Attached files
| file | filename |
|---|---|
| 8-K - FORM 8-K - KMG CHEMICALS INC | c18584e8vk.htm |
Exhibit 99.1
FOR IMMEDIATE RELEASE
KMG CHEMICALS REPORTS THIRD QUARTER 2011 RESULTS
HOUSTON, TX — June 9, 2011 — KMG Chemicals, Inc. (NASDAQ GS: KMGB), a global provider of
specialty chemicals in carefully focused markets, today announced financial results for its fiscal
third quarter ended April 30, 2011.
Overview of 2011 Fiscal Third Quarter
For the third quarter, net sales increased 26% to $65.1 million from $51.6 million in the third
quarter of 2010, driven primarily by the inclusion of the Electronic Chemicals business acquired in
March 2010 and, to a lesser extent, higher sales of Creosote in the Wood Treating Chemicals
business. Operating income in the fiscal 2011 third quarter declined to $4.6 million from $5.8
million in the third quarter of last year. KMG recorded net income of $2.6 million, or $0.23 per
diluted share, for the third quarter of fiscal 2011, compared to net income of $3.3 million, or
$0.29 per diluted share, in the third quarter of last year.
For the first nine months of fiscal 2011, net sales were $192.1 million, operating income was $14.9
million, and net income was $8.5 million or $0.74 per diluted share. This compared to net sales of
$146.2 million, operating income of $20.7 million, and net income of $11.9 million or $1.05 per
diluted share, for the first nine months of fiscal 2010.
Business Unit Overview and Trends
Net Sales & Operating Income by Business ($ in millions; includes effects of rounding)
| Three Months Ended | Three Months Ended | |||||||||||||||
| April 31, 2011 | April 30, 2010 | |||||||||||||||
| Operating | Operating | |||||||||||||||
| Net Sales / % of Total | Income | Net Sales / % of Total | Income | |||||||||||||
Electronic Chemicals |
$ | 38.5 / 59 | % | $ | 1.6 | $ | 29.6 / 57 | % | $ | 2.2 | ||||||
Wood Treating
Chemicals |
$ | 23.4 / 36 | % | $ | 3.2 | $ | 18.8 / 37 | % | $ | 4.1 | ||||||
Animal Health |
$ | 3.2 / 5 | % | $ | 0.312 | $ | 3.2 / 6 | % | $ | 0.228 | ||||||
Total |
$ | 65.1 | $ | 51.6 | ||||||||||||
Allocation of Corporate Overhead
During the first quarter of fiscal year 2011, the Company changed the method it uses to allocate
corporate overhead costs to its reportable segments. The result is that all corporate overhead is
now allocated except for employee stock-based compensation expenses, those amounts associated with
the Company’s operation as a public entity and certain miscellaneous expenses. The allocated costs
are based on segment net sales. Prior year segment operating income amounts have been revised to
reflect the current method.
Electronic Chemicals
Neal Butler, President and CEO of KMG, commented, “The 30% increase in net sales in our Electronic
Chemicals segment for the fiscal 2011 third quarter reflected a full three months of sales from the
business acquired in March 2010 as compared to only one month of sales from that business in the
same period last year, increased demand for Electronic Chemicals driven by a recovery in the
semiconductor market, and partial benefit from a global price increase that transitioned into place
during the quarter.
“The consolidation of our U.S. Electronic Chemicals manufacturing into our Hollister, CA and
Pueblo, CO plants continues to progress well. The price increases implemented during the third
quarter will benefit the entire fiscal 2011 fourth quarter, while the price increases announced
earlier this week should begin to have an impact in July. As previously reported, we were awarded
significant additional business from a large customer expanding operations in the U.S., the impact
of which we expect to realize in the first quarter of fiscal 2012. Additionally, we have recently
been awarded significant new business from a large customer building a new fabrication plant in the
U.S. that we expect will begin operations early in calendar 2012. The combined annual sales that
these two new pieces of business will generate have not been definitively determined, but we expect
it will initially exceed $6 million per year, with the potential to ramp up in future years.”
