FutureFuel Corp. (FF)

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FutureFuel Corp. (FF)

Q4 2012 Earnings Call

March 19, 2013 9:00 a.m. ET

Executives

Lee Mikles - President

Chris Schmitt - Chief Financial Officer

Rose Sparks - Principal Financial Officer

Analysts

Jonathan Tanwanteng - CJS Securities

Craig Irwin - Wedbush Securities

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the FutureFuel 2012 fourth quarter conference call. At this time all participants are in a listen-only mode. Following management's prepared remarks, we will hold a question-and-answer session. (Operator Instructions) As a reminder this conference is being recorded today, March 19, 2013.

I would now like to turn the call over to Mr. Lee Mikles, President of FutureFuel Corp. Please go ahead, sir.

Lee Mikles

Good morning. This is Lee Mikles from FutureFuel. Thank you for participating in today's call to discuss FutureFuel's 2012 fourth quarter financial results and business progress. Joining me today from FutureFuel is Chris Schmitt, our Chief Financial Officer, and Rose Sparks, Principal Financial Officer.

I would like to remind the listeners that comments made during this call will include forward-looking statements within the meaning of the federal securities laws. These forward-looking statements involve risk and uncertainties that could cause actual results to be materially different from any of the anticipated results. For a list and description of these risks and uncertainties, please review FutureFuel's filings with the Securities and Exchange Commission.

Please note that the content of this call contains time sensitive information that is accurate only as of today March 19, 2013. FutureFuel disclaims any intention or obligation to update or revise any financial projections or forward-looking statements whether as a result of new information, future events or otherwise. With that I would like to turn our attention to the fourth quarter results.

The fourth quarter 2012 results were down from the fourth quarter 2011. Net income decreased 42% to $6.2 million. This decrease was heavily impacted by the softening biodiesel market due to the RSF2 mandate, essentially being met early in the quarter and there being no support from the blenders' tax credit. Biodiesel RIN prices, renewable identification number prices, in the fourth quarter were only a fraction of what they had been in the fourth quarter of 2011.

On a consolidated basis, revenues decreased 17% for quarter 4 versus quarter 4 2011. Adjusted EBITDA totaled $6 million compared to $20 million in the fourth quarter of 2011, and as I mentioned before, net income decreased 42% to $6.2 million. I would like to turn the call over to Rose and then to Chris to talk about our financial results. Go ahead Rose.

Rose Sparks

Thank you, Lee, and thank you everyone for joining us this morning. Regarding fourth quarter 2012, revenues fell 17% to $74.6 million from $89.6 million in the fourth quarter of 2011. Biofuel revenues totaled 33.8 million as compared to $45.1 million in the comparable period from the prior year. Demand for biodiesel was down in the fourth quarter of 2012 as was the sales price. Chemical revenues decreased approximately 8% to $40.8 million from $44.5 million in the fourth quarter of 2011. Revenues from the bleach activator for proprietary herbicide both decreased due to a decline in sales volume from both customers.

Increased sales prices helped to slightly offset these reduced volumes. Gross profits for the biofuel segment decreased from $4.6 million in the fourth quarter of 2011 to a loss of $2.3 million in the fourth quarter of 2012. Biodiesel margins continue to be compressed in the quarter due to a challenging and uncertain economic environment for this product including the lack of the dollar blender credit. Chemical segment gross profit decreased to $10.3 million during the quarter from $14.8 million in the fourth quarter of 2011 on reduced sales and production volumes.

Income before interest and taxes was down 71% totaling $4.7 million, compared to $16.4 million in the fourth quarter of 2011. Net income totaled $6.2 million for the quarter or $0.15 per diluted share. This compares against $10.6 million for the fourth quarter of 2011 or $0.26 per diluted share. With respect to the financial results for the 12 months ended December 31, 2012, revenues totaled $351.8 million, up from $309.9 million for the year ended December 31, 2011.

Biofuel revenues increased from $141.6 million in '11 to $191.4 million in 2012. Sales of biodiesel in the first quarter of 2011 were limited due to the initial conversion to lower grade biodiesel feedstock and adaptation to the improvement in biodiesel economics, whereas in 2012 despite a decline in fourth quarter sales quantities, biodiesel was produced and sold over larger percentage of the fiscal year.

Chemical revenues decreased from $168.2 million in 2011 to $160.5 million in 2012. Revenues from the bleach activator decreased 13% and revenues from the proprietary herbicide decreased 31% during the 12 months as compared to 2011. This decrease was attributable to reduced volumes for both products in 2012 and was partially offset by increased sales prices. We are unable to predict with any certainty the revenues we will receive from these products in the future. Revenues from other custom chemical products were strong with a 47% increase year-over-year.

Biofuel segment gross margins decreased to $8.6 million in 2012 from $19.1 million in 2011. Market conditions were less favorable for biodiesel in 2012 as compared to 2011 partly as a result of the expiration dollar blender's credit at December 31, 2011. The existence of this credit was a significant market factor in the profitability of the biodiesel production. As previously mentioned, biodiesel profitability was particularly low in the fourth quarter of 2012 as the 2012 biodiesel consumption mandate established by the government was largely met earlier in the quarter as we mentioned.

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