REX American Resources Corp (REX) 2009 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the REX Stores fiscal third quarter results conference call.

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

Afterwards, we'll conduct a question and answer session.

(Operator Instructions) It is now my pleasure to turn the conference over to Mr.

Doug Bruggeman, Chief Financial Officer.

Please go ahead, sir.

Good morning and thank you for joining REX Stores fiscal 2009 third quarter conference call.

We'll get to our presentation and comments momentarily as well as your questions and answers 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 report on Form 10-K and 10-Q.

REX Stores assumes no obligation to publicly update or revise any forward-looking statements.

With that I would like to turn the call over to Stuart Rose, Chairman of the Board and Chief Executive Officer.

Thank you, Doug.

I'd like to thank everyone for listening.

For the quarter our sales -- reported sales -- were $64.4 million versus $39.2 million, up 64.4%.

Pretax income, $4.8 million versus $2.2 million loss from continuing operations.

Profit, $0.24 per share versus a $0.07 loss last year.

During the quarter we bought back 254 -- a little over 254,000 shares.

Biggest part of our turnaround between this year and last year came from the ethanol operations.

All our facilities are now up and operating.

Ethanol profits issued this quarter were $5.8 million versus a loss last year of $2.4 million.

I wanted to go over a little bit of what separates our plans, why we've been able to stay in business while most of the industry has had very, very difficult times.

Biggest thing I think that separates us is we watch our operations very, very carefully.

We have done so since day one.

From the locations of our plant, we chose plants where we felt the corn or sorghum supply was good, where there was good opportunities to market our end product, good rail, good natural gas, then we took it to the next step.

We have in all our plants farmer partners which allows us in most cases to buy directly from the farmers.

We sell, on the plants we control, directly to our end customers.

Watch, like I said, all expenses carefully, and when we do, we try to have as few hedges as possible.

We try to match our buying of the corn with our selling of the ethanol, so we have not taken some of the hedging losses that other people in the industry have taken.

In real estate during the quarter, we've lost our appliance store leases.

They closed up, so we've been actively out marketing our stores.

We have interest in about 10 of the 38 properties.

Hope to be able to announce something in the next quarter.

We did, during this quarter, lease one of our warehouse -- part of one of our warehouses.

That income should start coming in during future quarters.

In terms of retail, we had a profit of approximately $843,000.

The bulk of that is just bringing in extended warranty income that we have deferred over past quarters.

That will flow in for a few more quarters.

On a going forward basis, our ethanol operations, they did very well this quarter.

The margins are expanding now.

They're all operating at capacity or close to capacity.

And they continue to do better.

Again, we're thrilled that that business now looking up.

As I said earlier, a lot of the competition has had problems paying bills, problems with lenders, with their farmers, et cetera.

We've paid every one of our bills on time to every one of our lenders.

Our farmers are delighted with us.

They have not had to deal with the difficulties that farmers in other parts of the country have had with ethanol producers not paying their bills.

We feel going forward our sites, which as I said earlier, are among the best in the industry.

If the industry does well, we'll do better than well.

If the industry does poorly, we'll still do better than the bulk of the industry is our opinion.

Currently on our cash position, we have approximately $75 million in cash on the balance sheet that can be used as we see fit.

We expect to increase that number by first earning.

Some of our plants are now paying dividends to REX.

We also, with the laws related to the tax law change allowing carry-back for five years in the accelerated depreciation that comes from the ethanol plants, expect to pick up some cash from that.

We also expect to pick up cash from future real estate sales.

That number, if we don't use it for anything extraordinary, should only increase from here.

As far as uses of cash, we did just announce another 500,000 share buy back.

Again, we feel our stock at these levels are very attractive for the Company to buy back, and we continue to do so.

We also are looking for more opportunities in ethanol.

Again, we would look for something similar to what we have -- great locations, farmer partners, good DDG marks, et cetera, et cetera, plants that I'd say at this point in time we know as well as anyone in the United States what to look for in an ethanol plant.

We're also looking at other renewable and alternative energy opportunities, and again, we'll see what comes.

We do spend a fair amount of time looking at opportunities.

And again, it would it have to be something we think extremely attractive for us to put our money into it.

