Coal is Hot, Ethanol is Not (PEIX, NRP)

Pacific Ethanol (NASDAQ:PEIX) led off its second quarter financial report with higher sales number. Unfortunately, the company also had to report earnings, or the lack of earnings. For the quarter, Pacific reported a net loss of $8.3 million (-$0.23 EPS). That was nearly double analysts’ average estimate of a -$0.12 EPS loss. Even the net sales figure of $198 million (up 74% year-over-year) fell short of estimates of $206.16 million. Sales volume and average sales price both increased. So what happened?

Corn prices rose 67% y-o-y, leading to a gross margin of just 0.2%,compared with 9.8% a year ago. Pacific had to raise $32.4 millionthrough sales of stock and warrants even to reach this level offailure. The company’s CEO and President said that despite a"challenging commodity environment" in the quarter, Pacific "continuedto increase our sales." Selling more gallons at a loss for each gallononly adds up to a bigger loss. Without the federal subsidy of$0.51/gallon, Pacific would have lost another $64 million. The stock isdown more than 10% in early trading.

On the other side of the energy coin, coal-producer Natural ResourcesPartners LP (NYSE:NRP) reported record earnings, production, andrevenues. EPS increased to $0.47/common unit from $0.28/unit for thesame period a year ago. Production topped 16 million tons, and totalrevenues jumped to more than $75 million, up 33% from the same period ayear ago and more than 15% sequentially. Analysts expecte EPS of $0.42and revenues of $69 million.

Natural Resources also raised its guidance for net income per unit forthe rest of 2008 by about 20%. Total revenue expectations are up byabout 10%. In the second quarter, metallurgical coal prices tripled andsteam coal prices doubled. The company’s president and CEO summarizedthe effects nicely: "Because our coal royalties are based on apercentage of the sales price received by our lessees, we haveexperienced all the positives of the current pricing market withouthaving to bear the burdens of escalating mining costs. As a result, …the vast majority of our revenue is leveraged to sales price." That’s asweet deal if you can get it. Natural Resources stock is up nearly 5%in early trading.

Paul Ausick
August 11, 2008