Pacific Ethanol sets quarterly record for gallons sold

By Erin Voegele | August 01, 2014

Pacific Ethanol Inc. has released financial results for the second quarter of 2014, reporting net sales of $321.1 million, a 37.4 percent increase over the $233.8 million in net sales reported for the same period of last year. The increase is attributed to the company’s record total gallons sold resulting from increases in both production and third party gallons.

"Our strong second quarter results reflect favorable market conditions and our on-going initiatives to improve plant efficiencies. We repositioned our company for profitable growth in the past few years by reacquiring and maintaining our production assets while improving our balance sheet,” said Neil Koehler, the company's president and CEO. “Going forward, we will focus on leveraging our production and marketing advantages to further increase profitability and expand our share of the growing market for low-carbon renewable fuels."

Gross profit for the quarter was $33.6 million, up from $7 million during the second quarter of 2013. The improved gross profit is a result of significantly improved production margins and corn oil production. Operating income was $29.3 million, up from $3.8 million during the same three months of last year. Net income attributable to common stockholders was $15.3 million, or 68 cents per diluted share. During the same quarter of last year, Pacific Ethanol reported a net income available to common stockholders of $700,000, or 7 cents per diluted share.

"During the second quarter, we made significant strides in further improving our balance sheet and liquidity to position us for continued growth,” said Bryon McGregor, chief financial officer of Pacific Ethanol. “We raised net proceeds of approximately $26.0 million through an underwritten public offering, eliminated all indebtedness at the parent company level and we reduced our net consolidated plant term debt to $17.0 million. Since quarter-end, we also raised approximately $19.7 million from the exercise of warrants, leaving us with warrants outstanding to purchase only 1.6 million shares of common stock. This drop in warrants outstanding will reduce GAAP earnings volatility in future quarters."

During a call to discuss the results, Koehler noted the company has continued to perform exceptionally well. “The plants are operating at excellent margins, our marketing business continues to grow in both gallons sold and overall margin contribution, and we are reinvesting capital in our core production business to further reinforce our market position,” he said.

“Industry dynamics in the first six months of 2014 were positive,” Koehler continued. “Sound market fundamentals drove strong demand for our products and favorable production margins. Overall, ethanol demand remains at expected levels in the U.S. while exports provide overall balancing support to the industry. This year’s corn crop is on track to be a record harvest, and we expect global supply and demand for ethanol to provide continued underlying support for strong ethanol margins.”

Koehler also provided highlights of several company initiatives related to the production of advanced and cellulosic biofuels. He spoke briefly about a $3 million grant recently awarded to the company by the California Energy Commission to develop a sorghum feedstock program collaboratively with Chromatin Inc., CSU Fresno's Center for Irrigation Technology and the Kearney Agricultural Research and Extension Center. 

He also provided a brief update of Pacific Ethanol’s initiative with Sweetwater Energy, noting that partnership has reached the product development phase. The Madera, California, plant is now the likely location for the initial project with Sweetwater, he said, noting that project will likely take a couple of years to commercialize. Once complete, Pacific Ethanol will purchase industrial cellulosic sugars from Sweetwater. Those sugars will be produced at a facility located adjacent to the Madera plant.

Regarding Pacific Ethanol’s work with Edeniq to produce cellulosic ethanol, Koehler noted the companies are currently working to complete supply arrangements on an appropriate enzyme for commercial production. Once complete, that project will enable the production of cellulosic ethanol from corn kernel fiber.

In addition, Koehler indicated Pacific Ethanol is completing a pilot program for anaerobic digestion at is Stockton, California, plant. That pilot project focuses on the substitution of biogas for natural gas for the integrated production of advanced biofuels.

The Magic Valley, Idaho, facility lends itself to greenfield development of additional production capacity from wheat straw, Koehler said. “We are evaluating the feasibility of a bolt-on cellulosic project at this facility,” he continued.

Finally, Koehler said Pacific Ethanol is analyzing various configurations of congeneration. This is particularly true for the California plants, where he said electricity prices are high and the company receives a low carbon premium.