Mr. Butler continued, “Income from operations for this segment in the third fiscal quarter was $1.6
million compared to $2.2 million in the same period last year; for the nine month periods, income
from operations was $5.9 million and $5.6 million in 2011 and 2010, respectively. Throughout this
fiscal year, we experienced raw material price pressures in this segment which we addressed in the
third and fourth fiscal quarters by implementing price increases. As was the case in the second
quarter of fiscal 2011, we incurred costs for both the expanded operations at our Pueblo and
Hollister facilities and the contract manufacturing locations operated by Air Products and General
Chemical as production was transitioned out of those sites. These additional costs are continuing
to wind down, and we expect to realize the benefit of this decline in the first quarter of fiscal
2012.
“Our distribution expense in this segment increased by $2.5 million compared to last year’s third
quarter primarily due to increased sales volume associated with the acquisition. Distribution
expense as a percentage of revenue increased to 16.7% in the third quarter, up from 13.2% in the
third quarter of fiscal 2010 due to higher diesel prices and the aforementioned impact of the
integration effort, as well as a tightening market for common carrier services.
“Our Electronic Chemicals segment is a very logistics-intensive operation. While maintaining the
high level of service our customers require, we are continuing to optimize our shipping lanes to
better align them with our manufacturing consolidation effort and our new production locations.
Our success in this regard is reflected by the reduction of distribution expenses to our targeted
levels in the fiscal third quarter from 17.4% of sales in the fiscal 2011 second quarter. We
anticipate further progress at reducing these costs in the coming quarters.”
Wood Treating Chemicals
Commenting on the Company’s Wood Treating Chemicals business, Mr. Butler continued, “Creosote sales
in the fiscal 2011 third quarter rose 37% to $17.8 million from $13.0 million in the same period
last year, and were up 19% to $56.0 million for the first nine months of the fiscal year, primarily
due to an increase in sales volume, partially offset by lower prices due to shift in product mix
and renegotiated contract pricing.
“Income from operations in the Creosote segment was $1.5 million for the current quarter compared
to $2.5 million in the third quarter of fiscal 2010. In addition to lower average pricing, we
experienced slower than expected production rates by our customers given the overall demand for
treated rail ties, as well as margin pressure brought on by higher average costs for purchased
material.
“For the remainder of fiscal 2011, we anticipate that material costs will increase, and we intend
to reflect that increase in our pricing. Additionally, we anticipate higher demand from our
customers as rail tie production rates increase to meet purchase rates. Industry reports issued by
the Railway Tie Association forecast rail tie purchases to trend up through 2013. Increasing
demand and declining inventory ratios would indicate a long-term increase in rail tie production
and a growing need for Creosote. While monthly or quarterly demand is difficult to predict, we
believe the long-term trend will be favorable for our Creosote business.”
Mr. Butler went on to say, “Penta sales were relatively flat with last year’s third fiscal quarter
at $5.6 million compared to $5.7 million in the same period of last year. Income from operations
from Penta was $1.6 million which was consistent with the same period of last year. For the nine
month period of fiscal 2011, net sales of Penta were up 3% to $17.3 million primarily due to
incremental improvement in purchases of treated poles by utility customers. We expect Penta sales
to continue at these approximate levels in the fourth quarter of fiscal 2011 and for margins to be
pressured by the impact of high oil prices on raw material costs.”
In fiscal 2011, Wood Treating contributed $3.2 million to operating profits in the third quarter
and $11.4 million in the first nine months, compared to $4.1 million and $18.3 million in the
respective periods of fiscal 2010, with the decline due primarily to increased raw material costs
and lower average pricing in Creosote.
Animal Health
Mr. Butler continued, “Net sales of animal health products in the third fiscal quarter were
essentially flat at $3.2 million compared to the prior year period. Domestic sales were adversely
impacted by reduced fly pressure in drought stricken areas of the Western and Southwestern U.S. We
are, however, experiencing increased demand in South America as a result of recently granted
product registrations. The second half of our fiscal year is seasonally the strongest for this
segment and seasonal usage of animal health products is dependent upon varying weather conditions
and weather-related pressure from pests.”
