REX American Resources (NASDAQ:AREC) reported its second most profitable quarter in company history for Q3 2024. The company showed a significant improvement in net income per share and maintained a strong cash position with no bank debt, despite a decrease in average ethanol selling prices.
Key Takeaways
- REX American Resources' Q3 2024 was the second most profitable in its history.
- Net income per share increased by 97% compared to Q2 2024.
- Ethanol sales volume rose by 3% year-over-year, while average selling prices decreased.
- The company ended the quarter with $365.1 million in cash and no bank debt.
Company Performance
REX American Resources demonstrated robust performance in Q3 2024, marking its second most profitable quarter ever. A 97% increase in net income per share compared to the previous quarter highlights the company's operational efficiency and strategic positioning in the ethanol market. The company also reported a slight increase in gross profit compared to the same period last year, despite a notable decline in average ethanol selling prices.
Financial Highlights
- Net income per share: $1.38 (97% increase over Q2 2024)
- Gross profit: $39.7 million (1% increase from Q3 2023)
- Ethanol sales volume: 75.5 million gallons (3% increase from Q3 2023)
- Average ethanol selling price: $1.83 per gallon (down from $2.32 in Q3 2023)
- Cash and cash equivalents: $365.1 million
- Bank debt: Zero
Company Outlook
Looking ahead, REX American Resources is focused on expanding its ethanol production capacity. The company is currently increasing its One Earth Energy facility's capacity from 155 million to 175 million gallons per year, with plans to reach 200 million gallons annually. Additionally, the company is nearing the completion of its carbon capture and compression project, which positions it well for future sustainable aviation fuel and carbon sequestration opportunities. The company is also awaiting EPA Class 6 permit approval, anticipated by July 2025, which is critical for its carbon capture initiatives.
Executive Commentary
Stuart Rose, Executive Chairman, emphasized the company's strong operational foundation, stating, "We have the best plants, great locations, even a great location for a carbon capture project." CEO Zafar Rizvi expressed optimism about the company's growth prospects, saying, "We're excited about the future as we grow organically."
Q&A
During the earnings call, analysts inquired about the potential impact of policy changes on the 45Z tax credits. The company confirmed its commitment to the carbon capture project regardless of policy shifts. Additionally, executives discussed opportunities for cash deployment, including possible share buybacks and acquisitions.
Risks and Challenges
- Fluctuating ethanol prices could impact revenue and profitability.
- Delays in obtaining EPA Class 6 permit approval could affect carbon capture project timelines.
- Changes in tax credit policies could influence financial projections and project feasibility.
- Market competition and technological advancements in sustainable fuels could pose challenges.
- Dependence on corn supply and price volatility could affect input costs and margins.
Full transcript - REX American Resources Corp (REX) Q3 2025:
Conference Operator: Good morning, and welcome to the REX American Resources Third Quarter 2024 Earnings Conference Call. As a reminder, today's call is being recorded. And at this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. I would now like to turn the call over to Mr.
Doug Bruggeman, Chief Financial Officer of REX American. Please go ahead.
Doug Bruggeman, Chief Financial Officer, REX American Resources: Good morning, and thank you for joining REX American Resources Q3 2024 Conference Call. With me on our call today are Stuart Rose, REX Executive Chairman and Zafar Rizvi, the REX CEO. We'll get to our presentation and comments momentarily as well as your questions, but first I will 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 meaning 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 ks and 10 Q. REX American Resources assumes no obligation to publicly update or revise any forward looking statements. I'd now like to turn the call over to our Executive Chairman, Stuart Rose.
Stuart Rose, Executive Chairman, REX American Resources: Good morning and thank you again to everyone for joining us. During the Q3, REX American Resources continued our progress on our three goals for 2024, setting the company up for success well into the future. As a reminder, these goals were to continue profitable operations, to complete the construction phase of our One Earth Energy carbon capture and compression facility and to complete the capacity expansion of our One Earth Energy ethanol production facility to 175,000,000 gallons per year and move toward the planned further permitting of the facility to 200,000,000 gallons per year. To the first goal, we exceeded the mark. The Q3 was REX American Resources' 2nd most profitable quarter in the company's history behind only the Q3 of 2023.
