REX American Resources Corp (REX) 2010 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Rex fiscal 2010 first quarter results conference call.

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

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

(Operator Instructions).

I would now like to turn the conference over to Mr.

Doug Bruggerman, Chief Financial Officer.

Please go ahead, Mr.

Bruggerman.

Good morning and thank you for joining Rex Stores Corporation first quarter 2010 conference call.

We will get to our presentation and comments momentarily as well as a question-and-answer session.

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 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 risks and uncertainties associated with the forward-looking statements are described in today's news announcement, and in the Company's filing 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.

I would now like to turn the call over to Stuart Rose, Chairman of the Board.

Thank you, Doug, and thank you everyone for listening.

In terms of the quarter, in terms of reported sales of continuing operations, $71.3 million versus $14.2 million, the bulk of the difference coming from the opening of additional plants.

Net income, or a additional plant.

Net income for the quarter $3.5 million versus a $1.1 million loss last year from continuing operations.

Earnings per share on continuing operations, $0.36 versus $0.11.

Income from discontinued operations which is the bulk is related to closed stores, $757,000 versus a loss of $674,000.

Total profit was $4,188,000 this year versus a loss last year of $730 -- excuse me, $1,731,000.

Earnings per share for the quarter were $0.42 versus a loss last year of $0.19.

During the quarter, one of the biggest benefits we had was our One Earth facility which is now at full production.

We also had improving crush spreads this quarter over last quarter.

Going forward, we have an interest right now in six plants, total production of roughly 532 million-gallons.

All plants, have the benefit of being Fagen or ICM build.

We are in good ethanol markets from a sales standpoint, good rail markets, good DDG markets and cutting the price of natural gas has been to our benefit.

Again this was all by design.

We are still dependent on crush spreads going forward.

We are still, as a Company, profitable, Levelland is our only plant that is having any or that's having difficulties right now.

And those difficulties are basically related to being a sorghum market plant that in sorghum markets, it is a little bit tougher to access supply at the right prices when it is not harvest season.

During harvest season we actually get really good pricing but this time of year it has been a little bit of a challenge for our people.

We are also going forward asking our shareholders to change the name, we hope to be next conference call Rex American Resources, and the Company still has over $85 million in discretionary cash which we hope to put to use, and there's a number of ways we think are possibilities.

First is we have looked and continue to look for more ethanol opportunities, preferably farmer owned plants, we also think there's a possibility of maybe expanding one of our plants, the One Earth facility, and doing a little more production out of that which of course will be a nice return based on today's pricing, we also continue to buy back shares and with book value over $25 a share, the bulk of our book value being the ethanol operations, which as you can see are doing, doing quite well, and cash we think that that is probably an excellent use of the cash is to continue to look at possibly buying back shares.

We like to do that on the depths.

We are also looking for other alternative energy and industrial opportunities.

We feel we have great abilities both in controlling costs, and building plants, whatever the industry is.

And we also know we can run and control our costs and have always done that in every business we have ever been in, and sort of our coin to fame is that we do watch everything very closely.

And so if there's opportunities that fit our abilities, that's a possible use of our cash.

Now, I would like to leave the agenda open for questions if anyone has any questions about the quarter or going forward.

Thank you.

I would like to offer a clarification, the crush spread was an improvement over the prior year first quarter, crush spread not over the fourth quarter crush spread.

That's correct.

And it's also, in talking about crush spreads that was related to the number that are out there now.

If anyone wants to know how crush spreads are going, they are, they are back to for the industry, challenging but again we feel we have some of the best plants in the industry with the exception of crush spreads being extremely tough in Levelland.

We think overall, our plants are doing quite well relative to virtually anyone in the industry in Levelland and of overall production, we own a little over 50% that only 40 million gallons of land and that one is challenged by the current crush spread.

Now, I'll now leave it open for questions.

Absolutely.

Thank you, ladies and gentlemen, (Operator Instructions).

One moment please for the first question.

And the first question comes from the line of Paul Resnick with Olympia Capital.

Please go ahead.

Good morning.

Excellent quarter.

Thank you, Paul.

