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Renewable Energy Group In Q2: Happy Days Are Here Again

Aug. 07, 2018 1:08 PM ETChevron Corporation (CVX)7 Comments
Tristan R. Brown profile picture
Tristan R. Brown


  • Biomass-based diesel producer Renewable Energy Group saw its share price set a new all-time high after it posted strong Q2 earnings.
  • While the earnings beat the consensus estimates on both lines, they were especially notable for the fact that they were based on a great operating environment rather than policy support.
  • The Q2 report showed that Renewable Energy Group is very capable of generating solid profits even without the blender's tax credit and high Renewable Identification Number prices.
  • Management's outlook suggests that the Q2 result will not be a one-time event despite a lack of support from the White House for the U.S. biofuels mandate.

Biomass-based diesel producer Renewable Energy Group (REGI) reported Q2 earnings this week that beat the consensus estimates on both lines. More importantly, the company managed to notch one of its strongest quarterly performances of the last several years during a quarter in which the biodiesel sector received relatively little federal policy support. It has taken longer than the company's investors would have liked, and the going has been anything but smooth, but Renewable Energy Group's Q2 earnings showed that it is able to break out of the rut that it has been in since late 2013. Not surprisingly, investors have responded to the news by sending its share price above $20 for the first time ever (see figure). Last month, I wrote that the Q2 report would do much to show whether Renewable Energy Group's "recent performance is a sign of sustained strength rather than a temporary fluke." The answer now appears to be the former.


REGI data by YCharts

The Q2 earnings report can be a bit confusing at first glance due to the retroactive extension of the biodiesel blender's credit [BTC] by Congress earlier this year for 2017. In other words, in early 2018, Congress retroactively provided the refundable tax credit of $1/gallon to biomass-based diesel producers, but only for fuel produced during the previous year. This has greatly skewed Renewable Energy Group's recent earnings reports, first because it was recorded on the Q1 2018 earnings and second because the YoY comparisons for Q2 2018 now show its impact in the prior-year quarter. When reading the Q2 earnings report, it is important to remember that the 2017 vs. 2018 comparison is not on a like basis, as the tax credit is not reflected in the 2018 numbers but could appear in them in subsequent earnings reports. The comparison will change again if Congress retroactively extends the tax credit for 2018, as it has


US Gulf Coast Diesel Spot Price data by YCharts


SOYB data by YCharts


REGI EV to EBITDA (TTM) data by YCharts

This article was written by

Tristan R. Brown profile picture
My articles do not represent investment advice. Readers should perform their due diligence before investing in any security or fund that is mentioned by my articles.

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