REX American Resources - Earnings Call - Q2 2026

Executive Summary

• Q2 2026 (three months ended Jul 31, 2025) delivered stable revenue but margin compression: revenue $158.6M (+7.0% y/y; +0.1% q/q), diluted EPS $0.43 (vs $0.70 y/y; $0.51 q/q) as lower DDG prices and higher shipping costs weighed on gross profit.
• Company announced a 2-for-1 stock split and reiterated strong balance sheet with $310.5M cash and no bank debt; share buyback capacity was doubled post-split to 2,357,186 shares.
• Operations: ethanol volumes rose to 70.6M gallons (+8% y/y); corn oil volumes and pricing improved sharply (+14% volume, +26% price y/y), while DDG pricing was weaker y/y and shipping costs rose.
• Outlook: management expects Q3 to be better than Q2 but below last year’s Q3; One Earth expansion remains on track for 2026 and EPA Class VI well decision timeline moved up to March 2026 (from April) according to EPA’s site.
• Consensus context: S&P Global showed no usable sell-side consensus for EPS or revenue this quarter; therefore, no beat/miss determination vs Street can be made (see Estimates Context) [functions.GetEstimates].

What Went Well and What Went Wrong

• What Went Well

  • Strong balance sheet and capital actions: $310.5M cash/short-term investments and no bank debt; 2-for-1 split and expanded repurchase capacity support liquidity and shareholder returns.
  • Operations execution and product mix: Ethanol volumes increased to 70.6M gallons; corn oil volumes ~23.1M lbs with pricing up ~26% y/y, driving ~46% y/y sales dollar increase for corn oil.
  • Strategic progress and policy tailwinds: “Our ethanol expansion project remains on schedule for completion in 2026… We are pleased with the extension of the provisions for 45Z and 45Q tax credits…,” said CEO Zafar Rizvi.

• What Went Wrong

  • Margin compression: Gross profit fell to $14.3M vs $19.8M y/y; CFO cited lower DDG prices (avg $143.63/ton vs $164.45 y/y) and higher shipping costs flowing through COGS.
  • Lower interest income: Interest and other income declined to $3.1M vs $4.4M y/y amid lower balances/rates, pressuring the bottom line.
  • DDG export softness: Management noted DDG exports were down versus last year (e.g., Mexico buying less), contributing to weaker DDG pricing relative to corn.

Transcript

Speaker 3

Greetings and welcome to REX American Resources Corporation's second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Doug Bruggeman. Thank you. You may begin.

Speaker 5

Good morning and thank you for joining REX American Resources' Quarter Two 2025 conference call. With me on our call today are Stuart Rose, REX Executive Chairman, and Zafar Rizvi, the REX Chief Executive Officer. We'll get to our presentation and comments momentarily, as well as your questions. 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, but 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'd now like to turn the call over to our Executive Chairman, Stuart Rose.

Speaker 3

Good morning and thank you to everyone for joining us today. During the second quarter, REX American Resources extended our success in our core ethanol production business, moved our One Earth Energy expansion project forward, and saw supportive near-term tailwinds develop for our business as we head to the second half of the year. Overall, REX American Resources exited the second quarter in a great position to continue delivering value to our shareholders. The passage of the Big Beautiful Bill Act during the quarter was very supportive for our carbon capture and sequestration project. The continuation of the 45-Q tax credit, extension of the 45-Z tax credit through 2029, important to the economics of our project, put us in a good position. We wait on approvals from the counties, state, and EPA. We are pleased with these developments and believe they set up REX American Resources for long-term success.

During the quarter, we maintained our strong balance sheet and continue to have ample cash to complete our several growth initiatives, as well as other opportunities which could arise. These include any potential acquisition opportunities that meet our strict operational and financial criteria or additional future organic growth. This morning, we announced that our Board of Directors has authorized a two-for-one stock split that would be effected by a 100% stock dividend. Our stock recently traded at all-time highs. We saw this as an opportunity to reward our loyal shareholders and increase liquidity in our shares. The split will affect shareholders of record as of September 8, 2025. Overall, the REX American Resources team executed at a high level once again, delivering value to our shareholders and moving our business forward efficiently.

