ADM Archer Daniels Midland Company

Cosan Limited (CZZ) posted encouraging results for the first quarter of 2012, registering a year-over-year increase both in revenue and net income. Net income in the quarter was R$2,299.3 million (US$1,446.1 million), up from roughly R$0.4 million (US$0.2 million) in the year-ago quarter.

The quarter’s results include the impact of Raizen formation, excluding which its net income in the quarter comes to R$111.3 million (US$70 million).

Revenue

Considering the top line, net operating revenue in the quarter was R$5,188 million (US$3,262.9 million), up 29.7% year over year but below the Zacks Consensus Estimate of US$3,979 million.

Starting from the first quarter of 2012, Cosan revised its business units giving effect to the formation of Raizen. The company’s business units before Raizen were CAA (including Sugar, Ethanol and Cogen; Cosan Alimentos; and Corporate), CCL (including Fuel Distribution and Lubricants) and Rumo (Sugar Logistics).

Business units after Raizen comprise Raizen Energia (including Sugar, Ethanol and Cogen; and Cosan Alimentos), Raizen Combustiveis (Fuel Distribution), Rumo (Sugar Logistics), and Other Business (Lubricants and Corporate).

Sugar revenue jumped 5.4% to R$873.9 million (US$549.6 million) while Ethanol sales soared 80.4% to R$643.8 million (US$404.9 million).  Sugar production in the quarter decreased 6.7% year over year to 1.2 million tons while crushed volume was down 7.5% to 18.4 million tons. 

Margins

Cost of goods, as a percentage of revenue, soared 60 basis points to 88.7% and also registered a 30.6% increase on a year-over-year basis leading to gross margin of 11.3% in the quarter. Selling and general and administrative expenses, as a percentage of revenue, plummeted 40 basis points and 10 basis points, respectively.

Formation of Raizen contributed roughly R$3.3 billion (US$2.1 billion) to operating income, which amounted to R$3.5 billion (US$2.2 billion) in the quarter. Income in the year-ago quarter was R$137.9 million (US$76.6 million).

Balance Sheet/Cash Flow

Exiting the first quarter of 2012, Cosan’s cash and cash equivalents (including restricted cash) plummeted 7.7% sequentially to R$1,338.4 million (US$852.5 million) while debt (loan and financing, net of current portion) decreased by 41.0% to R$3,699.4 million (US$2,356.3 million).

Cash flow from operations was a negative R$107.6 million (US$67.7 million) versus R$653.7 million (US$363.2 million) in the year-ago quarter. Capital spending in the quarter decreased 34.9% year over year to R$491.5 million (US$309.1 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 anticipates crushed sugarcane volumes to range within 53-56 million tons (versus prior expectation 56-60 million tons), sugar volume sold within 3.9-4.3 million tons (versus previous expectation 4.2-4.6 million tons), and ethanol volume sold within 2-2.3 billion litres (versus prior expectation of 2.1-2.3 billion litres). Volume of energy sold is expected to range within 1.2-1.4 million MW (versus prior expectation of 1.4-1.6 million MW). EBITDA is likely to be within R$1.9-R$2.1 billion range as compared with R$1.9-R$2.3 billion expected earlier.

Raizen Combustiveis: For the fiscal year 2012, management anticipates fuel volume sold to be within the 21.0-23.0 billion litre range and EBITDA to be within R$0.85-R$1.05 billion range.

Rumo: For the fiscal year 2012, management expects volume of loading to range within 9-11 million tons and volume of transportation to be within 6-8 million tons.

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

Cosan Ltd. is one of the world’s largest producers of sugar and ethanol. It faces stiff competition from rivals like Archer Daniels Midland Company (ADM) and Copersucar - Cooperativa de Produtores.

 
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