Balchem Corporation (BCPC)
Q4 2012 Earnings Call
February 21, 2013 11:00 AM ET
Executives
Frank Fitzpatrick – CFO, Treasurer and Assistant Secretary
Dino Rossi – Chairman, President and CEO
Analysts
Tim Ramey – DA Davidson
Daniel Rizzo – Sidoti & Company
Andrew O’Conor – BMO Asset Management
Greg Garner – Singular Research
Brian Rafn – Morgan Dempsey Capital Management
Lenny Dunn – Freedom Investors
Anthony Polak – Aegis Capital
Lawrence Goldstein – Santa Monica Partners
Presentation
Operator
Greetings, and welcome to the Balchem Corporation’s Fourth Quarter 2012 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Frank Fitzpatrick, CFO for Balchem Corporation. Thank you, Mr. Fitzpatrick. You may begin.
Frank Fitzpatrick
Thank you. Ladies and gentlemen, thank you for joining our conference call this morning to discuss the results of Balchem Corporation for the period ending December 31, 2012. My name is Frank Fitzpatrick, Chief Financial Officer; and hosting this call with me is Dino Rossi, our Chairman, President and CEO.
Following the advice of our counsel, auditors and the SEC, at this time, I would like to read our forward-looking statements. This release does contain or likely will contain forward-looking statements, which reflects Balchem’s expectation or belief concerning future events that involve risks and uncertainties. We can give no assurance that the expectations reflected in forward-looking statements will prove correct, and various factors could cause results to differ materially from our expectations, including risks and factors identified in Balchem’s Form 10-K.
Forward-looking statements are qualified, in their entirety, by this cautionary statement. The financial information that is referenced in this meeting was disclosed this morning in our quarterly press release at 9:30 A.M. Eastern Time.
I will now turn the call over to Dino Rossi, our Chairman, President and CEO.
Dino Rossi
Thanks, Frank. Good morning, ladies and gentlemen, and welcome to our conference call. We are pleased to report record fourth quarter net earnings of $9.9 million on record quarterly consolidated net sales of $80 million for the quarter ended December 31, 2012. These fourth quarter sales of $80 million were approximately 15% greater than the $69.7 million result of the prior-year comparable quarter.
In the quarter, ARC Specialty Products segment generated record quarterly sales of $13 million, a 5.1% improvement over the prior-year quarter, a result of increased sales volumes of packaged ethylene oxide and propylene oxide in the quarter.
Animal Nutrition & Health at $56.4 million was up 18.1% over the prior year comparable quarter. Sales of choline, choline derivatives and other products for industrial applications had a very strong quarter, up approximately $7 million from the comparable year quarter. Sales of choline for monogastric animals, poultry and swine were up approximately 5% and the ANH specialty ingredients largely targeted to the ruminant animal markets realized approximately 3.4% sales growth than the prior year comparable quarter. And other encapsulated products sold substantially offsetting the impact of having discontinued the Aminoshure product.
Food, Pharma & Nutrition sales at $10.7 million were up 11% led by strength in Nitroshure products and sales of encapsulated products sold into the European food market.
Earnings from operations of $15 million improved 9.8% over the prior year quarter, equaling 18.8% of sales. As previously noted, consolidated net income closed the quarter at $9.9 million, up from $9.5 million in the prior-year quarter. This quarterly net income translated into diluted net earnings per share of $0.33, as compared to the $0.31 we posted in the comparable quarter of 2011, an increase of 6.5%.
Looking between the top and bottom line, you will see that our consolidated gross profits of $22.4 million declined to 28% of sales in the quarter. This decline as a percent of sales reflects from the prior year quarter reflects improved plant efficiencies resulting from strong sales volume. However, it also reflects the shift in the product segment mix, higher costs of certain key raw materials and startup costs relating to our new manufacturing facility in Virginia. Various raw material increases affected unfavorably our ANH and FPN product segments.
As mentioned in previous conference calls, certain raw materials costs have continued to rise and while some were passed on to customers, additional price increases have been and will be implemented in the first quarter as our businesses are likely to remain affected by these higher costs in to 2013.
We continue to work on operational efficiencies and I am happy to report that we had commenced production and are now shipping products from our new Covington, Virginia plant in January of this year. This expansion will more than double production capacity of our ruminant stable products.
At the consolidated operating expense level, you will note a 30% increase totaling $7.4 million for the quarter, which equals 9.2% of sales versus the prior year metric of 10.3% of sales. This level of spending represents certain increases in R&D and marketing levels, but we continue to leverage off of our existing SG&A infrastructure and exercise a control over all controllable operating expenses.
Overall, we are generally pleased with our earnings from operations for the quarter, especially considering the continuing tough economic environment occurring in North American and European markets. Consolidated earnings from operations percentages remain strong and finished at 18.8% of sales or $15 million for the quarter, up approximately $1.3 million or 9.8% over the prior year quarter.
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