FF: Third quarter earnings above expectations.
Biodiesel profitable even without blenders credit or RIN
By Ian Gilson, CFA
FUTUREFUEL CORP (FF): Free Stock Analysis
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Futurefuel Corp. (
reported its third quarter 2012 results on November 8, 2012
followed by a conference call on November 09, 2012, 2012. Both
Chemical sales and biodiesel sales were below our estimates but
gross profits were much better than anticipated. Biodiesel
profits included about $3 million in RIN sales in the third
quarter. We had included a significant amount of petrodiesel
sales in the quarter that did not occur and which accounted for
our estimate being too high. The improved margins for chemicals
and reduced margins for biodiesel Y/Y are, in part, due to the
allocation of certain expenses based on that groups proportion of
revenue versus the prior year's allocation. Pretax income
increased slightly from year ago levels but an higher tax rate
dropped EPS from $0.31a share to $0.30 a share. Income in 2012
was boosted by a change in LIFO accounting for inventory.
Chemical sales, excluding those to P&G and Arysta,
increased.. This mainly was due to sales of one product to
a customer that did not buy any a year ago. This customer buys
product periodically and there may not be any more sales this
Domestic (US) sales were flat Y/Y at $85.8 million but non US
sales declined from$4.5 million to $2.5 million.
Renewable identification numbers (RIN) prices declined
significantly in the third quarter. Prices were $1.17 at the
start of the quarter, dropped to $0.76 at the end of the quarter
and were $0.53 on November 08, 2012. Prices for RINs that can be
used in 2013 are above the current levels. This may be due to the
increase in the mandated production levels of biodiesel, which
increases from 1 billion gallons in 2012 to 1.28 billion gallons
in 2013. Except for the fully integrated producers and sellers of
soy bean products the users of soy beans to produce biodiesel are
not profitable and the 1.28 billion gallon level may not be
reached. This should increase the prices of RINs in late 2013.
There are no current sales of the carbon anode. The take-or-pay
contract revenue is part of the deferred revenue account on the
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