FutureFuel reports first quarter results. Chemicals gross margin holds steady despite decline in revenue.
Ian Gilson, CFA
FutureFuel Corp. (FF) reported its first quarter 2012 results on May 9, 2012. Revenue was ahead of our forecast due to an increase in regular diesel fuel sold that moved biodiesel sales ahead of our estimate. Chemical revenue was close to our estimate.
Pretax income was $12.0 million (Our estimate was $12.5 million) and adjusted EBITDA was $16.6 million as compared to $4.0 million and $8.9 million in 1Q11. Cash, cash equivalents and marketable securities increased to $157 million.
Since the tax credit on blending biodiesel into diesel fuel had expired the tax rate on earnings increased from 31.3% to 40.6%, we had estimated a 35% tax rate. The EPS was $0.17, slightly below our estimate of $0.19. We have adjusted our estimates for 2012 and beyond for the higher tax rate. Also (see below) Futurefuel has exercised its rights to terminate its contracts for the herbicide and its intermediates so it is probable that there will not be any sales of these products effective in 2013.
| 1Q11 | 3Q11 | 4Q11 | 1Q12 | |
|
Dollars in millions |
||||
| Chemicals Revenue: | $44.7 | $42.2 | $44.5 | $38.4 |
|
Gross profit margin: |
17.4% | 30.1% | 33.2% | 30.4% |
| P&G and Arysta: | $26.7 | $28.0 | $30.7 | $18.9 |
|
Other chemicals: |
$18.0 | $14.2 | $13.8 | $19.5 |
| Biodiesel & Unblended Diesel: | $7.8 | $48.1 | $45.1 | $47.3 |
| Gross profit margin: | N/M | 18.6% | 10.1% | 2.4% |
| All Revenue: | $52.5 | $90.3 | $89.6 | $85.7 |
| Gross profit: | $5.0 | $22.0 | $19.3 | $12.8 |
| Corporate expenses: | $1.8 | $2.6 | $3.0 | $2.2 |
| Pretax income: | $4.0 | $20.0 | $15.5 | $12.0 |
| Net income: | $2.7 | $12.7 | $10.6 | $7.1 |
| EPS: | $0.07 | $0.28 | $0.26 | $0.17 |
|
Cash, cash equivalents and marketable securities, millions |
$136.1 | $158.8 | $146.0 | $157.1 |
The improved margins for chemicals and reduced margins for biodiesel are, in part, due to the allocation of certain expenses based on that groups proportion of revenue
The tax credit ended on December 31, 2011. We have assumed that the reduction in tax credits is matched by an increase in income from trading RINs.
The chemicals business was impacted by the decline in both the P&G bleach activator (down 19% Y/Y) and the herbicide products for Arysta LifeScience (down 50% Y/Y). These declines were anticipated, and expected to continue. Over the last three quarters the gross profit margin has remained over 30%. The gain in profits from the 2011 first quarter was due to the absence of non recurring expenses.
FutureFuel has been discussing the terms of the contract with Arysta regarding prices and volumes of the herbicide and its intermediates. They have been unable to reach an agreement and FutureFuel has exercised its right to terminate the contracts effective September 1, 2013 for the herbicide and October 1, 2013 for the intermediates. It is possible that Arysta may purchase these products after that but this is not certain. Revenue from this business was worth $30 to $38 million a year from 2009 to 2011. We have assumed that this will decline to $5 million in 2013 and will be zero after that.
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