Cosan Limited’s (CZZ - Free Report) third-quarter 2016 net income surged 244% year over year, driven primarily by lower cost of sales and increase in equity income. The company’s net income in the quarter was R$158.2 million (US$48.8 million) considerably up from R$46 million (US$13.1 million) in the year-ago quarter.
Cosan generated revenues of approximately R$3,272.8 million (US$1,010.1 million), decreasing 8.4% year over year.
The company operates under two business segments: Cosan S.A. and Cosan Logistica S.A. While the former includes Raizen Energia, Raizen Combustiveis, Comgas, Lubrificantes and Cosan Corporate, the latter comprises the Rumo Logistica business.
Cosan has decided to sell part of its stake in Radar business, and hence its results in the third quarter have been treated under discontinued operations.
Fuel volumes sold decreased 2.8% year over year due to lower sales volume of gasoline, diesel and aviation, partially offset by increase in volumes of gasoline and other products.
Revenues from sugar sales decreased 1% year over year, while that from ethanol sales grew 24.1%. Energy cogeneration revenues grew 1.8% year over year.
Total natural gas sales volume fell 17.5% year over year. Revenues from Cosan Lubrificantes fell 4.3%.
In the quarter, Cosan’s cost of sales and services declined 19.2% year over year, representing 62.2% of net revenue compared with 70.5% in the year-ago quarter. Gross margin increased 830 basis points (bps) year over year to 37.8%. Selling, general and administrative expenses grew 5.6% to R$496.8 million (US$153.3 million), representing 15.2% of net operating revenue. Financial expenses totaled R$768.4 million (US$237.2 million).
Exiting the third quarter, Cosan had cash and cash equivalents of R$3,148 million ($968.6 million), up from R$2,544 million (US$787.6 million) in the previous quarter. Loans and financing increased 3.5% sequentially to R$17,773 million (US$5,468.6 million).
Outlook: For 2016, Cosan anticipates pro forma net revenue to be R$45–R$48 billion for Cosan S.A., while earnings before interest, tax, depreciation and amortization (“EBITDA”) are projected within R$4.7–R$5.1 billion (versus R$4.25–R$4.8 billion expected earlier). Guidance for Cosan S.A.’s and Rumo’s businesses is discussed below:
Raizen Energia (guidance for crop year Apr 2016–Mar 2017): Management expects crushed sugarcane volumes within approximately 59–61 million tons (prior guidance was 60–64 million tons). Sugar volume produced will likely come in a range of 4.2–4.6 million tons.
Guidance for ethanol volume produced is in the range of 1.9–2.2 billion liters, while volume of energy sold is expected within 2.45–2.65 million MWh, up from 2.1–2.3 million MWh expected earlier. EBITDA is likely to come within R$3–R$3.3 billion, below the prior projection of R$3.3–R$3.6 billion, while capital spending is anticipated within R$1.9–$2.1 billion, above the previous forecast of R$1.8–$2 billion.
Raizen Combustiveis: EBITDA is predicted in a range of R$2.55–R$2.7 billion (versus R$2.35–R$2.7 billion expected earlier) and capital expenditure within R$750–R$850 million.
Cosan Lubrificantes: Volume of lubricants and base oil sold is likely to come within 280–330 million liters. EBITDA is expected in the R$120–R$160 million range.
Comgas: Volume of gas sold is likely to fall within 4–4.3 million cbm, while EBITDA is projected in a range of R$1.9–R$2 billion (prior expectation was R$1.4–R$1.6 billion). Capital expenditure is likely to come within R$470–R$520 million.
Rumo: EBITDA is predicted in a range of R$2–R$2.2 billion (versus R$2.3–R$2.5 billion expected earlier) and capital expenditure within R$1.8–R$2 billion (the prior guidance was R$1.7–R$2.1 billion).
Zacks Rank & Stocks to Consider
With a market capitalization of $2.2 billion, Cosan presently carries a Zacks Rank #2 (Buy). Other stocks worth considering in the sector include Fibria Celulose S.A. (FBR - Free Report) , Golden Minerals Company (AUMN - Free Report) and The Andersons, Inc. (ANDE - Free Report) . While Fibria Celulose sports a Zacks Rank #1 (Strong Buy), both Golden Minerals and The Andersons carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Fibria Celulose S.A.’s bottom-line estimates for 2016 and 2017 have been revised upward over the last 60 days. Average earnings surprise for the last four quarters is a positive 24.58%.
Golden Minerals Company’s bottom-line expectations for 2016 and 2017 have improved over the past 60 days while for The Andersons’ earnings estimates for 2016 have been revised upward.
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