Q3 2019 Earnings Call
Greetings and welcome to the Rex American resources fiscal 2019 third quarter conference call.
During the presentation, all participants will be unable to sit on the mode.
Afterwards, we will conduct a question and answer session.
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I would now like to turn the conference over to Doug.
Chief Financial Officer. Please go ahead.
Good morning, Thank you for joining Rex American resources fiscal 2019 third quarter conference call.
Well get to our presentation at comments momentarily as well as a question answer session, but first I'll 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, but are not guarantees of future performance as such actual results may vary materially from expectations.
Risk and uncertainties associated with the forward looking statements are described in today's news announcement.
The company's filings with the Securities and Exchange Commission, including the company's report on Form 10-K and 10-Q.
Rex American resources assumes no obligation to publicly update or revise any forward looking statements.
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 Stewart for his comments.
Sales for the quarter declined 30%, primarily due to reduced ethanol gallons sold offset by an 11 cents increasing per gallon ethanol pricing.
Sales for the quarter based upon 47.6 million gallons this year versus 71.4 million last year.
Reduce production also resulted in lower unit sales for the ethanol by products.
The lower ethanol production was primarily at the new just South Dakota plant as we experienced reduced availability of affordable corn largely in response to the wet spring conditions, which has led to uncertainty on current your corn production in that area.
We also experienced lower distiller grain pricing on a year over year basis.
Our consolidated corn cost per bushel rose, 25% compared to the prior year off again, largely reflecting the concern for corn availability.
Combining these factors led to gross profit for the ethanol and byproducts segment decreasing from 11.3 million in the prior year 25000 for the current year.
The refined coal segment had a gross loss of one point.
1.8 million for the third quarter fiscal 2019.
Versus 3.5 million for the prior year, reflecting lower production levels in the current year.
These losses are offset by tax benefits recorded from the section 45 credits.
X gene a decrease for the second for the third quarter from 5.4 million to 4.1 million, primarily due to reduced incentive compensation associated with <unk> corporate profitability and reduce commission fees associated with the lower refined coal production.
Equity and income of unconsolidated ethanol affiliates decreased from 611000 to a small loss of 15000 for the quarter.
Interest and other income increased from eight from 809000 to 1 million, primarily reflecting higher interest rates in the current here.
We booked a tax benefit of 3.2 million for the third quarter of this year versus a benefit of 10 million in the prior year.
Benefit as primarily as result of the section 45 credits from our refined coal operation and again reflects lower refined coal production in the current year.
The about factors led to a net loss attributable to wrecked shareholders for the third quarter of 2.1 million. This year compared to income of 11.9 million and a loss per share of 32 cents this year versus income of $1.86 in the prior year.
Sure I'll now turn the call over to you.
Thank you Doug going forward, our corn supply he has improved over the last quarter and crush spreads you have also improved.
We have a lot there's less production going on currently in the industry as many plants closed or a number of plants closed or slow down.
Demand next year should be up if the government sticks to the amounts when products. We're currently running at a profitable right methanol and we're running that are right. That's above last year's corresponding quarter and certainly above the quarter. We just reported when it's like call. We kinda we've continued to rise.
At a rate that are we continue to expect to write less than last year.
What we expect it to still be profitable and the current quarter on an after tax basis, a cash balance was approximately 196 million.
We have.
Stepping up our authorized share repurchase program.
350000 shares out can but are still open to be bought we generally have bought shares on deps Oh, we have we still have that availability should we choose.
He also continue to look for opportunities in the ethanol steel.
But there's nothing imminent, but we are looking we have.
So looking at opportunities outside the ethanol, we know where we could use our management.
Management abilities.
To to make profits for our shareholders terms of our cash. We're currently investing that short term securities I'll now turn the call Lovebirds far recipe, our CEO , who will discuss more our ethanol operations. Thank you.
I think as to what a good morning, everybody.
As I mentioned in our babies, who caused a challenging environment has continued to work but yet.
Company creates a number of issuing new debt related problems, we can delayed planting.
On the regarding the expected when he is unexpected delays in the Hog list.
With that going to gain an adequate supply of loan at our new unit facility in South Dakota.
Production has fallen off off.
Historic 11.
Production at this point.
This noncompete dude continued to be interrupted due to quote going away Loon building deep.
Loading no operation into.
Thats largely we experienced a loss in that segment in the third quarter 2019, the only at the time does happen Wasnt the fourth quarter fiscal 2000.
Because the drawn and that was almost 70 years ago.
On top of that we had experiencing continued until the because of the play a dispute and the small new funded the exemption.
Some lead the EPA approval 31, small refineries exemption, what 2018 effect effectively using by 1.4 billion gallons the obligation under the new when you listen to it.
If you had good onto that we went up 2016 in 2017 totaling 2.6 billion gallon that he has already that let's see.
And do some for smog Dupont he exemption from the 2019 and deal that we will spend a compliance the.
These producers have doubled since the EPA updated its online dashboard in some of them, but he's been able to up Gunter <unk> companies than pumps, but I'll allow me to believe what I should get back into the ethanol industry, leading that thing dispute as you all know the ethanol industry did not receive any payments of substitute from.
