REX American Resources Corp (REX) 2009 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to Rex Stores second quarter results conference call.

During the presentation, all participants will be in a listen-only mode.

Afterwards, we will conduct a question-and-answer session.

(Operator Instructions).

As a reminder, this conference is being recorded Wednesday, September 9th, 2009.

Your speakers for today are Mr.

Doug Bruggerman, Chief Financial Officer; and Mr.

Stuart Rose, Chief Executive Officer.

Please go ahead.

Good morning and thank you for joining the Rex Stores fiscal 2009 second quarter conference call.

We'll get to our presentation and comments momentarily as well as a Q&A 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 risk 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 risk 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 Stores assumes no obligation to publicly update or revise any forward-looking statements.

With that I'll turn the call over to Stuart Rose for the presentation.

Thank you, Doug, and welcome everyone.

For the quarter, our sales were $16.8 million versus $24.9 million last year.

Earnings of $1 million versus $1.36 million last year.

Earnings per share, $0.09 versus $0.11 last year.

We purchased over the quarter 125,942 shares and have unrestricted cash at the end of the quarter of approximately $81 million.

During the quarter, we closed all the retail stores, finished closing the retail stores.

That segment generated during this quarter approximately a profit of approximately $2.2 million.

A bulk of that profit was related to reduction in accruals tied to bonuses and fees relating to the appliance direct not taking over all the leases.

Also, the income was tied to service policy income and that income will continue for the next few years as we wind down the policies.

Going forward, we now have 25 vacant warehouse properties -- 25 vacant retail properties to warehouse properties.

We've signed a lease on part of a [Needmore] warehouse property, have interest in many of the other sites and are working diligently to try to get those stores leased.

In the alternative energy side, we lost $551,000 in the quarter but would have had approximately a breakeven quarter except for start-up expenses related to One Earth.

Going forward, margins are expanding and all our plants are currently profitable for this quarter, and we appear to be going in for a good period in that business as a lot of the plants have dropped off or closed production.

With the harvest coming we're very optimistic at the moment on that side of the business.

In terms of how we run that business, different from other people and I think this is important, we try very hard on the plants we control never to get into one sided hedges.

By that I mean if we buy corn we try to match it up as close as possible with selling the ethanol.

So while other people have lost a lot of money on their hedges, we don't go into hedges that are -- or we try not, as best as we can, to go into speculative hedges but go into hedges where both sides of the transaction are taken care of and which in essence allows us to lock in some margin.

Going forward, we have $81 million in unrestricted cash.

We look at the buyback as a great opportunity to use that cash.

Our stock currently sells at approximately even less than one-half of book value.

Ethanol is now profitable.

Real estate, we think will be showing some interest in our stores.

Retail will not be a drag on the Company.

It should actually bring in some profits as the service policies unwind.

So we look at that as a fairly good use of cash and plan to continue to look at buying shares.

We have currently authorized 280,505 shares authorized to buy back.

The second place where we think there's opportunity is in the ethanol business.

There's been lots of bankruptcies.

Most of the public companies have gone bankrupt.

We think that's for two reasons, one, bad hedges, which I mentioned earlier.

Secondly, opening plants that aren't in areas where you can do what we just said, match the corn price with the price of the ethanol.

Either the corn was too high or the price that they could receive for the ethanol too low.

We feel our people know this business as well, if not better than anyone in the country, price of ethanol plants is coming down.

But again, we're not going to make a silly acquisition just because the plant is cheap.

We have to be fairly comfortable that we can buy corn and sell ethanol and make a margin before we pull the trigger on any of these opportunities that are out there today.

Other areas that we're looking at are agricultural related and energy related opportunities.

At the moment, there's nothing out on the horizon in those areas.

At this point, I will leave the conference open to questions.

Doug and I are available to answer your questions.

Thank you.

Thank you.

(Operator Instructions).

And our first question will come from the line of Richard Dearnly from Longport Partners.

Please proceed with your question.

Good morning.

Housekeeping item.

How much did you pay for the stock in the second quarter and the half?

The average price we paid was $10.53 a share.

That was in the quarter?

During the quarter, correct.

Okay.

And in the half?

$9.04.

And then the -- how much were the decreased accruals in the retail business?

And then the folks not taking the leases, how many leases did they not take and why?

The reduction in the restructuring accrual was approximately $1.3 million.

And they did not take 22 owned Rex locations.

