REX American Resources Corp (REX) 2015 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the REX American Resources fiscal 2015 fourth-quarter conference call.

(Operator Instructions) As a reminder, this conference is being recorded Wednesday, March 23, 2016.

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 2015 fourth-quarter conference call.

We'll get to our presentation and comments momentarily, as well as your Q&A, 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 obligation to publicly update or revise any forward-looking statements.

I have joining me on the call today Stuart Rose, Executive Chairman of the Board, and Zafar Rizvi, Chief Operating Officer.

I will first review our financial performance and then turn the call over to Stuart for his comments.

REX is pleased to report on its profitable fourth-quarter earnings results.

Sales for the quarter declined approximately 16%, primarily due to lower ethanol pricing.

Sales were based upon 61.1 million gallons in this year's fourth quarter versus 57.8 million gallons in the prior year.

Sales declined approximately 24% for the full 2015 fiscal year, primarily reflecting lower ethanol pricing but also impacted by lower DDG pricing.

Gross profit declined from $30 million to $9.2 million for the fourth quarter as the crush spread was approximately $0.16 in the current year versus approximately $0.56 in the prior-year fourth quarter.

Gross profit for the full 2015 fiscal year was $50.8 million versus $141.9 million in the prior year, again reflecting the crush spread was approximately $0.17 this year versus approximately $0.59 last year.

SG&A was consistent between years with this year's fourth quarter being approximately $4.2 million versus approximately $4.1 million in the prior year.

Equity method income was $1.1 million in this year's fourth quarter versus $7.9 million last year and $9 million versus $32.2 million for the full fiscal years.

This reflects the lower operating performance of these plants, consistent with the industry this year versus last year, and the fact that we stopped recognizing equity income in the Patriot plant at May 31, 2015, upon the close of that sale.

We have no interest expense in the current year as a result of paying off the debt at the consolidated plants during fiscal 2014.

Our tax rate for fiscal 2015 was approximately 31% versus approximately 36.4% in the prior year, net of noncontrolling interest.

There can be and are fluctuations in the tax rate based upon the level of income and the amount of tax deductions received for production, as well as fluctuations in state tax rates and apportionments.

On a normal basis, I would expect our tax rate to be approximately 36% to 38% after consideration of noncontrolling interests.

Our net income for the quarter was $3.7 million versus $20.3 million in the prior year and $31.4 million for fiscal 2015 versus $87.3 million in the prior year.

Diluted earnings per share for the quarter was $0.54 versus $2.55 last year and $4.30 for the full fiscal 2015 versus $10.76 in the prior year.

I would now like to turn the call over to Stuart Rose, Executive Chairman, for his commentary.

Thank you, Doug, and appreciate everyone being on the call.

This quarter we are happy to say we are one of the few ethanol companies in the United States, one of the few public companies to record a profit during a very difficult quarter.

The industry was impacted by falling oil prices, supply greater demand in the ethanol business, challenged DDG market which was marked by lower China demand than we have historically seen.

On the positive side, we had a good corn harvest, relatively low corn prices and low natural gas prices.

Going forward, we are currently running in the first quarter somewhere between breakeven and first-quarter earnings of last year.

It's still a very, very tough industry impacted by oversupply, low oil prices which puts pressure on our pricing, a lot of ethanol in storage currently, which again puts pressure on ethanol prices.

Crush spread is definitely down over the previous quarter.

DDG also continues to be pressured by lower, nonexistent Chinese demand and relatively low corn prices.

On the positive, we still do have relatively low corn prices, which helps our input costs.

We continue to have low natural gas prices.

The driving season is about to be upon us, and we expect no legislative changes this year.

EPA has set a RIN level that is above last year, which should increase demand.

REX's advantages are best locations -- we consider our locations among the best in the industry.

They are in the corn belt.

They have good rail service, good infrastructure.

We have what we consider the best made plants, Fagen/ICM plants, experienced people.

Combined with all this, it has allowed us to make money in an industry right now that's under pressure.

We continue to cash flow positive.

We had $135.8 million at the end of the year versus $137.7 million at the end of last year.

And even taking -- so about the same during the year.

We were able to buy in 1,254,000 shares.

We continue to buy shares with our buyback program.

We bought in about 88,000 shares since the end of the quarter.

We made and continue to make capital improvements to our plants to increase existing capacity while other people are cutting back on capacity because they are not making money.

We are making money and believe we can make more money if we have more capacity.

We continue to look to buy quality plants.

We have nothing imminent and have seen nothing on the market recently that would lead us to believe that anything is imminent.

We look for opportunities in other businesses where we can use our operating skills both in running plants and in the commodity business, and we continue to look at other businesses, although nothing, again, is imminent.

We have slowed down work on our heavy oil project.

It's something that we never recommended people to invest in our Company related to that.

And with the low price of oil, it is our feeling that even if the technology was successful, at today's pricing it wouldn't be profitable.

I'll now leave the podium open to questions if anyone has questions regarding REX.

(Operator Instructions) Pavel Molchanov, Raymond James.

So kind of a broader point on the ethanol value chain -- since August we have been looking at ethanol pricing that's consistently ran above gasoline, which, of course, is not the norm historically speaking.

Are you sensing that this is eating into demand on the part of lenders, or is it still largely supported by the mandated volumes?

So what's the effect on demand of this pricing dynamic?

Well, as it relates to E85, I think it definitely hurts demand in that area.

As it relates to exports, it hurts demand in that area, the low oil prices.

But there still is a mandate, and this is when the mandate is very important.

And the mandate requires that refiners buy a certain amount of product from our industry.

That keeps demand at -- even though ethanol prices are higher, and ethanol serves a great purpose.

Without ethanol, no one can meet the air quality standards, or it would be very, very difficult to meet the air quality standards that are required by the EPA.

So there's built-in demand, no matter what, with the RIN standards.

It keeps demand up in the United States.

We believe the RIN standard should be what was legislated, but they are still fairly high.

And that, again, is probably the biggest reason ethanol sells at a little bit of a premium to gasoline.

Right.

And then secondly, I know you guys are one of the more disciplined producers.

But, of course, there are plenty of guys in the mix that are not as disciplined about shutting down when margins are low.

Have you noticed any production shut-ins since the beginning of the year, just based on the margin landscape?

There have been a couple of minor shutdowns, and we've heard of people cutting down to 85%.

In truth and my opinion is all these marginal plants that were reopened, it was silly to reopen.

They should have been shuttered.

All they do is go back to losing money the way they used to lose money.

People like us who are making money are looking to expand our plants, which is going to put more pressure on the marginal plants, eventually, in my opinion.

They are not efficient, they are old, they are a different technology than what is the best technology, and if they are not making money, I don't know what the point is of keeping them open.

But some people, because we have had good years in the past and they have some good plants, some bad plants, they do keep them open.

And, again, they try to -- and the logic escapes me.

But from what I read, people are trying to just reduce capacity when, in truth, I think the best thing to do is just, in their position and for the industry, would be to shut down plants.

But we see very, very little of it -- a small amount, but not very much of it, to be perfectly honest.

Okay.

As I would have guessed.

Right.

Appreciate your perspective.

Thank you, guys.

(Operator Instructions) It appears we have no further phone questions at this time.

I'll turn it back over to you, sir.

Thank you very much for listening, everyone, and we will talk to you in our next conference call.

Your owning our shares is appreciated.

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 lines.