Pacific Ethanol Posts Second-Quarter Loss But Remains Optimistic

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Researched by Industrial Info Resources (Sugar Land, Texas)--In a conference call with shareholders on August 11, Pacific Ethanol Incorporated (NASDAQ:PEIX) (Sacramento, California), discussed profits for the second quarter of 2008. Despite a significant increase in sales, the company's profits drastically decreased during the quarter. The company achieved quarterly sales of $198 million, an increase of 74% from the second quarter of 2007. In terms of volume of ethanol sold, Pacific Ethanol sold 66.8 million gallons, a 52% increase from the 43.9 million gallons sold in the second quarter of 2007. Nevertheless, the company posted a net loss of $8.3 million this quarter. The second quarter of 2007 brought a net income of $2.2 million.

The combination of increased corn prices, capital expenditures and unplanned maintenance outages have contributed to the company's poor results this quarter. During the call, CEO Neil Koehler said, "Rapidly increasing corn and natural gas costs in the quarter, coupled with a somewhat difficult start-up of our Magic Valley ethanol plant in Burley, Idaho, negatively impacted earnings." When questioned about the Idaho plant's problems, Koehler explained that a liquefaction tank had failed at the plant's start-up, necessitating the closure of the entire plant, costing about half of a month's worth of production. Extra logistics costs were also incurred from having to transport ethanol from other facilities in order to meet prior commitments that the Burley plant was expected to fulfill. Additionally, the delivered cost of corn was $6.73 per bushel in 2Q 2008, up 59% from the same period last year, and up 26% from first-quarter costs.

Despite these setbacks, Koehler displayed a sense of optimism about the future. He announced that the company's fifth plant, located in Stockton, California, was on schedule to begin production in the coming quarter, allowing the company to achieve its goal of owning 220 million gallons of annual operating capacity in 2008. For further information, see related article from August 4, 2008 - Pacific Ethanol's Fifth Ethanol Plant Goes Online in Two Weeks.

Koehler also discussed cutting-edge technological partnerships with European companies. This includes a project with U.K.-based Pursuit Dynamics plc (LON:PDX) (Weybridge) to improve starch conversion efficiency. "We are optimistic this technology will result in our achieving sustainable yield improvements," stated Koehler. The company also has a relationship with Danish firm Biogasol (Lyngby), which involves integrating cellulose-based ethanol into standard corn-based production. "With our cellulose technology partner Biogasol of Denmark, we expect to finalize our work plan with the [Department of Energy] in the fourth quarter for our 2.7 million gallon demonstration cellulose plant located at our Columbia site in Boardman, Oregon," he stated.

Kohler seemed to remain firm in his belief that the plant was in the right place at the right time. "As we move through 2008 into 2009, new plant openings are slowing in the industry, while ethanol demand will continue to accelerate," he said. "We still believe production margins will improve significantly." Koehler noted that California had recently passed legislation mandating that gasoline be blended with a minimum of 10% ethanol by 2010, representing a 700 million gallon increase from the current level of 5.7%. The state of Washington is also taking significant strides in increasing the percentage of ethanol present in gasoline. Koehler emphasized that a number of companies in the two states were already implementing the technology to support these changes.

Pacific Ethanol currently operates four ethanol production facilities in the states of California, Oregon, Idaho and Colorado. The company's fifth plant in Stockton, California, is expected begin operating later this year.

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