Any idea as to why?

I was told that it was just a tough retail economy, and it was more than they could handle at the time.

If we haven't leased those stores they may have interest in the future, but we have to move on and try to lease those stores.

They're definitely in a tough retail environment, and they are doing the best they can, in my opinion, but they probably signed leases for more than they could handle at the time.

And in relation to that is an offset to us getting the stores back, they gave up their option to purchase those stores.

And so we now have the option to sell those stores and actually have -- are working on that and have some possibilities there.

I take it you would rather sell them than re-lease them?

We would go either way.

I don't care which way we go.

I think if -- it depends on which is the best for our shareholders.

We would rather sell them if we could get a good price, but if we can't and we can get a good price leasing them, we'll go either way.

And what was the $1.3 million accrual for that you reversed?

It's related to this transaction.

Bonuses were paid on this transaction and when the transaction didn't get completed, there was a reduction in bonus accruals, both to -- and fees.

It's both bonus accruals and fees related to the person who was involved in the transaction and also employees.

Was that your ex-President?

I don't want to go into individual names but he --

Okay.

I don't want to get into that.

Right.

Okay.

And then what should the service policy revenue be, roughly, going forward a quarter?

Right now --

Or right now, yes.

We're recognizing about $900,000 a month revenue.

And that should tail off over three years?

Yes.

Give or take.

We thought up to five year policies so probably more like four years it will tail off over.

And then in your discussion of -- it was intriguing that you talked about the opportunities in ethanol because of all the Chapter 11s, but then you seem to imply in your next comment that there wasn't anything on the horizon in agriculture and energy.

Does that include ethanol or -- ?

That excludes ethanol.

Excludes or includes.

Excludes.

Oh, okay.

We're actively looking at things in ethanol.

We've looked at things in other areas but are not actively looking at this time.

And last time you talked about looking in the real estate business.

Is that not -- ?

We think at the moment that there's a unique opportunity in ethanol.

I'm not saying we're going to do anything, but plants are owned by banks.

We know what we're doing.

We've proven it.

This quarter, like I said, we're doing -- all our plants now are profitable, doing significantly better even before harvest season.

We hope to even do better once harvest hits and price of corn goes down.

We think that's a place where there is opportunity and again, that does not mean we'll do anything.

But that's where the bulk of our time is spent, looking at other investments at this point in time.

If we do something, we will try to be -- to the best of our abilities, make sure we know good plants, we know bad plants.

Like I said, we think we've done as well as anyone, if not better than anyone in this industry.

and we will look for things where we feel confident that we have the ability to make the spread necessary to turn a good profit and a good return on investment.

Do you think ethanol supply and demand have turned permanently?

I realize that's -

I don't think they necessarily turned permanently.

But I think that the people who made wild bets in this business and were hedging one side are gone, and I think now it's run by much more professional businessmen.

I mean, we made a lot of money in retail.

We took a retail mentality to ethanol, and we watched -- and we're used to running businesses that run on 1% bottom line margin at the end of the year.

That's how we've watched our ethanol.

In the plants we have majority control, we watched them very, very closely.

The person, Zafar Rizvi, who is our CEO or President of our ethanol business, watches almost every trade; the buying and the selling of the corn and the ethanol and matching the two numbers.

And we think that's how it those be run.

It's a tough business and it has to be run professionally and take as much of the risk out of it.

And that's what we're trying to do and I think we're pretty good at it.

Okay.

Thank you.

Thank you very much.

And our next question will come from the line of Arnold Brief with Goldsmith and Harris.

Please proceed with your question.

Good morning.

You mentioned a number of plants have closed.

It's hard for me to follow what plants closed, what plants went bankrupt, but the(multiple speakers) somebody else.

Could you give us some idea of what the capacity in this industry is at this point?

I would have to look that up for you.

I don't know what's the capacity.

There's plenty of plants in my opinion that should never come back online, so we'll see what happens.

I don't know what the current capacity is.

And someone may put them back online and then they're back in the capacity again.

Let me reverse the question again from the demand side.

In theory, if cars are capable of all going to 10% ethanol.

If they did, that would be like 15 billion gallons of ethanol, give or take a little bit.

My understanding that the capacity's under that.

What is --

Capacity's under that every year.

--on the cars.

The mandate every year is also going up where the refiners have to take more and more ethanol each year, if there's less and less capacity.

