Innophos Holdings, Inc. Reports First Quarter 2013 Results

          Innophos Holdings, Inc. Reports First Quarter 2013 Results

PR Newswire

CRANBURY, N.J., April 29, 2013

CRANBURY, N.J., April 29, 2013 /PRNewswire/ --Innophos Holdings, Inc.
(NASDAQ:IPHS), a leading international producer of performance-critical and
nutritional specialty ingredients, with applications in food, beverage,
dietary supplements, pharmaceutical, oral care and industrial end markets,
today announced its financial results for the first quarter 2013.

First Quarter Results

  oNet sales for the first quarter 2013 at $214 million were $14 million
    below first quarter 2012 primarily on lower GTSP & Other sales.
  oUS/Canada Specialty Phosphates sales were up 7% on growth related to
    acquisitions. Excluding acquisition benefits, sales were level compared to
    last year. Strong export sales supporting geographic growth and improved
    market demand in some areas were offset by significant temporary weakness
    in several higher margin market segments.
  oMexico Specialty Phosphates sales declined 24% compared to the year ago
    period, primarily due to the business experiencing continued variation in
    manufacturing equipment performance which significantly reduced on-stream
    time and efficiencies during the quarter. Meaningful progress was made by
    quarter end in addressing several areas to improve the reliability of the
    Coatzacoalcos facility.
  oGTSP & Other sales at $24 million for the 2013 first quarter were $11
    million below the year ago level primarily on lower volumes. 
  oDiluted EPS ^ for the first quarter 2013 was $0.55 compared to $1.22 for
    the first quarter 2012. GTSP & Other recorded a gain in the current
    quarter for the finalization of amounts owed on 2005-2008 Mexican water
    duties below the existing provision, with a benefit of $0.24 per share.
    This was more than offset by $0.29 per share of elevated costs incurred in
    cost of goods sold during the current quarter as follows:

       o$0.12 per share from lower efficiencies and unplanned maintenance
         costs resulting from Mexico production issues;
       o$0.07 per share for an out of period adjustment related to a long
         term supply agreement;
       o$0.04 per share for a revision of inventory accounting estimates;
       o$0.04 per share related to demurrage on raw material purchases;
       o$0.02 per share for acquisition accounting expenses.

The first quarter 2012 results included a $0.32 per share benefit for
settlement with former parent, Rhodia, on various claims related to historical
amounts owing on Mexican water duties.Giving effect to these adjustments,
first quarter 2013 diluted EPS would have been $0.60 compared to $0.90 for the
first quarter 2012. 

Randy Gress, CEO of Innophos, commented on the results, "Our results this
quarter, which were not in-line with our long-term objectives, reflected lower
demand for some of our higher margin products and operational disruptions at
our Mexico facility. Despite these challenges, I remain confident that we are
achieving good progress against our strategic growth initiatives. We benefited
from strong performance within our nutrition business where our recent
acquisitions contributed 5% of overall growth. Our low sodium product line
also continued to demonstrate success in the marketplace, doubling sales over
the prior year period. In addition, we achieved record export sales from the
U.S., including strong results in Asia Pacific, which is particularly
encouraging given the investments we have made in China." 

Mr. Gress continued, "Although overall U.S. & Canada volumes were level with
last year, we encountered soft demand in several higher margin market
segments. In particular, our industrial asphalt business was affected by
extended seasonally cold weather conditions which deferred many infrastructure
projects into the second quarter. We also faced a significant decline in
export sales to Venezuela as economic instability severely disrupted local
supply chains. Sales mix, particularly for our U.S. & Canada business, was
therefore unfavorable to margins at both the customer and product level."

Mr. Gress added, "Our results during the quarter were also affected by our
Mexico operations suffering from various equipment performance and maintenance
issues. As a result, our Coatzacoalcos facility experienced reduced
production volumes, lower efficiencies and incurred higher maintenance
expenses. The issues largely arose in areas already targeted for improvement
in our long term upgrade plan for the facility. As a result, we have
accelerated our upgrade program with several important improvements completed
during the quarter that have already resulted in improved operating
performance, with further upgrades to follow in the second quarter. Our
long-term plan for this facility remains critical to our efforts in the
region, and we are confident these actions will substantially improve
manufacturing reliability and performance going forward."

