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BALCHEM CORPORATION Reports Operating Results (10-Q)

November 02, 2012 | About:
10qk

10qk

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BALCHEM CORPORATION (BCPC) filed Quarterly Report for the period ended 2012-09-30.

Balchem Corporation has a market cap of $1.02 billion; its shares were traded at around $34.33 with a P/E ratio of 26.5 and P/S ratio of 3.5. The dividend yield of Balchem Corporation stocks is 0.5%. Balchem Corporation had an annual average earning growth of 18% over the past 10 years. GuruFocus rated Balchem Corporation the business predictability rank of 4-star.

Highlight of Business Operations:

Net sales for the three months ended September 30, 2012 were $75,116 as compared with $74,439 for the three months ended September 30, 2011, an increase of $677 or 0.9%. Net sales for the Specialty Products segment were $12,318 for the three months ended September 30, 2012, as compared with $12,197 for the three months ended September 30, 2011, an increase of $121 or 1.0%. This increase in sales was derived entirely from ethylene oxide products for medical device sterilization, resulting primarily from higher volumes and modest price increases to offset rising raw material costs. This increase was partially offset by decreased sales volumes of propylene oxide for use in certain industrial applications. Net sales for the Food, Pharma & Nutrition segment were $10,893 for the three months ended September 30, 2012 compared with $10,993 for the three months ended September 30, 2011, a decrease of $100 or 0.9%. This result was primarily due to a 3.7% decrease in sales in the food market, principally due to lower volumes sold of encapsulated ingredients for certain flavor markets. Partially offsetting this was a 3.5% increase in sales of human choline products for both food applications and the supplement markets. Net sales of $51,905 were realized for the three months ended September 30, 2012 for the Animal Nutrition & Health segment, as compared with $51,249 for the prior year comparable period, an increase of $656 or 1.3%. The ANH specialty ingredients, largely targeted to the ruminant and companion animal markets, realized 24.5% sales growth from the prior year comparable period. The improvement was due to volume increases, as some regional improvement in dairy economics supported greater demand, particularly for our rumen protected choline and methionine products. Global feed grade choline product sales decreased by approximately 12.7% primarily due to lower volumes, which were somewhat offset by modest price increases, implemented globally, to partially offset rising raw material costs. In addition, sales of the Company s European produced product were unfavorably impacted by foreign currency fluctuations totaling $918 or a 3.4% decline in global feed grade choline product sales. Choline volumes sold, which track closely with broiler chick placements and egg sets, were lower in North America due to continued high grain prices, weakness in both U.S. consumer demand and exportation of finished birds. The Company experienced an overall increase in sales of various choline and choline derivative products used for certain industrial applications. Industrial sales increased 13.6% over the prior year period with the increase coming from higher volumes, partially offset by lower average selling

Principally as a result of the above-noted details, earnings from operations for the three months ended September 30, 2012 increased to $16,240 as compared to $15,175 for the three months ended September 30, 2011, an increase of $1,065 or 7.0%. Earnings from operations as a percentage of sales (“operating margin”) for the three months ended September 30, 2012 was 21.6%, as compared to 20.4% for the three months ended September 30, 2011. The Company is continuing to focus on leveraging its plant capabilities, driving efficiencies from core volume growth, broadening product applications of human and animal health specialty products into both the domestic and international markets, as well as capitalizing logistically on the Company s varied choline production capabilities. Earnings from operations for the Specialty Products segment were $5,245, an increase of $568 or 12.1%, primarily due to the above-noted favorable product mix, certain lower operating expenses and a reduction in the cost of certain petro-chemical commodities. Earnings from operations for Food, Pharma & Nutrition were $2,898, a decrease of $253 or 8.0%, due largely to the above-noted unfavorable product mix, slightly lower sales volumes in the food market, and increased outside research. Earnings from operations for Animal Nutrition & Health increased by $750 to $8,097, a

