Cosan (CZZ) Posts Net Profit For 2017, Provides '18 View

Cosan Limited (NYSE:CZZ) recently reported impressive results for 2017. Its adjusted net income was R$188.2 million ($59 million), reflecting an improvement over the net loss of R$135.3 million ($38.8 million) in 2016. The company’s share price has grown roughly 1.23% since the results were announced on Mar 1.

However, fourth-quarter results were disappointing with the adjusted net loss of R$203.3 million ($63.7 million). In the year-ago quarter, the company recorded net income of R$3.6 million ($1.1 million).

Revenues Improve Y/Y

In the quarter, Cosan’s net revenues were R$3,717.2 million ($1,143.8 million), increasing 33.4% year over year.

The company operates in two business segments: Cosan S.A. and Cosan Logistica S.A. While Cosan S.A includes Raizen Energia, Raizen Combustiveis, Comgas, Moove and Cosan Corporate; Cosan Logistica comprises the Rumo Logistica business.

Fuel volumes sold increased 4.3% year over year on the back of 34.3% growth in ethanol volumes sold, 9.4% rise in diesel volume and 3.1% increase in aviation fuel volumes. However, this was partially offset by 8.3% fall in gasoline volumes.

Sugar volume sold increased 2.1% year over year to 1.1 million tons. Of the total, roughly 70.4% was exported while the rest was sold domestically. Ethanol volume sold was roughly flat at 1 million cbm, including 29.8% of export volume and the rest of domestic volume.

Total natural gas sales volume grew 4% year over year while lubricants sales volume was flat. For Rumo, total volume transported increased 79% year over year.

For 2017, the company’s net revenues grew 8.5% year over year to $13,582.5 million ($4,257.8 million).

Gross Margin Improves

Cosan’s margin profile improved in the fourth quarter. Its cost of sales and services sold grew 20.1% year over year to R$2,665 million ($820 million) and represented 71.7% of net revenues, down from 79.7% in the year-ago quarter. Gross margin increased 800 basis points year over year to 28.3%.

Selling, general and administrative expenses grew 6.3% year over year to R$583.4 million ($179.5 million), representing 15.7% of net revenues. Financial expenses were R$925.8 million ($284.9 million), up 28.9% year over year.

Balance Sheet & Capital Expenditure

Exiting the fourth quarter, Cosan had cash and cash equivalents of R$4,555 million ($1,376.1 million), down from R$5,802 million ($1,836.1 million) at previous quarter-end. Loans and borrowings increased 1.7% sequentially to R$21,689 million ($6,552.6 million).

In the quarter, the company’s capital expenditure totaled R$910.7 million ($280.2 million), reflecting the growth of 51.8% over the year-ago quarter.

Outlook

For 2018, Cosan anticipates pro forma net revenues to be R$50-R$53 billion for Cosan S.A. Earnings before interest, tax, depreciation and amortization (EBITDA) are projected to be within R$4.9-R$5.4 billion. Guidance for Cosan S.A.’s and Rumo’s businesses is discussed below:

Raizen Energia (guidance for crop year April 2018-March 2019): Management expects crushed sugarcane volumes to be 63-67 million tons. Sugar volume produced is likely to come in a range of 4.2-4.6 million tons.

Ethanol volume production is expected to be in the range of 2.3-2.6 billion liters while the volume of energy sold is expected within 2.5-2.7 million MWh. EBITDA is likely to come within R$3.4-R$3.8 billion while capital spending is anticipated within R$2.4-R$2.7 billion.

Raizen Combustiveis: EBITDA is predicted in a range of R$2.85-R$3.15 billion and capital expenditure is likely to be within R$800-R$1,000 million.

Moove: EBITDA is expected in the range of R$200-R$230 million.

Comgas: Volume of gas sold is likely to fall within 4.4-4.6 million cbm while EBITDA is projected in a range of R$1.77-R$1.87 billion. Capital expenditure is likely to be in the range of R$450-R$500 million.

Rumo: EBITDA is predicted in a range of R$3.05-R$3.25 billion and capital expenditure is expected within R$1.9-R$2.1 billion.

Cosan Limited Price and Consensus