Pacific Ethanol Inc. (NDAQ: PEIX) shares more than doubled over the past two days after releasing an extremely bullish earnings report. Analysts had predicted that the company would lose about 9 cents per share, but after a 96 cent noncash charge it actually made 6 cents per share. Obviously, these results surprised shareholders and caused the sharp rise we've seen over the last two days.
Pacific Ethanol producers and sells ethanol and its co-products and provides transportation, storage, and delivery of ethanol through third party service providers in the western United States. Many of the company's customers are integrated oil companies and gasoline marketers who blend ethanol into gasoline. It also supplies ethanol to its customers through its own facilities or with ethanol produced in bulk form other producers.
The ethanol industry has exploded recently as the government continues to incentivize the usage of ethanol in gasoline. The idea is to eventually reduce dependence on foreign oil by using a greater amount of alternative biofuels. However, the move has also drawn sharp criticism as food prices have risen sharply with no slowdown in oil prices. The reality is that this move is a result of the dollar decline and not ethanol.
Among the highlights for the quarter was a 63% increase in net sales, a 58% increase in gallons sold, reduced SG&A as a percentage of net sales, 159% EBITDA growth, and the startup of its Burley, Idaho plant. The company also announced that it was able to partially offset the rise in corn prices through a $2.2 million gain in derivatives trading. However, its gross margin still declined to 9.7% from 15.4% during the same period last quarter.
In the end, the results handily beat shareholder expectations and sent shares far higher on the week.
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