雅虎香港財經 Balchem Corporation (NASDAQ:BCPC) Q1 2024 Earnings Call Transcript
Balchem Corporation (NASDAQ:BCPC) Q1 2024 Earnings Call Transcript May 3, 2024
Balchem Corporation misses on earnings expectations. Reported EPS is $ EPS, expectations were $0.94. Balchem Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings, and welcome to the Balchem Corporation First Quarter 2024 Earnings Call. At this time all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Mr. Martin Bengtsson, Chief Financial Officer of Balchem Corporation. Thank you, sir. You may begin.
Martin Bengtsson: Good morning everyone. Thank you for joining our conference call this morning to discuss the results of Balchem Corporation for the quarter ending March 31st, 2024. My name is Martin Bengtsson, Chief Financial Officer and hosting this call with me is Ted Harris, our Chairman, President and CEO. Following the advice of our council, auditors and the SEC at this time, I would like to read our forward-looking statements. Statements made in today's call that are not historical facts are considered forward-looking statements. We can give no assurance that the expectations reflected in forward-looking statements will prove correct and various factors could cause actual results to differ materially from our expectations, including risks and factors identified in Balchem's most recent Form 10-K, 10-Q and 8-K reports.
The company assumes no obligation to update these forward-looking statements. Today's call and commentary also include non-GAAP financial measures. Please refer to the reconciliations in our earnings release for further details. I will now turn the call over to Ted Harris, our Chairman, President and CEO.
Ted Harris: Thanks, Martin. Good morning and welcome to our conference call. This morning we reported strong first quarter financial results with record sales and adjusted EBITDA and strong margins driven by a favorable product mix. I am particularly pleased with the excellent results within our Human Nutrition & Health segment, which once again delivered strong growth and record sales and earnings. Our consolidated revenues of $240 million were higher by 3.1% versus the prior year. Gross margin grew a 11.4% and we expanded our gross margin percentage by 255 basis points to 34%. Earnings from operations of $42 million were higher by 21.1% versus the prior year quarter, and we delivered record quarterly adjusted EBITDA of $61 million, an increase of 8% with an adjusted EBITDA margin of 25.4% of sales, up 113 basis points from the prior year.
Our first quarter net income of $29 million, an increase of 27.6%, resulted in earnings per share of $0.89 on a GAAP basis. On an adjusted basis, our first quarter non-GAAP net earnings of $34 million, an increase of 9.8%, resulted in earnings per share of $1.03 on a non-GAAP basis. Cash flows from operations were $33 million for the first quarter of 2024, with quarterly free cash flow of $27 million. Overall, a strong quarter for Balchem with performance that highlights the strength and resilience of our business model. Before passing the call back to Martin to cover the financial results in more detail, I would like to make a few comments about the overall market environment, provide a brief update on our progress around sustainability as disclosed in our recently published 2023 Sustainability Report, and share some progress we are making on the marketing front to drive increased awareness for VitaCholine, Balchem's market leading brand of the essential nutrient choline.
The current market environment continues to be dynamic and circumstances vary greatly across our portfolio. As discussed on earlier calls, we experienced destocking in the early part of 2023 with customers adjusting their inventory levels down as supply chains became more reliable and the demand outlook became more uncertain. Since then, we have seen a gradual stabilization of demand patterns and customers returning to more normalized order patterns. When we look across our portfolio of businesses, we are seeing excellent performance in our Human Nutrition & Health segment led by our minerals and nutrients business where we are seeing very strong end consumer demand for our unique portfolio of minerals, nutrients and vitamins. Our human food solutions businesses return to more normalized order patterns also contributed nicely to the overall growth of the H&H segment.
Our Animal Nutrition & Health segment is going through a challenging time from a market perspective. We have discussed earlier how our European feed grade choline business has been negatively impacted by low cost product flooding the market and we expect this to continue for some time. We are looking into this unfair pricing behavior in an effort to understand if there could be potential for anti-dumping or other tariff relief. Also, the dairy economics impacting our animal ruminant business is going through a tougher cycle with reducing, but still elevated feed costs and low milk protein prices. While this is currently having a negative impact, we believe this to be more short-term in nature and we expect this market to recover gradually. For our Specialty Products segment, the primary business is our Performance Gases business, which continues to perform well in a stable market.
