REX American Resources Corp (REX) 2012 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the REX American Resources third-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 Doug Bruggeman, Chief Financial Officer.

Please go ahead, sir.

Good morning, and thank you for joining REX American Resources' fiscal 2012 third-quarter conference call.

We will get to our presentation and comments momentarily, as well as your 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 filings with the Securities and Exchange Commission, including the Company's reports on form 10-K and 10-Q.

REX American Resources assumes no obligations 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 -- and I would like to thank everyone for listening today.

Our net sales for the quarter were $179 million versus $84.5 million last year.

This primarily reflected the consolidation of NuGen, where we went over 50% and could consolidate those numbers in our financial statements.

Profit was $400,000 for the quarter this year, versus $6.5 million last year.

That's $0.05 a share versus $0.70 a share last year.

Cash right now is about $68 million, $48 million of that is at the parent level.

We repurchased during the quarter about 76,000 shares.

We are authorized to repurchase roughly another 422,000 shares.

We continue to be hurt by higher corn prices, relative to ethanol prices, and we call this crush spread.

And again, we are operating at a lower crush spread, actually a negative crush spread, which is impacting our earnings.

On the flip side of that, we were benefited this quarter by higher DDG prices.

DDG price -- DDG is the product left over after the ethanol is produced.

And since most of the proteins from the corn is used as an animal feed, toward roughly 30% of the price of corn, and tracks the price of corn.

We also benefited from our corn oil extraction business.

That's a higher-margin product that comes from squeezing the corn oil out of the DDGs.

Going forward, we are still in a difficult environment this quarter.

Crush spreads are still negative.

We are being hurt right now.

The refiners and blenders have still some carryover or bought more than they need to buy for right now, so there's some carry-forward of purchases -- of required purchases.

So we think that's hurting the demand right now.

Next year we expect that to clear up.

We got some positive news from the EPA requiring blenders and refiners to purchase next year 13.8 billion gallons.

That's up from 13.2 billion gallons this year.

Also, next year we should have less competition.

Many of the plants have either closed or cut back production this year.

So with less competition, less supply and more demand next year, we expect higher crush spreads, which should result in better margins.

Currently, we have $68 million in cash, as I mentioned previously.

The goal is to preserve the cash, operate conservative, keep our plants running and keep looking for new opportunities.

There might be new opportunities, although we haven't seen any yet in the ethanol business.

If we can find a great plant at a low price, we would certainly look at it.

We've been buying stock.

Every time we purchase shares, we are able to buy our stock below book value, we increase our book value per share.

And that also increases our earnings per share as we buy back stock.

We also continue to look -- although we haven't found anything yet -- at other opportunities.

And we'd like to find something that leverages our ability to build the plant, operate a plant, something in alternative energy.

But to date, we have not been able to find that ideal situation.

In conclusion -- one other thing that I wanted to bring up before concluding is, there's been a lot of talk and a lot of complaints about the ethanol industry taking our corn supply and turning it into fuel.

I wanted to go over the many positives of the ethanol industry.

First of all, a large part of the corn is not turned into fuel, it's turned into DDGs, which is the highest protein part of the corn.

It's used for animal feed.

Secondly, ethanol has helped our balance in trade.

We now import about 40% of our oil from overseas.

It used to be 60%.

Fracking in North Dakota and all these places get credit for it.

The truth is, the majority of the reduction has come from the ethanol industry.

We are the main driver in reducing our oil imports.

The other thing is, the oil imports come from many countries -- from some countries, I shouldn't say many -- that aren't exactly friendly to the United States.

You turn around and use that money to fund our enemies.

Again, ethanol -- the better ethanol does, the less of that money is going overseas.

Plus, it will help reduce the deficit.

Our farmers are making money today.

They are not asking for as many handouts as they did in the past.

More importantly than that, they're not -- they have pride in their work.

The communities our doing well.

There's no more Willie Nelson Farm Aids and all that other stuff.

A

lso, lastly, ethanol is one of the few successful alternative energy products.

