Cosan Posts Solid Q1 Earnings

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Cosan Limited (CZZ), a Brazilian sugar and ethanol producer, reported an impressive bottom-line result in the first-quarter 2014. Net income was R$256.1 million (US$108.5 million) reflecting a significant rise from R$27.1 million (US$12.0 million) recorded in the year-ago quarter.

Revenues

Cosan generated net revenue of R$2,157.2 million (US914.1 million) in first-quarter 2014, reflecting an increase of 8.4% year over year. Pro forma revenues, including the Raizen contribution, increased 13.4% year over year to $9,593.4 million (US$4,065 million).

Fuel sales increased 18.9% year over year primarily due to higher volumes of ethanol and diesel sold in the quarter. Sugar sales were up by 4.1% to R$1,225.5 million (US$519.3 million) while ethanol sales grew 17.6% to R$1,321.3 million (US$559.9 million).

Raizen Energia recorded nil production or crushing activities in the quarter. Sugar production, from Apr 2013 to Mar 2014, was up 8.0% year over year to 4.5 million tons while crushed sugar volume increased 9.3% to 61.4 million tons.

Energy cogeneration revenues in the quarter was R$27.3 million (US$11.6 million), soaring 108.4% year over year. Total gas sales volume decreased 3.9% in the quarter. Revenues from Rumo’s Transportation business escalated 20.6% while it increased 34.9% for Loading business.

Revenues from Cosan Lubrificantes increased 3.0% year over year. Radar generated revenues of R$63.6 million (US$26.9 million) versus R$15.4 million (US$7.7 million) recorded in the year-ago quarter.

Margins

Cosan’s cost of goods, as a percentage of revenues, rose 90 basis points (bps) year over year to 70.5%, leading to a gross margin of 29.5% in the quarter. Sales, general and administrative expenses increased 4.6% to R$351.7 million (US$149.0 million).

Balance Sheet

Exiting first-quarter 2014, Cosan had cash and cash equivalents of approximately R$1,472.5 million (US$651.5 million) versus R$1,474.6 million (US$627.5 million) recorded at the previous quarter-end. Loans and financing was at R$8,722.5 million (US$3,859.5 million), down 1.2% from R$8,830.2 million (US$3,757.5 million) in the preceding quarter.

Outlook

Cosan maintained its guidance for 2014. Net revenues are expected in the range of R$37.5−R$40.5 billion. Earnings before interest, taxes, depreciation and amortization (:EBITDA) are expected to be within R$4.15−R$4.65 billion and capital expenditure to be in the R$2.5−R$2.8 billion range. Guidance for the company’s segments is discussed below:

Raizen Energia: Cosan expects crushed sugarcane volumes to be approximately within 61.0−63.0 million tons, sugar volume sold within 4.4−4.7 million tons and ethanol volume sold within 2.3−2.6 billion litres. Volume of energy sold is expected to range within 2.0−2.2 million MW. EBITDA is likely to be in the R$2.3−R$2.7 billion range, while capital spending is expected to range from R$2.0−$2.2 billion.

Raizen Combustiveis: EBITDA is anticipated to be in the R$2.0−R$2.2 billion range and capital expenditure in the R$750−R$850 million range.

Rumo: Volume of loading is expected to range from 10.5−12.5 million tons and EBITDA in the R$400−R$450 million range.

Radar: EBITDA is expected in the range of R$170−R$200 million.

Cosan Lubrificantes: Volume of lubricants and base oil sold is likely to be within 270−310 million litres. EBITDA is expected to be in the R$140−R$170 million range.

Comgas: Volume of gas sold is likely to be within 5.2–5.7 million cbm while EBITDA is expected to be within R$1.30–R$1.55 billion. Capital expenditure is likely to range within R$0.68–R$0.78 billion.

Cosan has a market capitalization of $3.3 billion and carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Otter Tail Corporation (OTTR), Syngenta AG (SYT) and Wilmar International Limited (WLMIY). All these companies hold a Zacks Rank #2 (Buy).

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