What happened
FutureFuel (FF), a producer of chemicals and biodiesel, is finding its own shares starved for gas Thursday morning after reporting a big drop in revenue and a widened net loss in its second-quarter earnings report last night.
As of 1:05 p.m. ET, FutureFuel stock is down 22.4%.
So what
Sales in the fiscal second quarter dropped 28% year over year to $85.3 million, and the company's net loss more than tripled to $0.23 per diluted share.
Management blamed the decline in profit on "the timing of the sale of separated RINs" -- renewable identification numbers, which are government credits generated each time a gallon of renewable fuel is produced by a company like FutureFuel. Management noted, however, that because these RINs were sold in July, after the end of Q2 they will add $19.5 million to the company's Q3 results.
Now what
That helps to explain the declines in Q2, although it's worth pointing out that even if the $19.5 million had been counted toward Q2 results, sales would have declined by 11% year over year. Still, management seems to expect better results in the coming quarter -- although it did not give specific guidance on precisely what it hopes to report for Q3.
What management did say is that both its chemical and biodiesel margins have been strong so far this year, and the company's biodiesel plant is running at full capacity. This suggests that Q2 results may have been something of a fluke -- FutureFuel did earn a strong $21.1 million profit in Q1, and its trailing-12-month results show a profit of $41.9 million, despite the awful Q2 number.
With a stock valuation of just 8 times earnings after today's sell-off, $167 million in cash on the balance sheet, and no long-term debt, FutureFuel looks to me like it's being unfairly punished today. And now might be a good time to buy into this misunderstood, undercovered alternative energy play.