Our net income per share of $1.38 was an improvement of 97% over the Q2 of 2024, principally reflecting better corn pricing. Gross margin improved over the Q3 of 2023 by 1% despite a 21% reduction in product revenue. As we have consistently said, we believe REX's facilities and personnel are among the best in the industry, which they prove quarter after quarter through their attention to detail and awareness of the markets. The focus on lean and efficient operations in our core ethanol business, we believe, will serve as a basis for future increases in profit levels once our One Earth plant expansion is up and running next year. It is this part of the business that has allowed REX to grow substantially debt free, maintain strategic freedom and move forward independently with additive growth projects.
As we always do, I want to say thank you to our team for the efforts this quarter and every day. And the second goal to complete construction, the capture and compression portion of our One Earth Energy CCS project in Gibson City, Illinois. We have substantially realized this goal. I will let Zafar Rizvi, our CEO, discuss the specifics with regard to the remainder of this project later in the call. Our third goal was to complete construction of the One Earth ethanol production capacity expansion to 175,000,000 gallons per year to prepare for further permitting and production levels of 200,000,000 gallons per year.
Right now, we estimate that the facility is on track for completion in the middle of 2025 based upon delays and delivery timelines for certain necessary components. As you can see, our efforts to support near and long term growth moving forward successfully. The current time, the Q4 continues to be profitable, but trails last year's 4th quarter, which was a historically very strong quarter. I'd now like to turn things over to our CEO, Zafar Rizvi, to give further updates on our major projects.
Zafar Rizvi, CEO, REX American Resources: Thank you, Stuart. The expansion of our 1 off NRG ethanol facility to 175,000,000 gallons per year of production is estimated to be complete by the middle of 2025. Currently, the electric interconnection from our local utility is moving ahead and should be complete by Q1 of 2025. The time line for completion of the ethanol production expansion has been extended from our previous target to the middle of 2025 due to delays recently communicated by one of our equipment suppliers for delivery of several necessary components. After completion of the expansion and emission certification, we then expect to begin the planned further permitting of the 1 O Ethanol facility to allow it to produce 200,000,000 gallons per year.
As I have said before, the regulatory steps receiving an additional permit is the only step necessary to allow for the expanded capacity from 175,000,000 to 200,000,000 gallons as no major additional construction or capital spending is expected. The expansion will give REX additional earnings power, allow us to sell more product from our highly efficient consolidated plant in Gibson City. We expect that the expansion will provide even greater benefit to shareholders as well as for our ability to self fund ongoing and future growth projects. As Stuart previously said, the carbon capture and compression portion of our 1 North Energy project in Gibson City, Alunawi is substantially complete. We're excited about reaching these milestones and we are looking forward to other portion of the project.
Just as with the expansion of our ethanol operation at the Vonarth site, further work and testing in the capture and compression facilities are subject to completion of the utility interconnection to supply power to the project. Beyond waiting for power, we continue to wait on several regulatory issues to be resolved. Our permit application for Class 6 injection wells are still under review with anticipated final approval slated for July 2025 according to the EPA. As a result of these challenges and as the capture and compression portion of the project are substantially complete, we plan to manage near term major capital expenditures related to the CCS project in order to maintain budgetary flexibility and stay within project spend in light of the time line for approval. Given the new permitting reality, we are confident that pursuing the several ongoing portion of this project in this way is the right path.
As of quarter end, we have invested approximately $103,000,000 into the One Earth Carbon Capture Project and Ethanol production capacity expansion combined. Spending for the carbon capture and sequestration projects stood at $52,900,000 as of 3rd quarter end, while expenditure on the ethanol expansion stood at $50,200,000 as of the same date. This is compared to total combined budgeted amount of $165,000,000 to $175,000,000 for both the CCS project and ethanol production expansion at Gibson City. I would like to hand the call to our CFO, Doug Bergman to discuss our operational and financial results.
