REX American Resources Corporation (REX) is a prominent player in the ethanol production industry, with a track record of delivering consistent financial performance and pioneering sustainable solutions. As the world grapples with the challenges of climate change and the evolving energy landscape, REX has emerged as a key contributor in the transition towards a greener future.

Company Background

Founded in 1980 as a Delaware corporation, REX American Resources has steadily grown its presence in the ethanol market, leveraging its expertise and innovative approach to become a leading producer of this renewable fuel. The company’s commitment to operational excellence and financial discipline has enabled it to weather industry fluctuations and maintain a strong competitive position. REX has been publicly traded on the New York Stock Exchange since 1988 under the ticker symbol “REX”.

Operations and Strategy

Currently, REX has interests in six ethanol production facilities, which collectively have a production capacity of approximately 730 million gallons per year. The company’s ethanol business represents its sole operating segment as of 2023, reflecting its focused strategy in the renewable fuel industry. REX’s financial profile demonstrates its operational resilience and ability to generate consistent results, with the company reporting positive net income for 16 consecutive fiscal quarters through the second quarter of fiscal year 2024.

To manage the risks associated with the volatility of commodity prices, particularly for corn, ethanol, distillers grains, distillers corn oil, and natural gas, REX has implemented strategic measures. The company utilizes forward fixed-price purchase and fixed-price sale contracts, as well as exchange-traded commodity futures contracts, to mitigate the impact of price fluctuations on its operating results and profit margins.

In 2017, REX expanded its operations by acquiring an entity that owned a refined coal facility. The company began operating this facility immediately after the acquisition. However, when the plant was no longer eligible to receive federal production tax credits beginning in 2021, REX ceased operations at that location, demonstrating its adaptability to changing market conditions and regulatory environments.

REX’s strategy of emphasizing profitability over production volumes has enabled it to generate strong financial results and position itself well for the future. This approach has allowed the company to invest in growth initiatives such as carbon capture and sequestration projects and ethanol plant expansions, further solidifying its commitment to sustainability and long-term growth.

Financials

REX’s financial profile reflects its operational resilience and ability to generate consistent results. Over the past three fiscal years, the company has reported annual net income ranging from $27.7 million to $60.9 million, with revenue fluctuating between $855.0 million and $833.4 million. Additionally, REX has demonstrated strong cash flow generation, with annual operating cash flow of $54.8 million to $127.9 million and free cash flow of $39.2 million to $90.3 million.

In the most recent fiscal year (2023), REX reported revenue of $833.38 million, net income of $60.94 million, operating cash flow of $127.97 million, and free cash flow of $90.31 million. For the most recent quarter (Q2 2024), the company reported revenue of $148.16 million, net income of $12.38 million, operating cash flow of $5.71 million, and free cash flow of -$7.42 million. Year-over-year, revenue decreased by 30% due to lower selling prices and volumes, while net income increased by 37% due to lower input costs.

REX’s gross profit for the second quarter of fiscal year 2024 increased approximately $1.4 million compared to the prior year period, representing a 37% improvement over the first quarter and nearly 8% over the second quarter of 2023. Net income per share improved more than 20% over the first quarter of 2024 and more than 35% over the second quarter of 2023.

Liquidity and Capital Structure

The company’s balance sheet further underscores its financial strength, with a current ratio of 6.8 to 8.1 over the same period, indicating a robust liquidity position. REX’s debt levels have remained low, with a debt-to-equity ratio ranging from 0.006 to 0.030, showcasing its prudent capital management approach.

As of the most recent reporting period, REX’s liquidity position remains strong, with a debt-to-equity ratio of 0.006, cash and short-term investments of $346 million, and no outstanding debt. The company’s current ratio stands at 8.07, and its quick ratio is 7.51, further demonstrating its solid financial footing.

Production Facilities and Capacity

REX’s ethanol production facilities, located in Illinois, South Dakota, and Iowa, have a combined annual capacity of approximately 730 million gallons. The company’s diversified asset base and operational expertise have enabled it to maintain a consistent market presence and navigate industry challenges effectively.

At present, REX has investments in three ethanol limited liability companies, with majority ownership interests in two of them. The company’s ethanol plants produce approximately 2.9 gallons of denatured ethanol per bushel of corn processed, referred to as the realized yield. The difference between the price per gallon of ethanol and the price per bushel of corn, divided by the realized yield, is known as the crush spread, which is a key indicator of profitability in the ethanol industry.

Sustainability Initiatives and Growth Projects

In recent years, REX has made strategic investments to enhance its sustainability and position itself for long-term growth. The company’s carbon capture and sequestration (CCS) project at its One Earth Energy facility in Gibson City, Illinois, is a prime example of its commitment to reducing its environmental impact. This initiative, which is currently in the development stage, aims to capture and store the facility’s carbon dioxide emissions, further improving the overall carbon footprint of REX’s ethanol production.

REX has drilled a test well, performed three-dimensional seismic testing, and obtained geological modeling to support the CCS project. The company has applied for a Class VI injection well permit from the EPA and is working to secure the necessary approvals and permits.

Moreover, REX has undertaken capacity expansion projects at its existing ethanol plants, with plans to increase production at the One Earth Energy facility from 150 million gallons per year to 175 million gallons per year in the first quarter of fiscal year 2025, and potentially to 200 million gallons per year thereafter. These investments reflect the company’s strategic focus on enhancing its operational efficiency and meeting the growing demand for renewable fuels.

The company is also working to identify ways to reduce the plant’s carbon intensity score to maximize tax credits available under the Inflation Reduction Act. REX expects the total cost of the carbon sequestration project and plant expansion to be approximately $165 million to $175 million, which it plans to fund from its available cash. As of July 31, 2024, the company has spent $49.1 million on the carbon sequestration project and $41.7 million on the plant expansion and CI scoring reduction efforts, with additional contractual commitments of $5.3 million and $12.5 million, respectively.

Market Performance and Future Outlook

REX’s strong financial performance, prudent capital management, and sustainability-focused initiatives have not gone unnoticed by the market. The company’s shares have traded on the New York Stock Exchange (NYSE: REX) since 1988, and its stock has consistently demonstrated its resilience, outperforming the broader market in recent years.

Despite the challenges posed by the COVID-19 pandemic and ongoing geopolitical tensions, REX has navigated the evolving industry landscape with agility and foresight. The company’s commitment to operational excellence, financial discipline, and environmental sustainability has positioned it as a key player in the ethanol industry, poised to capitalize on the growing demand for renewable fuels.

For the third quarter of 2024, REX expects to see results that exceed those of the second quarter of 2024. The company is anticipating a robust harvest and continued favorable corn input pricing, which should contribute positively to its financial performance.

As the world continues to grapple with the pressing issues of climate change and energy security, companies like REX American Resources stand out as beacons of innovation and leadership. With its proven track record, strategic investments, and unwavering focus on sustainability, REX is well-equipped to continue its journey as a sustainable ethanol leader, contributing to a more environmentally responsible future.

The ethanol industry has seen volatility in commodity prices, particularly for corn and ethanol, which can impact margins. However, REX has been able to maintain profitability through this environment. The Renewable Fuel Standard (RFS) program has provided support for the ethanol industry, though there has been uncertainty around the implementation of the program in recent years. Despite these challenges, REX’s focus on operational efficiency, cost management, and strategic investments in carbon capture and capacity expansion position the company well for continued success in the evolving renewable energy landscape.

Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.