Why Renewable Energy Group Rose as Much as 20.4% Today

The nation's top biodiesel producer reported second-quarter 2018 earnings.

Maxx Chatsko
Maxx Chatsko
Aug 7, 2018 at 12:24PM
Energy, Materials, and Utilities

What happened

Shares of Renewable Energy Group (NASDAQ:REGI) jumped over 20% today after the company reported second-quarter and first-half 2018 earnings. The results indicate the company is making good on its long-term plan to become profitable with or without federal tax credits for renewable fuels. 

In the first half of 2018, adjusted EBITDA almost tripled compared to the year-ago period, excluding benefits from the biodiesel mixture excise tax credit (BTC). That allowed Renewable Energy Group to deliver positive earnings per share of $0.69 for the first six months of the year -- all without any help from the BTC, which is currently inactive.

As of 11:36 a.m. EDT on Tuesday, the stock had settled to a 13.1% gain.

A woman checking her smartphone and pumping her fist in excitement as cash money falls around her.

Image source: Getty Images.

So what

This is a potentially huge development for shareholders. If the results of the last two quarters can be replicated going forward, then Renewable Energy Group may not need the BTC to operate a profitable business. That is looking more and more likely.

The company is producing more fuel (second-quarter 2018 year-over-year growth of 6%), selling more fuel (year-over-year growth of 7%), and enjoying higher average selling prices (year-over-year growth of 8%) than it was a year ago. Manufacturing facilities are delivering improved margins thanks to recent investments in process upgrades. And the most profitable production facility, which churns out higher-margin renewable diesel, was actually off line for three weeks in the first half of 2018 for routine maintenance.

It could get better still. The U.S. Environmental Protection Agency is contemplating boosting mandated biodiesel blending volumes 16% in 2020 compared to this year's level. Meanwhile, the International Maritime Organization, which sets marine fuel standards for 170 countries, is moving to lower-sulfur fuels in 2020 -- a move widely expected to boost demand for diesel and biodiesel fuels.

And believe it or not, it could get even better. If the BTC is retroactively reinstated for 2018 (as it has been each year it's lapsed in the past), then Renewable Energy Group expects first-half 2018 net income would jump $108 million, or a staggering 282%. That's quite the windfall.

Now what

Renewable Energy Group is rolling right now. Investors are happy to see that the business is profitable without federal tax credits for renewable fuels and, more important, that this could be a sustainable trend. Considering all of the positive momentum and catalysts on the horizon in both the near and long term, shareholders might expect that things are just getting started.