Doug Bruggeman, Chief Financial Officer, REX American Resources: Thanks, Zafar. I'll begin with our operational results. REX's ethanol sales volume during the Q3 2024 were 75,500,000 gallons, an increase of approximately 3% versus Q3 2023 sales volume of 73,200,000 gallons. Average selling price for our consolidated ethanol volume was $1.83 per gallon for the Q3 compared to $2.32 per gallon in the Q3 of 2023. Dry distillers grain sales volume during the Q3 of 2024 totaled 170,116 tons, a 5% decrease over Q3 2023 volumes.
Average selling price for the dry distiller grain was $147.14 per ton for the Q3 2024 compared to $194.94 per ton in the Q3 of 2023. Modified distiller grain sales volumes were 18,392 tons in the Q3 2024 compared with approximately 13,500 tons in the Q3 of 2023. The average selling price for modified distillers grain was $63 per ton for the Q3 versus $85.86 in the prior year Q3. Corn oil sales volume in the Q3 2024 were approximately £23,400,000 compared to £24,100,000 sold in the Q3 of 2023. The average selling price for REX's corn oil products was $0.44 per pound for the Q3 of 2024 compared to $0.61 per pound in the Q3 of 2023.
Gross profit for Q3 2024 was $39,700,000 versus gross profit of $39,300,000 for the Q3 of 2023. The 1% increase in gross profit was achieved despite lower average selling prices for all products, which were more than offset by lower corn and natural gas input prices. Our selling, general and administrative expenses increased to $8,400,000 for the Q3 of 2024 versus $7,600,000 in the Q3 of 2023. The increase was primarily due to railcar leasing cost increases and certain donations to local first responders related to the carbon capture at the One Earth facility. Interest and other income totaled $4,600,000 in the Q3 of 2024 compared with $4,900,000 for the Q3 of 2023.
Prior year amounts included $900,000 of COVID related grants from the USDA. Income before taxes and non controlling interest for the Q3 of 2024 was approximately $39,500,000 compared to $41,300,000 for the Q3 of 2023. Net income attributable to REX shareholders for the Q3 was $24,500,000 compared to $26,100,000 in the Q3 of 2023. On a per share diluted basis for the Q3 of 2024, this amounts to $1.38 per share of net income, the 2nd best results in the history of the company, only exceeded by net income generated in the Q3 of 2023. We ended the Q3 with total cash, cash equivalents and short term investments of $365,100,000 compared with $378,700,000 as of January 31, 2024.
The uses of cash during the 1st 9 months of the fiscal year were primarily related to our ongoing construction projects at the One Earth Energy Facility. REX American also ended the quarter without any bank debt. I'd now like to turn things back to Zafar.
Zafar Rizvi, CEO, REX American Resources: Thanks, Doug. I would now like to discuss how we see the end of the fiscal year shaping up. As Stuart stated earlier, our plants continue to run with positive earnings into the Q4, but not at the level of last year's Q4. Cone input prices have improved compared to year ago and given the bumper crop of corn in the Midwest, we expect adequate supply for our plants for this growing season. As we have mentioned before, we do see a sporadic dynamics for ethanol pricing for the export market.
Ethanol exports through the 1st 9 months of the calendar year were approximately 33% higher than at the same point in calendar 2023 according to the U. S. Energy Information Administration. This level returns U. S.
Export to their pre pandemic levels and puts the U. S. On pace to exceed 2018 export volumes, currently the all time high year for export. Looking ahead to 2025, we are particularly excited about the completion of our ethanol production expansion and the anticipated increase in profitability this will allow for. We will still expect approval of our Class 6 permit from the EPA in the near term and to continue making progress on our CCS facility, which we expect would bring additional profitability once in operation.
Looking further down the road, the projects we are working on today are laying the groundwork for further potential growth into sustainable aviation fuel and third party carbon sequestration. We are excited about the future as we grow organically and are confident in our team's ability to rise to the challenges at every turn. Now I would like to open things up to questions. Operator?
