to be exported.

Becker said exports remain a bright spot for the industry, with 5 to 10 percent growth expected in 2019 when compared to this year. “We have seen very early interest and demand for 2019 as the price of ethanol is very attractive globally and more and more countries adopt pro-ethanol policies,” he said.

During the call, Becker also discussed the previously announced sale of Fleischmann’s Vinegar Co. to Kerry Group and the sale of three ethanol plants to Valero Renewable Fuels Co. LLC. The ethanol plant sale includes facilities in Bluffton, Indiana; Lakota, Iowa; and Riga, Michigan. The plants will be sold for $300 million in cash, plus approximately $22 million in working capital also paid in cash. The transaction involves 280 million gallons of nameplate capacity, accounting for approximately 20 percent of Green Plains’ current ethanol production capacity. The Valero transaction is expected to close during the fourth quarter of this year.

Becker noted Green Plains received initial bids from nine different parties with 16 distinct bids, whether bundled or not, for the sale of the three ethanol plants. He said some individual plant bids were at even higher values, but noted the company “wanted to sell the first phase as a bundle for ease and ability to close on a large, meaningful transaction.”

Becker said Green Plains is continuing “to work with interested parties for some additional divestures,” but noted the company doesn’t want to comment any further on these activities at this time because they are in different stages of the process.

In the near-term, Becker said Green Plains continues to focus on narrowing the breakeven costs on its platform. He said the company plans to continue to invest in high-protein feed technology to produce high-protein corn meal at its ethanol plants. The company’s Shenandoah, Iowa, plant is scheduled to be operating the technology by the third quarter of 2019. According to Becker, Green Plains is getting closer to finalizing a decision on the next couple of locations to deploy the feed technology, and hopes to make that announcement before the end of the year. At minimum, he said the company expects a 10 to 12 incremental add to the ethanol crush margin at each of the locations that deploy the technology. “In the next five to 10 years, protein and oil could be the major contributor to profitability of this industry,” he said.

Becker also discussed the current state of the industry. Over the past 90 days, he said the ethanol margin environment has been weak. According to data from the U.S. Energy Information Administration, he said ethanol inventories are currently 1.8 million barrels higher than a year ago, and about 3 million barrels—or 120 million gallons—than Green Plains would like to see. Becker described three ways in which the inventory issue could be resolved. The quickest solution, he said, would be for the industry to show discipline and slow production. Historically, however, he said the ethanol industry has been slow to react in this manner. Second, he said exports could help resolve the problem of high inventories. Even without China, he said Green Plains thinks the U.S. can grow exports by 100 million gallons next year. Finally, he said the fix that the company is most excited about is E15, which could potentially add as much as 7 billion gallons of ethanol market demand domestically. Becker called E15 a “game-changer” for the ethanol industry. “We anticipate E15 at 1,950 stations in 2019, resulting in total new demand with year-round blending of 300 million gallons,” he said.

Green Plains reported a net loss attributable to the company of $12.5 million for the quarter, or 31 cents per diluted share, compared to a net income of $34.4 million, or 74 cents per diluted share, for the same period of last year. Revenues were 1 billion for the third quarter, compared to $901.2 million for the third quarter of 2017.