Pacific Ethanol reports increased sales, improving margins

By Erin Voegele | May 10, 2017

Pacific Ethanol Inc. has released first quarter financial results, reporting an increase in net sales and improved margins. Financial performance, however, was impacted by falling ethanol prices. Conditions are expected to improve in the second quarter.

“Year-over-year, first quarter net sales and total gallons sold were up 13 percent and 9 percent, respectively, reflecting the expanded capacity utilization of our production and marketing assets,” said Neil Koehler, president and CEO of Pacific Ethanol. “Compared to the first quarter of last year our production margins improved, but our quarterly financial performance was negatively impacted by sharply falling ethanol prices, which significantly reduced gross profit in our ethanol marketing business. In addition, the week-long shutdown of our Pekin wet mill for scheduled maintenance reduced production and significantly increased maintenance costs. However, the repairs have since contributed positively to the wet mill’s performance.”

“So far in the second quarter, we have seen an improvement in ethanol production margins with increased seasonal demand and a record pace of ethanol exports,” Koehler continued. “As a result, we expect a better operating environment and improved financial performance for the company through 2017.”

Pacific Ethanol reported first quarter net sales of $386.3 million, up from $342.4 million during the first quarter of last year. The increase is attributed to a growth in production and third-party gallons sold, along with higher average ethanol sales price per gallon.

Gross loss was $5.8 million, compared to a gross profit of $1.1 million during the same period of 2016. The decrease is attributed to lower gross profit from the company’s third-party marketing business, which was impacted by falling ethanol prices during the first quarter, and a scheduled shutdown of the Pekin, Illinois, wet mill for routine maintenance along with unanticipated repair and maintenance expenses at the facility.

Pacific ethanol reported an operating loss of $11.2 million, compared to $7.2 million during the first quarter of last year. Net loss available to common stockholders was $12.9 million, or 31 cents per share, compared to a net loss of $13.5 million, or 32 cents per share, during the first quarter of 2016. Adjusted EBITDA was negative $1.9 million, compared to a positive adjusted EBITDA of $1.6 million.

Pacific Ethanol sold 226.2 million gallons of ethanol during the first three months of the year, up from 206.6 million gallons during the same period of last year, along with 685,000 tons of coproduct, up from 661,400 tons. The company utilized 92 percent of its ethanol production capacity during the quarter, up from 87 percent during the same period of last year. Average ethanol sales price per gallon was $1.62, up from $1.53 during the first quarter of 2016.

During an investor call, Koehler discussed several upgrades and improvements being made to Pacific Ethanol’s facilities. “We are continuing our long-term strategy of implementing initiatives, projects and programs to increase operating efficiencies, enhance yields, improve our carbon scores and reduce operating costs,” he said.

The installation of a cogeneration system at the company’s Stockton, California, plant is in the late stages of interconnection and synchronization setup with the local utility provider, Koehler said, noting the company is in startup mode of the system. The cogeneration system will deliver steam and electricity to the plant while lowering emissions, he continued. While synchronization and startup have been slower than expected, the system is expected to be operating at 50 percent capacity by the end of the second quarter and at full capacity by the end of the third quarter. Once fully operational, the system is expected to reduce annual energy costs by up to $4 million.

At the Madera, California, facility, Pacific Ethanol has been operating a Whitefox industrial-scale membrane system at commercial levels since the start of the year. The system has been performing well and meeting expectations, Koehler said. The technology separates water from the ethanol plant’s dehydration process, lowering energy consumption, increasing production efficiencies and reducing the carbon intensity of the plant’s ethanol production.

Also at Madera, Koehler said work is continuing toward the installation of a 5 MW solar power system, which is expected to reduce the plant’s utility costs by $1 million per year and lower its carbon score. We are working through local utility connections, and our goal remains to start full-scale operations in early 2018.

Koehler said Pacific Ethanol is on track to begin commercial production of cellulosic ethanol at the Madera plant using Edeniq technology during the second half of the year. The facility is expected to produce up to 1 million gallons of cellulosic ethanol annually. U.S. EPA approval is expected around the time of commercial operations, Koehler said.

The Stockton plant is already producing cellulosic ethanol and high-value D3 RINs, he continued, and is on track to produce up to 1 million gallons of cellulosic fuel annually. “We continue to focus on fine-tuning this technology to maximize yields and efficiencies,” Koehler said, noting that Pacific Ethanol is also working with the California Air Resources Board to qualify cellulosic production at the Madera and Stockton facilities for additional low-carbon fuel credits under the state’s Low Carbon Fuel Standard.

Koehler also briefly discussed the ethanol export market during the investor call. He said the U.S. exported more than 1 billion gallons of ethanol last year, up 26 percent from 2015. According to Koehler, Pacific Ethanol currently expects 2017 ethanol exports to grow by an additional 20 percent, possibly setting a new record.