Rule62 - I called the CFO this morning after the issue about the sequential gross margin decline in Q2 was not raised on the conf call. Perhaps you should also give him a call for further clarification.
I left him a message and he called me back promptly. He stated that the Q1 GM of 15.1% was extraordinarily high to various favorable factors, particularly marketing. Rising ethanol prices in Q1 boosted marketing profits, while declining prices in Q2 hurt them. The 3rd party marketing business accounted for 65% of their gallons sold, but unfortunately they don't break out any financial details in their filings. Evidently it's a significant part of their overall profits. That makes it hard to forecast the overall gross margins.
A slightly lower corn crush spread in Q2 versus Q1, along with various California specific factors also reduced gross margins.
Another factor was nonrecurring startup costs and inefficiencies at Madera which added at least $1M to COGS in Q2, according to his rough estimate.
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It appears to me that Q3 seems to be shaping up quite well with stable ethanol prices thus far, but sharply falling corn prices. Madera is now in full production. So analyst estimates of $0.63 for Q3 appear to be conservative, but a lot can happen in the next two months.
I continue to believe that the stock is undervalued and added some shares this morning.
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