Rentech shifts from green energy to a more fertile field

For most of its 33-year history, Rentech Inc. tried to make money on green fuel development. But like its plans to sell synthetic diesel to major airlines in 2009, those efforts never really left the ground.

Now, the Los Angeles company is on a different course. It's profiting from a nitrogen fertilizer business near the U.S. Corn Belt. A second nitrogen fertilizer plant in Pasadena, Texas, bought for $158 million last year, is boosting export sales to Brazil, New Zealand and Canada.

The company's most recent annual report, released in March, was firm in its statement about the company's future.

"We intend to enhance shareholder value by continuing to grow and manage" the fertilizer business, the report said, "terminating our research and development activities related to our alternative energy technologies, and seeking partners who would fund the commercial deployment of our existing alternative energy technologies."

Rentech's second-quarter results, reported in August, show the trend. The company's revenue jumped 70% to $120.2 million from the year-earlier period. Net income more than tripled to $32.8 million from $9.5 million in the second quarter of 2012.

"It's been an interesting transformation," said James Bardowski, an analyst with Sidoti & Co. in New York, noting that Rentech acquired its first nitrogen fertilizer plant, in East Dubuque, Ill., for $50 million in 2006 when the company hoped to use it to make alternative fuels.

"Then they benefited from a run-up in nitrogen prices," Bardowski said. "They have decided to expand that, which I think was a great idea."

In May, Rentech bought Fulghum Fibres, an Augusta, Ga., wood-chipping business, for about $120 million. Fulghum provides an inroad to new customers in Europe and Canada, such as old coal-fired power plants that must convert to cleaner energy sources, including wood biomass.

"Countries like the U.K. have these significant biomass mandates in place, but they don't have enough biomass," said Matthew Farwell, an analyst with Imperial Capital. "Rentech can export it."

Rentech Chief Executive D. Hunt Ramsbottom said that the company has changed focus to generate cash more quickly.

"The old Rentech was more focused on new technologies that didn't have near-term cash flow," Ramsbottom said in an interview. "Our thinking and our strategy has changed to buying cash-flowing assets with good solid returns that are present today for our shareholders. That is very different from where we were three years ago."

Ramsbottom joined the company as a consultant in 2005 and was named chief executive later that year. That's also when the company relocated from Denver to California.

The latest

Last month, the company announced that it had secured a $100-million revolving loan, with collateral provided by a portion of its nitrogen fertilizer sales.

Dan Cohrs, Rentech's chief financial officer, said the revolving loan will "fund our strategy for expanding our wood-fiber processing business through acquisitions and new development."

Ultimately, it might also result in the spin-off of the wood-chipping business, Ramsbottom said.


The Rentech brand has grown, and plans include more growth.

Based on the success of the Illinois nitrogen plant, Rentech Nitrogen Partners (ticker symbol RNF), was spun off in 2011. It pulled in nearly $137 million in its initial public offering. Rentech Inc. owns about 60% of the shares.


Bardowski said that Rentech's venture into wood pellets and chips needs more focus and more customers, particularly in the U.S., to be successful.

"So far, the information on the wood-pellet business is pretty fragmented. It is still a bit of an emerging industry," Bardowski said. "I would like to see a successful implementation and some more domestic growth for the consumption of wood pellets."

Analyst views

Of the four analysts who regularly cover Rentech, three rate it as a strong buy. One has rated it as a buy.

Twitter: @RonDWhite

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