Pacific Ethanol, Inc. :PEIX-US: Earnings Analysis: 2016 By the Numbers : March 20, 2017

Pacific Ethanol, Inc. reports financial results for the year ended December 31, 2016.

We analyze the earnings along side the following peers of Pacific Ethanol, Inc. – Green Brick Partners, Inc., Valero Energy Corporation, Green Plains Inc., Renewable Energy Group, Inc., Chevron Corporation, Alon USA Energy, Inc. and Archer-Daniels-Midland Company (GRBK-US, VLO-US, GPRE-US, REGI-US, CVX-US, ALJ-US and ADM-US) that have also reported for this period.


  • Gross margins widened from 0.67% to 3.31% compared to the same period last year, operating (EBITDA) margins now 3.68% from 0.80%.
  • Year-on-year change in operating cash flow of 250.50% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2016 2015 2014 2013 2012
Relevant Numbers (Annual)
Revenues 1624.76 1191.18 1107.41 908.44 816.04
Revenue Growth (YOY) N/A N/A N/A N/A N/A
Earnings 1.42 -18.79 21.29 -0.78 -19.06
Earnings Growth (YOY) 107.54 -188.24 2825.86 95.9 -719.94
Net Margin 0.09 -1.58 1.92 -0.09 -2.34
EPS 0 -0.6 0.88 -0.17 -2.85
Return on Equity 0.04 -6.8 12.8 -2.44 -21.15
Return on Assets 0.2 -3.85 7.88 -0.34 -8.52

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Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 0.67% to 3.31% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 0.80% to 3.68% compared to the same period last year. For comparison, gross margins were 0.67% and EBITDA margins were 0.80% in the last reporting period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

PEIX-US‘s improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days have declined to 31.61 days from 36.64 days for the same period last year.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

PEIX-US‘s change in operating cash flow of 250.50% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings


The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from -1.18% to 1.50% and (2) one-time items. The company’s pretax margins are now 0.03% compared to -2.43% for the same period last year.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

Pacific Ethanol, Inc. produces and markets carbon renewable fuels in the Western United States. The company operates through the following segments: Production and Marketing. It produces and markets co-products, including wet and dry corn gluten feed, condensed distillers solubles, corn gluten meals, corn germs, distillers yeast, and CO2. The company was founded by William L. Joneson and Neil M. Koehler on February 28, 2005 and is headquartered in Sacramento, CA.

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