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Cosan Q3 Earnings Fall on Weak Revenues and Forex Loss - Analyst Blog

Cosan Limited ( CZZ ) failed to gain momentum in third-quarter 2014, posting weaker year-over-year results. Net income plummeted approximately 92.6% to R$15.2 million (US$6.7 million) from R$205.9 million (US$90.3 million) earned in the year-ago quarter.

The net income decline was due to lower revenues generated and higher expenses incurred in the quarter. Also, foreign currency translations caused an adverse impact of R$209.3 million (US$92.2 million) on Cosan's financials.

Revenues

Cosan's net operating revenues totaled R$2,362.3 million (US$1,040.7 million), down 3% year over year. Pro forma revenue, including the Raizen contribution, were R$10,283.6 million (US$4,530.2 million).

Fuel sales expanded 12.5% year over year primarily backed by higher sales volume of diesel and gasoline. Sugar sales in the quarter dipped 28% to R$1,075.1 million (US$473.6 million), while ethanol sales declined by 37.4% to R$952 million (US$419.4 million).

Raizen Energia crushed nearly 24.5 million tons of sugarcane in the quarter, reflecting a decline of 8.8% over the year-ago quarter. Sugar production fell 11.6% to 1.9 million tons.

Energy cogeneration revenues soared 50.4% year over year to R$230.6 million (US$101.6 million). Total gas sales volume grew 4.7% year over year. Revenues from Rumo's Transportation business were down 29.6%, while that from Loading business increased 19.6%.

Revenues from Cosan Lubrificantes climbed 5.5% year over year. Radar's net revenue surged 69.4% to R$27.3 million (US$12 million).

Margins

Cosan's cost of sales, as a percentage of revenue, increased 30 basis points (bps) year over year to 70.7% while gross margin decreased by the same magnitude to 29.3%. Sales, general and administrative expenses edged up 2.5% to R$384.5 million (US$169.4 million), representing 16.3% of revenues.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) came in at R$552.6 million (US$243.4 million), down 23.1% year over year. On the other hand, EBITDA margin dropped 610 bps to 23.4%.

Balance Sheet

Exiting third-quarter 2014, Cosan had cash and cash equivalents of approximately R$1,306.5 million (US$537.7 million), down from R$1,321.4 million (US$600.6 million) in the preceding quarter. Loans and financing grew 4.7% sequentially to R$7,340.5 million (US$3,020.8 million).

Outlook

Cosan maintained its 2014 net revenues guidance in the range of R$37.5−R$40.5 billion. EBITDA is presently expected within R$4−R$4.3 billion, down from the prior projection of R$4.15−R$4.65 billion. Capital expenditure is predicted in the R$2.4−R$2.7 billion range versus the earlier forecast of R$2.5−R$2.8 billion. Guidance for the company's segments is discussed below:

Raizen Energia: Cosan expects crushed sugarcane volumes to be approximately 57−58 million tons versus 58−60 million tons forecasted earlier. Sugar volume sold will likely range between 4.1−4.3 million tons, down from 4.2−4.5 million tons.

Guidance for ethanol volume sold has been lowered to 1.9−2.1 billion liters versus 2−2.2 billion litres anticipated previously. Volume of energy sold is expected within 1.95−2.15 million MW. EBITDA is likely to range between R$2.3−R$2.7 billion, while capital spending is expected to come within R$2.0−$2.2 billion.

Raizen Combustiveis: EBITDA is anticipated in the R$2.0−R$2.2 billion range and capital expenditure in the R$750−R$850 million range.

Rumo: Volume of loading is expected within 10.5−11.5 million tons as against 10.5−12.5 million tons projected earlier. Capital expenditure is anticipated within R$250−R$300 million range.

Radar: EBITDA is expected in the range of R$140−R$150 million versus the prior projection of R$170−R$200 million.

Cosan Lubrificantes: Volume of lubricants and base oil sold is likely to come within 265−285 million liters as against 270−310 million liters predicted earlier. EBITDA is expected in the R$110−R$140 million range, down from the earlier forecast of R$140−R$170 million.

Comgas: Volume of gas sold is likely to range between 5.2-5.7 million cbm while EBITDA is expected in the range of R$1.30-R$1.55 billion. Capital expenditure is likely to come in the R$0.6−R$0.7 billion range, slightly below earlier forecast of R$0.68-R$0.78 billion.

With a market capitalization of $2.8 billion, Cosan presently carries a Zacks Rank #2 (Buy). Some other stocks worth considering in the industry include Limoneira Company ( LMNR ), The Andersons, Inc. ( ANDE ) and Public Service Enterprise Group Inc. ( PEG ). While Limoneira Company sports a Zacks Rank #1 (Strong Buy), both The Andersons and Public Service Enterprise carries the same Zacks Rank as Cosan Limited.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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