REG discusses Q1 impacts of COVID-19 pandemic

By Erin Voegele | April 30, 2020

Renewable Energy Group Inc. released first quarter 2020 result on April 30. While COVID-19 has had little impact on U.S. diesel demand, the company reported that the pandemic has significantly impacted feedstock markets.

Cynthia Warner, president and CEO of REG, opened the first quarter earnings call with a discussion of how REG is being impacted by COVID-19. “I’d like to start by saying I’m both pleased and humbled to report that REG delivered strong adjusted EBITDA for the quarter,” she said. “We realized this result despite the considerable market turmoil from the onset of COVID-19 and the freefall in oil prices.”

Warner said the company was able to maintain performance through a combination of factors, including strong operations and continued underlying performance improvements, effective risk management, a flexible approach to feedstock selection and product placement, and relative certainty now available regarding the blenders tax credit (BTC). “REG’s culture of safety, teamwork, resilience and persistence coupled with our strong sense of purpose was also essential to our delivery under the circumstances,” she added.

Warner confirmed REG’s operations are considered to be essential business during the pandemic, and full operations were maintained during the fourth quarter.

She said REG took early action to mitigate the impacts of the pandemic. “We activated our newly formed COVID-19 emergency response team, or ERT, on a high alert basis in January to begin monitoring the situation and planning for possible contingencies should the virus spread globally,” Warner said. “As the pandemic has unfolded, the ERT guides the company in taking decisive action. They provide our leaders with daily tracking and situational updates, as well as crisis related services, such as orchestrating the distribution of critical PPE across the company.”

REG has adopted practices in line with CDC guidelines for sanitation, travel restrictions and social distancing, Warner added. This includes moving all office-based operations to remote work. At REG refineries, the company implemented social distancing, extra sanitation practices and proactive quarantine measures.

“In order to reduce anxiety, better support our employees and encourage precautionary quarantine when warranted, we granted all of our employees and extra 80 hours of paid time off as needed in order to deal with health or family issues related to the virus,” Warner added.

She discussed the turnaround that was executed at the company’s Geismar renewable diesel plant in April. “A turnaround under normal circumstances is complex, but especially so in the context of a virus outbreak in Louisiana,” Warner said. “The team performed exceptionally well, applying stepped up sanitation health controlled practices, including daily health checks for workers, increased PPE requirements, and several carefully planned separation measures. This enabled us to carry out the essential work with zero safety or health issues to date.”

Warner confirmed that REG has been impacted by fuel demand destruction, but said she believes the company is in a relatively resilient position given the primary use of fuels it produces. While U.S. Energy Information Administration data shows gasoline demand is down approximately 50 percent and jet fuel demand is down about 70 percent, diesel demand was relatively stable during the first quarter.

The impact REG is experiencing is primarily related to feedstock disruption. Warner said restaurant closures have resulted in a 45 percent reduction in the availability of used cooking oil. In addition, significant plant closures in the ethanol industry has reduced distillers corn oil supply by an estimated 55 percent. Rendering plants are also being impacted by COVID-19, with the supply of animal fats down by an estimated 50 percent. Soybean crush levels, however, have increased. Warner said feedstock pricing has been extremely volatile.

REG sold 140 million gallons of fuel during the first quarter, a decrease of 14 percent when compared to the same period last year. The decrease is primarily attributed to the company’s focus on improving in the product mix, with volume decreases in lower margin petroleum diesel and third party biodiesel of 16 million gallons and 4 million gallons, respectively, partially offset by increases of higher margin renewable diesel and biodiesel gallons sold in Europe, which in the aggregate increased 1 million gallons.

REG produced 121 million gallons of biodiesel and renewable diesel during the quarter, an increase of 4 percent. Renewable diesel production at Geismar increased 3 percent. Biodiesel increased primarily due to higher production in Madison, Wisconsin; Grays Harbor, Washington; and Albert Lea, Minnesota; partially offset by the absence of production from the New Boston, Texas, plant, which was closed in July 2019.

Revenues of $475 million were essentially flat, impacted by lower selling prices due primarily to significantly lower ULSD prices, which declined 21 percent; the 14 percent decrease in gallons sold; and a 10 percent decrease in average D4 RIN prices. These negative impacts were mostly offset by a $68 million increase in biomass-based diesel government incentives due to the BTC being in effect in the first quarter of 2020.

GAAP net income from continuing operations available to common stockholders was $75 million, or $1.72 per share on a fully diluted basis, compared to net loss of $41 million, or $1.11 per share on a fully diluted basis, in the first quarter of 2019.

 

 
 
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