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Cosan Q3 Earnings Fall, Revs Up

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Brazilian sugar and ethanol producer, Cosan Limited (CZZ) reported net earnings of R$208.8 million (US$91.6 million) in the third quarter of 2013. Results improved significantly over the previous quarter’s reported net loss of R$198.0 million (US$96.1 million) but on a year-over-year basis represented a decline of 26.3%.


Cosan’s impressive net revenue of R$2,434.5 million (US$1,067.8 million) reflected an increase of 300% over the year-ago quarter. Raizen contribution came into effect in second quarter 2013, and will be considered under the equity pick-up method.

Pro forma revenue generated by Cosan, including the Raizen contribution, was R$9,547.9 million (US$4,187.7 million).

Fuel sales in the quarter went up 16.7% year over year due primarily to higher sales volume of ethanol and diesel. Sugar sales in the quarter saw a 14.6% increase to R$1,492.3 million (US$654.5 million) in the quarter. Ethanol sales were up 112% to R$1,519.8 million (US$666.6 million).

All of the 24 mills operated during the quarter have a crushing capacity of 65.6 million tons of sugarcane per crop year. Cosan produced 2.13 million tons of sugar production in the quarter, reflecting 1.1% year over year decline. Crushed sugar volume also decreased 1.8% to 26.8 million tons.

Energy cogeneration revenue in the quarter was R$153.3 million (US$67.2 million), down roughly 6.5%. Total gas sales volume jumped 1.1%. Rumo registered about 62.8% and 14.4% increase in revenue derived from its Transportation and Loading businesses, respectively.

Revenue derived from Lubrificantes e Especialidades segment increased 10.2% year over year. Radar reported a 22.7% decline in its revenue due to no property sales during the quarter.


Cosan’s cost of goods, as a percentage of revenue, was up 190 basis points year over year to 70.4%, leading to a gross margin of 29.6% in the quarter. Operating margins in the quarter was 15.5%.
Balance Sheet

Exiting the third quarter 2013, Cosan’s cash and cash equivalents were approximately R$1,202.2 million (US$539.1 million) versus R$1,490.6 million (US$668.4 million) in the previous quarter. Loans and financing were down 0.9% sequentially to R$8,617.2 million (US$3,864.2 million).


Management of Cosan maintained its guidance for year 2013, including net revenue in the range of R$35.0-R$38.0 billion and EBITDA within R$3.95-R$4.35 billion range. Capital expenditure is anticipated to be within R$2.8-R$3.0 billion range, lower than prior expected range of R$2.95-R$3.2 billion.

Guidance for Cosan’s segments is discussed below:

Raizen Energia: Management expects crushed sugarcane volumes of approximately 59.0-62.0 million tons, sugar volume sold within 4.3-4.6 million tons, and ethanol volume sold within 2.1-2.3 billion liters. Volume of energy sold is expected to range within 1.9-2.1 million MW. EBITDA is likely to be in the R$2.4-R$2.7 billion range.

Raizen Combustiveis: Fuel volume sold is likely to be in the 22.5-24.0 billion litre range and EBITDA to be within the R$1.6-R$1.8 billion range.

Rumo: Volume of loading is expected to range within 8.5-10.5 million tons and EBITDA within the R$0.33-R$0.37 billion range.

Radar: EBITDA is expected to be within the R$0.14-R$0.16 billion range.

Lubrificantes e Especialidades: Volume of lubricants and base oil sold is likely to be within 0.27-0.31 billion litres. EBITDA is expected to be within the R$0.14-R$0.17 billion 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$1.35-R$1.55 billion range.

Cosan currently has a Zacks Rank #2 (Buy). Other players to watch out for in the industry are Darling International Inc. (DAR), with a Zacks Rank #1 (Strong Buy) while The Andersons, Inc. (ANDE) and MDU Resources Group Inc. (MDU), each carry a Zacks Rank #2 (Buy).

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