REX American Resources Corporation — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended July 31, 2023 (fiscal year ends January 31). The filing is for 2023; “2022 Q2” in the request metadata does not match the filing period. Unless stated otherwise, financial amounts below are in millions of dollars.
Business context and financial performance
REX operates in ethanol and by-products and holds majority interests in One Earth Energy and NuGen Energy, as well as an equity-method investment in Big River Resources. Results are exposed to corn, ethanol, natural gas and co-product prices, plant production and commodity hedging.
| Metric | Three months ended July 31, 2023 | Prior-year quarter | Six months ended July 31, 2023 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $212.0 | $240.3 | $424.7 | $434.6 |
| Gross profit / margin | $18.4 / 8.7% | $14.1 / 5.9% | $28.5 / 6.7% | $26.0 / 6.0% |
| Income before taxes | $16.1 | $19.2 | $24.7 | $28.0 |
| Net income attributable to REX shareholders | $9.1 | $11.2 | $14.3 | $16.4 |
| Diluted earnings per share | $0.52 | $0.63 | $0.82 | $0.92 |
- Quarterly revenue fell 12%; six-month revenue declined 2%. Lower ethanol and co-product selling prices drove the declines, partly offset over six months by increased sales volumes of ethanol, dried distillers grains and corn oil.
- Gross profit rose by $4.2 million in the quarter and $2.5 million for six months, as lower corn and natural gas costs more than offset weaker revenue. Lower income from equity-method earnings and other income, including the prior-year USDA relief grants, contributed to lower pretax and net income.
- Quarterly SG&A increased to $8.6 million from $6.7 million; six-month SG&A rose to $14.4 million from $11.9 million. REX attributed the increase primarily to restricted stock awards expensed upon issuance.
Cash flow, liquidity and obligations
- At July 31, 2023, cash and cash equivalents were $102.2 million and short-term investments were $182.2 million; restricted cash was $2.0 million. Current assets were $387.9 million and current liabilities were $47.5 million. Working capital was approximately $340.4 million, and the current ratio was 8.2:1.
- Operating cash flow for the six months was $8.6 million, compared with $0.8 million a year earlier. Capital expenditures were $8.2 million. Investing activities provided $24.9 million, principally reflecting maturities of short-term investments net of purchases. Financing activities used $0.7 million, primarily for payments to noncontrolling-interest holders.
- The balance sheet reports no conventional borrowing balance; it reports operating lease liabilities of $12.7 million. The filing does not provide a clear separate debt-facility balance.
Outlook, material developments and risks
- Carbon sequestration and expansion: REX described a One Earth project involving carbon capture and sequestration, plant expansion and carbon-intensity improvements. It had a permit to increase capacity from 150 million to 175 million gallons annually, with that level planned for late 2024; it intended to seek a later permit for 200 million gallons. The filing estimates total project cost at approximately $165 million, subject to approvals, and expects to fund it from available cash. Construction was expected to start in the third quarter of fiscal 2023, with completion by July 31, 2024, followed by testing. REX cited potential Section 45Q and 45Z tax credits but noted that approvals and implementation details remain uncertain.
- The filing gives differing project-spending figures: it says $41.9 million had been “spent or committed” as of July 31, while the liquidity discussion says approximately $13.4 million had been spent and $50–$60 million was planned for the remainder of fiscal 2023. One Earth also had approximately $28.5 million remaining in payments under signed capital-project contracts.
- Commodity-price volatility, corn availability, plant performance, weather, trade and regulation can materially affect margins; the company says it may reduce or stop production if crush spreads are inadequate. The filing cites the EPA’s 2023–2025 conventional biofuel volume obligations and uncertainty around implementation of IRA incentives.
- REX reported approximately $19.0 million of unrecognized tax benefits and an ongoing federal tax examination for fiscal years ended January 31, 2015 through 2020. A refined-coal patent-infringement contingency had a recorded $250,000 liability. Management said other current legal proceedings were not expected to have a material adverse effect.
- Commodity hedges affect earnings and can themselves generate losses; REX does not use hedge accounting. Forward purchase contract liabilities were $10.7 million at July 31, 2023, and $2.0 million of restricted cash secured derivative positions.
Important facts for investors to verify
- Confirm the project cost, amounts already spent versus committed, remaining contract payments, funding plan and construction/permit milestones, given the different spending figures in the filing.
- Assess whether ethanol and co-product prices, corn and natural gas costs, and realized crush spreads support the reported gross-margin improvement.
- Review the federal tax examination, unrecognized tax benefits and potential effects of outcomes on tax expense or cash taxes.
- Track the carbon sequestration project’s regulatory approvals, eligibility for tax credits and actual economics; the filing does not assure project completion or credit realization.
- Note that the prior-year comparison was retrospectively reclassified: shipping and handling costs moved from SG&A to cost of sales, changing reported gross profit presentation but not overall income.