Conference Operator: Thank you. We will now be conducting a question and answer session. Our first question comes from the line of Jordan Levy with Truist. Please proceed with your question.
Jordan Levy, Analyst, Truist: Good morning, all.
Stuart Rose, Executive Chairman, REX American Resources: Hi, Jordan.
Jordan Levy, Analyst, Truist: Congratulations on the solid quarter. I wanted to get your thoughts here. There was just an article I saw from Reuters that was saying the Biden administration won't finalize 45z patents ahead of the January inauguration. So I I get your thinking as it relates to the growth initiatives on the expansion and on the CCUS effort, should the incoming administration fail to finalize 45s a year, just let it kind of slip to the side? How does this all look under 45z?
And how do you think about that more broadly?
Stuart Rose, Executive Chairman, REX American Resources: My opinion this is Stuart. I'll answer first and Sephar can follow-up. But if we also believe they won't finalize 45 by the end of the term. And we don't know what the Trump administration will do. We don't know their feelings on 45 period Q or Z.
And so we remain wary of what they will do. We don't know. And in reality, it's going to be really hard to get 45 without any regulations and without an EPA permit. Right now, it's going to be really hard for us to benefit in the next 2 years from 45. So hopefully we can benefit at least get 1 year 45z, but it's going to be very difficult right now because they have not finalized the regulations and we don't know what the new Trump administration is going to do.
So far?
Zafar Rizvi, CEO, REX American Resources: Yes. I think the only hope Jordan I see because in Midwest is basically the farmers and corn growers and there's a lot of support we see from farmers and corn growers because they are also looking for to see how they can benefit from 45G as crops which they plan to have use different method and no tail and other fab and they can get also benefit from 45 z. So we certainly see some support from all these states and hopefully that will make some difference when Trump administration will take over and able to convince that. But on the other hand, the period is very short. That was only 2025 to 2027.
And we see some movement to extend that period to 12 years. But at this time, we have no really solid knowledge what exactly going to happen.
Stuart Rose, Executive Chairman, REX American Resources: One other thing, Jordan, at this time, 45Q is in effect and that's cut and dry at $85 a ton. That has passed legislatively. So if we don't get 45Q, it's either way the law is written today, we would get 45Q, which is $85 a ton, which would still make our project very profitable, as long as I keep that.
Zafar Rizvi, CEO, REX American Resources: Yes. And I think I add to that is, as you know, Jordan, that you have to be servicing by 2,032. And so we have enough time 34 actually, 2,034. So we have enough time to really to be in service before we able time expire. But 45Z was only 3 years, so that's the difference between 45Q and 45.3 that we can take advantage of 45Q.
Jordan Levy, Analyst, Truist: Got it. And then you all have always been very prudent allocators of capital. Stuart, so far looking at the incoming whatever you expect for the incoming policy landscape and recognizing that you've got a significant amount of cash on the balance sheet right now that saw a nice uptick from last quarter. If you look at the areas of opportunity for you all in terms of deploying that cash, I think you noted managing costs on the CCUS side of things as you figure out kind of what things look like. But where do you see the most attractive opportunities for allocating the cash at this point?
Stuart Rose, Executive Chairman, REX American Resources: Well, one thing we've always done, Jordan, as you know, when the stock drops, if the stock ever drops significantly, we are keen to buybacks. We bought back probably more shares percentage wise than any other company I know. So that's one thing. The other thing is, we always are looking for opportunities, whether it's new ethanol plants. There are a few that we're looking at, but that doesn't mean anything when they're in the very, very preliminary stages and who knows if anything will happen.
Generally, today, the prices people want is way above what we're willing to pay. So that's an issue. But that's always an opportunity. And thirdly, we're not afraid to go into other things that are related either related or sometimes even unrelated to our business that we think our management skills will work with. We haven't done that in a while, but as you know, we were retailers at one time and now we're ethanol producers.
So we're very good at if we have if it comes to that of looking if we see great opportunities of jumping on those if they become available.