What were the number of bushels per gallon you are currently averaging at your investments?

The One Earth plant is running right at about the -- it is about a 2.75 conversion.

Yes.

2.7 to 2.9.

Between 2.6 and 2.9, okay.

With regard to the distiller grains, I don't know whether it is because the export market is helping firm up the dry distiller grain, but it seems the relative pricing of wet versus dry has wet has become, has been weaker than dry distiller grain prices, and is that a valid characterization?

I would -- it depends on the market, and it depends on the time it changes.

So it depends -- you are correct about the export market but some plants aren't able to export and wet might still be, be more advantageous.

So it is a case by case situation, but you are right, there is, that extra demand in general from export helps the whole industry and helps us in particular in some of our eastern plants.

During the quarter, it looks like your average ethanol price is slightly higher than the average CDOT price, and your average corn price was slightly lower than the average CDOT price.

Do you -- is that generally in relationship, that seems sustainable or would you simply say looking forward?

All I can tell you is we fight everyday who runs this operation personally fights everyday on both sides of that equation.

That's what make this is a better operation, we feel, than the other, than our r competitors in the industry.

Senior management is actually in there fighting to get the highest ethanol price and get the lowest corn price we can possibly find.

And our former partners have helped a lot on the corn side and on the ethanol side, our locations have helped a lot.

So, again we think we have done everything right in this industry, based on the best of our abilities.

We are in there fighting, senior management is in there, on the plants we control, watching it and fighting everyday, to get the best crush spread we can.

I have got two more questions and then I will.

Sure, sure.

Get off.

Is there any coordination between the plants we do center on every -- and we are on risk management committees and yes we do.

We had an infection in one plant.

We went to one of our other plants to figure out what to do about it.

In terms of the sales of the purchase of the corn and the seas of the ethanol, it is a, every plant is has different economic, some of them have different railroads, some of them have different competition for the corner of the assortment, exam plant basis.

And lastly, in the current environment, where the spreads have narrowed, do you sense that's possibly affecting the, your possible acquisition costs?

Our spreads have narrowed so it is our job to do the best we can on both sides of the equation to buy --

-- when I talk acquisition I am talking about the potential sellers of plants to you.

I am sorry.

I misunderstood.

No, I -- that's fine.

I apologize.

Yeah, we have looked at a lot of plants and we have -- we don't have any -- we don't have anything we can announce today but we are lobbing and we have not found any significant erosion that may come but again we buy a plant, we know what to look for, know what type of plant we want and it has to have corn pricing, the way we want it, but natural gas availability and so forth, and those plants we are not looking for the distressed properties.

We are looking for good plants.

Very good.

Thank you very much.

And on distressed properties the price has come down, but our feeling is distressed properties will stay distressed properties.

Okay.

Thank you.

Very good.

Our next question comes from Bill Jones with Cingular Research.

Please proceed with your question, Mr.

Jones.

Thank you.

Great quarter guys.

How are you doing?

The numbers look good.

Obviously, the crush spread if I am doing the numbers, if I am doing the math is by $0.42 the realized crush spread.

Yeah, that's using a 2.8 conversion, yep.

That's a little better than I was modeling based on the public numbers maybe by which were $0.39, in light of some of the issue the level end it is notable that you were still able to do better than the published numbers.

Does that mean that there's more upside considering when you get those issues straight at Levelynn?

Levelynn is not a hard issue to get straight.

We just have to buy more corn, more corn at the harvest and not count on it being there all year round because it is just not.

So, I think once we get into the Levelynn harvest we can straighten that plant out, not that it is a significant like I said our interest is 20 million-gallons 25 million gallons out of the whole if we can do better there.

Great.

Great.

The production there, not sure if you gave it based on the numbers here is about 34.4, is that right?

Yeah.

For these two plants, yeah.

Could you tell us the price of the shares repurchased during the quarter?

About $15 a share.

Okay.

And I didn't hear you say anything about any sales of real estate; is that correct?

Subsequent to the end of the first quarter we did sell one piece of real estate and then there was another property, that we have sold, but we took a note on that.

