In the first half of November we will be hearing from a slew of companies regarding Q3 earnings but earnings season is well underway already, and we have good indicators from the likes of Novozymes, Clariant, BP, Pacific Ethanol and Green Plains about the overall environment for energy, speciality chemicals, industrial biotechnology and specifically, biofuels.
Let’s take a look.
Industrial biotechnology robust growth at Novozymes.
Also this week, Novozymes (NVZMY) announced 9% organic sales growth for Q3 and 8 percent growth for the nine months of 2014 to date. The company is saying that growth is “broadly based” but highlighted that sales in Household Care and in the bioenergy business have been growing in line with expectations.
Outlook: In comments on the earnings call as reported by Seeking Alpha, CFO Andy Fordyce said that China “provides some headwinds” with “more competition” but described bioenergy as the “brightest star this year” with “23% organic sales growth” this year to date. Fordyne noted that the “U.S. ethanol market product is up around 10% this year so far” and alluded to “new innovation” in the “bioenergy pipeline” within the next six months.
SVP Thomas Videbæk highlighted the opening of celluloisc next-gen plants by Abengoa, GranmBio and POET-DSM as expected, but still great to see” and noted that upgrades at the Beta Renewables’ Crescentino “have started to contribute to higher production volumes” and that “Capacity utilization is increasing” while hailing Italy’s 1% advanced biofuels mandate. But Videbæk said that Crescentino is not yet running at full capacity though Novozymes remains “confident we’ll get there.”
He added that it has been “a significant ramp of time for Crescentino” and stated that “we certainly hope that the other ones will be able to do it faster.”
In looking at the company’s planned target of 15 biomass conversion plants by 2015, Videbæk described the target as “a very challenging and ambitious target” but did not back down from the target, saying that “There’s no indication that this is no longer possible,” while conceding that “It’s not going to be a walk in the park.”
On the 15 by 17 target, CEO Peder Holk Nielsen added that “it’s going to depend a lot on how many new investments goes into these plants in 2015.” On E15, CFO Benny Loft commented that on E15, “we certainly must commit or say that it’s really difficult to see where the E15 – when it will come.”
On the impact of US elections, CEO Nielsen commented that “there’s some risk around the U.S. midterm election and that will create a different mood around bioenergy in the U.S.” He also said that the company is watching for “a potential slowdown in Europe and the emerging markets.”
Ethanol big earnings growth at Green Plains
In Nebraska, Green Plains (GPRE) announced its financial results for the third quarter of 2014. Net income for the quarter was $41.7 million, or $1.03 per diluted share, compared to net income of $9.4 million, or $0.28 per diluted share, for the same period in 2013. Revenues were $833.9 million for the third quarter of 2014 compared to $758.0 million for the same period in 2013.
During the third quarter, Green Plains had record production of 246.9 million gallons of ethanol, or approximately 96% of its daily average production capacity. Non-ethanol operating income from the corn oil production, agribusiness, and marketing and distribution segments was $22.2 million in the third quarter of 2014 compared to $14.2 million for the same period in 2013. Non-ethanol operating income for the nine-month period ended September 30, 2014 was $79.9 million compared to $52.7 million for the same period in 2013.
Revenues were $2.4 billion for the nine-month period ended September 30, 2014 compared to $2.3 billion for the same period in 2013. Net income for the nine-month period ended September 30, 2014 was $117.3 million, or $2.90 per diluted share, compared to net income of $17.9 million, or $0.56 per diluted share, for the same period in 2013.
For the nine-month period ending September 30, 2014, EBITDA was $260.0 million compared to $92.7 million for the same period in 2013.
The earnings took Wall Street by surprise, with Zacks Investment Research reporting a consensus Street estimate of 89 cents so a 12% beat. However, Zacks reported a consensus Street expectation of $987.2M, with the company dragging in $833.9M so a 15% miss there. Obviously a huge swing in margin 5% margin delivered compared to Street expectations of 3.7%.
CEO Todd Becker commented, “U.S. ethanol production margins continue to reflect strong demand, both domestically and globally. As a result of this environment, we are reaffirming our mid-year guidance of stronger earnings per share performance in the second half of 2014,” added Becker.
Green Plains had $414.3 million in total cash and equivalents and $167.7 million available under committed loan agreements at subsidiaries (subject to borrowing base restrictions and other specified lending conditions) at September 30, 2014.
Confirming the ethanol trend – Pacific Ethanol reports record gallons, big growth in revenues, earnings.
In California, Pacific Ethanol (PEIX) reported net sales of $275.6M, an increase of 18%, compared to $233.9M for Q3 2013. The company’s increase in net sales is attributable to its record total gallons sold resulting from increases in both production and third party gallons.
Gross profit was $18.0M, compared to $3.5M for Q3 2013. The improvement in gross profit was driven by significantly improved production margins and corn oil production. Operating income was $13.6M, compared to $1.0M for Q3 2013. Net income available to common stockholders was $3.7M, or $0.15 per diluted share, compared to a net loss of $0.40 loss per share for Q3 2013.
CEO Neil Kohler noted: “We delivered solid financial results for the third quarter of 2014, supported by efficient operations and continued strong ethanol market fundamentals.” CFO Bryon McGregor, added: “Since December 31, 2013, we increased our cash balances by over $51.1 million. As a result, our working capital increased to approximately $93.3 million from $51.2 million at the end of 2013.”