Tuesday, October 13, 2015

Run-up to Rentech Earnings Report

On November 10th Rentech, Inc. (RTK:  NYSE) is scheduled to report financial results for the quarter ending September 2015.  The report will give investors a chance to check up on the wisdom of Rentech’s switch to supplying wood fiber and fertilizer and abandonment of renewable energy technologies.  The Rentech Process is based on Fischer-Tropsch chemistry involving the conversion of biomass and petroleum resources into hydrocarbons.  Ultimately these hydrocarbons can be upgraded to clean-burning fuels and chemicals.  The company also developed biomas gasifiers to co-generate renewable power. 

These days Rentech processes wood fibers and pellets and manufactures fertilizer at its Rentech Nitrogen Partners subsidiary, which is publicly traded under the symbol RNF.  In the twelve months ending March 2015, Rentech reported $506.5 million in total sales.  There was a net loss of $76.4 million, but cash flows from operations in the period were $53.5 million.  Indeed, Rentech has reported net losses in each of the last three fiscal years, but consistently delivers positive cash flows.  Rentech needs the cash.  The company has to support interest and principal pays on $534.5 million in debt.

There is only one estimate published for Rentech  -   a net loss of $0.30 per share on $117.9 million in total sales.  If achieved, the company will be on track to deliver $517 million in sales for the year, resulting in a net loss of $3.00 per share.  The year 2015, appears to be unfolding with mixed progress compared to the prior year, when the sales were $472.7 million and the net loss was only $1.80 per share. 

Rising sales and deepening losses are not the sort of news that warms the hearts of investors.  The stock has been in a free fall since mid-June 2015.  Of course, this has been the fate of many stocks in the U.S. equity market.  However, there was a particular downdraft for Rentech.  Apparently, there had been an expectation for a return to net profitability in the quarter ending June 2015.  Instead, Rentech delivered higher expenses and a deeper loss than ever.  RTK now looks oversold, despite a particularly bullish formation that registered last week in a point and figure chart for the stock.

Rentech really deserves the boot out of our Beach Boys Index of companies using biomass to create energy and power.  Wood pellets and nitrogen fertilizer are a long way from renewable energy.  However, we have had some hope that Rentech can generate enough cash to pull its renewable energy technologies back out of moth balls. 

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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