Green Plains - $GPRE - Earnings Analysis: Potential benefits from the 45Z Clean Fuel Production Credit and the 'Advantage Nebraska' carbon strategy.

Business Model

Green Plains generates revenue primarily through the production and sale of ethanol, distillers grains, ultra-high protein products, and renewable corn oil. The company also generates revenue through agribusiness and energy services, including grain handling and storage, commodity marketing, and merchant trading.

Revenue Sources

• Ethanol production and sales
• Sales of distillers grains
• Sales of Ultra-High Protein products
• Sales of Renewable Corn Oil
• Agribusiness and energy services including grain handling and storage, commodity marketing and merchant trading for company-produced and third-party ethanol, distillers grains, renewable corn oil, natural gas and other commodities

Income Statement Analysis

• Revenues decreased by 18.0% year-over-year, primarily due to lower weighted average selling prices for ethanol, distillers grains, and renewable corn oil.
• Operating income turned into a loss of $40.9 million in Q4 2024, compared to an income of $16.3 million in Q4 2023.
• Net loss attributable to Green Plains was $54.9 million in Q4 2024, compared to net income of $7.2 million in Q4 2023.

Balance Sheet Analysis

• Total assets decreased by 8.1% from $1,939.3 million in 2023 to $1,782.2 million in 2024.
• Total liabilities decreased by 4.4% from $949.3 million in 2023 to $907.6 million in 2024.
• Total stockholders' equity decreased by 11.7% from $990.1 million in 2023 to $874.5 million in 2024.

Cash Flow Analysis

• Net cash used in operating activities was $29.97 million in 2024, compared to net cash provided by operating activities of $56.35 million in 2023.
• Net cash used in investing activities was $62.05 million in 2024, compared to $106.90 million in 2023.
• Net cash used in financing activities was $77.35 million in 2024, compared to $70.96 million in 2023.
• Net decrease in cash and cash equivalents, and restricted cash was $169.37 million in 2024, compared to a decrease of $121.51 million in 2023.

Capital Allocation

Green Plains is focused on allocating capital to projects that will generate sustainable value-added ingredients. This includes the production of cleaner low carbon biofuels and renewable feedstocks for advanced biofuels. The company also is allocating capital to new technologies, strategic initiatives, and corporate reorganization.

Management Commentary

Our ‘Advantage Nebraska’ strategy remains firmly on track as we continue to reach milestones in permitting, construction and regulatory guidance.

Our 287-million-gallon Nebraska platform is positioned to be among the first in the nation to benefit from the 45Z Clean Fuel Production Credit, including the recently released and updated GREET model which was favorable to our assets and has the potential to be even better financially than originally expected.

When combining the cost reduction initiatives with carbon earnings from Nebraska, those two alone could achieve a combined $180 million annualized contribution to our future earnings before taking into consideration ethanol, renewable corn oil (DCO) and our high protein initiative

As we embark on 2025, we have launched a corporate reorganization and cost reduction initiative which will significantly reduce expenses on an ongoing basis

The company is targeting up to $50 million dollars of savings per year and have implemented this week the first $30 million in improvements on an ongoing basis.

While global and local protein markets remain oversupplied, our high protein production strategy and technology continues to contribute to our earnings.

The Board of Directors and its financial and legal advisors continue to work on the strategic review process as evidenced by the corporate reorganization and cost reduction initiative

The idling of our Fairmont, Minnesota facility due to sustained localized margin pressure from the flooding that occurred in that region.

Overall Sentiment: The overall management sentiment is cautiously optimistic. Management highlights the progress of the 'Advantage Nebraska' strategy and the potential benefits from the 45Z Clean Fuel Production Credit. Cost reduction initiatives and strategic realignment are expected to contribute to future earnings. However, oversupply in protein markets and idling of the Fairmont facility present challenges.

Recommendation

Rating: Hold

Reason for Rating: Given the mixed financial results, strategic changes, and potential benefits from carbon capture and renewable fuels, a Hold recommendation is appropriate. The company faces challenges in ethanol and protein markets but has opportunities in carbon capture and renewable corn oil.

Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information and subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.

Generated on: 2/8/2025, 5:30:54 AM