So, we still have exposure to that property.

Great.

Great.

Again, I think that is about all of my question, but again congratulations, and I look forward to looking at the 10-K in more detail.

Thanks.

Thank you.

When do you expect, when will that be out?

We expect to file that some time next week, Bill.

Okay.

Great.

Thank you, gentlemen.

Our next question comes from Carter Driscoll with Capstone Investments.

Please proceed with your question.

Good morning, gentlemen.

The first question just elaborating a little bit on Bill's question about the real estate aspect, what -- has the criteria changed in the way you look at disposing of those properties given it looks like continued weakness on the real estate side especially on commercial industry and rates still hovering at distressed levels, you know, at what point do you maybe modify your expectations for disposing some of those assets?

We continue to have -- I wouldn't say great interest.

We continue the interest in our properties, and we have modified it somewhat and we are probably going to push harder on the lease side from the selling side because it is such a rough commercial real estate environment.

In these small towns and they will take care of themselves gradually.

If you look through our history, we know real estate very well and we have made money consistently, there's no reason just to dump these properties, they're good properties and we will get hopefully each quarter be able to say we have done a few of these and there aren't that many left, may take a couple of years, but so what we have plenty of cash and why giver it away.

It is not like we are running out of cash tomorrow.

Right.

But do you see it more favorably, I mean you see that ownership versus running spread coming down.

So leases are becoming more attractive or is that a better way to modify it?

Right now, we will do either one.

I think there's a better possibility at this point in time of leasing some of these and selling very difficult.

We made a couple of very good sales last year, but they're tough and few and far between this year.

Okay.

Then just moving over to expanding on the discussion you had about use of our discretionary cash, let's start with the first, the most obvious looking further ethanol opportunities, can you qualify or characterize what you look for in a facility?

Obviously, some of it is a turn around in the operation that you specialize in.

Was there something particular that you had rather have,.

We look for a good corn supply is number one.

A good ethanol market, in other words we need to take fairly, fairly high prices, and relative to the industry.

A good rail with getting good ethanol prices.

GDD market is good important and natural gas is important.

So we look at all of those.

And in our case, we much, much prefer farmer partners, to work well with the farmers and their local.

They're making money on the plant, it is great for our corn supply and corn pricing.

What about do you have a specific IRR in line when you look at acquisition opportunity?

Return on investment, somewhere in the 25%.

25%.

Okay.

Wow.

In ethanol I can say that all day long and I think you understand the business pretty well.

It is a commodity business, what you model out comes, it is always either way more or way less, just so you know that.

Okay.

How about the expansion of capacity with facilities?

Can you identify --

The only one that we control that we wouldn't consider it is Levelynn the only one we control is One Earth and there may be a chance to expand, it has been a great facility from day one, exam there's a Millionaire quality thing and other issues in expanding and adding a little capacity.

But we are there's a possibility.

So there are some permitting issues in term of adding capacity.

Yes.

From the --

Might be able to add a little bit without.

Okay.

And what is that environment like?

I mean a lot of other alt energy really complains about the permitting process and geothermal or solar, it's really difficult to get through that regulatory burden these days.

Have you seen any changes in either direction over the past several months?

We haven't been in the permitting today, we haven't gone for a permit yet so I can't answer that question.

Great problems with permitting, and our plant have been state of the art and haven't really had hard times getting permits.

Up until now.

Then maybe just lastly, some of the other alternative energy opportunities, can you elaborate a little bit about what types of --

I'd rather not at this point.

Okay.

We are looking at a lot of things.

Would it at least be fair to say a similar type of fuel production --

It would be fair to say that looked at it in plants,.

Okay.

Thank you very much for your time, gentlemen.

Our next question comes from Richard Dearnly with Longport Partners.

Please proceed with your question.

Good morning.

I have a couple.

The increase in equity method, the income of $2 million, was that related to the patriot and other patriot big river.

And big river plant.

Yes, that's correct.

Okay.

So, their income went up $2 million-quarter to quarter?

Yeah.

I mean if you look at compared to last year, yes that's correct.

No, I was just comparing to the change on the balance sheet quarter to quarter.

