Pacific Ethanol explores potential sale of production assets

By Erin Voegele | March 15, 2019

Pacific Ethanol Inc. has announced plans to strategically realign its business over the next six months, including the potential sale of production assets. The company has engaged Piper Jaffray to aid it in that sales effort.

Neil Koehler, president and CEO of Pacific Ethanol, made the announcement March 13 during an earnings call held to discuss fourth quarter 2018 financial results. In a press release issued the previous day, Koehler said that the company’s fourth quarter financial performance was “negatively impacted by market conditions, regulatory uncertainty and trade disputes, which compressed production margins to record lows.” While margins have improved during the first quarter, Koehler said further improvements are necessary in order to restore profitability. “In light of this and the fact that the intrinsic value of Pacific Ethanol’s platform is not fully recognized by our public equity valuation, we have initiated a strategic realignment of our business to improve liquidity and reduce our debt,” he said. However, Koehler did not discuss the specific assets Pacific Ethanol will consider selling.

Regarding production volumes, Koehler said Pacific Ethanol moderated production at some facilities during the third quarter in response to high inventory levels and lower margins. That practice continued through the fourth quarter he said. As a company, Koehler said Pacific Ethanol is running at approximately 85 percent operating capacity. The company currently owns nine ethanol plants with a combined capacity of more than 600 MMgy.

During the earnings call, Koehler confirmed that all Pacific Ethanol’s plants are operating and operating very efficiently, with the exception of the Aurora East plant in Nebraska, which is currently idle. He said the Aurora East facility was shut down because its economics were marginal at the time. Idling the plant was part of the company’s efforts to reduce overall production rates, he added, noting the plant can be brought back into production at any time.

Moving forward Koehler said Pacific Ethanol is confident that the compelling cost of octane and ethanol’s carbon benefits will drive new domestic and export demand this year. He said the company expects both domestic and export demand to achieve new highs in 2019 as a result of increased E15 penetration and the easing of trade tensions.

Pacific Ethanol sold 209.4 million gallons of ethanol during the fourth quarter, down from 240 million gallons during the same period of 2017. Total production gallon sold fell to 131.1 million, down from 150.4 million during the same period of the previous year. Net sales were $334.4 million, compared to $395.3 million. Loss available to common stockholders was $32.3 million, or 74 cents per share, compared to $13.6 million, or 32 cents per share, during the fourth quarter of 2017. Adjusted EBITDA was negative $18 million, compared to $300,000 during the same period of 2017.

For the full year, net sales were $1.515 billion, down from $1.632 billion in 2017. Loss available to common stockholders was $61.5 million, or $1.42 per share, compared to $36.2 million, or 85 cents per share, in 2017. Adjusted EBITDA was negative $5.1 million, compared to a positive adjusted EBITDA of $13.6 million in 2017.