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Green Plains Renewable Energy, Inc. (GPRE)
Q3 2010 Earnings Call Transcript
October 22, 2010 11:00 am ET
Todd Becker – President and Chief Executive Officer
Jerry Peters – Chief Financial Officer
Jeff Briggs – Chief Operating Officer
Jim Stark – VP, Investor and Media Relations
Michael Cox – Piper Jaffray
Farha Aslam – Stephens Inc.
Lucy Watson – Jefferies & Company
Ian Horowitz – Rafferty Capital
Matt Farwell – Imperial Capital
Paul Resnik – Olympia Capital Markets Group
Gabe Kim – Wellington Management
Doug Millet – Perella Weinberg
Brent Rystrom – Feltl and Company
Dan Chandra – DW Investment Management
Matthias Ederer – Goldman Sachs
Previous Statements by GPRE
» Green Plains Renewable Energy, Inc. Q2 2010 Earnings Call Transcript
» Green Plains Renewable Energy, Inc. Q1 2010 Earnings Call Transcript
» Green Plains Renewable Energy, Inc. Q4 2009 Earnings Call Transcript
I would now like to introduce your host for today’s conference Jim Stark, Vice President of Investor Relations.
Thanks Javon. Good morning and welcome to our third quarter earnings call. Todd Becker, President and Chief Executive Officer; Jerry Peters, our Chief Financial Officer; and Jeff Briggs, our Chief Operating Officer are on the call today. We are here to discuss our third quarter financial results and recent developments for Green Plains Renewable Energy.
Please remember that a number of forward-looking segments will be made during this presentation. Forward-looking statements are any statements that are not historical facts. These forward-looking statements are based on the current expectations of Green Plains’ management and there can be no assurance that such expectations will prove to be correct. Because forward-looking statements involve risks and uncertainties, Green Plains actual results could differ materially from management expectations.
Information about factors that could cause such differences can be found in the third quarter earnings release on Page 2, and in our 10-K and other periodic SEC filings.
The information presented today is time sensitive and is accurate only at this time. If any portion of this presentation is rebroadcast, retransmitted or redistributed at a later date, Green Plains will not be reviewing or updating the material.
Now, I would like to turn the call over to Todd Becker.
Thanks Jim. And thanks everybody for joining us on the call this morning. Margin management and operational excellence are the driving forces behind Green Plains. Our organization continually focuses on what can be done to make us better from top to bottom. This focus is why we are successful in locking in margins that provide us with a consistent profitability and cash flow to sustain our low-cost platform for the long-term.
The third-quarter results reported Thursday aftermarket now makes for six consecutive profitable quarters and puts us in a position to finish 2010 in a very positive note. The sequential quarter accomplishment shows the sustainability what we have created at Green Plains. Our six plants again produced over 129 million gallons of ethanol, as the investments we have made in process improvements continue to provide returns to increase production capabilities.
We remain optimistic that we can increase our production rates organically from our existing platform, but a lot of low hanging fruit has been harvested, and the next steps we are focusing on are yield and plant efficiencies. Keep in mind every 100th point of yield expansion, for example moving from 2.8 to 2.81 gallons per bushels generates approximately $3.5 million of additional margin annually at today’s corn prices. And Jeff will be available to address any questions you have on operations in the question-and-answer session.
Our Agribusiness segment had a solid third quarter as we had good revenue growth and positive operating income, and in a quarter that normally generates a small loss for us. This is the result of the addition of the five grain elevators we recently bought in Tennessee, which doubled the bushels of grain sold in the quarter when compared to a year ago. We look forward to a strong contribution from this segment in the upcoming fourth quarter. The grain markets remain at a carry, and we expect all of our elevators to be full following the completion of harvest in the fourth quarter.
We are focused on greater utilization of these assets and believe this segment still has room for improvement relative to its capabilities. For the trailing 12 months we have produced 504 million gallons of ethanol, we generated $1.8 billion in revenues, $55 million of net income, and over $123 million in EBITDA. Jerry will go into more detail on our numbers a little later in the call.
As we noted in the earnings release, corn oil extraction has begun at our Obion, Tennessee ethanol plant. We are working to install the remaining five plants over the coming 5 to 6 months. This project we believe will have positive financial impact, generating operating income in the range $15 million to $19 million annually based on the production of 75 million to 90 million pounds of corn oil.
The corn oil market remains very strong as well. The recent strength in soy and heating oil has been the main driver behind this. We recently announced the acquisition of Global Ethanol, LLC. Global has two plants with annual capacity of approximately 157 million gallons. We are paying $0.94 on a per gallon basis for the production assets plus working capital. This demonstrates our ability to make acquisitions at attractive valuations utilizing a combination of our strong balance sheet and our stock. That position allows us to meet the objectives of ethanol plant owners, some who want to have a continued ownership interest in the industry and those who want immediate liquidity.
This transaction lowers our average cost of ethanol production assets, and enables us to achieve greater economies of scale in our risk management and back-office operations. We believe this acquisition will be accretive to 2011 earnings, and we expect to complete this transaction in the near future. In addition, we expect the integration to be seamless. We are ready to move these assets into our platform at any time without any lost production. We also believe there is further de-bottlenecking to do at these plants, and they are capable of producing more than the stated capacity.
Risk management remains a critical piece of our business execution. We generated approximately $17 million of operating income in our ethanol production segment. That is a $1.4 million improvement from the second quarter of 2010, and $3 million improvement from the third quarter of 2009. The ethanol margin curve continues to be inverted with the best margin in the nearby and 60 day markets. We have continued to lock in margins at each of our plants, and we remain committed to this proven practice of being absolute price agnostic.
As of September 30, we have locked in margins on 76.5 million gallons of ethanol production for the next 12 months. In addition, we have fiscal index sales on for the fourth quarter. With our hedging program, this positions us to quickly lock in margins when appropriate. The combination of these two components has a large share of our production spoken for in the fourth quarter.