CRANBURY, N.J., July 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 second quarter 2014.
Second Quarter Results
- Net sales for the second quarter 2014 of $220 million were up 2% sequentially and 3% compared to second quarter 2013 levels. Specialty Phosphates sales increased 1% sequentially, but declined 2% year-over-year primarily due to lower Mexico STPP sales.
- US/Canada Specialty Phosphates sales of $157 million were 4% higher sequentially, but down 1% compared to the prior year quarter with prices down 2% and volumes up 1%.
- Mexico Specialty Phosphates sales of $41 million decreased 8% sequentially and 6% compared to the year ago period, primarily due to the reduced demand and timing of STPP orders, as the first half 2014 STPP volumes were just slightly below first half 2013 levels.
- GTSP & Other sales of $22 million were up modestly on a sequential basis and doubled compared to the year ago period on higher volumes, partially offset by lower pricing.
- Diluted EPS for the second quarter 2014 was $0.93 compared to $0.52 for the second quarter 2013. Giving effect to the prior year adjustments previously disclosed, diluted EPS was $0.79 for the second quarter 2013.
Randy Gress, CEO of Innophos, commented, “I am pleased with our strong improvement in operating performance and bottom line results for the 2014 second quarter, which reflect strong execution across our businesses. We delivered better than expected levels of Specialty Phosphates operating income, mainly driven by continued solid performance and improving yields at our Coatzacoalcos operations and the timing of price increases in Mexico achieved ahead of raw material cost increases due to inventory lags. While profitability reflected improved operating performance, net sales for the quarter were negatively affected by softening market dynamics for our core markets, combined with adverse timing of Mexico STPP sales, continued weaker INNOVALT® sales for asphalt markets due to uncertain federal transportation funding and slower growth than expected in our nutrition business. Cash generation remains strong, and we continue to return value to our shareholders as evidenced by the repurchase of 112,000 shares in the second quarter as part of our previously announced program and a 20% increase in our quarterly dividend we are announcing for our third quarter payment. Based on our second-quarter performance and current market visibility, we are reaffirming our Specialty Phosphates margin target for the year, but expect to come in at the low end of our volume growth range as a result of the revenue-related headwinds that affected our results in the second quarter.”
Segment Results second quarter 2014 versus 2013
Specialty Phosphates
Specialty Phosphates sales were down 2% year-over-year, with volume and price each down 1%.
Operating income of $32 million was up $7 million year-over-year and $6 million sequentially. Taking into account the $5 million of elevated cost of goods sold that was previously reported for the prior year period, operating income was up $2 million. Operating income margin for the second quarter 2014 was 16%, up 360 basis points against the prior year and up 140 basis points against the adjusted prior year level.
US/Canada
Sales were 1% lower than the prior year period on 2% lower prices, partially offset by 1% higher volumes. Price increases implemented in the second quarter 2014 to offset increasing raw material costs are expected to take effect at the beginning of the third quarter 2014. Growth impediments continued in the US for the INNOVALT® asphalt business, due to declining funds in the federal highway transportation budget, and ongoing unresolved import issues into China for some of our nutrition business customers.
Operating income of $21 million was up $1 million sequentially, but $2 million lower year-over-year due to lower selling prices. Operating income margin was 14% for the second quarter 2014, up 20 basis points sequentially, but down 130 basis points from the prior year level.
Mexico
Mexico Specialty Phosphates sales decreased 6% compared to second quarter 2013 on 8% lower volumes resulting primarily from the timing of STPP orders. Selling prices increased 2% as the Mexico business realized price increases during the quarter.
Operating income in the second quarter 2014 of $11 million was up $5 million sequentially and up $9 million year-over-year due to lower costs and the timing of the achievement of price increases ahead of the effects of higher raw material costs due to inventory lags. Adjusting for the $5 million of elevated costs in the prior year quarter, operating income was up $4 million. Operating income margin was 25% for the second quarter 2014, up significantly when compared to 3% for the year ago quarter and 13% for the adjusted prior-year quarter.
GTSP & Other
GTSP & Other sales (primarily Granulated Triple Superphosphate fertilizer co-product) essentially doubled in the second quarter 2014 compared to the year ago period on 110% higher volumes, but 11% lower selling prices.
The second quarter 2014 operating income at break-even levels, which included a $1 million accrual for Geismar contingent liabilities recorded in “Other”, was $3 million higher than the prior year quarter and up $4 million sequentially. Adjusting for the previously disclosed $2 million of elevated costs from reduced efficiencies and higher plant maintenance in the prior year quarter, operating income was $1 million higher than the prior year quarter. Operating income margins were 1% for the second quarter 2014 compared to (28)% for the second quarter 2013 as reported and (11)% on an adjusted basis.
Recent Trends and Outlook
Specialty Phosphates volume was down 1% in the second quarter 2014 compared to the prior year primarily due to softening market dynamics for our core markets, combined with adverse STPP order patterns in Mexico, lower growth than expected for the nutrition business and continued dampening on INNOVALT® sales for asphalt markets. Export sales overall were up 13% year-over-year with growth achieved across all regions. As a result of the noted challenges in the US markets, which negatively affected first half 2014 growth rates by 100 basis points, our expectation for Specialty Phosphates volume growth is now at the low end of the full year 2014 target range of 3-5%.
Specialty Phosphates operating income margins were 16% for the second quarter 2014, above the full year expected range, due to significantly improved profitability levels in Mexico. We remain confident in our full year 2014 target of 14-15% operating income margins for Specialty Phosphates.
Fertilizer market prices remained stable during the second quarter 2014, but have increased 5-10% during July. Market phosphate rock prices were flat sequentially in the second quarter 2014 and are expected to remain stable for the third quarter. Sulfur market prices increased approximately 20% in the second quarter 2014 and are expected to increase slightly in the third quarter. Innophos has implemented selling price increases to offset the effects of the rise in raw material costs.
GTSP & Other recorded break-even operating income for the second quarter 2014. Included in these results was a $1 million accrual in “Other” for Geismar contingent liabilities, including settlement civil penalties, following the receipt of a draft consent decree and discussions with government parties. We expect to generate $1 million of operating income in this minor segment for the third quarter 2014 based on current market selling and raw material price indications.
Net debt decreased sequentially by $11 million in the second quarter 2014 to $101 million as the company generated additional cash from operations. Innophos spent $6.2 million to repurchase 112,000 shares during the second quarter 2014, and the Board of Directors has approved a 20% increase in the quarterly dividend rate to $0.48 per share to be paid in the third quarter. Details of the declaration will be announced separately.
Capital Expenditures
Capital expenditures were $9 million in the second quarter, up $3 million from the first quarter 2014. Our expectation for 2014 capital expenditures remains in the $35-40 million range. 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 manufacture a more diverse mix of higher quality 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.
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