REX American Resources Corp (REX) 2011 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Rex American Resources fourth-quarter 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 Chief Financial Officer Doug Bruggerman.

Please go ahead.

Good morning, and thank you for joining the Rex American Resources fiscal 2011 fourth-quarter conference call.

We'll get to our presentation and comments shortly, 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 th Company's reports on Forms 10-K and 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 of the Board.

I would like to thank everyone for listening.

In terms of our quarter, we were -- I was very proud of our management and the people that work for us and did a tremendous job, and the results speak for themselves.

In terms of earnings, fourth quarter we made $14.8 million this year, $1.76 a share, versus last year a loss of $4.6 million, $0.49 a share loss.

Earnings for the year were $28.3 million, 3.8 -- $3.08 a share, versus last year $5.1 million, $0.52 a share.

Sales were up in the fourth quarter about 82%, over 80%, mostly due to increase in capacity through the increase of our ownership in a plant.

The share count this year decreased to approximately 8.4 million from approximately 9.4 million a year ago.

Last year's results were affected by a $1.19 per share one-time loss caused by the closing of our -- deconsolidation and writing off of our Levelland investment.

This year, we had a $0.25 increase caused by our NuGen purchase.

Even pulling those two events out of the fourth quarter, our fourth quarter earnings this year were roughly $1.50 a share, versus $0.70 a share last year.

That's over a 100% increase.

These gains were caused by a number of reasons.

First was, we had a higher crush spread.

We increase -- we think that customers bought a little bit extra of our product at a little bit higher price than they normally do, because it was their last chance to get the $0.45 payment that the government was giving to blenders.

That ended at the end of last year.

We also had higher production, due to our increase in our purchasing approximately 50% more of our NuGen plant.

Also, we took a new position through Big River in our Boyceville, Wisconsin plant.

We also had higher production in all our plants, due to efficiencies.

They all ran in the fourth quarter above nameplate production, as we just gradually try to grind out better and better efficiencies in these plants.

DDG pricing was very strong in the fourth quarter.

That's correlated to corn pricing.

Corn pricing was up, which allowed us to sell our DDGs for a little bit higher -- which is a byproduct of the ethanol production -- the food by-product of de-ethanol production, for a little bit higher price.

Also, natural gas pricing was very reasonable during the fourth quarter and that helped our profitability.

In terms of our industry, our industry, sadly, gets very little credit for what it is.

And what it is, is the only alternative energy business that actually works in decreasing the United States' demand for imported oil to produce gasoline.

That's exactly what this country needs right now.

The imported and the price of oil in general, price of imports and the price of oil in general, is the biggest cause of high gasoline prices.

Again, our industry is the one industry that's selling well below wholesale gasoline and actually is reducing the price of gasoline, and you hear very little about it.

Secondly is our industry no longer receives government subsidies.

The blenders' credit was ended last year, so we are now in new ground with no government subsidies.

The other benefit to the industries, to the industry, our farmers are now profitable.

They're paying income tax.

They are actually looking to take land where the government paid them not to farm, out of land banks, trying to farm that because they can now make some money.

And again, our industry, I think, is directly responsible for the farmers making more money.

Our industry employs over 400,000 people and we've done our little part to try and reduce unemployment.

And again, this is directly taking away our industry, to the tune of 13 billion gallons, is directly taking away from imports.

The other thing about our industry is, as I alluded to briefly, is our product now sells for significantly less than wholesale gasoline, and that cost is being, we feel, passed to the consumer.

We're doing our little part to try and hold down gasoline prices.

In terms of Rex, we look at ourselves and feel very confident in saying we are the premier company in the ethanol industry, period.

All our plants are Fagen ICM plants.

They are all state-of-the-art plants.

The ones we consolidate are all 100 million-gallon plants.

They're all located in great locations in the corn belt, where we can make use of the corn in the region where we operate.

We just put in new state-of-the-art corn oil plants, second generation corn oil plants, to produce corn oil.

We don't use chemicals, like the rest of the industry does.

And again, we're in excellent markets to sell corn oil.

In terms of Rex's balance sheet, we have very little corporate debt.

We have $75 million total in consolidated cash, 50 -- excuse me, $46 million of that is still at the parent level.

We used cash last year to buy back shares.

We bought back approximately 1,300,000 shares, roughly 15% of the float, while at the same time increasing our capacity by buying approximately 50% extra of the NuGen plant and taking a position through Big River in the Boyceville, Wisconsin, plant.

