REX American Resources Corporation — Form 10-Q Summary
Period: Quarter and six months ended July 31, 2021. The request metadata says “2020 Q2,” but the filing is for fiscal 2021 second quarter; fiscal 2021 runs February 1, 2021 through January 31, 2022. Unless otherwise stated, financial amounts below are in millions of dollars.
Business context
REX reports ethanol and by-products and refined coal segments. It consolidates four majority-owned subsidiaries and accounts for its 10.3% Big River Resources investment under the equity method. The statements are unaudited.
Financial performance and liquidity
| Metric | Three months ended July 31 | Six months ended July 31 |
|---|---|---|
| Revenue | 2021: $195.8; 2020: $39.3 | 2021: $359.9; 2020: $122.6 |
| Gross profit (loss) | 2021: $11.1; 2020: $(1.3) | 2021: $28.9; 2020: $(10.7) |
| Gross margin | 2021: 5.7%; 2020: (3.4%) | 2021: 8.0%; 2020: (8.7%) |
| Income (loss) before tax | 2021: $6.4; 2020: $(6.1) | 2021: $14.8; 2020: $(19.8) |
| Net income (loss) attributable to REX shareholders | 2021: $7.9; 2020: $(1.7) | 2021: $15.7; 2020: $(9.4) |
| Diluted earnings (loss) per share | 2021: $1.31; 2020: $(0.28) | 2021: $2.61; 2020: $(1.50) |
| Operating cash flow | Six months: 2021 $17.2 provided; 2020 $9.0 used |
- Revenue rose sharply as ethanol operations recovered from COVID-related shutdowns in 2020, with higher production and sales volumes and higher prices. Both consolidated ethanol plants were at or near capacity in the first half of fiscal 2021.
- Ethanol and by-products generated segment gross profit of $14.2 in the quarter and $33.6 in the first half; refined coal recorded gross losses of $3.1 and $4.8, respectively. Big River equity-method income was $1.8 for the quarter and $2.4 for the half year, versus losses in the prior-year periods.
- At July 31, cash and cash equivalents were $154.3, short-term investments $33.3, and restricted cash $6.8. Current assets were $284.7 and current liabilities $38.7; working capital was approximately $246.0. Management reports a 7.4-to-1 current ratio but gives the comparison date as “July 1, 2021,” rather than July 31.
- Total assets were $505.5 and total equity $453.3. The balance sheet reports lease liabilities but no borrowings or conventional debt balance; total operating lease liabilities were $12.9.
- First-half investing cash flow was $0.3 provided, including $2.7 of capital expenditures and net short-term investment maturities. Financing cash flow used $2.5, including $1.4 for share repurchases and $1.3 paid to noncontrolling-interest holders. Cash, cash equivalents and restricted cash increased $14.9 to $161.1.
Material changes versus prior year
- Second-quarter revenue increased approximately 398%; first-half revenue increased approximately 194%. The prior-year comparison was depressed by plant idling during the COVID-19 demand shock and local corn availability constraints.
- First-half ethanol gallons sold increased 86%, while the average ethanol selling price rose 62%. For the quarter, gallons sold increased 160% and the average price rose 80%. Corn costs also rose materially: average grain cost was $6.45 per bushel for the quarter versus $3.63 a year earlier.
- First-half SG&A rose to $16.6 from $9.0, largely due to higher shipping costs and incentive compensation. Interest and other income fell to $0.1 from $0.9, reflecting lower yields on cash and investments.
- First-half operating cash flow improved from a $9.0 outflow to a $17.2 inflow, though higher receivables and inventories used cash. First-half capital expenditures declined to $2.7 from $5.7.
Outlook, risks and unusual items
- No earnings or revenue guidance is provided. REX expects $3.0–$5.0 of capital expenditures for the remainder of fiscal 2021.
- The refined coal facility is expected to stop operating by November 18, 2021, when it is expected to lose eligibility for federal production tax credits. Management says the operation would not be profitable without those credits. The facility is subject to emissions testing and has a single utility customer.
- Management highlights exposure to volatile corn, ethanol, distillers grains, corn oil and natural gas prices, availability of corn, crush spreads, plant operations, regulatory decisions and demand. Fixed-price sales contracts generally extend no more than four months, limiting visibility into future margins. The filing also cites COVID-19, including the Delta variant, and uncertainty around EPA renewable fuel requirements and small-refinery waivers.
- Commodity derivatives are used for risk management, not speculation, and are not designated for hedge accounting. First-half derivative losses were $2.8 in revenue and $8.0 in cost of sales. At July 31, derivative liabilities were $4.6, and $6.8 of collateral was restricted to secure derivative positions.
- REX reports approximately $8.7 of unrecognized tax benefits and is undergoing a federal tax examination for fiscal years ended January 31, 2015 through 2020. Management says a change in uncertain tax positions over the next 12 months is not expected to materially affect results or financial position.
- There were no impairment charges in the first half of fiscal 2021, no material legal proceedings disclosed, and no material changes to previously reported risk factors. Management judged disclosure controls effective.
- REX completed a 500,000-share repurchase authorization after quarter-end and received authorization for an additional 500,000 shares. It is also evaluating investment opportunities and exploring a potential carbon sequestration project near One Earth; feasibility remains undetermined.
Most important facts for investors to verify
- Confirm the reporting period: the filing covers the quarter ended July 31, 2021, despite the request metadata’s “2020 Q2.”
- Assess whether improved ethanol margins and production can persist as corn costs, commodity prices and derivative results fluctuate.
- Evaluate the earnings and tax-credit effects of the planned refined coal shutdown in November 2021.
- Review working-capital and cash-flow movements, collateral requirements for commodity positions, and the company’s planned capital allocation and buybacks.
- Monitor the federal tax examination, unrecognized tax benefits, EPA/RFS developments and the feasibility of the proposed carbon sequestration project.