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Cosan Limited (CZZ - Analyst Report) reported impressive year-over-year results for second-quarter 2014. Net income came in at R$104.1 million (US$46.7 million), an improvement over the loss of R$201.5 million (US$97.8 million) reported in the year-ago quarter.

Revenues

Cosan’s net revenue inched up 0.9% year over year to R$2,246 million (US$1,007.2 million). Pro forma revenue, including the Raizen contribution, were R$9,595.7 million (US$4,303 million).

Fuel sales grew 16.2% year over year due to higher volumes of ethanol and gasoline sold in the quarter. Sugar sales fell 23.2% to R$582.8 million (US$261.3 million) while ethanol sales escalated by 51.4% to R$879.3 million (US$394.3 million).

Raizen Energia crushed nearly 20.9 million tons of sugarcane in the quarter, reflecting 13% increase over the year-ago quarter. Sugar production rose 13.7% to 1.4 million tons.

Energy cogeneration revenues were R$175 million (US$78.5 million), up 79.9% year over year. Total gas sales volume decreased 2.2% year over year. Revenues from Rumo’s Transportation business were down 20%, while that from Loading business increased 19.1%.

Revenues from Cosan Lubrificantes increased 4.6% year over year. Radar’s net revenues soared 77% to R$35.2 million (US$15.8 million).

Margins

Cosan recorded 3.4% year-over-year decline in cost of goods, representing 68.8% of net revenue versus 71.9% in the year-ago quarter. Gross margin grew by 310 basis points (bps) to 31.2%. Sales, general and administrative expenses went up 17% to R$380.1 million (US$170.4 million).

Earnings before interest, taxes, depreciation and amortization (EBITDA) were R$881.4 million (US$395.2 million), up 6.5% year over year while EBITDA margin inched down 20 bps to 9.2%.

Balance Sheet

Exiting second-quarter 2014, Cosan had cash and cash equivalents of approximately R$1,321.4 million (US$600.6 million), down 10.3% from R$1,472.5 million (US$651.5 million) recorded at the previous quarter-end. Loans and financing declined 19.6% sequentially to R$7,011.7 million (US$3,187.1 million).

Outlook

Cosan maintained its guidance for 2014. Net revenues are expected in the range of R$37.5−R$40.5 billion. EBITDA is expected to be within R$4.15−R$4.65 billion and capital expenditure is predicted in the R$2.5−R$2.8 billion range. Guidance for the company’s segments is discussed below:

Raizen Energia: Cosan expects crushed sugarcane volumes to be approximately 58−60 million tons versus 61−63 million tons forecasted earlier. Sugar volume sold will likely range in 4.2−4.5 million tons, down from 4.4−4.7 million tons.

Guidance for ethanol volume sold has been lowered to 2−2.2 billion litres versus 2.3−2.6 billion litres anticipated previously. Volume of energy sold is expected within 1.95−2.15 million MW, as against 2.0−2.2 million MW projected earlier. EBITDA is likely to be in the R$2.3−R$2.7 billion range, while capital spending is expected to range from R$2.0−$2.2 billion.

Raizen Combustiveis: EBITDA is anticipated to be in the R$2.0−R$2.2 billion range and capital expenditure in the R$750−R$850 million range.

Rumo: Volume of loading is expected within 10.5−12.5 million tons and capital expenditure in the R$250−R$300 million range.

Radar: EBITDA is expected in the range of R$170−R$200 million.

Cosan Lubrificantes: Volume of lubricants and base oil sold is likely to be within 270−310 million litres. EBITDA is expected to be in the R$140−R$170 million range.

Comgas: Volume of gas sold is likely to be within 5.2–5.7 million cbm while EBITDA is expected in the range of R$1.30–R$1.55 billion. Capital expenditure is likely to be within R$0.68–R$0.78 billion.

With a market capitalization of $3.1 billion, Cosan presently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include The Andersons, Inc. (ANDE - Analyst Report), Gruma S.A.B. de CV (GMK - Snapshot Report) and ALLETE, Inc. (ALE - Snapshot Report). While The Andersons and Gruma S.A.B. de CV sport a Zacks Rank #1 (Strong Buy), ALLETE holds a Zacks Rank #2 (Buy).

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