Business context and reporting period
REX American Resources Corporation filed this Form 10-K for fiscal 2023, the year ended January 31, 2024, with fiscal 2022 as the primary comparison. This is an annual report, not a standalone calendar-year 2022 or fiscal 2022 fourth-quarter filing. REX operates in ethanol and by-products, with majority-owned interests in One Earth Energy and NuGen Energy and a minority equity-method investment in Big River Resources. The six facilities in which it has interests shipped approximately 716 million gallons of ethanol; REX’s effective share was approximately 290 million gallons.
Key financial metrics
Amounts below are in millions except per-share data, percentages, and operating volumes.
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $833.4 | $855.0 |
| Gross profit | $98.2 | $48.6 |
| Gross margin | 11.8% | 5.7% |
| Income before taxes | $98.5 | $47.5 |
| Net income attributable to REX shareholders | $60.9 | $27.7 |
| Diluted earnings per share | $3.47 | $1.57 |
| Cash from operating activities | $128.0 | $54.8 |
| Capital expenditures | $37.7 | $15.6 |
- Revenue and mix: Revenue declined approximately 3%. Ethanol revenue was $635.4 million; dried distillers grains $139.2 million; distillers corn oil $52.9 million; and modified distillers grains $5.6 million.
- Profitability: Management attributed higher earnings chiefly to improved crush spreads. Lower corn and natural-gas costs supported gross profit, despite weaker average selling prices across products. SG&A rose 29% to $29.4 million, mainly from higher performance bonuses and restricted-stock awards.
- Cash and liquidity: Cash and cash equivalents were $223.4 million and short-term investments were $155.3 million at year-end, totaling $378.7 million. Short-term investments were U.S. Treasury bills with maturities under one year. Current assets were $452.1 million against current liabilities of $66.3 million.
- Debt and obligations: The balance sheet reports no borrowings; it does report operating lease liabilities of $12.8 million. Future minimum operating lease payments totaled $14.7 million. The filing also reports approximately $126.3 million of contracted corn, natural gas, pipeline and capital-project purchases, with $123.0 million payable in the next 12 months.
- Other earnings and cash-flow items: Equity income from Big River was $13.9 million, versus $8.7 million, and REX received $12.0 million in Big River dividends. Interest and other income was $15.7 million, including approximately $1.0 million of USDA biofuel relief grants and higher interest income on cash.
Material changes versus the prior comparable period
- Revenue fell $21.6 million, while gross profit approximately doubled to $98.2 million. Net income attributable to REX shareholders increased from $27.7 million to $60.9 million.
- Average ethanol selling price declined 9% to $2.22 per gallon, while gallons sold increased 8% to 285.9 million. Dried distillers grains tons sold rose 9%, offsetting an 8% lower average price. Distillers corn oil’s average price fell approximately 15%, partly offset by 12% more pounds sold.
- Cost of sales declined $71.2 million, or 9%, as corn costs fell to $584.2 million from $667.3 million and natural-gas costs fell to $31.7 million from $47.4 million.
- Operating cash flow increased by $73.2 million, with lower inventory contributing to the increase. Investing cash flow shifted from $198.5 million used in FY2022 to $28.4 million provided in FY2023, in part because maturities of short-term investments exceeded purchases during FY2023.
- REX made no common-stock repurchases in FY2023; it repurchased approximately $13.0 million in shares in FY2022. The filing retrospectively reclassified shipping and handling costs from SG&A to cost of sales, affecting reported gross profit and SG&A comparisons but not total earnings.
Outlook, risks, contingencies and unusual items
- Investment plans: REX expects total One Earth carbon-sequestration, capacity-expansion and carbon-intensity projects to cost approximately $165–$175 million, funded from available cash. It planned to spend $125–$150 million on these projects in fiscal 2024. Management expects the One Earth plant to reach 175 million gallons of annual capacity in the first quarter of 2025; it may then seek a 200-million-gallon permit.
- Carbon sequestration: The One Earth project remained subject to federal, state and local permits and approvals, including an EPA Class VI well permit, a pipeline approval and county zoning. REX warned that failure to obtain approvals could prevent completion and lead to write-offs. NuGen’s proposed participation in the Summit Carbon Solutions pipeline also depends on permits and approvals.
- Commodity and operating exposure: Results are sensitive to corn, ethanol, natural gas, distillers grains and distillers corn oil prices, supply, transportation and crush spreads. Forward pricing and derivatives may not fully offset this volatility; management generally does not price fixed contracts more than four months ahead.
- Policy and market risks: Ethanol demand and economics depend materially on renewable-fuel mandates, RINs, trade and clean-fuel incentives. The filing discusses small-refinery-exemption litigation, potential changes to tax credits, gasoline demand trends and competition from alternative fuels.
- Tax matters: The company is undergoing a federal tax examination for fiscal years 2015–2022 concerning tax credits. It reported approximately $18.9 million of unrecognized tax benefits and approximately $12.3 million of general business credit carryforwards. The auditor identified income-tax judgments, including deferred-tax-asset realizability and uncertain tax positions, as a critical audit matter.
- Other items: The former refined-coal operation is discontinued; related tax credits remain subject to IRS audit. Management reported no material legal-contingency liabilities. The auditor issued an unqualified opinion on the financial statements and an unqualified opinion on internal control over financial reporting.
Most important facts for investors to verify
- Whether operating margins and cash generation remain resilient if crush spreads narrow or commodity prices move adversely.
- Progress, remaining costs, permitting and timing for One Earth’s sequestration and expansion projects, and whether projected tax-credit benefits are realized.
- Outcomes and potential cash or earnings effects of the federal tax examination and the company’s uncertain tax positions.
- Availability of cash for planned capital spending, given that approximately $331.1 million of year-end cash and short-term investments was held at One Earth and NuGen and management expects plants to retain much of their cash for operating and investment needs.
- Customer concentration: nine customers represented approximately 92% of FY2023 revenue, and six customers represented approximately 93% of year-end receivables.