Green Plains reports record earnings, favorable 2014 outlook

By Susanne Retka Schill | February 07, 2014

Green Plains Renewable Energy Inc. reported its best quarter ever in its fourth quarter earnings report, producing a record 209.6 million gallons of ethanol and hitting 100 percent of its daily average capacity. In Q4, the company generating total revenues of $712.9 million in all business segments and $51.1 million in operating income, of which nonethanol segments accounted for $28.2 million.

Overall, the fourth quarter was by far the strongest in 2013, which showed a record operating income of $107.9 million overall. Net income for the full year was $43.4 million.  Production totals for the year were 729.2 million gallons of ethanol, 2 million tons of distillers grains, 170.4 million pounds of corn oil, all processed from more than 7 million tons of corn. Corn oil revenues added about 5 cents per gallon of ethanol produced to the bottom line. That would be added to the margin per gallon reported in 2013 that ranged from just 5 cents in the first quarter to 24 cents in Q4.

Milestones for 2013 included the acquisition of three ethanol plants in Atkinson and Wood River, Neb., and Fairmont, Minn., adding 280 million gallons per year of capacity, a 38 percent increase for the company. Green Plains added 9.4 million bushels of grain storage, bringing total grain storage capacity to 30.8 million bushels. Its joint venture with BioProcess Algae was selected to receive a $6.4 million U.S. DOE grant to grow algae for military biofuels specifications. And, the company paid its first quarterly cash dividends, paying out $2.4 million to shareholders in 2013.

"Margins for the ethanol industry expanded during the fourth quarter of 2013 and have remained strong in the near term,” CEO Todd Becker said in the company’s earning statement. “Ethanol and distillers grains prices reflect robust demand and tight supplies both domestically and internationally. As a result of these factors, as well as our recent acquisitions, we anticipate our first quarter 2014 results will be better than the fourth quarter of 2013. Finally, with our current hedging activities and visible margin structure, at this point we expect the first half of 2014 to be our strongest on record."

Becker gave further company and industry updates in a Feb. 6 investor call. Ethanol margins have been volatile, responding to the weekly Energy Information Administration report of production levels and stocks on hand, he said. “Looking at data, we need to produce 925,000 barrels per day of ethanol to match the export demand we see for remainder of year and a small growth in domestic demand.” Production dipped to 895,000 barrels per day in a recent weekly report, he added. The fluctuating production levels of late are one indication supplies will continue to pressure the market.

Ethanol exports are looking to remain strong, Becker said. Green Plains has seen strong export sales in the first quarter of about 11 percent of production, and has 20 percent going for exports in Q2. With Brazil currently out of the export market, the U.S. is supplying some of the South American producer’s traditional demand, plus there are new international buyers looking at ethanol, including China. The favorable price for U.S. corn ethanol is driving that interest, he added. At $4.50 corn, the sugars used in the ethanol process are worth about 10 cents per pound, he explained, which competes very well in a world market where cane sugar is selling for 16 cents.

Becker was asked about progress on its joint venture in BioProcess Algae. The DOE grant has helped the project to continue to improve the process, Becker said. “The commercial scaling of the technology is close to being done. We don’t think our reactors will get much bigger than they are.” Business development efforts are progressing, and the company expects the first contracts to be announced will be for the higher-value products, although those deals will not be announced until the production capability is in place and the deals finalized.

When asked about further acquisitions by investors on the call, Becker quipped, “Nobody right now is saying that they have to sell their plant because margins are good.” With the margin improvement, he said the company is not likely to see the sort of opportunistic deals of recent years, and will have to decide whether to wait for the next downturn in the cycle or pay more for future acquisitions.

Becker was bullish on the E15 in the call. He pointed to the number of chains recently announcing the addition of E15. “National and local retailers are experimenting with E15,” he said, mentioning the recent announcement that MAPCO would add E15 at 100 stations in the Southeast. “There are stations that don’t cost much to convert at all.   We’re going to start to see over time, as retailers put in E15, the competitor across the street will have to react.” The ethanol discount to gasoline that has been just under $1 per gallon is driving that interest, he added.