New York firm Balchem continues to be plagued by its encapsulation business, which experienced a third quarter of low volumes and weak prices, offsetting better performance in the feed and specialty products units.
Sales at the Encapsulated Products segment dropped 21.2 per cent in the third quarter to $6.0 million, attributed to softness in the US and international food markets. Balchem said the quarter was marked by lower volume and relatively weak average prices due to product and customer mix.
The segment has been hit by conservative purchasing patterns as customers reduce inventory levels on existing product lines and postpone marketing expenditures on new product launches in the US food market.
"We continue to be impacted by domestic food customers who have struggled with competition from less expensive store brands, which is heightening the competitive nature of our business," said Balchem.
The company also pointed to a single domestic food customer, which had significantly boosted sales in the prior year quarter but had not ordered further supplies since 2002. This accounted for approximately 80 per cent of the sales shortfall for the quarter ending September 2003, according to Balchem.
Last quarter the company announced it would reduce inventory levels to strengthen cash flow and this has now improved approximately $3.0 million over the December 2002 balance. But this in turn affected profits and net earnings for the quarter across the group plummeted to $0.9 million from $2.2 million for the year-ago period.
This offset good performance elsewhere. The ARC Specialty Products segment generated a new quarterly record in net sales of $6.7 million, an increase of 22.2 per cent over the prior year comparable quarter. BCP Ingredients Unencapsulated Feed Supplements segment also lifted sales, to $3.1 million, a 15.9 per cent jump on the comparable quarter, thanks to increased sales volume in liquid and dry choline chloride for the poultry and swine industries as well as other derivative products.
For the nine months to September 30, 2003, net sales are close to the same period last year although earnings have been dented and are so far down 27 per cent on last year's figures.
Dino A. Rossi, president and CEO of Balchem, said: "Strength in the ARC Specialty Products and BCP Ingredients Unencapsulated Feed Supplements segments should continue. Our Encapsulated/Nutritional Products segment is seeing signs of volume improvement in the domestic food sector and improving dairy economics. However, this segment's full year sales are not expected to generate results equal to the full year results of 2002.
He added that the firm was aiming to develop positive momentum through innovation in the Encapsulation segment but that earnings for 2003 would not reach the previous year's figures.