Income from operations for this segment was $312,000 and $59,000 for the three and nine months
ended April 30, 2011, respectively, compared to $228,000 and a loss of $55,000 in the respective
periods of 2010.
Mr. Butler added, “We continue to diversify our customer base by adding registered products in new
countries in South America and expect to see increased Animal Health sales in that region in the
fourth quarter. We believe we will continue to see improved results for this segment through the
balance of fiscal 2011.”
Balance Sheet & Cash Flow Overview
John V. Sobchak, CFO of KMG, commented, “As of April 30, 2011, working capital was $45.7 million,
compared to $43.4 million at year end. We funded $5.8 million of capital expenditures, while
reducing total debt by $8.1 million during the first nine months of fiscal 2011. Included in our
total debt of $51.2 million is $17.9 million borrowed on our $50.0 million revolving credit
facility. At the end of the fiscal third quarter, we had shareholders’ equity of $96.5 million, up 14% from $84.8 million at fiscal 2010 year end. Cash flow from operations was $10.0 million for
the nine months ended April 30, 2011. Depreciation and amortization for the first nine months of
the fiscal year was $5.7 million.”
Outlook
Mr. Butler concluded, “While our third quarter results were below our initial forecasts, we believe
that we will finish out the fiscal year with a strong fourth quarter. We expect to see improved
performance, most notably in our Electronic Chemicals segment as the price increases recently
implemented will relieve some margin pressure caused by the rise in raw materials costs the past
couple of quarters. We also look forward to an increase in Electronic Chemical revenues over the
next few quarters as new business comes on stream from customer expansion initiatives. We are
pleased to be progressing well in our integration efforts and recently completed our intended
production moves out of the Baypoint facility, consolidating that production into our Pueblo plant.
We are now completing the move of production out of the Dallas facility into our Hollister plant.
“We believe we will start to see a recovery in Creosote as rail tie production rates are projected
to increase from the lower levels experienced in the third fiscal quarter. Animal Health should
perform well in the fourth quarter as May, June and July are typically strong and new product
registrations take effect in South American markets.
“As we’ve stated before, our plans call for adding a fourth platform to our business in addition to
acquisition opportunities within our current business segments. We continue to actively pursue and
evaluate potential acquisitions, seeking those that would have a material positive impact on our
bottom-line, enable us to capture a major position in attractive markets, and meet our strict
valuation criteria. We are optimistic about our prospects for continued growth and look forward to
reporting on KMG’s continued development.”
Conference Call
Date: Thursday, June 9, 2011
Time: 10:00 am ET
Dial-in: (877) 709-8150 (Domestic), (201) 689-8354 (International)
Webcast: www.kmgchemicals.com — Conference Calls and Events (live & replay)
Date: Thursday, June 9, 2011
Time: 10:00 am ET
Dial-in: (877) 709-8150 (Domestic), (201) 689-8354 (International)
Webcast: www.kmgchemicals.com — Conference Calls and Events (live & replay)
About KMG
KMG Chemicals, Inc., through its subsidiaries, produces and distributes specialty chemicals to
carefully focused markets. The Company grows by acquiring and optimizing stable chemical product
lines and businesses with established production processes. Its current operations are focused on
the wood treatment, electronic, and agricultural chemical markets. For more information, visit the
Company’s web site at www.kmgchemicals.com.
The information in this news release includes certain forward-looking statements that are based
upon assumptions that in the future may prove not to have been accurate and are subject to
significant risks and uncertainties, including statements as to the future performance of the
company. Although the company believes that the expectations reflected in its forward-looking
statements are reasonable, it can give no assurance that such expectations or any of its
forward-looking statements will prove to be correct. Factors that could cause results to differ
include, but are not limited to, successful performance of internal plans, product development
acceptance, the impact of competitive services and pricing and general economic risks and
uncertainties.