Which would suggest that --

The change in the balance sheet is the income that was recognized less than any dividends we received back from them.

Okay.

That's a net worth increase.

Okay.

And you mentioned the use -- one use of cashing being repurchasing on dib, I take it the prices -- the stock prices in the fourth quarter didn't constitute enough dip for the effects?

We just went by on dips and we had a dip unfortunately with the last couple of days.

More in the market at that time.

But we buy, historically we have bought on dips.

That's -- and we had a petty good quarter stock price wise.

Thanks.

Was the, in the quarter, the little increase, was a big percent the corporate expense from the fourth to the first of $500,000 to $770,000, is that a, a permanent condition?

Yes, I think the number you see now is probably more than go forward type of number.

We had some additional professional fees within the quarter and then just probably some classifications.

I think the number you see in the first quarter is probably a reasonable expectation going forward.

Okay.

The 25% ROI goal you mentioned.

Is that equity or on ethanol?

On equity.

minimum is what we would hope and again I caution you in the ethanol business, it is through -- It is what it is.

Let's just leave it at that.

What do you think the chances of earning those kinds of returns are on your current equity?

Well, it is -- if we can invest the rest of our money, and then it becomes a much greater chance.

Right now we have our $85 million invested in less than 1 --less than I think even less than half of 1%.

That makes it really tough.

But earning that on the equity we have invested in our, in our, in our ethanol plants, again, that's going to depend on crush spreads, but we are doing -- we are doing relative to industry extremely well and we will see what happens, crush spreads get up to where they were fourth quarter of last year, we will do, we will easily do it.

So we will see.

Well, the fourth quarter of last year was a peak number for a considerable period.

Again even this year, even during the fourth quarter of this year which was not any peak on a pretax basis, we are not that far off of that number.

Have you ever thought about just paying a one-time distribution?

We -- again, that's, it is another I don't know if we pay distribution but that goes in the buy back the we look at on the buy back of shares which is probably anyway, it is something that people have brought up from time to time and it would be a decision, not something we would comment on.

Okay.

Thank you.

Sure.

(Operator Instructions).

Our next question comes from Mike Neary with Neary Asset Management.

Please proceed.

Hi guys, I had a couple of questions, Doug, do you have the number of bushels used in the quarter?

I don't have that at any fingertips, but as I said though, I think earlier I said 2.75.

t was closer to 2.8.

Come up with the ethanol gallons and do the math.

But the conversion there was about 2 between 2.75 to 2.8.

That's the biggest point we consolidated.

In Levelynn, what's the conversion roughly 2.5?

It is better than 2.5, but their conversion hasn't been as strong as warners has been, and I -- I don't have that right now either.

Deferred taxes, what's the status on those and did we get a refund in the quarter?

We did receive a refund from 139 return and expecting to get a return on the 131 return which we will file that in the fall, and if we continue with profitability, deferred tax assets will take care of themselves over time.

Right.

Do you know we got in the quarter and what you expect to get from those fisslings in the fall?

The tax that we got back in the first quarter, I think it was between $4.5 million and to $5 million.

We expect to get on the 13110 is about $7 million to $8 million.

Okay.

And what was the depreciation in CapEx in the quarter?

Depreciation$3.7 million.

CapEx $632,000.

Can you give some type of a guess for CapEx if we did expand One Earth, what type of level are we talking about potentially for CapEx in that plant and is this --

We are not deficient -- at this time,.

Okay.

Okay.

Overall, we round about, in Levelynn and One Earth combined we run about 12.5 million-bushels.

Okay.

The real estate loss in quarter, what was that from?

Probably just a closed stores to open.

That's product, yeah, you are right, just the depreciation et cetera, the real state tax -- Utilities et cetera.

For maintaining those properties, there's certainly the cost associated with that.

Okay.

But we are still recognizing deferred income every quarter, and quarter that happened -- in the --

No, the number is in every quarter comes in under on the discontinued line.

That's where it is coming in now.

Okay.

It is a nice profit there.

Okay.

Right.

I see, but the cost of keeping them open comes through in the continued operations part?

