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Brazilian sugar and ethanol producer, Cosan Limited (CZZ - Analyst Report) released its fiscal third quarter of 2013 results (ended Dec 31, 2012) on January 6. The company reported net earnings of R$342.3 million (US$166.2 million) in the quarter compared with the earnings of R$93.8 million (US$52.1 million) in the year-ago comparable quarter.

In the fiscal third quarter 2013; Cosan completed acquiring 60.1% of controlling interest in Comgas. The company added a new reporting segment named Comgas that will deal with the natural gas distribution business.


Cosan’s net operating revenue jumped 33.1% year over year to R$8,397.1 million (US$4,076.3 million).

Fuel sales went up 12.9% in the quarter while sugar sales saw a 40.9% increase to R$1,250.4 million (US$607.0 million) in the quarter. Ethanol sales were up 25.9% to R$937.6 million (US$455.1 million).

Sugar production in the quarter more than doubled to 1.361 million tons while crushed sugar volume increased 117.1% to 17.8 million tons. All of the 24 mills operated during the quarter with a crushing capacity of 65 million tons of sugarcane per crop year.

Energy sales in the quarter reached R$321.7 million (US$156.2 million), up roughly 506.9%. Total gas sales volume jumped 20.8%. Rumo registered about 61.6% and 38.8% increase in revenue derived from its Transportation and Loading businesses, respectively.

Radar reported a 13.4% decline in its revenue as no properties were sold in the quarter while a majority of the revenue came from leasing activities.  

Cost of goods, as a percentage of revenue plummeted 250 basis points year over year to 87.4% and also registered a 29.4% year-over-year increase, leading to a gross margin of 12.6% in the quarter. Selling, general and administrative expenses, as a percentage of revenue, increased 100 basis points to 7.8%. Operating margins went down from 6.4% in the year-ago quarter to 4.0% in the reported quarter.
Balance Sheet/Cash Flow

Exiting the third quarter of 2013, Cosan’s cash and cash equivalents (including restricted cash) increased 21.9% sequentially to R$2422.1 million (US$1,181.5 million) while long-term debt more than doubled to R$10,025.1 million (US$4,890.3 million).

Cash flow from operations in the quarter was $557.5 million (US$270.6 million) while capital spending went up by 22.4% to R$424.0 million (US$205.8 million).

Management reiterated its guidance for the fiscal year 2013. Net revenue is expected to be within the R$26.0-R$29.0 billion range; EBITDA in the range of R$2.3-R$2.6 billion (versus R$2.2-R$2.5 billion expected earlier) and capital expenditure within the R$2.1-R$2.4 billion range. Guidance for the segments is discussed below:

Raizen Energia: Management expects crushed sugarcane volumes to be approximately 56.2 million tons (versus 54-56 million tons expected earlier), sugar volume sold within 3.9-4.2 million tons, and ethanol volume sold within 1.85-2.05 billion litres. Volume of energy sold is expected to range within 1.65-1.85 million MW. EBITDA is likely to be within the R$2.4-R$2.7 billion range (prior forecast was R$2.2-R$2.5 billion).

Raizen Combustive is: Fuel volume sold is likely to be within the 21.0-23.0 billion litre range and EBITDA to be within the R$1.5-R$1.7 billion range (earlier expectation was R$1.3-R$1.5 billion).

Rumo: Volume of loading is expected to range within 8.0-10.0 million tons and EBITDA within the R$0.25-R$0.28 billion range.

Radar: EBITDA is expected to be within the R$0.12-R$0.14 billion range.

Other Business: Volume of lubricants and base oil sold is likely to be within 0.22-0.26 billion litres.

Cosan currently has a Zacks Rank #3 (Hold). Other players to watch out for in the industry are Gruma S.A.B. de CV (GMK - Snapshot Report),Monsanto Company (MON - Analyst Report) and Syngenta AG (SYT - Analyst Report), each with a Zacks Rank #2 (Buy).

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