REX American Resources Corporation — Form 10-Q Summary
Business context and reporting period
The supplied filing is for the quarter ended July 31, 2018—REX fiscal 2018 second quarter—with six-month results also reported. This does not match the request metadata of “2017 Q2.” Financial statements are unaudited. REX reports ethanol and by-products and refined coal segments; the refined coal business was acquired in August 2017.
Key financial metrics
| Metric | Three months ended July 31 | Six months ended July 31 |
|---|---|---|
| Net sales and revenue | $128.8 million; prior year $108.7 million | $249.6 million; prior year $221.9 million |
| Gross profit / margin | $9.4 million / 7.3%; prior year $10.8 million / 9.9% | $20.3 million / 8.1%; prior year $23.3 million / 10.5% |
| Income before income taxes | $4.9 million; prior year $6.5 million | $12.5 million; prior year $14.5 million |
| Net income | $10.5 million; prior year $4.2 million | $20.8 million; prior year $9.8 million |
| Net income attributable to REX shareholders / diluted EPS | $9.2 million / $1.43; prior year $2.9 million / $0.45 | $18.7 million / $2.87; prior year $7.5 million / $1.14 |
| Operating cash flow | Not separately presented for the quarter | $18.2 million; prior year $13.5 million |
At July 31, 2018, cash and cash equivalents were $73.8 million and short-term Treasury investments were $112.0 million. Current assets were $242.4 million versus current liabilities of $22.2 million; working capital was approximately $220.3 million and the current ratio was 10.9:1. No revolving-credit borrowings were outstanding. Two subsidiaries each had a $10 million revolving facility, maturing June 1, 2019 as extended. No other debt balance is reported in the supplied filing text.
Six-month investing cash outflow was $116.9 million, including $111.2 million to buy short-term Treasury bills and $5.8 million of capital expenditures. Financing cash outflow was $18.1 million, including $16.6 million of share repurchases. Cash, cash equivalents and restricted cash ended the period at $74.5 million, down $116.8 million from the beginning of the period, primarily reflecting those investment purchases and repurchases.
Material changes versus the prior comparable period
- Quarterly revenue increased 18%, principally from higher ethanol and by-product sales. Ethanol gallons sold rose 19% to 72.7 million, although average ethanol price fell to $1.38 per gallon from $1.45. Higher distillers-grains prices also supported sales.
- Consolidated gross profit and margin declined despite revenue growth. Ethanol-segment gross profit improved, but refined coal recorded a $4.3 million gross loss in the quarter and $7.0 million for the half year.
- Pre-tax income decreased year over year, while net income and EPS increased substantially because of income-tax benefits, particularly estimated refined-coal production credits. The quarter included a $5.6 million total income-tax benefit versus a $2.3 million provision in the prior-year quarter.
- REX bought back approximately 228,000 shares for $16.6 million in the six months. Short-term investments were $112.0 million at July 31, compared with none at January 31.
Outlook, commentary, risks and unusual items
- Management expects One Earth and NuGen annual sales of 260–300 million gallons of ethanol, 590,000–630,000 tons of dried distillers grains, 70–90 million pounds of corn oil, and 170,000–225,000 tons of modified distillers grains. These expectations depend on market conditions, profitability and plant operations; the plants have permits to produce up to 150 million gallons annually each.
- Management expects $4–$6 million of capital expenditures during the remainder of fiscal 2018. It is evaluating uses for excess cash, including investments and short-term securities, and may continue repurchases under the remaining authorization of approximately 427,000 shares at July 31.
- Refined coal sales are tied to utility demand and weather. The operation is expected to continue at a gross loss under its agreements, with losses expected to be subsidized by federal Section 45 tax credits through November 2021, subject to emissions qualification. The company estimated a 2018 credit rate of $7.03 per ton and conducts independent emissions testing every six months.
- Ethanol margins are exposed to volatile corn, ethanol, distillers-grains, corn-oil and natural-gas prices. Fixed-price coverage for the next 12 months was limited: about 5% of forecast ethanol sales, 8% of distillers-grains sales, 13% of corn-oil sales, 9% of corn usage and 28% of natural-gas usage. Management estimated that specified 10% adverse price moves could reduce annual revenues by $47.7 million across the three sales products and increase annual grain and gas costs by $32.8 million and $1.4 million, respectively.
- The Tax Act lowered the federal corporate rate to 21%; tax accounting estimates were not complete. Unrecognized tax benefits were approximately $3.2 million at July 31. The company also expects adoption of the new lease standard in fiscal 2019 to materially affect the balance sheet through right-of-use assets and lease liabilities; disclosed future minimum operating-lease rentals totaled $27.9 million.
- Management reported no material legal proceedings or material changes to previously disclosed risk factors. It stated that disclosure controls were effective and that no material change in internal control over financial reporting occurred during the quarter.
Most important facts for investors to verify
- Confirm the intended reporting period: this filing covers fiscal 2018 Q2, not 2017 Q2.
- Assess how much reported earnings growth depends on estimated tax credits and tax-rate effects versus recurring operating performance; reconcile tax benefits and refined-coal credits to cash taxes and future realization.
- Track ethanol crush spreads, commodity prices, contract coverage, production volumes and the effect of expanded plant capacity on margins.
- Review refined-coal operating losses, emissions-test qualification, utility demand and the continued availability of Section 45 credits.
- Monitor cash deployment, share repurchases, capital spending, lease-standard adoption and the maturity/renewal of subsidiary credit facilities.