REX American Resources Corporation — Form 10-Q Summary
Period: Three months ended April 30, 2014 (fiscal 2014 first quarter), compared with the three months ended April 30, 2013. The request metadata identifies 2013 Q1, but the filing itself reports fiscal 2014 Q1. Unless noted otherwise, dollar amounts below are in millions.
Business context
REX operates alternative-energy and real-estate segments. Alternative energy includes consolidated ethanol producers One Earth and NuGen and equity-method investments Big River and Patriot. The real-estate segment consists of former retail properties; the retail business has been discontinued.
Financial and operating results
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Net sales and revenue | $155.9 | $178.4 |
| Gross profit | $36.6 | $9.0 |
| Gross margin | 23.4% | 5.0% |
| Income from continuing operations before tax | $38.0 | $5.8 |
| Income from continuing operations | $24.1 | $3.8 |
| Net income attributable to REX common shareholders | $21.7 | $3.5 |
| Basic / diluted EPS | $2.68 / $2.67 | $0.43 / $0.43 |
| Operating cash flow | $26.8 | $8.8 |
Revenue fell about 12.6%, primarily because lower ethanol and distillers-grains prices reduced alternative-energy sales. Profitability rose sharply as lower corn costs improved the crush spread: the reported spread was about $0.58 per gallon versus negative $0.32 a year earlier. Equity-method income increased to $8.3 million from $1.6 million, reflecting stronger results at Big River and Patriot. Selling, general and administrative expense rose to $6.2 million from $3.7 million, mainly due to higher alternative-energy incentive compensation.
Cash and cash equivalents were $125.6 million at April 30, 2014, versus $105.1 million at January 31, 2014. Working capital was $137.5 million and the current ratio was 5.4 to 1. Debt totaled $68.3 million ($10.1 million current and $58.1 million long-term), down from $75.7 million at January 31; debt is held at One Earth and NuGen and is nonrecourse to REX. Cash from operations was $26.8 million, capital expenditures were $0.5 million, and debt payments were $7.5 million. Cash held by One Earth and NuGen is primarily for their own liquidity needs; subsidiary and investee debt agreements restrict distributions.
Changes, outlook, risks and contingencies
- Alternative-energy sales declined to $155.8 million from $178.3 million, while segment profit increased to $38.9 million from $6.6 million. Average ethanol selling price fell to $2.14 per gallon from $2.33, but average grain cost fell to $4.36 per bushel from $7.44. Natural-gas cost rose to $9.33 per MMBtu from $4.29.
- Management expected One Earth and NuGen to sell annually 200–230 million gallons of ethanol, 585,000–635,000 tons of dried distillers grains, 70,000–90,000 tons of modified distillers grains, and 40–50 million pounds of corn oil, assuming operations at or above nameplate capacity. These are operating expectations, not earnings guidance. Planned capital spending for the remainder of fiscal 2014 was $6–$12 million.
- Management believed liquidity was sufficient for operations and commitments for at least 12 months and expected both ethanol subsidiaries to remain covenant-compliant over that period. Both were compliant at quarter-end. One Earth and NuGen term debt was approximately $35.0 million and $33.3 million, respectively. Their revolving facilities, with no borrowings reported, were scheduled to expire July 31, 2014 and May 31, 2014, respectively.
- Commodity prices and availability, especially corn, ethanol, distillers grains, corn oil and natural gas, can materially affect margins and cash flow. Only about 4% of forecast ethanol sales and corn usage, 17% of distillers-grains sales, and 9% of corn-oil sales for the next 12 months were fixed-price contracted. The filing estimates that a 10% adverse price movement could reduce annual revenue by about $65.2 million across forecast product sales or increase annual corn costs by about $40.0 million; these sensitivities are not forecasts.
- Approximately $68.3 million of debt was variable-rate; about $32.3 million was covered by an interest-rate swap expiring July 8, 2014. Management estimated a 10% adverse interest-rate change would add about $266,000 of interest cost over the debt term, with greater exposure if LIBOR exceeded the NuGen loan’s rate floor.
- One Earth and NuGen had purchase commitments for about 10.4 million bushels of corn and sales commitments for 36.6 million gallons of ethanol, 121,000 tons of distillers grains, and 4.2 million pounds of corn oil, generally deliverable through July 2014. REX reported no legal proceedings expected to have a material adverse effect and no material risk-factor changes during the quarter.
- Unusual items included $68,000 of real-estate impairment charges and $8.3 million of equity-method income. Discontinued operations contributed $55,000, versus $171,000 a year earlier; the prior-year period also included a $131,000 after-tax disposal gain. The One Earth interest-rate swap generated a $4,000 loss.
Important facts for investors to verify
- Whether ethanol and coproduct margins remain favorable as commodity prices and crush spreads change, and whether investee earnings persist.
- Renewal or replacement of the NuGen and One Earth revolving facilities that were near maturity at the filing date, and continued compliance with debt covenants.
- How much subsidiary cash is available to REX, given restrictions on distributions and the operating needs of the ethanol plants.
- Whether actual production, contracted volumes, capital expenditures and commodity-price exposure remain consistent with management’s stated expectations and sensitivities.
- The filing’s interim results are unaudited and management cautions that quarterly results are not necessarily indicative of full-year performance.