Green Plains Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; balance-sheet comparisons are to December 31, 2015. Green Plains is a vertically integrated ethanol producer, marketer and distributor with ethanol production, agribusiness, marketing and distribution, and partnership segments. Figures below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance and position
- Revenue: $749.2 million, up 1.5% from $738.4 million. Product revenue was $747.2 million; service revenue was $2.0 million.
- Profitability: Operating loss was $22.6 million, versus operating income of $4.1 million. Net loss was $19.8 million, including $4.3 million attributable to noncontrolling interests; net loss attributable to Green Plains was $24.1 million, or $0.63 per diluted share, versus a $3.3 million loss, or $0.09 per share. The $14.9 million income-tax benefit partly offset the pretax loss.
- Margins: Gross profit, calculated as revenue less cost of goods sold, was $24.5 million (3.3% of revenue), compared with $46.0 million (6.2%). Operating margin was approximately (3.0)%, compared with 0.6%.
- EBITDA: Negative $5.8 million, compared with positive $19.2 million. EBITDA is a non-GAAP measure as defined by the company.
- Cash flow: Operating cash outflow was $81.9 million, compared with $45.8 million. Investing cash outflow was $18.3 million, including $18.6 million of property and equipment purchases. Financing cash inflow was $98.8 million. Cash and equivalents decreased $1.4 million to $383.4 million; restricted cash was $17.3 million.
- Liquidity and debt: Current assets were $918.2 million and current liabilities $437.6 million. The company reported $146.6 million available under revolving credit agreements, some subject to restrictions or lending conditions. Debt was approximately $765.9 million, including $277.4 million of short-term notes and borrowings and $488.5 million of long-term debt before current maturities. Total liabilities were $989.6 million.
- Dividends: A $0.12-per-share quarterly dividend was declared and paid in March, versus $0.08 per share in Q1 2015.
Changes versus Q1 2015
- Revenue rose modestly, but operating performance deteriorated sharply, primarily from weaker ethanol production margins and losses on valuation of natural-gas inventories held for fully hedged forward business. Cost of goods sold increased 4.7%, faster than revenue.
- Ethanol production segment operating results moved to a $33.3 million loss from $3.4 million income. Lower realized ethanol and distillers-grains prices and higher production costs outweighed increased volumes; the acquired Hereford and Hopewell plants contributed approximately 24.5 million gallons in the quarter.
- Marketing and distribution reported a $1.9 million operating loss versus $4.4 million income, mainly reflecting lower trading margins. Management said some fully hedged inventory-position profits were expected to be realized during the rest of 2016.
- Agribusiness operating income was broadly unchanged at $3.2 million. Partnership segment operating income was $13.1 million versus a $5.1 million loss, reflecting fees from logistics agreements that were not in effect for the comparable prior-year period.
- Interest expense increased to $10.8 million from $9.2 million, reflecting higher average borrowing costs and debt balances. Operating cash use increased, with management citing lower operating profits and working-capital effects, including higher receivables and inventory and lower payables.
Outlook, risks and unusual items
- Outlook: No specific full-year earnings guidance is provided. Management expected ethanol production and consumption to move into better balance in coming quarters, citing summer driving, export demand, and ethanol trading at a discount to gasoline. It also noted planned seasonal plant maintenance and a USDA corn-planting projection of 93.6 million acres; management said, absent adverse weather, increased corn supply could benefit domestic producers.
- Operations and investment: First-quarter plants operated at approximately 83.3% of capacity and produced 247.0 million gallons, versus 232.5 million gallons a year earlier. Hopewell resumed production in February; corn-oil processing there was expected to become operational in Q2 2016. Management expected approximately $38.2 million of capital spending for the remainder of 2016, in addition to $16.5 million incurred in Q1.
- Liquidity and covenants: Management said it believed working capital was sufficient and expected covenant compliance over the next 12 months based on forecasts, while cautioning that results may differ. Approximately $674.3 million of subsidiary net assets were restricted from transfer to the parent. The Green Plains Grain revolving facility, with $112.0 million outstanding, matured in August 2016; the company said it intended to refinance by maturity. The company reported covenant compliance at March 31, 2016.
- Market and operating risks: Results are sensitive to ethanol, corn, natural gas, distillers-grains and other commodity prices, weather, fuel demand, trading margins, counterparty performance, regulation, and cattle-feedlot operations. A 10% increase in interest rates was estimated to increase annual interest cost by approximately $3.2 million. Sustained unprofitable operations could pressure liquidity and covenant compliance.
- Commitments and legal matters: Contractual obligations totaled approximately $1.40 billion, including debt, interest, leases and commodity purchase obligations. The company had contracted future commodity purchases valued at approximately $312.8 million. It said ordinary-course litigation was not expected to have a material adverse effect. Separate litigation over consideration for the 2013 Fairmont and Wood River acquisition could result in a future gain if resolved favorably; a negative outcome was stated to have no impact.
- Other notable items: On January 1, 2016, the partnership acquired Hereford and Hopewell storage and transportation assets for approximately $62.3 million, funded in part with a $48.0 million revolver borrowing. Effective April 1, Green Plains increased its ownership of BioProcess Algae to 82.8% and planned to consolidate it. The company disclosed no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether ethanol production margins and the reported fully hedged inventory-position losses improve or reverse, and whether the anticipated trading-position profits are realized.
- The status and terms of refinancing the Green Plains Grain facility before its August 2016 maturity, and continued compliance with subsidiary debt covenants.
- How operating cash flow and working-capital requirements evolve, including the availability of revolving credit and restrictions on subsidiary cash transfers.
- Whether expected 2016 capital spending, Hopewell’s ramp-up and corn-oil processing startup proceed as planned.
- The effects of commodity prices, ethanol demand and exports, and the April 2016 BioProcess Algae consolidation on subsequent results.