Green Plains Inc. (NASDAQ:GPRE) recently announced financial results for the fourth quarter of 2018. Net income attributable to the company was $53.5 million, or $1.13 per diluted share, for the fourth quarter of 2018 compared to net income of $46.6 million, or $0.99 per diluted share, for the same period in 2017. Revenues were $827.5 million for the fourth quarter of 2018 compared with $921.0 million for the same period last year. Net income during the quarter was impacted by the gain on the sale of certain assets of $150.4 million, offset by $13.2 million of deferred debt issuance costs written off as a result of the term loan B pay-off, and $3.4 million of severance expense, yielding a $133.8 million positive benefit before tax.
Revenues attributable to the company were $3.9 billion for the year ended 2018, compared with $3.6 billion for the same period in 2017. Net income attributable to the company for the year ended 2018, was $15.9 million, or $0.39 per diluted share, compared with net income of $61.1 million, or $1.47 per diluted share, for the same period in 2017.
“Our cash position and balance sheet remain solid even as the ethanol industry margin environment has been under pressure for an extended period of time,” stated Todd Becker, president and chief executive officer. “We executed on each component of the portfolio optimization plan during the quarter by proving value of our assets through the sale of certain ethanol plants and the vinegar business as well as paying off our term loan B which achieved the milestone of having no direct encumbered ethanol assets for the first time in the company’s history. We also achieved a nearly $19 million forward run-rate reduction in annualized controllable expenses, we executed a small share repurchase and continued construction on our first high-protein technology project in Shenandoah. We continue to carry out the portfolio optimization plan, as we look to divest additional assets and focus on capital allocation in the future.”
“We remain confident that E15 will be implemented by the Administration for the upcoming summer driving season and exports could get a boost from the U.S. and China resolving the trade issue between the two countries,” commented Becker. “The ethanol industry needs demand growth, and both of these initiatives could reduce inventories allowing for a return to a better margin structure for the industry over the next several months. In addition, we are encouraged by the recently reported reduction of industry run rates and inventory levels not much above last year. We believe that lower overall retail gasoline prices have kept demand for our products high. Finally, we believe the addition of high-protein feed co-products over the next several years will transform our company by improving profitability,” Becker added.
Full Year Highlights
- On May 7, 2018, Green Plains announced its portfolio optimization plan in which it would divest assets that do not support the company’s strategic focus on the production of high-protein feed ingredients and ethanol exports to significantly reduce or eliminate the company’s term debt and invest in high-protein process technology at certain ethanol facilities. The plan’s five strategic objectives include:
o Prove value of Green Plains’ assets for our shareholders through strategic divestments;
o Significantly reduce or eliminate term debt by the end of 2018 with sale proceeds;
o Invest in high-protein process technology at the Shenandoah, Iowa ethanol facility with other locations to follow;
o Repurchase shares with remaining proceeds and free cash flow when market conditions are optimal; and
o Reduce controllable expenses $10 to $15 million on an annual run rate basis, starting in the third quarter of 2018.
- On July 31, 2018, the company acquired two cattle-feeding operations from Bartlett Cattle Company, L.P. for $16.2 million, plus working capital of approximately $106.6 million. The transaction included the feed yards located in Sublette, Kan. and Tulia, Texas, which added combined feedlot capacity of 97,000 head of cattle to the company’s operations, now totaling 355,000 head.
- During the third quarter of 2018, the company extended the maturity date for one year to October 1, 2019 with certain beneficial owners of $56.8 million of the company’s outstanding 3.25% convertible senior notes due 2018. On October 1, 2018, the remaining aggregate principal of $6.9 million not extended was paid in cash.
- On November 15, 2018, the company announced the completion of the sale of three ethanol plants to Valero Renewable Fuels Company, LLC for $319.8 million in cash, including preliminary net working capital and other adjustments. The transaction included ethanol plants located in Bluffton, Ind., Lakota, Iowa, and Riga, Mich. which represented approximately 20% of the company’s reported ethanol production capacity. Also, the company announced the permanent closure of the Hopewell, VA ethanol facility.
- On November, 28, 2018, the company announced the completion of the sale of the Fleischmann’s Vinegar Company, Inc. for $353.9 million in cash and restricted cash including preliminary net working capital and other adjustments.
- On November 28, 2018, the company announced that it repaid its entire obligation for the $500 million senior secured term loan due 2023. As a result, all of the company’s assets and subsidiaries, not including Green Plains Partners LP (NASDAQ:GPP), are unencumbered from term debt.
- On December 12, 2018, the company announced the formation of Optimal Aquafeed, a 50/50 joint venture to produce high-quality aquaculture feeds utilizing proprietary techniques and high-protein feed ingredients. The joint venture brings together Green Plains’ production capabilities, commodity expertise, and infrastructure and combines that with Optimal Fish Food’s intellectual property, industry expertise and customer relationships.
- During the fourth quarter of 2018, we repurchased 209,682 common shares at an average price of $14.18. Approximately $80.3 million remains available from the $100 million stock repurchase program announced in August of 2014.
Results of Operations
Green Plains produced 205.1 million gallons of ethanol during the fourth quarter of 2018, compared with 340.8 million gallons for the same period in 2017. The consolidated ethanol crush margin was $(16.8) million, or $(0.08) per gallon, for the fourth quarter of 2018, compared with $26.8 million, or $0.08 per gallon, for the same period in 2017. The consolidated ethanol crush margin is the ethanol production segment’s operating income before depreciation and amortization, which includes corn oil, plus intercompany storage, transportation and other fees, net of related expenses.
Consolidated revenues decreased $93.5 million for the fourth quarter of 2018, compared with the same period in 2017, as a result of the divestiture of the three ethanol plants and a decrease in ethanol production.
Operating income increased $99.8 million and earnings before interest, income taxes, depreciation and amortization (EBITDA) increased $91.6 million for the fourth quarter of 2018 compared with the same period last year primarily due to the $150.4 million gain on the sale of assets during the fourth quarter. Interest expense increased $13.1 million for the fourth quarter of 2018, compared with the same period in 2017, primarily due to the $13.2 million write-off of deferred debt issuance costs related to repayment of the $500 million senior secured term loan due 2023. Income tax expense was $14.7 million for the fourth quarter of 2018 due to the company’s realized gain on the sale of assets mentioned above, versus a $63.9 million benefit for the same period in 2017 driven by the recognition of a revaluation of deferred tax liabilities.
The company reports the financial and operating performance for the following four operating segments: (1) ethanol production, which includes the production of ethanol and distillers grains, and recovery of corn oil, (2) agribusiness and energy services, which includes grain handling and storage, commodity marketing and merchant trading for company-produced and third-party ethanol, distillers grains, corn oil, natural gas and other commodities, (3) food and ingredients, which includes cattle feeding and food-grade corn oil operations and included vinegar production until the sale of Fleischmann’s Vinegar Company, Inc. during the fourth quarter of 2018 and (4) partnership, which includes fuel storage and transportation services. Intercompany fees charged to the ethanol production segment for storage and logistics services, grain procurement and product sales are included in the partnership, and agribusiness and energy services segments and eliminated upon consolidation. Third-party costs of grain consumed and revenues from product sales are reported directly in the ethanol production segment.