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What Awaits Renewable Energy Group (REGI) in Q1 Earnings?

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Renewable Energy Group, Inc. is set to report first-quarter 2021 results on May 3, after market close. In the last reported quarter, the company delivered a negative earnings surprise of 10.45%.

However, in the trailing four quarters, Renewable Energy Group came up with an earnings surprise of 43.13 %, on average.

Let's take a closer look at the factors likely to influence the company’s upcoming quarterly results.

Factors to Consider

Amid the challenges posed by the COVID-19 pandemic, a more stable biodiesel demand is likely to have contributed favorably to Renewable Energy Group’s first-quarter revenues. In particular, rising biodiesel volume in North America and Europe are projected to have benefited the company’s top-line performance.

However, a decline observed in ULSD prices has been hurting its top line in the recent times. Although the company has started to witness a modest improvement in prices since the fourth quarter of 2020, a stark hike seems to be unlikely, which might pose risk to its revenue growth.  

However, on the fourth-quarter earnings call, Renewable Energy Group announced that to take advantage of the relatively low margin period of the first quarter, it will undertake necessary annual maintenance at several of its biodiesel plants and at Geismar. This will have an impact on first-quarter renewable diesel production and hence resultant revenues. Nevertheless, sales of blends of biodiesel into renewable diesel have been consistently growing as more and more customers are realizing the value of Renewable Energy Group’s proprietary Ultra Clean fuel. We expect a similar sales growth to have boosted the company’s first quarter top line.

Notably, the Zacks Consensus Estimate for first-quarter revenues, pegged at $516.5 million, indicates a 8.8% rise from the year-ago quarter’s reported figure.

As stated earlier, historically Renewable Energy tends to generate lower margin during the first quarter, compared with the remaining quarters of the year. This time also a similar trend is expected to have prevailed. Meanwhile, the ongoing COVID-related shutdowns and supply chain disruptions are impacting feedstock availability and prices. Although a recovery has been witnessed but its pace remains quite slow. Therefore, rising feedstock cost, along with lower ULSD prices is expected to have weighed on its margin in the first quarter. This in turn may have hurt the company’s earnings in the soon-to-be-reported quarter.

Moreover, per the company’s earlier announced guidance, it is expected to have incurred risk management loss worth at least $11 million in the first quarter, which must have also taken a toll on its bottom-line performance.

The Zacks Consensus Estimate for first-quarter earnings per share is pegged at 20 cents, indicating a 88.4% decline from the year-ago quarter’s figure.

Earnings Whispers

Our proven model does not conclusively predict an earnings beat for Renewable Energy Group this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. But this is not the case here.

Earnings ESP: Renewable Energy Group has an Earnings ESP of +87.68%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company carries a Zacks Rank #5 (Strong Sell).

Stocks to Consider

Investors can consider the following players from the same sector that have the right combination of elements to post an earnings beat this season and are yet to release their results.

Ameresco (AMRC - Free Report) has an Earnings ESP of +34.98% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Now Inc. (DNOW - Free Report) has an Earnings ESP of +31.37% and a Zacks Rank #2.

Chevron Corporation (CVX - Free Report) has an Earnings ESP of +3.32% and a Zacks Rank #3.

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