That's correct.

Yeah, which, which it is a way accounting wants us to do it.

So we do it that way, what are you going to do.

I understand.

Okay.

Thank you very much.

Okay.

Thank you, Mike.

Our next question comes from the line of Michael Cox with Piper Jaffray.

Please proceed.

Good morning, guys.

Hi, Michael.

How are you?

I am doing great.

How about yourself?

Oh, good, good.

Thanks.

My first question is on the willingness or ability of your ethanol partners, operators of the facilities you're invested in to what extent do they lock in forward margins and what is the forward curve look like as you hear from your partners?

We are not long-term and I don't know locking it in.

We have not long-term locked in margins, we do maybe a month to two months, we are not, we don't believe in speculating on the commodities market.

That being said, the crush spreads have been, came down quite a bit during the first quarter and now it is sort of stabilize as you, you know, you follow the industry, and we don't have any huge amounts locked in.

Okay.

That's helpful.

As you look at expanding your exposure to ethanol production, do you -- how would you prioritize between trying to expand your ownership stake within the existing facilities versus pursuing new opportunities and as you look at valuing these opportunities, on the dollar per gallon basis, what are the ranges that you are seeing out in the market today?

I am not a big proponent of valuing anything on a dollar per gallon basis because there's plants and there's delta T plants, we personally think nothing is better than a fagan plant.

I can go by and Oregon 100 million gallon plant for $5 million and pay nothing per dollar per gallon, but I am going to end up losing a lot of money trying to operate that plant.

So to me, it is return on equity when I go to look to buy a plant, not the cheapest that I can, most amount of gallons per dollar.

I think that's a misnomer and it has caused a lot of problems and left a lot of people in trouble.

Again, there's say began plants, plants in good corn areas, there's plants in good ethanol areas, DDG market.

Dollar per gallon, to me it is not a -- I don't look at that.

What was the second part of the question?

Well, I agree with that assessment completely, but maybe let me rephrase the question.

As you are look at ICM design facilities and begin I agree completely with how you look at this, how do you see those being valued at market sights?

Well, -- oh, good question.

That's a little different.

If they're in the corn belt, I would think it would be profitability or valued somewhere around pook value.

As you specifically target, and exposure and do you, are there opportunities to expand your ownership stake within your existing investments, or would you be looking outside of those?

We are always -- both.

We are always on the lookout.

There's two ways to do it, one is in the plants we control, expanded production, and that's a possibility.

In a time and effort can reach an agreement on price shareholders and these ethanol.

People have different needs so there may be some people want to liquefy.

That may happen some times, but.

Okay.

Great.

Thanks a lot.

Okay.

Thank you.

Our next question is a follow up question from the line of Richard Dearnly with Longport Partners.

Please proceed, Mr.

Dearnly.

The to follow up on that last question, is the book value of the fagen plant about $1.80 or $2?

A gallon.

I think that -- well a lot of these book values have come down some because they, not it depends on the plant, if they have lost money, it might be today less it depend on the plant.

So it is probably.

It costs originally to build, that's probably a good number.

the cost today is $1.

$25 or $1.50.

It depends on the plant.

Now to buy one, you know, if someone is making a lot business, that would be what I would guess the price would be you had mentioned earlier even if there are plant ins the corn belt, there's some like our one is fortunate enough to have two and make that a terrific plant, some plants deal with difficult railroads, and it makes them worth less, some plants have selling their DDG's and that makes them worth less.

And it is an individual case by case.

I don't think you can lump anything together.

Okay.

And the real estate sale and the one where you took back a note, were they the book of profits on those?

The one that we sold, subsequent quarter, pretty much it was at book value.

The other one we did not book a profit because we took back the note to the extent we get full payment over time, there would be, it would be profitable.

But because we took back the note we did not.

Right.

Okay.

Thank you.

Sure.

We have no more questions on the telephone lines at the moment.

I will turn the call back to you.

Please proceed with your presentation or closing remarks.

Okay.

I want to thank everyone for listening and your support is very much appreciated.

Thank you.

Bye.

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

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

Have a great day, everyone.