FOR IMMEDIATE RELEASE
INNOPHOS HOLDINGS, INC. REPORTS THIRD QUARTER 2012 RESULTS;
ANNOUNCES 30% INCREASE IN QUARTERLY DIVIDEND TO $0.35 PER SHARE
CRANBURY, New Jersey – (October 31, 2012) – 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 third quarter 2012.
Third Quarter Results
• | Net sales for the third quarter 2012 were $211 million, a 5% increase over third quarter 2011. |
• | Specialty Phosphates third quarter 2012 sales of $186 million increased 4% compared to third quarter 2011 on higher prices, moderate organic growth in US/Canada and the impact of acquired businesses that offset lower volumes in Mexico compared to strong results in 2011. |
• | GTSP & Other sales at $25 million for the 2012 third quarter were $3 million above the year ago level on lower market prices but higher volumes. The segment recorded an operating loss of $0.5 million, down $5 million versus the prior year period. |
• | Diluted EPS for the third quarter 2012 was $0.74 compared to $0.84 for the third quarter 2011. Giving effect to the previously disclosed adjustments for the year ago results, third quarter 2011 diluted EPS would have been $0.92. |
Randy Gress, CEO of Innophos, commented on the results, “We continued to make very good progress on our strategic objectives. We completed our second acquisition in the attractive bioactive minerals space and we also completed construction on our new China food blend facility. We recorded improved results in our US/Canada Specialty Phosphates business and both of our recent bioactive mineral ingredients acquisitions, Kelatron and AMT Labs, continued to perform well. Mexico Specialty Phosphates fell short of a very strong prior year quarter, but nevertheless, recorded good progress against its strategic objectives including further strengthening its capability in more differentiated food and beverage end markets.
Mr. Gress concluded, “Although the broader economic environment and global market conditions continue to limit our near-term expectations, I remain highly confident in the strength of our earnings and cashflow generation and in our prospects for future growth. Our capital allocation priorities continue to be investing to support organic growth, strengthening our product portfolio and market position through complementary, bolt-on acquisitions and improving cash returns to shareholders. We have made significant progress on all fronts over the last 12 months, and I am pleased to be able to announce today that our Board of Directors has approved a 30% increase in our quarterly dividend to $0.35 per share effective with the fourth quarter payment. This increase, our third in less than two years, means we have more than doubled our dividend since 2010.”
Segment Results - third quarter 2012 versus third quarter 2011
Specialty Phosphates
Specialty Phosphates sales revenue was up 4% year over year with prices up 5% but volumes down 1%, including a 3% volume benefit from the Kelatron and AMT acquisitions. Positive organic US/Canada volume growth was outweighed by Mexico declines.
Operating income at $25 million was $3 million below the year ago period and $4 million lower sequentially, with US/Canada increases offset by Mexico declines and a $1.5 million impact from acquisition accounting and acquisition related expenses in the quarter. Operating income margin at 14% decreased 130 basis points sequentially, as a result of lower margins in Mexico and acquisition related expenses, and was 240 basis points below the 2011 third quarter.
US/Canada
US/Canada Specialty Phosphates sales increased 11% year-over-year with 4% coming from higher prices. Volumes increased 7% compared to the 2011 period, including a 4% benefit from the Kelatron and AMT acquisitions.
Operating income at $23 million was $1 million above the year ago period and $2 million higher sequentially. Operating income margin at 16% was up 180 basis points sequentially but down 60 basis points compared to the year ago level.
Mexico
Mexico Specialty Phosphates sales were 15% below third quarter 2011 levels on 7% higher prices but 22% lower volumes.
Operating income was $2 million for the current quarter, down $6 million sequentially and $5 million from year ago levels. Both volumes and operating margins were affected
by a number of factors specific to the quarter, including weather related disruption and operating inefficiencies early in the quarter followed by the planned maintenance outages which began later in the quarter as we previously announced. The third quarter maintenance work was completed according to schedule; however, as is typical in a maintenance period, there was limited ability for the business to catch up on production to offset the preceding disruptions noted above. Operating income margin was therefore significantly lower at 6% for the quarter, although year to date margin at 12% remained above the year ago level.
