Pacific Ethanol Third quarter results:
Ian Gilson, CFA
On October 26th Pacific Ethanol (PEIX) reported its third quarter results.
| 3Q10 | 2Q11 | 3Q11 | Zacks est. | |
| Ethanol produced (million gallons): | 0.0 | 38.1 | 38.0 | 38 |
| Third party sales: | 71.5 | 62.5 | 84.6 | 72 |
| All ethanol: | 71.5 | 100.6 | 122.6 | 110 |
| Total revenue per gallon (in dollars): | 0.64 | 2.13 | 2.22 | 2.14 |
| Average selling price (in dollars): | 1.93 | 2.79 | 2.97 | 2.70 |
| Total revenue (million dollars): | $46.04 | $214.6 | $271.6 | $235 |
| Pro-forma EPS | -$1.10 | -$0.30 | $0.00 | $0.01 |
| GAAP EPS | -$1.10 | $0.03 | $0.12 | $0.0 |
Cash increased to $16.8 million and the current ratio is 3.3:1
Third party ethanol sales were very strong, internal ethanol production was close to maximum capacity and co-product prices (WDG) were up sequentially.
In the fourth quarter we expect a modest seasonal slowdown but the third quarter strength in third party sales should spill over into the fourth quarter.
The mandated level of ethanol in gasoline moves from 12.6 billion gallons in 2011 to 13.2 billion gallons in 2012 (and 15 billion gallons in 2015)
Given the increases in ethanol levels in gasoline in 2011, and assuming continued positive gross margins the Madero plant, may be re-opened. We are assuming very modest production from this plant in the first quarter 2012 then production at the full capacity of 10 million gallons per quarter for the rest of the year.
The price of ethanol is more closely related to the price of gasoline than to the price of corn. At this point in time corn has peaked and the price has dropped. This has a slight but positive effect on gross margins.
California is the largest gasoline consuming state in the Union and there is a shortage of ethanol production in California. Pacific Ethanol has a very strong presence in the Western United States and markets 100% of the ethanol produced in California. In the past about one third of the company's sales are from internal production, one third under contract and one third from other sources. This is moving to a smaller proportion of internal and contract ethanol, even when the Madera plant is re-opened. We would expect Pacific Ethanol to announce more contracts in 2012 as the supply of ethanol tightens in California.
Pacific Ethanol has announced an agreement with ZeaChem to maintain the plant, produce and sell the ethanol produced from cellulosic material (no corn) feedstock. This is a small plant with capacity of 250,000 gallons a year and it is situated very close the Boardman, OR, plant.
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