Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Margins began to turn higher later in the second quarter, driven by favorable fundamentals and low US ethanol prices.
- Potentially record exports for 2024, with strong demand for low-carbon fuels from countries like Canada.
- Positive second quarter EBITDA significantly higher than last year's second quarter and the prior quarter.
- Renewable corn oil yields reached a quarterly platform record at 1.02 pounds per bushel.
- Strong outlook for the balance of the year with favorable corn crop conditions and anticipated high run rates.
Negative Points
- Consolidated revenues for the second quarter were $618.8 million, approximately 20% lower than the same period a year ago.
- Operating costs on a per gallon basis were somewhat elevated due to six scheduled maintenance turnarounds.
- Net loss attributable to Green Plains Inc (GPRE, Financial) was $24.35 million or $0.38 per diluted share.
- Challenges in commissioning the clean sugar project in Shenandoah due to construction and equipment issues.
- Interest expense was $7.5 million for the quarter, although this was $2.2 million favorable to the prior year second quarter.
Q & A Highlights
Q: Todd, there is a lot of discussion on future projects and initiatives in your script. Can you help us think about the gating items that would drive you to allocate incremental capital either to expansion in ethanol production in Nebraska, the next clean sugar facility, ATJ potentially, just help us think about where the capital budget would go from here and when you think you'd be making some of those decisions?
A: I think it was nice right now, is the fact that we're coming to the end of a lot of big capital investments that we have made as you saw, we did not invest a ton of capital this quarter, and it was kind of nice to see that. Now we're coming into a quarter where we could generate free cash flow over and above capital needs to be invested at the moment during the third quarter as well. So we talked about that in the past where we will reach this point where the capital investment goes down and hopefully free cash flow generation comes up. I think we'll see that in the third quarter. What the big investments we have left to make now, is really finishing up clean sugar, which most of that has been paid for already. Now we're in middle of start-up. It really the next big thing for us is to build our compression equipment for carbon capture in Nebraska, which is already financed fully -- anyways and won't take any more cash off the balance sheet, so we'll need no more capital for that as well. We're going to continue to look at our CST start-up as soon as we get positive results on that, we'll start to look at where should we increase Shenandoah or should we look to move that to a second site as well? And it really on ATJ and other initiatives like that. Look, I don't think on the Green Plain standpoint, you'll see us necessarily investing in APJ. because I think we can monetize our early position in low carbon molecules that we're going to produce in Nebraska and continue to drive more and more opportunities there. Couple of big things that we look at in Nebraska should we expand capacity there? And should we look at investments into post-combustion carbon? Both of those are kind of on the table to look at. But at this point, construction costs still remain high to do that and we want to make sure we do the very best thing for the very best returns. Today in the plants, we have that in Nebraska 287 million gallon, some incremental upside there as well. And we feel like we're just in a great position to start to generate that free cash flow, and we'll have to make a determination in Nebraska, what we really want to do next. And that really hasn't been made yet. We just want to make sure that we make progress here. We had confirmation of what we talked about on the 45Z and at that point, it could be all systems go. But at this point, I think we're in a really good place from a capital standpoint as we are winding down that first phase of capital investment and looking at a fully financed carbon upside as well.
Q: Can you just update us on where you are in building that pipeline of 60 pro? And where we should think about that as a proportion of the sales mix by the end of the year and more broadly, what premium you're realizing on all the UHP you're actually selling right now and especially the 60 pro that is in the sales mix?
A: Yeah, thanks. I don't think we absolutely have not deemphasized that at all. In fact, we've talked in length about on the importance of yields and running our sites. They're also bringing online, producing -- starting to produce towards our maximal levels that we indicated. What we saw early in the year was really a compression of higher corn prices and lower protein prices and that really compressed margins during the beginning of the year to levels almost where we -- we just want to make sure we keep our customers in products. But the returns really weren't quite there just because we saw that a couple of years ago as well, and it went away pretty quick. So what you saw then was then you saw soy meal prices rally, protein prices rally, and corn prices go down, widening us back out to kind of our original thesis of pushing towards $200 a ton relative to the wet replacement products that we calculate against. On top of that, though, in the world we saw corn gluten meal prices come down a little bit against soy prices. So that spread narrowed a little bit between kind of the 50 and 60 pro, but that really wasn't affecting us much this year. We're really focused on next year. And we continue to make great progress with some of our customers, we expect to be in their rations. As we indicated, we want to make sure we get a planter two sold for next year during -- later this year and during next year. And we continue to remain on track to try and to get that. But relatively speaking, it does cost money to make 60 pro, we got to make sure that spread widens back out to numbers that we saw early on when we made this investment, we still believe that will happen. We know these markets ebb and flow, but we're not going to stop just focused -- we're not going to stop marketing and getting 60 pro into rations globally. And we've seen some really great results from digestibility from feed conversion ratios of that product. But what we want to make sure is we find ways to make that -- the cost of making 60 pro cheaper and cheaper. And we have some initiatives around that, which we've talked about in the script and that will allow us to get better returns. So absolutely 100%. We have a team focused on it every day, both on 50 and 60 pro. There's no deemphasizing this at all in our platform. And as we continue to make progress on that, we will always continually look at where should the technology be next Fluid Quip continues to find -- try to find ways to build those at cheaper cost. And we've seen some of the construction costs come down and they're working on other things like MSC light and other areas of improvement and then our own internal team as well as looking at how do we improve this product and even get to higher proteins, which we believe, we -- the next couple of years, we could see some breakthroughs in that as well. So we are very focused on that because that's where we earn money today, while we're gearing up for a low-carbon, Nebraska next year, high-grade.
Q: Just wanted to go to CST and just was wondering if you could give us an update of what your estimated sales account for '25 will be? And given the much lower RCI score, are you anticipating a premium to the commissioner corn wet millers product.
A: Yeah. So probably when we look at 2025, we continue to -- which helped develop the sales but our first focus is on making product in spec. And that's what we're focused on every day. And once we have that, we're certain that we can sell that product into the market or the capacity of the system is between 200 million, 250 million pound a year. We have some things that we
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
