Pacific Ethanol Anticipates a Gloomy Q4

After its largest one-day gain in nearly four months, Pacific Ethanol (PEIX) disturbed investors by releasing its anticipated fourth quarter earnings.

What did the report say?

-"The Company anticipates reporting gross profit of approximately $1.7 million for the fourth quarter of 2007 as compared to gross profit of $11.7 million for the same period in 2006. The Company anticipates reporting that its gross profit margin was approximately 1.3% for the fourth quarter of 2007 as compared to a gross profit margin of 14.6% for the same period in 2006. The decline in the Company's gross profit and gross profit margins was primarily due to a lower average sales price of ethanol and significantly higher corn costs." Although Pacific Ethanol sold its ethanol for an average of only $1.97 per gallon, it did manage, at least, to out price both VeraSun ($1.87) and Aventine ($1.94). The price PEIX paid for its corn, however, is not mentioned. -"The Company anticipates reporting a net loss of approximately $14.7 million for the fourth quarter of 2007 as compared to a net loss of $3.1 million for the same period in 2006."

-"The Company anticipates reporting a diluted net loss per common share of approximately $0.39 for the fourth quarter of 2007 as compared to a net loss per common share of $0.11 for the same period in 2006." The average analyst estimate is $-0.13. Yikes!

- Here is one thing to be optimistic about: "The Company anticipates reporting net sales of approximately $130.4 million for the fourth quarter of 2007 as compared to net sales of $80.6 million for the same period in 2006. The volume of ethanol sold by the Company in the fourth quarter of 2007 increased by approximately 82% as compared to the same period in 2006 and by approximately 16% as compared to the third quarter of 2007." It seems that Pacific Ethanol will beat the average analyst estimate of 122 million.

Pacific Ethanol's official fourth quarter earnings will be released on March 31st. Stay away from PEIX and any other pure-play ethanol company until profit margins improve as ethanol's crush spread is still very weak. Can the spring and summer travel season cause ethanol's demand to spike?

Comments

[Is thisRight]

Q4 estimates numbers ( released so far) are NOT the whole story:
1/ Oregon was to come online in 1Q08 ( law was passed, plant was built...). So PEIX started puttin in storage in Oregon enough ethanol to serve a BRAND NEW MARKET. So their business incurred the cost of buying the corn, operating the plant and not getting the revenue until the grand opening of the market. This only happens once. And it is a GOOD THING.
2/ Since ethanol price in 1Q08 is higher than 4Q07, even if there was no new market, would you not like to hold back on $1.97/gallon and sell 3 months later for $2.20-$2.30/ gallon?

Come'on... everyone jumps on 4Q07 numbers without a single thought about market condition in 1Q08.

By the way, PEIX is not driving the U.S. SouthEast market supply. But other companies, with their eyes on FL, NC... will have to do the same thing ( build-ahead) in order to develop these NEW markets.