Aventine: High Corn Costs Affect Results

First off, Aventine (AVR) got the short hand of the stick with its corn. Corn costs in the second quarter averaged $3.99 per bushel, significantly higher than last quarter's price of $3.58 per bushel. This was a high price to pay considering the Q2'07 CBOT daily average closing price was $3.71 per bushel.

Luckily, higher ethanol prices and a reduction in SG&A expenses partially offset what could have been detrimental. Aventine, though, seems to be heading in an optimistic direction. I have been tracking the daily corn price Aventine has been paying at its Pekin ethanol plant.

Spot Prices at Aventine’s Pekin Ethanol Plant:

7/23/2007- $2.91 per bushel
7/25/2007- $2.84 per bushel
7/26/2007- $2.90 per bushel
7/27/2007- $2.94 per bushel
7/28/2007- $2.96 per bushel
7/31/2007- $2.99 per bushel

Aventine has recently been paying below the national average, which is currently $3.04 per bushel. As a result, profit margins are substantially improving this [current] quarter as corn is expected to continue its downfall. Citibank analyst David Driscoll predicts corn prices will level off at $2.75 per bushel in the foreseeable future. Every ethanol producer is paying less. This is the primary reason investors should be optimistic of the ethanol industry.

Another problem which Aventine faced in the second quarter was a decline in ethanol sales. Gallons sold totaled 158.7 million which was considerably lower than the 193.2 million gallons sold in the first quarter. What’s the reason? Over-supply? Nope; Aventine said sales decreased as a result of lower marketing alliance purchases due to VeraSun (VSE) leaving their marketing alliance on April 1, 2007. Aventine has since created two new marketing alliances with E3 Biofuels and Redfield Energy. Both companies have already started to ship their ethanol to Aventine.

Aventine's Current Capacity - 207,000,000 gallons
Pekin, IL - 157,000,000 gallons
Aurora, NE - 50,000,000 gallons
Future Plants:
Mt. Vernon, IN - 226,000,000 gallons. To run by the end of 2008
Aurora, NE - 226,000,000 gallons. To run possibly before the end of 2009
Pekin, Il - 113,000,000 gallons. To run possibly before the end of 2009

Aventine managed to sell its ethanol at $2.29 per gallon, up from $2.10 per gallon first quarter. Ethanol prices have since become cheaper, yet analysts state this will open up new incremental demand.

Though Aventine faced a difficult quarter, they managed to beat analyst expectations. Aventine’s diluted EPS was $.30 per share which beat analysts' expectation of $.27. Revenue generated in the second quarter met analysts' expectation of $394 million. Though this was far from Aventine’s best quarter, it is the future investors should be excited about.

AVR 1-year chart