Innophos Holdings (IPHS) Misses Q2 EPS by 10c, Revenues Miss

Innophos Holdings (NASDAQ: IPHS) reported Q2 EPS of $0.55, $0.10 worse than the analyst estimate of $0.65. Revenue for the quarter came in at $207 million versus the consensus estimate of $211.35 million.

Strategic Highlights

• Major 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 Highlights

• Sales 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

Management Comments

“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.

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.

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

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