We are very proud of the work the team does every day to ensure our company's success and drive value for shareholders. I'll now turn the call over to CEO Zafar Rizvi to provide updates on our ongoing projects.

Speaker 1

Thank you, Stuart. The One Earth Energy facility expansion is progressing steadily. The previously mentioned energy efficiency initiative has been completed, with a focus on optimizing the reduction of the expanded plant's carbon intensity. Most of the previous expansion work is already complete. The initial capacity expansion, which will increase annual ethanol production capacity to 175 million gallons, is expected to be fully operational in 2026. Turning to carbon capture, the recently enacted Big Beautiful Bill Act has further strengthened the economics of REX American Resources' proposed carbon capture and sequestration project by preserving both the 45-Q and 45-Z tax credits. While we also extended 45-Z through 2029, with this outcome, we are positioned to maximize the benefit from the tax credit program through expansion of our ethanol production capacity to 175 and then to 200 million gallons.

The legislation also simplified 45-Z requirements by removing mandates tied to climate-smart farming practices. Also, thanks to the legislation, clean fuels produced with feedstock sources outside the U.S., Mexico, or Canada will not be eligible for the 45-Z credit pending final Treasury guidelines. This supports our business as well as that of our farmers' partners. As of today, the EPA estimates that our Class 6 injection well permit application will be finalized in March 2026, which has been moved forward from April 2026, as per the EPA website. REX American Resources remains in active communication with the EPA on our application and will look forward to the final approval of this permit. As of the end of the second quarter, we have invested a total of approximately $126.7 million in carbon capture and ethanol expansion projects.

We remain within our revised combined budget range of $220 million to $230 million for both projects. I'll now hand the call over to Doug Bruggeman to discuss our financial results.

Speaker 5

Thanks, Zafar. During the second quarter of fiscal 2025, our ethanol sales volume reached 70.6 million gallons compared to 65.1 million gallons in Q2 2024. The average selling price for ethanol was $1.75 per gallon during the quarter versus $1.79 in the prior year. Dry distillers grain sales volumes were approximately 148,000 tons for Q2, with an average selling price of $143.63 per ton compared to approximately 133,000 tons and a price of $164.45 per ton in the prior year. Modified distillers grain volumes totaled approximately 19,000 tons with an average selling price of $64.41 per ton. Corn oil sales volumes were approximately 23.1 million pounds during the quarter, with an average selling price of $0.54 per pound.

Compared to the prior year, we sold approximately 14% more pounds in the second quarter and also experienced approximately a 26% increase in prices, which led to approximately a 46% increase in sales dollars. Gross profit for the second quarter was $14.3 million compared to $19.8 million in Q2 2024. This primarily reflects lower sales prices for dry distillers grain, as the average price dropped from $164.45 to $143.63. We also paid higher shipping costs, which is recorded as cost of goods sold and impacts gross profit but does not impact sales. Selling, general, and administrative expenses were approximately $6.2 million for the quarter compared to $6.4 million in Q2 2024. Interest and other income totaled $3.1 million for the quarter compared to $4.4 million in Q2 2024, reflecting lower rates and lower investments.

Income before taxes and non-controlling interest was approximately $12.1 million compared to $19.5 million in Q2 2024. Net income attributable to REX shareholders was $7.1 million or $0.43 per diluted share compared to $12.4 million or $0.70 per diluted share in Q2 2024. We ended the first quarter with cash, cash equivalents, and short-term investments of $310.5 million. REX continues to maintain a strong financial position with no bank debt. I'll now turn things back to Zafar.

