Green Plains sees strong Q3 earnings, positive ethanol outlook

By Susanne Retka Schill | October 30, 2013

Earnings at Green Plains Renewable Energy Inc. made a strong recovery, according to the company’s third quarter report. Net income for the quarter was $9.4 million, or 28 cents per diluted share, compared to a net loss of $1 million for the same period last year, which amounted to a loss of 3 cents per share. Revenues were $758 million for the third quarter of 2013 compared to $947.4 million for the same period in 2012. Green Plains operates 10 ethanol plants in seven states with a combined capacity of 790 MMgy.      

"We believe ethanol industry fundamentals are as positive as we have seen in recent history," said Todd Becker, president and CEO. "During the third quarter, our team effectively managed through significant price volatility at the end of the crop year. With the recovery in U.S corn production, ethanol is well-positioned competitively, resulting in strong demand for our production in U.S. and global markets. These fundamentals give us confidence we will finish 2013 with the strongest quarterly results of the year."

Green Plains' ethanol production segment produced approximately 176.8 million gallons of ethanol, or approximately 91 percent of capacity. Non-ethanol operating income from its corn oil production, agribusiness, marketing and distribution segments was $14.2 million in the third quarter of 2013 compared to $20.8 million for the same period in 2012. For the first nine months of 2013, non-ethanol operating income totaled $52.7 million.

In its liquidity and capital structure statement, the company trimmed its gross debt and improved its cash position, cutting the net debt by more than half, from $400.1 million in Q3-2012 to $188.7 million in the quarter just ended. The cash and equivalents portion of that equation more than doubled from $159.8 million in Q3-2012 to $362.1 million in Q3-2013. Ethanol plant debt per gallon dropped from 56 cents in Q3-2012 to 45 cents in Q3-2013. The debt service dropped from 10 cents per gallon a year ago to 8 cents per gallon in the third quarter just ended. The company’s goal is to achieve a zero net debt by 2015, Becker added.

"Our growth strategy is to continue to expand our business across all of our segments,” Becker continued. “We believe with our strong balance sheet, we are positioned to accelerate our growth plans. With the completion of our 2013 grain expansion program, we increased our total grain storage capacity to over 27 million bushels and have set a goal of 50 million bushels of capacity by the end of 2015. In addition, we are always searching for acquisitions within our businesses that meet our disciplined criteria," concluded Becker.

The company reinvested in new grain storage this past year after realigning its agribusiness segment with the sale of 11 grain elevators last year. It has rebuilt 75 percent of that capacity at existing facilities and with 10 million of the 27 million bushels located at its ethanol plants. Next year the company expects to add another 10 million to 15 million bushels.

In the investor call following the release of the quarterly earnings, Becker said the company continues to improve its performance. Its ethanol plants achieved an average ethanol yield of 2.83 gallons per bushel, plus 0.71 pounds of corn oil extracted per bushel of corn for a total production of 42 million pounds for the quarter. The company hopes to improve the yield, plus the newest acquisition of the Green Plains group, the former NEDAK Ethanol in Atkinson, Neb., is completing its upgrades to extract corn oil.

In a discussion of market outlook, Becker said distillers grains prices are unusually strong on the domestic and export fronts, with recent sales reportedly topping 120 percent the value of corn. “We believe that until it reaches 140 percent, distillers grains still adds value to rations,” he added.

With lower corn prices bringing lower ethanol prices and a favorable spread between gasoline and ethanol, the export market is heating up for ethanol as well. Becker reported the company has booked export sales into the new year. “In the 12 months ahead, we expect U.S. ethanol exports to be over 1 billion gallons,” he added. With the $1 spread between gasoline and ethanol stimulating domestic demand, including improved E85 sales and greater interest in E15, Becker predicted the industry would run all out this coming year.

When asked about the speculation that the U.S. EPA might reduce the renewable fuel volume obligation in 2014, Becker pointed out that the unintended effect of reduced ethanol demand would be to drive corn prices down. Current corn prices at just under $4.50 has put the cost of sugar equivalent for corn ethanol at under 10 cents a pound, making U.S. corn ethanol competitive with Brazilian can ethanol, he pointed out, with the recent uptick in ethanol exports the result. Even lower corn prices would stimulate even more export demand, he suggested. “At $3.50 corn, that’s 7.5 cents per pound for sugar, and at that point, nobody can make ethanol cheaper than us, and it’s the cheapest fuel in the world.”