According to Yahoo, Renewable Energy Group (NASDAQ:REGI) is scheduled to release earnings today after the market close, and confirmed by REGI's website. What I love about REGI and other biofuels companies is that you can make statements with a great deal of confidence because if you do your homework, you can track the margins that REGI is likely making throughout the quarter. From those margins you can estimate how REGI will do at the end of the quarter.
Assuming that REGI maintained or expanded production this quarter relative to the first quarter, investors can feel pretty confident that REGI's earnings, margins and revenues will be higher than the first quarter. REGI should also compare favorably to second quarter 2012 because at the time there was no blender tax credit in place, and there was a looming tax credit battle that really hurt biodiesel firms late last year.
Revenues: During the last quarter the ethanol blend wall became an issue, driving the price of RINs to extremely high levels. RINs at one time traded above $1.40, a fact that is even more unusual given that this year there is also a $1 blender tax credit in place. High RIN prices resulted in higher biodiesel prices. Late in the first quarter Mid-West FAME biodiesel traded around $4.65/gal, today it trades around $5.00. I show an average of about $4.82 for the current quarter, $4.23 for the first quarter 2013 and $4.13 for second quarter 2012. With higher revenues per gallon, I think it is a pretty safe bet REGI will report higher earnings relative to the first quarter and second quarter last year.
Margins: Assuming no change in OPEX for REGI, feedstock prices have been relatively stable all quarter. Currently yellow grease goes for $0.345/lb, which is below the $0.36/lb early in the second quarter when I wrote an article detailing margins. The average for the current quarter was $34.74, $35.84 for the first quarter and $38.91 second quarter 2012. With higher revenues and stable to lower feedstock costs, it is a pretty sure bet margins will be higher for the second quarter than they were in the first, and the second quarter last year when falling RIN prices drove many biodiesel plants to shut down operations.
Earnings: With stronger margins REGI should report strong earnings, stronger than the first quarter and second quarter last year. That however doesn't mean REGI will trade higher on the good news. All the analysis I outlined above may already be discounted in the stock price of REGI. Biofuels companies have already had a very strong quarter.
In conclusion, REGI is likely to report strong earnings, margins and revenues, but that may not be enough to drive the stock higher. This revelation is unlikely to be a secret to Wall Street, and the earnings report may provide an opportunity to take profits and lock in gains. The ethanol "blend wall" issue provided a windfall for REGI and other biofuels firms. That issue however may be a dark cloud on REGI's and other biofuels companies because it has triggered hearings in Washington that could alter the future prospects of these companies with a stroke of a pen.
Disclaimer: This article is not an investment recommendation. Any analysis presented in this article is illustrative in nature, is based on an incomplete set of information and has limitations to its accuracy, and is not meant to be relied upon for investment decisions. Please consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author's best judgment as of the date of publication, and are subject to change without notice.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.