Mr. Gress concluded, "I am confident that we will overcome these temporary
hurdles and get our business back on track in the next quarter as we have
consistently done since the formation of Innophos. We remain well-positioned
to generate above market revenue growth as our strategic growth initiatives
continue to gain traction. In the face of significant variation across our end
markets, particularly in the U.S., we believe most of the factors that
affected our margins during the quarter are temporary and, therefore, we
expect to see improvements in the second quarter and throughout the remainder
of 2013." 

Segment Results first quarter 2013 versus 2012

Specialty Phosphates

Specialty Phosphates sales revenue was down 1% year-over-year on lower sales
in Mexico. US/Canada volumes were up 7% on acquisitions. Mexico volumes were
significantly affected by low production levels due to equipment reliability
issues.

Operating income at $11 million was $22 million below first quarter 2012
levels. The first quarter 2012 had a net benefit of $6 million ($8 million
benefit in U.S. and $2 million expense in Mexico) from a delay in the
realization of raw material inflation in cost of goods sold that only became
fully realized beginning in the second quarter 2012. Operating Income in the
first quarter 2013 included $8 million of elevated cost of goods sold of which
$3 million related to Mexico manufacturing issues, $2 million was for an out
of period adjustment related to a long term supply agreement, $1 million
related to a revision of inventory accounting estimates, $1 million was for
demurrage on raw material purchases and $1 million was for acquisition
accounting expenses. Operating income margin for first quarter 2013 was 6%,
down 1,140 basis points from 2012 levels. Adjusted for the noted elevated
costs, operating income margin would have been 10%.

US/Canada

US/Canada Specialty Phosphates sales increased 7% for the first quarter 2013
compared to the year ago period on growth from acquisitions. Excluding
acquisitions, sales were flat with the year ago period, with sales mix skewed
towards lower margin products and customers, thus affecting overall margin
performance. 

For the first quarter 2013, operating income of $11 million was $16 million
below the year ago quarter. Excluding the effects noted above for the $8
million advantaged cost of goods sold in the prior period and the $5 million
of elevated costs in the U.S. for the current quarter, the decline was $3
million, arising primarily from the lower margin sales mix. Operating income
margin was 7% for the first quarter 2013, down 1,210 basis points from the
year ago period. Adjusting for the noted elevated costs, operating income
margin would have been 11%.

Mexico

First quarter 2013 sales were down 24% against the first quarter 2012 due to
equipment reliability issues suffered in the quarter which limited production
and, therefore, sales. Volumes were down 19%. Despite these challenges, the
business continued to experience strong demand for its more differentiated
products and achieved record production in Specialty Ingredients produced at
Coatzacoalcos.

Continued price increase success resulted in improved pricing on most product
lines; however, pricing on the less differentiated detergent grade products
was moderately lower. This, combined with a price reset on a long term
contract, contributed to an overall price decline of 5%.

Operating income at $1 million for first quarter 2013 was down $6 million from
first quarter 2012 levels with lower sales and $3 million of higher costs from
reduced efficiencies and higher plant maintenance contributing to the
shortfall. Operating income margin was 2% for the 2013 first quarter, down
1,060 basis points from the year ago quarter. Adjusting for the noted
elevated costs, operating income margin would have been 9%. 

GTSP & Other

GTSP & Other sales (primarily Granulated Triple Superphosphate fertilizer
co-product) decreased 31% for the first quarter 2013 compared to the similar
period of 2012, with volumes down 27% and prices down 4%. Market prices are
at their seasonal lows just slightly below year ago levels. The volume
variance is within the normal quarter to quarter order pattern variation
typical for this segment.

For the first quarter 2013, GTSP & Other recorded $6 million of operating
income, up $2 million from the year ago period with both periods recording a
$7 million benefit related to Mexican water duties. Without this benefit and
$1 million of higher costs from reduced efficiencies and higher plant
maintenance, operating income remained near break-even. Operating income
margins were 26% for the first quarter 2013 compared to 13% for the first
quarter 2012. Excluding the noted benefits and elevated costs, operating
income margin was 1% for the first quarter 2013, up 840 basis points from the
year ago period.

Recent Trends and Outlook

Market demand was flat for the first quarter 2013, with a strong start to the
quarter offset by a weak finish that particularly affected higher
marginmarket segments. We continue to expect only modest market growth in
2013.

