Tuesday, July 10, 2012

Rentech Retrenches

Clean energy solution provider Rentech, Inc. (RTK:  NYSE) is scheduled to report second quarter 2012 results the first week in August.  Usually the seasonally strong period, this year the June quarter has shareholders sweating.  That is because the warm weather conditions sent farmers out into fields earlier than usual to prepare fields.  Orders for fertilizer products from Rentech’s East Dubuque, Iowa facility were coming even before the end of the March quarter.  The net effect was to pull sales forward.  The question now is whether June will now present a weak quarter.

Even though Rentech has positioned itself as a leading edge, renewable energy company, its principal product and primary revenue source is decidedly conventional.  The East Dubuque facility produces a variety of fertilizers such as ammonia, liquid and granular urea and nitric acid from natural gas.  Sales of fertilizer products account for 99.7% of total sales.

Profits from the fertilizer business help support Rentech’s alternative energy projects.  Rentech developed technologies for the gasification of biomass.  The company has a demonstration plant in Commerce City, Colorado. Rentech claims it is the largest synthetic transportation fuel plant in the U.S. capable of producing up to 10 barrels of fuel per day.  Rentech has integrated three different processes:  steam methane reforming, Rentech’s own biomass gasification and Fischer-Tropsch technologies. 

To be fair, Rentech does realize revenue in the alternative energy segment.  However, it is mostly from consulting work, licensing or occasional sales of fuel produced in the demonstration unit. 

Rentech shifted gears a while back and has reduced its alternative energy activities.  Management called it a “revised strategy,” but that effect is the same.  Rentech reduced R&D activities and reset standards in favor of smaller projects that require lower capital commitments.  Rentech’s corporate website still describes its Olympiad Renewable Energy Center planned at a site in Ontario, Canada but the company’s recent annual and quarter reports make no mention of Olympiad.

We will be watching Rentech’s June quarter report to see what news the company might have.  Is it just a fertilizer producer at the mercy of the weather and farmer’s planting decisions, or is it a renewable fuel company with the gumption to commit to production?

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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