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REX American Resources Corp (REX) Q3 2020 Earnings Call Transcript

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REX American Resources Corp (NYSE: REX)
Q3 2020 Earnings Call
Dec 3, 2020, 11:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good day and welcome to the REX American Resources Fiscal 2020 Third Quarter Conference Call. [Operator Instructions]. Afterwards we will conduct a question-and-answer session. [Operator Instructions]. I would like to turn the conference over to Doug Bruggeman, Chief Financial Officer. Please go ahead.

Douglas L. Bruggeman -- Vice President-Finance, Chief Financial Officer and Treasurer

Good morning and thank you for joining REX American Resources' fiscal 2020 third quarter conference call. We'll get to our presentation and comments momentarily as well as your question-and-answer session. But first, I'll review the safe harbor disclosure. In addition to historical facts or statements of current conditions, today's conference call contains forward-looking statements that involve risks and uncertainties within the meanings of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the Company's current expectations and beliefs, but are not guarantees of future performance.

As such, actual results may vary materially from expectations. The risks and uncertainties associated with the forward-looking statements are described in today's news announcement and in the Company's filings with the Securities and Exchange Commission, including the Company's reports on Form 10-K and 10-Q.

REX American Resources assumes no obligation to publicly update or revise any forward-looking statements. I have joining me on the call today, Stuart Rose, Executive Chairman of the Board; and Zafar Rizvi, Chief Executive Officer. I'll first review our financial performance and then turn the call over to Stuart for his comments.

Sales for the quarter increased 43% primarily due to increased production levels. Ethanol sales for the quarter were based upon 74.6 million gallons this year versus 47.6 million gallons last year. We ran our consolidated plants at full capacity in the current year third quarter while last year we had reduced the run rate at the NuGen plant based upon tight corn supply in that region. Ethanol price per gallon did decline from $1.39 in the prior year to $1.31 in the current year.

We reported a large increase in gross profit to $18.9 million in the third quarter for the ethanol and by-products segment versus a gross profit of $28,000 in the prior year. Our crush spread between ethanol and corn was approximately $0.19 in the current year versus approximately a negative $0.04 in the prior year, primarily reflecting year over year lower corn pricing of 21%. Our refined coal segment had a gross loss of $1.3 million for the third quarter of fiscal 2020 versus $1.6 million in the prior year based upon lower volumes.

These losses are offset by tax benefits of $1 million and $2.2 million for the third quarters of fiscal 2020 and 2019 respectively recorded from the Section 45 credits and the tax benefit from operating losses. SG&A was similar for the third quarter at $4.3 million versus $4.1 million in the prior year.

We recorded income of $1.2 million from our unconsolidated equity investment in this year's third quarter versus a small loss of $15,000 in the prior year. Interest and other income declined year-over-year from $1 million to $537,000, primarily due to lower interest rates on a cash and short-term investments as interest rates fell sharply during the current year.

We recorded a tax provision of $4.1 million for the third quarter of this year versus a benefit of $3.2 million in the prior year. We had a tax expense in the current quarter based upon returning to profitable operations, reversing in the third quarter previously recorded federal benefit of losses at 35% for the current year as well as having lower run rates at the refined coal facility.

The above factors led to net income attributable to REX shareholders of $8.8 million or $1.44 per share in this year's third quarter versus the net loss of $2.1 million or a loss of $0.32 per share in the prior year.

Stuart, I'd like to turn the call over to you now for your comments.

Stuart A. Rose -- Executive Chairman of the Board

Thank you, Doug. The quarter -- on the quarter to date going forward, we so far are profitable, but crush spreads have deteriorated rapidly in the last 30 days, Zafar Rizvi, our CEO will discuss that further. We have hoped for a possible better EPA and Agriculture Secretary related to ethanol in the Biden administration that should be a positive -- we hope to be a positive for our Company.

Currently there is less driving which is related to COVID hitting people hard. And I expect it to hit people even harder right before the vaccine -- hit us even harder right before the vaccine as people are more cautious as they see a vaccine coming soon. And we believe more people will be staying home.

In terms of refined coal, we have approximately one year left where we receive tax credits, or expect to receive tax credits on that business. The fourth quarter did well. We expect it to improve over the third quarter on an after-tax basis. When cold weather hits, the utilities usually run more which gives us a chance to make more refined coal from the utility, where it usually runs more which gives us a chance to make more refined coal.

In terms of short-term cash on the balance sheet, we have approximately $202 million in short-term cash and short-term investment, -- excuse me, short-term investments and cash on the balance sheet, we have approximately $202 million. We repurchased 316,349 shares. And so far in fiscal 2020, we have authorization for another 33,512.

We current -- under our current authorization and we tend to or try to buy or use our buyback to buy the stock on debts. We're also looking for opportunities in the ethanol field, where we're only really looking at plants that we consider among the very, very best.

In terms of carbon capture, we're working hard on that. Zafar Rizvi, our CEO will discuss that. I'll now turn the conference call over to our CEO, Zafar Rizvi.