Speaker 1

Thanks, Doug. REX's strategy continues to be guided by the three P's: profit, position, and policy. Profit: our dedicated team has delivered 20 consecutive quarters of profitability, reflecting strength, discipline, and commitment. Our third quarter for 2025 is on pace to outperform the second quarter, but will not be as strong as last year's third quarter, which was our second-best quarter on record. I'm particularly pleased with the increased yield of corn oil production, which reflects the consistent and efficient operation of the overall plants. This improvement demonstrates not only the effectiveness of our process but also the dedication of the team in maintaining a high standard of performance. Position: ethanol production expansion and carbon capture and sequestration initiative remains moving forward and within budget, positioning REX for sustainable long-term organic growth.

Policy: forwarding policies measure particularly the continuation of the 45-Q tax credit and the extension of the 45-Z tax credit through 2029, enhancing the economics of our operation and strengthening future earning potential. Looking ahead, REX anticipates better performance in the third quarter of 2025 compared to the first two quarters of the year. Supported by favorable corn supply trends and steady demand, particularly from rising ethanol export demand, exports are running about 10% ahead of 2024 levels through June, according to the Renewable Fuels Association. With 2024 already a record year, REX expects 2025 to set a new export record. As far as feedstock supply, early estimates also suggest the U.S. corn crop is on track for a potential record harvest, which should further benefit REX. We believe these favorable market dynamics force margin expansion through year-end, with additional export upside once tariff-related trade issues are resolved.

REX remains confident in the outlook for its core business, and we are committed to executing our growth strategy while continuing to deliver long-term value to our shareholders. Now, I would like to open things up for questions. Operator?

Speaker 3

Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Peter Gastrite with Water Tower Research. Please proceed with your question.

Speaker 2

Good morning, and thanks for taking my questions. For starters, congratulations on the results in another consecutive quarter of profitability. I've said it before, but that's something that's eluded pretty much all of your peers, so congratulations on that. It's also great to see the regulatory tailwinds that are coming through in your favor. Just a few questions from me. The first one is just regarding an event that you held this summer at your One Earth Energy facility. It looks like it was very well attended with a couple hundred people. Could you talk about who turned up for that event and any implications for your state and local support for your growth projects, particularly for carbon capture and sequestration?

Speaker 4

I was at the event, so I guess I'll answer that. This is Stuart. The people that turned up were mostly local people, and it was the first time we did it at the One Earth Energy facility. We're doing our best to be a good citizen in the community, and almost all the local or many local officials turned up. Our many shareholders, we only own 75% of One Earth Energy, so many shareholders turned up. A few government officials, statewide, a few government officials, our state representative, and people like that showed up. Overall, it was a big success. I think we accomplished what we were trying to do, which is to get some gratitude in our, have some favor, have more favor in the local community. I think we're already a major citizen of Gibson City, but this just made us a little bit better.

Speaker 2

Okay. Thank you. Just in relation to the CCS component of the One Earth Energy project, something that came up toward the end of last year was an issue with an interconnection from the local utility. I may have missed the update, but can I just confirm whether that was resolved?

Speaker 1

Yes, that is resolved, and now we are able to get the utility directly from Ameren, and it's no problem anymore.

Speaker 2

Thank you. Thank you for the update in terms of the ethanol margins. It looks like we're in a better place today versus earlier this year. Going into the second half, it'd be great to hear your thoughts on the outlook for your co-products as well. Thank you.

Speaker 1

As you know, I already mentioned that we believe that our third quarter will be better than the second quarter, but it will not be as good as last year because last year was our second-best quarter. As we also see the bumper crops, not only in South Dakota, but also pretty good crops in Illinois, particularly in McLean County, it is the record corn this year in Illinois. We see that will be very, very beneficial to both of our locations. We also see bumper crops in Iowa, where we have minority shareholders, a company, Big River, which we own approximately 10%. They have also the record crops this year. We certainly see that there's going to be plenty of feedstock available. Also, as you know, the export is increasing of ethanol, and we are very pleased with that.

Not only Britain is buying, planning to buy ethanol from the U.S., but also Japan also plans to buy this year, also due to the tariff negotiation. We certainly see that if this continues, we will be really in pretty good shape in our core business.

