REX American Resources Corporation (NYSE:REX) is a diversified energy company with a strong focus on ethanol production and carbon sequestration. The company has a long history of delivering consistent profitability, with annual net income of $60.9 million, annual revenue of $833.4 million, annual operating cash flow of $128.0 million, and annual free cash flow of $90.3 million in its most recent fiscal year.
Business Overview
REX American operates in the ethanol and by-products segment, with equity investments in three ethanol limited liability companies, two of which are majority-owned. The company's ethanol operations are highly dependent on commodity prices, especially for corn, ethanol, distillers grains, distillers corn oil, and natural gas. To manage the volatility in these markets, REX utilizes forward fixed-price purchase and sale contracts, as well as exchange-traded commodity futures contracts.In addition to its core ethanol business, REX is currently in the developmental stage of a carbon sequestration project near its One Earth Energy ethanol plant in Gibson City, Illinois. The company has made significant progress on this project, including securing subsurface easements, applying for a Class VI injection well permit, and constructing a facility to capture, dehydrate, and compress carbon dioxide from the One Earth Energy plant. REX expects to complete construction of the capture and compression facility by July 2024, at which point testing of the facility could commence.
Operational Highlights
In the first quarter of fiscal year 2024, REX's ethanol sales volume increased by approximately 4% to 74.5 million gallons, compared to 71.5 million gallons in the prior-year period. The average selling price for the company's consolidated ethanol volumes was $1.60 per gallon during the quarter. Dry distillers grain sales volume totaled 163,500 tons, a slight increase over the first quarter of 2023, with an average selling price of $187.64 per ton. Modified distillers grain sales volumes were 14,500 tons, up from 12,000 tons in the prior-year period, with an average selling price of $82.52 per ton. Corn oil sales volume was approximately 21 million pounds, compared to 20.6 million pounds in the first quarter of 2023, with an average selling price of $0.47 per pound.Financial Performance
REX's financial performance in the first quarter of fiscal year 2024 was strong, with gross profit increasing by 42% to $14.5 million, compared to $10.2 million in the prior-year period. This improvement was achieved despite lower average selling prices for all of the company's products, which were offset by lower corn and natural gas input prices.Selling, general, and administrative expenses increased to $6.1 million in the first quarter of 2024, up from $5.8 million in the prior-year period, primarily due to higher incentive compensation related to the company's improved performance. Interest and other income totaled $5.9 million in the first quarter of 2024, compared to $2.8 million in the first quarter of 2023, reflecting better earnings on the company's cash and short-term investments, as well as $1.2 million of patronage income at the NuGen facility.
Income before taxes and noncontrolling interest for the first quarter of 2024 was approximately $16.0 million, an increase of more than 83% over the first quarter of 2023. Net income attributable to REX shareholders for the first quarter was $10.2 million, or $0.58 per diluted share, compared to $5.2 million, or $0.30 per diluted share, in the first quarter of 2023.
Liquidity
REX ended the first quarter of fiscal year 2024 with total cash, cash equivalents, and short-term investments of $351.8 million. The company remains debt-free, with no bank debt outstanding. REX plans to spend $85 million to $110 million on its various projects during the remainder of fiscal year 2024, which it expects to fund from its available cash.Outlook and Growth Initiatives
Looking ahead, REX expects to see positive margins and earnings in the second quarter of fiscal year 2024, although the company anticipates some impact from planned plant maintenance at its NuGen and One Earth Energy facilities, which will affect production and increase associated expenses.The company's key priorities for the remainder of the year include continuing its streak of profitable operations, completing the construction of the One Earth Energy carbon capture and compression facility, and finalizing the capacity expansion of the One Earth Energy ethanol production facility to 175 million gallons per year, with plans to further expand to 200 million gallons per year.
Risks and Challenges
As with any energy company, REX faces risks related to the volatility of commodity prices, particularly for corn, ethanol, distillers grains, distillers corn oil, and natural gas. The company's ability to manage these risks through its hedging and contracting strategies will be crucial to its continued success.Additionally, the company's carbon sequestration project faces regulatory and permitting challenges, as it must navigate the approval process with various government agencies, including the EPA and the Illinois Commerce Commission. Delays in obtaining the necessary approvals could impact the project's timeline and cost.