Momentum behind our growth strategy continues to improve, as evidenced by
record export sales from the U.S. for the first quarter 2013, particularly to
Asia Pacific and Europe. Our recently granted food manufacturing license in
Taicang, China allows us to begin operations there and build on a strong start
to the year in that zone.

We continue to expect growth in Specialty Phosphates for the second half of
2013 excluding the benefit of recent acquisitions, to be within our 4-6%
long-term target range. For the second quarter, the improvement seen towards
the end of the first quarter in Mexico manufacturing performance gives us
confidence the impact of production restrictions will be significantly
reduced. However, there may be some residual effect in the second quarter as
we continue to implement our long-term equipment upgrade program, so while we
anticipate good sequential sales improvement, second quarter volumes for
Mexico Specialty Phosphates are likely to be moderately lower than the year
ago level with a price variance similar to that seen in the first quarter. We
are targeting continued improvement in U.S. and Canada volumes and expect this
to offset the Mexico volume decline in comparison to the second quarter last
year.

Strong performance by our recent acquisitions is expected to continue, and
this, together with the full year benefit of the two acquisitions made in
2012, is expected to contribute an additional 5% revenue growth for the full
year 2013 in comparison to 2012.

We do not expect any major change in raw material purchase prices or
underlying selling prices through the second quarter 2013.

Specialty Phosphates operating income margins are expected to improve
significantly in the second quarter on a sequential basis, with further
sequential improvement in the third quarter anticipated. The key drivers to
the sequential improvement are expected to be an improvement in Mexico
production reliability and a strong recovery in demand for the higher margin
products that experienced a weak first quarter. With a more typical US/Canada
business mix and improved Mexico production performance, Specialty Phosphates
operating income margins are expected to improve to the original, full year
goal of 15% by the third quarter.

For the short-term, GTSP is expected to continue near break-even through the
second quarter. Fertilizer prices have been at their seasonal lows, with only
a modest uptick over the last month, and still remain modestly below prior
year levels.

The business continues to generate strong cash flow and net debt decreased by
$21 million in the 2013 first quarter to $128 million as a result of reduced
working capital in Mexico.

Capital Expenditures

Capital expenditures were $7 million in the first quarter 2013, a bit below
the expected trendline based on our indicated 2013 expectation of $40-45
million, primarily due to some expenditures accelerated into the fourth
quarter 2012. We expect expenditures to increase in the coming quarters to
keep in line with the noted expectation for the year. Investment continues to
be focused on capacity enhancements for US/Canada and Mexico Specialty
Ingredients facilities, expanding geographically and enhancing Mexico's
capability to process multiple grades of rock, consistent with the Company's
supply chain diversification strategy.

About Innophos Holdings, Inc.

Innophos is a leading international producer of performance-critical and
nutritional specialty ingredients, with applications in food, beverage,
dietary supplements, pharmaceutical, oral care and industrial end
markets.Innophos combines more than a century of experience in specialty
phosphate manufacturing with a growing capability in a broad range of other
specialty ingredients to supply a product range produced to stringent
regulatory manufacturing standards and the quality demanded by customers
worldwide.Innophos is continually developing new and innovative specialty
ingredients addressing specific customer applications and supports these
high-value products with industry-leading technical service. Headquartered in
Cranbury, New Jersey, Innophos has manufacturing operations in Nashville, TN;
Chicago Heights, IL; Chicago (Waterway), IL; Geismar, LA; Ogden, UT; North
Salt Lake, UT; Paterson, NJ; Green Pond, SC; Port Maitland, ON (Canada);
Taicang (China); Coatzacoalcos, Veracruz and San Jose de Iturbide (Mission
Hills), Guanajuato (Mexico). For more information please visit
www.innophos.com. 'IPHS-G'

Financial Tables Follow

Innophos Holdings, Inc.              FTI Consulting, Inc.
Investor Relations: (609) 366-1299   Bryan Armstrong/Matt Steinberg
investor.relations@innophos.com     (212) 850-5600

Conference Call Details

The conference call is scheduled for Tuesday, April 30, 2013 at 10:00 am ET
and can be accessed by dialing 888-206-4065  (U.S.) or 630-827-5974
(international) and entering passcode 34744744. Please dial in approximately
15 minutes ahead of the start time to ensure timely entry to the call. A
replay will be available between 1:00 pm ET on April 30 and 1:00 pm ET on May
14, 2013. The replay is accessible by dialing 888-843-7419 (U.S.) or
630-652-3042 (international) and entering passcode 6861213#.

