Green Plains, Inc. (GPRE)

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Green Plains Renewable Energy, Inc. (GPRE)

Q4 2010 Earnings Call

March 3, 2011 11:00 am ET


Todd Becker – President, Chief Executive Officer and Director

Jerry Peters – Chief Financial Officer and Assistant Secretary

Steve Bleyl – Executive Vice President of Ethanol Marketing

Jeff Briggs – Chief Operating Officer

Jim Stark – Vice President, Investor and Media Relations


Lucy Watson – Jefferies & Company, Inc.

Michael Cox – Piper Jaffray & Co

Farha Aslam - Stephens Inc.

Ian Horowitz – Rafferty Capital Markets

Matt Farwell – Imperial Capital, LLC

Matthias Ederer - Goldman Sachs

Brent Rystrom - Feltl and Company



Good day ladies and gentlemen, and welcome to the Green Plains Renewable Energy Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to introduce your host for today’s conference, Mr. Jim Stark. You may begin.

Jim Stark

Thanks Amy. Good morning and welcome to our fourth quarter and full year 2010 earnings call. Todd Becker, President and CEO; Jerry Peters, our CFO; Jeff Briggs, our Chief Operating Officer, and Steve Bleyl, our Executive Vice President of Ethanol Marketing are on the call today. We are here to discuss our fourth quarter and full year financial results of 2010 and recent developments for Green Plains Renewable Energy.

We have prepared a slide presentation for you to follow along with as we go through our comments today. You can find this presentation on our website on the Investor page under the Events and Presentations link. Our comments today will contain forward-looking statements and forward-looking statements are any statements made that are not historical facts.

These forward-looking statements are based on the current expectations of Green Plains’ management team 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’s expectations.

Please refer to page two of the website presentation and our 10-K and other periodic SEC filings for information about factors that could cause the outcomes to be different. The information presented today is time-sensitive and is accurate only at this time. Any portion of this presentation that is rebroadcast, retransmitted or redistributed at a later date, we do not plan to have updates to as we go forward.

I would now like to turn the call over to Todd Becker.

Todd Becker

Thanks, Jim. Glad you could join us on the call this morning, and we have a number of topics to cover today, so let’s get right to it. We experienced good improvement with safety last year; both our total reportable incident rate and lost time were down versus the prior year. Operating our plants in a safe environment remains a priority to us, and I’m pleased with the progress we made in 2010.

We had a strong finish to 2010 ending the year with $2.1 billion of revenue, $48 million of net income and $1.51 in diluted earnings per share. That makes for two consecutive profitable years for our young company, and we plan on remaining profitable as we continue to expand our platform.

All of our segments had a solid year that contributed or generated $109 million of operating income before corporate expenses, totaled EBITDA for 2010 was approximately $130 million.

We were successful in expanding our ethanol production platform last year both organically and through acquisitions by adding 200 million gallons, which is a 42% increase in capacity. 157 million gallons of that capacity came from the Global Ethanol acquisition and 43 million gallons of that capacity was added through our process improvements and debottlenecking. That 43 million gallons was done at a cost of less than $0.10 a gallon of capex or capital expenditures. I will discuss these improvements later in the call.

For the coming year, we expect our eight plants to produce approximately 680 million gallons of ethanol. And once the Otter Tail acquisition is completed, which should be later this month, we will be at 740 million gallons annual run rate.

We increased our grain storage capacity by 63% in 2010, and this is an area we are keenly focused on growing further in the coming years. We are planning to both build and acquire more grain assets strategically located in proximity to our ethanol production plants, but would not be averse to looking at Agribusiness growth outside of our ethanol plant territories.

The Agribusiness segment underperformed our expectations last year and we have made changes to the structure of this business unit. I believe we can improve the income contribution significantly as we are improving our returns on grain handling and reducing our operating expenses.

With that said though, the Tennessee acquisition was a great strategic fit and it’s performing very well. Marketing and Distribution saw steady improvement year-over-year with the operating income contribution from this segment increasing to $11.2 million in 2010 or more than three times greater than 2009.

We expect this segment to have significant growth this year with net corn oil earnings recognized in this business segment. Remember, the corn oil equipment at the plants is owned by the Marketing and Distribution segment. And those cash flows, after keeping the ethanol plants whole for lost distillers grain revenues, flows freely to the parent.

By the end of the year, we had four plants on line producing corn oil, but most were just starting up, so we had limited production during the quarter of 5 million pounds of product.

Today, we are deployed at five of our eight plants. The three remaining plants should be completed in the second quarter. And once the Otter Tail acquisition is closed, we will move to install corn oil extraction at that plant very quickly.

Once all of the plants have the technology deployed, we expect to produce over 100 million pounds of corn oil on an annual basis, and with current prices in the corn oil market, we expect to generate at least $30 million of incremental operating income annually, paying back our investment in less than eight months.

Since the project was implemented, we have seen corn oil prices as high as $0.55 a pound on a gross basis. From that, you’ll need to deduct a small amount of operating costs and to make whole to the subsidiaries for the value of the lost distillers grains to get to a net price realized. This product typically trades at a discount to soy oil, which we do not expect to change and is used in both biodiesel production and seed markets.

We continue to diversify our business, and as we noted in the earnings release yesterday, we expect to generate $50 million of total operating income annually from corn oil production, agribusiness operations, and marketing and distribution services, essentially income from non-crush sources.

We believe this additional operating income provides our overall company with a solid platform of recurring cash flows to manage through the dynamics of the commodity processing business and help us minimize the impact of margin contractions from ethanol production over time.

We ended the year with a strong cash position of $261 million. We generated positive cash flows from operations and raised $170 million of debt and equity capital last year to fund our growth. We also substantially increased our short-term borrowing capacity by $110 million at both our Trade Group and Agribusiness operations to support the growing working capital needs of both businesses.

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