REX American Resources Corporation — Form 10-Q summary
Period: The filing covers the quarter and nine months ended October 31, 2016 (fiscal 2016 Q3), compared with the periods ended October 31, 2015. The request metadata says “2015 Q3,” which conflicts with the filing’s stated reporting period.
Business context and financial performance
REX operates in the alternative-energy segment, principally through majority-owned ethanol producers One Earth and NuGen, and holds an equity-method investment in Big River. Amounts below are in millions of dollars unless otherwise noted.
| Metric | Three months ended Oct. 31 | Nine months ended Oct. 31 |
|---|---|---|
| Net sales and revenue | $116.3 (2016); $110.6 (2015) | $332.2 (2016); $329.3 (2015) |
| Gross profit / margin | $20.2 / 17.3% (2016); $14.3 / 12.9% (2015) | $45.9 / 13.8% (2016); $41.7 / 12.7% (2015) |
| Income before taxes | $17.2 (2016); $11.1 (2015) | $35.7 (2016); $45.3 (2015) |
| Net income | $11.5 (2016); $9.4 (2015) | $24.0 (2016); $32.6 (2015) |
| Net income attributable to REX shareholders | $8.9 (2016); $7.5 (2015) | $20.0 (2016); $27.8 (2015) |
| Diluted earnings per share | $1.36 (2016); $1.08 (2015) | $3.03 (2016); $3.72 (2015) |
For the quarter, revenue rose about 5%, while gross profit increased about $5.9 million, reflecting a wider crush spread: approximately $0.31 per ethanol gallon versus $0.19 a year earlier. For the nine months, revenue rose modestly and gross profit improved, but shareholder net income and EPS fell, primarily because the prior-year period included income from Patriot, sold in June 2015, including a $10.4 million sale gain and five months of equity-method earnings.
Quarterly revenue growth was led by ethanol sales, up to $90.7 million from $82.8 million, as gallons sold increased. Dried distillers grains revenue declined to $19.6 million from $22.5 million, principally due to lower selling prices. Nine-month equity-method income was $3.3 million versus $7.9 million, reflecting the Patriot sale; Big River contributed $3.3 million in the current nine-month period.
Cash flow, liquidity and debt
- Operating cash flow was $41.4 million for the first nine months, versus $21.8 million a year earlier. Capital expenditures were $11.8 million; investing activities used $7.6 million. Financing activities used $6.8 million, including $4.7 million for share repurchases and $2.1 million for noncontrolling-interest payments and distributions.
- Cash and cash equivalents were $162.8 million at October 31, 2016, up from $135.8 million at January 31, 2016. Working capital was $183.9 million; the current ratio was 9.4 to 1.
- The balance sheet reports no borrowings. One Earth and NuGen each had a $10 million revolving facility, maturing April 1, 2017; neither had borrowed as of October 31, 2016. These facilities are recourse only to the respective subsidiaries. Operating-lease minimum rentals totaled $25.7 million.
Outlook, risks and notable items
- Management’s expected annual sales volumes for One Earth and NuGen are 240–260 million gallons of ethanol, 580,000–620,000 tons of dried distillers grains, 65–75 million pounds of corn oil, and 70,000–90,000 tons of modified distillers grains. Expectations depend on plant operations, market conditions and crush spreads. Management planned plant debottlenecking and projected $2–$3 million of additional capital spending for the remainder of fiscal 2016.
- Management expected an effective tax rate of approximately 30%–35% in future periods. It was 32.9% for the nine months in 2016, versus 28.1% in 2015; the prior period benefited from tax items that reduced the rate.
- Commodity-price volatility is a central risk. Management warned that weaker crush spreads can produce marginal or negative operating margins and may lead to reduced or halted production. Fixed-price contracts covered only about 2% of forecast ethanol sales, 14% of distillers-grains sales, 17% of corn-oil sales, 1% of estimated corn usage and 3% of natural-gas usage for the next 12 months. The filing estimates that a 10% adverse price move could affect annual revenue/cost of goods sold by tens of millions of dollars.
- Management attributed pressure on distillers-grains prices to uncertainty over Chinese imports and duties totaling approximately 45% on U.S. product. This risk may affect coproduct revenue and margins.
- REX reported $2.3 million of receivables associated with estimated Patriot sale escrow proceeds. The filing gives differing expected dates for a final escrow determination—December 1 and December 31, 2016.
- Unrecognized tax-benefit disclosures are not fully consistent: the filing reports approximately $2.029 million of total unrecognized tax benefits in one passage and a reconciliation ending at $2.227 million. Management said legal proceedings were not expected to have a material adverse effect and reported no material risk-factor changes.
Most important facts for investors to verify
- Confirm the intended period: the filing is for the quarter ended October 31, 2016, despite the request metadata identifying 2015 Q3.
- Track crush spreads, corn and energy costs, and ethanol and coproduct prices—especially dried distillers-grains demand and Chinese trade restrictions.
- Assess the sustainability of the stronger quarterly margin and cash generation against weaker nine-month shareholder earnings and the prior-year Patriot-related comparison.
- Verify the final amount and timing of Patriot escrow proceeds and reconcile the tax-benefit amounts disclosed in the filing.
- Monitor planned capital expenditures, plant debottlenecking, share repurchases and any use of excess cash; the company reported authorization to repurchase approximately 155,000 additional shares.