REX American Resources (REX) Q2 2026 earnings review
Massive Profit Surge and a Major Regulatory Milestone
REX delivered a phenomenal quarter, with Net Income surging nearly 400% YoY to $34.9M. The financial beat was driven by a powerful dual-engine: an $18.4M boost from 45Z government production tax credits and a 144% explosion in core gross profit fueled by recovering co-product prices. Beyond the numbers, the company secured a critical milestone by receiving draft EPA permits for its One Earth Carbon Capture project, significantly de-risking a $191.2M capital investment.
🐂 Bull Case
Receiving draft EPA permits for Class VI injection wells validates the company's long-term strategic pivot. This project is expected to massively lower REX's carbon intensity score, paving the way for up to $1/gallon in future tax credits.
Even completely stripping out the $18.4M in government tax credits, gross profit from core operations spiked 144% YoY, proving the underlying ethanol and co-product business is highly lucrative right now.
🐻 Bear Case
Over a third of total gross profit ($18.4M out of $53.3M) was generated purely from 45Z tax credits. Any shifts in federal policy or delays in final tax rulings present an existential threat to this margin profile.
Ethanol sales volumes were perfectly flat YoY at 70.6 million gallons. Until the One Earth expansion comes online, the company is entirely reliant on pricing and tax credits to grow earnings.
⚖️ Verdict: 🟢
Bullish. Management is executing flawlessly. The core business is generating immense cash, the balance sheet is bulletproof, and the draft EPA permits remove the largest overhang on their multi-hundred-million-dollar growth initiative.
Key Themes
EPA Draft Permits De-Risk Carbon Capture
The most important development this quarter wasn't financial; it was regulatory. The U.S. EPA issued draft permits for three Class VI injection wells for the One Earth carbon capture project, opening the public comment period. This is the green light investors have been waiting for, validating the technological viability of REX's primary growth catalyst.
45Z Tax Credits Supercharge Margins
The Inflation Reduction Act's 45Z tax credits are dramatically altering REX's earnings profile. The company recorded $18.4M directly into gross profit this quarter from these credits. This legislative tailwind is acting as a massive multiplier on the company's base ethanol production.
Co-Product Pricing Reverses Upward
After suffering from lower prices in prior quarters, co-products reversed course and drove massive core margin expansion. Distillers Corn Oil prices spiked 33% YoY (to $0.72/lb from $0.54/lb), and Dried Distillers Grains (DDG) climbed 16% YoY (to $166.55/ton). This caused core gross profit (excluding tax credits) to accelerate 144%.
Stagnant Production Volumes
While pricing is excellent, production is tapped out. Gallons of ethanol sold came in at exactly 70.6 million—flat against the same period last year. DDG volumes actually fell slightly. Until the One Earth plant expansion is completed, REX has a firm ceiling on how much product it can physically sell.
Massive CapEx Ahead of Final Approvals
REX has now sunk $191.2M into the One Earth ethanol expansion and carbon capture projects. While the draft EPA permit is good news, the company still lacks the final Class VI permit and the required Illinois Commerce Commission pipeline permits. They are spending heavily before the regulatory finish line is fully crossed.
Macro Risk: Political Threat to Tax Incentives
The company's profitability is increasingly tethered to the 45Z tax credit program. With national elections approaching and political debates surrounding the longevity of the Inflation Reduction Act, this heavy reliance on government policy introduces a significant, uncontrollable macro risk to the stock's valuation.
Other KPIs
REX maintains a fortress balance sheet. Despite aggressively funding a nearly $200M capital project entirely out of pocket, the cash pile continues to grow (up from $364.3M in Q1). The company holds zero bank debt, providing total financial immunity to current high interest rates.
Accelerating dramatically from $12.1 million in the same quarter last year. This 297% increase highlights the sheer operating leverage the company achieves when favorable co-product pricing aligns with government tax incentives.
Guidance
Stable. The company confirmed it is on track to complete the construction phase of the ethanol expansion. Testing and commissioning will begin upon completion, with the new capacity driving volume growth before the fiscal year ends.
Key Questions
EPA Final Approval Timeline
Now that the EPA has issued draft permits and opened the public comment period, what is management's most realistic timeline for securing the final, actionable Class VI permits?
Illinois Pipeline Moratorium
With federal EPA progress moving forward smoothly, are there any remaining bottlenecks at the state level with the Illinois Commerce Commission pipeline moratorium expiring?
45Z Run-Rate Expectations
You booked $18.4M in 45Z credits this quarter. Assuming no major shifts in production volume, is this the correct baseline run-rate for investors to use for the second half of the year?