We're currently liquidating the real estate that's left in our portfolio and we're doing that in an orderly manner, and that seems to be moving forward slowly but surely.

In terms of going forward, in the industry, the fourth quarter, we think we got a little bit of benefit from the $0.45.

We think some of our customers bought in at a little extra.

The industry is paying for that this quarter.

Crush spreads are down.

The industry is currently operating at a loss.

We again feel we're significantly outperforming the industry, but we still are only running at roughly -- our plants are only running at roughly breakeven.

This is a similar pattern to last year, when the first quarter -- it's the lowest period for gasoline purchases -- same thing happened.

My opinion -- in fact it's happened the last two years, we've become a seasonal business.

And we expect prices to gradually increase through the year.

Customers are still required to buy 13.2 million -- billion gallons of ethanol.

And we think as some of the weaker plants fall out, there will be a scramble to buy the product.

Supply and demand will take over, like it has every other year.

We'll get strong prices later in the year.

The other thing that could be a positive to our business is the introduction of E-15.

Again, any blending above 10% is only a positive to our business.

In terms of expansion, we're still looking for additional ethanol plants.

Not all plants are -- not all the good plants are as well-capitalized as we are.

We hope to find a chance to maybe take a position in another plant.

Again, we would only look for Fagen ICM state-of-the-art plants in the corn belt.

We don't have any interest in second-tier plants and have stayed away from that.

We think that's one of the secrets of our success.

We have been increasing the stake in our current plants.

We just bought a little bit more of the Patriot plant.

We've taken our equity interest up from 23% to 26% there, and we've added a little bit more to the Gibson City plant, going from 98% to 99%.

As I mentioned earlier, we just added corn oil to our plants.

Again, state-of-the-art corn oil second-generation technology.

Again, we think we're wise in waiting to the second generation.

We don't use chemicals.

There's significant savings there.

And we feel we produce a significantly better product without the chemicals.

These plants should add, going forward, approximately $400,000 extra income per month -- per plant in the two plants that we installed these corn oil plants.

We're also continuing to keep our eyes open for other alternative energy projects.

We have not found one yet, but if there was one that could use our commodity skills and our plant operating skills and operated at a very high profit margin or felt -- or we felt we could operate it at a high profit margin, we would consider it.

In conclusion, we have state-of-the-art plants, the best plants in the industry.

It's generated the best results, period.

We're in an industry that is essential to energy independence.

Our industry doesn't get the credit that it deserves, but we are the only industry that actually uses -- takes -- decreases our dependence on imported oil for gas.

And with gas pricing, our industry, in my opinion, will do extremely well second half of the year.

We have the best profit margins among the public companies and we expect to have the best -- we expect that to continue.

And again, with our advantage of having better plants, great management, there's -- in the right locations, there's no logical reason why we won't outperform the industry.

And that's what we expect to do, period.

In terms of our capitalization, we have the cash to do well, to take advantage of opportunities, and we have done that in the past, both through buying in shares and increasing our capacity.

Again, I feel confident that the industry will do well, and again, I feel confident we are and will continue to be the outstanding company in this industry.

Thank you.

I'll now leave it open for questions.

(Operator Instructions)

The first question comes from the line of Bill Jones from Singular Research.

Please proceed.

Thank you.

Hello, Bill.

Wow -- how are you doing?

You guys are obviously hitting on all cylinders in the fourth quarter.

Great results.

One thing that jumps out at me is the equity income line of $5.7 million.

I expected -- that's a little higher than I expected, with the consolidation of NuGen.

I don't know if you could -- if there's anything unusual there.

If you could just speak to that?

Doug, do you want to go over that?

Yes, that's fine.

Nothing unusual.

Still reflecting the Patriot earnings and Big River earnings through there.

So the plants just performed better than I think what your expectations were, which is pretty much consistent with how all the plants did.

Excellent.

And then--

In terms of our plants -- they are all uniform and they all did just terrific in the fourth quarter.

We have the best plants, period.

And this quarter, when there was great demand out there in the fourth quarter, we were able to show that.

And a lot of other people just couldn't react or couldn't get their plants going right, and when you don't have the right plants, it's hard to do that.

We have the right plants.

Excellent.

And then did you--

I'm sorry.

Just a follow-up.

There was one month of NuGen still reflected in there, also.

The month of October went through there, also.

We started consolidating that plant November 1.

That's right.

Okay.

So maybe that explains part of it.

Okay.

And then on the real estate side -- did you sell any real estate in the quarter?

Yes, we did close on two properties.