From an overall Balchem perspective, I am pleased with how we have managed through this dynamic environment. Our market positions and value propositions in the various markets we serve have enabled us to maneuver through these volatile times and it has highlighted the strength of our overall portfolio mix and our ability to drive above market growth over time. As we continue to drive growth, we are guided by our core values and our vision of making the world a healthier place. Supporting this is our dedication to corporate social responsibility. Last month on Earth Day, we published our 2023 Sustainability Report and I’m very pleased with the progress Balchem continues to make in advancing our sustainability efforts. In 2023, Balchem exceeded our 2030 greenhouse gas absolute emissions reduction goal of 25% as we achieved a 32% improvement over our 2020 baseline and we remain on track to achieve our commitment to reduce water usage by 25%.
In 2023, Balchem reduced its water withdrawal by 8% compared to our 2020 baseline. In this latest report, we also disclosed our Scope 3 emissions for the first time and shared our internal assessment that determined that more than 70% of our product line revenues directly support three out of the 17 United Nations Sustainable Development Goals or SDGs; SDG 2, zero hunger; SDG 3, good health and wellbeing; and SDG 12, responsible consumption and production. Our performance towards our 2030 goals and our broad progress on all of our other initiatives shows our commitment to our two main objectives, providing innovative solutions for the health and nutritional needs of the world and operating with excellence as strong stewards of our people, communities and shareholders.
Additionally, as I mentioned earlier, I would like to share with you some progress we are making on building consumer awareness for some of our market leading brands of vitamins, minerals, and essential nutrients. Yesterday, we were excited to announce that VitaCholine, Balchem's market leading brand of the essential nutrient choline, has become a Proud Partner of the New York Jets, a major professional NFL sports team. This is the first sponsorship for VitaCholine and the first sponsorship in the Nutritional Ingredient category for the Jets. The partnership will help VitaCholine reach a large and health-conscious audience and promote its message of improving well-being of body and mind. VitaCholine is a nutrient that supports both mental and physical performance by enhancing memory, accuracy and muscle control.
Raising awareness of the benefits and accessibility of VitaCholine is an important aspect of the Jets partnership. To that end, VitaCholine will become the presenting partner of the Jets official website, newyorkjets.com, receiving prominent branding at the top of each page on the site. VitaCholine will also have significant presence at MetLife Stadium with impactful exposure on stadium signage. Choline’s crucial role in pregnancy has been well established by experts for many years. Now, with emerging clinical evidence showcasing its positive effects on adult mental performance and physical wellness, it’s an ideal time to embark on this dynamic partnership with the New York Jets and we are excited about this opportunity to drive increased awareness.
We are very pleased with the early response from our customers who manufacture and market the supplements, nutritional beverages and fortified foods that contain our VitaCholine to this unique partnership as they clearly see and value the opportunity for increased awareness for VitaCholine. We look forward to sharing progress with you over the coming quarters on this advancement in our marketing efforts to drive market penetration for VitaCholine. And with that, I’m now going to turn the call back over to Martin to go through the first quarter consolidated financial results for the company and the results for each of our business segments. Martin?
Martin Bengtsson: Thank you, Ted. As Ted mentioned, overall the first quarter was a strong quarter for Balchem with record sales, adjusted EBITDA and strong margin performance. Our first quarter net sales of $240 million were 3.1% higher than prior year, driven primarily by strong growth in our Human Nutrition & Health segment. Our first quarter gross margin dollars of $82 million were up 11.4% compared to the prior year. Our gross margin percent was 34% of sales, up 255 basis points compared to 31.5% in the prior year. The increase was primarily due to a favorable mix and decreases in certain manufacturing input costs. Consolidated operating expenses for the first quarter were $40 million as compared to $39 million in the prior year.
The increase was primarily due to higher compensation related expenses and the impact of a gain on sale of fixed assets recognized in the prior year, partially offset by lower transaction and integration related expenses. GAAP earnings from operations for the first quarter were $42 million, an increase of 21.1% compared to the prior year quarter. On an adjusted basis as detailed in our earnings release this morning, non-GAAP earnings from operations of $49 million were up 7.8% compared to the prior year. Adjusted EBITDA of $61 million grew 8% compared to the prior year with an adjusted EBITDA margin rate of 25.4%. Interest expense for the first quarter was $5 million, a decrease of $0.2 million compared to the prior year. This decrease in interest expense was due to lower outstanding borrowings partially offset by higher interest rates.
