Innophos Holdings (IPHS) Tops Q1 EPS by 14c, Revenues Miss

Innophos Holdings (NASDAQ: IPHS) reported Q1 EPS of $0.57, $0.14 better than the analyst estimate of $0.43. Revenue for the quarter came in at $191 million versus the consensus estimate of $197.4 million.

Strategic Highlights

• Continued progress executing against our Vision 2022 strategic roadmap and Strategic Pillars
• Contributions from price actions continued to offset input cost increases
• Advanced the transition to lower cost value chain structure as the Geismar facility successfully optimized the processing of the new multi-sourced supply mix and scaled up to targeted run rates
• 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

Q1 2019 Financial Highlights

• Sales of $191 million were similar sequentially, but down 7% compared with the prior-year quarter as pricing power was predominantly offset by the planned discontinuation of low-margin nutrition trading business and orders shifting out of the quarter due to timing and Midwest flooding, as well as weaker than expected demand in certain Industrial Specialties categories, related in part to “indirect” tariff effects.
• GAAP Net Income of $9 million, or $0.44 per share, was down 20% from Q1 2018 primarily due to severance costs and Mexico natural gas supply adjustment charges incurred in the quarter
• Q1 Adjusted EBITDA of $30 million was sequentially flat, but down $2 million year-on-year, while adjusted EBITDA margin of 16% was up 37 bps sequentially and up 4 bps compared with the prior-year quarter, reflecting improved mix and continued benefits of price and cost actions
• Q1 Adjusted Diluted EPS decreased 5% year over year to $0.57 due to lower volumes

Management Comments

“Innophos' first-quarter performance was marked by our ability to deliver an adjusted EBITDA margin in line with last year, despite a difficult year-over-year comparison on the top line,” said Kim Ann Mink, Ph.D., Chairman, President and Chief Executive Officer. “First-quarter sales were down compared with the prior-year quarter as Innophos’ pricing power was offset by the planned discontinuation of low-margin nutrition trading business, order pattern, and impact from Midwest flooding. In addition, there was weaker than expected demand in certain industrial categories. Our ability to maintain an adjusted EBITDA margin equal to last year was due to our cost management efforts implemented in the second half of 2018, continued success in capturing price increases and improved mix. Adjusted EBITDA was sequentially flat, marking the fourth straight quarter of relatively stable adjusted EBITDA.

“During the quarter we made progress with our SPARC new product development program to continue the shift of our product mix to higher levels of attractive Food, Health & Nutrition (FHN) business. We also advanced our efforts to transition to our lower-cost value chain program and we remain on track to achieve our year-end EPS improvement goal.

“As we proceed in 2019, we will continue to execute against our key Strategic Pillar initiatives, including completing the transition of the multi-faceted strategic value chain repositioning, leveraging our value selling to capture price increases, and driving growth through both our SPARC new product development program and evaluating strategic acquisition opportunities. The impact of these efforts, in part, positions Innophos to maintain Adjusted EBITDA guidance for the year, despite resetting revenue guidance to better align with softer market demand that we began to see in Q1,” concluded Mink.

Full Year 2019 Outlook

The Company is reiterating its previously provided 2019 Adjusted EBITDA guidance and reducing its revenue expectations.

Revenues are now forecasted to be 1-2% below 2018 revenue of $802 million. This revised range reflects the impact from the softer demand the Company began to experience in Q1 in certain industrial categories. The Company expects the order pattern and Midwest flooding timing delays experienced in the first quarter to rebound over the next two quarters. Additionally, Innophos continues to expect positive year-over-year revenue contribution from price increases and new product wins 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, and indirect tariffs pressure from competition redirecting mostly technical grade product to international markets.

Innophos continues to expect Adjusted EBITDA 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.

In Q2 2019, Innophos will undergo and complete a planned annual maintenance shut down on one of its production units at the Coatzacoalcos, Mexico facility. This will result in $3 million of maintenance and under-absorption costs, which were already reflected in the Company’s 2019 guidance.

From a GAAP and cash perspective, the expectation is that costs will be higher during H1. The anticipated non-recurring portion is expected to be adjusted for non-GAAP reporting purposes, such as value chain transition expense, which was completed in Q119, and Mexico natural gas supply adjustment charges.

Capital investments are expected to be in line with 2018 to finalize the value chain and manufacturing optimization program that commenced last year. Average working capital is also estimated to remain in line with 2018.

The Company expects its effective tax rate to operate in the 28-32% range.

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

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