There was a net -- no gain, no loss when you add the two up.

Okay, because the real estate income seemed pretty strong, too.

I think that the reason -- there might have been, earlier in the year, we took a write-down on the warehouse a little bit.

That's in this year, that's in the numbers; and that's why it looks so strong.

Okay.

Compared to previous quote.

I see.

And then, what are the shares outstanding, currently?

Or as of the end of the quarter?

About 8,330,000.

Okay.

So you've got a book value of about $34 per share, then.

Is that about right?

I think it might be a little less than that.

I think it's -- it's a little over $30, but it's a little less than your number.

I think you have included the total -- I think you've included the non-controlling interest, maybe.

Okay.

Shareholder equity is like $252 million.

Got you.

That makes sense.

Okay.

Well, congratulations on a great quarter.

Obviously, the numbers are very strong.

And I'll drop back and let someone else ask any questions.

Thanks, Bill.

One thing -- going back to your book value, the way I look at things is, our book value per share -- our earnings or our gallons per share is -- we're actually making more money per -- we're actually doing about the same per share at the current stock price level as we, in terms of earnings, as we did previously.

If that makes any sense.

Okay.

Thank you.

The next question comes from the line of Richard Dearnly with Longport Partners.

Please proceed.

I have two questions.

The first one is, I didn't understand that last comment.

The second one is -- if you adjust the seasonality out of the slower first quarter, which appears to be normal now, what effects are you seeing from the elimination of the $0.46 credit?

And how do you think that's going to affect things going forward?

To answer the first question, I'll explain it better.

What I was trying to say was, we bought back so many shares that the gallons -- and we increased our gallons -- that if you look at our market value or if you look at how much gallons we're making on a market value basis, it's very similar to what was going on previous.

And again, it's a technical thing that I'm trying to say, and it's hard to say it; but we basically -- the point of what I'm saying is, we did a great job of reducing our number of shares and increasing our volume.

And that really allowed for our earnings to go way up.

Right.

So the gallons per share -- but--

Gallons per market value.

Yes, okay.

One went up, the other went down.

Why hasn't it stayed the same as before?

Because the shares went dow;, so because of that, our market value, even at the lower share price, was much higher -- is what I'm saying.

Okay.

Yes.

All right.

Do you follow what I'm saying?

It's a technical thing, but the point of the whole matter is, our people did a great job of increasing production.

You put that on a lower share base and the earnings really explode, and that's what happened.

Okay.

And answering your question on the $0.45 -- we think there was some benefit in the fourth quarter.

There's no getting around it.

We think we're paying for it in the first quarter this year.

It's our opinion blenders brought in extra product, and because of that, they are not buying as much right now.

And we think it will take care of itself in the second and third quarter.

So--

In fact, it may even be a benefit to us, because there's some plants closing down right now; and as that happen there's less supply and less supply, and there's got to be increased demand with -- 13 billion gallons has to be bought, and we should be in good shape.

So you're expecting essentially no net effect at the end of the year?

Well, we never received them -- on an annual basis, that money went to our customers.

Our customers claim they passed the $0.45 to their customers.

So whether they did or not, we'll find out.

But technically, they were always trying to buy our product as cheap as they could, anyway.

So we don't think it will be a big effect on us.

Although in the fourth quarter, I will tell you, they did buy -- I believe they bought extra product.

But on an annual basis, I don't think it will be a big effect us on, because they were always trying to buy our product as cheap as possible.

Right.

And that's their job, to buy it as cheap as possible.

It's our job to sell it for as much as we can.

Right.

Okay.

Thank you.

Sure.

(Operator Instructions)

Our next question comes from the line of Daniel Cook with WS Capital.

Please proceed.

Hello, guys.

Thanks for taking the question.

Sure.

We've just been hearing that there's been some production scale-back across the industry.

Any potential that some of your plants will have to pull back some of the production?

Or will they continue to run over name plate capacity?

We run them at the most efficient number to maximize profitability.

So my guess is, they will run pretty much at name plate -- at current price levels, pretty much at name plate capacity.

By dropping slightly, you might be able to get a little bit more -- a little bit higher yield, so you just look at those things.

Okay.

Great.

But it's not -- but we're not having -- we're not talking any -- our plants, like I said, our plants are the best, and certainly there's -- they are going to keep running at or close to name plate capacity, maybe even a little more.

Okay.

Great.

And it's just that they are just more efficient design than some of the other ones we're hearing about in the industry?

Much.

Now it really shows, too -- much more efficient design, and we run them well.

Okay.

