Rex reports recent improvement in margins

By Erin Voegele | March 21, 2019

On March 21, Rex American Resources Inc. released fiscal fourth quarter 2018 financial results, reporting its ethanol operations are being impacted by a continuing low margin environment and flooding in the Midwest.

During an investor call, Stuart Rose, executive chairman of the Rex board, said the company expects the current quarter to remain profitable, with its ethanol operations running approximately breakeven and its refined coal businesses remaining profitable on an after-tax basis.

While ethanol crush spreads during the recent quarter were low, Rose said they have recovered over the past couple of weeks. However, he said the company is worried that the improvement is temporary and due to flooding in Nebraska that is affecting the industry’s ability to get ethanol to the market. Rose also noted that the Nebraska flooding has impacted its plant in South Dakota and its ability to ship ethanol. He indicated Rex expects margins to return to historically low levels once the impacts of Nebraska flooding subside.

Rose said the company is continuing to consider the purchase of additional ethanol plants. A fair amount of facilities are on the market he said, but stressed Rex is only interested in buying the very best plants.

Zafar Rizvi, president and CEO of Rex, said crush margins experienced in 2018 were challenging, particularly in the fourth quarter. That challenging margin environment continued into the first quarter of 2019, he said. While first quarter ethanol income is close to breakeven, Rizvi said Rex is currently facing a number of logistics issues related to heavy snow, floods and the unpredictable operation of a railroad company in South Dakota. For those reasons, he said the company’s ethanol operations could be facing a loss.

As a result of these situations, Rizvi said Rex elected to shut down its NuGen Energy LLC plant in Marion, South Dakota, to complete regular maintenance now instead of in late April, as originally planned. He said the NuGen plant is expected to resume operations later this week.

For the fiscal fourth quarter, which is the three months ended Jan. 31, 2019, Rex reported sales and revenue reached $113.3 million, up 3.5 percent when compared to the same period of 2017. The increase is primarily attributed to higher average selling prices for dried and modified distillers grains as well as increased production of ethanol and byproducts, partially offset by a 7.9 percent reduction in the average selling price per gallon of ethanol. Fourth quarter gross profit for the ethanol and byproducts segment was $5.4 million, down from $10 million during the same period of 2017.

Net income attributable to Rex shareholders was $1.1 million for the fourth quarter, down from $19.1 million during the same period of 2017. Basic and diluted net income per share attributable to Rex common shareholders was 17 cents per share, down from $2.89 per share during the fourth quarter of the previous year.

For the fiscal year ended Jan. 31, 2019, Rex reported net sale and revenue for its ethanol and byproducts segment of $485.89 million, up from $452.15 million for the previous fiscal year. Total gross profit was $30.22 million, down from $44.16 million. Net income available to Rex common shareholders was $31.65 million, down from $39.71 million.

Rex owns 75.1 percent of Gibson City, Illinois-based One Earth Energy LLC, 99.5 percent of Marion, South Dakota-based NuGen Energy LLC, 10.3 percent of West Burlington, Iowa-based Big River Resources West Burlington LLC, 10.3 percent of Galva, Illinois, Big River Resources Galva LLC, 5.7 percent of Dyersville, Iowa-based Big River United Energy LLC, and 10.3 percent of Boyceville, Wisconsin-based Big River Resources Boyceville LLC.

During an investor call, Stuart Rose, executive chairman of the Rex board, said the company expects the current quarter to remain profitable, with its ethanol operations running approximately breakeven and its refined coal businesses remaining profitable on an after-tax basis.

While ethanol crush spreads during the recent quarter were low, Rose said they have recovered over the past couple of weeks. However, he said the company is worried that the improvement is temporary and due to flooding in Nebraska that is affecting the industry’s ability to get ethanol to the market. Rose also noted that the Nebraska flooding has impacted its plant in South Dakota and its ability to ship ethanol. He indicated Rex expects margins to return to historically low levels once the impacts of Nebraska flooding subside.

Rose said the company is continuing to consider the purchase of additional ethanol plants. A fair amount of facilities are on the market he said, but stressed Rex is only interested in buying the very best plants.

Zafar Rizvi, president and CEO of Rex, said crush margins experienced in 2018 were challenging, particularly in the fourth quarter. That challenging margin environment continued into the first quarter of 2019, he said. While first quarter ethanol income is close to breakeven, Rizvi said Rex is currently facing a number of logistics issues related to heavy snow, floods and the unpredictable operation of a railroad company in South Dakota. For those reasons, he said the company’s ethanol operations could be facing a loss.

As a result of these situations, Rizvi said Rex elected to shut down its NuGen Energy LLC plant in Marion, South Dakota, to complete regular maintenance now instead of in late April, as originally planned. He said the NuGen plant is expected to resume operations later this week.

For the fiscal fourth quarter, which is the three months ended Jan. 31, 2019, Rex reported sales and revenue reached $113.3 million, up 3.5 percent when compared to the same period of 2017. The increase is primarily attributed to higher average selling prices for dried and modified distillers grains as well as increased production of ethanol and byproducts, partially offset by a 7.9 percent reduction in the average selling price per gallon of ethanol. Fourth quarter gross profit for the ethanol and byproducts segment was $5.4 million, down from $10 million during the same period of 2017.

Net income attributable to Rex shareholders was $1.1 million for the fourth quarter, down from $19.1 million during the same period of 2017. Basic and diluted net income per share attributable to Rex common shareholders was 17 cents per share, down from $2.89 per share during the fourth quarter of the previous year.

For the fiscal year ended Jan. 31, 2019, Rex reported net sale and revenue for its ethanol and byproducts segment of $485.89 million, up from $452.15 million for the previous fiscal year. Total gross profit was $30.22 million, down from $44.16 million. Net income available to Rex common shareholders was $31.65 million, down from $39.71 million.

Rex owns 75.1 percent of Gibson City, Illinois-based One Earth Energy LLC, 99.5 percent of Marion, South Dakota-based NuGen Energy LLC, 10.3 percent of West Burlington, Iowa-based Big River Resources West Burlington LLC, 10.3 percent of Galva, Illinois, Big River Resources Galva LLC, 5.7 percent of Dyersville, Iowa-based Big River United Energy LLC, and 10.3 percent of Boyceville, Wisconsin-based Big River Resources Boyceville LLC.