Business context and reporting period
REX American Resources Corporation operates ethanol and by-products businesses and a refined-coal business. This filing is a Form 10-Q for the quarter ended October 31, 2020, and covers the first nine months of fiscal 2020 (fiscal year ends January 31). The request metadata says “2019 Q3,” but the filing itself reports 2020 Q3.
Amounts below are in millions of dollars unless otherwise noted. The filing states the interim financial statements are unaudited.
Financial performance and position
| Metric | Three months ended October 31, 2020 | Prior-year quarter | Nine months ended October 31, 2020 | Prior-year period |
|---|---|---|---|---|
| Net sales and revenue | $124.3 | $86.7 | $246.8 | $297.1 |
| Gross profit (loss) | $17.7 | $(1.8) | $7.0 | $5.9 |
| Income (loss) before taxes | $15.1 | $(4.9) | $(4.7) | $(4.0) |
| Net income (loss) attributable to REX shareholders | $8.8 | $(2.1) | $(0.5) | $3.0 |
| Basic and diluted earnings (loss) per share | $1.44 | $(0.32) | $(0.09) | $0.48 |
| Operating cash flow | Not presented separately for the quarter | Not presented separately for the quarter | $21.5 | $(2.3) |
- Third-quarter gross margin was approximately 14.2%, compared with a negative margin in the prior-year quarter. Nine-month gross margin was approximately 2.8%, versus approximately 2.0%.
- At October 31, cash and cash equivalents were $173.1 million, short-term investments were $29.2 million, and restricted cash was $0.9 million. Working capital was $226.3 million; the current ratio was 9.5:1.
- Total assets were $475.2 million and total equity was $435.5 million. The balance sheet reports no funded borrowings; operating lease liabilities totaled $13.7 million, including $5.1 million current.
- Nine-month investing cash outflow was $10.0 million, including $6.6 million of capital expenditures. Financing cash outflow was $18.3 million, primarily $18.1 million used to repurchase shares. Cash, cash equivalents and restricted cash declined $6.8 million during the period.
Material changes versus prior comparable periods
- Quarterly revenue rose $37.6 million year over year as ethanol-plant output and sales volumes recovered from prior-year corn-supply disruptions. Ethanol gallons sold increased 57% to 74.6 million; the average ethanol selling price declined to $1.31 per gallon from $1.39.
- Quarterly ethanol and by-products gross profit increased to $18.9 million from approximately $0.03 million. Management cited an improved crush spread, approximately $0.19 per gallon versus negative $0.04, and higher production. The refined-coal segment continued to report a gross loss.
- Nine-month revenue fell $50.3 million, primarily because lower production and sales followed plant idling in March 2020 amid COVID-19-related demand declines, low ethanol prices and corn-supply constraints. One Earth restarted in late May and NuGen in late June.
- Nine-month REX-attributable results moved from $3.0 million of income to a $0.5 million loss, despite positive operating cash flow. Lower production volumes, lower interest income and derivative losses affected results.
- REX purchased approximately 295,000 shares for $18.1 million in the first nine months; approximately 43,000 shares remained authorized for repurchase at October 31.
Outlook, risks and unusual items
- The filing provides no formal earnings or revenue guidance. Management expected $3 million to $5 million of capital expenditures for the remainder of fiscal 2020 and said it was evaluating uses for excess cash, including investment opportunities and a potential carbon-sequestration project near One Earth. The project remained under evaluation.
- COVID-19’s duration and impact on ethanol demand, production and cash flows were uncertain. A prolonged production stoppage could materially harm results. Commodity-price volatility, corn availability, logistics, weather and changing fuel demand may also affect operating margins; management says plants could be reduced or idled if crush spreads become inadequate.
- Management cited uncertainty over EPA renewable-fuel obligations and small-refinery waivers as a risk to ethanol demand. The refined-coal operation depends on a single utility customer, was experiencing reduced demand and was expected to continue incurring gross losses. Its federal production tax credits were expected to be available through November 2021, subject to qualifying emissions reductions.
- The third-quarter income-tax provision included approximately $1.8 million from reversing previously recognized tax benefits following a change in the expected tax-loss carryback position under the CARES Act. Tax results are also affected by refined-coal production tax credits.
- REX reported approximately $7.3 million of unrecognized tax benefits. Management said pending legal matters were not expected to have a material adverse effect. The company conducted an impairment review in light of COVID-19 and recorded no impairment; further deterioration could result in future impairment charges.
- Derivative positions are used to manage commodity exposure, not for speculation. Nine-month derivative losses included approximately $1.8 million in cost of sales and $1.1 million in revenue.
Important facts for investors to verify
- Confirm the intended reporting period: the supplied metadata says 2019 Q3, while the filing is for the quarter ended October 31, 2020.
- Track ethanol demand, plant utilization and crush spreads following the One Earth and NuGen restarts, along with corn supply and pricing.
- Assess the quality and sustainability of the quarter’s earnings recovery, including derivative results, tax effects and the contrast between quarterly profit and the nine-month attributable loss.
- Monitor refined-coal customer demand, continuing operating losses and the remaining duration and qualification requirements of Section 45 tax credits.
- Review cash deployment, including share repurchases, planned capital spending and proposed investment opportunities.