Be on any of the federal agencies.
As for that concerned about.
Export during the first nine month of 2019 export CAD 1.1 billion gallon compared to 1.25 billion gallons of doing the same beat it lost deals.
But I've been.
Yeah, what the top to the board of last year, the ethanol explored what very healthy 1.7 billion Kevin.
We expect ethanol exports dropped 1.5 billion gallons this year due to the continued great uncertainty.
If part of then lead disputes others dog export them after not expected wouldn't agree that more countries will begin blend ethanol into that fuel supply because of the have grown growing concern about air quality.
No stock Docs last week the view.
37000 beds, and the stock and if one or 2.277 million beds that that's almost.
Yeah, that's no off almost 1.6 million bad what just the last two weeks ago E.
You bet on the lease on November 27 caught the weekend in lumber 22nd.
That's not stock is down 11.6% compared with the same week last year. We are pleased that New York becomes the latest state law the sale of Efifteen opening up the lot quote log just fuel market in the USA.
But we are still waiting on California.
And I'll leave it alone.
That's what I was concerned about the distiller grain in the first nine month of 2019 export.
Approximately 8.2 million metric tons, compared <unk> point 9 million metric tons in the past nine month.
Got into the U.S.U.S. b.
And after deduction of 6% U.S. export digital of Green in the September dropped approximately 72000 metric tons to 1.1 million 46000 metric tons about 6.47 reduction in August .
Paul but that was that was boom bust on them up to 1.020 million metric tons exported in September 2018.
Mexico and the top while the country bought approximately 37000 metric tons going about 23% from the 180000 metric tons.
In August .
The top five importance of be beginning September one, Mexico, Vietnam, Turkey, South Korea and Japan.
Bbds currently trading at approximately 100, 210% of the corn value.
We believe that D. D market will remain the same in the near future unless I knocked out if it's a reduced or eliminated.
As far as concerned about the cone.
Productive to yield of approximately 13.66.
Billion.
God warm, but normally you with the airport cost report.
Bottomless Blundered 90 million it goes up and estimated corn yield is about 167, well since about it.
On used for the ethanol feed went down 25 million well, so each and export and domestic comes up somewhat gone about 50 million bushels each.
Due to heavy rain and flooding the planting season, what delayed and many it goes look not very late not at all.
Because of the delayed planting season. It is estimated at approximately $1 billion mode, which was up one left to be harvested.
The carry out for 2019 2020 is expected to be 1.91 billion. So obviously with.
As I mentioned previously.
We have sentimental in enterprise life going in so we.
We have not seen this kind of situation during the last 10 years, including that brought it up 2012.
We have seen some improvements into supply of bone doing to harvest and the cash margin also has increased as Stuart mentioned earlier, but I just ask awesome hottelet's until the harvest is completed.
As far as concerned about the next.
Capital expenses during the last nine month, we made total GAAP expenses up approximately 2.6 million.
I love at our consolidated ethanol plant.
We estimated five to 6 million of capital expenses during the fourth quarter.
Excluding any maintenance expenses somebody.
That's very challenging operating environment for what the yet.
We've we faced floods logistic problems, but production interruption because of lack of loan at the new loan.
Small refund exemption and trade disputes, but we have seen a decent improvement in the gosh locked in at as Stuart mentioned earlier than we currently expect to be profitable, but the fourth quarter at this time, but why did this spend continues and we feel it's no more wont shortage.
No I will give but give it back to school.
The additional comments thanks to win.
Thank you I conclusion, it's novartis matching cries crush spreads in corn supplies have improved quarter to date versus last quarter, and where again running at a profitable rate and a shift and currently project. If we can continue this to do better than fourth quarter last.
Here, we continue to outperform the industry even in difficult times, we attribute this good plants, but grail. Most importantly, we we really believe we have the best people in the industry and Thats really what separates us from district.
Now turn the conference call over to questions.
Thank you.
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We have no questions I. Thank everyone for there do we have a question approach.
Yes. Thank you how question.
Good. Thank you are our first question.
Comes from a line of pad, though now canal with Raymond James. Please proceed.
Okay. Thanks for.
Taking the question guys I I wanted to.
Ask about just your individual perspective on me.
Refinery waivers heading into 2020.
Yes, the 35 or so waivers.
Out were granted this past summer, we'll come up for renewal.
In the summer of 2020, which of course, it's the middle of the presidential campaign.
Hi, just on political grounds, if nothing else.
Your sense that it's more likely than not the administration will one too.
Kind of set those aside essentially and them.
By next summer instead of no picking a fight with what farmers in the middle of an election year.
Well I understand that is even if they grant the waiver Sears still require 15 billion in rents next year. So it was and at least at what's the current my current understanding.
What will happen next year, which is always subject to change.
We have not been we'd been led to believe a lot of things that don't come true. So we're very skeptical of fabric thing comes out of the government today, because they've not fit.
Ben with these exemptions say very badly hurt our industry. So I don't know, what which way it'll go I know that we get a lot of.