We receive no direct government subsidies.

We are on our own today.

And we certainly feel we are a huge benefit to -- what our industry is doing, we feel, is a huge benefit to our country.

And the criticism we get is certainly, in our opinion, completely unwarranted.

In conclusion, we are in a vital industry to the United States.

And next year should show increased demand, along with reduced supply.

Which should increase our margins next year.

REX currently is the only company that I know of that's profitably during -- that has reported profitable numbers during these tough times.

And that, I think, positions us extremely -- and also a company that is still running at full capacity, or relatively full capacity.

And I think this puts us in a unique position to benefit when things do turn around.

We should do -- if the industry does well in the future, we should do far better than the industry.

And that's always been our goal.

I'll now -- Mira, I'll now leave the podium open for questions.

Thank you.

(Operator Instructions)

Paul Resnik with Uncommon Equities.

Well, once again a truly incredible feat, earning a profit in this environment.

I have two questions.

One, when you say you are being hurt by carryover purchases, are you indicating that refiners are using up their RIN credits?

Is that what you are saying?

What are -- they -- and I don't know the exact number of what it is today, but they have bought more ethanol than they are required to buy up to this point.

So they -- and last year, they were able to -- they did it last year.

And as far as I know, they haven't used up the amount from last year, of extra purchases.

So they are not required at this point in time to buy -- they could go a little while without buying our product.

Not a long while, but a little while, without buying our product.

Which puts them in a -- from a demand standpoint, that puts them a little bit more in control.

But eventually, that will get wiped out.

And secondly, do you have any thoughts about the opposition?

I mean, now that the waiver has been approved, but there still remains opposition from numerous quarters to E15.

And the acceptance of E15 is moving ahead at a truly snail's pace.

Any thoughts about that?

Well, we've never been -- the way it is written now -- and we certainly would never criticize the EPA, because we think they've done what's right for our country, especially in this particular -- in the ethanol industry, in requiring the ethanol to be blended at a greater rate than the previous year.

But the way it's written makes it very difficult for E15 ever to get off the ground.

Because it's for some cars, but not all cars.

Which makes it very, very hard for a gas station to take and put E15 in their pumps, and try to tell which -- try to identify which cars can use it and which cars can't use it.

I don't even think half the people know what year their car -- we're talking about cars 2001 and earlier, I believe.

I don't think most people who have cars from 2001 even know what date their car is.

So I just think it's going to be a real, real hard -- until it's usable in all cars, which we think it should be usable in all cars, it's not going to be a factor, in my opinion.

Are you aware of any testing that would indicate that E15 would be a problem for older cars?

I am not aware of any, no.

I can't imagine -- I don't understand why an arbitrary year.

One year it works, the next year it doesn't work.

I don't know the difference in the engines.

I've never seen any study that showed me the difference in the engines between the two years.

But again, that's the rules.

And until the rules are changed, I don't think E15 will -- we'd love it if it did become a big factor.

And there are certain gas stations, especially in the Corn Belt, that will put in E15.

But as far as being adopted nationally, I don't see it right now.

Thank you.

Once again, congratulations on a good quarter in a difficult environment.

Arnold Brief with Goldsmith & Harris.

Hi, good morning.

There was an article in the -- I think it was -- yes, it was the New York Times over a month ago, entitled Corn Ethanol Makers Weigh Switch to Butanol?

And the article went on to describe the plants that might be switching, and the various benefits of butanol versus ethanol, et cetera.

Could you discuss that issue and how it might affect you and whether or not you could make the switch?

Sure.

I think you'll see those plants that aren't doing well try to make the switch first because they have nothing to -- the plants that are either closed down or not doing well -- they have nothing to lose.

In terms of the better plants, anything like that is great, anything that creates -- anything that works in our currently existing plants, which it takes conventional ethanol out of the market.

Again, the same story.

If you have the most efficient plants, will be the plant -- if that becomes an industry and if you can make more money doing that, we will certainly be one -- be someone to look at it.

