REX American Resources Corp (REX) 2016 Q1 法說會逐字稿

Thank you for standing by. Welcome to the REX American Resources FY16 first-quarter conference call.

(Operator instructions)

As a reminder, this call is being recorded, Thursday, June 2, 2016. I would now like to turn the conference over to Mr. Doug Bruggeman, Chief Financial Officer. Please go ahead.

Good morning, and thank you for joining REX American Resources' FY16 first-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 risk and uncertainties within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the Company's current expectations and beliefs, 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 Executive Officer. I will first review our financial performance, and then turn the call over to Stuart for his comments.

REX is pleased to report an industry-leading and profitable first quarter to begin our FY16. Sales for the quarter declined approximately 5%. Sales were based upon 58.7 million gallons this year versus 55.8 million gallons in the prior year. We experienced a $0.09 per gallon reduction in ethanol price and approximately a $19 per ton reduction in DDG pricing for the quarter.

Gross profit declined from $9.1 million to $8.4 million for the first quarter. This decline was principally due to lower DDG pricing. DDG pricing for the quarter was impacted by the lower corn pricing and continued uncertainty of demand from China.

SG&A was slightly reduced from $4.5 million to $4 million, reflecting slightly lower incentive compensation, professional fees and railcar leases. Equity method income was $233,000 this year versus $1.5 million in prior year, due to no longer recognizing income from the Patriot plant, as well as lower contribution from the Big River facilities.

Our tax rate for the first quarter of FY16 was approximately 35% versus approximately 38% in the prior-year first quarter, net of non-controlling interest. Our tax rate can fluctuate based upon levels of income, domestic production activity deduction and state allocations. We currently believe this is a good approximation for this tax rate for the year.

Our net income for the quarter was $2.8 million versus $3.9 million in the prior year. And our diluted earnings per share for the first quarter was $0.43 versus $0.50 in the prior year.

I will now turn the call over to Stuart Rose, Executive Chairman of the Board, for his commentary on the quarter results and industry perspective.

Going forward, we're currently running a rate of approximately 50% better this quarter than the quarter we just reported. Things are looking a little bit up for us. Our crush spreads look like they are firming up and getting a little better. That's the price of corn versus the price of ethanol.

As we go into driving season, there should be more demand for our product. And we have -- on the plants that we control, we have no long-term hedges, so we get direct impacts from increases in crush spreads. The other thing going for us: DDG prices have been rising with the price of corn during this quarter. It was a drag on us last quarter. This quarter, prices should go up as corn prices go up.

In terms of EPA and what's going on there, they have provided us a lot more stability this year. We haven't had the uncertainty that we did last year, and we look at that as a positive. Natural gas prices have remained low. Weather, so far, is cooperating with us. It looks like there will be a good harvest this year -- we see nothing that would prevent a good harvest this year, which, of course, is good for us. And we appear to have no political threats with the presidential candidates, as a both of them have expressed support for ethanol.

In terms of our cash, we continue to generate large amounts of cash. Cash balance was approximately $122 million at the end of the quarter. We bought back some shares, about 87,000 -- a little more than 87,000 in the first quarter. We have no debt. We continue to look for other opportunities. We have nothing imminent at this time.

We have made, I would say, very little progress on our heavy oil project, which is probably just as well, because with the price of oil today, pulling out the deep heavy oil is probably cost-prohibitive. But we still continue to have interest in that. Again, we would not recommend people buying our stock on -- related to that. The biggest opportunity is expanding our ethanol plants.

Zafar Rizvi will give you an overview of is where we stand on that and what's going on in that area.

Good morning. During the financial year 2015 and until now, we've made capital investments of approximately $17 million to increase production. We continue to focus on improving our [patient] efficiencies, managing cost of production and increasing ethanol yield. We built fermentation tanks, new large hammermills. We added new slurry blenders, [mecola seeds] and other equipment to both plants. We expect our entire project, which started late last year and early into this year, to complete no later than early August.

We expect capital spending of $6 million to $10 million this year. Due to these capital investment, our goal is to increase the production level of each plant to a rate of 135 million gallons. We have received final pathway approval from EPA for NuGen, although it is still pending for One Earth Energy. NuGen now has a permit to produce up to 150 million gallons.

We will continue to monitor crush margins, while we bring the plants to higher rates and resolve other bottlenecks, as we increase our production to a rate of 135 million gallons or more. Our ultimate goal is to achieve a rate of 150 million gallons for all those locations. At this time, both plants have continued to be at cash-flow positive, and currently we are producing at almost full capacity.

Stuart?

In conclusion, next quarter -- the quarter we are currently in -- is currently running at approximately 50% better than the quarter reported. We continue to drastically outperform most other companies in the industry. We have great locations, great rail, good corn supply, and most importantly -- and the thing we consider the greatest asset of our Company -- is we have great people at every level. And that is what really, I think, sets us apart from the other companies in our industry.

At this time, I'll now leave the forum open to questions.

Thank you.

(Operator instructions)

I guess if there are no questions, I'd like to thank everyone for listening. Again, operator, are there any questions?

Yes. We do have a question from the line of Robert Maltbie of Singular.

Hey, Stuart; hey, Doug. Robert sitting in for Greg Eisen. He had to be on a little bit of a family business today. How are you all doing today?

Very well, thank you.

Just a question -- and again, looking forward to your presentation at our conference up in San Francisco on June 9, next week. I expect a good turnout there. I want to mention -- ask about the use of cash, a significant amount on the balance sheet. And just wondering what your perspective is on that moving ahead and best use of cash? And also if you could address the strategy in terms of M&A opportunities? Thank you. I will go back in the queue.

Well, we always look for opportunistic M&A opportunities in the ethanol business. We have nothing imminent. We, of course, have things across our desk all the time. But again, nothing eminent in that area. As we buy back our shares opportunistically, and as Zafar talked about, our biggest opportunity is just to expand our plants. It's the least expensive opportunity. It's the safest opportunity. We think it can give us the biggest return. So we're working diligently on expanding our plants and trying to increase the capacity on our plants.

Thank you.

Sure. Thank you, Robert.

There are 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 just want to thank everyone for being a shareholder, and I want to thank you for your support. And we'll talk to you at the end of -- and when we make our next report, next quarter. Thank you very much. Bye.

Ladies and gentlemen, that concludes the conference call for today. We thank you for your participation, and ask that you please disconnect your line.