CRANBURY, N.J.--(BUSINESS WIRE)--Jul 30, 2018--Innophos Holdings, Inc. (NASDAQ:IPHS) today announced financial results for its second quarter ended June 30, 2018.
Strategic HighlightsMajor milestone completed with recently signed strategic PPA and MGA supply agreements with Nutrien Negotiated a $20 million payment from Nutrien to offset near-term value chain specific transition charges anticipated to be incurred through Q2 2019 Income from the payment will mostly benefit 2019 to 2021 earnings Full benefits of the multi-faceted value chain repositioning and manufacturing optimization program expected to deliver adjusted diluted EPS improvement of 10% by the end of 2019
Q2 Financial HighlightsSales of $207 million were up 15% compared with the prior-year due to continued stabilization of the base portfolio, contribution from acquisitions and ongoing pricing actions FHN segment sales grew 36%, representing 61% of total Company sales GAAP Net Income of $6 million, or $0.31 per share, reflect $4 million, or $0.17 per share of specific value chain transition charges, and $3 million, or $0.10 per share, for the annual Mexico plant maintenance stoppage that was completed earlier in the year than planned to prepare operations for the new supply agreements. Given their project-based nature, the value chain transition charges were excluded from adjusted results Adjusted EBITDA of $31 million was $1 million ahead of the same period last year and, when excluding the Mexico maintenance stoppage expenses, also improved sequentially. Adjusted diluted EPS of $0.55 was down $0.03, or 5% year-over-year due to Mexico maintenance stoppage expenses. Excluding these expenses adjusted diluted EPS would have been $0.65, up 14% versus prior year Free Cash Flow was down $26 million from the same quarter last year, due to lower reported EBITDA, as well as timing of capital expenditures and working capital needs to support the value chain repositioning and manufacturing optimization program
“We delivered solid topline growth in the second quarter as we continued to capitalize on the stability of our legacy business, strength of our acquired businesses and our proactive pricing actions, which offset input cost increases,” said Kim Ann Mink, Ph.D., Chairman, President and Chief Executive Officer.
“We made significant strides in advancing our strategic value chain repositioning and manufacturing optimization program which sets us up well for 2019 and beyond. This program will meaningfully diversify Innophos’ supply base and deliver an improved sustainable cost structure, while maintaining our market-leadership position in our cash-generative phosphate portfolio, which is an important component of our Vision 2022 strategy,” continued Mink.
“We are confident that the strategic value chain program will deliver a 10% improvement to our adjusted diluted EPS by the end of 2019. In the near term there will be a negative impact to our GAAP earnings as the anticipated specific value chain transition costs are incurred ahead of the full benefit accruing from the $20 million payment.
“We continue to position Innophos for sustained organic and inorganic growth,” added Mink. “We have strong momentum behind our enterprise-wide new product development process called SPARC, are progressing with the integration of our 2017 acquisitions and are actively pursuing additional M&A opportunities that will further strengthen our position in attractive FHN markets.
“Our performance in H1 2018 has been defined by solid financial results and strong momentum as we advance along our Vision 2022 strategic roadmap to establish Innophos as a leading specialty ingredients provider. Looking ahead, we are focused on leveraging this momentum and continuing to put our transformation in action,” concluded Mink.