Talk that the government is going to help our industry, but we really haven't seen anything in my opinion of substance. Some parties may want to add to that.
Yeah, I think as I mentioned in my prepared remarks step that we have not received any.
Subsidy.
And also I think the problem is that Stuart said made huge package, we have not received that huge Beckett upsell. So as you as I mentioned so this is Ben.
Funds. These all of the applied for deficit doubled.
It was five double than some since dumb, but.
And Uh huh.
<unk>.
Can go either way, but I think there.
It probably will.
Keep it 15 billion and it is something that they may add the previous exemption some of them to redistribute to sum up the people who.
No. It upon these back that but to be honest with you it's hard to say.
We can direct sun you'd be able to go and which direction from.
Really glad that yeah.
One thing that we've seen a bell is a much lower or ours are not witness shouldn't say much but a lower right to production plants are shutting plants have shut down plants have slowed down that's increased our crush spread even with all that stuff that's happened to us this year, so even with the government.
I'm doing basically the exception so that's a if if things do go bad.
We're in a really good position because our plants are really good. So we'll see what happens, but Ah we prefer a strong we prefer the government not to give the exemptions or at least ticket to commit to 15 billion gallons, but.
Even if that doesn't happen, we think were in a really good position because we have what we consider among the best plants in the industry.
Okay, and I think I add that if I wish that we can to dissolve.
Disputes mode.
That will help us to export more ethanol.
On the same time, so those uncertainties also really major effect.
What's going on in industries apart from that.
Comparisons.
The one thing the government did.
Allow would see 15, but that that's been because the pumps that are out there that and we've always said that would be I'm not a major improvement a minor improvement it's turned out that it has certainly been a minor improvement buckets or not.
It is not a lot of gas stations relative to that relative to the Grand total gas stations have pump be 15.
Okay well.
Do you actually answered my second question on.
If you kind of first first year with with year on the 15 sounds like you're.
Hi, you're either a little skeptical about the scale of that.
It's better to better.
Someday it may be something but today, it's very minor.
In my opinion.
Yeah, I think 15.
You probably know that.
All of the bonds, which is most feet apart from a couple of manufacturers that have the manufacturers out one bringing these 2020.
Automobile is all of them is approved 15, and that's certainly that include even BMW and others.
So that will certainly.
Hello, but I think stored is right unless we have mode.
These.
Our lumpy that to not do.
Starting mixing up 15, black and it's available blended.
Everywhere.
Not really.
Going to make much difference.
Got it appreciate it guys.
Thank you talked about.
Thank you.
Our next question comes from line of Chris The Guy with singular research. Please proceed.
Hi, Hi, good morning.
A question for.
Hi, Hi, and.
Stuart mentioned that.
You guys it possibly looking for acquisitions.
Outside of ethanol.
I'm just wondering if you could elaborate more on that.
Well there I mean, there's a lot of things and alternative energy that that could fit our abilities, but we have nothing imminent that I could that I got it that we can talk about so that there's really not.
Not to talk about but for example, a good example of what we've done in the password a retailer or one time when it became an ethanol producer where an ethanol producer were now in refined coal.
A number of things out there and that related to.
Our expertise in.
Yeah.
In rough and basically hand, Duane things like refined calls, but not that we're going to go into coal business, certainly art, but there's a lot of things related to tax credits said and energy that we know a lot about and that would be the type of thing that we're looking for.
That that we feel we could use our abilities.
To run a successful operation other than ethanol.
And then I guess for valuations and other ethanol plants like.
How are they are you seeing anything there.
We've made we've talked we've tried to talk to some people at the valuations on the really couldn't once if not come down or at least have not come down to the profitability of many companies almost all of pay at a rough third quarter, but everyone is looking at fourth quarters, and hopefully a little bit.
Batter and every one hopes to get the industry on track next year and so because of that no. One is really.
The good plants now there are plans out there that we know that we're not interested him but of the plants, where rents are spin and we have not seen anything at a valuation that's attractive we have seen a couple one or two for sale, but mattered evaluation attractive to us.
Yeah.
Okay, and then I guess lastly, a.
Before I mean for the Nugen story, how and this quarter how is it how's it going there as are they still facing the.
Same difficulties this last quarter or is it getting better.
I think as I mentioned not Leah.
We have.
No well enough it's time, but.
Well.
We started deployments in the late.
In the past a second week of literally no one but then we have the started and none we have enough on fund these.
At least a month so often to somebody who is we have some one for at least half a month one month of January . So I think we have things has improved generally speaking but.
Hi, Matt some bids on almost <unk> billion.
Which was not really harvest yet and if you look at that are not the beta is about I think it's about close to 30, 35% wasn't part of this was done that is the Michigan that is not enough cloud was done invest sponsons dude, while these weather related so I think I will leave that to caution.
Because of Donda harvest is completed but generally speaking at this time, we have no problem.
Okay alright. Thanks.
Thanks, Thank you.
Thank you.
Mr Gross or no further questions at this time I will now turn the call back to you.
I'd like to thank everyone for for listening and well talk to you and I know, it's called up your rent call. Thank you very much like.
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