10-Q: REX American Resources Reports Strong Q1 2026 Earnings

REX American Resources Corporation announced a significant increase in net income for the first quarter of fiscal year 2026, driven by higher by-product revenues and production tax credits.

Summary

• REX American Resources Corporation reported net income attributable to REX common shareholders of $18.45 million for the first quarter ended April 30, 2026, a substantial increase from $8.68 million in the same period last year.
• Net sales and revenue for the quarter were $156.5 million, a slight decrease of 1% from $158.3 million in the prior year's first quarter.
• Production tax credit income was $7.5 million in the current quarter, compared to no such income in the prior year's first quarter.
• Cost of sales decreased by 6% to $135.0 million from $144.0 million in the prior year.
• Gross profit significantly increased to $29.1 million from $14.3 million in the prior year.
• Selling, general, and administrative (SG&A) expenses increased by 64% to $9.7 million from $5.9 million, primarily due to higher performance bonuses.
• Cash and cash equivalents decreased to $117.7 million from $188.7 million.
• The company is progressing with its carbon sequestration project at One Earth, with an expected EPA draft permit by July 2026 and a final decision by November 2026.
• Capital expenditures for the One Earth expansion and sequestration projects are budgeted between $220 million and $230 million.

Sentiment

Score: 8

Explanation: StockSavvy.ai views this filing positively due to the substantial increase in net income, strong gross profit growth, and the beneficial impact of production tax credits, despite a slight dip in overall revenue.

Positives

• Net income attributable to REX common shareholders more than doubled to $18.45 million from $8.68 million.
• Gross profit increased by over 100% to $29.1 million from $14.3 million.
• Production tax credit income of $7.5 million was recognized in the current quarter, contributing positively to earnings.
• Cost of sales decreased by 6% to $135.0 million.
• Revenue from dried distillers grains increased by 8% due to higher prices and volumes.
• Revenue from distillers corn oil increased by 31% due to higher prices and volumes, with improved yield per bushel.
• The company's current ratio improved to 6.8x from 5.9x, indicating strong short-term liquidity.
• The company is on track with its carbon sequestration project at One Earth, with expected permit decisions in mid-2026.
• The company is expanding its One Earth ethanol plant capacity.

Negatives

• Net sales and revenue decreased slightly by 1% to $156.5 million.
• Ethanol revenue decreased by 5% due to a 6% decrease in the selling price per gallon.
• SG&A expenses increased significantly by 64% to $9.7 million, largely due to performance bonuses.
• Cash and cash equivalents decreased by approximately $71 million.
• Net cash used in operating activities was $2.1 million, compared to $3.5 million used in the prior year.
• Net cash used in investing activities was $68.9 million, primarily due to purchases of short-term investments exceeding maturities.

Risks

• Price volatility and availability of corn, distillers grains, ethanol, distillers corn oil, gasoline, and natural gas.
• Commodity market risk.
• Operational efficiency of ethanol plants and adherence to forecasts.
• Logistical interruptions.
• Success in permitting and developing the planned carbon sequestration facility near the One Earth ethanol plant.
• Changes in international, national, or regional economies.
• Impact of inflation.
• Ability to attract employees.
• Weather impacts.
• Results of income tax audits.
• Changes in income tax laws or regulations.
• Impact of U.S. foreign trade policy and tariffs.
• Changes in foreign currency exchange rates.
• Effects of terrorism, wars, and other conflicts.
• Effect of pandemics on business operations.
• Uncertainty in the enforcement of Renewable Fuel Standard II (RFS II) and Small Refinery Exemptions (SREs).
• Legal challenges to EPA's handling of SREs and RFS rulemaking.
• Potential delays or difficulties in completing the carbon sequestration project for the NuGen facility due to legal challenges in South Dakota.
• The company's carbon sequestration project at One Earth faces ongoing government agency reviews and permitting processes with no assurance of ultimate success or timing.
• Illinois legislation imposing additional requirements and a moratorium on CO2 pipeline construction could impact the One Earth carbon sequestration project.
• Illinois Senate Bill 1723 prohibits carbon sequestration activities over, under, or through certain aquifers, though the proposed injection wells are outside these areas.

Future Outlook

The company is actively pursuing carbon sequestration projects and plant expansions, with significant capital expenditures planned. The company expects to benefit from Section 45Z tax credits for clean fuel production and is working to maximize these credits by reducing its Carbon Intensity (CI) score. The company also continues to investigate various investment opportunities, including stock repurchases and potential ventures in ethanol, energy, carbon sequestration, and agriculture.

