REX American Resources Corp (REX) 2012 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Rex American Resources Corp.

first-quarter results 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 Doug Bruggerman, Chief Financial Officer.

Please go ahead, sir.

Good morning everyone and thanks for joining.

Welcome to the Rex fiscal 2012 first-quarter conference call.

This call may contain forward-looking statements within the meanings of the Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

Such statements can be identified by use of forward-looking terminology such as project, may, expect, estimate, anticipate, or continue or the negative thereof, or other variations thereon, or comparable terminology.

You are cautioned that there are certain risks and uncertainties that could cause actual events or results to differ materially from those referred to in such forward-looking statements.

These risks and uncertainties are described in our filings with the Securities and Exchange Commission.

I'd now like to turn the call over to Stuart Rose, Chief Executive Officer.

Thanks, Doug.

And I'd like to thank everyone for listening.

Consolidated sales in the first quarter rose 86% to $151 million from $81.2 million, primarily reflecting the consolidation of the NuGen plan which we purchased at the beginning of the fourth quarter.

Earnings were $900,000 versus $4.7 million in the corresponding first quarter last year.

Alternative energy earnings were $2.5 million unconsolidated versus $8.4 million last year.

Again, the drop in earnings during this quarter was caused by an industry decline in price spreads, which I'll talk about a little later, which is partially offset by high DDG prices, low natural gas prices, and the sale of foreign oil.

During the last two quarters, we've been active in raising our ethanol stakes in the plants we are currently invested in, going from 49% to 99% at the NuGen plan, 26% from 23% at the Patriot plant.

Also through Big River we purchased a new 10% stake in the ethanol plant in Boyceville, Wisconsin and we have added state of the art corn oil facilities in our two consolidated plants, which contributed to about $2.9 million in corn oil sales in new product for us during the quarter.

All of this together allowed us to be one of the few, if not the only, profitable public company during the first quarter, which was a very, very difficult quarter industrywide.

Industrywide crush spreads went negative for the quarter; crush spreads are the relationship between the price of corn and the price of ethanol.

It was basically caused by a few things that were different from the year before, one of them being the high price of gasoline, which caused less driving.

The other thing, the normal seasonality of winter driving.

Third thing, the industry ended its lender's credit, which allowed our customers to receive $0.45, and basically caused industrywide customers to move their purchases up to the -- to buy first-quarter ethanol during the fourth quarter of last year.

Industrywide, we're still the only industry that is really making a dent in oil imports.

You hear a lot of other industries talking, but we're the real thing.

We've caused probably 13 billion, 14 billion gallons less imported oil that we've brought into this country that the farmers now are making money where they weren't before.

They are paying taxes, we're helping the balance of trade; land is coming out of the land bank; government isn't paying farmers as much to not grow crops, as they used to.

So as far as the industry goes, we've been a great positive for the country.

The industry is slowly improving.

Margins are slowly getting a little bit better.

We look forward to significantly improve the second half of the year with a normal increase in driving.

Gasoline prices have declined, so we expect driving to pick up.

Also the relationship between wholesale gasoline prices and wholesale gasoline is -- also ethanol prices and wholesale gasoline is at very high levels, about $0.80 a gallon, which makes this product profitable, but for our customers it also should make it a great export product during the second half of the year.

Most of our customers are required to buy 13.2 billion gallons of ethanol this year.

They've been a little light in the first half, so we have expectations that we'll do better in the second half, and that we will see an increase in our customer and demand for our product.

Also as I had said earlier, there are a number of plants that have cut back or slowed down production, some of them even have gotten out of production, so there's less production that should be chasing more demand, but should help our cross spreads.

In terms of our Company, we're financially strong.

We still have $45.8 million cash to the parent level; at the sub level we also have a significant cash balance.

We have an understated book value of about $30.90 -- our book value is about $30 a share and again we consider it significantly understated because of the prices we paid for the plant and that the fact that our plants have been depreciated down since they've been open a number of years.

Possible plans for the use of the cash -- look for other of ethanol opportunities.

If we can find a bargain purchase, we'll certainly take advantage of it, but we try to stay in the corn belt, we try to have the right-sized plants with right technology so it has to be a good plant.

We also look at possible, again opportunistically, to possibly increase our stake in the current ethanol plants that we are invested in.

If that opportunity comes up again like it did last year, where we always continue to look, we've had great results in alternative energy, so if any other alternative energy opportunity comes along that we think we can get a great return on that uses our management skills and commodity expertise, we are open to that.

And lastly, we still have a buyback program authorized to buy over 162,000 shares, and when we do that, that increases our existing shareholders percentage ownership in our plants.

In conclusion, we have a growing business.

We have size right now, 720 million is total plant involvement in the ethanol business in the plants we are invested in.

If you add up all the gallons, it's 720 million gallons.

We have Fagen, ICM, 100 million gallon plants, the bulk of our plants.

And again, that is a right size for an ethanol plant; when you get bigger than that, our opinion is it's very hard to find the corner.

The attractive price is smaller than that; it's hard to get good economies of scale.

We have great corn belt locations.

And it's a lot cheaper to ship the corn, ship the ethanol around the country than it is the corn.

The corn is much, much more expensive to ship.

We tried other type plants and we truly believe that the only place these plants work is in the corn belt.