Safe Harbor for Forward-Looking and Cautionary Statements
This release contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended. As such, final results could
differ from estimates or expectations due to risks and uncertainties,
including but not limited to: incomplete or preliminary information; changes
in government regulations and policies; continued acceptance of Innophos'
products and services in the marketplace; competitive factors; technological
changes; Innophos' dependence upon first-party suppliers; and other risks.
For any of these factors, Innophos claims the protection of the safe harbor
for forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995, as amended.

Summary Profit & Loss Statement – First Quarter



INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Operations (Unaudited)
(Dollars In thousands, except per share amounts or share amounts)
                                        Three months ended  Three months ended
                                        March 31,           March 31,
                                        2013                2012
Net sales                               $214,441            $228,252
Cost of goods sold                      177,407             172,384
Gross profit                            37,034              55,868
Operating expenses:
 Selling, general and               18,356              17,034
administrative
 Research& development expenses    753                 695
 Total operating expenses           19,109              17,729
Operating income                        17,925              38,139
Interest expense, net                   1,152               1,627
Foreign exchange loss (gain)            (498)               (291)
Income before income taxes              17,271              36,803
Provision for income taxes              4,868               9,215
Net income                              $12,403             $27,588
Diluted Earnings Per Participating      $0.55               $1.22
Share
Diluted weighted average common shares  22,326,418          22,699,745
outstanding:
Dividends paid per share of common      $0.35               $0.25
stock
Dividends declared per share of common  $0.35               $0.27
stock



Segment Reporting – First Quarter

The Company reports its operations in three segments: Specialty Phosphates US
& Canada, Specialty Phosphates Mexico and GTSP & Other. The primary
performance indicators for the chief operating decision maker are sales and
operating income, with sales on a ship-from basis. Sales on a ship-from basis
are on the same revenue recognition as a ship-to basis and are recognized when
delivery has occurred and title and risk of loss passes to the customer. The
following table sets forth the historical results of these indicators by
segment:



                                Three months       Three months
                                ended              ended
                                March 31,          March 31,        Net Sales
                                2013               2012             %Change
Segment Net Sales
Specialty Phosphates US&       $150,991           $141,594         6.6%
Canada
Specialty Phosphates Mexico     38,916             50,928           -23.6%
Total Specialty Phosphates      189,907            192,522          -1.4%
GTSP& Other                    24,534             35,730           -31.3%
Total                           $214,441           $228,252         -6.1%
Segment Operating Income
Specialty Phosphates US&       $10,792            $27,236
Canada
Specialty Phosphates Mexico     656                6,262
Total Specialty Phosphates      11,448             33,498
GTSP& Other (a)                6,477              4,641
Total                           $17,925            $38,139
Segment Operating Income % of
net sales
Specialty Phosphates US&       7.1%               19.2%
Canada
Specialty Phosphates Mexico     1.7%               12.3%
Total Specialty Phosphates      6.0%               17.4%
GTSP& Other (a)                26.4%              13.0%
Total                           8.4%               16.7%
Depreciation and amortization
expense
Specialty Phosphates US&       $7,107             $5,371
Canada
Specialty Phosphates Mexico     1,758              3,772
Total Specialty Phosphates      8,865              9,143
GTSP& Other                    521                1,096
Total                           $9,386             $10,239
(a) The three month period ended March 31, 2013 includes a $7.2 million
benefit to earnings for the
 settlement of Mexican CNA Water Tax Claims owed for the periods 2005 -
2008. The three month
 period ending March 31, 2012 includes a $7.1 million benefit to earnings
related to a settlement
 with Rhodia on their liability for the charges to be paid for Mexican
CNA Water Tax Claims.



Price / Volume – First Quarter

The Company calculates pure selling price dollar variances as the selling
price for the current year to date period minus the selling price for the
prior year to date period, and then multiplies the resulting selling price
difference by the prior year to date period volume. The current quarter
selling price dollar variance is derived from the current quarter year to date
selling price dollar variance less the previous quarter year to date selling
price dollar variance. The selling price dollar variance is then divided by
the prior period sales dollars to calculate the percentage change. Volume
variance is calculated as the total sales variance minus the selling price
variance and refers to the revenue effect of changes in tons sold at the
relative prices applicable to the variation in tons, otherwise known as
volume/mix.

