Green Plains reports 'good performance' considering margins
While it’s true Green Plains Renewable Energy Inc. reported a $1 million net loss in the third quarter, the company’s Oct. 31 conference call highlighted several positives and predicted a profitable fourth quarter.
For example, Todd Becker, president and CEO, pointed to positive earnings before interest, taxes and amortization (EBITA). The company’s risk managers and traders worked hard to produce a $21.7 million EBITA in the third quarter, which compares to $41.6 million in the same time period of 2011. “While that doesn’t sound like much, when you consider the margins environment during the quarter, it was a good performance by the team,” he said. “It shows the ability of our overall asset base to perform during cyclical swings as compared to our peers.”
The company’s focus on managed margins helped it achieve a 2 cent a gallon crush margin in the third quarter. In comparison, average daily crush, or spot margins, were at negative 14 cents, Becker said. (See chart.) In addition, if Green Plains didn’t report earnings from corn oil separately its margins would have been in the high single digits. For the fourth quarter, which began Oct. 1, about 60 percent of the company’s ethanol margins are locked in at a profitable level. “I have confidence to say that our ongoing operations will return to profitability at the at the net income line in the fourth quarter,” he said.
The company’s nonethanol segments contributed significantly in the third quarter, generating a record $20.8 million in operating income, Becker said. The components of that include $7.8 million in corn oil, $7.2 million in marketing and distribution and $5.8 million from the agribusiness sector.
A major component of the increased income in the marking and distribution sector includes the company’s efforts to lease out railcars to transport crude oil, taking advantage of skyrocketing lease rates to earn a profit. Green Plains is now leasing out more than 500 railcars in one year contracts, with lease rates “north of” $3,000 per car per month, Becker said. The contracts have three quarters remaining and if they expire, there are other interested parties. The expected return is between $12 and $14 million in a year, with the potential to extend into a second year.
Strong results in the agribusiness sector are a function of the early harvest, Becker said. He expects earnings in agribusiness to temper in the fourth quarter, which is a flip flop from the traditional seasonal pattern in that industry. The sale of 12 of the company’s 15 grain elevators was also discussed. Becker said the move wasn’t a retrenchment or a defensive strategy for the company, which will retain about 6 million bushels of grain storage at its three remaining grain elevators and 11 million bushels of storage at its ethanol plants, with expansions planned. In fact, the company has a goal of doubling or even tripling grain storage capacity during the next several years at or near its ethanol plants. “If we could triple that capacity we think we could duplicate most of the grain handling earnings of the assets we are selling but at a reduced cost, both capital and operating,” he said.
Jerry Peters, chief financial officer and treasurer, also mentioned that the company is continuing to pay down its long-term debt, with a net reduction of $12.8 million in the third quarter. As of Sept. 30 the company’s total ethanol plant debt was at $411 million, or 56 cents a gallon. “That’s the lowest mark in our history and based on our current compliment of ethanol plants, we should see plant debt drop to about 48 cents per gallon by the end of 2013,” he said.