2011, an increase of $486 or 1.5%. This result was primarily due to a $2,498 increase in sales of human choline products for both food applications and the supplement markets. Partially offsetting this was a 9.8% decrease in sales in the food market, principally due to lower volumes sold of encapsulated ingredients. Also offsetting the increased sales was lower sales of calcium products, which were down approximately $313, a result of our having sold this business in late 2010, but which was still winding down in 2011. Net sales of $159,895 were realized for the nine months ended September 30, 2012 for the Animal Nutrition & Health segment, as compared with $153,698 for the prior year comparable period, an increase of $6,197 or 4.0%. The ANH specialty ingredients, largely targeted to the ruminant and companion animal markets, realized 30% sales growth from the prior year comparable period. The improvement was due to volume increases, as some regional improvement in dairy economics supported greater demand, particularly for our rumen protected choline, lysine, and methionine products. However, during the second quarter of 2012, the Company announced a decision to suspend sales of its AminoShure®-L, 52% lysine (the “Product”). There were no safety concerns relating to the Product; however, research indicated that the lysine bioavailability of the Product was lower than originally designed and projected, hence found to not meet our internal expectations. The sales credits issued related to this decision were approximately $1.0 million in this period. Global feed grade choline product sales decreased by approximately 5% due to lower volumes, partially offset by modest price increases, implemented globally, partially offsetting rising raw material costs. In addition, sales of the Company s European produced product were unfavorably impacted by foreign currency fluctuations totaling $2,373 or a 2.9% decline in global feed grade choline product sales. The Company experienced increased sales of various choline and choline derivative products used for industrial applications, predominantly in North America, including usage in fracking for oil and natural gas. Industrial sales grew 5.4% over the prior year period with the increase coming primarily from higher volumes for usage in fracking, along with increased average selling prices, which partially offset rising raw material costs. Sales for industrial applications comprised approximately 32% of the sales in this segment for the nine months ended September 30, 2012.

Operating expenses for the nine months ended September 30, 2012 were $22,400, as compared to $22,626 for the nine months ended September 30, 2011, a decrease of $226 or 1.0%. This was principally due to lower consultancy fees of $586 primarily incurred to study acquisition opportunities and related to the 2010 Aberco acquisition that were incurred during the nine months ended September 30, 2011. Also contributing to the decrease was lower advertising of $113. Partially offsetting this was increased outside research of $295 and $160 related to the Product sales suspension. Operating expenses were 9.7% of sales or 0.5 percentage points less than the operating expenses as a percent of sales in last year's comparable period. During the nine months ended September 30, 2012 and 2011, the Company spent $2,620 and $2,257 respectively, on research and development programs, substantially all of which pertained to the Company s Food, Pharma & Nutrition and Animal Nutrition & Health segments.

Principally as a result of the above-noted details, earnings from operations for the nine months ended September 30, 2012 increased to $44,740 as compared to $42,532 for the nine months ended September 30, 2011, an increase of $2,208 or 5.2%. Earnings from operations as a percentage of sales (“operating margin”) for the nine months ended September 30, 2012 increased to 19.4% from 19.1% for the nine months ended September 30, 2011. The Company is continuing to focus on leveraging its plant capabilities, driving efficiencies from core volume growth, broadening product applications of human and animal health specialty products into both the domestic and international markets, as well as capitalizing logistically on the Company s varied choline production capabilities. Earnings from operations for the Specialty Products segment were $14,823, an increase of $1,228 or 9.0%, primarily due to the above-noted higher sales of ethylene oxide and propylene oxide, and certain lower operating expenses. This was partially offset by the aforementioned higher raw material costs. Earnings from operations for Food, Pharma & Nutrition were $8,996, an increase of $501 or 5.9%, due largely to the above-noted increased sales of human choline products and the sale of the non-core calcium carbonate product line in the fourth quarter of 2010, which was still generating an operating loss in 2011. Partially offsetting this was lower sales volumes in the food market. Earnings from operations for Animal Nutrition & Health increased by $479 to $20,921, a 2.3% increase from the prior year comparable period, principally due to the aforementioned increased sales, favorable product mix, and certain lower operating expenses, partially offset by increases in the cost of certain petro-chemical raw materials used to manufacture choline and the impact of the Product sales suspension.

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