Innophos Reports Net Income Rise in Q3, Despite 7% Decrease in Sales
28 Oct 2016 --- Innophos has reported that net income of $14 million was up 151% year-over-year on a GAAP basis in Q3 and up 13% on an adjusted basis, despite a 7% decrease in sales. Strong adjusted EBITDA performance of $34 million, or 18% of sales, up 192 basis points sequentially and 291 basis points year-over-year.
Net sales for the third quarter 2016 of $186 million were down 7% compared with the third quarter 2015. Specialty Phosphates sales of $169 million were down 9% versus the prior-year quarter, primarily due to an 8% decline in volumes for lower margin, less differentiated applications. GTSP & Other sales of $17 million were up 24% versus the prior-year quarter as favorable sales volumes offset the effects of low market prices, which remained weak and reflect the lowest market pricing levels seen in six years.
Net Income of $14 million for the third quarter 2016, up $8 million or 151% from the third quarter of 2015. Net income as a percent of sales was 7%, up from 3% in the third quarter 2015 due to improved mix and cost actions.
Adjusted EBITDA of $34 million for the third quarter 2016 yielded a margin of 18%, up 291 basis points compared with the prior-year quarter. Specialty Phosphates adjusted EBITDA margins of 19% improved 392 basis points versus the same quarter last year, partially offset by lower results recorded in GTSP & Other.
Net sales for 2016 YTD of $558 million were down 10% compared with the same period of 2015. Specialty Phosphates YTD sales of $517 million were down 9% versus the same period of 2015, primarily on 8% lower volumes, in line with expectations. GTSP & Other YTD sales of $40 million were down 21% versus the same period last year primarily on 20% lower prices.
Net Income of $39 million for 2016 YTD, up $8 million, or 25%, from the same period last year. Net income as a percent of sales was 7% YTD in 2016, up from 5% in the same period of 2015 due to gross margin improvements and cost actions.
Adjusted EBITDA of $95 million for 2016 YTD yielded a margin of 17%, up 164 basis points compared with the same period in 2015. Specialty Phosphates adjusted EBITDA margins of 19% improved 219 basis points versus the same period last year.
Specialty Phosphates volumes are expected to decline by 6-8% for full year 2016 compared with 2015, primarily due to reduced sales in lower margin, less differentiated applications and weak end market demand due to continued pressures on packaged foods.
Market phosphate rock and sulfur prices declined modestly for the third quarter 2016. Raw material costs are expected to continue at current levels in the fourth quarter.
Cost improvements from the restructuring program implemented in the third quarter 2015 were in line with expectations, with $3 million lower costs realized in the current quarter against the third-quarter 2015 baseline. Additional year-on-year cost savings were delivered due to detailed cost management. Management continues to review cost actions and productivity initiatives given the challenging market conditions.
“Innophos delivered another solid quarter highlighted by significant improvements in net income, the highest adjusted EBITDA in eight quarters, and strong cash generation,” said Kim Ann Mink, Ph.D., chief executive officer. “Our ability to maintain margins despite ongoing market headwinds is the direct result of our ability to reduce costs across the organization through our operational excellence initiatives. Through these efforts we have now identified a procurement savings pipeline of $13 to $15 million, 75% of which we expect to be recognized in our 2016 P&L.”
“Our focus on efficient working capital drove another period of strong free cash flow generation. As a result, we are well positioned to invest in both organic and inorganic strategic growth opportunities, while also continuing to return value to our shareholders through our dividend program.”
Dr. Mink continued, “The GTSP tolling agreement announced today reflects our commitment to deliver on what we promise. Once the agreement takes effect it will provide us with an outlet for our GTSP co-product and reduce GTSP earnings volatility. Further, this arrangement will eliminate the need for us to expend valuable resources on managing this non-core product line and market.
“We are making significant headway in realizing our vision of transforming Innophos into a market-oriented growth company that provides a broad set of value-added and innovative technology-based ingredient solutions for the food, health and nutrition markets,” Dr. Mink said.
“The three strategic pillars of our transformation are at the core of realizing this vision. As we look ahead, our priorities remain to finalize our strategic growth roadmap and strengthen the foundation of our business by continuing to execute against our operational excellence and commercial excellence initiatives.”
