Rentech Earnings: An Early Look

Earnings season is winding down, with most companies already having reported their quarterly results. But there are still some companies left to report, and Rentech (NYSEMKT: RTK) is about to release its quarterly earnings. The key to making smart investment decisions with stocks releasing their quarterly reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Rentech has an interesting mix of businesses that includes not only a significant player in the fertilizer business but also segments aimed at renewable energy and synthetic fuels. Let's take an early look at what's been happening with Rentech over the past quarter and what we're likely to see in its quarterly report on Tuesday.

Stats on Rentech

Source: Yahoo! Finance.

Will Rentech power higher this quarter?
Analysts have gotten slightly more optimistic about Rentech lately, having pushed up their earnings-per-share estimates for the most-recent quarter by a penny and sending 2013 estimates higher by $0.03 per share. The stock, though, has been stuck in neutral, falling about 1% since mid-December.

The renewable-fuel industry has been a very tough one to find profits from, as most companies have had a tough time ramping up production to become financially viable. Solazyme (TVIA) and its algae-based fuel business has been a money-loser for years, despite having managed to get a big partnership with Bunge to produce between 300,000 and 400,000 metric tons of fuel in the next few years. Amyris (AMRS -33.33%) has seen similar pressure with its sugar-based fuels, with the company expected to keep seeing negative cash flow until 2014.

But Rentech's saving grace has been its roughly 60% stake in subsidiary Rentech Nitrogen Partners (NYSE: RNF), which has consistently produced profits from its nitrogen-based fertilizer business. Given low prices for natural gas, the master limited partnership has benefited from a favorable environment for nitrogen-fertilizer production, and Rentech's 23.2 million unit stake in the MLP has produced nearly $90 million in income that the parent has used essentially to subsidize losses in its renewables business.

In its quarterly report, expect Rentech to discuss its decision to close its Colorado-based research and development unit. Although discontinuing money-losing operations is always a smart move, the question is whether the "more immediate growth opportunities" it identified will truly bring in the income that has thus far eluded Rentech. Unless it can do so, investors should take a close look at Rentech Nitrogen Partners as a more direct way to own Rentech's major profit-producing asset.

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