$0.71
$7.13
bear $0.71
base $3.41
bull $7.13
margin of safety $1.50
market price* $5.58
Business condition attached to the margin of safety
Chemicals segment gross profit back to at least $5 million a quarter for two consecutive reported quarters, with positive operating cash flow before working-capital changes, showing the 2025-2026 losses were temporary.
FutureFuel makes specialty chemicals and biodiesel at a single plant in Batesville, Arkansas. The chemicals business (roughly $60-80 million of sales a year) is mostly custom manufacturing for a handful of customers - three of them made up 81% of chemical sales in 2025 - plus multi-customer products such as the SSIPA/LiSIPA polymer modifiers used in nylon and polyester. The biofuels business has 59 million gallons a year of biodiesel capacity and has historically produced most of the revenue, but its profits depend on federal incentives. That dependence explains the company's past. In 2016-2020 owner earnings (cash earnings after stock compensation and the capital spending needed to keep the plant running, measured before working-capital swings) ran between $0.50 and $1.91 per share, helped by the $1-a-gallon biodiesel blenders' credit and interest on a cash balance that at times topped $200 million. Both supports are gone. The blenders' credit expired on December 31, 2024, replaced by the clean fuel production credit, which was still in proposed-rule form when the annual report was filed in March 2026. The company paid a $109.4 million special dividend in 2024, leaving $51.3 million of cash at the end of 2025 and $34.4 million at June 30, 2026. It has no bank borrowings. 2025 was very weak. Revenue fell 61% to $95.7 million and the company lost $49.4 million. Biodiesel production was idled in June 2025 because of uncertainty over the new credit, a weather-extended turnaround hurt the chemical plant, and a long-term chemical contract expired, removing $5.5 million of revenue the company had been recognizing from the customer's earlier prepayment. Owner earnings were a loss of $1.30 per share, after gains of $0.30 in 2024 and $0.90 in 2023. Winter Storm Fern shut much of the plant again from January 27, 2026, and the first quarter of 2026 lost $20.6 million. The second quarter swung to an $11.4 million profit on $78.7 million of revenue, more than double a year earlier and more than the chemicals business sells on its own, so biodiesel sales appear to have resumed. One quarter does not establish a new earnings level. How we valued it. Because the old earnings rested on a tax credit and a cash pile that no longer exist, the five-year median of about $0.65 per share overstates today's business, so we rebuilt the level from its parts. Chemicals gross profit ran $22.6-29.9 million a year in 2022-2024. After about $13.5 million of company overhead, about $7 million of yearly capital spending, stock pay and a little interest income, and adding back roughly $9.7 million of depreciation that is not a cash cost, that is about $0.25 per share a year. Capital spending has recently been higher ($14.7 million in 2024, $17.2 million in 2025), but customers advanced $9.7 million in 2025 for plant expansions, so we treat only part of it as upkeep. Customer prepayments for dedicated capacity are counted as earnings as the company recognizes them, which is why the 2024 contract expiry lowers our chemicals figure. Biodiesel gets value only while the clean fuel credit lasts, which is through 2029 under the July 2025 budget law. We assign nothing after that: in 2025, the first year without the blenders' credit, biofuels had a $26.4 million gross loss, so there is no evidence of biodiesel profits without a federal credit. Cash flows are discounted at 6%. Interest on cash is already inside earnings, so cash and liabilities are not added or subtracted separately. Base case, $3.41 per share: chemicals earn about $0.25 per share a year. There is no cash income tax for about a decade because of accumulated tax assets ($53.4 million of deferred tax assets before a valuation allowance), then a 21% tax. Biodiesel adds about $0.08 per share a year through 2029, well below what it earned in the blenders'-credit years, then stops. Chemical earnings continue for about 30 years on the strength of long-standing custom-manufacturing relationships, then end. Bear case, $0.71: a major chemicals customer is lost or moves to short-term terms, as the expired contract's customer did, holding chemicals to about $0.12 per share. Biodiesel keeps losing money through 2027, as it did in 2025 and early 2026, before shutting again, and chemical earnings stop after about 12 years. The bear case stays positive because the company has no debt. Bull case, $7.13: chemicals return to their 2022-2023 level of about $0.45 per share, helped by the new energy-market product launched in 2025 after a major construction project. Biodiesel earns about $0.30 per share a year through 2029, roughly its second-quarter 2026 pace. Chemical earnings last about 40 years. What would make this wrong: chemicals profit hinges on three customers and on a plant that has lost production to severe weather in 2021, 2025 and 2026. On the upside, the new credit could keep biodiesel profitable longer than we assume, but so far one quarter is the only evidence. The margin-of-safety price is $1.50 per share, well below the base case, because the downside is real and recent results are losses. It applies only after the chemicals business shows its 2025-2026 problems were temporary.