GTSP & Other
GTSP & Other sales (primarily fertilizer co-product) increased 12% from year ago levels on higher volumes but lower market prices.
The combination of lower phosphate fertilizer market prices and relatively high market raw material costs meant this segment continued to operate at approximately the break-even level, with the operating inefficiencies and scheduled outage effects resulting in an overall operating loss of $0.5 million, down $5 million from third quarter 2011 levels.
Recent Trends and Outlook
Market conditions for Specialty Phosphates are expected to continue at a similar level through the 2012 fourth quarter with demand expected to be similar or marginally below year ago levels. Management expects the US/Canada Specialty Phosphates business to continue achieving moderate organic year over year volume growth despite challenging external conditions, although on a sequential basis, volumes in the fourth quarter are typically 1-2% lower than the third quarter. Mexico Specialty Phosphates is expected to complete its subsequent planned maintenance outage activities during the fourth quarter according to schedule. Although the business is expected to restore fourth quarter volumes to the prior run rate, the ongoing maintenance program will limit the ability of the business to fully compensate for the shortfall in the third quarter.
Specialty Phosphates selling prices were 5% higher in the 2012 third quarter versus the same period last year, and the business is targeting further selling price increases in response to ongoing high levels for market raw material prices with a modest sequential benefit anticipated for the fourth quarter.
Maintenance spending, primarily for scheduled outages in the US and Mexico, along with mining activities to support the evaluation of our mining concessions in Mexico, were in line with the $2 million expected, but more weighted towards maintenance. A similar level of expense is expected for the fourth quarter in these areas. Overall, therefore, management expects Specialty Phosphates operating performance in the 2012 fourth quarter to be broadly similar to the third quarter as improved Mexico Specialty Phosphate performance offsets the typical US/Canada seasonal volume
decline. GTSP & Other operating performance is also expected to continue at approximately a break-even level through the fourth quarter.
Net debt increased by $17 million in the 2012 third quarter to $80 million resulting primarily from the $27 million acquisition of AMT and $7 million for the Company’s previously announced stock repurchase program.
Capital Expenditures
Capital expenditures were $6 million in the 2012 third quarter and management now expects to spend approximately $25 million for all of 2012. As previously reported, the reduced expectation for capital expenditures is attributable to delays in some projects stemming from changes in engineering specifications. Investment continues to be focused on debottlenecking US / Canada and Mexico Specialty Ingredients facilities, expanding geographically, including the investment in China, and enhancing Mexico’s capability to process multiple grades of rock, consistent with the Company’s supply chain diversification strategy.
Hurricane Sandy
No manufacturing or distribution centers have been affected directly by Hurricane Sandy. However, the company's R&D and corporate headquarters in Cranbury, NJ has been without power since the storm passed on October 29, 2012 with no date for bringing that facility back to full service known at this time. The Company has implemented contingency plans and currently is not expecting the storm’s effect on fourth quarter earnings to be material.
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 mineral 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; Port Maitland, ON (Canada); and Coatzacoalcos, Veracruz and San Jose de Iturbide (Mission Hills), Guanajuato (Mexico). For more information please visit www.innophos.com. 'IPHS-G'
SOURCE Innophos Holdings, Inc.
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Financial Tables Follow
Innophos Holdings, Inc. FTI Consulting, Inc.
