Shares of Renewable Energy Group (REGI) fell over 23% today after the company reported first-quarter 2019 operating results. The business slogged its way through "a challenging margin environment" that was further exacerbated by weather disruptions, according to CEO Cynthia J. Warner.
The country's largest biodiesel producer grew production volumes 10% and sales volumes 20% year over year, but reported flat revenue growth on biodiesel sales due to weak selling prices in the most recent period. The combination of lower selling prices, higher feedstock costs, and higher production resulted in a $52 million increase in cost of goods sold in that span, which swung the business to a modest quarterly loss.
As of 11:11 a.m. EDT, the stock had settled to a 21.1% loss, marking one of the worst trading days in the last five years.
Renewable Energy Group prepared investors for a rough start to the year when it provided its initial first-quarter 2019 outlook in March. Higher feedstock costs and lower renewable identification number (RIN) prices -- credits created with biofuel production that are sold to track compliance with blending requirements among refiners -- were the primary factors weighing on the business. Both are outside of the company's control.
That said, there could be a silver lining for investors. Management believes that depressed RIN prices are being caused in part by the market anticipating that the blenders tax credit (BTC) will be retroactively reinstated for 2018 and 2019. That would lead to an estimated windfall of $237 million for production volumes from 2018 and an additional $55 million for production from the first quarter of this year. The nearly $300 million windfall would be 100% profit.
The biodiesel market is no stranger to volatility, which may be easy to forget after a surprisingly stable year of operations in 2018. A weak first quarter and expectations for similar challenges in the second quarter have provided a jolting reminder. Nonetheless, it's important for investors to also remember that Renewable Energy Group has a solid track record of delivering on its long-term strategic initiatives, which is more important than quarter-to-quarter fluctuations.