Innophos Holdings (IPHS) Reports Q3 EPS of 28c

Innophos Holdings (NASDAQ: IPHS) reported Q3 EPS of $0.28, may not compare the analyst estimate of $0.75. Revenue for the quarter came in at $199.9 million versus the consensus estimate of $213.2 million.

Recent Trends and Outlook

Total Company financial performance in the third quarter 2015, excluding restructuring charges, was consistent with each of the first two quarters of the year, recording the third straight quarter of $21 million in operating income. Improvements in US Specialty Phosphates selling prices and GTSP profitability were offset by lower operating income in Mexico Specialty Phosphates caused by lower selling prices as a result of increased pressures from Chinese competition.

Specialty Phosphates volumes overall were flat for the third quarter 2015 compared to the prior year period. A 9% increase in PPA volumes, primarily due to previous year US supply issues, was offset by a 12% decline in technical grade STPP volumes. Export sales were 1% higher than the third quarter 2014, marking the first quarter this year to show a positive variance and bringing the year-to-date variance to a 4% decline, consistent with government statistics for year-to-date overall US exports of goods and services. The Specialty Phosphates volume outlook continues to be flat for full year 2015 compared to 2014, with the fourth quarter 2015 year-over-year comparable expected to recover the year-to-date September shortfall due to low fourth quarter 2014 PPA volumes caused by supply issues during that period.

Specialty Phosphates operating income margins were 10% for the third quarter 2015, below the expected 12-13% range, due to the significant 720 basis point sequential decline in Mexico Specialty Phosphates resulting primarily from lower selling prices. Recently implemented selling price increases in the US contributed to a sequential improvement of 150 basis points in third quarter 2015 US & Canada Specialty Phosphates operating income margins. Total Specialty Phosphates operating income margins are now expected to be 11% for both the fourth quarter and full year 2015. Specialty Phosphates operating income is expected to be flat sequentially for the fourth quarter 2015, as cost savings from restructuring are expected to be offset by the effects of seasonally lower sales volumes.

Given the 2015 margin compression that the Company is experiencing, management evaluated several initiatives to improve the overall operating efficiency of the organization. As a result of this evaluation, a restructuring charge of almost $9 million was recorded in the current quarter which is expected to deliver $13 million of annual cost savings going forward. Approximately 85% of the restructuring was recorded in the US business and 15% in the Mexico business, with approximately one-third of the restructuring in cost of goods sold and two-thirds in operating expense. Run-rate achievements of the anticipated $13 million annualized savings are expected to be approximately 50% for fourth quarter 2015, 75% by the start of 2016 and 100% by the start of the second half 2016.

Reported fertilizer market prices were relatively flat during the third quarter of 2015, but showed downward pressure in October. Demand remains weaker than normal and further downward pressure on prices is expected, as the fourth quarter is a seasonally slow period for fertilizers. Market phosphate rock prices were stable sequentially in the third quarter 2015 and are expected to remain relatively stable for the fourth quarter. Sulfur market prices increased 4% sequentially in the third quarter 2015, but settled 20% lower for the fourth quarter 2015 given the weak fertilizer market demand.

Excluding $9 million of restructuring charges booked in "Other", GTSP & Other recorded $2 million operating income for the third quarter 2015, which is above expectations and represents an increase of $1 million compared to the prior year quarter. Given the weak demand and declining price expectations, the Company expects operating income to revert back to break-even for the fourth quarter.

Net debt increased sequentially by $36 million in the third quarter 2015, to $200 million, while $49 million was returned to shareholders.

For earnings history and earnings-related data on Innophos Holdings (IPHS) click here.

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