Zafar A. Rizvi -- Chief Executive Officer and President

Thank you, Stuart. Good morning, everyone. As I mentioned during calls -- about the last two quarters, this year started in a challenging environment including: a decline in the crude and ethanol demand and price; COVID-19 pandemic shutdown of businesses and; stay at home orders.

And we struggled to find corn for NuGen facility. We saw a decrease in the fuel demand and the negative impact to the ethanol industry. We experienced improvement in late May when the COVID-19 shutdown order were relaxed, creating a greater demand for the gasoline and ethanol.

During the third quarter, condition further improved, most importantly, we received a steady flow of corn at both of our majority owned as well as minority owned locations. This resulted in an improved crush margin and a very profitable third quarter. These improved conditions continued until recently, now we are seeing a decline in the crush margin. Due to higher corn price, the price of ethanol failed to keep up with the increase in corn prices in the wake of the threat of another wave of COVID-19.

Also, direct payment to farmers under the CARES Act resulted in a lack of interest from farmers in selling corn. When China stepped up its corn purchase, that led to a higher corn price. In addition, we are experiencing continued uncertainty because of the trade dispute. And the EPA continued to consider and grant small refinery exemption from RFS compliance year.

Unless economic condition and the availability of the corn continue to improve, trade disputes as a result, and COVID-19 threat diminishes, we expect the crush margin may continue to decline due to less demand for ethanol and the higher cost of corn.

On the other hand, USDA corn report shows corn condition at the South Dakota are 79% excellent to good. We had difficulty in sourcing corn at our NuGen plant during the last crops year. But this year the crops around our plants' draw in South Dakota and Illinois is strong and encouraging.

The corn crops for 2021 year is projected to yield approximately 14.5 billion bushels and expected to carry 1.7 billion bushels. DDG export dropped approximately 111,000 [Phonetic] metric tons in the first nine month of 2020 compared to last year. Export of dry distal grains through September 2020 totaled approximately 8.24 million metric tons compared to 8.3 million metric tons for the first nine month of 2019.

Ethanol export during this timeframe totaled 983 million gallons, 89% of last year's volume of 1.1 billion gallons during the same period. Let me give you a little bit about our carbon sequestration project. As I mentioned during our last call, we are working with the University of Illinois to drill a carbon sequestration well at our One Earth Energy facility. The University of Illinois is in the process of evaluating a permit application to drill a test well. Their teams will perform 2D seismic surveys to select the location and conduct a front-end engineering and design feed study of the CO2 capture system.

The University expect to receive a well drilling permit in the first quarter of 2021 and plan to drill the test well within the first half of 2021. This project -- this project is still a very preliminary stage and we cannot predict yet that we will be successful with this project.

In summary, we are pleased to announce a very profitable quarter in spite of a very difficult environment for the industry. We are pleased with the production of the corn crops in our draw area this year over last year.

It helped and led to a very profitable third quarter. We are very appreciative and thankful for the hard work of our colleagues during this pandemic. They contributed to profitable third quarter earnings in spite of the uncertainty and the difficult overall environment.

I will give back -- floor back to Stuart Rose for additional comments. Thanks Stuart.

Stuart A. Rose -- Executive Chairman of the Board

Thanks Zafar.

As Zafar said, we had a good quarter, we regained profitability, but hard times have hit us again as the crush spread have gone negative. All things considered, a profitable quarter during these times is something to be proud of. And, our plants are among the -- and continue to be among the best locations and best plants in the industry.

And as Zafar said most importantly and the best part of our Company is, during these COVID times, our employees have shown how great they are, they've been heroes, they've come to work and we're very proud that we have the best -- the best employees in the industry. And that's allowed us to produce among the best numbers in the industry.

I'll now leave the forum open to questions.

Questions and Answers:


Thank you. [Operator Instructions]. Our first question is from the line of Jordan Levy from Truist. Please go ahead with your question.

Jordan Levy -- Truist Securities -- Analyst

Good morning guys. And really nice...[Speech Overlap]

Stuart A. Rose -- Executive Chairman of the Board

Hi, Jordan.

Jordan Levy -- Truist Securities -- Analyst

How're you guys doing? Really nice quarter. Just kind of wanted to get your thoughts, you know, you built up this really material cash position now and kind of thinking about how you guys maybe rank or think about potential uses of that cash between potential investments. Stuart, you mentioned looking into potential ethanol plants and things like that and return of capital whether it's kind of through a buyback or maybe if you could explore the idea of a special dividend or something along those lines.

Stuart A. Rose -- Executive Chairman of the Board

Well, I think you -- as you mentioned, we're always looking for ethanol plants. So that's always our first choice. We've been pretty good -- not pretty good, really good about giving our cash back to our shareholders through buybacks. And a special dividend, I would take -- we don't -- we at this time do not know how much a carbon capture is going to cost for beginning of the venture. We'd like to -- we have high hopes that it's going to be a large, large venture. And so to do a special dividend and take away our flexibility when we are within maybe a couple of years of having something that we hope is, it may be nothing, but we hope it's going to be something very, very big. Probably it's not in our interest, but it is in our shareholders' interest.

