REX American Resources Corporation — Form 10-Q Summary
Reporting period: The filing covers the unaudited three months ended April 30, 2016, REX’s fiscal first quarter of 2016, and compares results with the three months ended April 30, 2015. This differs from the request metadata’s “2015 Q1.” REX operates in alternative energy, principally ethanol and related products, through majority-owned One Earth and NuGen and an equity investment in Big River.
Financial performance and position
| Metric | Three months ended April 30, 2016 | Prior-year period |
|---|---|---|
| Net sales and revenue | $100.2 million | $105.2 million |
| Gross profit / margin | $8.4 million / 8.4% | $9.1 million / 8.7% |
| Income before taxes | $5.0 million | $6.9 million |
| Net income | $3.5 million | $4.4 million |
| Net income attributable to REX shareholders | $2.8 million | $3.9 million |
| Basic and diluted earnings per share | $0.43 | $0.50 |
| Operating cash flow | $(5.7) million | $5.3 million |
| Capital expenditures | $4.5 million | $2.5 million |
At April 30, 2016, cash and cash equivalents were $122.5 million, total assets $408.0 million, and total equity $354.6 million. Working capital was approximately $159.1 million; the current ratio was 12.3 to 1. The balance sheet reports no borrowings. One Earth and NuGen each opened a $10 million revolving facility, with no amounts drawn at quarter-end; these facilities are recourse only to those subsidiaries. Cash declined $13.3 million during the quarter to $122.5 million.
Material changes and operating drivers
- Revenue fell about $5.0 million year over year. Ethanol revenue was $77.6 million versus $78.6 million; dried distillers grains revenue was $17.1 million versus $20.3 million. Lower product prices were the main cited factors, partly offset by increased ethanol gallons sold.
- Average ethanol selling price decreased to $1.32 per gallon from $1.41, while gallons sold rose to 58.7 million from 55.8 million. Dried distillers grains prices also declined; the filing cites lower grain prices and uncertainty related to Chinese trade investigations.
- Gross profit declined about $0.7 million despite a reported crush spread of approximately $0.10 per gallon, consistent with the prior-year quarter. Lower distillers grains sales were a key negative; lower natural gas costs provided some offset.
- Equity-method income declined to $0.2 million from $1.5 million. REX no longer records Patriot income following its sale in June 2015, and Big River income also decreased.
- REX repurchased shares and acquired shares from noncontrolling owners. The cash flow statement reports $4.7 million for treasury stock acquired; shareholders’ equity shows a $4.35 million treasury-stock increase during the quarter.
Outlook, risks, and contingencies
- Management expects One Earth and NuGen annual production, assuming operations near historical levels and adequate crush spreads, of 220–240 million gallons of ethanol, 560,000–660,000 tons of dried distillers grains, 50–70 million pounds of corn oil, and 60,000–90,000 tons of modified distillers grains. These are operating expectations, not earnings guidance.
- Management expects $6–$10 million of capital spending during the remainder of fiscal 2016. NuGen has permits to increase annual capacity to 150 million gallons; REX plans to debottleneck and increase production over time, subject to industry conditions. REX says it does not currently plan to build a new ethanol plant.
- The company highlights substantial exposure to corn, ethanol, distillers grains, corn oil, and natural gas prices. Crush-spread volatility can result in marginal or negative plant margins and reduced or suspended production. Fixed-price coverage for forecast production and inputs was limited.
- Management expects an effective tax rate of approximately 30%–35% in future periods. It reported $987,000 of unrecognized tax benefits. A final determination of Patriot sale escrow proceeds was expected by December 2016; approximately $2.3 million was recorded as a receivable.
- One Earth and NuGen had commitments to purchase approximately 14.0 million bushels of corn through June 2016 and deliver specified ethanol and coproduct volumes through July 2016. Management said ordinary-course legal proceedings were not expected to materially affect the financial statements. No material risk-factor changes were reported.
Important facts for investors to verify
- Confirm the filing period: the source is for the quarter ended April 30, 2016, not 2015 Q1.
- Assess whether current crush spreads, commodity prices, and Chinese trade developments support the stated production expectations and margins.
- Track operating cash flow and working-capital needs, particularly the quarter’s inventory build and absence of equity-investee dividends.
- Reconcile the filing’s stated annual revenue sensitivity to a 10% adverse product-price move: one MD&A passage cites approximately $43.4 million, while the separate product-level estimates total approximately $43.0 million.
- Reconcile reported share repurchase activity and treasury-stock cash use; the filing gives differing share and dollar figures across its disclosures.