Management Comments

• "We attempt to match quantities of these sales contracts with an appropriate quantity of corn purchase contracts over a given period of time when we can obtain an adequate gross margin resulting from the crush spread inherent in the contracts we have executed."
• "Although we have made meaningful progress and significant investments in the carbon sequestration project at One Earth, we continue to work with the various government agencies involved to obtain all required permits and approvals, with no assurance of the ultimate success or timing of the project."
• "We plan to seek and evaluate various investment opportunities, including ethanol and/or energy related, carbon sequestration, agricultural or other ventures we believe fit our investment criteria. We can make no assurances that we will be successful in our efforts to find such opportunities."
• "We expect total capital expenditures related to the construction at the One Earth facilities to approximate $220 million to $230 million, inclusive of the carbon sequestration project and plant capacity expansion project, which we currently plan to pay from our available cash."

Industry Context

StockSavvy.ai notes that REX American Resources' performance in Q1 2026 reflects the ongoing impact of government incentives like the IRA and OBBBA on the ethanol industry, particularly through Section 45Z tax credits. The company's focus on carbon sequestration aligns with broader industry trends towards decarbonization and sustainable fuel production, which are increasingly influenced by regulatory frameworks and technological advancements.

Comparison to Industry Standards

• The company's Q1 2026 net income of $18.45 million shows a significant improvement compared to the prior year, indicating strong operational performance and effective utilization of tax credits.
• The increase in distillers corn oil revenue by 31% suggests REX is capitalizing on demand in the renewable biodiesel market, a growing segment within the broader bioenergy industry.
• The company's investment in carbon sequestration projects is in line with major players in the ethanol and broader energy sectors who are exploring carbon capture technologies to meet climate goals and leverage tax incentives.
• The reported average selling price per gallon of ethanol ($1.66) is subject to market fluctuations, but the company's ability to maintain positive margins through by-product sales and tax credits is a key differentiator.
• The company's proactive adoption of ASU 2025-10 for accounting for Section 45Z tax credits demonstrates a commitment to aligning financial reporting with evolving regulatory landscapes, a practice expected of leading companies in the sector.

Legal Proceedings

• The company is involved in various legal actions arising in the normal course of business, but management believes these will not have a material adverse effect on the financial statements.

Related Party Transactions

• One Earth and NuGen purchased approximately $18.8 million and $24.8 million, respectively, of corn (and other supplies) from minority equity investors and board members of those affiliates during the first quarter of fiscal years 2026 and 2025.
• Amounts payable to related parties were approximately $1.5 million and $1.2 million at April 30, 2026 and January 31, 2026, respectively.

Stakeholder Impact

• Shareholders: Increased net income and earnings per share are positive for shareholders. The company's ongoing share repurchase program may also benefit shareholders.
• Employees: Increased SG&A expenses include a significant rise in performance bonuses, indicating a positive impact on employee compensation tied to company performance.
• Suppliers: The company continues to engage in significant purchases of corn and other supplies, including from related parties.
• Creditors: The company's strong current ratio and working capital suggest a healthy ability to meet short-term obligations.

Next Steps

• Continue to provide information to the EPA for the Class VI injection well permit for the carbon sequestration project.
• Obtain state and county permits for the sequestration site and connector pipeline.
• Complete testing of the carbon capture and compression facility.
• Begin construction of the CO2 connector pipeline once permits and approvals are received.
• Apply for a permit to increase One Earth ethanol plant production to 200 million gallons per year.
• Continue to identify ways to reduce the CI score at the One Earth plant to maximize tax credits.
• Seek and evaluate various investment opportunities.
• Continue to investigate various uses for excess cash and short-term investments, including stock repurchases and potential investments.

Key Dates

Recommendation

The company has demonstrated strong earnings growth driven by tax credits and improved by-product performance. However, the slight decrease in revenue, significant increase in SG&A, and ongoing capital expenditure plans for large projects introduce some uncertainty. While the outlook is positive, a 'hold' recommendation allows for further observation of project execution and market conditions before considering a stronger stance.

Keywords

REX American Resources, Form 10-Q, Quarterly Report, Ethanol, By-products, Production Tax Credits, IRA, OBBBA, Section 45Z, Carbon Sequestration, Financial Results, Commodity Prices, Renewable Fuel Standard