Green Plains will make more acquisitions, CEO says

Source: By Russell Hubbard, Omaha World Herald • Posted: Monday, February 13, 2017

Shares of Green Plains Inc. jumped again Thursday after the country’s second-largest ethanol producer beat fourth-quarter earnings estimates, said a new export terminal in Texas will begin operating in a few months and reported strong results for its newly acquired vinegar business.

Shares of the Omaha-based operator of 17 ethanol plants climbed more than 5.5 percent, or $1.35, to close at $25.80 each in Nasdaq trading.

That gain came on top of Wednesday’s rise of more than 5 percent. Green Plains on Wednesday released fourth-quarter earnings after the close of trading; earnings beat analyst estimates by 9 cents a share.

Among the contributors to the bottom line: lunch meat. The company’s Fleischmann’s Vinegar Co., acquired late last year, supplies the ethanol-based liquid to a wide variety of food manufacturers, including makers of cold cuts, which use the fluid as a natural preservative. Sales to processed meat producers using natural preservatives have been growing sharply, the company said.

“We are on trend with all the health and wellness in antimicrobial,” said Ken Simril, chief executive of the California-based Fleischmann’s vinegar unit, speaking on a Thursday conference call with analysts and investors. “It is finding applications in meat and poultry, lunch meats and ready-to-eat meats.”

Green Plains Chief Executive Todd Becker said in a subsequent interview Thursday the use of vinegar as a natural anti-microbial agent is part of the “clean label” trend in the food business that seeks to appeal to shoppers looking to avoid what they consider to be artificial ingredients.

“We get to capitalize on all that,” Becker said, referring to the October purchase of Fleischmann’s for $250 million.

The company operates seven U.S. manufacturing plants that use ethanol — an alcohol distilled from corn that is also used as a motor fuel — to make vinegar that is then sold in wholesale quantities to retail producers and food processors.

Becker said look for Green Plains to make many more acquisitions in such related fields that use something the ethanol producer also uses or produces, such as corn, corn oil or cattle feed. All are part of the ethanol production process.

“We are actively seeking to build off of Fleischmann’s and actively seeking to expand our food and ingredients business,” Becker said.

For the fourth quarter, operating income at the food and ingredients unit, which includes a cattle feedlot in Kansas, was $6.8 million, from a small loss a year earlier. Operating income from ethanol production — the company produces about 1.5 billion gallons a year — jumped to $36 million from a loss, on higher margins from each bushel of corn turned into the motor fuel. Overall, net income was $19 million, from a loss of $3.6 million.

Becker said Green Plains shareholders can look forward to additional profits from an under-construction ethanol terminal in Beaumont, Texas, that will serve ocean freighters; about 11 percent of the company’s ethanol is exported. The $55 million terminal where ethanol is stored is expected to start operations in the third or fourth quarter.

Exports will continue to be a key factor in the overall ethanol business, said Todd Sneller, administrator of the Nebraska Ethanol Board; the Cornhusker State is the nation’s second-largest producer, with about two dozen plants, trailing Iowa, which has about 42.

Sneller said ethanol plants, which have a $5 billion annual economic impact in Nebraska, are earning “modest margins due to relatively low input costs,” chiefly corn that is off its all-time highs of $8 a bushel in 2011 and 2012. But, Sneller said, “a key factor in coming months” will be exports to China and Mexico — nations with which the new presidential administration has waged a war of words over trade.

“Many plants are making modest investments in processing improvements intended to increase efficiency and output,” Sneller said. “A major focus will be market access and policies that enhance domestic and foreign opportunities to increase sales.”