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How Much Are Pacific Ethanol’s Sales Expected to Rise Next Year?

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Segments

Pacific Ethanol’s (PEIX) revenue comes from two segments, Ethanol Production and Marketing. In 3Q16, about 64% of the company’s revenue came from the Ethanol Production segment and the remaining from Marketing.

The Ethanol Production segment primarily engages in the production and sale of ethanol from the company’s eight production facilities, which have an annual capacity of 515 million gallons. The Marketing segment markets ethanol produced by third-party producers, which amounts to approximately 285 million gallons annually.

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Sales growth and estimates

In the recent last 12-month ending 3Q16, Pacific Ethanol reported sales of $1.6 billion, which grew 45% YoY (year-over-year). For the next 12-months, the Wall Street analysts estimate a sales growth of only 6.7% YoY.

While this looks like a steep decline, keep in mind that Pacific Ethanol’s sales grew 45% on increased capacity, which helped the company ship higher volumes during the past 12 months.

Sales drivers

In the commodities business, which includes ethanol (PXSV), the interrelation of ethanol sales volume and ethanol prices drive sales for the ethanol segment. Higher prices may result in lower sales volume and vice versa.

However, depending on the elasticity of demand, this relationship may vary. This affects companies such as Archer Daniel Midlands (ADM), Renewable Energy Group (REGI), and Green Plains (GPRE).

Now let’s look at Pacific Ethanol’s shipment volumes.

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