I can't reply to private messages. I only have the basic membership Sorry.
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I have nothing to complain about either. Oh and when it comes to taxes, all I can say is TFSA :D
What's most impressive about that is looking back to the beginning of this quarter at what's happened to the spread during this drop.
June 30th, CBOT corn was $4.24, yesterday it was $3.57 (- $0.67)
June 30th, CBOT ethanol was $2.12, yesterday it was $2.09 (- $0.03)
Value stock play of 2014, and no kids, we're not there yet. Be back in a bit, going out into the street for a little dancing :D
First of all, I'm no expert in option strategies, so I'm the last person to take advice from, lol. However, I did listen to some advice and now I've moved almost exclusively to deep in the money options. I tend to buy right in the range of where they move close to share price and act just like shares. In fact there's usually a point where if the share price goes down, the contract won't lose dollar for dollar (beyond the premium that is if you go to sell), but if it goes up, it will. That's kind of where the Jan 12.50 calls were when I bought.
Up until now I was in Aug calls but at that cheap of a premium I just couldn't resist Jan options. What I do is trade my way up. For example I had $10 PEIX calls at one point. When the share price rose $2 I sold those and bought $12's. Profit removed that can no longer be lost. Yes I incur more fees than if I just bought and held, but I love how the strategy locks in profits. If it's apparent a sustained drop is coming, I've learned to cut my losses. I can always buy back in, but I've learned the hard way that earning back the kind of loses incurred in riding a stock down is very hard to do. Takes discipline. Something I wasn't good at, but I'm getting better.
That said, I did buy some $20's and $22's on the bet that PEIX is going to get there and beyond :D
I'm not one to holler short squeeze (heard it too many times and never seen it pan out on anything I've held) but with the entire short interest under water, anything could happen at this point :D
Jan 2015 $12.50 calls are insanely cheap. Going at around a $0.35 - $0.40 equivalent premium to market share price
The warrant exercising and selling has been a constant brake on the share price. That brake is not going to be around forever. Nor is the end of quarter a factor once they are. In fact if the pace since June 30th keeps up, they should all be gone be when ? Somewhere around the middle of August? Another $12M or so in the bank, and no more brakes on the share price?
What's not to like about this quarter?
:D
With only 1.6M warrants left, by the end of the quarter they should almost all (if not all) be gone. The Q3 closing price will have little to no effect on Q3 EPS.
(edit) A week ago I ran some scenarios on FVA for Q3 based on the warrant estimates at the time. I never posted them because I want to wait until I can see the actual warrant FV table in the Q2 10-Q first. I'm curious about the actual volatility numbe in particular (remember, I assumed a status quo on that input). However, once I see them I'll go back and run them based on the updated numbers. I'll also re-run my Q2 estimate with the updated warrant count for a comparison to the actual FVA.
I think it's almost safe to assume most of the warrants will be gone come Sept 30th.
(edit) Researcher, I will probably follow through and see if the CFO will shed some light, but I'm going to wait until I can go over the 10-Q in depth first. There can be some tidbits in the notes to the balance sheets that answer some questions and lead to others. That way any I have questions will be as informed as possible.
I'll post a reconciliation to my original estimate once the 10-Q is out and I can go over it more thoroughly. I did make an error in the weighted average calculation (which I would also point out, no one else picked up on lol), however, there was also considerably more warrants exercised, which also threw off the number. All in all, that in itself is only part of it.
Anyway, once the 10-Q is out, I will sit down and make revisions to the overall model.
That would rule out the scenario of the Madera start up cost being part of the explanation. Remember, the revenue numbers I used in calculating the plant gross profit came directly from the earnings release.
The operational cost numbers came from a model which has been posted and discussed on this board in the past. I can't personally vouch for those numbers, however, they are the only input relating directly to PEIX that I'm aware of.
One thing I can so is compare those costs to the Iowa Model Plant numbers. While they will vary somewhat due to location, they should serve to at least identify whether those numbers are in the ballpark, and if there are and gaping holes.
