REX American Resources Corp (REX) 2011 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the REX American Resources Corporation first-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) I would now like to turn the conference over to Doug Bruggeman, Chief Financial Officer with REX American Resources Corporation.

Please go ahead, sir.

Good morning, and thank you for joining REX American Resources fiscal 2011 first-quarter conference call.

We'll get to our presentation comments momentarily, as well as a Q&A 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 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 Form 10-Q.

REX American Resources 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 and Chief Executive Officer.

Thanks, Doug.

And I would like to thank everyone for listening, and it's a pleasure to give you our quarter one results.

Revenue was up 13.9% for the quarter.

We went from $73.1 million in sales last year to $81.2 million this year.

That's only on the plants that we consolidate.

Net income was $4.7 million this year, versus $4.2 million last year.

Earnings per share -- $0.49 versus $0.42.

We're in an industry right now that has been hurt significantly by crush spreads.

The cost of corn has gone up greater -- or the spread between corn and ethanol prices has declined, and that's what we call the crush spread.

REX, however, managed to offset the lower crush spreads of the industry by doing a few things that allowed us to have an increase in earnings.

One, we're no longer in our Levelland investment -- which, as we mentioned in previous calls, was a drag on earnings last year.

We also purchased a 48% interest in NuGen, which we were not up against last year.

NuGen's a 100-million-gallon Fagen ICM ethanol plant in South Dakota.

Third thing we had in our favor was higher DDG prices.

DDGs are a byproduct of ethanol sold to animals.

We've been able to make significantly better money on our DDG sales.

And the third thing is, some of our plants were opportunistic in purchasing corn at lower prices; and as corn went up, we were able to actually make more money -- or make -- hold their crush spreads a little bit better than the industry.

Going forward, we're still in a tight crush market -- a tight crush spread market.

Corn prices appear to be relatively stable, but the spreads are not improving; and we anticipate that it's going to stay that way for a while.

In terms of the industry, I believe the industry will have a decent fourth quarter.

Our opinion is the fourth quarter will be the last quarter of the $0.45 blender's credit, so industry buyers, refiners, we think will buy a little bit more than necessary to take advantage of that $0.45 credit.

Of course, this will be taken out in the -- this advantage could possibly cause the first quarter of next year to be hurt, but we'll worry about that first quarter of next year.

In terms of the industry itself, our opinion is that it will continue to benefit, and that industry mandates will stay in place.

And as long as industry mandates stay in place, there will be a very good demand for our product.

Refiners are making money on our product, with or without the blender's credit -- refiners and blenders.

So, again, we think long-term, as long as those government mandates stay in place to buy our product, our industry will be relatively healthy.

In terms of our cash at the end of the quarter, we had $97 million in cash, $80 million of that was discretionary.

We continue to buy back shares.

We bought back a little over 29,000 shares last quarter.

We're also looking to improve our plants.

We're looking and have plans to place corn oil facilities in our plants, which is a little bit more profitable byproduct in ethanol.

We're also looking wherever possible to increase stakes in our existing plants.

We would be interested, if the price was right, in buying additional Fagen ICM 100-million-gallon ethanol plants.

Again, we think that's the Cadillac of the industry -- or the gold standard of the industry, I should say; and we -- that's what we prefer to operate.

In terms of other industrial opportunities, we have looked at some.

We continue to look at some that would leverage our commodity.

We will continue to look at those, if they leverage our commodity skills.

But the return on ethanol investment has been better than the other things that we have seen; and ethanol, of course, is an industry that we know very, very well.

In conclusion, we feel very strongly that we have the best ethanol operation in the industry.

We have been very careful to have a uniform operation.

We have all now 100-million-gallon Fagen ICM plants.

As I mentioned earlier, that's a gold standard of the industry.

100 million allows us a lot more economies of scale, a lot more efficiencies.

We have partners in all our plants in the corn business, so we ensure ourselves feed stock at at least no worse than market price.

And the bottom line is, we're in a volatile industry, an industry that's going to go up and down over time.

But it's our feeling that quarter in, quarter out, we will outperform the industry, and that's always been our goal -- to do better than the industry, to have the most efficient plants in the industry.

And we feel if we can have that, that things in terms of stock price and everything else will take care of itself.

And this quarter, we're fortunate to be able to tell you that we did outperform the industry significantly, and we're proud of the operation that we have today.

And now, I'd like to leave the forum open for questions.

(Operator Instructions) Bill Jones, Singular Research.

Great quarter.

If I am doing my math correctly, it seems like the gallons sold was 28.1 million for the quarter, which is about 13%, 12% or 13% of -- and that's on consolidated results, about 13% above the nameplate capacity.

Perhaps you could speak to that, and perhaps what we can expect going forward.

Doug, do you want to answer that?

Yes.

Bill, when we talk about 100-million-gallon plants, some people in the industry would refer to those as either 110- or 120-million-gallon plants.

So, we would expect to continue to run above nameplate capacity and be 13% above -- that is correct, and we would hope to continue to produce at that level.

To emphasize what Doug said, most people in the industry would call these plants either 110 million or -- we'll call them 110-million-gallon plants.

