REX (REX) Q3 2025: Corn Oil Revenue Jumps 60% as Carbon Capture Investment Accelerates

2025-12-04 | By EarningsIQ Research

REX American Resources delivered another profitable quarter, propelled by a 60% surge in corn oil revenue and robust ethanol export demand, while doubling down on its carbon capture and plant expansion investments. Management’s disciplined capital allocation, strong balance sheet, and cautious approach to 45Z tax credits signal both resilience and upside optionality as regulatory clarity emerges. With major capacity projects on track and a record-setting export backdrop, REX stands positioned for margin expansion and strategic flexibility into 2026.

Summary

• Carbon Capture and Expansion Investment: REX maintained aggressive spend on plant expansion and carbon sequestration to drive future growth.
• Corn Oil Revenue Outperformance: A 60% jump in corn oil sales revenue highlighted the value of product diversification amid volatile ethanol pricing.
• Export Tailwind for Ethanol: Sustained export strength and favorable corn supply underpin optimism for margin resilience into next year.

Performance Analysis

REX’s Q3 2025 results showcased the company’s ability to navigate commodity volatility while extracting value from diversified byproducts. Ethanol sales volumes reached 78.4 million gallons, up modestly from the prior year, though average selling prices declined to $1.73 per gallon. The core ethanol business remains the primary revenue driver, but the standout was corn oil, with volumes up 17% and average selling price up 36%, resulting in a 60% increase in corn oil sales revenue. This diversification helped offset declines in distillers grain volumes and pricing.

Gross profit was $36.1 million, down from $39.7 million a year ago, primarily due to lower ethanol and distillers grain prices. SG&A expenses remained tightly controlled, and REX ended the quarter with $335.5 million in cash and no bank debt, even after deploying $156 million year-to-date toward its One Earth Energy expansion and carbon capture initiatives. The company’s disciplined cost structure and robust balance sheet continue to provide insulation against market swings and enable ongoing capital investment.

• Corn Oil Margin Expansion: Corn oil’s 60% revenue growth provided a critical offset to ethanol and distillers grain price pressures.
• Export-Driven Ethanol Volumes: U.S. ethanol exports running 14% above last year’s pace fueled steady plant utilization.
• Capital Spend Discipline: Ongoing investment in expansion and carbon capture remains within the revised $220–230 million budget range.

Net income attributable to shareholders was $23.4 million, with per-share earnings up slightly year-over-year despite the gross margin compression, underscoring the company’s operational efficiency and capital discipline.

Executive Commentary

Strategic Positioning

1. Core Ethanol Business Anchored by Export Momentum

REX’s ethanol production remains its central cash generator, with export demand providing a buffer against domestic pricing volatility. The company cited U.S. ethanol exports running 14% ahead of last year through August, and expects 2025 to set a new export record. This volume tailwind supports plant utilization and underpins the rationale for the One Earth Energy expansion to 200 million gallons annually.

2. Carbon Capture and Sequestration as Long-Term Value Driver

REX is investing heavily in carbon capture and sequestration (CCS), with $156 million already deployed and a total budget of $220–230 million for both CCS and plant expansion. The company aims to leverage the 45Z tax credit, which rewards low-carbon intensity ethanol, but is waiting for final Treasury guidance and carbon intensity scoring. The EPA estimates its Class VI well permit will be finalized by June 2026, with pipeline easements already secured.

3. 45Z Tax Credit Optionality and Regulatory Uncertainty

Management is positioning to benefit from the 45Z tax credit, but remains conservative until regulatory clarity arrives. The company is working with multiple experts to assess carbon intensity scores and is hopeful for retroactive credit recognition, but will not commit to specific dollar amounts until guidance is issued. This approach preserves upside without overpromising, while ongoing investments ensure REX will be ready to capitalize once the rules are finalized.

4. Financial Flexibility and Balance Sheet Strength

With $335 million in cash and no debt, REX retains flexibility to weather commodity cycles and fund strategic projects. The company’s disciplined capital allocation enables continued investment in growth initiatives while maintaining a margin of safety, positioning it well for both upside capture and risk mitigation.

Key Considerations

This quarter highlighted REX’s ability to balance near-term profitability with long-term strategic bets, leveraging export demand and byproduct diversification while advancing transformative capital projects.

Key Considerations:

• Export Exposure as Margin Buffer: Rising ethanol exports support plant utilization and partially offset weak domestic pricing.
• Carbon Capture Execution Risk: Timely permit approval and regulatory clarity are critical for unlocking CCS returns and 45Z credits.
• Corn Oil Upside and Volatility: Corn oil’s outperformance boosts margins but remains sensitive to global trade and soybean market dynamics.
• Capital Allocation Discipline: Management’s adherence to budget and balance sheet strength provide resilience for future cycles.

Risks

Uncertainty around 45Z tax credit regulations and carbon intensity scoring introduces material earnings variability for 2026 and beyond. Export reliance exposes REX to trade policy shifts, tariffs, and geopolitical risk, while the timing of carbon capture permit approvals remains a gating factor for new revenue streams. Commodity price volatility in ethanol, corn oil, and distillers grains can compress margins despite operational efficiency.

Forward Outlook

For Q4 2025, REX guided to:

• Higher net profit than last year’s fourth quarter, supported by continued export strength and favorable corn supply.

For full-year 2025, management maintained a constructive tone but withheld specific guidance pending regulatory clarity on 45Z credits:

• Completion of One Earth Energy expansion and CCS project remains on track for 2026.

Management emphasized several factors that will shape results:

• Record U.S. ethanol exports and robust Midwest corn production underpin margin outlook.
• Final Treasury guidance on 45Z credits and EPA permit timing remain key swing factors for 2026 earnings.

Takeaways

REX’s Q3 results reinforce its position as a disciplined, operationally savvy ethanol producer with optionality on carbon capture and tax credits.

• Operational Execution: 21 consecutive quarters of profitability and strong cost control highlight management’s ability to navigate commodity cycles.
• Strategic Investment: Aggressive capital deployment in expansion and CCS positions REX for future value creation, pending regulatory milestones.
• Regulatory Watch: Investors should monitor 45Z tax credit developments and Class VI permit progress as the main catalysts for 2026 and beyond.

Conclusion

REX delivered another resilient quarter, balancing near-term profit with long-term investment in plant expansion and carbon capture. The company’s prudent capital management and readiness for regulatory-driven upside make it a standout in the ethanol sector heading into 2026.

Industry Read-Through

REX’s strong export-driven performance and heavy investment in carbon capture reflect broader ethanol industry trends: U.S. producers with Midwest locations and product diversification are best positioned to weather price volatility and capitalize on policy-driven incentives. The focus on carbon intensity scoring and 45Z credits will define competitive dynamics across the sector in 2026, while those with strong balance sheets and operational discipline can sustain investment through regulatory uncertainty. Watch for increased M&A and partnership activity as CCS capacity and tax credit clarity become central to industry strategy.

REX Energy Ethanol Carbon Capture Export Tax Credits Plant Expansion