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Cereplast (CERP) is an exciting company and a leader in the bioplastics movement as regulation, particularly in Europe, increases demand for biodegradable containers and packaging. However, as revenues continue to soar over the year ago period, the company isn’t getting any closer to profitability. That will have to change soon or the stock won’t get off the ground like it did a few months back.

The company posted a wider EPS loss (.15/share) in the last quarter than what analysts were expecting (.11/share) even as revenues came in higher than expected at $7.6 million. Traders didn’t like the report Tuesday and the stock sold off a bit. The company will have to find a way to cut costs and get closer to profitability soon if they are going to meet analysts' predictions for breakeven in 2012. I tend to think they can, but wouldn’t be a buyer of the stock just yet.

CEO Frederic Scheer commented:

Worldwide regulation is fueling demand for bioplastics, and we are gaining traction. We are focused on executing supply and distribution agreements to build critical mass. After the close of the quarter, we secured another distributor in Europe, bringing the total number of supplier and distribution agreements announced in 2011 to six. Governing bodies all over the world are demanding the use of biodegradable/compostable products. The movement has started with bags and is expanding to include flexible and rigid packaging. Near-term, we expect the majority of growth to come from Europe, which is already facing a shortage of compostable bags. To capture this opportunity, in addition to aligning with distributors, we are working to increase capacity. Planning has begun for a 100,000 ton manufacturing plant in Italy. We remain on track to begin phase one production of 50,000 tons in late 2012.

The company is reiterating its full year guidance of revenues in the $28 – 34 million range (analysts are predicting at the high end). They expect the European bioplastics market to grow 20% per year and believe they are capable of matching current demand. Now let’s see if they can get the costs under control and turn a profit.

Technically, the stock has deteriorated in recent weeks, breaking through support of the 200 day moving average with heavy volume. However, it’s holding around the $3 level which has acted as strong support in the past. Should sell volume begin to dry up and buyers come in, that might be a good opportunity to get in on a promising young green company.

Disclosure: None

Source: Cereplast Reports Soaring Revs, But Posts Wider Loss