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Clumsy Rick, CFA
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A former sell-side analyst covering consumer discretionary stocks, now researching and investing full-time while seeking an analyst role at an asset management firm.
  • REX 2Q Preview: Tough Qtr. Looks Like Bottom 1 comment
    Aug 27, 2010 12:37 PM | about stocks: REX, GPRE
    REX will report its fiscal 2Q (ending July 31) sometime in the next few weeks. This was a tough quarter for the company and all the ethanol industry, but it also looks like the low point for earnings with 3Q looking brighter.

    M
    y model suggests the company will earn approximately $0.25, down from $0.42 last
    quarter as ethanol production margins contracted. However, corporate level cash should remain a robust $80 million, down modestly from last quarters $86 million due to the +$9 million purchase of NuGen in the quarter. 

    Since the end of the quarter however (which is reported on one-month lag, so we are nearly two months into reported results), margins have improved. Total earnings spread (crush spread, less all other costs) was approximately $0.23 gallon in 1Q, should fall to $0.17/gallon in 2Q but is on track to be back up to $0.22 for 3Q. Because the addition of NuGen should be accretive, 3Q EPS should come in above 1Q, or roughly $0.50-$0.60 based on current margin trends.

    SUMMARY: So while REX is still primarily an asset play, the earnings outlook is improving as well. At $0.50/qtr, Rex could earn $2.00 next year. Even assuming a low multiple of 8x-9x earnings, REX could be see $16-$18. 


    Disclosure: Long Rex
    Themes: Ethanol, Asset Play Stocks: REX, GPRE
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  • Clumsy Rick, CFA
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    Author’s reply » As a follow up to the actual report, GAAP earnings were $0.12 for 2Q. However, excluding non-cash real estate charge of $400k and a non-cash derivative charge of $1.878 mm and using a more normalized tax rate (33.5% vs. 60.5% reported), EPS were exactly $0.25. While none of the adjustments are one-time in nature, they are unusual and can swing either way (for or against the company) in any given quarter and is useful to exclude them to understand how the core operations did. In this case, core operations did exactly as predicted. I also stand by my forecast for 3Q where earnings should be closer to $0.50-$0.60.
    14 Sep 2010, 07:48 AM Reply Like
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