EX-99.1 2 d499379dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

KMG Chemicals Reports Second Quarter 2013 Financial Results

HOUSTON – March 8, 2013 – KMG Chemicals, Inc. (NYSE: KMG), a global provider of specialty chemicals in select markets, today announced financial results for the fiscal 2013 second quarter ended January 31, 2013.

2013 Second Fiscal Quarter Highlights

 

  Net sales were $57.0 million, down 15.0% from the comparable quarter in fiscal 2012, reflecting reduced demand within our Electronic Chemicals and Wood Treating Chemicals businesses.

 

  Gross profit margins increased to 27.6%, from 25.6% in the second fiscal quarter of 2012.

 

  Operating income declined to $3.2 million, from $4.9 million in the same period a year ago.

 

  Diluted earnings per share were $0.14 vs. $0.21 per share in last year’s second fiscal quarter.

 

  Electronic Chemicals segment operating margins (after corporate allocations) improved slightly to 6.8% vs. 6.5% in the second fiscal quarter of 2012.

 

  Wood Treating Chemicals segment operating margins (after corporate allocations) declined to 10.5% vs. 11.5% in last year’s second quarter.

Neal Butler, President and CEO of KMG, commented, “Weakness in North American semiconductor production and reduced demand for our wood treating chemicals caused our second quarter results to come in below our original expectations. Additionally, expenses associated with the advancement of our consolidation strategy weighed on our bottom line results. Despite the challenging operating environment and the related impact to our shipment volumes, our gross profit margins increased by 200 bps on a year-over-year basis, reflecting benefits from our targeted pricing, cost savings and efficiency improvement initiatives undertaken over the past twelve months.”

Electronic Chemicals

Electronic Chemicals sales were $35.6 million, down $3.0 million, or 7.8%, as compared to $38.6 million for the prior year period. The sales decline reflected reduced volumes as semiconductor manufacturers reduced inventories and slowed production in response to softer consumer demand for high-tech electronic devices.

Despite the reduction in second quarter volumes, segment operating margins rose 30 bps year-over-year to 6.8%, benefiting from the realization of previous pricing adjustments undertaken in response to higher raw materials costs and from efficiency gains from our continual improvement initiatives.

Wood Treating Chemicals

Wood Treating Chemicals sales were $21.2 million, down $7.2 million, or 25.4%, from $28.4 million in the second fiscal quarter of 2012. The decline in segment sales reflected competitive pressures from alternative processes and treatments in the rail tie treating market as well as a temporary drop in demand from our utility pole treating customers. The second fiscal quarter results were also adversely impacted by unplanned interruptions at customers’ wood treating facilities.


Segment operating margins were 10.5%, down 100 bps from 11.5% in last year’s second quarter. The reduction in segment operating margins was attributable to lower volumes and the associated impact of lower volumes on segment profitability.

Balance Sheet and Cash Flow Overview

John V. Sobchak, CFO of KMG, said, “Our balance sheet remained strong in the second quarter, with $52.0 million in working capital and cash of $5.5 million. Shareholders’ equity increased to $114.3 million in the second quarter, up from $100.5 million in the same period a year ago, and we have reduced our long-term debt by $19 million during the same time period. As a result, our long-term debt-to-shareholders’ equity ratio of 19.2% is now at its lowest level since the first quarter of 2008, providing us with significant financial flexibility to pursue our consolidation strategy. Importantly, KMG remained solidly cash flow positive, generating net cash from operating activities of $8.6 million for the six months ended January 31, 2013.”

Outlook

Commenting on the outlook, Mr. Butler said, “We are encouraged by recent trends in our Electronic Chemicals business, which has benefited from strengthening customer demand and improved volumes thus far in calendar 2013. This rebound in production should have a positive impact on third fiscal quarter segment margins, and we anticipate operating profits will improve notably from those reported in the second quarter of fiscal 2013. In our Wood Treating Chemicals segment, we anticipate third fiscal quarter volumes will show improvement relative to those in the second quarter of 2013, though segment sales will remain below the level reported in the third quarter of fiscal 2012. Given the anticipated increase in fiscal third quarter Wood Treating Chemicals volumes, we expect segment operating profits will improve accordingly. Overall, we estimate fiscal third diluted quarter earnings per share will be approximately 70% of the prior year’s third quarter diluted earnings per share of $0.33 from continuing operations. We believe a rebound in demand will remain into the fourth quarter.”

Mr. Butler concluded, “As we enter the second half of fiscal 2013, we are optimistic about our prospects, not only for the current third fiscal quarter but for the longer term as well. We remain confident in our consolidation strategy, as we continue to identify, evaluate and pursue key opportunities – including the establishment of a new market platform in fiscal 2014 — that will drive earnings growth, increase cash flow and create lasting value for our shareholders.”