We feel that when the stock dips to buy the shares, takes the people who want to sell out of the market and it also supports the stock at a certain level. And when we do start making money like we did in last quarter on a much lower number of shares, the earnings per share does go up significantly. So we've bought back almost well over 5% of our shares this year which by any measure is a lot of shares for a company to buy.

So we're -- I don't think what's changed that part of the strategy, at least not unless we find that carbon capture doesn't -- for some reason isn't going to happen. Any other questions?

Jordan Levy -- Truist Securities -- Analyst

Yeah. Just a follow-up, Stuart or Zafar one of you mentioned last quarter, looking into a couple of different things, including some of the protein side of the DDG as well as some of the high grade. And we've seen those markets change as well, but just wanted to get your thoughts on how that's playing out and monitoring there.

Stuart A. Rose -- Executive Chairman of the Board

Zafar, you want to answer that question?

Zafar A. Rizvi -- Chief Executive Officer and President

Yeah. I think we have -- we're always looking for something we can benefit from that -- the long term and ourselves for the short-term. We have looked at it, protein over the several last several years including recently, I think in our opinion at this time, there's not enough market to really get your return on investment quicker than four, five years or earlier.

So as the market will develop, we will keep our eyes on it and that's why we have this cash and we will see if that market is there and if developed, we will, certainly will join that. But at this time, we really don't think that the market is -- can handle that many this protein plants.

Jordan Levy -- Truist Securities -- Analyst

Thank you so much, guys.


Thank you.

Stuart A. Rose -- Executive Chairman of the Board

Thank you. Thank you so much.


Our next question is from the line of Chris Sakai from Singular Research. Please go ahead.

Christopher J. Sakai -- Singular Research -- Analyst

Yes, good morning.

Stuart A. Rose -- Executive Chairman of the Board

Hi, Chris.

Christopher J. Sakai -- Singular Research -- Analyst

Just wanted to get an idea about your international sales. Did any go to China?

Stuart A. Rose -- Executive Chairman of the Board


Zafar A. Rizvi -- Chief Executive Officer and President

Yeah. Actually, you know, what we normally try to -- yes, we can say, we sell it to the local person and then they export to the China and take [Phonetic] DDG, we have some gone to China, but as you know, China is not in actively in the market this year and even since 2016. This year, they have purchased a little bit, but China is not very active in the market at this time.

Christopher J. Sakai -- Singular Research -- Analyst

Okay. And then as far as other countries go, how about -- what were the largest?

Zafar A. Rizvi -- Chief Executive Officer and President

I think the most -- I think, Mexico is always on the top of the list and there really is a step up compared to anybody else. Then we have Mexico and then South Korea, Vietnam, Thailand, Indonesia, Turkey. So those are the top people who are really buying. And if you look at back, last year also, in 2019 also it was Mexico, South Korea, Vietnam, Indonesia. So these are the same people who are top of the list last year.

They are consistently still on the top of the list. Last time China bought -- in 2016, there were 21% of the DDG was purchased by China in 2016. Since that -- since that time, they dropped in 2017 to 4% and after that basically this year. So rest of the other three stepped up and -- but Mexico was, this year was actually was behind last year, they purchased January to September, about 1.5 million ton. And this year, they purchased about 1.2 million ton, approximately.

Christopher J. Sakai -- Singular Research -- Analyst

Okay, great. And other question, how enthusiastic are you guys about Biden presidency?

Stuart A. Rose -- Executive Chairman of the Board

We have not been helped as an industry by the EPA of the Trump presidency and we -- the Obama EPA was much more friendly to us. So to answer your question, we are guardedly enthusiastic and it's going to make a big difference if we have an EPA administrator that likes ethanol and who goes out of his way [Phonetic] not to grant exemptions and continue to see ethanol program after two years longer and so forth.

So and we feel -- and I feel and I can't speak for everyone, but I feel that at least we have a chance with this administration, the last administration we felt was not -- the Trump administration, even though they talked a lot about being friendly to ethanol, in reality did not follow -- did not give us what the law required, which was 15 million gallons of blending -- 15 billion gallons of blending.

So hopefully we'll get that out of the Obama administration.

Christopher J. Sakai -- Singular Research -- Analyst

Okay. Okay, great, thanks.


Thank you. I'm showing that there are no further questions from the phone line at this time.

Stuart A. Rose -- Executive Chairman of the Board

I should have said the Biden administration, I apologize. Anyway, very good. Thank you everyone for talking or for listening. I appreciate it very much, and we'll talk to you next quarter, at the end of next quarter, at the conference call next quarter. Thank you. Bye.

Zafar A. Rizvi -- Chief Executive Officer and President

Thanks everyone. Bye-bye.


[Operator Closing Remarks].

Duration: 21 minutes

Call participants:

Douglas L. Bruggeman -- Vice President-Finance, Chief Financial Officer and Treasurer

Stuart A. Rose -- Executive Chairman of the Board

Zafar A. Rizvi -- Chief Executive Officer and President

Jordan Levy -- Truist Securities -- Analyst

Christopher J. Sakai -- Singular Research -- Analyst

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This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

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