So -- but we prefer just to call our plants what the manufacturer calls them, which is a nameplate capacity.

But we've worked on efficiencies in these plants, and we continue to do that.

We hope to continue to run these plants at well above nameplate capacity.

Do you think you will run them above 110?

Well, again, we did last quarter.

We hope to.

Okay.

And did you sell a property in the real estate?

Yes, we did.

We sold one during the quarter.

It was a property that we had leased out that the attendant bought from us.

And was there a significant gain or loss?

It seemed like the pretax loss in the segment was [$200,000] less than previous quarters.

We had a gain on disposal of $125,000.

Okay.

We're slowly working on our way out; and it now, in my opinion, is no longer a significant part of our balance sheet -- the property that's left from the residual property.

And I think we've done that very wisely; we haven't panicked out of anything, and just slowly are liquidating out of it.

Okay.

I think that's all I have for now.

Thank you.

Thanks, Bill.

(Operator Instructions) Mike Neary, Neary Asset Management.

Just a couple questions.

How many bushels did you guys use in the quarter?

Our conversion was right at 2.

-- it was somewhere between 2.8 and 2.85; so a normalized amount of bushels were used.

Okay.

And then, depreciation and CapEx, can you give depreciation in the quarter?

And then, what are your CapEx plans for the year?

Do you have those yet?

Yes, the depreciation was $2.6 million for the quarter, for One Earth as well as here at corporate.

And then, CapEx expenditures we would expect to be maybe around $4 million, with the majority of that being (inaudible) if we put in the corn oil extraction at the One Earth plant.

For the whole year?

Yes, that's correct.

Oh, okay.

And then, NuGen, the earnout on that and the timing on the earnout, what do you expect to pay for -- remaining for NuGen?

It's hard to say.

The industry crush spreads, obviously, are challenging, so it's really hard to project that out.

I would expect to have paid out the rest of the earnout.

My opinion is, by the end of the year.

By the end of the year?

Okay.

I just wondered on the timing, I know the rough amount.

Okay.

And then, in terms of the deferred tax, did you get the refund in Q1?

And is the balance, then, dependent upon profitability?

That's correct, yes.

We don't really expect any more tax refunds at this point.

Actually have a federal NOL from last year; so, at this point, it really -- the deferred tax assets should really just move around based upon profitability.

Okay.

Great.

And then --

Keep in mind, Mike, we also have tax credits left over that we can use to reduce our actual cash flow out on the income tax.

Right.

Along with, as Doug mentioned, some NOLs related to accelerated depreciation.

Right.

And then, on the real estate side, you sold one property in the quarter.

What's kind of the -- what's the picture there now?

Is it pretty much just something we should -- any update in the general picture?

We're just continue to work, work, work.

By we, it's people that we have working for us, continue to work, work, work on them.

And I don't think the real estate market is deteriorated any more than before.

I think some retailers are starting to expand, and we're willing to lease or sell the properties.

So, hopefully, if we can get some leases in, we'll have a little income there.

But again, it's not -- we're down to, I believe, $20 million in property and equipment, and that's not significant on a $250 million net worth, and -- in my opinion.

And we keep wanting to work it down.

On the $20 million, again, we're getting income on some of those properties, so it's not like it's a huge drain or any real headaches to us.

Right.

And then, Stuart, you had mentioned -- you had talked a little bit about opportunities possibly popping up again in the ethanol business.

What do things look like nowadays?

What -- are there more --?

Well, as crush spreads get worse, we have -- we think there are some opportunities.

We have been very disciplined in what we bought.

We have not bought Delta-T plants.

We have not bought Lurgi plants.

We have not bought -- we had one previous, but have not -- no longer invested in and have not bought plants that are less than 100-million-gallon plants.

There are definitely opportunities out there, if we were to reach for what I call Class B or Class C plants; but we have chosen to stick with Class A plants.

And maybe we don't have the gallons of capacity that other people have, but our earnings on our gallons speaks for itself.

And we have a formula that uniform Fagen ICM plants, and we have plants that are all about the same size, and we have plants that all make very good money and don't cause us a lot of headaches.

And it's a real pleasure to operate as the top Company or the most efficient company in the industry, in my opinion, and we'll do little or nothing to try and change that.

Okay.

So, so far, those plants --

So, again, to answer your question in a quick way, we're looking for plants; but we really prefer -- and I am not saying that we'll never buy another plant that's not 100-million-gallon Fagen ICM plant in the corn belt, but that's absolutely our choice.

Okay.

And so far, those plants are not at the prices you want to pay?

Is that fair?

Well, again, we bought one last year -- part of one last year.

Right.

But we have high return on investment criteria, and it has to be with the right people, and with people we can work with.

And it's a lot of things that go into what we -- and maybe again, we aren't the quickest at buying plants, but we think we do it right when we do.

Great.

Thank you.

Sure.

(Operator Instructions)

If there is no more questions -- are there any more questions, Operator?

There are no further questions at this time.

I would now like to turn the conference back over to our representatives.

Okay.

Thank you, everyone, for listening, and we'll look forward to talking to you after next quarter.

Appreciate your listening.

Bye.

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

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