Conference Call

Date: Friday, March 8, 2013

Time: 10:00 a.m. EST

Dial-in: 800-561-2693 or 617-614-3523

Participant passcode: 57079806

The conference call will also be webcast live via the “Investors” section of the Company’s website at http://kmgchemicals.com. To listen to the live call, please go to the website at least 15 minutes early to register, download and install any necessary audio software.


If you are unable to listen live, the conference call will be archived on the KMG website. A telephone replay of the call will also be available for one week, starting at 12:00 p.m. ET on March 8, 2013. To access the call, dial 888-286-8010 or 617-801-6888 using participant passcode 51894882.

About KMG

KMG Chemicals, Inc., through its subsidiaries, produces and distributes specialty chemicals to select markets. The Company grows by acquiring and optimizing stable chemical product lines and businesses with established production processes. Its current operations are focused on the electronic and industrial wood treatment chemical markets. For more information, visit the Company’s website at http://kmgchemicals.com.

The information in this news release includes certain forward-looking statements that are based upon assumptions that in the future may prove not to have been accurate and are subject to significant risks and uncertainties, including statements as to the future performance of the company. Although the company believes that the expectations reflected in its forward-looking statements are reasonable, it can give no assurance that such expectations or any of its forward-looking statements will prove to be correct. Factors that could cause results to differ include, but are not limited to, successful performance of internal plans, product development acceptance, the impact of competitive services and pricing and general economic risks and uncertainties.

Source: KMG Chemicals, Inc.

KMG Chemicals, Inc.

Eric Glover, 713-600-3865

Investor Relations Manager

eglover@kmgchemicals.com


KMG CHEMICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(In thousands, except for per share amounts)

 

     Three Months Ended
January 31,
    Six Months Ended
January 31,
 
     2013     2012     2013     2012  

Net sales

   $ 56,959      $ 66,976      $ 122,295      $ 138,515   

Cost of sales

     41,238        49,835        86,486        102,699   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     15,721        17,141        35,809        35,816   
  

 

 

   

 

 

   

 

 

   

 

 

 

Distribution expenses

     5,922        5,802        12,975        11,872   

Selling, general and administrative expenses

     6,603        6,456        12,534        12,070   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     3,196        4,883        10,300        11,874   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income/(expense)

        

Interest expense, net

     (395     (555     (806     (1,105

Other, net

     (76     (72     (126     (147
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense, net

     (471     (627     (932     (1,252
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

     2,725        4,256        9,368        10,622   

Provision for income taxes

     (1,070     (1,722     (3,505     (4,227
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     1,655        2,534        5,863        6,395   
  

 

 

   

 

 

   

 

 

   

 

 

 

Discontinued operations:

        

Loss from discontinued operations, before income taxes

     (52     (89     (154     (615

Income tax benefit

     15        17        51        217   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from discontinued operations

     (37     (72     (103     (398
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 1,618      $ 2,462      $ 5,760      $ 5,997   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share:

        

Basic

        

Income from continuing operations

   $ 0.14      $ 0.22      $ 0.51      $ 0.56   

Loss from discontinued operations

     —          —          (0.01     (0.03
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 0.14      $ 0.22      $ 0.50      $ 0.53   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

        

Income from continuing operations

   $ 0.14      $ 0.22      $ 0.51      $ 0.55   

Loss from discontinued operations

            (0.01     (0.01     (0.03
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 0.14      $ 0.21      $ 0.50      $ 0.52   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding:

        

Basic

     11,480        11,353        11,458        11,351   

Diluted

     11,578        11,516        11,571        11,515   

 


KMG CHEMICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except for share and per share amounts)

 

     January 31,
2013
    July 31,
2012
 
     (Unaudited)        

Assets

    

Current assets

    

Cash and cash equivalents

   $ 5,487      $ 1,633   

Accounts receivable

    

Trade, net of allowances of $93 at January 31, 2013 and $16 at July 31, 2012

     24,767        28,933   

Other

     3,590        960   

Inventories, net

     43,038        40,661   

Current deferred tax assets

     1,429        1,417   

Prepaid expenses and other

     952        2,057   
  

 

 

   

 

 

 

Total current assets

     79,263        75,661   
  

 

 

   

 

 

 

Property, plant and equipment, net

     68,800        68,026   

Deferred tax assets

     1,174        1,129   

Goodwill

     3,778        3,778   

Intangible assets, net

     14,830        14,980   

Restricted cash

     1,000        1,000   

Other assets, net

     3,417        3,116   
  

 

 

   

 

 

 

Total assets

   $ 172,262      $ 167,690   
  

 

 

   

 

 

 

Liabilities and stockholders’ equity

    

