Cosan Reports Upbeat 3Q12 Results

Brazilian sugar and ethanol producer, Cosan Limited (CZZ - Analyst Report) released its third quarter 2012 earnings results on February 8. The company's net income in the quarter increased more than 100% year over year to R$93.8 million (US$52.1 million) versus R$38.7 million (US$22.8 million) in the year-ago quarter.

Revenue

Cosan's net operating revenue jumped 33.2% year over year to R$6,310.7 million (US$3,505.9 million) but failed to gain momentum to surpass the Zacks Consensus Estimate of US$4,078 million.

Sugar revenue decreased 4.8% to R$887.6 million (US$493 million) while Ethanol sales soared 14.9% to R$744.5 million (US$413.6 million). Adverse weather conditions in the quarter negatively impacted sugar production that fell 18.9% year over year to .656 million tons in the quarter. Crushed volume amounted to 8.2 million tons of sugarcane, roughly 27.3% fall from the year-ago quarter.

Margins

Cost of goods, as a percentage of revenue, soared 210 basis points to 89.9% and also registered a 36.3% increase year over year, leading to gross margin of 10.1% in the quarter. Selling and general and administrative expenses, as a percentage of revenue, plummeted 170 basis points to 6.8%. Operating margins soared 20 basis points to 3.8% in the quarter.

Balance Sheet/Cash Flow

Exiting the third quarter of 2012, Cosan's cash and cash equivalents (including restricted cash) decreased 10.7% sequentially to R$1,371.6 million (US$737.4 million) while debt (loan and financing, net of current portion) increased 4.1% to R$4,589.9 million (US$2,550.0 million).

Cash flow from operations was $294.5 million (US$163.6 million), an increase of 31.3% year over year. Capital spending went down by 35.0% to R$346.3 million (US$192.4 million).

Outlook

For fiscal year 2012, management anticipates that consolidated net revenue would be in the range of R$25.0-R$27.5 billion; EBITDA in the range of R$1.8-R$2.2 billion and capital expenditure in the range of R$2.0-R$2.3 billion.

Raizen Energia: For the fiscal year 2012, management expects crushed sugarcane volumes to range within 56-60 million tons (versus prior expectation of 53-54 million tons), sugar volume sold within 4.2-4.6 million tons (versus previous expectation of 3.9-4.1 million tons), and ethanol volume sold within 2.1-2.3 billion litres (versus prior expectation of 1.9-2.0 billion litres). Volume of energy sold is expected to range within 1.4-1.6 million MW (versus prior expectation of 1.2-1.4 million MW). EBITDA is likely to be within R$1.9-R$2.3 billion range as compared with R$1.85-R$2.05 billion expected earlier.

Raizen Combustiveis: For the fiscal year 2012, management expects fuel volume sold to be within the 21.0-23.0 billion litre range (versus 21.0-22.0 billion litres expected earlier) and EBITDA to be within R$.0.85-R$1.05 billion range (versus R$1.0-R$1.2 billion expected earlier).

Rumo: For the fiscal year 2012, management feels that volume of loading would range within 9.0.5-11.0 million tons (versus 7.5-9.5 million tons expected earlier) and volume of transportation to be within 6-8 million tons (versus 5-7 million tons expected earlier).

Cosan Alimentos: For the fiscal year 2012, management anticipates that sugar volume sold would be within 0.55-0.65 million tons and EBITDA within R$65-R$85 million.

Other Business: For the fiscal year 2012, management estimates volume of lubricants sold to be within 0.17-0.19 billion litres.

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