REX American Resources Corporation — Form 10-K Summary
Period clarification: The supplied filing is for the fiscal year ended January 31, 2015 (fiscal 2014, February 1, 2014–January 31, 2015), not fiscal 2013 Q4. It also reports results for the quarter ended January 31, 2015.
Business context
REX is principally an ethanol producer and investor. It consolidates One Earth Energy (74% owned) and NuGen Energy (99% owned), and accounts for its 27% interest in Patriot Holdings and 10% interest in Big River Resources using the equity method. The company reports one segment, alternative energy. Its former retail business has been exited.
Key financial metrics
| Metric | Fiscal 2014 | Fiscal 2013 |
|---|---|---|
| Net sales and revenue | $572.2 million | $666.0 million |
| Gross profit; gross margin | $141.9 million; 24.8% | $64.3 million; 9.7% |
| Income from continuing operations | $103.2 million | $39.2 million |
| Continuing income attributable to REX shareholders | $86.8 million | $34.0 million |
| Net income attributable to REX shareholders | $87.3 million | $35.1 million |
| Diluted EPS attributable to REX shareholders | $10.76 | $4.29 |
| Cash from operating activities | $137.2 million | $64.4 million |
| Cash and cash equivalents at year-end | $137.7 million | $105.1 million |
| Long-term debt at year-end | None | $63.5 million |
For the January 31, 2015 quarter, revenue was $127.7 million, gross profit $30.0 million, net income attributable to REX shareholders $20.3 million, and diluted EPS $2.55. The comparable January 31, 2014 quarter had revenue of $146.1 million, gross profit of $26.3 million, attributable net income of $15.9 million, and diluted EPS of $1.95.
Material changes and drivers
- Annual revenue fell 14.1%, primarily reflecting lower selling prices for ethanol and co-products; consolidated ethanol volume was nearly flat at 226.4 million gallons versus 227.2 million.
- Profitability increased substantially as the reported crush spread rose to about $0.59 per gallon from negative $0.02. Lower average grain cost ($3.99 per bushel versus $6.27) helped, while ethanol and distillers-grain selling prices declined.
- Equity income from Patriot and Big River rose to $32.2 million from $17.2 million.
- REX repaid $75.7 million of debt and terminated One Earth’s and NuGen’s debt agreements during the year. Financing cash outflows also included $18.1 million of share repurchases.
- Current assets were $175.7 million and current liabilities $19.6 million at year-end. Cash held by One Earth and NuGen was about $54.8 million; management expected those subsidiaries to retain much of it for working capital and general corporate needs.
Outlook, risks and unusual items
- Management projected annual production at the consolidated plants of 215–240 million gallons of ethanol, assuming operation at or above nameplate capacity. It also estimated fiscal 2015 capital expenditures of $3–$6 million, excluding any new-plant project.
- Management expected first-quarter fiscal 2015 earnings to be below the prior-year quarter, citing an average CBOT crush spread of about $0.06 per gallon in the first quarter of calendar 2015 versus about $0.55 for calendar 2014. Results remain highly sensitive to commodity prices, plant performance and policy.
- Price exposure is substantial: none of forecast ethanol sales for the next 12 months were fixed-price contracted, and only about 1% of estimated corn usage was fixed-price contracted. The filing estimates that a 10% adverse move in ethanol prices could reduce annual revenue by about $34.8 million, while a 10% adverse corn-price move could raise annual costs by about $31.2 million.
- Other material risks include changes to renewable-fuel mandates and ethanol-blend rules, excess industry capacity, natural gas and transport disruptions, environmental regulation, customer concentration, and limits on distributions from equity-method investees. Four customers represented 74% of fiscal 2014 revenue.
- REX reported approximately $1.4 million cumulatively spent on its unproven eSteam heavy-oil technology investment. Management said legal proceedings were not expected to have a material effect; no legal-contingency liabilities were recorded.
- REX paid no shareholder dividends. The filing reports no off-balance-sheet arrangements. Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting.
Most important facts for investors to verify
- Whether subsequent crush spreads, corn and co-product prices, and plant operating rates supported the stated production outlook.
- How much reported earnings and operating cash flow depended on favorable commodity margins and distributions from investees.
- Whether the significant customer concentration and limited fixed-price coverage changed after year-end.
- Whether cash held at subsidiaries was available for corporate use, given working-capital needs and investee debt restrictions.
- Whether REX pursued a new ethanol plant, additional investments, or further share repurchases, and the resulting capital requirements.