BTW, if anyone wonders why I go back and "edit" my posts, in part it's a way to continue to contribute thought while conserving on total posts. I only have a free account and the number of post I can make in a day are restricted to 15. Editing saves on a few posts :D
(edit) As I mentioned earlier, I put together the numbers from the earnings release last night. I think you might be surprised at how well the plant production numbers really were. Which of course, raises a very big question. But first, here's the actual production margin vs what the PEIX default model says:
Edit: I looked at two numbers in my earnings estimate to compare against the projected gross profit number I used. The first was a production margin of $1.29 based on the chart from the PEIX June presentation ( posted that weeks ago). The second was the generated by the PEIX production margin model, which gave the same $1.22 number as above.
I then added in additional costs as they are explained in the Operating Metrics spreadsheet that was posted on this posting board. Perhaps the individual who put that together can offer further comments, but it essentially provides the other inputs that go into each gallon of ethanol, from chemical and natural gas to employee wages. The numbers I used were unchanged from the ones for Q4 2013, however the impact of any adjustments would not be significant on the overall output of plant revenue, nor would they be significant for the purpose of this discussion.
Following today's conference call, I did make a downwards adjustment in the credits. The low carbon credit was adjusted to $0.02 from $0.05. I also backed out what the author of the spreadsheet referred to as the "location credit" as today's CC left some doubt whether that is still in play.
I then extended the resulting margin by the reported plant production for Q2 to come up with the gross profit realized by ethanol production. Finally, a reconciled that against the total Q2 gross profit.
So, that raises the question of what reduced the gross profit? One possibility that I raised yesterday is that Kinergy suffered a loss due to their buying and selling of ethanol. That's a distinct possibility, considered how fast the ethanol price dropped in April.
Keep in mind that the reported 3rd party sales were 85.7M gallons. The production from the 2 plants Kinergy has a marketing agreement with is 110M gal/yr or 27.25M gal/quarter. Subtracting that from the total 3rd party sales leaves approx 58.5M gal that Kinergy bought and sold. Of course we don't know what percentage of those sales were on a cost plus fees basis and what percentage were open market transactions. However, PEIX has stated that approx half of their total sales are with 3 major customers. 58.5M gal is under 50% of their total sales for the quarter, so if we assume it was all open market transactions and divide the difference between the gross plant profit and the total gross profit:
$13M/58.5M = $0.22/gal.
Given how much ethanol dropped during the quarter, it's not an unfeasible explanation for the difference or at least a significant portion of the difference. If some or all of the net $6.6M amount that was borrowed for the Madera start-up was considered part of operational costs, it would reduce that $0.22/gal number:
($13M - $6.6M)/58.5M = $0.109/gal
Add in some additional standard costs that are not captured above and I think this offers at least some plausible explanation of the difference between plant revenue and total gross revenue.
One more comment: The plant revenue numbers again very much validate the PEIX model. If the above explains the lower than expected overall margin, it does help highlight what would of been a very difficult period for Kinergy to operate, and again shows how robust PEIX has become.
BTW if you notice any errors, please let me know, It's been very hot here the past couple days, I've been tired and losing heat because it isn't cooling odwn much overnight. Errors in my figures or my think are very much a possibility.
edit: If the Kinergy loss plays out, this should result in an adaptation in the estimate model that can adjust for falling ethanol prices
If they actually bought out the remaining 9%, it would be front and center and receive it's own PR the day it happened. It would be a major material event.
(edit) Dutch, the 9% of the plants owned by a third party is not debt. It's simply multiple owners of the plants. Think of it this way. You buy a 10% share of a building together with another person that buys the other 90%. The other person is not indebted to you for your 10% ownership in the building.
If the other company were to buy out your 10%, it would not be a reduction of of their debt, since they were never indebted to you. It would be a buyout of your share of ownership.
