REX American Resources Corporation — Form 10-Q Summary
Period clarification: The request identifies 2021 Q2, but the supplied filing is for the quarter ended July 31, 2022 (REX fiscal Q2 2022, in the company’s fiscal-year naming). Comparisons below are with the corresponding 2021 period. Amounts are in U.S. dollars; financial statement figures are converted from thousands to millions where shown.
Business context and reporting period
REX’s continuing business is ethanol and by-products, including ethanol, dried and modified distillers grains, and non-food-grade corn oil. It holds majority interests in One Earth Energy and NuGen and a 10.3% equity-method interest in Big River. The refined-coal operation ceased in November 2021 and is reported as discontinued operations; 2021 comparative results include it.
Financial performance and position
| Metric | Three months ended July 31, 2022 | Three months ended July 31, 2021 | Six months ended July 31, 2022 | Six months ended July 31, 2021 |
|---|---|---|---|---|
| Revenue | $240.3 million | $195.7 million | $434.6 million | $359.7 million |
| Gross profit | $16.6 million | $14.2 million | $28.5 million | $33.6 million |
| Gross margin | 6.9% | 7.2% | 6.6% | 9.4% |
| Income before tax | $19.2 million | $9.8 million | $28.0 million | $20.0 million |
| Net income attributable to REX common shareholders | $11.2 million | $7.9 million | $16.4 million | $15.7 million |
| Diluted EPS attributable to REX common shareholders | $0.63 | $0.44 | $0.92 | $0.87 |
Quarterly revenue rose about 23%, led by stronger commodity prices; six-month revenue rose about 21%. For the quarter, REX common-shareholder income from continuing operations was $11.2 million versus $5.7 million. Six-month continuing-operations income was $16.4 million versus $13.0 million. The 2021 comparisons also included discontinued-operation income attributable to REX of $2.2 million for the quarter and $2.7 million for six months; there was none in 2022.
Margins and costs: Quarterly gross profit improved by $2.4 million, but six-month gross profit fell by $5.1 million. Management attributed pressure to higher corn and natural-gas costs. The reported crush spread was slightly below break-even in Q2 2022 versus break-even in Q2 2021; it was $0.02 in both six-month periods. The average cost of corn rose 21% for the quarter and 23% for six months year over year. Natural-gas cost per MmBtu rose to $7.04 from $3.30 for the quarter and to $6.48 from $3.24 for six months.
Cash flow and liquidity: Six-month operating cash flow was $0.8 million, down from $17.2 million. Working-capital movements included increases in receivables and inventory and a decrease in trade payables. Capital expenditures were $2.9 million; investing cash outflow was $167.0 million, primarily reflecting $190.0 million of short-term investment purchases, partly offset by maturities. Financing cash outflow was $7.8 million, including $6.2 million of share repurchases and $1.6 million of payments to noncontrolling-interest holders.
At July 31, 2022, cash and cash equivalents were $54.6 million, short-term investments $190.5 million, and restricted cash $3.3 million. Current assets were $357.3 million and current liabilities $42.0 million; reported working capital was $315.4 million and the current ratio was 8.5:1. The balance sheet shows no interest-bearing debt; operating lease liabilities totaled $12.8 million.
Material changes, outlook, risks, and unusual items
- Nonrecurring support and investment income: Consolidated plants received about $7.8 million in USDA Biofuel Producer Program relief, recorded in interest and other income. Big River’s USDA relief grants contributed about $1.6 million to REX’s equity-method income. Higher interest income also contributed to the increase in interest and other income, which was $8.2 million for the quarter versus $39,000 a year earlier.
- Product pricing and volumes: Quarterly ethanol selling price rose 20% while gallons sold increased 3%; for six months price rose 22% while volume declined 2%. Corn-oil prices increased substantially, attributed mainly to biodiesel-industry demand. Distillers-grains volumes declined, with logistics issues cited for dried distillers grains.
- Commodity and policy exposure: Management identifies corn, ethanol, natural gas, by-product prices, supply availability, crush spreads, logistics, inflation, and trade and regulatory changes as risks. The Russia-Ukraine conflict was cited as affecting corn and natural-gas supply, prices, and corn availability. RFS requirements, refinery exemptions, and legal challenges could affect ethanol demand and pricing.
- Outlook and projects: Management expects capital expenditures of approximately $10–$15 million for the remainder of fiscal 2022. It is evaluating uses for excess cash and investment opportunities, including ethanol, energy, agriculture, and carbon sequestration. The carbon-sequestration project remains exploratory; total completion cost and feasibility were not known. Management was evaluating the Inflation Reduction Act’s potential effects.
- Other items: A three-for-one stock split was declared in June 2022 and paid August 5, 2022; share information was retroactively adjusted. The company reported $16.8 million of unrecognized tax benefits and said a federal examination covers tax years ended January 31, 2015 through 2020. Management stated that legal proceedings were not expected to have a material adverse effect and that there were no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether operating cash generation improves, given the sharp year-over-year decline and working-capital cash use.
- How corn and natural-gas costs, ethanol and by-product prices, and the crush spread affect future gross margins.
- How much reported earnings depended on USDA assistance, Big River results, and interest income, and whether such contributions recur.
- Whether projected capital spending, share repurchases, and any new investments change liquidity or capital allocation.
- Developments in carbon-sequestration feasibility and costs, tax examinations, and biofuel policy and market risks.
- The source filing’s stated reporting period: it is the July 31, 2022 10-Q, not a 2021 Q2 filing.