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 fourth quarter and full year 2012.
Fourth Quarter Results
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Net sales for the fourth quarter 2012 were $209 million, flat with fourth quarter 2011.
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Specialty Phosphates fourth quarter 2012 sales of $185 million decreased 1% compared to fourth quarter 2011.
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US/Canada Specialty Phosphates sales were up 4% entirely on growth related to acquisitions. Excluding acquisition benefits, sales were level compared to last year with the business experiencing a greater than normal seasonal slowdown arising from year-end customer destocking actions.
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Mexico Specialty Phosphates sales improved on a sequential basis but were lower by 11% compared to the year ago period.
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GTSP & Other sales at $24 million for the 2012 fourth quarter were $1 million above the year ago level on lower market prices, but higher volumes.
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Diluted EPS for the fourth quarter 2012 was $0.60 compared to $0.93 for the fourth quarter 2011. Included in the current quarter was $0.02 per share expense for accelerated deferred financing and interest rate premiums related to the senior credit facility refinanced in December 2012. The fourth quarter 2011 results included a $0.05 per share benefit for changes in estimates on Mexican water duty charges and currency translation effects on the Mexican effective tax rate. Giving effect to these adjustments, fourth quarter 2012 diluted EPS would have been $0.62 compared to $0.88 for the fourth quarter 2011.
Full Year Results
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Net sales for 2012 were $862 million, a 6% increase over 2011.
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Specialty Phosphates 2012 sales of $758 million increased 6% compared to 2011 primarily on higher prices. US/Canada organic volumes were flat, and acquisitions added 3% growth which exceeded a decline in Mexico volumes.
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GTSP & Other sales at $105 million for 2012 were $6 million above the year ago level on lower market prices, but higher volumes.
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Diluted EPS for 2012 was $3.30 compared to $3.83 for 2011. The fourth quarter adjustment items noted above, together with earlier adjustments noted in prior quarters, amounted to $0.22 per share for full year 2012 and $0.02 per share for full year 2011. Giving effect to these adjustments, 2012 diluted EPS would have been $3.08 compared to $3.81 for 2011.
Randy Gress, CEO of Innophos, commented on the results, "I am satisfied with the progress we made throughout 2012 in delivering on our strategic objectives and positioning the business for future growth. However, our results in 2012 have also reflected the challenging market conditions we have experienced. The environment was particularly reflected in the fourth quarter, as the timing of the holiday season, combined with customer efforts to reduce inventories in an uncertain demand environment, resulted in a significantly more pronounced fourth quarter seasonal slowdown in our US and Canada Specialty Phosphates business. That said, volumes have since recovered strongly in January 2013, which gives us confidence that the effect was limited to the fourth quarter."
Mr. Gress continued, "Our strategic accomplishments in 2012 included two acquisitions in the attractive high growth nutritional ingredients space, as well as a significant step forward in the resources and capabilities dedicated to developing our business in higher growth geographies such as the Asia Pacific region. Our latest acquisition, Triarco, was completed on December 31st, and I believe Triarco's botanical and enzyme based ingredients business will prove highly complementary to the two mineral ingredients businesses, Kelatron and AMT, that we acquired in late 2011 and mid-2012. Through these acquisitions we have built a strong platform for future growth that will also support growth in our Specialty Phosphate product range."
Mr. Gress concluded, "Looking ahead to the coming year, we are encouraged by what looks to be a strong start and we are confident of continued success with our strategic initiatives. We will also continue to take the necessary steps to ensure we are maximizing shareholder value by leveraging our strong cash flow and balance sheet both to invest in growth and improve cash returns to shareholders, and I expect 2013 to show further progress against both of these goals."
Segment Results – full year and fourth quarter 2012 versus 2011
Specialty Phosphates
For the full year, Specialty Phosphates sales revenue was up 6% year over year with prices up 5%. US/Canada volumes were up 4%, with moderately lower market demand offset by growth initiatives, while acquisitions contributed 3% to growth. Mexico volumes were also affected adversely by lower market demand.
For the quarter, Specialty Phosphates sales revenue was down 1% year over year.
Full year operating income at $108 million was $8 million below 2011 levels as the effects of 2011's market raw material cost inflation were more fully realized in cost of goods sold, thus catching up to selling price increases achieved in earlier periods. Operating income margin for 2012 was 14%, down 210 basis points from 2011 levels, with US/Canada at 15% and Mexico at its expected 12%.
For the quarter, operating income at $20 million was $6 million below fourth quarter 2011 levels primarily due to lower volumes in Mexico. Fourth quarter operating income margin was 11%, down 290 basis points against the fourth quarter 2011 and down 240 points sequentially, with lower volumes and unfavorable mix the primary reason for the quarter margin sequential decline.
US/Canada
US/Canada Specialty Phosphates sales increased 8% for 2012 on 5% higher prices and 3% growth from acquisitions. Excluding acquisitions, volumes were flat due to moderately lower market demand offset by growth initiatives.
For the quarter, sales increased 4%, all attributable to acquisitions. Prices were flat with the year ago period, while continuing success with growth initiatives was fully offset by a greater than anticipated year-end destocking effect.
Operating income at $86 million for 2012 was $8 million below 2011, as the effects described above of raw material cost increases catching up to selling price increases outweighed the selling price increases recognized in 2012. As a result, operating income margins for 2012 at 15% were 280 basis points below 2011 levels.
For the fourth quarter 2012, operating income of $16 million was similar to the year ago quarter, but down $7 million sequentially, resulting in an operating margin of 12%, down 90 basis points against fourth quarter 2011 and down 420 basis points sequentially. The large sequential decline is primarily due to lower volumes causing lower cost leverage with unfavorable product mix also contributing.
Mexico
Mexico Specialty Phosphates 2012 sales were 1% above 2011 on 6% higher prices, but 5% lower volumes, due to soft market demand.
Fourth quarter 2012 volumes improved sequentially to similar levels seen in the 2012 first half. However, fourth quarter sales were down 11% against a very strong fourth quarter 2011, with prices down 5% in the less differentiated technical grade products and volumes down 6%.
Operating income at $22 million for 2012 was flat with 2011 despite the previously noted lower volumes. Operating income margin was 12% for 2012, level with 2011.
For the fourth quarter 2012, operating income of $5 million was down $5 million from fourth quarter 2011 levels, but up $2 million sequentially. The variance against prior year is primarily due to lower sales, along with $2 million of planned maintenance outage expenses in the current quarter. Operating income margin was 10% for the 2012 fourth quarter, below the full year average, as a result of the higher maintenance expense.
GTSP & Other