Investor Relations: (609) 366-1299 Alexandra Tramont/Matt Steinberg
investor.relations@innophos.com 212-850-5600
Conference Call Details
The conference call is scheduled for Thursday, November 1, 2012 at 10:00 am ET and can be accessed by dialing 888-206-4065 (U.S.) or 630-827-5974 (international) and entering passcode 33605879. 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 November 1 and 1:00 pm ET on November 15, 2012. 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 third-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 – Third 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 | ||||||
September 30, | September 30, | ||||||
2012 | 2011 | ||||||
Net sales | $211,188 | $202,102 | |||||
Cost of goods sold | 168,409 | 152,872 | |||||
Gross profit | 42,779 | 49,230 | |||||
Operating expenses: | |||||||
Selling, general and administrative | 17,417 | 15,343 | |||||
Research & development expenses | 776 | 762 | |||||
Total operating expenses | 18,193 | 16,105 | |||||
Operating income | 24,586 | 33,125 | |||||
Interest expense, net | 1,314 | 1,502 | |||||
Foreign exchange (gain) loss | (1,800) | 1,459 | |||||
Income before income taxes | 25,072 | 30,164 | |||||
Provision for income taxes | 8,366 | 11,307 | |||||
Net income | $16,706 | $18,857 | |||||
Diluted Earnings Per Share | $0.74 | $0.84 | |||||
Diluted weighted average common shares outstanding: | 22,500,262 | 22,557,661 | |||||
Dividends paid per share of common stock | $0.27 | $0.25 | |||||
Dividends declared per share of common stock | --- | $0.25 | |||||
Segment Reporting – Third 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 ended | Three months ended | |||||||||
September 30, | September 30, | Net Sales | ||||||||
2012 | 2011 | % Change | ||||||||
Segment Net Sales | ||||||||||
Specialty Phosphates US & Canada | $144,664 | $130,850 | 10.6 | % | ||||||
Specialty Phosphates Mexico | 41,222 | 48,601 | -15.2 | % | ||||||
Total Specialty Phosphates | 185,886 | 179,451 | 3.6 | % | ||||||
GTSP & Other | 25,302 | 22,651 | 11.7 | % | ||||||
Total | $211,188 | $202,102 | 4.5 | % | ||||||
Segment Operating Income | ||||||||||
Specialty Phosphates US & Canada | $22,759 | $21,331 | ||||||||
Specialty Phosphates Mexico | 2,369 | 7,143 | ||||||||
Total Specialty Phosphates | 25,128 | 28,474 | ||||||||
GTSP & Other (a) | (542) | 4,651 | ||||||||
Total | $24,586 | $33,125 | ||||||||
Segment Operating Income % of net sales | ||||||||||
Specialty Phosphates US & Canada | 15.7 | % | 16.3 | % | ||||||
Specialty Phosphates Mexico | 5.7 | % | 14.7 | % | ||||||
Total Specialty Phosphates | 13.5 | % | 15.9 | % | ||||||
GTSP & Other (a) | -2.1 | % | 20.5 | % | ||||||
Total | 11.6 | % | 16.4 | % | ||||||
Depreciation and amortization expense | ||||||||||
Specialty Phosphates US & Canada | $5,732 | $4,864 | ||||||||
Specialty Phosphates Mexico | 3,670 | 4,909 | ||||||||
Total Specialty Phosphates | 9,402 | 9,773 | ||||||||
GTSP & Other | 1,160 | 1,753 | ||||||||
Total | $10,562 | $11,526 | ||||||||
(a) The three months ended September 30, 2011 include expense of $0.3 million for expected future claims regarding Mexican water duties | ||||||||||
Price / Volume – Third 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 September 30, 2012 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 | 3.9 | % | 6.7 | % | 10.6 | % | |||
Specialty Phosphates Mexico | 6.5 | % | -21.7 | % | -15.2 | % | |||
Total Specialty Phosphates | 4.6 | % | -1.0 | % | 3.6 | % | |||
GTSP & Other | -16.4 | % | 28.1 | % | 11.7 | % | |||
Total | 2.3 | % | 2.2 | % | 4.5 | % | |||
Note: Includes Kelatron/AMT benefit of 4.4% in Specialty Phosphates US & Canada | |||||||||
