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Cosan's (CZZ) Q1 Net Income Rises Y/Y on Higher Sales

Cosan Limited CZZ reported impressive results for first-quarter 2016. The company’s net income in the quarter totaled R$131.3 million (US$33.7 million) significantly up from R$9.5 million (US$3.3 million) recorded in the year-ago quarter.

The results improved primarily due to higher revenues and foreign exchange variation gains, partially offset by an increase in costs and expenses.


In the quarter, Cosan generated net operating revenue of R$3,142 million (US$805.6 million), increasing 47% year over year.

The company operates under two business segments: Cosan S.A. and Cosan Logistica S.A. While the former includes Raizen Energia, Raizen Combustiveis, Comgas, Lubrificantes, Radar and Other businesses, the latter comprises the Rumo Logistica business.

Fuel volumes sold increased 1.5% year over year, primarily due to higher sales volume of gasoline and diesel, partially offset by decline in volumes of ethanol, aviation and other products.

Revenues from sugar sales in the quarter increased 22.3% year over year, while that from ethanol sales grew 19.1%. Energy cogeneration revenues grew 245.7% year over year.

Total natural gas sales volume fell 18.7% year over year. Revenues from Cosan Lubrificantes grew 26.1%, and net revenue from Radar increased 6.1%, both on a year-over-year basis.

Revenues from Cosan Logistica increased 22.3% year over year.


Cosan’s cost of sales rose 30% year over year in the quarter, representing 65.8% of net operating revenue versus 74.3% in the year-ago quarter. Gross margin increased 850 basis points (bps) year over year to 34.2%. Selling, general and administrative expenses increased 18% to R$472.4 million (US$121.1 million), representing 15% of net operating revenue. Financial expenses totaled R$876.7 million (US$224.8 million).

Balance Sheet

Exiting first-quarter 2016, Cosan had cash and cash equivalents of R$3,210 million (US$894.2 million), down from R$3,506 million (US$885.4 million) in the previous quarter. Loans and financing decreased 2.1% sequentially to R$18,434 million (US$5,134.8 million).

Outlook: For 2016, Cosan expects pro forma net revenue of R$45–R$48 billion for Cosan S.A., while earnings before interest, tax, depreciation and amortization (“EBITDA”) are projected within R$4.25–R$4.8 billion. Guidance for Cosan S.A.’s and Rumo’s businesses is discussed below:

Raizen Energia (guidance for crop year Apr 2016–Mar 2017): Management expects crushed sugarcane volumes within approximately 60–64 million tons. Sugar volume sold will likely come in a range of 4.2–4.6 million tons.

Guidance for ethanol volume sold falls in a range of 1.9–2.2 billion liters, while volume of energy sold is expected within 2.1–2.3 million MWh. EBITDA is likely to come within R$3.3–R$3.6 billion, while capital spending is anticipated within R$1.8–$2 billion.

Raizen Combustiveis: EBITDA is predicted in a range of R$2.35–R$2.7 billion and capital expenditure within R$750–R$850 million.

Radar: EBITDA is expected in a range of R$100–R$150 million.

Cosan Lubrificantes: Volume of lubricants and base oil sold is likely to come within 280–330 million liters. EBITDA is expected in the R$120–R$160 million range.

Comgas: Volume of gas sold is likely to fall within 4–4.3 million cbm, while EBITDA is projected in a range of R$1.4–R$1.6 billion. Capital expenditure is likely to come within R$470–R$520 million.

Rumo Logistica: EBITDA is projected in a range of R$2.3–R$2.5 billion. Capital expenditure is likely to come within R$1.7–R$2.1 billion.

With a market capitalization of $1.5 billion, Cosan presently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the sector include Innospec Inc. IOSP, POSCO PKX and Universal Stainless & Alloy Products Inc. USAP. While Innospec Inc. sports a Zacks Rank #1 (Strong Buy), both POSCO and Universal Stainless & Alloy Products carry a Zacks Rank #2 (Buy).

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