Great.

Corn oil's a perfect example.

Everyone else grabs the first thing that they think can make them an extra nickel.

We wait a little bit longer, and we put in the best corn oil plants in the industry, period.

We -- everyone else runs out and opens 40 million gallon plants using any manufacturer they can find.

We wait and open 100 million gallon plants using Fagen ICM technology.

Okay.

Great.

We try to do things the best.

Just finally -- I know you all in the past, you all have reported segment sales within the alternative energy segment, breaking out ethanol and distillers grains.

Is there any way you could provide the break-out?

Yes, I -- we'll provide that when we file.

But you could actually do the math if you look at -- we've got the average price out there and -- well, I guess we didn't put the gallons out there for the quarter.

What were the gallons for the quarter?

Is that something you can provide?

Yes.

For the two plants combined, for the quarter, we sold about 56.7 million gallons.

Okay.

Great.

Thanks, guys.

I appreciate it.

Sure.

The next question comes from the line of Paul Resnik with Uncommon Equities.

Please proceed.

Fantastic quarter.

Thanks, Paul.

Appreciate it.

Did I miss it?

You're running very efficiently.

What is your gallons a bushel?

The conversion's right around 2.8.

Might be slightly above that at times, but give or take, it's around 2.8.

Okay.

Thank you.

A lot of people talk about 2.8, but they're only talking about what they are getting at their peak.

This is an average, when Doug talks about it.

Good.

Lot of people will say 2.8, but then they hit periods of time when they are running 2.2 or something.

When Doug says 2.8 for the quarter, that's an average, and it's, again, one of the reasons we do so well.

And do you have any sense of the timing of the pace of the 15% rollout?

I mean, it's one thing to -- 15% is now possible, but how quickly is this going to happen?

I'm sorry, the 15% rollout?

Yes.

You mean corn--

E-15.

On ethanol.

Oh, the E-15, I'm sorry.

E-15, yes.

I don't have any sense of it.

It should -- I keep hearing it should happen any day.

That does not mean gasoline stations are going to put it on their pumps.

Some will, some won't.

It -- for some reason, it was a screwball EPA decision that says E-15 can only be sold to cars made after a certain date.

So that means there has to be -- the pumps -- there has to be warning notices printed that you're not supposed to put it in older cars.

Of course, older -- people -- we don't believe that, and people who have older cars are the ones who most want to save on the gasoline.

Hopefully, they will change the decision and make it available for all cars.

But in the meantime, it's going to be an awkward rollout.

But again, every little bit helps.

Yes.

Other than the questions regarding marine fuel, are you aware of any study that shows an issue with the 15% ethanol blend for older--

I am not aware of a single study.

I just think someone got a hold of it who doesn't like the ethanol industry.

And there is no study I have ever seen that says that this won't work on all cars.

Yes.

That's what I thought.

Well, thank you.

And again, congratulations on the quarter.

Thank you.

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

Please proceed.

Hello, Richard.

Hello.

Do you anticipate -- DDGs have been becoming sort of critical to the whole crush spread -- the process they'll want to use this.

What do you -- how do you -- do you foresee any changes in the DDG markets in '12?

DDG follows the price of corn, so if you look at the corn futures market, that tells you what we think of the DDG market.

At roughly whatever the price of corn is, and we get maybe 30% of that price.

Give or take a little bit.

I see, okay.

So it's -- what DDG is, it's a direct replacement.

It takes the proteins out of the corn, and it's available -- and we go one step further and take the corn oil out of the corn, and then what's left remains a very high quality protein diet for animals, or protein feed for animals.

Our industry's interesting, that every year we get a little bit better and do a little bit more.

It was said that about the Vietnamese and their shrimping ability, that when they came to the United States, the shrimpers threw away a large part of the haul and only kept a certain part.

The Vietnamese found use for every single piece of that shrimp, and that's how they became so successful in the shrimping business.

We have become very adept as an industry, finding a use for every single particle of that corn and squeezing out every little piece of that corn we can find.

And as an industry, I think we deserve a lot of credit.

Right.

Okay.

Thank you.

Sure.

We also have another follow-up question from the line of Bill Jones with Singular Research.

Please proceed.

Hello.

I was just curious about the K -- when we should expect that.

It will probably be at least two weeks until we file that, Bill.

Okay.

I will watch for that.

Thank you.

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

I will now turn the call back over to you.

Please continue with your presentation or closing remarks.

I would just like to thank everyone for listening to the call, and we appreciate your support very much.

Thank you.

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

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