REX American Resources Corporation — Form 10-Q Summary
Reporting period: Three months ended April 30, 2015 (fiscal 2015 first quarter), compared with the three months ended April 30, 2014. The request metadata says “2014 Q1,” but the filing itself covers 2015 Q1. Amounts below are in U.S. dollars; financial statement figures are in millions unless otherwise noted.
Business context and key financial results
REX operates in alternative energy, including majority-owned ethanol businesses One Earth and NuGen, and holds equity-method investments in Big River and Patriot. Results are materially exposed to ethanol, grain, distillers-grains, corn-oil and natural-gas prices.
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $105.2 | $155.9 |
| Gross profit / margin | $9.1 / 8.7% | $36.6 / 23.5% |
| Income before tax | $6.9 | $38.1 |
| Net income attributable to REX shareholders | $3.9 | $21.7 |
| Basic and diluted EPS | $0.50 | $2.68 basic; $2.67 diluted |
| Operating cash flow | $5.3 | $26.8 |
| Capital expenditures | $2.5 | $0.5 |
Cash and cash equivalents were $141.9 million at April 30, 2015, versus $137.7 million at January 31, 2015. Working capital was $167.2 million, and the current ratio was 13.4:1. The balance sheet reports no debt outstanding. One Earth and NuGen each established a $10 million revolving facility, but neither had borrowed at quarter-end; these facilities are recourse only to those subsidiaries. Total assets were $455.4 million and total equity was $397.4 million.
Changes versus the prior comparable quarter
- Revenue declined $50.7 million, or about 33%; ethanol prices fell to $1.41 per gallon from $2.14, while gallons sold were broadly flat at 55.8 million versus 55.6 million.
- Gross profit fell $27.5 million. Management attributed the decline to a crush spread of about $0.11 per gallon, compared with $0.58 a year earlier.
- Equity-method income fell to $1.5 million from $8.3 million, reflecting weaker results at Big River and Patriot.
- REX shareholder net income decreased to $3.9 million from $21.7 million. There was no interest expense in 2015, compared with $0.7 million in 2014, following repayment of debt during fiscal 2014.
- Operating cash flow decreased to $5.3 million from $26.8 million. Cash increased $4.2 million during the quarter; the prior-year increase was $20.5 million.
- Under newly adopted discontinued-operations guidance, individual real-estate property sales are presented in continuing operations. The quarter included a $0.5 million gain on the sale of two properties.
Outlook, risks and notable items
- Management’s annual volume expectations for One Earth and NuGen are 215–240 million gallons of ethanol, 550,000–625,000 tons of dried distillers grains, 40–60 million pounds of corn oil and 60,000–90,000 tons of modified distillers grains. These assume operations at or above nameplate capacity and depend on crush spreads and market conditions.
- Management expected $5–$10 million of additional capital spending during the remainder of fiscal 2015. It was evaluating uses for excess cash, including plant expansion or construction, share repurchases and other investments. No earnings guidance was provided.
- Commodity exposure is significant: none of forecast ethanol sales and about 1% of forecast corn usage for the next 12 months were fixed-price contracted. A 10% adverse price move was estimated to reduce revenue by $42.3 million across ethanol, distillers grains and corn oil, or increase corn costs by $30.5 million. These are sensitivities, not forecasts.
- At quarter-end, One Earth and NuGen had commitments to purchase about 8.6 million bushels of corn through June 2015 and sales commitments for 51.3 million gallons of ethanol, 95,000 tons of distillers grains and 10.2 million pounds of corn oil through September 2015.
- On May 19, 2015, Patriot members approved a merger agreement under which CHS would acquire Patriot, subject to customary closing conditions. REX expected about $44 million at closing for its interest, with a further approximately $5 million potentially payable from escrow within 18 months. The filing expected closing around June 1, 2015; if completed, REX would no longer recognize income from Patriot.
- Management identified commodity prices and availability, plant operations, weather, policy changes and real-estate conditions among risks. It reported no material legal proceedings, no material risk-factor changes, effective disclosure controls and no material changes to internal control over financial reporting.
Important facts for investors to verify
- Whether the Patriot transaction closed, the actual proceeds received and any escrow amount or conditions.
- Subsequent ethanol crush spreads, realized prices, plant utilization and commodity-contract coverage relative to the disclosed sensitivities.
- Cash generation, capital spending and whether the stated fiscal-year production and investment expectations changed.
- Liquidity and covenant compliance at One Earth and NuGen, including any subsequent revolver borrowings.
- How the adoption of discontinued-operations guidance and the delayed reporting of One Earth affect comparability of later periods.