Green Plains discusses plant improvement projects, Q1 performance

By Erin Voegele | May 10, 2019

Green Plains Inc.’s first quarter 2019 financial performance was impacted by weak ethanol margins and severe weather. However, Todd Becker, president and CEO of Green Plains, said the worst of the low ethanol margin cycle could be over.

“Our first quarter financial performance was impacted by the extremely weak ethanol margin environment, midwest flooding affecting transportation and logistics, and severe winter weather at our cattle feeding operations,” Becker said in a statement. “Albeit still weak, we believe that the worst of the low ethanol margin cycle is behind us, as margins have improved since the end of January. We are also seeing improved cattle margins in the current quarter extending into the second half of 2019 and anticipate achieving $50 to $60 EBITDA per head minimum annualized margins based on forward margins and current hedging strategies.”

During an investment call held May 9, Becker noted the company reported a net loss of $42.8 million, or $1.06 per diluted share for the three-month period. “Our financial results continue to be impacted by the weak ethanol margin environment and our first quarter was also affected by the severe winter weather and flooding in the Midwest,” he said.

Green Plains produced approximately 155 million gallons of ethanol during the first quarter. “We again decided to temporarily idle plants as a result of the poor margin environment and the rail service delays also impacted our production,” Becker said, noting the company’s plants ran at approximately 56 percent capacity during the period. “Our goal is to return to our historical operating run rate at 90 percent or greater,” he said. “This is our target in the second half of 2019 as Madison will not restart until the end of May and should be producing at a higher operating capacity by early July.”

Becker discussed the company’s agreement with ICM Inc. that aims to reduce the company’s operating expense per gallon to 24 cents. He said it has taken longer than anticipated to fix the plants that the company purchased over the past several years. However, he said that the company’s believes it is nearly complete with this effort. By sometime in mid-2020, he said the efforts should place Green Plains back in the top 10 percent or 15 percent of the industry as a low cost producer. He said the company refers to the improvement project as the Project 24 program.

Currently, Green Plains’ plants have a combined production capacity of 1.123 billion gallons, Becker said, but noted that capacity could be reduced through the sale of any additional plants.

Regarding weather impacts during the quarter, Becker said the biggest impact was on the company’s cattle feeding operations. He noted weather also impacted rail transportation in Nebraska as a considerable amount of rail infrastructure was impacted by flooding. “We were forced to idle some plants because of our inability to ship inventory,” Becker said. “This also delayed March shipments of ethanol exports into April as well. All plants are now running close to our three-year historical level except for our Madison Illinois plant, which is going through repair work and should be restarted by the end of May. We decided once and for all to take this plant offline as the sister plant in Mount Vernon operates much better, more consistent, and cheaper cost per gallon. Once back in production, this plant should operate very well. Again, this is a plant we bought, needed to fix, and now we are almost there. It's also part of our Project 24 program.”

Green Plains exported approximately 88 million gallons during the quarter, up 20 percent from the same period of 2018. Top destinations included Brazil, India, Colombia, Korea, and Saudi Arabia.

Looking to the future, Becker said the ethanol industry is “now in the ninth month of what we believe is the longest negative margin environment the ethanol industry has ever witnessed.” He said the solution is higher ethanol demand driven by stronger exports and higher domestic blending levels.

Green Plains produced 155 million gallons of ethanol during the first quarter, down from 280.4 million gallons during the same period of last year. Revenues fell to $642.32 million, down from 1.045 billion during the first quarter of 2018. The company’s operating loss reached $40 million for the quarter, compared to an operating loss of $3.93 million reported for the first quarter of last year. EBITDA was negative $18.7 million, compared to a positive $23.1 million in EBITDA reported for the first quarter of 2018. Net loss attributable to the company was $42.8 million, or a loss of $1.06 per diluted share, compared to a net loss of $24.1 million, or a loss of 60 cents per share, reported for the same period of last year.