We continue to use our solid cash flows to pay down debt and we reduced our debt by $8 million in the first quarter and ended the quarter with net debt of $241 million, with an overall leverage ratio on a net debt basis of 1.0 times. The effective tax rates for the first quarters of 2024 and 2023 were 21.3% and 22%, respectively. The decrease in the effective tax rate from the prior year was primarily due to higher tax benefits from stock-based compensation and certain lower foreign taxes. Consolidated net income closed the quarter at $29 million, up 27.6% from the prior year. This quarterly net income translated into diluted net earnings per share of $0.89, an increase of $0.19 compared to the prior year. On an adjusted basis, our first quarter adjusted net earnings were $34 million, an increase of 9.8% from the prior year, which translated to $1.03 per diluted share.
Cash flows from operations were $33 million with free cash flow of $27 million and we closed out the quarter with $60 [ph] million of cash on the balance sheet. As we look at the first quarter from a segment perspective, for the first quarter, our Human Nutrition & Health segment generated record sales of $153 million, an increase of 15.1% from the prior year, driven primarily by higher sales within the minerals and nutrients business. Our Human Nutrition & Health segment delivered record quarterly earnings from operations of $33 million, an increase of 80.4% compared to the prior year. This was driven by the aforementioned higher sales and lower manufacturing input costs. First quarter adjusted earnings from operations for this segment were a record $39 million, an increase of 43.3%.
We were very pleased with the overall performance of our Human Nutrition & Health segment, delivering record sales and earnings from operations. We saw strong demand growth of our minerals and nutrients and the overall demand picture continues to improve in the food and beverage markets. Our Animal Nutrition & Health segment generated quarterly sales of $54 million, a decrease of 16.9% compared to the prior year. The decrease was driven by lower sales in both the monogastric and ruminant species markets. Animal Nutrition & Health delivered earnings from operations of $2 million, a decrease of 78.3% from the prior year. The decrease was primarily due to the aforementioned lower sales, partially offset by lower manufacturing input costs. First quarter adjusted earnings from operations for this segment were $2 million, a decrease of 75.8%.
Similar to what we discussed in our Q4 earnings call, our Animal Nutrition & Health segment is experiencing challenging market conditions, particularly in Europe, but also in the North American dairy market. The European animal feed market continues to show relatively soft market demand and continued competition from low cost imports flooding the market and the North American dairy market is still experiencing low U.S. milk and milk protein prices, impacting demand for rumen-protected encapsulated nutrients in North America. While Animal Nutrition & Health is clearly going through a tough time at the moment, we continue to believe the animal nutrition markets provide a growth opportunity for Balchem over the longer term and we expect this segment to gradually improve as market dynamics become more supportive.
Our Specialty Products segment delivered quarterly sales of $32 million, a decrease of 1.9% compared to the prior year due to lower sales in the plant nutrition business, partially offset by higher sales in the Performance Gases business. Specialty Products delivered earnings from operations of $8 million, an increase of 3.2% versus the prior year, primarily driven by lower manufacturing input costs, partially offset by higher operating expenses. First quarter adjusted earnings from operations for this segment were $9 million, an increase of 3.1%. We were pleased with the performance of Specialty Products in the first quarter as improved margins delivered good earnings growth. So overall, the first quarter was another strong quarter for Balchem and a great start to 2024.
I'm now going to turn the call back over to Ted for some closing remarks.
Ted Harris: Thanks, Martin. We are very pleased with the strong financial results reported earlier this morning with record sales and adjusted EBITDA for the quarter, particularly in light of the continued economic and geopolitical uncertainties we are facing in the marketplace. At a consolidated level, we continue to show an ability to deliver results in a variety of market conditions given our strong market positions, and we remain confident in the long term growth outlook for the company. I will now hand the call back over to Martin, who will open up the call for questions. Martin?
Martin Bengtsson: Thank you, Ted. This now concludes the formal portion of the conference. At this point, we will open the conference call for questions.
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