Innophos Holdings, Inc. Reports First Quarter 2014 Results Sales Up 10% Sequentially; Operating Income Up 22% Year-Over-Year PR Newswire CRANBURY, N.J., April 28, 2014 CRANBURY, N.J., April 28, 2014 /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 2014. First Quarter Results oNet sales for the first quarter 2014 of $216 million were up 10% sequentially and 1% compared to first quarter 2013 levels. Specialty Phosphates sales increased 5% sequentially and 3% year-over-year on higher volumes from improved Mexico operations, partially offset by slightly lower prices. oUS/Canada Specialty Phosphates sales of $151 million were up 5% sequentially and flat with the prior year quarter due to poor weather conditions in January and February that affected demand and disrupted transportation networks. oMexico Specialty Phosphates sales of $44 million increased 4% sequentially and 14% compared to the year ago period on higher volumes from improved operations, partially offset by lower selling prices. oGTSP & Other sales of $21 million more than doubled sequentially, but declined 15% year-over-year due to sharply lower selling prices that more than offset an increase in volumes. oDiluted EPS for the first quarter 2014 was $0.64 compared to $0.55 for the first quarter 2013. Giving effect to the prior year adjustments previously disclosed, diluted EPS was $0.60 for the first quarter 2013. Randy Gress, CEO of Innophos, commented on the results, "Overall, we are pleased with our results for the first quarter, particularly by our continued improved performance at our Mexico operation and sustained margins in our US/Canada business. 2013 enhancements and adjustments to the Coatzacoalcos facility supported greatly improved yields that will enable continued growth and profitability within our North American network and strengthening of our product mix in Latin America. While we made good progress during the quarter on our annual goals, our US/Canada results were negatively affected by the severe winter conditions which affected demand and limited our ability to ship product in the first two months of the quarter. We also experienced a higher than expected loss in our GTSP & Other business due to lower demand and selling prices than expected for the second half of the quarter. That said, we closed the quarter on a strong note in March and are seeing solid demand from our customers in April. We remain confident that we will generate improved earnings for the second quarter compared to our performance over the last five quarters and deliver on our targets for the year, which are reaffirmed." Segment Results – first quarter 2014 versus 2013 Specialty Phosphates Specialty Phosphates sales were up 3% year-over-year on 4% higher volumes partially offset by a 1% drop in prices, both attributable to Mexico. Operating income of $26 million was up $14 million year-over-year. Taking into account the $8 million of elevated cost of goods sold that was previously reported for the prior year period, operating income was up $6 million due to improved Mexico sales volumes. Operating income margin for first quarter 2014 was 13%, in line with expectations and up 730 basis points against the prior year and up 290 basis points against the adjusted prior year level. US/Canada Sales were flat with the prior year due to the harsh weather conditions in January and February that affected demand and limited our delivery capabilities. Unfavorable mix also contributed to a flat volume/mix comparison, as actual tons shipped increased by 2% year-over-year. Operating income of $20 million was up $9 million year-over-year. Adjusting for the $5 million of elevated costs in the prior year quarter, operating income was up $4 million. Operating income margin was 13% for the first quarter 2014, affected as expected by higher cost Purified Phosphoric Acid (PPA) inventory and higher Merchant Grade Acid (MGA) costs caused by phosphate rock consumption variances at our supplier's facility. Nevertheless, operating income margin was up 630 basis points from the year ago period and up 260 basis points against the adjusted prior year level. Mexico Mexico Specialty Phosphates sales increased 14% compared to first quarter 2013 on 18% higher volumes resulting from improved operations. However, selling prices declined 4% primarily in PPA along with a price reset on a long-term contract. Operating income in the first quarter 2014 of $6 million was up $5 million year-over-year due to improved sales and lower costs. Adjusting for the $3 million of elevated costs in the prior year quarter, operating income was up $2 million. Operating income margin was 13% for the first quarter 2014, up 1,150 basis points from the year ago quarter and up 430 basis points against the adjusted prior year level. GTSP & Other GTSP & Other sales (primarily Granulated Triple Superphosphate fertilizer co-product) decreased 15% in the first quarter 2014 compared to the year ago period on 20% lower selling prices partially offset by a 5% increase in volumes. Fertilizer market prices increased 25-30% in the first six weeks of 2014, but then, contrary to our expectations, stabilized for the remainder of the quarter, remaining considerably below the year ago levels. The first quarter 2014 operating loss of $4 million was $10 million unfavorable to the prior year quarter. Adjusting for the previously disclosed $1 million of elevated costs from reduced efficiencies and higher plant maintenance and $7 million benefit related to Mexican water duties in the prior year quarter, operating income was $4 million unfavorable to the prior year quarter due to lower selling prices. Operating income margins were (20)% for the first quarter 2014 compared to 26% for the first quarter 2013 as reported and 1% on an adjusted basis. Recent Trends and Outlook Specialty Phosphates volume was up 4% in the first quarter 2014 compared to the prior year due to an 18% increase in Mexico volumes resulting from improved operations. US/Canada actual tons shipped increased by 2% year-over-year despite adverse weather conditions in January and February 2014; however, unfavorable mix led to a flat volume and mix comparison. Export sales overall were up 6% year-over-year with a good recovery recorded in Latin America. At this point, we are confident in our previously announced full year 2014 target of 3-5% volume growth for Specialty Phosphates. Specialty Phosphates operating income margins were 13% for the first quarter 2014, in line with expectations. As previously disclosed, our first quarter results were affected by higher cost PPA inventory and phosphate rock consumption variances from our MGA supplier that came out of inventory. As expected, MGA purchase prices returned to normalized levels in the first quarter 2014. At this time, we are also confident in our full year 2014 target of 14-15% operating income margins for Specialty Phosphates. Fertilizer market prices increased 25-30% in the first six weeks of 2014, but then stabilized for the remainder of the quarter. Raw material prices have therefore rebounded as well in the first quarter 2014, with market sulfur prices increasing by nearly 50%, putting them somewhere between second and third quarter 2013 levels, and market phosphate rock prices recently reported up about 15% from fourth quarter 2013 levels. Sulfur market prices are expected to increase another 20% in the second quarter 2014 and rock prices are expected to increase moderately. Innophos has already announced selling price increases to offset the effects of these rising raw material costs. GTSP & Other recorded a $4 million operating loss for the first quarter 2014, which was $1 million worse than our estimated $2-3 million operating loss. Demand was softer and selling prices weaker than expected for the second half of the quarter. We still expect to achieve break-even operating income in this minor segment for the second quarter 2014 based on current market selling and raw material price indications. Net debt decreased sequentially by $18 million in the first quarter 2014 to $112 million on solid earnings and working capital reductions. Capital Expenditures Capital expenditures were $6 million in the first quarter, about half the previously expected 2014 run-rate for an average quarter. Our expectation for 2014 capital expenditures is now in the $35-40 million range, about $10 million below previous expectations, due solely to changes in the phasing of certain projects. We continue to focus on capacity enhancements to our US, Canada and Mexico Specialty Ingredients facilities and further improvements of Mexico's reliability, efficiency and capability to process multiple grades of rock, consistent with the Company's supply chain diversification strategy, and to manufacture a more diverse mix of products. 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; Salt Lake City, 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 firstname.lastname@example.org (212) 850-5600 Conference Call Details The conference call is scheduled for Tuesday, April 29, 2014 at 10:00 am ET and can be accessed by dialing 1-888-206-4065 (U.S.) or 1-630-827-5974 (international) and entering passcode 37157154. 