Now like to leave the forum open for questions.

(Operator Instructions) And our first question comes from the line of Mike Neary with Neary Asset Management.

Please proceed.

Hi guys, I had a couple of questions.

Thanks Mike.

Can you start reporting the gallons sold, price per gallon, bushels bought and all those in the quarterly press releases, or is that something you don't have the data for?

Most of that information, Mike, will be in the 10-Q when we file the Q, and we hope to file the Q this afternoon or tomorrow.

Just look for it in the Q.

But you do the conference call before that's available, and it would be helpful to have that information so we could ask you about our questions.

Okay, that's fine.

We'll -- I can tell you our average selling price per gallon of ethanol for the quarter was $1.59.

And when I say that I'm speaking about the two plants that we consolidate, incidentally.

And the average cost per bushel of grain for the quarter was $3.63 at those two facilities, and the total gallons of ethanol sold was about 32 million.

Okay.

And do you have the bushels bought?

Tons?

Or number of bushels?

I've got the average -- I've got the bushels ground as being about 12 million bushels ground.

And do you have DDG price and tons?

The tons sold of the DDGs was about 76,000.

Average price about $100 per ton.

We also sell wet.

We sold about 50,000 of that.

Average price, about [$43.50].

Okay.

And I'll keep that in mind for the future Mike.

Appreciate you bringing that to our attention.

Yes, it just makes it easier.

It's helpful to have this now, but I'm still -- it's going to take me a while to plug through these and have some better questions.

It would be helpful to have that before the call.

Is there some -- when you look at the crush margin, or how do you think about what your operating profit from your ethanol facility is going to be when you look at the publicly reported data on the crush spreads?

Do you take some number off of that, or how do you think about tracking the profitability of these plants just on the big picture basis, roughly?

The way I look at it is I look at what we're selling the ethanol for, what we're buying the corn for.

I know what our overhead costs are for running full capacity.

So we have a pretty good idea of what we're making on an ongoing basis if that's what you mean.

We know we have huge advantages over a lot of the plants that are out there in the United States.

We look for a cost advantage everywhere we go.

We have some plants are on high price railways.

We don't feel ours are.

Some plants are on markets that are very tough to sell DDGs.

We don't feel that's the case in our plants.

Some plants are at markets where you can't buy the grain.

We feel we're in very good grain markets.

Some people are locked into middlemen contracts that are very, very tough.

We don't feel we're in anything like that.

I can go on.

We look to have a cost advantage, or at least be at the top tier in every category.

That's what we work hard to do.

So far I would have to -- (inaudible) runs our ethanol operation.

Probably is more involved in all of these areas than virtually any person in the United States.

Mike, we do have the crush spread.

Obviously [I've got the gap] ethanol price versus the corn or in the case of Levelland, primarily use sorghum down there.

That is the primary thing we're looking at.

And obviously we need a better margin in Levelland, which is a 40 million gallon facility, than we do at One Earth, which is a 100 million gallon facility.

We'd like everybody in the industry pretty much to have the crush spread.

What are your overhead or operating costs per gallon, roughly?

That changes.

It's, again, higher at the Levelland plant.

Right now it's a little bit lower because the natural gas prices are down compared to what it was a year ago.

I don't have in that front of me right now, but it's probably -- it definitely is different between the two plants and we take that into account.

Right.

Okay.

And at what rate are you depreciating your plants?

Pretty much over the same life that -- 20 years, I think, for purposes.

Okay.

-- purposes will be different, and we're not exactly sure what that number is right now.

It will be different.

And, that will give us an advantage.

Like I said, because we have earnings in past years we should be able to carry back a lot of that depreciation, turn it into instant cash.

How do you think about that going forward when you look at depreciation, obviously your CapEx is lower than that.

How much lower is it, or -- on a maintenance basis, do you know what those numbers are roughly?

We don't know right now because most of these plants are in their first year of operation, and it's very, very low.

So I don't know.

We're not experienced enough to tell that you.

Okay.

And my last question, for now is, in terms of the cash you generate at your subs and in your investees, how do you think about that?

What do you want to do with that cash?

Is it going to stay there?

Are you going to push it up to corporate REX?

