Cosan Limited (CZZ) failed to gain momentum in third-quarter 2014, posting weaker year-over-year results. Net income plummeted approximately 92.6% to R$15.2 million (US$6.7 million) from R$205.9 million (US$90.3 million) earned in the year-ago quarter.
The net income decline was due to lower revenues generated and higher expenses incurred in the quarter. Also, foreign currency translations caused an adverse impact of R$209.3 million (US$92.2 million) on Cosan's financials.
Revenues
Cosan’s net operating revenues totaled R$2,362.3 million (US$1,040.7 million), down 3% year over year. Pro forma revenue, including the Raizen contribution, were R$10,283.6 million (US$4,530.2 million).
Fuel sales expanded 12.5% year over year primarily backed by higher sales volume of diesel and gasoline. Sugar sales in the quarter dipped 28% to R$1,075.1 million (US$473.6 million), while ethanol sales declined by 37.4% to R$952 million (US$419.4 million).
Raizen Energia crushed nearly 24.5 million tons of sugarcane in the quarter, reflecting a decline of 8.8% over the year-ago quarter. Sugar production fell 11.6% to 1.9 million tons.
Energy cogeneration revenues soared 50.4% year over year to R$230.6 million (US$101.6 million). Total gas sales volume grew 4.7% year over year. Revenues from Rumo’s Transportation business were down 29.6%, while that from Loading business increased 19.6%.
Revenues from Cosan Lubrificantes climbed 5.5% year over year. Radar’s net revenue surged 69.4% to R$27.3 million (US$12 million).
Margins
Cosan’s cost of sales, as a percentage of revenue, increased 30 basis points (bps) year over year to 70.7% while gross margin decreased by the same magnitude to 29.3%. Sales, general and administrative expenses edged up 2.5% to R$384.5 million (US$169.4 million), representing 16.3% of revenues.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) came in at R$552.6 million (US$243.4 million), down 23.1% year over year. On the other hand, EBITDA margin dropped 610 bps to 23.4%.
Balance Sheet
Exiting third-quarter 2014, Cosan had cash and cash equivalents of approximately R$1,306.5 million (US$537.7 million), down from R$1,321.4 million (US$600.6 million) in the preceding quarter. Loans and financing grew 4.7% sequentially to R$7,340.5 million (US$3,020.8 million).
Outlook
Cosan maintained its 2014 net revenues guidance in the range of R$37.5−R$40.5 billion. EBITDA is presently expected within R$4−R$4.3 billion, down from the prior projection of R$4.15−R$4.65 billion. Capital expenditure is predicted in the R$2.4−R$2.7 billion range versus the earlier forecast of R$2.5−R$2.8 billion. Guidance for the company’s segments is discussed below:
Raizen Energia: Cosan expects crushed sugarcane volumes to be approximately 57−58 million tons versus 58−60 million tons forecasted earlier. Sugar volume sold will likely range between 4.1−4.3 million tons, down from 4.2−4.5 million tons.
Guidance for ethanol volume sold has been lowered to 1.9−2.1 billion liters versus 2−2.2 billion litres anticipated previously. Volume of energy sold is expected within 1.95−2.15 million MW. EBITDA is likely to range between R$2.3−R$2.7 billion, while capital spending is expected to come within R$2.0−$2.2 billion.
Raizen Combustiveis: EBITDA is anticipated in the R$2.0−R$2.2 billion range and capital expenditure in the R$750−R$850 million range.
Rumo: Volume of loading is expected within 10.5−11.5 million tons as against 10.5−12.5 million tons projected earlier. Capital expenditure is anticipated within R$250−R$300 million range.
Radar: EBITDA is expected in the range of R$140−R$150 million versus the prior projection of R$170−R$200 million.
Cosan Lubrificantes: Volume of lubricants and base oil sold is likely to come within 265−285 million liters as against 270−310 million liters predicted earlier. EBITDA is expected in the R$110−R$140 million range, down from the earlier forecast of R$140−R$170 million.
Comgas: Volume of gas sold is likely to range between 5.2–5.7 million cbm while EBITDA is expected in the range of R$1.30–R$1.55 billion. Capital expenditure is likely to come in the R$0.6−R$0.7 billion range, slightly below earlier forecast of R$0.68–R$0.78 billion.
With a market capitalization of $2.8 billion, Cosan presently carries a Zacks Rank #2 (Buy). Some other stocks worth considering in the industry include Limoneira Company (LMNR), The Andersons, Inc. (ANDE) and Public Service Enterprise Group Inc. (PEG). While Limoneira Company sports a Zacks Rank #1 (Strong Buy), both The Andersons and Public Service Enterprise carries the same Zacks Rank as Cosan Limited.
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