Green Plains Inc. — Q2 2016 Form 10-Q
Reporting period: Three and six months ended June 30, 2016. Green Plains is a vertically integrated ethanol producer with ethanol production, agribusiness, marketing and distribution, and partnership segments. Figures below are in millions of dollars except per-share data and where noted.
Financial performance
| Metric | Q2 2016 | Q2 2015 | First half 2016 | First half 2015 |
|---|---|---|---|---|
| Revenue | $887.7 | $744.5 | $1,636.9 | $1,482.9 |
| Operating income | $27.4 | $24.4 | $4.8 | $28.5 |
| Net income (loss) attributable to Green Plains | $8.2 | $7.8 | $(15.9) | $4.5 |
| Diluted EPS | $0.21 | $0.19 | $(0.42) | $0.11 |
| EBITDA | $47.7 | $39.7 | $41.9 | $59.0 |
Q2 revenue rose 19.2% year over year, while operating income increased 12.3%. First-half revenue grew 10.4%, but operating income fell sharply and the company reported a net loss attributable to Green Plains. Revenue less cost of goods sold was $78.2 million in Q2 (8.8% of revenue), versus $67.9 million (9.1%) a year earlier; for the first half it was $102.7 million (6.3%), versus $113.9 million (7.7%). Operating margin was 3.1% in Q2 and 0.3% for the first half, compared with 3.3% and 1.9%, respectively, in 2015.
- Cash flow: First-half operating cash flow was $2.8 million, down from $23.2 million. Investing used $48.0 million, including a $20.0 million refundable deposit for the proposed Abengoa plants. Financing provided $47.3 million. Cash and equivalents ended at $386.9 million, versus $384.9 million at year-end 2015.
- Liquidity and debt: Restricted cash was $18.8 million. Current assets were $900.6 million and current liabilities $422.0 million. Total debt was approximately $730.7 million, including $245.6 million of short-term borrowings and $485.1 million of long-term debt. The company reported $182.4 million available under revolving facilities, some subject to restrictions or lending conditions.
- Dividends and capital: Q2 dividend declared was $0.12 per share; first-half declared dividends totaled $0.24 per share. The company repurchased 323,290 shares for approximately $6.0 million in Q2. It incurred $26.5 million in first-half capital expenditures and expected approximately $25.5 million more during the remainder of 2016.
Changes versus the prior comparable period
- Q2 ethanol production segment operating income fell to $10.6 million from $34.2 million. Higher corn costs and production volumes outweighed revenue growth; management cited a 10% increase in average corn cost per bushel for the quarter.
- First-half ethanol production segment reported an operating loss of $22.7 million, compared with $37.6 million of operating income in 2015. The company attributed the decline primarily to weaker ethanol production margins.
- Agribusiness operating income improved to $5.6 million in Q2 and $8.8 million in the first half. Marketing and distribution operating income was $10.6 million for Q2 and $8.7 million for the first half.
- Partnership segment operating income was $14.8 million in Q2 and $27.9 million in the first half, benefiting from storage and transportation agreements that were not in effect for the comparable prior-year periods.
- Q2 ethanol production was a record 274.3 million gallons; facilities operated at approximately 89.8% of capacity. Added output from the acquired Hereford and Hopewell plants supported higher volumes.
Outlook, risks and unusual items
- Outlook: Management expected summer driving season and relatively inexpensive gasoline to support ethanol consumption in the next quarter. The EPA’s proposed 2017 renewable fuel standard modestly increased minimum ethanol volume requirements to 14.8 billion gallons; finalization was expected by November 2016. No company-wide earnings or revenue guidance was provided.
- Proposed acquisition: Green Plains agreed to a stalking-horse bid for two Abengoa ethanol plants, with approximately 180 million gallons of combined annual capacity, for about $200 million in cash plus inventory adjustments and assumed liabilities. The deal remained subject to auction and bankruptcy court approval. A $20.0 million deposit was refundable if Green Plains was not the successful bidder; if successful, closing was expected in Q3 2016.
- Expansion: The company formed a 50/50 joint venture to develop a Beaumont, Texas fuels terminal. Phase I was expected to require approximately $55 million of investment and be completed in Q2 2017.
- Market and operating risks: Results are sensitive to ethanol, corn, distillers grains, corn oil and natural gas prices; weather, supply and demand, regulation, counterparty exposure and merchant-trading activity may affect margins. The company reported $598.2 million of variable-rate debt; a 10% increase in interest rates was estimated to raise annual interest cost by about $3.1 million.
- Liquidity and covenants: The company was in compliance with debt covenants at June 30 and believed it could maintain compliance over the next 12 months, but cautioned actual results could differ from forecasts. Approximately $692.9 million of subsidiary net assets were restricted from transfer to the parent. Green Plains Grain amended its revolving facility on July 27, extending maturity to July 2019.
- Other notable items: BioProcess Algae was consolidated beginning April 1 after Green Plains increased its ownership. The filing states ownership was 82.8% at consolidation and approximately 90% currently. The company expected $4.1 million of net-of-tax derivative losses in accumulated other comprehensive loss to be reclassified into operating income over the following 12 months, with the realized amount dependent on commodity prices. Ordinary-course litigation was not expected to have a material adverse effect; acquisition-related litigation could result in a gain if resolved favorably, with no impact expected from an unfavorable outcome.
Key facts for investors to verify
- Whether the Abengoa auction and court process resulted in an acquisition, and the final purchase price and financing requirements.
- Whether ethanol margins recover, given the first-half segment loss and the gap between higher production volumes and weaker operating results.
- Cash conversion and working-capital trends, especially receivables, payables and inventory, alongside the restricted availability of subsidiary cash.
- Debt covenant headroom, revolving-credit availability and sensitivity to commodity-price and interest-rate movements.
- Final EPA renewable fuel standard requirements and developments in China’s investigation of U.S. distillers grains.
- The effects of BioProcess Algae consolidation and the Beaumont terminal joint venture on results, capital needs and noncontrolling interests.