I was unable to join the conversation about questions for the CC tomorrow because I ran out of allotted posts for the day.
I did run the numbers reported in the earnings report for delivered corn cost, average price for ethanol sales, co-product revenue and total production. Did anyone notice that the co-product return was a whopping 39.5%? They absolutely KILLED their own production margin model numbers ($1.22/gal using their default co-product and corn basis numbers of 30% and $1.28/bushel). I then took off for Nat Gas, Transportation, Plant/Overhead, using the Q4 2013 numbers in the PEIX Operating Metric spreadsheet, and added in the credit numbers from the spreadsheet as well.
Assuming the numbers in the Operating Metrics spreadsheet are close and don't leave anything out, the plant gross profit numbers are very very good. There was a very substantial cost somewhere. Even if Kinergy only broke even, the reduction in Gross Revenue is very sizeable. I wonder if it might of been the pay down of the credit facility. Again I have no idea whether that might be a feasible explanation,as my knowledge is very limited about what can be charged against operating costs. I'll try to get through on the CC tomorrow, but as I'll be calling from Canada, I'm not prepared to sit on hold forever while my cell phone provider makes a small fortune, on the off chance my call/questions might be accepted.
As for NOL's the Q1 10-Q has something to say about that. It might be worth the time to read for anyone who has questions about what they did or didn't do. I'm not going to offer up what's already explained. That's all I'm going to say on that subject, caps or no caps.
I can't answer anyone's question about the start-up costs. I don't know anything more than anyone else here.
I do know my lack of knowledge of the nature of the costs prevents me from jumping to any conclusions on how they should or shouldn't be reported.
My interest is solely in understanding what the costs were that resulted in the earnings numbers, so I can incorporate that understanding in the future. eom.
Waterloo, given your statement, I gather you have the Q1 and Q2 LA average terminal prices for ethanol. If that's the case, could you please post them (or whatever equivalent you have), I've been trying to track them down for quite a while. If it's just one average number for the quarter, that works just fine. If it's on a weekly basis that's fine too. I have only a partial record for Q2, and no number for Q1
Thanks in advance! Cheers!
I have no idea whether they did. We also don't know the nature of work required for the start-up, and as I pointed out previously, there was no expense broken out in the prior earnings that I could find for the Stockton start-up either. For all we know it's cleaning, cost of initial corn, chemicals, and the like, general maintenance, etc. I did poise the question as to the nature of what the expense would be a few weeks back and no one knew. There was kind of a loose consensus that it could be treated as a capital expense and excluded from the earnings calc,but no one really had the answer.
As for warrants, a lot more were exercised than I (or I think anyone) allotted for. They state right in the earnings release that there are 1.6M left as of today. That's a lot less than the estimated 4.1M as of June 30th than I used. Keep in mind the last numbers we had to work with were released back in May. The basic share count used for the earnings calc says 22.276M outstanding and 19.9M diluted as of June 30th. I'm on my other computer so I don't have my numbers in front of me, but I believe I used just under 18M diluted. That would account for a 10% difference right there in the EPS.
Another factor with the EPS is the number of warrants exercised. That also impacted the estimated earnings per share.
The last 10-Q casts doubt on that
Pg 33:
In fact, some of our marketing activities will likely be unprofitable in a market of generally declining ethanol prices due to the nature of our business. For example, to satisfy customer demands, we maintain certain quantities of ethanol inventory for subsequent resale. Moreover, we procure much of our inventory outside the context of a marketing arrangement and therefore must buy ethanol at a price established at the time of purchase and sell ethanol at an index price established later at the time of sale that is generally reflective of movements in the market price of ethanol. As a result, our margins for ethanol sold in these transactions generally decline and may turn negative as the market price of ethanol declines.
Q1 2014 10-Q
Wot? Shrieking Alpo isn't the last word on PEIX earnings?
No but they stated they borrowed $7M gross (think it was 6.4 net but I can check) for start-up costs. We discussed it, figured that would be upgrade work because it sat mothballed so long, and so treated it as a capital expense and left it off the earnings estimate.
