Omaha-based ethanol producer Green Plains Inc., saw its stock price plummet 12% on Tuesday after the company announced it would suspend its quarterly cash dividend.
In a report to the U.S. Securities Exchange Commission, Green Plains said it decided to redirect cash flow to the company's Project 24 opex equalization plan, which is the deployment of high-protein technology and its stock repurchase program.
Green Plains owns 13 ethanol plants totaling 1.1 billion gallons in annual production.
"As part of our capital-allocation plan, we believe suspending our cash dividend enables us to expedite our investments into our Project 24 initiative, which is expected to significantly reduce our ethanol production operating costs, and support deployment of our high-protein feed technology across our production platform," Green Plains President and Chief Executive Officer Todd Becker said in a news release.
"We are confident that by suspending our dividend, we can prudently direct this cash flow to opportunities within our business to create greater shareholder returns over the near and long term. We intend to immediately deploy capital to repurchase stock pursuant to the remaining availability of approximately $80 million under the $100 million program authorized by the board of directors in August 2014."
The action comes about one month after the company reported a first-quarter loss of $12.8 million in its ethanol segment, or a net loss of 8 cents per gallon of ethanol produced. During the first quarter of 2018 Green Plains reported a $15.3 million profit or about 5 cents per gallon.
The company announced in May it was continuing to try to sell more ethanol assets.
Despite that, Becker said in a statement in May that he believes ethanol margins already hit a low point.
"Our first-quarter financial performance was impacted by the extremely weak ethanol margin environment, Midwest flooding affecting transportation and logistics and severe winter weather at our cattle feeding operations," he said.
"Albeit still weak, we believe that the worst of the low-ethanol margin cycle is behind us, as margins have improved since the end of January. We are also seeing improved cattle margins in the current quarter extending into the second half of 2019 and anticipate achieving $50 to $60 EBITDA per head minimum annualized margins based on forward margins and current hedging strategies.
"We took a significant amount of gallons out of production in the first quarter as a result of the weak margin environment. We limited our production believing it may help reduce high ethanol industry inventory levels we were experiencing during the quarter. Our efforts did not have the effect we were anticipating and the company will operate at or near our maximum run-rate to achieve lower operating expense per gallon going forward as we believe our platform can now run more efficiently at these levels."
Todd Neeley can be reached at email@example.com
Follow me on Twitter @toddneeleyDTN
© Copyright 2019 DTN/The Progressive Farmer. All rights reserved.