REX AMERICAN RESOURCES Corp quarterly report, Q1 FY2021

REX American Resources Corporation — Form 10-Q Summary

Period clarification: The filing is for the three months ended April 30, 2021 (REX fiscal Q1 2021), not calendar 2020 Q1. Comparative figures are for the three months ended April 30, 2020. Amounts below are in U.S. dollars; financial statement amounts are in thousands unless noted.

Business context and reporting period

REX operates in ethanol and by-products and refined coal. It consolidates four majority-owned subsidiaries and holds an equity-method investment in Big River Resources. One Earth’s results are included on a one-month reporting lag. The prior-year quarter was severely affected by COVID-related demand declines and plant idling; both consolidated ethanol plants produced at or near capacity in the reported quarter.

Financial performance and liquidity

• Revenue increased approximately 97%. Ethanol sales benefited from 45% more gallons sold and a 43% higher average selling price; the company attributed the rebound mainly to resumed production, higher demand, and stronger commodity prices.
• Cash and cash equivalents were $157.1 million and short-term investments were $35.9 million at April 30, 2021. Working capital was $240.2 million; the current ratio was 9.1:1.
• Total assets were $486.1 million. Current and long-term liabilities totaled $40.5 million, including $11.0 million of operating lease liabilities. The balance sheet reports no borrowings or conventional debt.
• Capital expenditures were $1.3 million in the quarter. Management expected $5–$8 million of capital expenditures for the remainder of fiscal 2021.
• SG&A was $10.0 million, up from $4.6 million, principally due to higher shipping costs. Interest and other income fell to $43,000 from $669,000, reflecting lower yields.

Material changes versus the prior comparable period

• Ethanol and by-products gross profit improved to $19.5 million from an $8.2 million loss; the segment’s pre-tax result improved to $11.1 million from a $12.4 million loss. The crush spread was approximately $0.04 per gallon versus $(0.08) a year earlier.
• Refined coal remained loss-making at the gross-profit and pre-tax levels. Segment net income attributable to REX was $0.5 million, compared with $0.2 million, supported by tax-credit effects.
• Operating cash flow improved, aided by net income and an $11.2 million inventory decrease, partly offset by a $7.8 million receivables increase.
• Commodity derivatives produced a $1.1 million loss included in revenue and a $1.9 million loss included in cost of sales in Q1 FY2021. The filing reported no derivative gains or losses in revenue in the prior-year quarter; it reported a $3.1 million gain in cost of sales then.

Outlook, commentary, risks and contingencies

• The filing gives no specific revenue or earnings guidance. Management said the short duration of forward sales contracts—generally no more than four months—limits its ability to predict future crush spreads and operating results.
• Management expected refined-coal production tax credits to remain available only through November 18, 2021, subject to emissions qualifications. It stated that refined-coal operations would not be profitable without those credits and expected to cease operations and earn credits only through that date.
• Key operating exposures include volatile corn, ethanol, distillers grains, corn oil and natural-gas prices; corn availability; crush spreads; ethanol demand; and plant operating performance. Management also cited uncertainty about COVID-19 effects and federal renewable-fuel requirements.
• REX disclosed approximately $8.5 million of unrecognized tax benefits at quarter-end and a federal tax examination covering fiscal years ended January 31, 2015–2017. Management did not expect reasonably possible changes in uncertain tax positions over the next 12 months to materially affect results or financial position.
• Forward purchase and sales commitments included approximately 9.5 million bushels of corn and sales commitments for 45.4 million gallons of ethanol, 58,000 tons of distillers grains and 14.4 million pounds of corn oil. Management said ordinary-course legal actions were not expected to have a material adverse effect.
• REX was exploring a potential carbon-sequestration project near One Earth with the University of Illinois; feasibility remained unproven. It was also evaluating uses for excess cash, including investment opportunities and highly liquid securities.

Important facts for investors to verify

• Whether the post-pandemic recovery in production, volumes, selling prices and crush spreads continued after the quarter, and how much Q1’s year-over-year improvement reflects the unusually weak comparison period.
• Current corn costs, ethanol and by-product prices, hedge positions and the effects of derivative losses on reported results.
• The timing and financial consequences of refined-coal operations ending and production tax credits expiring in November 2021.
• Progress on the federal tax examination and any changes in unrecognized tax benefits.
• Actual subsequent-period cash generation, capital spending and any announced deployment of excess cash or share repurchases.