Co-product return was off the charts good. When I run the numbers for PEIX production using the corn bias and co-product numbers they gave for the quarter, the production margin will be greater. They must of lost money with Kinergy sales. That would make sense if they held purchased inventories for any length of time.
Looks like there are costs rolled into the "Cost of goods sold" like the entire start-up costs for Madera.
That and/or Kinergy lost money on buying and reselling.
I'll do a comparison to the model later on, but at first glance, the actual product corn cost was in line, ethanol revenue was inline, return on co-products was considerably higher, the basis was actually under $1.28 . . .
yes I'm a little surprised it's that low, have to wait for the 10-Q to see where it went, but no matter how you look at it, it's a win.
You expect the market to be sane?
(I'm holding Aug $20's & $14's. Been playing with nothing but PEIX profits with PEIX for a while now)
Keep in mind I use the weighted average because that's how the EPS is reported. My model predicts north of $1.50.
That said, market expectations (the sparse earnings estimates that there are) are quite low. An "earnings beat" won't take much (in the range of $0.70?). Even if profits were half of last quarter that's happening, and there should be no negative impact from the FVA.
On top of that, I've got the data to run the PEIX production margin on a daily basis going forward for Q3 . . .
I didn't have the spreadsheet developed in Q1, wasn't collecting the data, and I haven't gone back and tested it. In part I can't even now because of a lack of inputs (I would need the California LA terminal prices at a minimum). In fact I only entered the CBOT corn prices going back to January a couple weeks ago when I found an archived source of daily prices. However, I did do some rough calcs prior to Q1 ER, and sold at that time because of what I saw.
I did test the FVA model against Q1 as well as Q3 & Q4 2013, and it held up well (within pennies on each warrant issue). Of course that's knowing the volatility and marketability discount numbers in advance, which I don't have for the warrants going forward.
I too am in the camp that the market expectations should not be hard to beat.
Just remember, as I've cautioned in the past I threw those calculations and estimates out there in part so we can try to get a handle on this quarter, but also in part to put together a model that continues to be adjusted as the strengths and weaknesses are exposed (to that end, I still wish I had the weekly, monthly, or even just quarterly data to fill in the missing info on California terminal prices going back to early Q2 and all of Q1). Also , some of the numbers like the final number of warrants exercised are only assumptions.
BTW I noticed a small error in my Weighted Average calc. I did the calc before the registration for the additional (approx 800K) shares for warrants to be exercised came out. Because it happened so late in the quarter the impact shouldn't be that huge (it's weighted), plus as we're only estimating the final count in the end, there's not much point in adjusting it at this point.
Remember too that when you take the $35.8M non-cash charge out of last quarter's numbers, their earnings were quite good. There won't be a non-cash charge this quarter as the closing price was lower than the closing price of Q1.
I don't follow how what GPRE thinks about the next 6 months would be part of my thinking. GPRE hedged and lost the bet. PEIX does very little hedging. Plus earnings estimates are quite low.
Corn. Wow. Again. MGEX spot price dropped to $3.305 today
I would also refer people to the USDA plant reports, which are actual plant numbers rather than a model. In fact one could cross-reference the USDA numbers back and input them into the CARD model to have an even better picture of what the profits are like
A big part of the GPRE earnings story seems to have to do with "merchant trading activity" and "Intersegment eliminations."
I gather "merchant trading activity" is another way of saying "hedging." As for "intersegmental eliminations," here's a snippet from their last 10-Q that discusses it:
Intersegment Eliminations
Intersegment eliminations of revenues increased by $ 373.3 million for the three months ended March 31, 2014 compared to the same period in 2013 due to the following factors: increased corn sales from our agribusiness segment to our ethanol production segment of $243.0 million ,increased natural gas sales from our marketing and distribution segment to our ethanol production segment of $22.7 million, increased sales of ethanol from our ethanol production segment to our marketing and distribution segment of $ 110.8 million and decreased sales of distillers grains from our ethanol production segment to our marketing and distribution segment of $4.5 million.
