REX American Resources Corporation — Form 10-Q Summary
Reporting period: The filing covers the quarter and nine months ended October 31, 2014 (REX fiscal 2014 Q3), compared with the same periods in 2013. This conflicts with the request metadata’s “2013 Q3”; the filing itself identifies the period as 2014 Q3. Amounts below are in millions unless stated otherwise.
Business context
REX operates in alternative energy and real estate. Alternative energy includes majority-owned ethanol producers One Earth and NuGen, as well as equity-method interests in Big River and Patriot. The real estate segment consists mainly of former retail properties; REX completed its retail exit in 2009.
Financial performance and position
| Metric | Three months ended Oct. 31, 2014 | Three months ended Oct. 31, 2013 | Nine months ended Oct. 31, 2014 | Nine months ended Oct. 31, 2013 |
|---|---|---|---|---|
| Revenue | $138.5 | $166.2 | $444.6 | $520.0 |
| Gross profit | $36.5; 26.4% margin | $18.0; 10.8% margin | $112.0; 25.2% margin | $37.9; 7.3% margin |
| Income from continuing operations | $28.5 | $10.6 | $79.4 | $21.0 |
| Net income attributable to REX shareholders | $23.3 | $9.9 | $67.0 | $19.2 |
| Basic net income per share | $2.86 | $1.21 | $8.21 | $2.35 |
- Cash flow: Nine-month operating cash flow was $115.1, versus $43.4 a year earlier. Investing activities used $6.7, primarily for $8.1 of capital expenditures. Financing activities used $49.2, including $42.2 of debt payments and $8.3 of share repurchases. Cash rose to $164.3 from $105.1 at January 31, 2014.
- Liquidity: Working capital was $140.4, up from $116.7 at January 31, 2014; the current ratio was 3.8 versus 4.6. Approximately $115.8 of cash was held at One Earth and NuGen for subsidiary liquidity and operations, and was not freely available to the parent. The filing says REX believes it has sufficient working capital and credit availability for the next 12 months.
- Debt: Reported debt at October 31 was $33.5 ($19.0 current and $14.5 long-term), down from $75.7 at January 31. Subsidiary borrowings were variable-rate, generally LIBOR plus 300 basis points, and non-recourse to REX. The filing reports that One Earth and NuGen subsequently repaid their remaining debt and terminated their loan agreements; see verification items below.
- Other balance-sheet items: Total assets were $470.4 and total equity $383.4 at October 31. Equity-method investments were $75.5. No dividends were paid by REX in the current or prior year.
Changes versus the prior comparable periods
- Revenue declined 16.7% in the quarter and 14.5% for the nine months, primarily because lower corn prices were accompanied by lower selling prices for ethanol and distillers grains.
- Profitability improved markedly: REX attributed the gross-profit increase to lower grain costs and stronger ethanol crush spreads. The crush spread was approximately $0.59 per gallon in the quarter versus $0.02, and $0.58 for the nine months versus negative $0.16.
- Equity-method income increased to $8.8 in the quarter from $3.3 and to $24.3 for the nine months from $9.6, reflecting improved results at Big River and Patriot. Dividends received from equity-method investees were $19.9 for the nine months, versus $0.2.
- Interest expense declined to $0.5 in the quarter from $1.0 and to $1.7 for the nine months from $3.0, largely due to debt repayments.
- Average ethanol selling prices fell to $1.89 per gallon in the quarter from $2.25; dried distillers grains prices fell to $145.87 per ton from $228.00. Sales volumes of ethanol were broadly flat for the nine-month comparison.
Outlook, risks and unusual items
- Management provided no formal earnings guidance. It expected One Earth and NuGen, assuming operation at or above nameplate capacity and favorable enough crush spreads, to produce annually 200–230 million gallons of ethanol, 590,000–640,000 tons of dried distillers grains, 40,000–70,000 tons of modified distillers grains, and 45–55 million pounds of corn oil.
- Results are highly sensitive to prices and availability of corn, ethanol, distillers grains, corn oil and natural gas. Management warned that adverse crush spreads could lead to reduced or suspended plant production. It also expected the recent Chinese ban on dried distillers grains imports to negatively affect pricing.
- Only about 1% of forecast ethanol sales and estimated corn usage for the next 12 months were fixed-price contracted; corresponding fixed-price coverage was about 19% for distillers grains and 20% for corn oil. A 10% adverse price move was estimated to reduce revenue by $47.1 for remaining forecast product sales and increase grain costs by $26.5.
- REX estimated that a 10% adverse change in market interest rates would increase interest cost by approximately $0.172 over the term of the variable-rate debt outstanding at October 31. The interest-rate swap matured during the quarter.
- Capital expenditures were $8.1 for the nine months; management expected a further $2–$3 for the remainder of fiscal 2014. Four former retail stores were leased, one had a seasonal lease, and four were vacant and being marketed for lease or sale.
- Discontinued operations were immaterial in the current periods; property-disposal gains were $0.138 net of tax for the quarter and $0.136 for the nine months. Management said pending legal matters were not expected to have a material effect. No material risk-factor changes were reported.
Most important facts for investors to verify
- Period identification: Confirm that the intended filing is the 10-Q for the quarter ended October 31, 2014, not 2013 Q3 as stated in the request metadata.
- Post-quarter debt repayment figures: The notes describe post-October 31 repayments of $14.0 by One Earth and $9.5 by NuGen, totaling $23.5, while MD&A says November accelerated payments totaled $17.5. Reconcile the amounts and timing, and confirm the resulting debt and cash balances.
- Commodity exposure and margins: Track crush spreads, fixed-price contract coverage, corn costs, and the effect of the Chinese import ban on distillers grains.
- Earnings quality and cash availability: Assess the contribution and volatility of Big River and Patriot equity income, actual cash distributions received, and restrictions on subsidiary cash and dividends.
- Liquidity and capital allocation: Verify cash remaining after debt repayment, planned capital spending, and the ongoing share-repurchase authorization.