Volume/Mix and 3.3% in Total Specialty Phosphates Volume/Mix | |||||||||
Specialty Phosphates Product Lines | Price | Volume/Mix | Total | ||||||
Specialty Ingredients | 4.6 | % | 0.2 | % | 4.8 | % | |||
Food & Technical Grade PPA | 11.5 | % | 0.5 | % | 12.0 | % | |||
STPP & Detergent Grade PPA | -4.4 | % | -9.5 | % | -13.9 | % | |||
Note: Includes Kelatron/AMT benefit of 4.7% in Specialty Ingredients Volume/Mix | |||||||||
Summary Cash Flow Statement
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES | |||||||
Condensed Consolidated Statements of Cash Flows (Unaudited) | |||||||
(Dollars in thousands) | |||||||
Nine months ended | Nine months ended | ||||||
September 30, | September 30, | ||||||
2012 | 2011 | ||||||
Cash flows from operating activities | |||||||
Net income | $60,798 | $65,572 | |||||
Adjustments to reconcile net income to net cash provided from | |||||||
operating activities: | |||||||
Depreciation and amortization | 32,118 | 32,443 | |||||
Amortization of deferred financing charges | 428 | 461 | |||||
Deferred income tax (benefit) provision | (1,545) | 6,378 | |||||
Deferred profit sharing | - | 395 | |||||
Share-based compensation | 3,319 | 5,122 | |||||
Changes in assets and liabilities: | |||||||
Decrease (increase) in accounts receivable | 11,278 | (10,870) | |||||
Decrease (increase) in inventories | 17,508 | (34,747) | |||||
(Increase) decrease in other current assets | (3,138) | 9,503 | |||||
Increase (decrease) in accounts payable | 2,844 | (443) | |||||
(Decrease) increase in other current liabilities | (18,933) | 4,731 | |||||
Changes in other long-term assets and liabilities | (3,884) | (3,111) | |||||
Net cash provided from operating activities | 100,793 | 75,434 | |||||
Cash flows from investing activities: | |||||||
Capital expenditures | (15,997) | (27,247) | |||||
Investment in AMT | (27,093) | - | |||||
Net cash used for investing activities | (43,090) | (27,247) | |||||
Cash flows used for financing activities: | |||||||
Proceeds from exercise of stock options | 381 | 484 | |||||
Long-term debt borrowings | 15,000 | - | |||||
Long-term debt repayments | (50,000) | (8,000) | |||||
Excess tax benefits from exercise of stock options | 2,681 | 2,487 | |||||
Common stock repurchases | (7,255) | (6,156) | |||||
Dividends paid | (17,181) | (14,517) | |||||
Net cash used for financing activities | (56,374) | (25,702) | |||||
Net change in cash | 1,329 | 22,485 | |||||
Cash and cash equivalents at beginning of period | 35,242 | 63,706 | |||||
Cash and cash equivalents at end of period | $36,571 | $86,191 | |||||
Summary Balance Sheets
September 30, 2012 | December 31, 2011 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $36,571 | $35,242 | |||||
Accounts receivable - trade | 93,984 | 104,421 | |||||
Inventories | 154,240 | 169,728 | |||||
Other current assets | 78,493 | 75,316 | |||||
Total current assets | 363,288 | 384,707 | |||||
Property, plant and equipment, net | 185,876 | 187,421 | |||||
Goodwill, intangibles and other assets, net | 128,116 | 114,887 | |||||
Total assets | $677,280 | $687,015 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Current portion of long-term debt | $4,000 | $4,000 | |||||
Accounts payable, trade and other | 35,861 | 32,640 | |||||
Other current liabilities | 48,508 | 71,609 | |||||
Total current liabilities | 88,369 | 108,249 | |||||
Long-term debt | 113,000 | 148,000 | |||||
Other long-term liabilities | 36,866 | 37,558 | |||||
Total liabilities | 238,235 | 293,807 | |||||
Total stockholders’ equity | 439,045 | 393,208 | |||||
Total liabilities and stockholders’ equity | $677,280 | $687,015 | |||||
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.