Innophos Sales Decrease 1% in Q4
18 Feb 2015 --- Innophos has reported that net sales for the fourth quarter 2014 of $194 million were down 1% compared to the fourth quarter 2013. Specialty Phosphates sales declined 5% year-over-year, with prices down 4% and volumes down 1% amid continued soft market conditions.
US/Canada Specialty Phosphates sales of $139 million were down 4% compared to the prior year quarter, which was primarily driven by an 18% year-over-year decline in PPA as a result of the previously disclosed 2014 second half PPA supply issues.
Mexico Specialty Phosphates sales of $39 million declined 9% compared to the year ago period with prices down 5% and volumes down 4%.
GTSP & Other sales of $16 million were up 70% versus the prior year quarter on higher volumes and prices.
Diluted EPS for the fourth quarter 2014 was $0.52 which included an unfavorable $0.13 of translation expense and exchange effects in taxes. The US dollar is the functional currency of the Canadian and Mexican businesses, so these losses are solely due to the re-measurement of foreign denominated balance sheet accounts. The current quarter EPS compares to $0.65 diluted EPS for the fourth quarter 2013.
The Company repurchased 278,578 shares for $15.3 million during the fourth quarter 2014 and paid $10.4 million in dividends, returning a total of $25.7 million to shareholders, more than double the net income of the quarter.
Randy Gress, CEO of Innophos, commented, "We are pleased with our improved execution during the year, which led to better operating performance and higher cash flow generation, despite continued headwinds from soft market demand and second half PPA supply issues hurting our top-line performance. Our 2014 operating income improved by $23 million and our Specialty Phosphates operating income margins increased by 310 basis points on improved operating performance at our Coatzacoalcos, Mexico facility. Our continued performance improvement initiatives in Mexico led to the seventh consecutive quarter of yield improvement, 660 basis points higher compared to the first quarter 2013 lows. Our cash flow conversion was again very strong with $97million of free cash flow for 2014, more than 50% higher than our net income for the year.”
Mr. Gress concluded, “In light of our continued strong cash flow generation, we remain committed to returning value to our shareholders. In 2014, we increased our dividend rate by 20% and paid out over $38 million of cash flow in dividends. We also spent more than four times the amount of any previous year on share buybacks, exhausting our 2011 program capacity, and are targeting to repurchase roughly 10% of outstanding shares in 2015 under our recently authorized $125 million share buyback program.”
In terms of outlook, Specialty Phosphates volumes were better than expected in the fourth quarter 2014 compared to the prior year period. The main contributors were INNOVALT sales for asphalt markets, which were up 49% for the quarter and finished up 24% for the full year compared to 2013, a recovery in nutrition sales which were up 14% year-over-year and 16% sequentially, and Cal-Rise volumes which were up 5% for the quarter and 10% for the full year. These positive effects, however, were overshadowed by lower volumes from reduced US/Canada PPA availability, lower export sales, continued weak market demand and increased competitive pressures from imports given the recent strength in the US dollar. This resulted in a net 1% decline overall in Specialty Phosphates volumes for the fourth quarter 2014 compared to the prior year period. Export sales were down 8% year-over-year for the fourth quarter primarily due to reduced demand in Chinese seafood markets and shipment delays caused by the dockworkers slowdown affecting US West Coast ports. These negative fourth quarter events reduced the year to date September export growth rate of 7% to a full year growth rate of just 2%.
Due to the second half volume softness, Specialty Phosphates full year 2014 volume was flat compared to 2013, which was slightly better than an expected decline of 1-2% the company projected in its third quarter 2014 earnings release. Specialty Phosphates volumes are expected to grow by 2-3% for full year 2015 compared to 2014 based on the recovery of the PPA business and continued contributions from innovation and geographic expansion. However, market demand in the US and Canada home markets is not expected to recover from second half 2014 levels.
Specialty Phosphates operating income margins were 13% for the fourth quarter 2014, above the high end of the expected 11-12% range, leading to full year 2014 margins at the mid-point of the 14-15% range that had been targeted since the beginning of 2014. The sequential increase in cost of goods sold for higher raw material prices and lower production rates was $3 million compared to the expected $5 million due to higher year-end inventory levels, so the residual $2 million expense is expected to hit the US & Canada P&L in the first quarter 2015. This, combined with a planned maintenance outage in Coatzacoalcos that typically occurs every 12 to 18 months and typically costs $2-3 million, is expected to reduce Specialty Phosphates margins by approximately 100 basis points sequentially for the first quarter 2015.
Full year 2015 Specialty Phosphates operating margins are expected to be in the 13-14% range. The margin decline is primarily caused by a $6 million cost increase on the one annual PPA supply contract that reset on January 1, 2015. Given the increased attractiveness of the US market because of the strong US dollar, the current selling price environment won’t allow for price increases to cover this cost increase. Despite this temporary setback on margins, the cash flow generation capability of the business remains strong.
Fertilizer market prices showed some decline early in the fourth quarter 2014, but then quickly rebounded back to third quarter 2014 levels. Market phosphate rock prices were fairly stable sequentially in the fourth quarter 2014 and are expected to remain stable for the first quarter 2015. Sulfur market prices decreased 5% sequentially in the fourth quarter 2014, but increased 14% for the first quarter 2015.
