Green Plains reports net loss in Q1, plus several bright spots

By Holly Jessen | April 27, 2012

Green Plains Renewable Energy Inc. announced a net loss of $12.7 million—or a loss of 39 cents per share—in the first quarter of 2012. During a conference call April 26, Todd Becker, president and CEO, said although the quarter was very challenging overall, there were several positives. “After three profitable years of operating, one negative quarter does not change our long-term outlook or view for the company’s prospects,” he said.

One of the bright spots was in the company’s nonethanol businesses, which includes corn oil production, agribusiness and marketing and distribution segments. Total operating income was at $9 million, up from the $5.7 million operating income for the same period of 2011. In all, the company expects to generate about $50 million of nonethanol operating income this year. In addition, the company has been leasing out a portion of its railcars to transport other products, in order to take advantage of skyrocketing lease rates thanks to demand created by the oil boom in the Bakken Formation in western North Dakota. “While small for the first quarter, we are excited about the earnings potential of our railcar initiative to transport other products for the remainder of 2012,” Becker said. “We believe this action will allow us to realize additional income in our marketing and distribution segment without materially affecting our ethanol operations.”

The company’s loss in operating income can be attributed to difficulties in its ethanol production business segment. Following peak margins in the fourth quarter of 2011, ethanol producers faced extremely tight or negative margins in the first quarter of 2012. As a result, Green Plains announced in early February that it would slow production at two of its nine ethanol plants. “This [financial report] is certainly the low market for profitability in this segment for us, but considering there were about 10 days during the quarter where margins were at or break even EBITA [defined as earnings before interest] we feel that we took maximum advantage of what the market was offering,” he said, adding that quarter one had some of the lowest spot margins the ethanol industry had experienced in recent history.

During the first quarter, the company also paid out $2.4 million, after taxes—a one-time payment to Aventine Renewable Energy Inc. This was a legal settlement in connection to Aventine’s Chapter 11 bankruptcy and amounts to 10 cents on the dollar of the original claim, Becker noted. Besides a cash payment, the agreement involves Green Plains purchasing certain quantities of ethanol during a four month period, at which point all Aventine’s claims against Green Plains will be resolved.

Green Plains earned 1 cent per gallon of ethanol produced, before depreciation, looking at the first quarter without considering that one-time payment, said Jerry Peters, chief financial officer and treasurer of the company. That’s a steep drop compared to the 18 cents per gallon the company brought in during the last quarter of 2011. Between the second quarter of 2010 and the last quarter of last year, the company’s earnings ranged between a low of 12 cents a gallon and a high of 25 cents a gallon.

Although the company has a total ethanol production capacity of 185 million gallons per quarter, Green Plains only produced 176 million gallons. Of that amount, it sold 170 million gallons in the first quarter. The 6 million gallons it did not sell was put into storage, either onsite at its production facilities or at off-site locations where the company has long-term storage agreements, Becker said. Green Plains has a total of 16 million or 380,000 barrels of onsite ethanol storage. “The market provided an opportunity to hold inventory and earn a return on storage,” he said. 

Over the last 120 days the ethanol industry as a whole has lowered its production rates by 98,000 barrels per day, Becker said, pointing out that’s the equivalent of nearly 1.5 billion gallons per year. “But that [ethanol production] number needs to go lower to bring supplies and demand back into equilibrium,” he added. As a result, the company is currently running at rates fairly similar to what it did in the first quarter. “We have started to ramp up a little bit, but not that much,” he said.

Becker pointed to the company’s strong balance sheet and liquidity position as helping the company make it through the current period of tight margins. Although margins are stabilized and somewhat improved in the last 30 days, levels are still low compared to previous years and the company believes the second quarter will be similar to the first quarter of the year. Overall, however, Green Plains sees improvement on the horizon. “The forward curve for our ethanol platform shows a much better environment in late 2012 and we continue to lock margins for these periods as well,” he said.