Cosan Q4 Earnings Fall Y/Y, Revs Up

Zacks Equity Research

Brazilian sugar and ethanol producer, Cosan Limited (CZZ) reported weak bottom-line results in fourth-quarter 2013 as its adjusted net earnings plummeted 32.3% year over year to R$229.8 million (US$101.2 million).

In 2013, Cosan recorded net earnings of R$261.3 million (US$121.5 million), down 67.9% year over year.


Cosan generated net revenue of R$2,217.8 million (US$977.0 million) in the fourth quarter, up 41.6% year over year. Pro forma revenue, including the Raizen contribution, was $9,390 million (US$4,136.6 million) in the fourth quarter, reflecting an increase of 12.0% year over year.

Fuel sales went up 14.8% year over year due primarily to higher volumes of ethanol and diesel sold in the quarter. Sugar sales went down 29.9% to R$876.2 million (US$386.0 million) while ethanol sales were up 11.2% to R$1,042.8 million (US$459.4 million).

All of the 24 mills that operated during the quarter have a crushing capacity of 65.6 million tons of sugarcane per crop year. Sugar production in the quarter was down 13.7% year over year to 1.18 million tons and crushed sugar volume also decreased 9.9% to 16.1 million tons.

Energy cogeneration revenues in the quarter was R$126.1 million (US$55.6 million), down 60.8% year over year. Total gas sales volume decreased 5.5% in the quarter. Revenues from Rumo’s Transportation business decreased 12.6% while it increased 14.2% for Loading business.

Revenues from Cosan Lubrificantes increased 3.7% year over year. Radar reported a 19.9% increase in revenues.

In 2013, net revenue generated was R$8,867.5 million (US$4,124.4 million) while revenues including Raizen contribution were R$36,165.2 million (US$16,821.0 million).


Cosan’s cost of goods, as a percentage of revenue, was up 20 basis points year over year to 70.6%, leading to a gross margin of 29.4% in the quarter. Sales, general and administrative expenses increased 22.4% to R$367.9 million (US$162.1 million).

Balance Sheet

Exiting fourth-quarter 2013, Cosan’s cash and cash equivalents were approximately R$1,474.6 million (US$627.5 million), reflecting a sequential increase of 22.7%. Loans and financing increased 2.5% sequentially to R$8,830.2 million (US$3,757.5 million).


A couple of days before reporting its fourth-quarter 2013 results, Cosan, to gain controlling interest in Latin America’s largest independent logistics company, America Latina Logistica (ALL), proposed to the latter a stock-merger with its subsidiary, Rumo Logistica Operadora Multimodal S.A (Rumo).

The incorporation of ALL’s shares by Rumo will create the largest railway and logistics company in Latin America. Existing shareholders of Rumo and ALL will be allotted a 36.5% and a 63.5% stake, respectively, in the combined company, with Cosan holding the right to appoint the majority of the board of directors. The completion of the transaction is subject to fulfilment of certain conditions including the approval of ALL’s board of directors and certain regulatory approvals.

The association requires Rumo to be registered as a publicly held company. For this, Cosan plans to propose to its board of directors to spin-off its logistics operations from the rest of the business. Two new companies, Cosan Energia and Cosan Logistica, will be formed and listed on the exchange. Cosan Logistica will be responsible for the operations of Rumo Logistica while Cosan Energia will combine operations of Raizen Energia, Raizen Combustiveis, Comgas, Radar and Cosan Lubrificantes.


For 2014, Cosan anticipates earnings before interest, taxes, depreciation and amortization (:EBITDA) to be within the R$4.15–R$4.65 billion range and capital expenditure to be within the R$2.5–R$2.8 billion range. Guidance for the company’s segments is discussed below:

Raizen Energia: Management expects crushed sugarcane volumes to be approximately within 61.0–63.0 million tons, sugar volume sold within 4.4–4.7 million tons and ethanol volume sold within 2.3–2.6 billion litres. Volume of energy sold is expected to range within 2.0–2.2 million MW. EBITDA is likely to be within the R$2.3–R$2.7 billion range, while capital spending is expected to range within R$2.0–$2.2 million.

Raizen Combustiveis: EBITDA is anticipated to be within the R$2.0–R$2.2 billion range and capital expenditure within the R$750–R$850 million range.

Rumo: Volume of loading is expected to range within 10.5–12.5 million tons and EBITDA within the R$0.40–R$0.45 billion range.

Radar: EBITDA is expected to be within R$0.17–R$0.20 billion.

Cosan Lubrificantes: Volume of lubricants and base oil sold is likely to be within 0.27–0.31 billion litres. EBITDA is expected to be within the R$0.14–R$0.17 billion range.

Comgas: Volume of gas sold is likely to be within 5.2–5.7 million cbm while EBITDA is expected to be within the R$1.30–R$1.55 billion range. Capital expenditure is likely to range within R$0.68–R$0.78 billion.

Cosan currently has a market capitalization of $3.2 billion and carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Otter Tail Corporation (OTTR), Exelon Corporation (EXC) and Northwestern Corporation (NWE). While Otter Tail carries a Zacks Rank #1 (Strong Buy), both Exelon and Northwestern Corporation hold a Zacks Rank #2 (Buy).

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