REX's Q2 2025: Contradictions Emerge on Ethanol Margins, Carbon Injection Timelines, and CCUS Policy Impact

The above is the analysis of the conflicting points in this earnings call

Date of Call: August 27, 2025

Financials Results

• EPS: $0.43 per diluted share, down 39% YOY (vs $0.70 in Q2 2024)

Guidance:

• Q3 2025 expected to outperform Q2 but remain below Q3 2024.
• H2 2025 supported by favorable corn supply and rising ethanol exports; company expects 2025 to set a new export record.
• Management anticipates margin expansion through year-end.
• One Earth expansion to 175M gallons targeted to be fully operational in 2026; longer-term plan to reach 200M gallons.
• EPA estimates Class VI injection well permit finalized in March 2026.
• CCS + expansion capex budget $220–$230M; $126.7M invested to date.
• 2-for-1 stock split for holders of record Sept 8, 2025.

Business Commentary:

• Ethanol Production and Sales:
• REX American Resources Corporation's ethanol sales volumes reached 70.6 million gallons in Q2 2025, up from 65.1 million gallons in Q2 2024.

• The growth was driven by favorable corn supply and steady demand, particularly from rising ethanol exports.

• Corn Oil Sales Increase:

• Corn oil sales volumes were approximately 23.1 million pounds in Q2 2025, with an average selling price of $0.54 per pound, leading to a 46% increase in sales dollars compared to the prior year.

• This increase was due to a 26% increase in selling prices and a 14% increase in sales volumes.

• Carbon Capture and Sequestration Developments:

• The enactment of The One Big Beautiful Bill Act supported REX's carbon capture and sequestration project by preserving tax credits and simplifying requirements.

• The legislation positioned REX to maximize the benefit from the tax credit program through ethanol production capacity expansion and strengthened the company's competitive position.

• Stock Split and Financial Position:

• REX's Board of Directors authorized a 2-for-1 stock split to reward shareholders and increase liquidity in shares.
• The company maintained a strong financial position with no bank debt and ended Q2 with $310.5 million in cash, cash equivalents, and short-term investments.

Sentiment Analysis:

• Q2 profitability remained positive but softened: gross profit fell to $14.3M from $19.8M YOY and EPS declined to $0.43 from $0.70. Management expects Q3 to be better than Q2 but below last year’s strong Q3, while citing favorable corn supply, rising exports, and policy tailwinds (45Q/45Z) supporting margin expansion through year-end.

Q&A:

• Question from Peter Gastreich (Water Tower Research): Who attended the One Earth facility event and implications for state/local support, particularly for CCS?
  Response: Mostly local community, officials, and shareholders attended; the event strengthened local goodwill and support, aiding CCS-related community backing.

• Question from Peter Gastreich (Water Tower Research): Was the local utility interconnection issue for CCS resolved?
  Response: Yes; the site now receives power directly from Ameren and the issue is fully resolved.

• Question from Peter Gastreich (Water Tower Research): Outlook for co-products in the second half?
  Response: Corn oil remains strong; DDG is weaker relative to corn due to softer exports; expect Q3 better than Q2 but below last year amid ample feedstock and rising ethanol exports.

• Question from Jarrod A. Edelen (South Dakota Investment Council): Current CI scores and ability to qualify for credits without a carbon pipeline?
  Response: No official CI disclosed due to pending guidelines; removal of climate-smart farming helps by ~4–6 CI points; may qualify for some 45Z credits pre-CCS, but uncertain.

• Question from Jarrod A. Edelen (South Dakota Investment Council): Post-Illinois moratorium, could you build soon after Class VI approval?
  Response: Goal is yes, subject to county special use, IEPA, and ICC approvals; operations could begin in 2026 if permits are secured.

• Question from Jarrod A. Edelen (South Dakota Investment Council): Build time from approvals to first carbon injection given the short pipeline?
  Response: The ~6.5-mile pipeline, routed away from the aquifer, can be built in a couple of months after ICC permission.