Speaker 4

In terms of the byproducts, in terms of the corn oil continues to be very strong. Dry distillers grain is a little weak relative to corn prices. With the bumper crop, I don't know if that's going to continue or not, but dry distillers grain has not been as strong relative to corn prices as it has in the past. Hopefully, that'll turn around.

Speaker 1

Yeah, I think that's correct, Stuart, because I think the export of dry distillers grain has dropped compared to last year. That's one of the things which we can see. Even Mexico is buying less than last year, the first six months. That certainly is some concern.

Speaker 2

Okay. That's great. Thank you very much. Congratulations again, and I'll get back in the queue.

Speaker 3

Our next question comes from Jared Edeline with South Dakota Investment Office. Please proceed with your question.

Speaker 0

Hey, guys. Thanks very much for the opportunity to ask a question and great quarter. I just wanted to see if you could comment on the overall CI score of your two main plants, given the change in the recent legislation relating to 45-Z, and if you would qualify for any credits without a carbon pipeline.

Speaker 1

Stuart, do you want me to take that?

Speaker 0

Yeah, why don't you take it, Zafar?

Speaker 1

Yeah, I think we have not really, compared to other few companies that have declared their CI score. As you know, there is no clear guideline at this time. That's one of the reasons we have not really discussed publicly what exactly is our CI score at this time until we have a clear guideline that what will be our CI score. We're certainly very happy to see that smart farming is no longer part of the calculation, and that will give us 4 to 6 points, and that could help us to really be able to go below 50 or close to that number where we will be able to get some CI score reduction, and will be beneficial to us.

Speaker 4

Also, as part of the One Earth Energy project, we also are doing things to make our plant more energy efficient, which should help our CI score. There's a chance, even without carbon capture, but like Zafar said, we can't get, we don't know the guidelines, so we're not going to say that it's going to happen. There's a chance we could get some tax credits even without carbon capture, even before a carbon capture project is ready to go. We are not, we don't feel we're in a position to say anything about that right now.

Speaker 0

Excellent. Thank you. Given the Illinois moratorium on carbon pipelines, which appears to expire in July of next year, if your Class 6 injection well permit is approved, would you believe that you'd be able to build that soon after that expiration?

Speaker 1

That's what our goal is. As you know, we still have, after that's approved, we plan to get from the local county special use permit, and then we also have to have the IEPA permit. We have discussion with the Illinois EPA, and we also have a discussion with the ICC, Illinois Commerce Commission. They are also working on legislations or the guidelines, whichever they want to have, which would follow that. If those guidelines are issued and all those approvals are received, then we certainly will be able to operate in 2026. Naturally, this depends on all of those permits once we receive those.

Speaker 0

Excellent. My final question, just related to the short distance that the pipeline is, what's the build time once approvals come to first carbon injection?

Speaker 1

I think once we receive, we have to apply. It's a less than 6.5 miles pipeline. The honest answer is we have built that pipeline, the reason because we, from the very beginning, we wanted to make sure that we are away from aquifer. Otherwise, we can have built that well right next to our ethanol facility, but we decided we want to be away from the aquifer, that way, in the future, there is no concern about the drinking water. That's what exactly happened later on. The legislation was issued that there should not be any over or under that carbon sequestration where the aquifer is. We are 6.5 miles away from aquifer, and that's what that. It depends how quickly we can get permission from ICC. Once we receive the permission from ICC, that takes about a couple of months to build the pipeline.

Speaker 0

Great. Thanks so much, guys.

Speaker 4

Thank you.

Speaker 3

We have reached the end of the question and answer session. I'd now like to turn the call back over to Stuart Rose for closing comments.

Speaker 4

I'd like to thank everyone for listening. Again, we outperformed most in the industry this quarter, and we currently expect an even better quarter next quarter. It's all due to having great locations for our plants, great plants, and most importantly, the top people in the industry. That goes from our CEO all the way to all the teams in our plants. That's really what makes us special and what makes us outperform the industry quarter after quarter. We look forward to talking to everyone after the end of our next quarter, and thank you again for listening.

Speaker 3

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.