CEO Kim Ann Mink, PhD spoke with analysts recently as the company released its second quarter earnings. Overall sales were down, but an ongoing rigorous cost containment effort allowed the company to post earnings increases. But long term, only so much blood can be wrung from the cost containment and raw material pricing stones, Mink said, and the company is looking to new opportunities for growth.
Low growth core business
“Based on the analysis we have completed thus far, we believe that our core specialty phosphate business quite frankly will only grow at best with GDP and will continue to demonstrate signs consistent with the mature product lines, that is, price sensitivity and little opportunity for breakthrough technology,” Mink said.
“There is good value in our current portfolio which generates consistent cash flow and earnings and provides us with a foothold in two attractive and resilient end markets, namely food and health. This leads us to the second observation which is that targeted M&A will grow our company by pivoting us outside of just phosphate to become a broader specialty ingredients manufacturer,” she said. A transcript of the earnings call was posted on the site seekingalpha.com.
Mink said the company is developing a list of potential M&A targets for bolt-on acquisitions. The company has already formed a separate division called Innophos Nutrition to house is food and wellness solutions. In 2015 the division formed its own Scientific Advisory board and later that year became the exclusive distributors of Theravalues Corporation’s Theracumin and EMIQ dietary supplement ingredients. Also, this year Andrea Ferrentz, the director of regulatory affairs for Innophos, joined the board of directors of the Council for Responsible Nutrition.
Earnings details
Innophos reported net sales for the second quarter 2016 of $182 million were down 16% compared to the second quarter 2015. Specialty Phosphates sales of $171 million were down 11% versus the prior year quarter, on 3% lower selling prices and 8% lower volumes due to pruning of lower margin, less differentiated applications, and reduced demand across product lines in core markets served.
Adjusted EBITDA of $30 million for the second quarter 2016 yielded a margin of 17%, up 110 basis points compared to the prior year quarter despite the effects of $2.4 million, or 132 basis points, planned maintenance stoppage costs in the current quarter. Adjusted EBITDA was $3 million below the prior year, and in line with first quarter 2016. Specialty Phosphates adjusted EBITDA margins improved 210 basis points versus the same quarter last year.