Small Cap Strategist is published by Crystal Equity Research an independent research resource on small capitalization stocks. Follow along as we discuss the most recent trends in the small-cap sector, investigate interesting companies and pan a few not-so-promising stocks.
Last week the
Chief Executive Officer of Green
Plains, Inc. (GPRE:Nasdaq),
Todd Becker, revealed during conference calls following its quarter earnings
report that the company has been in discussions to sell ethanol to industrial
users in Mexico.It is news that could
be music to shareholders ears.U.S. storage
tanks are brim full of ethanol as producers like Green Plains stock pile
inventories waiting for better selling prices.Green Plains has made claims to Mexico sales before, but has never
revealed customer names or volumes.None
were named this time.
Can Mexico rescue Green Plains from the ethanol doldrums?
reportedly bought 4% of U.S. ethanol exports in 2014.That is not an impressive all things
considered.Canada and Brazil are more
important and larger customers for the U.S. ethanol industry.In 2014, Canada bought over 1.2 billion
liters of Yankee ethanol and Brazil placed orders for another 375 million
liters.Even the United Arab Emirates is
a more significant importer of U.S. ethanol, at least in terms of the rate of
growth in purchases by that country.
pace of purchases from our good friends down south could accelerate.At the beginning of 2015, Pemex, Mexico’s
state-owned oil company, announced its intentions to begin selling gasoline
mixed with ethanol as part of a plan to reduce emissions.However, Pemex let contracts to source
ethanol from domestic producers not U.S. producers.Two of the initial contracts were cancelled
due to ‘irregularities’, revealing the difficulty Mexico might be having in cultivating
an effective domestic ethanol industry.Perhaps that will leave open a door for enterprising U.S. exporters.
ethanol is only one part of the picture.Ethanol production results in several by-products, including corn meal, corn
oil and distillers gains among other agricultural products.Exports of ethanol production by-products
continue to be robust and industry analysts are predicting strong long-term
growth.Distillers grain (DDGs) exports by
U.S. producers were $3.4 billion in 2014 , setting volume and value records.China is the largest importer of U.S. DDG production
and Mexico comes in second place.The countries
in the European Union favor U.S. corn gluten feed and Indonesia is the largest
customer for corn gluten meal. About
three-quarters of U.S. high-fructose corn syrup ends up in Mexico.The in the Middle East and Africa buy about two-thirds
of U.S. corn oil production. Corn meal,
feed and oil exports were valued at around $1.6 billion in 2014.
usual ethanol production by-products, Green Plains also earns fees for ethanol marketing,
trading and logistics services provided to third-parties.Sales of by-products and services represent
about 70% of Green Plains’ total sales.
reported $3.2 billion in sales in the twelve months ending June 2015, providing
net income of $88.3 million.Cash flows
of $93.8 million for the twelve-month period are probably a better barometer
for an ethanol producer.Free cash flow
after capital expenditures was $33.5 million, enough to support a dividend near
$12 million per year and meet debt payment obligations.
struggle that ethanol producers are facing at this point in the industry cycle,
Green Plains appears to have the balance sheet to see it through to better
times.At the end of June 2015, the
company had $527.9 million in cash on the balance sheet. Total short- and long-term debt was $672.8
stock has been in a free fall for the past two months as investors anticipated
the June quarter results.The company
reported a profit in the quarter, but not enough to meet expectations for a far
more robust performance.Perhaps management
should spend more time simply producing sales and profits and less time pumping
up investors for sales that have not been made yet.
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.