UPDATE: Innophos Holdings (IPHS) Tops Q4 EPS by 3c, Revenues Beat; Offers FY19 Revenue Outlook Below Consensus

(Update corrects Q4 EPS and headline)

Innophos Holdings (NASDAQ: IPHS) reported Q4 EPS of $0.54, $0.03 better than the analyst estimate of $0.51. Revenue for the quarter came in at $192.7 million versus the consensus estimate of $189.6 million.

Strategic Highlights

• Contributions from price actions continued to offset input cost increases
• Completed Phase II operational excellence that delivered 2018 cost reductions of $5 million
• Significant progress made in advancing strategic value chain initiative including signing of strategic supply agreements, receipt of long lead-time government permits and progress in advancing capex investments
• Switched to the new multi-source supply structure at the end of 2018 making a major step forward in the strategic value chain transition
• On track to realize adjusted diluted EPS improvement of 10%, or $0.25 to $0.27 per share run rate by the end of 2019 from the value chain and manufacturing optimization program
• Received $20 million Nutrien payment and completed $23 million sale leaseback in Q4

Financial Highlights

• Full-year 2018 performance was in line with expectations with sales up 11% to $802 million, net income up 61% to $36 million, and Adjusted EBITDA up 4% to $125 million, compared with 2017
• Q4 Sales of $193 million were flat compared with the prior-year quarter as stabilized base business and pricing power were partially offset by the planned discontinuation of a portion of low-margin nutrition trading business
• Q4 GAAP Net Income of $5 million, or $0.24 per share, was 143% ahead of Q4 2017 due primarily to tax reform charges in the prior year quarter
• Q4 Adjusted EBITDA of $30 million was up 10% and adjusted EBITDA margin was up 143 basis points year-over-year
• Q4 Adjusted Diluted EPS increased 3% year-over-year to $0.54
• Paid down $45 million in debt in Q4 resulting in net leverage of 2.2x
• Average working capital for the quarter and the full year was 23% of annualized sales

Management Comments

“2018 was an important year for Innophos as we executed against our Vision 2022 strategic roadmap to transform the growth profile of the Company, prepare for a sustainably lower cost structure and develop science-backed solutions that better serve our customers and enhance our position in attractive Food, Health and Nutrition end-markets,” said Kim Ann Mink, Ph.D., Chairman, President and Chief Executive Officer. “Notably, before the end of the year, we achieved a major milestone with our strategic value chain program as our Geismar facility was switched to the new supply chain structure and is now taking intermediate product from internal as well as external sources per the new supply agreements that were completed in 2018.

“Our Q4 financial performance was in line with our expectations on both the top and bottom line as we capitalized on the stability of our base business, leveraged our pricing power and reduced operating expense. On a full-year basis, we grew sales by 11%, GAAP Net Income by 61% and adjusted EBITDA by 4%. In addition, by remaining disciplined with the management of our liquidity position, we further reduced our debt position and ended the year with net leverage of 2.2x.

“We have continued to take actions to proactively manage near-term market dynamics while simultaneously advancing our key initiatives under our Strategic Pillars,” said Mink. “Our priorities this year are to continue executing against the Strategic Pillar key initiatives. These include completing the transition of the multi-faceted strategic value chain repositioning, continuing to leverage our value selling to capture price increases, and delivering wins through our SPARC new product development program to drive organic growth. Further, we remain disciplined in our evaluation of M&A opportunities that meet our financial and strategic criteria."

GUIDANCE:

Innophos Holdings sees FY2019 revenue of $802 million, versus the consensus of $809.6 million.

Overall market conditions and the competitive landscape in 2019 are expected to be similar to 2018.

Revenues are expected to be largely in line with 2018 revenue of $802 million and approximately equally split between H1 and H2. The underlying base business is expected to remain stable.

• Positive year-over-year contributors to 2019 revenue are:
  • Selling price increases with a particular focus on Food, Health and Nutrition,
  • New product development wins, and
  • New business gains.
• These gains are expected to be offset by:
  • The discontinuation of lower-margin FHN nutrition trading business in 2018,
  • Lower co-product sales in the Other segment due to efficiency improvements delivered from the strategic value chain initiative, and
  • Indirect tariffs pressure from competition redirecting mostly technical grade product to international markets. The Company anticipates limited direct impact on its North American sales.

Adjusted EBITDA is expected to grow 1-3% in 2019 from $125 million in 2018, with phasing in the range of 42-45% in H1 and 55-58% in H2.

• Positive year-over-year contributions to 2019 earnings are expected from:
  • Selling price increases,
  • Margin contribution from business gains and new product development, and
  • The strategic value chain program, which is on track to realize adjusted diluted EPS improvement of 10%, or $0.25 to $0.27 per share run rate by the end of 2019.
• These gains are expected to be partly offset by:
  • Input cost increases for raw materials and freight, and
  • Higher costs related to the Mexico energy supply shortages that are expected through H1 2019. The anticipated non-recurring portion is expected to be adjusted for non-GAAP purposes.

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

You May Also Be Interested In

• Genco rejects Diana Shipping takeover bid as undervalued
• Tesla plans 'flying' Roadster stunt at SpaceX Texas site as early as August
• Genco rejects Diana Shipping bid, calls offer below NAV