Contacts:
John V. Sobchak
|
Investor Relations Counsel: | |
Chief Financial Officer
|
The Equity Group Inc. | |
KMG Chemicals, Inc.
|
Melissa Dixon | |
713-600-3814
|
212-836-9613 | |
JSobchak@kmgchemicals.com
|
MDixon@equityny.com | |
www.kmgchemicals.com |
||
| Devin Sullivan | ||
| 212-836-9608 | ||
| DSullivan@equityny.com | ||
| www.theequitygroup.com |
(See accompanying tables)
KMG CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands except for per share data)
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands except for per share data)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| April 30, | April 30, | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
NET SALES |
$ | 65,074 | $ | 51,614 | $ | 192,114 | $ | 146,162 | ||||||||
COST OF SALES |
47,320 | 35,658 | 138,726 | 95,103 | ||||||||||||
Gross Profit |
17,754 | 15,956 | 53,388 | 51,059 | ||||||||||||
DISTRIBUTION EXPENSES |
7,599 | 4,762 | 21,322 | 14,139 | ||||||||||||
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |
5,572 | 5,362 | 17,117 | 16,214 | ||||||||||||
Operating income |
4,583 | 5,832 | 14,949 | 20,706 | ||||||||||||
OTHER INCOME (EXPENSE): |
||||||||||||||||
Interest income |
— | 3 | 1 | 5 | ||||||||||||
Interest expense |
(571 | ) | (542 | ) | (1,765 | ) | (1,634 | ) | ||||||||
Other, net |
50 | (69 | ) | (140 | ) | (168 | ) | |||||||||
Total other expense, net |
(521 | ) | (608 | ) | (1,904 | ) | (1,797 | ) | ||||||||
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES |
4,062 | 5,224 | 13,045 | 18,909 | ||||||||||||
Provision for income taxes |
(1,411 | ) | (1,882 | ) | (4,418 | ) | (6,984 | ) | ||||||||
INCOME FROM CONTINUING OPERATIONS |
2,651 | 3,342 | 8,627 | 11,925 | ||||||||||||
DISCONTINUED OPERATIONS: |
||||||||||||||||
Loss from discontinued operations, before income taxes |
(57 | ) | — | (104 | ) | — | ||||||||||
Income tax benefit |
13 | — | 24 | — | ||||||||||||
Loss from discontinued operations |
(44 | ) | — | (80 | ) | — | ||||||||||
NET INCOME |
$ | 2,607 | $ | 3,342 | $ | 8,547 | $ | 11,925 | ||||||||
EARNINGS PER SHARE: |
||||||||||||||||
Basic |
||||||||||||||||
Income from continuing operations |
$ | 0.23 | $ | 0.30 | $ | 0.76 | $ | 1.07 | ||||||||
Loss from discontinued operations |
— | — | (0.01 | ) | — | |||||||||||
Net income |
$ | 0.23 | $ | 0.30 | $ | 0.75 | $ | 1.07 | ||||||||
Diluted |
||||||||||||||||
Income from continuing operations |
$ | 0.23 | $ | 0.29 | $ | 0.75 | $ | 1.05 | ||||||||
Loss from discontinued operations |
— | — | (0.01 | ) | — | |||||||||||
Net income |
$ | 0.23 | $ | 0.29 | $ | 0.74 | $ | 1.05 | ||||||||
WEIGHTED AVERAGE SHARES OUTSTANDING: |
||||||||||||||||
Basic |
11,313 | 11,198 | 11,306 | 11,168 | ||||||||||||
Diluted |
11,499 | 11,436 | 11,484 | 11,410 | ||||||||||||
SUPPLEMENTAL DATA: |
||||||||||||||||
Depreciation and amortization expense |
1,842 | 1,625 | 5,688 | 4,442 | ||||||||||||
KMG Chemicals, Inc.
Balance Sheet Highlights
(In thousands)
(UNAUDITED)
Balance Sheet Highlights
(In thousands)
(UNAUDITED)
| April 30, | July 31, | |||||||
| 2011 | 2010 | |||||||
Cash and cash equivalents |
$ | 927 | $ | 4,728 | ||||
Net working capital |
45,665 | 43,388 | ||||||
Total assets |
180,733 | 176,021 | ||||||
Long-term debt |
51,240 | 59,333 | ||||||
Shareholders’ Equity |
96,471 | 84,778 | ||||||