REX American Resources (US:REX)2022-12-01 21:45Financial Data and Key Metrics Changes - Sales for Q3 2022 increased by 8.5% due to higher pricing for ethanol, distiller grains, and corn oil [5] - Gross profit decreased to $11.3 million from $25.2 million in the prior year, impacted by higher corn and natural gas prices [5] - Net income attributable to REX shareholders from continuing operations was $3.2 million, down from $13.3 million in the prior year [9] - Total net income per share was $0.18 for Q3 2022, compared to $0.85 in the prior year [10] Business Line Data and Key Metrics Changes - Ethanol sales volume decreased to 66.3 million gallons from 69 million gallons year-over-year [5] - Ethanol pricing improved by 8%, while dried distiller grain and corn oil pricing both improved by 25% [5] - SG&A expenses increased to $7.9 million from $6.3 million, primarily due to increased freight costs associated with ethanol contracts [6] Market Data and Key Metrics Changes - Corn pricing increased by 17%, and natural gas pricing rose by 56% compared to the prior year [5] - The USDA reported a 26% drop in corn yield in Nebraska and a 10% drop in South Dakota, affecting corn availability [16] - Ethanol exports increased by 27% year-over-year, totaling 1.12 billion gallons [17] Company Strategy and Development Direction - The company is focusing on investments in carbon capture technology and is exploring opportunities in ethanol companies [12] - Significant progress has been made in carbon capture, with ongoing projects expected to enhance production efficiency and reduce water consumption [22] - The company aims to complete its carbon sequestration project by the end of 2024, although this timeline may extend [44] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges in logistics and corn availability due to drought conditions, impacting production and profitability [15] - Despite these challenges, management remains optimistic about potential profitability in Q4 2022 if corn sourcing and logistics improve [18] - The company expects interest income to rise due to increased cash reserves and is actively buying back shares [13] Other Important Information - The company has approximately $290 million in cash and very little debt, positioning it well for future investments [12] - The Inflation Reduction Act has increased the Section 45Q cash payment for carbon sequestration to $85 per metric ton [22] Q&A Session Summary Question: Progress on CCS and its impact on the business - Management explained the interplay between carbon capture and clean fuel credits, highlighting potential financial benefits from reducing carbon intensity scores [30][32] Question: Logistical challenges with rail - Management discussed ongoing logistical issues due to labor shortages and delays in rail transport affecting production and shipment [53] Question: Impact of natural gas price increases on profitability - Management noted that rising natural gas prices significantly impact profit margins, with a 56% increase affecting the bottom line [56] Question: Future corn pricing outlook - Management indicated that corn prices may remain elevated due to drought conditions in key producing areas, affecting overall production costs [60] Question: Regulatory updates on E15 - Management expressed optimism about the potential passage of legislation to allow year-round sales of E15, which could boost ethanol demand [62] Question: Export opportunities to China - Management noted limited exports to China this year, with stronger demand seen from Canada and other countries [63]