Energy: Ethanol Earnings Season Upon Us

Ethanol Earnings Season Upon Us

By Dmitriy Vilenskiy | July 25, 2007

Investors are still wary of ethanol stocks, as most ethanol producers like VSE, PEIX, AVR, ADM, and ANDE continued to experience seesaw stock prices. The volatility can be expected to persist for the next few days, but analysis suggests that the slump may be starting to ease.

A slew of quarterly reports are scheduled for the next few weeks, and this will set the tone for investor sentiment for the next few months.

Earnings are expected as follows:

• Archer Daniels Midland (ADM) - July 30th

• Aventine (AVR) – July 31st

• Andersons (ANDE) – August 2nd

• Verasun (VSE) – August 2nd

• Pacific Ethanol (PEIX) – Week of August 15th

It is hard to predict whether these companies have successfully hedged corn prices, especially since corn peaked at over $4.25 per bushel just about a month ago, but if rumors are correct many of these ethanol producers have learned their lesson from last quarter and have been paying much less for corn.

There is no doubt that a lot of uncertainty still looms over the industry amid concerns about sustainability, efficiency, and profit margins, but the short term is becoming clearer.

With corn prices plummeting, oil at near record highs, and pending favorable legislation being rehearsed expect a correction in the weakness.
Norfolk Southern Corp (NSC) today reported that ethanol volume on its railroads has increased by 13%, it’s a moderate increase, but one that exemplifies the growth of an emerging sector. Further, if Verasun’s recent $725M acquisition is a harbinger of future sector consolidation look for a terrific quarter.

DISCLOSURE: The Author of this article has long positions in PEIX and VSE.