Green Plains: Margins improving in second quarter

By Erin Voegele | May 07, 2018

On May 7, Green Plains Inc. released first quarter 2018 financial results, providing an overview of company operations and announcing plans to implement Fluid Quip’s patented high-protein technology.

Todd Becker, president and CEO of Green Plains, indicated the company’s ethanol plants operated at approximately 76 percent capacity during the quarter, down from a historical average of 92 percent.

"Margins were weak in the first quarter, yet we expect demand for ethanol to improve domestically and internationally as we enter summer driving season," Becker said. "As we indicated in February, we limited production due to weak ethanol margins as well as major capital improvements at our plant in Madison, Illinois. We achieved a record yield of 2.89 gallons of ethanol per bushel of corn as a result of our efforts to continue driving efficiency in our ethanol production processes.”

During an investor call, Becker noted Green Plains’ actions to reduce its production levels during the quarter resulted in “1.4 million barrels of inventory not sitting in a storage tank somewhere in the United States.”

According to Becker, Green Plains’ actions helped margins recover during the second quarter, before reversing, and then beginning to strengthen again. “To say that we have unprecedented volatility is an understatement,” Becker said. “Overall, margins across our platform for the second quarter have finally now gone back to high single digests/low double digits, as an average.”

Becker said Green Plains expects its run rates to be closer to normal during the second quarter, but noted industry-wide run-rates are lower overall due to maintenance turnarounds. “We will continue to take a disciplined approach to production because we believe that doing so can have a positive impact on margin structure,” he continued.

Regarding work at the Madison, Illinois, plant, Becker announced the company converted the facility from a continuous process to a batch process. He said the change will “have major effect on the overall competitiveness and margin structure for this plant and our platform.”

Also during the quarter, Green Plains signed a letter of intent to implement Fluid Quip Process Technologies’ patented Maximized Stillage Co-Products system. “This proven bolt-on technology produces high-protein animal and fish feed ingredients from a portion of distillers grains and is expected to provide a consistent uplift of at least 10 cents per gallon to the ethanol margin structure,” Becker said. “After the careful evaluation of several technologies, we are excited to choose Fluid-Quip's MSC for our first implementation at Shenandoah, Iowa. As we have indicated in the past, we believe the margin contributions of corn oil and high-protein feed ingredients will help our returns become more predictable and consistent over time."

According to Becker, Green Plains exported 73.1 million gallons, or 26 percent of its total production, during the first quarter. He said 95 percent of that volume moved through the company’s export terminal in Beaumont, Texas, which unloaded 25 unit trains during the quarter.

Becker also provided a brief update of operations at the company’s joint venture terminal at the Port of Little Rock, Arkansas, which offloaded its first train on April 12. That project is a 50/50 joint venture between Green Plains and Dalek Logistics.

The U.S. ethanol industry as a whole exported 512 million gallons during the first quarter, Becker said. “Currently we have no reason to change our fundamental outlook for 2018 of 16.1 billion gallons of ethanol production, 14.4 to 14.5 billion gallons of domestic blending, and 1.6 to 1.8 billion gallons of exports,” he added.

Becker also discussed Green Plains’ new Portfolio Optimization Program, which he said is focused on driving the company’s share price higher.

"We have built a platform whose intrinsic value is not reflected in our market valuation," Becker said. "To remedy this, we intend to optimize our portfolio. Our primary goals are to improve our share price and significantly reduce our debt levels."

"Future investments will be focused on protein production, streamlining our export supply chain to leverage our strong position and maximizing our returns at our export facility in Beaumont, Texas," said Becker. "Assets that do not align with these goals will be divested to fund our capital needs in support of this strategy." The company has retained XMS Capital Partners as the lead advisor, and Ocean Park to manage the process of certain assets.”

Green Plains produced 280.4 million gallons of ethanol during the first quarter, down from 326.4 million during the same period of 2017. The consolidated ethanol crush margin was $15.3 million, or 5 cents per gallon, compared to $37.7 million, or 12 cents per gallon, during the same period of last year.

Consolidated revenues reached $1.045 billion, up $157.6 million when compared to the same period of last year. Operating loss of $3.9 million decreased $21.3 million. EBITDA was $23.1 million, down from $43.8 million during the same period of last year.