GPRE reports on 10th consecutive profitable quarter

By Holly Jessen | October 27, 2011

Corn oil production was just one of the bright spots in Green Plains Renewable Energy Inc.’s third quarter financial report, discussed in a conference call Oct. 27. With installation of corn oil extraction technology completed at all nine GPRE ethanol plants in the third quarter, the company produced 32.7 million pounds of corn oil and generated operating income of $9.6 million, said Todd Becker, president and CEO.

The company had predicted it would produce about 100 million pounds of corn oil yearly but that number is actually closer to about 120 million pounds. Although corn oil yield can depend on corn quality, GPRE expects it will increase its corn oil production numbers as it completes debottlenecking at some of the lower performing plants, Becker said. Payback for installation of the technology was less than a year.

Overall, GPRE’s third quarter brought in net income of $12.4 million or 32 cents per diluted share. That’s up from the same time period in 2010, which saw $7.4 in net income or 23 cents per diluted share. GPRE’s efforts to diversify its business model continue to prove successful. Operating income from nonethanol sources, including corn oil production, agribusiness and marketing and distribution, added up to $13.7 million or 40 percent of the company’s total segment operating income. “We remain confident that we will reach our goal of $50 million of annual operating income from these segments,” Becker said.

For the three months ending Sept. 30, GPRE saw a $336 million increase in revenues for ethanol compared to the same period in 2010. Part of the reason for that was the addition of three ethanol plants in late 2010 and early 2011. Increased revenues can also be attributed to increased production volumes at all the company’s plants and higher prices for ethanol and distillers grains. As of Sept. 13, the company’s debt was at 64 cents per gallon of ethanol production, said Jerry Peters, chief financial officer. That number has been reduced by 22 cents per gallon over the past two years, despite adding three ethanol plants.

Ethanol production margins were better than expected considering high corn prices. That was attributed to GPRE’s risk management strategy of securing physical corn supplies and locking in margins when they are positive. "We continue to expect our overall profitability to improve in the fourth quarter as a result of seasonal activity from the agribusiness segment,” Becker said. “Ethanol production should also have a good finish for the year, although securing some of the early-harvested corn has been challenging as demonstrated by basis levels that are unprecedented for this time of the year."

Another star of the show was GPRE’s collaborative venture with Clarcor Inc., BioProcess H20 LLC and NTR plc. BioProcess Algae operates its trademarked Grower Harvester bioreactors produce algae using CO2 from GPRE’s Shenandoah, Iowa, ethanol plant. There’s a lot of interest in the project, Becker said, both from companies that are testing the algae for various uses and from large and small-scale companies looking to utilize the technology to not just sequester CO2 but absorb it.

The company just announced the completion of a first-of-its kind algae feeding trial for poultry. There’s also interest and opportunity in the fish meal market as well as high value nutraceuticals and possibly even feed ingredients for companion animals. Depending on the market, color of algae becomes more important, Becker said. Some customers may want darker algae rather than green algae due to the way it affects animal waste color. In addition, a small-scale Grower Harvester bioreactor is in early stages of testing at a refinery, Becker added. “We would expect that we would have other opportunities to place reactors at other locations as well,” he said.

In a few months, GPRE plans to break ground for an additional 5 acres for an algae farm at the Shenandoah facility. Depending on how that goes, the company may scale up to 500 acres. The very first consideration, however, will be whether it is profitable. “What we think about every day is the path to profitability,” he said. “If you see us continue to build, you will know it’s a profitable venture.”

GPRE is continuing to evaluate opportunities to acquire additional businesses, including ethanol plants. The time to purchase extremely cheap ethanol plants is past, Becker said. To purchase a good ethanol plant with the right technology today, GPRE is looking at the $1.25 to $1.30 a gallon range. “That is what it takes in our opinion, to buy a good ethanol plant in a good location,” he said.