Pacific Ethanol expresses optimism for industry in earnings call

By Matt Thompson | November 11, 2019

During Pacific Ethanol’s third quarter earnings call Nov. 8, CEO Neil Koehler told investors that the ethanol industry experienced one of its worst production markets. But conditions have begun to improve, he said. “Starting and the end of the third quarter, and continuing in this quarter, production margins rebounded to levels better than any time in the last two years, resulting in positive margins,” Koehler said.

He added that Pacific Ethanol is optimistic margins can remain positive, with the help of E15 sales, and renewed ethanol exports to China. “With that expected resolution of the China trade disputes, and incremental growth in other export markets, we could set a new record for ethanol exports in 2020,” he said.

Pacific Ethanol’s Aurora East plant remains idle, and the company’s remaining plants aren’t operating at full capacity. Koehler said Pacific Ethanol’s run rate was at 82 percent for the third quarter of 2019. With several other plants idle or slowed down across the U.S., Koehler said he feels the industry has done a better job of managing production. “I do think that we have an industry that is—while we can do more work in this area—more disciplined than it’s been in the past and that we are cautiously optimistic that we will see an industry that will continue to keep supply and demand in better balance,” he said.

He added that before plants start to ramp up production, there will need to be more positive some assurance that improved margins will continue. “If you’re a plant that’s shut down today, you’re going to want to see more clarity on that forward curve before you’re going to bring the people back to work and commit the working capital to fire that plant back up

While unable to detail specifics, Koehler said the company is continuing negotiations for the sale of some of its assets.

During the call, Pacific Ethanol CFO Bryon McGregor, said net sales for the third quarter were $365 million, compared to $346 million during the second quarter. Loss available to share holders was $27.6 million, which equates to 58 cents per share. Koehler said these losses were “due in large part to EPA’s excessive granting of small refinery exemptions and the continuing trade dispute with China.” However, he expressed with both issues hopefully resolved soon, the industry will face improved margins. “We are encouraged by the positive margins thus far in the fourth quarter,” Koehler said. “Industry ethanol inventories are near two-year lows and supply and demand is more balanced than any time this year, and inventory and trade developments promise to increase demand for low-carbon, high-octane ethanol moving into 2020.”