Balchem Corporation Announces Third Quarter 2010 Results

Our diversified base of business, continued ability to leverage cross-business integration capabilities, in support of both organic and acquisition growth, has continued to generate exceptional results.

Nov 1 2010 --- Record net sales of $63.9 million were achieved for the quarter ended September 30, 2010. This is an increase of 17.7% above the $54.3 million result of the prior year quarter. Accordingly, record net earnings for the quarter were $8.5 million, an increase of $1.6 million, or 23.9% as compared with the same period last year. The $8.5 million generated diluted net earnings of $0.29 per common share versus $0.24 per common share for the prior year comparable period, an increase of 20.8%.

With all three segments exhibiting strong double digit sales growth for the quarter, sales of the Food, Pharma & Nutrition segment were particularly strong, setting another new quarterly record of $10.7 million, which was a 23.8% improvement over the prior year comparable quarter. The domestic and international food sectors were up again this quarter, as we continued solid double digit growth of encapsulated ingredients for baking, preservation and confection markets. We also realized double digit growth of our human choline products globally, as we continue to experience growth in the supplement markets and increased inclusion in food products. These strong results were partially offset by a decline in sales of our calcium and VitaShure products; however, segment earnings were very strong at $2.5 million, as compared to $1.3 million in the prior year comparable quarter. Total gross margin as a percent of sales increased to 31.7% from 30.2% in the third quarter of 2009, reflecting improved sales volumes, product mix and plant efficiencies.

Animal Nutrition & Health (“ANH”), including specialties, choline and industrial derivative product sales, totaled $42.4 million, an increase of 16.1%, or $5.9 million from the prior year comparable quarter. Our global feed grade choline product sales grew approximately 3%, largely due to improved sales of our Italian produced choline sold into markets outside of North America. North American choline sales into the poultry and swine markets did improve slightly as well, even as the US broiler meat production forecast for the third quarter did not meet industry expectations. The new US broiler meat production forecast for all of 2010 is now projecting an increase of 2.4% from the previous year according to the USDA's Economic Research Service. Exports of liquid and dry choline from our North American plants declined in the quarter largely due to currency issues and, in combination with global competition, resulted in our declining to bid on certain international business in the quarter. Comparative sales statistics in this segment were negatively impacted by approximately 3.1% due to correlated foreign currency fluctuation associated with the Italian operation. The ANH specialty ingredients, largely targeted to the ruminant and companion animal markets, was flat with the prior year comparable quarter. Some regional improvement in dairy economics supported greater demand for certain products, particularly sales of Aminoshure-L, our rumen protected lysine, and Reashure. These improved sales were however offset by a decline in sales of our Chelated Mineral products, principally into the international market. Sales of industrial grade products again realized significant growth from the prior year comparable quarter and comprise approximately 28% of the sales in this segment for the quarter. We continued to realize improvement in sales for various industrial applications, predominantly in North America as international industrial sales were essentially flat with the prior year quarter. Earnings from operations for the entire ANH segment increased to a new record of $6.1 million as compared to $5.3 million in the prior year comparable quarter. This quarterly earnings result particularly reflects favorable operating variances due to an overall 12% volume improvement in sales.

The ARC Specialty Products segment generated record quarterly sales of $10.8 million, an increase of 18.6% from the comparable prior year quarter. This increase was principally the result of an increase in volumes sold, largely propylene oxide in support of the recent acquisition of Aberco, Inc., which targets nut meat and spice fumigation. Earnings from operations for this segment, at $4.5 million improved 20.9% from the prior year comparable quarter. In the second quarter, we did realize modest price increases to help off-set certain raw material cost increases incurred through the first half of 2010.

Consolidated gross profit for the quarter ended September 30, 2010 improved to $20.2 million, as compared to $16.4 million for the prior year comparable period. This $3.8 million increase was principally a result of an 11% increase in sales volumes. This margin improvement was partially offset by increases in certain key raw material costs, as we had to deal with a force majeure event from a key supplier. Margin percentage did increase to 31.7% of sales as compared to 30.2% in the prior year comparative period, and showed improvement on a sequential basis. We continue to leverage our plant capabilities, driving efficiencies from core volume growth, new product launches of our human and animal health specialty products into both the domestic and international markets, as well as capitalizing logistically on our varied choline production capabilities. Operating (Selling, R&D, and General and Administrative) expenses at $7.2 million were up from the prior year comparable quarter, particularly related to the Aberco acquisition, recruiting fees, relocation expenses, and consultancy fees.

For the nine months ended September 30, 2010, consolidated net sales have increased 15.6% to $185.3 million versus the $160.3 million in the comparable prior year period. Net earnings have increased 20.4% to $23.9 million, generating $0.81 per diluted share, versus net earnings of $19.8 million, or $0.69 per diluted share, in the prior year comparable period, an earnings per share improvement of 17.4%.

The company continues to maintain a healthy balance sheet with $89.8 million in net working capital. Our cash balance was $65.4 million on September 30, 2010, up from $46.4 million at December 31, 2009, and reflects payment for the noted Aberco acquisition in June. Diligent working capital controls, particularly effective inventory and accounts receivable management, combined with the noted improved operating results, drove strong cash flow generation, even as we have incurred $10.7 million of capital and acquisition expenditures in 2010.

Commenting on 2010, Dino A. Rossi, Chairman, President and CEO of Balchem said, “These record setting third quarter sales and earnings results reflect strong performances across all of Balchem’s segments. Our diversified base of business, continued ability to leverage cross-business integration capabilities, in support of both organic and acquisition growth, has continued to generate exceptional results. Our growing global presence, though tempered somewhat by softness in certain U.S. markets and unfavorable currency fluctuations, generated solid operating margins and cash flow. Raw material costs had a slight negative impact on certain segments, but we continue to closely monitor all key economic and competitive forces to deliver quality product value to our customer base

While signs of an improving global economy in the markets we serve reflect ongoing volatility, we believe 2010 will continue to be a year of solid improvements in sales and earnings, meeting our strategic objectives for the year. We have, and continue to, de-bottleneck certain production capabilities, leveraging existing production and logistic sites. We are investing in new commercial encapsulation technology for our animal health specialty business, which should be operational quarter one, 2011. Research resources are focused on developing new, innovative products for each of our business segments. We expect continued improved results in the food & nutrition sectors. Industrial choline derivatives are expected to continue strong double digit growth, and the ARC Specialty Products segment should improve based on revenue growth from its current base, as well as the development of new market opportunities for packaged gases. Our strong balance sheet and diversified revenue base continue to provide us with the financial strength and flexibility to capitalize on both organic and other strategic opportunities and continue to create superior returns.”