Green Plains Inc. — FY2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. Although the request identifies 2018 Q4, this filing is an annual report; quarterly results below are unaudited. Amounts are in U.S. dollars.
Business context
Green Plains operates ethanol production, agribusiness and energy services, food and ingredients, and fuel storage and transportation businesses. At year-end it operated 13 ethanol plants with approximately 1.1 billion gallons of annual capacity, six cattle-feeding operations with capacity for approximately 355,000 head, and consolidated Green Plains Partners LP. During Q4, it sold three ethanol plants and Fleischmann’s Vinegar and permanently closed its Hopewell, Virginia plant.
Financial and operating performance
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue | $3,843.4 million | $3,596.2 million |
| Operating income | $115.7 million | $41.7 million |
| Net income | $36.7 million | $81.6 million |
| Net income attributable to Green Plains | $15.9 million | $61.1 million |
| Basic and diluted EPS attributable to Green Plains | $0.39 | $1.56 basic; $1.47 diluted |
| EBITDA (non-GAAP) | $224.7 million | $154.4 million |
| Net cash from (used in) operating activities | $39.0 million | $(182.2) million |
Revenue rose 6.9%, but operating income included a $150.4 million net gain from the Q4 asset sales. Excluding that gain, operating income would have been approximately a $34.6 million loss; reported operating income therefore does not reflect recurring operating performance. Net income attributable to Green Plains fell substantially, while reported EBITDA increased partly because of the asset-sale gain.
Ethanol production segment revenue declined to $2,120.7 million from $2,507.7 million, and the segment recorded an operating loss of $111.8 million versus a $45.1 million loss. Ethanol sold fell to 1.087 billion gallons from 1.256 billion; corn consumed declined to 377.1 million bushels from 437.4 million. Plants operated at about 75% of daily average capacity amid low margins and high domestic ethanol supplies. Food and ingredients revenue rose with cattle-feeding acquisitions; cattle sold increased to approximately 547,600 head from 199,500.
Q4 revenue was $811.1 million, operating income was $107.2 million, and net income attributable to Green Plains was $53.5 million, or $1.32 basic EPS. Q4 included the $150.4 million net asset-sale gain.
Liquidity, debt and capital
At December 31, 2018, cash and cash equivalents were $251.7 million and restricted cash was $66.5 million. Current assets were $1,206.6 million and current liabilities were $833.7 million. The company reported $467.0 million available under revolving credit agreements, subject to borrowing-base and other restrictions; $243.4 million of subsidiary net assets was restricted from transfer to the parent.
Total debt was approximately $891.2 million, including $538.2 million of short-term borrowings and $298.2 million of long-term debt as presented on the balance sheet. The company repaid the remaining $500 million term loan in November using sale proceeds. Variable-rate debt was $672.2 million; management estimated a 10% interest-rate increase would add approximately $3.2 million in annual interest cost. The company reported compliance with debt covenants at year-end.
Investing activities provided $507.5 million, mainly from asset-sale proceeds; financing activities used $540.6 million, primarily reflecting term-loan repayment. Capital expenditures were approximately $44.2 million; projected 2019 spending was approximately $50 million. The company declared $0.48 per share in dividends for 2018 and announced a $0.12 quarterly dividend in February 2019.
Material changes, outlook and risks
- Asset sales: Green Plains received approximately $319.8 million for the three ethanol plants and $353.9 million in cash and restricted cash for Fleischmann’s Vinegar. The transactions generated reported gains and funded debt reduction. The company also reduced the partnership’s minimum quarterly volume commitment from 296.6 million gallons to 235.7 million and extended the storage and throughput agreement to June 2028.
- Portfolio and operations: The company acquired two cattle-feeding operations in August 2018 for $16.2 million plus approximately $106.6 million of working capital, adding 97,000 head of capacity. It permanently closed Hopewell and recorded $4.2 million of workforce-reduction charges.
- Market and regulatory outlook: Management estimated 2019 U.S. net ethanol exports of 1.6–1.7 billion gallons. The 2019 conventional ethanol mandate remained 15 billion gallons, while total renewable volume requirements triggered an EPA reset process. Management noted uncertainty around small-refinery exemptions, RIN prices, potential year-round E15 sales, and trade tariffs.
- Principal risks include volatile corn, ethanol, natural gas, co-product and cattle prices; compressed or negative ethanol margins; RFS and other policy changes; export restrictions and tariffs; counterparty and margin-call liquidity exposure; and the partnership’s minimum-volume commitments. The filing cautions that sustained unprofitable operations could strain liquidity.
- Auditors issued an unqualified opinion on the financial statements and internal controls. Management reported effective disclosure controls and internal control over financial reporting; the acquired cattle operations were excluded from the internal-control assessment.
Important facts for investors to verify
- How much of reported FY2018 operating income and EBITDA is attributable to the $150.4 million asset-sale gain, and what ongoing earnings power remains after the divestitures?
- Whether ethanol margins and plant utilization recover from 2018 levels, and how low RIN prices, refinery exemptions, the EPA reset, and E15 policy affect demand.
- Debt maturities, borrowing-base availability, subsidiary cash restrictions, and the 2019 maturity of $56.8 million principal amount of 3.25% convertible notes.
- Whether cattle-feeding growth produces sustainable margins and whether the remaining businesses can support dividends, planned capital expenditures, and partnership volume commitments.
- Final post-closing working-capital adjustments and any subsequent developments in regulatory, trade, or ordinary-course legal matters.