Pacific Ethanol announces record net sales for third quarter

By Holly Jessen | November 01, 2011

Pacific Ethanol Inc., an ethanol producer that has seemed to put past troubles behind it, reported good news during its third quarter financial report.  The company’s net sales climbed to an all-time high of $271.6 million for the third quarter of 2011, compared to net sales of $46 million during the same time period in 2010. Total gallons sold was a good news story too, with 122.6 million gallons sold in the third quarter, a sequential increase of 22 percent compared to the second quarter of 2011 and a 71 percent increase compared to the third quarter of 2010. “We believe we are better positioned than ever to execute on our diversified business model,” said President and CEO Neal Koehler during Pacific Ethanol’s Oct. 26 conference call.

The company’s three operating ethanol plants, a 60 MMgy plant in Burley, Idaho, a 40 MMgy plant in Boardman, Ore., and a 60 MMgy plant in Stockton, Calif., all produced at or near capacity in the third quarter of 2011, he said. Margins were strong thanks to solid ethanol and feed sales as well as an improved commodity margin environment. “Our focus at the plants remains on attaining high yields, lowing our input cost, maintaining high plant availability and securing positive plant margins,” he said, adding that the company will continue to evaluate new technologies to increase margins, decrease the carbon intensity of its ethanol and decrease input costs.

An improved commodity margin environment also contributed to gross profit, which rose to $8.2 million in the third quarter of 2011 from $4 million during the same time period in 2010. Operating income also went up significantly, hitting $4.7 million in the third quarter, compared to $1.2 million for the same period in 2010.

The company’s fourth plant, a 40 MMgy plant in Madera, Calif., is the only Pacific Ethanol plant that remains idled. “Today margins support a restart,” Koehler said. “That being said, current ethanol demand is capped to gasoline demand as ethanol is effectively blended at 10 percent in all U.S. gasoline.” Considering the fact that gasoline and ethanol demand typically decreases in the winter months and E15 has not yet reached the marketplace, restarting the plant remains on hold. “Our current view is that the most prudent timing for the Madera start up, from both the company and industry perspective, may be the first quarter of 2012,” he said. “[This would] coincide with increases in gasoline demand, increases in the renewable fuel standard minimum blending requirements and increases in demand for the low carbon ethanol we produce to meet the California low carbon fuel standard.” All in all, the company has a positive view of the future. “While we will continue to see volatility, we’re optimistic about margins in 2012,” he added.

The company has also made big progress in reducing its debts, dropping the aggregate unpaid principal balance from $8.4 million to $6.4 million, reported Bryon McGregor, the company’s chief financial officer. “The principal balances of our convertible notes have declined at rates faster than anticipated under the terms of the notes,” he said, adding that since the September payment the company has paid in cash.

Pacific Ethanol has a 20 percent ownership interest in New PE Holdco LLC, which owns the four ethanol plants. Through its subsidiaries, Kinergy Marketing LLC and Pacific Ag. Products LLC, the company markets low-carbon ethanol and wet distillers grains from Pacific Ethanol managed plants and other third-party production facilities. Most recently, Pacific Ethanol announced that it had signed an agreement to provide operations, maintenance and accounting services for ZeaChem Inc., a Boardman, Ore.-based cellulosic ethanol demonstration facility.