REX American Resources Corporation — Form 10-Q Summary
Period clarification: The filing is for the quarter ended October 31, 2015 (REX fiscal 2015 Q3), not 2014 Q3 as indicated in the request metadata. The nine-month comparison is for the period ended October 31, 2015 versus October 31, 2014. Financial statement amounts below are in millions unless stated otherwise.
Business context and reporting period
REX operates in alternative energy, principally through majority-owned ethanol producers One Earth Energy and NuGen, and holds an equity-method investment in Big River. The company sold its Patriot investment on June 1, 2015. One Earth results are reported with a one-month lag.
Financial performance and liquidity
- Q3 revenue: $110.6 million, down 20.1% from $138.4 million. Ethanol revenue was $82.8 million versus $110.2 million; lower ethanol prices were the primary driver.
- Q3 profitability: Gross profit was $14.3 million (12.9% margin), down from $36.5 million (26.4%). Pretax continuing income was $11.1 million versus $40.6 million; net income attributable to REX shareholders was $7.5 million versus $23.3 million. Basic and diluted EPS were $1.08 versus $2.86.
- Nine-month results: Revenue was $329.3 million versus $444.6 million; gross profit was $41.7 million (12.7% margin) versus $112.0 million (25.2%). Net income attributable to REX shareholders was $27.8 million versus $67.0 million; diluted EPS was $3.72 versus $8.20.
- Operating drivers: Q3 ethanol selling price averaged $1.44 per gallon versus $1.89; the reported crush spread declined to about $0.19 per gallon from $0.59. Nine-month spread was about $0.18 versus $0.58. Lower natural gas costs partly offset weaker product prices.
- Cash flow: Nine-month operating cash flow was $21.8 million versus $115.1 million. Investing activities provided $37.8 million, including $45.5 million from the Patriot sale; capital expenditures were $9.9 million. Financing used $60.7 million, including $60.1 million for share repurchases. Cash declined $1.1 million to $136.6 million.
- Balance sheet and debt: At October 31, cash was $136.6 million, current assets $184.9 million, current liabilities $23.7 million, and working capital about $161.2 million. The current ratio was 7.8, compared with 9.0 at January 31. The balance sheet reports no debt; One Earth and NuGen had no borrowings on their respective $10 million revolving facilities.
Material changes and unusual items
- REX received approximately $45.5 million in cash for its Patriot interest and recognized a $10.4 million gain. Approximately $4.4 million of estimated escrow proceeds remained recorded as receivable and other long-term assets; final escrow determination was expected by December 1, 2016.
- Equity-method income fell to $1.3 million in Q3 from $8.8 million and to $7.9 million for nine months from $24.3 million. The comparison reflects weaker ethanol-sector results and the sale of Patriot.
- There was no interest expense in fiscal 2015 after debt was paid off in fiscal 2014. The effective tax rate was 14.8% in Q3 and 28.1% for nine months, reduced by discrete tax items; management expected a future rate of approximately 30%–35%.
- REX repurchased approximately 1.045 million shares for $60.1 million during the first nine months. At quarter-end, 452,809 shares remained under the authorization. No dividends were paid.
Outlook, risks and contingencies
- Management expected One Earth and NuGen annual output of 215–240 million gallons of ethanol, 550,000–650,000 tons of dried distillers grains, 45–65 million pounds of corn oil, and 50,000–80,000 tons of modified distillers grains, assuming operation at or above capacity. It projected $4–$6 million of additional capital spending for the rest of fiscal 2015.
- Management said future margins depend on volatile corn, ethanol, co-product and natural-gas prices. Production could be reduced or suspended if crush spreads remain inadequate. Fixed-price coverage for forecast production and grain use was limited; the filing estimates material revenue and cost exposure to adverse price changes.
- At October 31, One Earth and NuGen had commitments for about 5.3 million bushels of corn, with delivery through April 2016, and sales commitments for 55.5 million gallons of ethanol, 55,000 tons of distillers grains and 6.4 million pounds of corn oil, with delivery through June 2016.
- Future minimum operating-lease rentals totaled $32.9 million. Management considered pending legal matters not material; no material change to previously reported risk factors was disclosed. The plants’ revolving facilities include working-capital covenants; both subsidiaries were reported in compliance.
- Management was evaluating uses for excess cash, including repurchases, possible 10%–15% capacity expansion at existing plants, and other investment opportunities; it did not plan to build a new ethanol plant.
Important facts for investors to verify
- Confirm the intended reporting period: the submitted filing is Q3 2015, not Q3 2014.
- Track ethanol crush spreads and realized product prices, the key drivers of the sharp decline in gross margin and earnings.
- Review the timing and final amount of Patriot escrow proceeds and the effect of the investment sale on recurring equity income and liquidity.
- Assess commodity-price exposure and the limited fixed-price coverage described in the filing.
- Monitor share repurchases, remaining authorization, planned capital spending, and any decision on plant expansion or other cash uses.