Intersegment eliminations of gross profit and operating income increased by $22.2 million for the three months ended March 31, 2014 compared to the same period in 2013 due primarily to a change in the title transfer point for ethanol between segments beginning in the fourth quarter of 2013 and increased product in transit to customers . Beginning October 1, 2013, ethanol is sold from our ethanol production segment to our marketing and distribution segment as it is produced and transferred into storage tanks located at each respective plant. The finished product is then sold from the marketing and distribution segment to external customers. Profit is recognized by the ethanol production segment upon sale to the marketing and distribution segment but is eliminated from consolidated results until title to the product has been transferred to a third party. During the three months ended March 31, 2014 finished ethanol inventory levels increased primarily due to product that was in-transit to external customers which resulted in a significant increase in intersegment profits that were deferred . The volume of ethanol and distillers grains in transit to customers at March 31, 2014 was affected by transportation constraints this winter.
If I'm understanding this correctly, their earnings may not be so bad as they appear. Sounds like they got caught up in their reporting methods. Either that, or it's a lot of jargon to misdirect attention from the marketing segment forward selling/hedging and incurring major losses? I noticed that the "intersegment eliminations" in today's earnings report were pretty significant.
Not so sure that GPRE's earnings miss is a good reflection on how PEIX numbers will come in (PEIX doesn't tend to hedge a lot). In fact, I'm wondering if GPRE just "PEIXed" themselves with their own version of the FVA fiasco.
This hits it dead on
So, the question becomes: Why does GPRE trade at $40 and carry a 12.5 P/E and PEIX trades at $18 and carries a P/E of only 6? Clearly some misconception exists between investors perceptions of these two companies. This will most likely change after both companies report their quarterly earnings. The valuation gap cannot persist at this magnitude, in my opinion, as I haven't seen one this wide in my 30 years of trading in these markets. Either GPRE will drop substantially (not likely, given the ethanol margins for the next two to three quarters) or PEIX will have to rise substantially. This is the most likely scenario.
One thought about the railway impact going into GPRE's earnings, I would think it would be considerably greater on them than PEIX due to the tanker car shortage in the east, along with the lingering after-effect of the weather overall on the eastern rail lines.
Would be really interesting to see their entire report, but I know you can't post it due to restrictions. Thanks for the insight.
Same number Yahoo and pretty much everyone else is throwing around. Interesting. So I think it's safe to say anything above $0.65 could be considered an earnings surprise.
Did they take the added production into account? Also, did they make any statement on the effect of the FVA being positive this Q?
(edit) Oh I know it's not exactly an uncommon practice. I still question the legitimacy of it.
Is Sidoti's earnings estimate still at $1.62 for Q2?
Here's a post referencing it
(EDIT) my bad, that number is the poster's not Sidoti's
You know, I have to question the legitimacy of releasing information that affects pending earnings on a selective basis to companies that then sell that information, thereby restricting access to information that could arguably be considered material to the company.
I assumed full taxes.
BTW the last plant ownership change was in Q4 2013 right?
Dec 16 3013 PR
Why would what you say affect Q2 2014 but not Q1 2014? I am aware they are limited in what they can apply going forward for the balance of the year (they stated as much in their Q1 10-Q) but weren't specific other than to say the following:
" Our remaining net operating loss carryforwards may be limited on an annual basis for the remainder of the year."
Or are you referring to the change in status of PE Holdco?
" Further, on April 1, 2014, New PE Holdco LLC was converted from a limited liability company to a C-Corporation and changed its name to PE Op Co."
If it's the 2nd, how would that affect the overall taxation, as PE Holdco is a branch of Pacific Ethanol Inc? Not doubting you, just trying to understand (not that I was counting on any application of tax credits to begin with, any credits they would be able to apply would be a bonus).