The following tables illustrate for the three months ended March 31, 2013 the
percentage changes in net sales by reportable segments and by Specialty
Phosphates product lines compared with the same period of the prior year,
including the effect of selling price and volume/mix changes upon revenue:



Reportable Segments                    Price        Volume/Mix        Total
Specialty Phosphates US& Canada       -0.5%        7.1%              6.6%
Specialty Phosphates Mexico            -4.5%        -19.1%            -23.6%
Total Specialty Phosphates             -1.6%        0.2%              -1.4%
GTSP& Other                           -4.6%        -26.7%            -31.3%
Total                                  -2.1%        -4.0%             -6.1%
Note: Includes AMT/Triarco benefit of 7.1% in Specialty Phosphates US &
Canada
 Volume/Mix and 5.3% in Total Specialty Phosphates Volume/Mix
Specialty Phosphates Product Lines     Price        Volume/Mix        Total
Specialty Ingredients                  -2.8%        7.7%              4.9%
Food& Technical Grade PPA             2.0%         -5.9%             -3.9%
STPP& Detergent Grade PPA             -1.2%        -28.8%            -30.0%
Note: Includes AMT/Triarco benefit of 7.9% in Specialty Ingredients Volume/Mix



Summary Cash Flow Statement



INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
                                        Three months ended  Three months ended
                                        March 31,           March 31,
                                        2013                2012
Cash flows from operating activities
 Net income                         $12,403             $27,588
 Adjustments to reconcile net
income to net cash
provided from operating activities:
 Depreciation and amortization 9,386               10,239
 Amortization of deferred      147                 145
financing charges
 Deferred income tax provision 1,791               (334)
(benefit)
 Share-based compensation      718                 1,221
 Changes in assets and liabilities:
 Increase in accounts           (15,708)            (22,342)
receivable
 Decrease in inventories        23,261              19,776
 Decrease in other current      8,388               20,571
assets
 Increase (decrease) in         9,973               (2,736)
accounts payable
 Decrease in other current      (11,058)            (20,780)
liabilities
 Changes in other long-term     (3,745)             (3,488)
assets and liabilities
 Net cash provided from  35,556              29,860
operating activities
Cash flows from investing activities:
 Capital expenditures              (7,437)             (5,200)
 Net cash used for        (7,437)             (5,200)
investing activities
Cash flows used for financing
activities:
 Long-term debt borrowings          3,000               5,000
 Long-term debt repayments          (25,000)            (1,000)
 Excess tax benefits from exercise  968                 2,039
of stock options
 Common stock repurchases           (70)                -
 Dividends paid                     (7,641)             (5,405)
 Net cash used for         (28,743)            634
financing activities
Net change in cash                      (624)               25,294
Cash and cash equivalents at beginning  26,815              35,242
of period
Cash and cash equivalents at end of     $26,191             $60,536
period



Summary Balance Sheets



INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars In thousands)
                                                       March 31,  December 31,

                                                       2013       2012
ASSETS
Current assets:
 Cash and cash equivalents                         $26,191    $26,815
 Accounts receivable, net                          109,741    94,033
 Inventories                                       139,680    162,941
 Other current assets                              87,146     99,927
 Total current assets                    362,758    383,716
Property, plant and equipment, net                     197,292    195,723
Goodwill                                               83,879     83,879
Intangibles and other assets, net                      74,889     75,948
 Total assets                            $718,818   $739,266
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Current portion of long-term debt                 $4,002     $4,000
 Accounts payable, trade and other                 46,458     36,485
 Other current liabilities                         34,972     46,030
 Total current liabilities               85,432     86,515
Long-term debt                                         150,000    172,000
Other long-term liabilities                            34,694     36,428
 Total liabilities                       270,126    294,943
 Total stockholders' equity              448,692    444,323
 Total liabilities and stockholders'     $718,818   $739,266
equity



Additional Information
Net debt is a supplemental financial measure that is not required by, or
presented in accordance with, USGAAP. The Company believes net debt is
helpful in analyzing leverage and as a performance measure for purposes of
presentation in this release. The Company defines net debt as total long-term
debt (including any current portion) less cash and cash equivalents.



SOURCE Innophos Holdings, Inc.

Website: http://www.innophos.com
 
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