Pacific Ethanol; High Corn Costs Take a Toll Yet Future Looks Promising

Pacific Ethanol shares shot up as high as 10.15% yesterday in anticipation of the company's second quarter earnings release.

Did Pacific Ethanol deliver?

Yes and No

Corn Costs
Corn prices overwhelmed Pacific Ethanol as the company paid $4.23 per bushel; the most of any ethanol producer. Corn costs sequentially increased 54 cents which decreased Pacific Ethanol's quarter-to-quarter gross profit margin. Nonetheless, corn prices have declined since.

Comparing Prices:
Cost Per Bushel Pacific Ethanol VeraSun Aventine
Second Quarter 2007 $4.23 $3.62 $3.99
First Quarter 2007 $3.69 $4.05 $3.45

Ethanol Sales
Ethanol sales were impressive. The company sold 43.9 million gallons of ethanol which was a 13% increase from first quarter. Pacific Ethanol managed to sell its ethanol at $2.32 per gallon; the highest of any ethanol producer.

Comparing Prices:
Price Per Gallon Sold Pacific Ethanol VeraSun Aventine
Second Quarter 2007 $2.32 $2.21 $2.29
First Quarter 2007 $2.28 $2.13 $2.10

Did PEIX Beat Analyst Expectations?
Pacific Ethanol reported a diluted EPS of $0.03 which came short of analysts' expectation of $0.08. Record net sales of $113.8 million managed to beat analysts' expectation of 102 million.

What to Look Forward Too
The California Air Resource Board this summer passed a 10 percent ethanol blend mandate which will begin in 2008. This mandate will create new incremental demand for Pacific Ethanol as it is the largest west coast-based producer.

In today's conference call, Neil Koehler stated the 40 million-gallon-per-year Boardman plant will start production in a couple weeks. Pacific Ethanol's three other plants currently under construction are due in 2008.

This is great news for Pacific Ethanol; especially with California taking further initiative towards ethanol expansion.

 

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