Theoretically, and this is a tough business, but theoretically, we should be able to increase our spread.

If there's more demand and less capacity booked.

What's the mandate for 2010?

Do you remember?

I don't remember.

It's public, though.

You can pull it up on the Internet.

Have there been any transactions in the industry lately in terms of establishing a value for a gallon of ethanol capacity?

Not on profitable plants.

There's been some bankruptcy transactions, but no one -- The closest thing I can tell you is that Green Plains Energy is a public ethanol Company and they're selling -- moving up very close to book value of their assets.

They're not quite there yet.

But again, our assets are almost in our books at zero.

If you figure what our real estate -- or actually on our books at less than zero, if you look at our cash and our real estate.

Is all your ethanol capacity onstream now?

Yes.

Is that 138 million gallons or do I have that wrong?

It's -- that's approximately right.

We have one where we have an option to buy -- we made a loan and we can convert it and that would increase it a little bit, but you're right, it won't increase it that much.

That's pretty much the number.

And could you summarize where you are in the retail real estate business?

What are your assets and liabilities left at this point?

Retail, we're done with in terms of an operating business.

We're through.

And Doug, do you want to go over what the assets left in retail and real estate are?

Yes.

For the real estate segment, we've identified the assets to be about $35 million.

And that's primarily made up of the locations that we've disclosed.

We've got two distribution centers.

23 stores that you had to take back and the two distribution centers?

Yes.

And the distribution center size is -- we have 180,000 square foot facility in Pensacola, Florida and then in Dayton we have kind of broken down in two different sections.

156,000 square feet, which subsequent to the end of the quarter, we have leased out, and then about 310,000 square feet of additional space here in Dayton that we can attempt to lease out.

We've got about 20 properties leased and the square footage there is about 247,000 square feet.

And then we've got the vacant retail stores and that's about 332,000 square feet.

I don't have what the breakdown is in the asset value, but as I said, in total it's about $35 million, and we have very little debt on the books related to that.

And that transaction where the stores were sold to that other company, you still have some liability there at all in terms of -- ?

Yes, I mean, some of those leases go to January 31st, 2010.

We have at this point fully recognized all of that expense.

And quite honestly we had a deferred gain related to that transaction, so those two pretty much netted themselves out anyhow.

But we have fully accrued that at this point.

Thank you.

Thanks, Arnold.

(Operator Instructions).

We do have a follow-up question from the line of Richard Dearnly with Long Partners.

Please proceed with your question.

The Great Plains selling at book, do you know loosely what -

I'm not sure.

Their price per gallon is?

No, we think price per gallon's a baloney number, honestly.

I don't know why people focus on that, because you can -- we could buy gallons all over the place and if it's priced per gallon but you're located in a market where you can't buy corn reasonably, or you can't sell ethanol at a spread, then those gallons are worth a nickel.

Conversely, if your book -- if you were paying $2.80 a gallon or $2.50 a gallon a couple years ago, your book's baloney too.

I don't argue that point for a second.

And so that's why I think it's -- in the end, it's going to shake out like every other business on earnings.

I don't argue anything you're saying.

The book, if you bought a plant that has -- that cannot make that spread, that book isn't worth anything.

My contention is our plants are good plants in good areas including our partnerships that we don't have majority interest.

And they're all making money at this moment, this quarter that we'll be reporting in a few months.

We're into the quarter.

Hopefully they'll continue the rest of the quarter.

We're very optimistic because they're doing it in a time -- it's not harvest season so a time when historically corn is a little bit higher relative to the board than it is at other times of the year.

But again, your logic is right, a plant that's not in a good area is not worth a whole lot and there's plenty up for sale in bad areas, in our opinion bad areas.

Okay.

Thank you.

Thank you.

I can clarify.

The debt we have against our real estate is about [$30] million.

I'm up here, just a sec.

Mr.

Rose, I will now turn the call back to you.

Please continue with your presentation or closing remarks.

Okay.

Just want to thank everyone for listening.

and again, it's our hope -- we appreciate your patience as shareholders, and it's our hope that things in the ethanol business become more -- we know they'll become more positive.

We hope they'll continue that way.

And just want to thank everyone for being on the call and being shareholders.

Thank you.

Bye.

Ladies and gentlemen, that will conclude our conference call for today.

We thank you for your participation and we ask that you please disconnect your line.

Have a great day everyone.