On September 2, REX American Resources (NYSE:REX) reported the best second quarter in its history, with net income of $1.06 per diluted share, marking the company’s 24th straight profitable quarter. The ethanol producer leaned on stronger crush margins, richer byproduct pricing, and $18.4 million in federal tax credits to turn last year’s thin quarter into a blowout one. But dig past the headline number and the story gets more complicated, with volume growth stalling and one regulatory approval standing between REX and its next big project.
Profits Pile Up, Debt Stays Zero
Net sales climbed to $168.5 million as REX captured better pricing across nearly every product line. Ethanol sold for $1.78 a gallon, up from $1.75 a year earlier, while dried distillers grains jumped to $166.55 a ton from $143.63 and distillers corn oil rose to 72 cents a pound from 54 cents. Gross profit surged to $53.3 million from $14.3 million, and even stripping out the $18.4 million in Section 45Z tax credit income, core gross profit still grew 144% year over year. That is a meaningful detail, since it shows the improvement is not entirely a function of a federal incentive program.
REX ended the quarter with $379.5 million in cash and short-term investments as of July 31, and zero bank debt, giving it room to self-fund both its One Earth capacity expansion, on track to add ethanol volume by late 2026, and a carbon capture project that just cleared a major hurdle. On August 17, the EPA issued draft permits for three Class VI injection wells tied to that project. Executive Chairman Stuart Rose described the company’s approach to deploying that cash bluntly: “We buy on dips, and when we buy, we buy, we buy whatever we can buy at the price we are buying at.”
The Pipeline Standing In The Way
Not every line in the report points up. Selling, general and administrative expenses more than doubled to $15.6 million from $6.2 million, driven by higher incentive compensation and restricted stock awards tied to the strong results, a reminder that rising pay costs can eat into a good quarter. Ethanol sales volume was flat at 70.6 million gallons, meaning this quarter’s gains came almost entirely from pricing and tax credits rather than selling more product. Distillers grains volume also slipped to 145,081 tons from 148,017 tons.
And the carbon capture project, while advancing, still needs a specific piece of state approval. Rose said regulatory sign-off on a roughly five-mile connector pipeline from the Illinois Commerce Commission is the factor that “will hold us up, I believe, the longest” in finishing the project, even after Illinois’ carbon sequestration moratorium expired on July 1. Until that pipeline permit clears, the timeline for turning carbon capture into an additional revenue stream stays uncertain, and a large chunk of this quarter’s profit remains tied to a tax credit program whose future depends on federal policy rather than REX’s own operations.
Wall Street’s Mixed Read On REX
Hedge fund ownership of REX fell to 19 funds from 28 in the prior quarter, a notable pullback in institutional interest even as the company posted record results. Short interest sits at 3.73% of the float, which is not high enough to suggest heavy organized skepticism but is enough to show some investors are betting against the stock. That combination points to a market that is not yet fully convinced the tax-credit-driven earnings jump will hold up.
What Happens Next Matters Most
REX heads into the third quarter with management already guiding for results better than last year, a debt-free balance sheet, and two major projects inching toward completion. The tension in this report is straightforward: core profitability really did improve, but volume did not, and a good chunk of the headline number rode on a federal tax credit. For the growth story to hold, the One Earth expansion and carbon capture project need to clear their remaining hurdles, especially that Illinois pipeline permit, and start adding volume rather than just better pricing.
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