But a lot of these things, the first people in tend not to get the best technology.

It tends to improve.

So we will let someone else experiment with it, and then we will come in afterwards if it turns out to be better than what we currently have.

Is it costly to convert your plants if those turn out to be --

Yes, but it's a lot cheaper than building a new plant.

What --

What is costly?

I don't know.

I see numbers all over the place.

And I don't think anyone knows until it's done.

There's estimates all over the place, but when it's new technology, no one knows.

And you have no idea how close it is to fruition at this point?

There is companies trying to do it right now, this minute.

Closed ethanol plants trying to do it.

Is it product-competitive?

Or --

I don't know.

You don't know until it's done.

Everything on paper looks great.

And it would be great if it's another use for our plants.

And would certainly increase the value of our Company significantly if it can be done.

But I am always -- we are not pioneers.

I will let someone else pioneer it.

We're not going to take the best plants in the industry and convert them.

We will wait and see.

Let someone else do it.

Thank you.

(Operator Instructions)

Bill Jones with Singular Research.

Thank you.

Hi, Stuart.

Congratulations again on turning a profit in this environment.

I wanted to ask, you mentioned you purchased some shares in the quarter.

Do you know what the average price was?

Doug?

Yes.

The average price for the quarter was $17.93.

And then after the quarter, we bought another 26,000 shares at an average price of $16.74.

Thank you for that.

And just to follow up on the E15 question.

You know, I actually have a vehicle that is a 2000.

But I would imagine I will have to be probably replacing it soon.

Doesn't that problem kind of take care of itself in a year or two?

I mean, those cars are getting pretty old now, right?

They are getting old, but that doesn't -- as long as they are still out there, it's a problem.

Yes.

Your car -- you probably will trade it in and get some money for it.

And they will probably resell it, and then it's still out there.

Right, okay, fair enough.

And then, you had mentioned, you know, potential new opportunities in ethanol.

Is that kind of where you're looking now?

Are you still --

We're looking at ethanol.

We are also -- we look at everything.

That's my job.

And so I look at anything in alternative energy that -- again, very few alternative energy products -- in fact, ethanol is probably the only one that has been truly successful in doing what they were mandated to do, which is reduce our dependence on oil or carbon successfully.

And we're one of the few.

A lot of stuff is out there, a lot of people are trying.

But we prefer -- we want the odds to be way with us before we get into something.

And that's probably what has kept us back.

Right, okay.

Well, again (multiple speakers) I'm sorry?

I was going to say we try to be very careful with shareholder money.

Right.

Well, again, you know, once again the EPS is better than I expected.

And cash flows are very strong.

Let me ask one other question regarding Q4.

In the past couple of years, you know, we saw a little bit of uptick in demand in the fourth quarter.

Now you're saying right now that there's some carry-forward.

So should we not expect -- ?

It's still a very tough environment, with a very tough crush spread out there.

So we won't see much improvement before the year end?

Again, this industry flips on a dime.

But today, it's still a very tough environment with a very crushed -- and there's no great -- last year there was great urgency to buy at the end of the year because there was a $0.45 credit that the buyers received.

Right.

This year there's none of that urgency.

So we'll see what happens.

But there is no -- but the crush spreads are not -- are still very negative right now.

Right.

Okay, well, thank you for that.

I appreciate the -- taking my questions.

Thank you, guys.

Thank you.

I'm showing no further questions at this time.

Mr. Rose, I will turn the conference back to you.

Alright.

And I -- just in that vein and in concluding, again, next year there has to be a pick-up in demand.

13.8 billion gallons, the EPA has mandated, have to be bought.

With ethanol producers and supply going down, just normal supply and demand economics say the crush spread over the year should improve from where it is now.

And that's what we're hoping for and planning our business towards.

Again, I would like to thank everyone for listening, and appreciate very much your being on the call.

Goodbye.

Thank you.

Ladies and gentlemen, that concludes our conference call for today.

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

Have a good day.