In my look at ethanol's messy fall, I noted my annoyance with some of the statements made by Pacific Ethanol (NASDAQ:PEIX) executives during its quarterly conference call. The CEO claimed that the company's rapid production growth signified a "strong endorsement" of its business strategy.
The company ran at a loss in the quarter, and it's in no position to do continue doing so, with competitors like Archer Daniels Midland (NYSE:ADM) and VeraSun Energy (NYSE:VSE) achieving significantly higher economies of scale. In that light, management's comment makes no sense. Unprofitable growth is not an endorsement of anything in a commodity business.
Yesterday morning, Pacific announced that it has suspended construction on one of its new ethanol projects until market conditions improve. For some reason, the reaction yesterday was muted, but today the stock rose 10% at one point. How's that for a strong endorsement?
Related Foolishness:
- My Foolish colleague believes that ethanol is running out of gas.
- Can you say "consolidation time"? There's a new match in the corn patch.
