REX American Resources Corporation — Form 10-Q summary
Period clarification: The request identifies 2021 Q1, but this filing covers the three months ended April 30, 2022 (the first quarter of fiscal 2022), compared with the three months ended April 30, 2021.
Business context
REX operates in ethanol and by-products, its sole reportable segment, through majority-owned ethanol businesses and an equity-method investment in Big River. The refined coal business ceased operations in November 2021 and is reported as discontinued operations; it had no activity in the current quarter.
Financial performance
| Metric | Quarter ended Apr. 30, 2022 | Quarter ended Apr. 30, 2021 |
|---|---|---|
| Net sales and revenue | $194.2 million | $164.0 million |
| Gross profit | $11.9 million | $19.5 million |
| Gross margin | 6.1% | 11.9% |
| Income before income taxes | $8.8 million | $10.2 million |
| Net income attributable to REX common shareholders, continuing operations | $5.2 million | $7.3 million |
| EPS attributable to REX common shareholders | $0.87 | $1.21 |
| Net cash from (used in) operating activities | $(17.7) million | $13.6 million |
| Capital expenditures | $1.5 million | $1.3 million |
Revenue rose about 18%, but cost of sales increased faster, by about 26%, reducing gross profit by $7.6 million. Cash and cash equivalents were $66.7 million at April 30, 2022, and short-term investments were $167.3 million. Working capital was $304.0 million and the current ratio was 8.8:1. The company reported no borrowings; operating lease liabilities totaled $13.1 million. Total equity was $494.6 million.
Changes and management commentary
- Higher selling prices increased ethanol revenue, while ethanol gallons sold declined 8%. Corn and natural gas costs rose substantially; management cited a 27% increase in both ethanol selling price per gallon and corn cost per bushel, with higher input costs pressuring gross profit.
- SG&A declined to $5.2 million from $9.9 million, primarily because the prior-year quarter had higher shipping costs. Equity-method income from Big River increased to $2.0 million from $0.6 million.
- Operating cash outflow reflected, among other factors, a $14.2 million inventory increase and a $13.2 million decrease in trade payables. Investing cash outflow of $142.8 million was driven mainly by purchases of short-term investments, not capital spending.
- REX expects capital expenditures of approximately $15 million to $20 million for the remainder of fiscal 2022. It is evaluating uses for excess funds, including share repurchases and investment opportunities; approximately 449,000 shares remained available under its buyback authorization at quarter-end.
Outlook, risks and unusual items
- Management says operating results are highly sensitive to corn, ethanol, distillers grains, corn oil and natural gas prices and availability. Crush spreads can weaken, and plants may reduce or stop production if margins are inadequate. The company generally cannot predict realized crush spreads more than four months ahead.
- The filing cites uncertainty around renewable-fuel mandates and refinery exemptions, the Russia-Ukraine conflict’s potential effects on corn and natural gas, inflation, supply and logistics, regulation, weather and other risks.
- Commodity derivatives are not designated for hedge accounting; fair-value changes affect current earnings. The company reported $11.8 million of derivative losses in cost of sales in the current quarter, compared with $1.9 million a year earlier, alongside derivative gains of $0.3 million in revenue versus losses of $1.1 million.
- On May 23, 2022, after quarter-end, consolidated plants received notice of a $7.8 million award under the USDA Biofuel Producer Program. The filing says the approval and award amount were communicated after April 30.
- REX is exploring a carbon sequestration project near One Earth. A test well and seismic testing have been completed, but total cost and project feasibility are not yet known.
- The company disclosed $16.8 million of unrecognized tax benefits and a federal tax examination covering fiscal years ended January 31, 2015 through 2020. Management does not expect possible changes in uncertain tax positions over the next 12 months to materially affect results or financial position. Management reported no material legal proceedings or material changes to previously disclosed risk factors.
Key facts for investors to verify
- Confirm the intended reporting period: the filing is for Q1 fiscal 2022, not 2021 Q1.
- Assess whether elevated corn and natural gas costs continue to outpace product pricing and pressure gross margins.
- Track operating cash flow and inventory and payable movements, distinguishing operating cash needs from short-term investment purchases.
- Review the accounting and timing of the $7.8 million USDA award and any future carbon sequestration investment commitments.
- Monitor commodity exposures, derivative results, tax-audit developments and the status of the share repurchase authorization.