Jordan Levy, Analyst, Truist: Got it. I'll take the rest offline. Thank you all for the time.
Stuart Rose, Executive Chairman, REX American Resources: Thank you, Jordan.
Conference Operator: Our next question comes from the line of Pavel Molchanov with Raymond (NS:RYMD) James. Please proceed with your question. Yes, Pavel. Thanks for taking
Pavel Molchanov, Analyst, Raymond James: the question. Following up on discussion you just had about kind of future federal policy, it's probably going to be 3 months, 6 months before Congress moves forward with tax reform, which may well include some changes to the Inflation Reduction Act, for example, Section 45Q. Are you going to postpone any kind of decisions on the carbon capture project until you get clarity that 45Q will remain in place?
Stuart Rose, Executive Chairman, REX American Resources: At this point in time, Pavel, we don't 45Q goes away. This is only my what I would and again, this is not a Board of Directors decision that Stuart Rose is talking. But I as far we would continue on. We would continue on with carbon capture because we'll get a greater if no one else is doing carbon capture, we're doing it. We'll get a much greater price for I believe we'll get a much greater price for ethanol and I believe there'll still be a market to sell our credits to companies that want to become carbon neutral.
So I don't think that we would end our project if there was and we don't at this point in time, we don't expect them to end 45, but anything is possible with the Trump administration. We're well aware of that. But my personal opinion and it's only my personal opinion would be we would continue on with the project. And I think it would still be a good project. We wouldn't get government help.
But there's definitely a market for low carbon jet fuel and I can go on and on California, a few places. There's a good market for low carbon ethanol and we would be one of the few producers. So my personal opinion would be to continue on with that. Doctor. Bart, do you want to add anything?
Zafar Rizvi, CEO, REX American Resources: Yes. I think I will add to that. If you remember, we started this project in 2018. At that time, there was no Inflation Reduction Act was there. And it was approximately $50 was tax credit and that tax credit was also gone through Trump administration during that.
So I don't really see that there's going to be a major changes to 45Q. And also you are aware of that several other facilities are already working on this 45Q Carbon Square (NYSE:SQ) Station, including the project for $7,000,000,000 to $8,000,000,000 watt for the carbon pipeline. So these people have invested a lot of money on these projects and certain changes will probably will not be implemented because these projects is already in pipeline. And changes can happen, but I personally don't anticipate that there's going to be any changes in 45Q.
Pavel Molchanov, Analyst, Raymond James: Okay. Maybe a follow-up on the ethanol front. You have a long history of operating ethanol plants, including of course under Trump's first term. Can you just give some historical perspective on how the EPA went about setting the blending mandates between kind of 2017 2021 and how you managed around that?
Stuart Rose, Executive Chairman, REX American Resources: At that time, Pavel, I believe it was legislatively set and there was a number of gallons that were that in the law that were the RFS required. Nowadays, I believe that the EPA can set that level wherever they want. And that could be an issue going forward. We don't know. But they again, if they set it at a lower level, that could be a problem.
If they say if he really wants to be energy independent like he claims, they could set it at a higher level. We have no idea what they're going to do. But they I believe today have the ability to set it at whatever level they choose.
Pavel Molchanov, Analyst, Raymond James: Okay, understood. Thank you, guys.
Stuart Rose, Executive Chairman, REX American Resources: Thank you, Pavel.
Conference Operator: Thank you. We have no further questions at this time. I would like to turn the floor back over to management for closing comments.
Stuart Rose, Executive Chairman, REX American Resources: Just wanted to thank everyone for listening. I want to again, we had another very good quarter outperforming most if not all of the industry. We have the best plants, great locations, even a great location for a carbon capture project, which we hope to implement sometime in the next couple of years, hopefully sooner than that. Most importantly, we feel and we really feel we have the best people in the industry and that's what sets us apart. And again, with the best people, with our CEO, I consider the best in the industry.
I think most other people do too. We're well set up for the future. Thank you very much for listening to the call. Bye.
Conference Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.
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