REX American Resources: Q2 profit up 5.7x, but $18.4m of it came from the 45Z tax credit

On 2 September REX American Resources reported results for the second quarter of fiscal 2026. Revenue rose 6.3% year on year to $168.5m, EBITDA jumped 194.3% to $42.1m, net profit surged 471.6% to $40.6m, and earnings per share reached a record second-quarter $1.06 versus $0.22 a year earlier. The growth rests on improved corn crush margins and the Section 45Z tax credit, which contributed $18.4m directly to gross profit. With a trailing P/E of 11.1 and a net cash position of $361.7m, the share looks rather attractive, but the sustainability of the result hinges on how far the 45Z credit becomes a permanent feature.

Key takeaways

— EPS of $1.06 is a record for a second quarter, but $18.4m of gross profit came from the 45Z tax credit

— Gross profit rose 3.7x to $53.3m, and even excluding the 45Z credit it still grew 144%

— Revenue added 6.3% on higher ethanol and corn oil prices, while sales volumes were almost flat

— The company holds $379.5m in cash and short-term investments with no bank debt, and net debt is negative

— Capex on the One Earth expansion and the CCS project has already reached $191.2m, the main risk to free cash flow

— The trailing P/E of 11.1 and EV/EBITDA of 8.4 look moderate against record profit and a large cash cushion

Attractiveness

Key figures, USD bn

EPS of $1.06 is a record for a second quarter, but $18.4m of gross profit came from the 45Z tax credit

Net income attributable to REX shareholders in the second quarter of fiscal 2026 was $34.9m, or $1.06 per share, versus $7.1m and $0.22 a year earlier. This is a record second quarter for earnings per share in the company's history. Diluted share count was almost unchanged at 33.09m versus 33.01m, so the entire gain came from profit, not from buybacks.

The main driver of the jump is the 45Z credit: the company recognised $18.4m of production tax credit income, which directly boosted gross profit. Even excluding this credit, gross profit from core operations would still have grown 144% year on year, as CEO Zafar Rizvi noted. So there is operational momentum, but the scale of the quarterly result leans heavily on the tax subsidy.

Other income statement items also supported the result: equity in income of unconsolidated affiliates rose to $7.2m from $0.9m a year earlier, while interest and other income remained stable at $3.2m. SG&A expenses jumped to $15.6m from $6.2m, partially offsetting operating leverage but not preventing the record profit.

Gross profit rose 3.7x to $53.3m, and even excluding the 45Z credit it still grew 144%

Gross profit in the second quarter of fiscal 2026 was $53.3m versus $14.3m a year earlier. The 3.7x increase is explained by improved corn crush margins and the effect of the 45Z credit. Cost of sales declined to $133.6m from $144.2m, which with revenue of $168.5m gave a gross margin of 31.6% versus 9.0% a year earlier.

The key factor is higher product prices. The average selling price of ethanol rose to $1.78 per gallon from $1.75, dried distillers grains to $166.55 per ton from $143.63, and corn oil to $0.72 per pound from $0.54. At the same time, ethanol sales volumes remained at 70.6m gallons, and grains volumes even declined slightly, so the entire gross profit gain came from price and the tax credit, not from higher output.

Excluding the 45Z credit, gross profit from core operations would still have grown 144% year on year. This means that even without the subsidy the company shows a strong improvement in crush profitability. However, the sustainability of this margin depends on corn and ethanol prices, which can be volatile.

Revenue added 6.3% on higher ethanol and corn oil prices, while sales volumes were almost flat

Revenue in the second quarter of fiscal 2026 was $168.5m, up 6.3% from $158.6m a year earlier. The growth was driven primarily by prices: the average ethanol price rose 1.7%, and corn oil jumped 33.3%. Ethanol sales volumes remained at 70.6m gallons, while distillers grains volumes even declined slightly to 145,081 tons from 148,017 tons.

The $18.4m production tax credit income is reported as a separate line and is not included in revenue, so its effect on the top line is not counted. If the credit were included in revenue, growth would be significantly higher, but the company presents it as separate income.

Revenue dynamics remain moderate: over the last four quarters, year-on-year growth ranged from minus 1.8% to plus 7.0%. The second quarter of 2026 showed the best growth in this period, but it is still far from explosive. The main contribution to profit comes not from revenue but from margin and the tax credit.

The company holds $379.5m in cash and short-term investments with no bank debt, and net debt is negative

As of 31 July 2026, REX held $379.5m in cash, equivalents and short-term investments and had no bank debt. Net debt is negative at minus $361.7m, giving a net debt to LTM EBITDA ratio of minus 1.31. This is a very strong balance sheet that fully covers capital expenditure needs.

Operating cash flow for the first half of fiscal 2026 was $38.0m versus $12.8m a year earlier. The increase was driven primarily by higher net income, despite a $27.3m outflow in prepaid expenses and other assets. The company also received $2.0m in dividends from equity method investments.

There is no debt burden, and interest income brings in $3.2m per quarter. This provides a cushion to finance the One Earth expansion and the CCS project without borrowing.

Capex on the One Earth expansion and the CCS project has already reached $191.2m, the main risk to free cash flow

Capital expenditures related to the carbon capture and sequestration (CCS) project and the expansion of ethanol production at the One Earth facility have reached $191.2m to date. This is a significant sum that already exceeds annual operating cash flow. The company expects to complete the construction phase of the expansion and begin testing during fiscal 2026.

On 17 August 2026, the CCS project received draft permits from the U.S. Environmental Protection Agency for three Class VI injection wells. The EPA is accepting public comments. This is an important regulatory step, but the project is not yet complete and requires further investment.

For the first half of fiscal 2026, capital expenditures were $35.0m versus $28.9m a year earlier. At the same time, the company has accumulated a substantial cash reserve that allows it to finance the project without debt. However, if costs exceed expectations, this could constrain free cash flow and potential dividends.

The trailing P/E of 11.1 and EV/EBITDA of 8.4 look moderate against record profit and a large cash cushion

Based on the trailing twelve months, REX trades at a P/E of 11.1 and EV/EBITDA of 8.4. Return on equity (ROE) is 25.0%. These multiples do not look stretched for a company delivering record profit and carrying negative net debt. However, it is worth noting that a significant portion of LTM profit came from the 45Z credit, which may be less generous in the future.

Market capitalisation at the time of the report is $1.41bn. The share price before the release was $41.99, rose 1.9% on the release day, and added another 1.8% from the release to 9 September. The market reaction is muted, which may reflect either the growth already priced in or caution about the sustainability of the 45Z credit.

A comparison of current multiples with the company's own three-year history is not possible due to the absence of data in the facts. However, a P/E of 11.1 and EV/EBITDA of 8.4 with ROE of 25% and no debt looks attractive for an investor willing to accept the risk associated with regulatory subsidies and capital expenditures.

Valuation on the latest reported figures

Bottom line

REX American Resources delivered a record second quarter: EPS of $1.06, net income of $34.9m, gross profit of $53.3m. However, $18.4m of gross profit came from the 45Z tax credit, and without it growth would still have been significant (144%) but smaller in scale. The balance sheet is very strong: $379.5m in cash, no debt, negative net debt. The key question for a holder is how sustainable the 45Z subsidy is and how quickly the investments in CCS and the One Earth expansion will pay off. At a P/E of 11.1 and EV/EBITDA of 8.4, the share looks rather attractive, albeit with a caveat for regulatory risk.