Current liabilities

    

Accounts payable

   $ 21,390      $ 21,855   

Accrued liabilities

     4,691        4,595   

Employee incentive accrual

     1,203        2,227   
  

 

 

   

 

 

 

Total current liabilities

     27,284        28,677   
  

 

 

   

 

 

 

Long-term debt, net of current maturities

     22,000        24,000   

Deferred tax liabilities

     7,040        7,046   

Other long-term liabilities

     1,595        1,200   
  

 

 

   

 

 

 

Total liabilities

     57,919        60,923   
  

 

 

   

 

 

 

Commitments and contingencies

    

Stockholders’ equity

    

Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued

     —          —     

Common stock, $0.01 par value, 40,000,000 shares authorized, 11,495,273 shares issued and outstanding at January 31, 2013 and 11,405,808 shares issued and outstanding at July 31, 2012

     115        114   

Additional paid-in capital

     26,557        26,022   

Accumulated other comprehensive loss

     (2,372     (4,339

Retained earnings

     90,043        84,970   
  

 

 

   

 

 

 

Total stockholders’ equity

     114,343        106,767   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 172,262      $ 167,690   
  

 

 

   

 

 

 


KMG CHEMICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

 

     Six Months Ended
January 31,
 
     2013     2012  

Cash flows from operating activities

    

Net income

   $ 5,760      $ 5,997   

Adjustments to reconcile net income to net cash provided by operating activities

    

Depreciation and amortization

     3,504        3,545   

Amortization of loan costs included in interest expense

     31        54   

Stock-based compensation expense

     297        239   

Bad debt expense

     77        —     

Inventory valuation adjustment

     (301     125   

(Gain)/loss on disposal of property

     9        (44

Loss on sale of animal health business

     57        —     

Deferred income tax expense/(benefit)

     (5     1,003   

Tax benefit from stock-based awards

     (436     (121

Changes in operating assets and liabilities

    

Accounts receivable — trade

     4,437        5,261   

Accounts receivable — other

     (2,617     1,144   

Inventories

     (1,687     (1,566

Other current and noncurrent assets

     791        1,160   

Accounts payable

     (742     (1,875

Accrued liabilities and other

     (559     (468
  

 

 

   

 

 

 

Net cash provided by operating activities

     8,616        14,454   
  

 

 

   

 

 

 

Cash flows from investing activities

    

Proceeds from sale of property

     —          27   

Additions to property, plant and equipment

     (2,772     (2,687
  

 

 

   

 

 

 

Net cash used in investing activities

     (2,772     (2,660
  

 

 

   

 

 

 

Cash flows from financing activities

    

Net borrowings/(payments) under revolver credit agreement

     (2,000     3,054   

Principal payments on borrowings on term loan

     —          (11,333

Proceeds from exercise of stock options

     70        —     

Tax benefit from stock-based awards

     436        121   

Book overdraft

            (2,852

Payment of dividends

     (687     (567
  

 

 

   

 

 

 

Net cash used in financing activities

     (2,181     (11,577
  

 

 

   

 

 

 

Effect of exchange rate changes of cash

     191        (102

Net increase in cash and cash equivalents

     3,854        115   

Cash and cash equivalents at beginning of period

     1,633        1,826   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 5,487      $ 1,941   
  

 

 

   

 

 

 

Supplemental disclosures of cash flow information

    

Cash paid for interest

   $ 777      $ 1,030   

Cash paid for income taxes

   $ 4,403      $ 2,241   


Net Sales and Operating Income by Segment

($ in thousands; includes effects of rounding)

Segment Net Sales

 

     Three Months Ended January 31,  
     2013     2012  
     Net      % of Total Sales     Net      % of Total Sales  
     Sales      for Reportable Segments     Sales      for Reportable Segments  

Segment

          

Electronic Chemicals

   $ 35,647         63   $ 38,596         58

Wood Treating Chemicals

     21,183         37     28,380         42
  

 

 

    

 

 

   

 

 

    

 

 

 

Total Sales for Reportable Segments

   $ 56,830         100   $ 66,976         100
  

 

 

      

 

 

    

Segment Operating Income (1)

 

     Three Months Ended January 31,  
     2013     2012  
     Operating      % of Total Sales     Operating      % of Total Sales  
     Income      for Reportable Segments     Income      for Reportable Segments  

Segment

          

Electronic Chemicals

   $ 2,429         6.8   $ 2,521         6.5

Wood Treating Chemicals

     2,220         10.5     3,250         11.5
  

 

 

    

 

 

   

 

 

    

 

 

 

Total Segment Income from Operations

   $ 4,649         $ 5,771      
  

 

 

      

 

 

    
          

 

(1) Segment income from operations includes allocated corporate overhead expenses.