Q2 2018 Results Variance $ and Variance % in the following tables may not foot due to roundingSales grew 15% compared with the prior year due to 12% higher volumes, and 3% higher prices GAAP Net Income of $6 million, or diluted EPS of $0.31, were down versus the prior year reflecting $4 million of specific value chain transition charges and $3 million from the annual Mexico plant maintenance stoppage charges Adjusted EBITDA of $31 million was ahead of last year due to additional earnings from acquisitions, partly offset by $3 million of Mexico plant maintenance charges. Adjusted diluted EPS of $0.55 was down due to the $0.10 impact from the annual Mexico maintenance stoppage Free Cash outflow was $3 million, down $26 million versus the same quarter last year due to lower earnings, as well as higher capex of $12 million and greater working capital needs to support the value chain repositioning and manufacturing optimization program
Q2 2018 Segment FinancialsFHN represented 61% of total Company sales and was up 36% year-over-year (price +1%, volume +35%) due to the contribution from acquisitions and strength of the legacy portfolio; adjusted EBITDA margins were 509 bps below 2017 due to the effects of the Mexico plant maintenance stoppage and dilution effect from lower margin acquisitions IS sales were down 1% with selling price increases mostly offsetting volume (price +3%, volume down 4%); adjusted EBITDA margins were up 229 bps versus the prior year quarter due to proactive price increases Other sales were down 27% (price +9%, volume down 36%) due primarily to the lower level of co-product sales. Other adjusted EBITDA margins were 11%
Variance $ and Variance % in the following tables may not foot due to roundingSales improved 19% reflecting the benefit of acquisitions and proactive pricing programs GAAP Net Income of $17 million was impacted by expenses related to the value chain transition and Mexico plant maintenance stoppage Adjusted EBITDA grew 10% due to contributions from acquisitions and legacy business price increases that exceeded input cost increases Average working capital was 22% for the first half 2018, down 90 bps from the prior year half despite increased working capital needs to support the value chain repositioning and manufacturing optimization program
YTD Quarter 2 Segment FinancialsFHN represented 61% of total Company sales and was up 38% year-over-year (price +1%, volume +37%) due to the contribution from acquisitions and strength of the legacy portfolio; adjusted EBITDA margins were 340 bps below 2017 due to the effects of the Mexico plant maintenance stoppage and dilution effects from lower margin acquisitions IS sales were down 1% with selling price increases nearly offsetting volume (price +3%, volume down 4%); adjusted EBITDA margins were up 169 bps due to price increases Other sales were down 2% (price +7%, volume down 9%) due primarily to lower level of co-product sales. Other adjusted EBITDA margins were 8%
Full Year 2018 Outlook
The Company is reiterating its revenue and adjusted earnings guidance for full year 2018 with revenue to grow 12% to 14% and adjusted EBITDA to grow 15% to 17% compared to 2017.
The impact from specific value chain transition charges will lower 2018 GAAP earnings expectations as these transition costs will be incurred ahead of the $20 million accruing to earnings.
Overall market conditions and the competitive landscape are expected to be similar in H2 compared with H1 of this year.
During the first half of the year, selling price increases have been effective in offsetting input cost increases. In response to the operating environment continuing to show cost inflation, the Company continues to take further price increase actions.
The Company anticipates the effective tax rate to operate in the 28-30% range given the geographical mix in earnings.
Free cash flow is expected to modestly decrease versus prior year, principally to support the strategic value chain repositioning and manufacturing optimization program.
The Company continues to diligently work through the multi-faceted value chain repositioning and manufacturing optimization program and expects full benefits to materialize in H2 2019. The program is estimated to deliver adjusted diluted EPS improvement of 10% by the end of 2019.
Innophos will host its second quarter 2018 conference call today July 30, 2018 at 9:00 am ET to discuss its earnings results. The call can be accessed by dialing (877) 604-1612 (U.S.) or (201) 389-0883 (international). No passcode is required. Please dial in approximately 15 minutes ahead of the start time to ensure timely entry to the call. The Q2 2018 earnings call presentation will be made available on the Company’s website the morning of the call. A replay will be available between approximately 11:30 am ET on July 30 and 11:59 pm ET on August 13, 2018. The replay is accessible by dialing (877) 660-6853 (U.S.) or (201) 612-7415 (international) and entering the Conference ID number 13681096.
Additional information on Innophos’ second quarter 2018 results can also be found on the Company’s website.
About the Company
Innophos is a leading international producer of specialty ingredient solutions that deliver far-reaching, versatile benefits for the food, health, nutrition and industrial markets. We leverage our expertise in the science and technology of blending and formulating phosphate, mineral, enzyme and botanical based ingredients to help our customers offer products that are tasty, healthy, nutritious and economical. Headquartered in Cranbury, New Jersey, Innophos has manufacturing operations across the United States, in Canada, Mexico and China. For more information, please visit www.innophos.com. ‘IPHS-G’
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