Cosan Reports Q3 Loss; Higher Costs Offset Revenue Growth

Cosan Limited CZZ reported net loss of R$13.3 million (US$3.8 million) for third-quarter 2015 as against net earnings of R$15.2 million (US$6.7 million) in the prior-year quarter. Disappointing results were triggered by higher cost of sales and increase in operating as well as interest expenses.

Revenues

Cosan’s net operating revenue in the quarter totaled R$2,259.2 million (US$641.8 million), reflecting an increase of 7.5% year over year.

The company operates under two business segments: Cosan S.A. and Cosan Logistica S.A. While the former includes Raizen Energia, Raizen Combustiveis, Comgas, Lubrificantes, Radar and Ontros Negocios businesses, the latter comprises Rumo Logistica business.

Fuel volumes sold increased 1.2% year over year, primarily backed by higher sales volume of ethanol but offset by a decline in volumes of gasoline, diesel, aviation and other products.

Revenues from sugar sales in the quarter increased 35.3% year over year, while that from ethanol sales grew 18.5%. Energy cogeneration revenues declined 12% year over year.

Total natural gas sales volume fell 4.6% year over year. Revenues from Cosan Lubrificantes grew 12.6%, and net revenue from Radar increased 16.6%, both on a year-over-year basis.

Margins

Cosan’s cost of sales grew 8.8% year over year, representing 71.7% of net operating revenue versus 70.9% in the year-ago quarter. Gross margin decreased 80 basis points (bps) year over year to 28.3%.

Sales, general and administrative expenses rose 3.1% to R$374.9 million (US$106.5 million), representing 16.6% of net operating revenue. Financial expenses increased 8.7% to R$270.2 million (US$76.8 million).

Balance Sheet

Exiting third-quarter 2015, Cosan’s cash and cash equivalents were R$1,865 million (US$454.9 million), down 7.7% sequentially. Loans and financing grew 9.5% sequentially to R$9,000 million (US$2,195.1 million).

Outlook

For 2015, Cosan expects proforma net revenue in a range of R$42−R$45 billion for Cosan S.A., while earnings before interest, tax, depreciation and amortization (“EBITDA”) are projected within R$4−R$4.3 billion. Guidance for Cosan S.A.’s businesses is discussed below:

Raizen Energia (guidance for crop year Apr 2015–Mar 2016): Management expects crushed sugarcane volumes within approximately 57−60 million tons. Sugar volume sold will likely come in a range of 4.2−4.4 million tons.

Guidance for ethanol volume sold falls in a range of 1.9−2.1 billion liters, while volume of energy sold is expected within 2.1−2.3 million MWh. EBITDA is likely to come within R$2.6−R$2.8 billion, while capital spending is anticipated within R$1.6−$1.8 billion.

Raizen Combustiveis: EBITDA is predicted in a range of R$2.3−R$2.5 billion and capital expenditure within R$750−R$850 million.

Radar: EBITDA is expected in a range of R$130−R$140 million.

Cosan Lubrificantes: Volume of lubricants and base oil sold is likely to come within 260−300 million liters. EBITDA is expected in the R$120−R$160 million range.

Comgas: Volume of gas sold is likely to fall within 4.1–4.5 million cbm, while EBITDA is projected in a range of R$1.5–R$1.7 billion. Capital expenditure is likely to come within R$0.5−R$0.56 billion.

With a market capitalization of $971 million, Cosan presently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the sector include Innospec Inc. IOSP, Asanko Gold Inc. AKG and NovaGold Resources Inc. NG. While Innospec Inc. sports a Zacks Rank #1 (Strong Buy), both Asanko Gold and NovaGold Resources carry a Zacks Rank #2 (Buy).

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