REX American Resources (REX) - 2021 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Sales for the quarter increased substantially by 398% primarily due to higher production levels as the NuGen and One Earth plants were idled for a portion of last year's second quarter due to the pandemic [6] - Ethanol sales for the quarter were based on 69 million gallons this year versus 26.5 million gallons last year, benefiting from a significant increase in average selling prices [7] - Gross profit for the ethanol and byproduct segment was $14.2 million compared to $553,000 in the prior year, with gross margin benefiting from increased volume and selling prices, offset somewhat by higher corn pricing [8] - Net income attributable to REX shareholders was $7.9 million in this year's second quarter compared to a net loss of $1.7 million in the prior year [14] Business Line Data and Key Metrics Changes - The refined coal segment reported a gross loss of $3.1 million for the second quarter, compared to a loss of $1.9 million in the prior year, but was offset by tax benefits from this segment [10] - SG&A expenses increased to $6.6 million from $4.4 million in the prior year, primarily due to increased shipping costs and higher incentive compensation [11] Market Data and Key Metrics Changes - The company noted that high corn prices and shortages are hampering the ethanol business, impacting profitability [17] - The availability of corn at reasonable prices and logistics issues are affecting production capacity at both majority-owned plants [22] Company Strategy and Development Direction - The company is looking for opportunities to acquire ethanol plants but has not had success this year [20] - A significant focus is on carbon capture projects, with collaboration with the University of Illinois and government grants to support these efforts [20][28] Management's Comments on Operating Environment and Future Outlook - Management indicated that while the operating environment is improving, cash margins are declining due to high corn prices and other logistical challenges [22] - The company expects gross margins to remain under pressure in the near future, which could adversely affect the third quarter [24] Other Important Information - The company completed its most recent share repurchase authorization and has approved an additional 500,000 share repurchase authorization [15] - The refined coal business is expected to end by November 18, 2021, as it will no longer be eligible for tax credits [10] Q&A Session Summary Question: Can you expand on the logistics issues with the DDG containers? - Management noted that logistics issues were improving, with an increase in container arrivals helping to alleviate storage concerns [34][36] Question: What are the expectations regarding corn prices? - Management observed that while corn prices have come down, the basis is weakening, and they are cautious about overbuying [37][38] Question: How does the company view share buybacks in the long term? - Management indicated that share buybacks are opportunistic and aim to support the stock price during dips, rather than being a constant strategy [39][40] Question: What are the major milestones for the carbon capture project? - The test well is expected to be drilled this fall, with results anticipated by mid-next year to assess carbon storage capacity [44][46] Question: When does the company expect the EPA to release fuel blending volume mandates? - Management expressed uncertainty regarding the timeline for the EPA's release of mandates, noting it has been delayed [51][52] Question: What is the impact of Hurricane Ida on ethanol demand? - Management indicated that any increase in demand due to Hurricane Ida would likely be short-term and not lead to permanent changes [58][59] Question: Why were there no acquisitions made this quarter? - Management stated that they did not find suitable acquisition opportunities that met their criteria, preferring to buy back shares instead [66][68] Question: Which countries are currently demanding ethanol? - Management highlighted that Canada, South Korea, Peru, and Mexico are significant markets, while Brazil's demand has decreased significantly this year [68][70]