Ethanol segments boost companies' bottom lines

By Kris Bevill | October 06, 2009
Report posted Oct. 28, 2009, at 3:12 p.m. CST

Third quarter financial reports from Valero Energy Corp. and Novozymes show that ethanol is providing a profitable portion to the companies' overall balance sheet.

Valero reported a third quarter net loss of $219 million, compared to a net income of $1 billion for the third quarter of 2008. The company's operating loss was $579 million versus an income of $1.8 billion for the same time period last year. Losses were attributed to lower margins on diesel and jet fuel and smaller discounts on feedstocks.

"Refining margins in the third quarter continued to suffer from a combination of weak demand for refined products and high inventories," Bill Klesse, Valero's chairman of the board and CEO, said. "[However], similar to last quarter our retail and ethanol segments had outstanding results."

Valero's ethanol segment earned $49 million of operating income in the third quarter, more than double its earnings from the previous quarter. Klesse said the increase in ethanol's income was due to increased run rates at the company's ethanol production facilities and good operating margins. According to Klesse, Valero's October ethanol margins have continued at strong levels.

After a difficult first-half of 2009, Novozymes reported improved enzyme sales for the third quarter. The company said enzymes for fuel ethanol production developed "especially well" in the quarter, helping to bring the year from a loss to a break-even. The company said favorable ethanol prices compared to gasoline prices combined with more ethanol plants coming online resulted in increased demand for its enzymes in the third quarter. However, demand is still below 2008 levels. "Although utilization rates at the ethanol plants have improved over the year, they are still slightly lower than last year, affecting enzyme sales negatively," the company stated. "In addition, Novozymes' enzymes sales in the first nine months were disproportionally impacted by some specific customers' lower ethanol outputs compared to the same period of 2008."

Novozymes said it continues to increase its fuel ethanol enzyme market share, despite the difficulties experienced earlier this year, and controls more than 60 percent of the market.