REX American Resources Corporation — Form 10-Q Summary
Period clarification: The supplied filing is for the quarter ended October 31, 2013 (REX fiscal 2013 third quarter), not 2012 Q3 as indicated in the request. It was signed December 5, 2013. Financial statements are unaudited; dollar amounts below are in millions unless otherwise stated.
Business context and reporting period
REX operates in alternative energy, principally ethanol production and related products, and real estate. Its former retail business is reported as discontinued operations. Results consolidate majority-owned One Earth and NuGen and include equity-method earnings from Big River and Patriot. One Earth results are included on a one-month delay.
Key financial results
| Metric | Three months ended Oct. 31, 2013 | Three months ended Oct. 31, 2012 | Nine months ended Oct. 31, 2013 | Nine months ended Oct. 31, 2012 |
|---|---|---|---|---|
| Revenue | $166.5 | $178.8 | $520.9 | $482.9 |
| Gross profit (margin) | $18.2 (10.9%) | $3.7 (2.1%) | $38.3 (7.3%) | $16.2 (3.4%) |
| Income from continuing operations | $10.7 | $0.8 | $21.2 | $3.3 |
| Net income attributable to REX shareholders | $9.9 | $0.4 | $19.2 | $2.1 |
| Diluted EPS attributable to REX shareholders | $1.21 | $0.05 | $2.34 | $0.26 |
| Operating cash flow | Not presented separately by quarter | $43.4 | $13.2 |
For the nine months, alternative-energy revenue was $519.7 million and real-estate revenue was $1.2 million. The quarter’s revenue fell year over year, mainly on lower alternative-energy selling prices; nine-month revenue rose on higher product prices and volumes. The sharp earnings improvement reflected better ethanol crush spreads, higher equity-method income, and lower interest expense. Equity in income of unconsolidated affiliates was $9.6 million for nine months versus $1.5 million a year earlier.
Balance sheet, debt and liquidity
- At October 31, 2013, cash and cash equivalents were $93.4 million, with an additional $0.5 million of restricted cash. Cash held by One Earth and NuGen was approximately $47.4 million and intended primarily for their liquidity and working-capital needs.
- Working capital was $95.2 million, versus $83.5 million at January 31, 2013; the current ratio was 4.0x, versus 3.7x.
- Total debt was approximately $88.4 million ($10.4 million current and $78.0 million long-term), down from approximately $106.9 million at January 31. Debt is recourse to One Earth or NuGen, as applicable, not to REX or its other subsidiaries. Both plants reported covenant compliance.
- REX generated $43.4 million of operating cash flow, spent $2.2 million on capital expenditures, received $3.4 million from real-estate sales and made $18.5 million of debt payments during the nine months. It repurchased approximately 123,000 shares for $3.1 million.
Material changes, outlook and risks
- Margins and commodity exposure: In Q3, the alternative-energy crush spread was approximately $0.02 per gallon, compared with negative $0.46 a year earlier. Management emphasized that margins depend on volatile corn, ethanol, distillers grains, corn oil and natural-gas prices; contract coverage is generally short-term.
- Operating expectations: Assuming One Earth and NuGen operate at or near capacity, management projected annual production/sales of 200–230 million gallons of ethanol, 575,000–625,000 tons of dried distillers grains, 50,000–75,000 tons of modified distillers grains, and 40–60 million pounds of corn oil. Management expected $0.3–$0.6 million of plant capital spending for the remainder of fiscal 2013 and stated it believed liquidity was adequate for the next 12 months. These are operating expectations, not formal earnings guidance.
- Price sensitivity: For remaining forecast sales and purchases over the next 12 months, a 10% adverse price movement was estimated to reduce revenue by $46.4 million across ethanol, distillers grains and corn oil, or increase corn costs by $32.5 million. Approximately 12% of forecast ethanol, 32% of distillers grains, 15% of corn oil and 11% of corn usage were covered by fixed-price contracts.
- Debt and interest: One Earth refinanced approximately $44.1 million in September 2013. Variable-rate debt totaled approximately $88.1 million; about $34.6 million was covered by a swap scheduled to expire July 8, 2014. Management warned that adverse operating results could affect subsidiary liquidity or covenant compliance, though both subsidiaries were compliant at quarter-end.
- Unusual items and real estate: Discontinued operations included $0.6 million of after-tax gains on property disposals in Q3 and $0.7 million for nine months. The distribution center was sold in November 2013; management expected lease revenue to decline by about $1.0 million annually. No material legal proceedings were reported, and management reported effective disclosure controls.
Important facts for investors to verify
- Confirm the reporting-period mismatch: this filing covers the quarter ended October 31, 2013, not 2012 Q3.
- Assess whether the Q3 crush-spread improvement and strong earnings can persist given commodity-price volatility and short contract horizons.
- Review One Earth and NuGen covenant requirements, excess-cash-flow debt payments, and the effect of the expiring interest-rate swap.
- Distinguish consolidated cash from funds held by subsidiaries and consider restrictions on subsidiary distributions.
- Check the subsequent closing and financial impact of the November 2013 distribution-center sale, and the continuing effect of reduced rental income.