We have experienced management; we've been in this business as long as virtually all of the other people and more important than that, we are very, very cost conscious and do our best to control costs in every area whether it's actual gas purchases, corn purchases, we do our best.

The other thing we do that is a little different is we try to match as best we can our corn purchases with our ethanol sales to take a little bit of the commodity risk out of the equation.

This all has allowed us to significantly outperform the industry and we've been doing it quarter after quarter for a long time.

This quarter, we really showed the difference, where we were profitable; most of the other, if not all the other public companies weren't profitable.

When the industry crush spreads do turnaround and I really believe they'll turnaround in the second half of the year, we are better positioned than anyone to make a considerable amount of money and again to continue to outperform the industry.

I'll now leave it open to questions.

(Operator Instructions)

Paul Resnik, Uncommon Equities.

First, congratulations on an incredible quarter given the environment.

You are absolutely right that profits have been scarce to say the least elsewhere in the industry.

I do have a couple questions.

First of all, the buyback program was kind of quiet this quarter.

What sort of environment would you consider for being more active?

Our stock was doing fairly well most of the quarter so there was no reason to really push the buyback program at the level it is now.

If you look at our past history, this is about the level we bought shares.

So again without promising anything, our past history says we should buy shares at this level, or somewhere around this level.

So that should give you some idea.

Stock sales, book value is $30 a share; our book value is significantly understated in my opinion.

We bought our plants at very attractive levels; we built our plants before the prices of plants went through the roof.

So we are able to buy what I consider not just a solid book, but a book that's understated for less than two-thirds of book.

So to me, it's a logical assumption to make that we will restart our buyback program.

Great.

With regard to valuation of plants, could you shed a little light on about what are the price level that you're seeing on plant acquisitions on a price per gallon in the current market?

Unfortunately, we haven't -- we only want to buy really good plants.

There's a lot of plants out there for sale that never worked, weren't the right technology or cost a fortune to fix and then you hope they work after you fix them, and usually they still have the same problems; they are destination plants where it costs so much to send the corn, you don't have a chance to make any money and we tried one of those years ago.

And so the really good plants may not be doing as well as we are, but they have saved money, they have paid down their debt, and they see the same thing we do.

They see crush spreads improving; they don't see any reason to hurry up and sell at this time.

They see the second half being better.

They think the first half of the year is an aberration as we do, because so many people bought so many gallons at the end of last year to take advantage of that $0.45 payment that the government was making.

So to be honest with you, we haven't seen any plans that we would be interested in up for sale, period, at this point in time at any price.

Yes.

With regard to the changing technology, you've introduced corn oil.

Did that involve licensing agreements for the corn oil process you were using?

No.

We used a new, brand new technology from ICM that does not require licensing according to ICM.

It's not something that -- you are thinking of older first-generation technology; this second-generation technology does not require chemicals.

And it's a whole new system that was developed by ICM.

And truly it's a much better way to make corn oil.

And our customers when we can make it without chemicals, much prefer it, because in the end, it is much purer product.

Okay.

And that's what I have.

Once again, congratulations on a profitable quarter.

Thank you, Paul.

Thank you very much.

(Operator Instructions)

William Jones, Singular Research.

Another good quarter versus the industry.

Congratulations on that.

Thanks.

I'm wondering just for modeling would you have the gallons of production handy for the quarter?

By plant, we did put in the press release the total gallons that -- in total, the gallons sold was 181 million at these plants.

And our ownership of that was about 64 million.

Okay.

Got it.

And what was the realized crush, approximately?

Bottom minus15 on the consolidated plants.

So what are you seeing --

(multiple speakers) -- matching about a minus 15 crush spread that people should realize that even though we lost money selling ethanol, DDG prices because corn was up pretty high, we made money on DDGs.

And corn oil also was a big, big help to us this quarter.

Go ahead, Bill.

I'm sorry.

(multiple speakers) As we mentioned earlier with this crush spread, our plants, of all the public companies, ethanol-only public companies that we know of, we way outperformed them and may be the only one that made money.

Right.

So that more than offsets the negative crush.

Exactly.

What are you seeing -- how does that compare the pricing then to, say, currently?

The pricing last quarter versus now?

Crush spreads have hardened.

Crush spreads in the last few weeks have gotten a little better.

So we will see -- and I expect them as driving season hits, it sort of hit last week I think.

And as that 13.2 billion that our customers have to buy from us starts looking them in the eye and they are making good money on our product, I expect the crush spreads to continue to improve.

They definitely improved a little bit in the last week or two.

But the beginning of the second quarter, there really was not much improvement at the beginning of the second quarter?

Correct.

Again, that's why it's weak.

Okay.

Thank you for that.

And then one last housekeeping thing, do have the shares currently outstanding?

It's about 8.3 million.

8 million.

8.35 million, or something like that, Bill.

Perfect.

Thank you very much.

For anyone that's listen, crush spreads are pretty easy to see if you just go on the CME and you take the price of corn and divide by 2.8 and then see what the price of ethanol is.

We get 2.8 gallons approximately for each bushel of corn.

(Operator Instructions)

Mr. Rose, there appears to be no further questions.

I will turn the call back to you.

Please continue your presentation or closing remarks.

I just want to thank everyone for listening and appreciate your support.

Thank you.

Bye.

Ladies and gentlemen, that does conclude today's conference call.

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