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 29 and 1:00 pm ET on May 13, 2014. The replay is accessible by dialing 1-888-843-7419 (U.S.) or 1-630-652-3042 (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 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 March 31, 2014 2013 Net sales $216,341 $214,441 Cost of goods sold 174,409 177,407 Gross profit 41,932 37,034 Operating expenses: Selling, general and administrative 18,973 18,356 Research& development expenses 1,015 753 Total operating expenses 19,988 19,109 Operating income 21,944 17,925 Interest expense, net 705 1,152 Foreign exchange loss (gain) 1,001 (498) Income before income taxes 20,238 17,271 Provision for income taxes 6,053 4,868 Net income $14,185 $12,403 Diluted Earnings Per Participating Share $0.64 $0.55 Diluted weighted average participating shares 22,235,994 22,326,418 outstanding: Dividends paid per share of common stock $0.40 $0.35 Dividends declared per share of common stock $0.40 $0.35 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 presented on a ship-from basis. Sales on a ship-from basis are on the same revenue recognition principle 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 Ended March 31, Net Sales 2014 2013 %Change Segment Net Sales Specialty Phosphates US& Canada $151,010 $150,991 0.0% Specialty Phosphates Mexico 44,489 38,916 14.3% Total Specialty Phosphates 195,499 189,907 2.9% GTSP& Other 20,842 24,534 (15.0)% Total $216,341 $214,441 0.9% Segment Operating Income Specialty Phosphates US& Canada $20,213 $10,792 Specialty Phosphates Mexico 5,861 656 Total Specialty Phosphates 26,074 11,448 GTSP& Other (a) (4,130) 6,477 Total $21,944 $17,925 Segment Operating Income % of net sales Specialty Phosphates US& Canada 13.4% 7.1% Specialty Phosphates Mexico 13.2% 1.7% Total Specialty Phosphates 13.3% 6.0% GTSP& Other (a) (19.8)% 26.4% Total 10.1% 8.4% Depreciation and amortization expense Specialty Phosphates US& Canada $5,319 $7,107 Specialty Phosphates Mexico 2,769 1,758 Total Specialty Phosphates 8,088 8,865 GTSP& Other 387 521 Total $8,475 $9,386 The three months ended March31, 2013 includes a $7.2 million benefit to (a) earnings related to updates to the provision for the CNA Fresh Water Claims in GTSP & Other. 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, 2014 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 (0.2)% 0.2% 0.0% Specialty Phosphates Mexico (4.2)% 18.5% 14.3% Total Specialty Phosphates (1.0)% 3.9% 2.9% GTSP& Other (19.9)% 4.9% (15.0)% Total (3.2)% 4.1% 0.9% Specialty Phosphates Product Lines Price Volume/Mix Total Specialty Ingredients 0.0% 3.3% 3.3% Food& Technical Grade PPA (4.9)% 4.1% (0.8)% STPP& Detergent Grade PPA (1.2)% 9.7% 8.5% Summary Cash Flow Statement INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) (Dollars in thousands) Three Months Ended March 31, 2014 2013 Cash flows provided from operating activities Net income $14,185 $12,403 Adjustments to reconcile net income to net cash provided from operating activities: Depreciation and amortization 8,475 9,386 Amortization of deferred financing 132 147 charges Deferred income tax provision - 1,791 Share-based compensation 1,158 718 Changes in assets and liabilities: Increase in accounts receivable (18,642) (15,708) Decrease in inventories 16,398 23,261 Decrease in other current assets 5,989 8,388 Increase in accounts payable 632 9,973 Increase (decrease) in other current 3,753 (11,058) liabilities Changes in other long-term assets and 1,388 (3,745) liabilities Net cash provided from operating 33,468 35,556 activities Cash flows used for investing activities: Capital expenditures (6,133) (7,437) Net cash used for investing (6,133) (7,437) activities Cash flows used for financing activities: Proceeds from exercise of stock options 99 - Long-term debt borrowings - 3,000 Long-term debt repayments (8,001) (25,000) Excess tax benefits from exercise of stock 108 968 options Common stock repurchases (189) (70) Dividends paid (8,766) (7,641) Net cash used for financing (16,749) (28,743) activities Net change in cash 10,586 (624) Cash and cash equivalents at beginning of period 32,755 26,815 Cash and cash equivalents at end of period $43,341 $26,191 Summary Balance Sheets INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited) (Dollars In thousands) March 31, December 31, 2014 2013 ASSETS Current assets: Cash and cash equivalents $43,341 $32,755 Accounts receivable, net 107,076 88,434 Inventories 165,069 181,467 Other current assets 75,466 81,472 Total current assets 390,952 384,128 Property, plant and equipment, net 200,660 201,985 Goodwill 84,373 84,373 Intangibles and other assets, net 73,901 74,691 Total assets $749,886 $745,177 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $4,001 $4,002 Accounts payable, trade and other 39,349 38,717 Other current liabilities 37,877 34,124 Total current liabilities 81,227 76,843 Long-term debt 151,007 159,007 Other long-term liabilities 47,591 45,908 Total stockholders' equity 470,061 463,419 Total liabilities and stockholders' $749,886 $745,177 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
Innophos Holdings, Inc. Reports First Quarter 2014 Results
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