What are your thoughts with cash at the subs?

Again, it will depend on the individual plant.

It's such a pleasure to have that discussion with you.

Because before, it was just struggling to make debt payments.

I know Big River, which has been successful for a number of years, does distribute a large amount of the cash, and we're a fairly -- we're a 10% shareholder of Big River.

And the way they work, it seems to be -- work out very well for everyone.

Should this continue, it's certainly something that I imagine we'll look to -- I'm sure farmers will want distribution, and we certainly will want distribution, so I'm sure that's what's going to happen.

Because your debt is nonrecourse, and it's just --

It's absolutely nonrecourse.

We will pay down debt also where appropriate.

If it's as advantageous.

Okay.

I will go back in the queue.

Thank you very much, and you guys are doing a very good job, thank you.

Mike, also, just as a correction, the depreciation is actually more like 10 to 12 years on most of the fixed assets at the ethanol plants, for book purposes.

Straight line?

Yes.

Okay.

Thank you.

Thanks, Mike.

And our next question comes from the line of Bill Brennan, Private Investor.

Please proceed.

Hello Stuart and Mike.

Congratulations on a great quarter.

Good.

Thank you for being on the line, Bill, good to hear from you.

Looking forward, looks like the profits from ethanol should be pretty easily modeled by looking at the corn ethanol crush, which I think right now is somewhere around $0.75.

And if your operating cost is around $0.25, leaves a $0.50 per gallon gross margin.

And on 140 gallon annual production, that looks to me like around $70 million in annual profits.

I know you can't forecast that, but I'm asking, is the way I'm looking at that right, or are there factors I'm not taking into account?

The one thing you're not taking into account, Bill, is typically as you get later into the season the corn price may fluctuate, depend upon how much is left and how far out you have been able to buy, but typically in the summer months what we experienced last year is that it was a little more difficult to get that crush spread for a whole year, but certainly currently that's about the crush spread.

Keep in mind, crush spread is only one part of the whole situation.

There's the DDG sales.

There's also the cost to operate the plant, the depreciation, labor.

Crush spread is just one part of your margin.

That does not take into account all your expenses.

Okay.

Thank you.

There's transportation costs involved so you don't always get (inaudible) that exact crush spread.

That's like your gross margin.

It's not your bottom line margin.

Excellent.

Okay.

Thank you.

Thanks, Bill.

(Operator Instructions) Our next question comes from the line of Arnold Brief with Goldsmith & Harris.

Please proceed.

Could you update us on the real estate?

How many owned properties are vacant and not sublet, how many owned properties are sublet, and how many leased properties are not let and how many lease properties are sublet and your warehouse situation?

At October 31st we had 38 stores that were completely vacant that we've been working to lease or sublease.

How many of those are owned?

All 38 of those are owned.

None leased?

I think virtually all of our leases, if we do have leases, have been written off at this point in time.

That's correct.

We have a few leases that we're paying out, but once we close the stores we have put a reserve out there for all that lease.

We do have one sublease left -- lease that we're subleasing out at this point.

And then we also had -- at October 31st, we had leases for eight of the properties, and of the 38, we've got what we feel is pretty good leads on about 10 of them.

Either they're under contract or we're negotiating a contract or we've put them under lease.

Warehouses?

Other warehouses.

We've leased out a portion of our warehouse here in Dayton, and they took occupancy November 1st.

Then we've got a substantial part of the warehouse here in Dayton that we have not leased out, as well as Pensacola, Florida that's not leased out or sold.

At this point in time we are actively trying to either sell or lease our properties, whatever we can do.

We're trying to sell it, obviously.

That's our preference.

That's cash immediately into the Company.

What's your total warehouse space again?

About 600,000 square feet, and we've got about 150,000 of that leased out now.

Thank you.

And, gentlemen, there would appear to be no further questions at this time.

Please continue with your presentation or closing remarks.

Great.

Just like to thank everyone, especially the people who have been with us through difficult times.

It's good to be able to report a good quarter, and we think the following quarter, at least at this point in time, things continue to improve.

So appreciate all your support, and thank you very much.

And ladies and gentlemen, that does conclude the conference call for today.

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

Thank you.