Market Overview

KMG Chemicals Reports Third Quarter 2012 Results

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HOUSTON--(BUSINESS WIRE)--

KMG Chemicals, Inc. (NASDAQ: KMGB), a global provider of specialty chemicals in select markets, today announced financial results for the third fiscal quarter ended April 30, 2012.

2012 Fiscal Third Quarter Highlights

  • Net sales were $66.6 million, up 7.6% versus $61.9 million in the third quarter of fiscal 2011, primarily reflecting the impact of recently implemented pricing actions in both the Electronic Chemicals and Wood Treating chemicals businesses.
  • Operating income increased 65.9% to $6.9 million from $4.1 million in the third fiscal quarter of 2011. Operating margins were 10.3% in the third quarter of 2012, up from 6.7% in the prior year period.
  • Diluted earnings per share were $0.34 per share versus $0.23 per share reported in last year's third fiscal quarter.
  • Net cash provided by operating activities was $8.5 million, compared to net cash used of $459,000 in the same period a year ago.
  • Total long-term debt was $28 million, down from $41 million at the end of the preceding quarter and $49.3 million at the end of fiscal 2011. The Company used the proceeds received on the sale of its Animal Health business to repay $10.0 million of the balance during the third quarter of fiscal year 2012.

Neal Butler, President and CEO of KMG, commented, “Our third quarter earnings were up substantially from the preceding quarter and from the prior-year period, reflecting the benefits of our Electronic Chemicals plant consolidation and integration efforts. Targeted pricing actions in our Electronic Chemicals and Wood Treating business segments also benefited results, and enabled us to recoup higher raw materials costs. We ended the quarter in a strong financial position with $5.2 million in cash and a balance sheet with substantial borrowing capacity to fund further growth.”

Business Unit Overviews and Trends

KMG previously had four reportable segments: Electronic Chemicals, Penta, Creosote, and Animal Health. During the first fiscal quarter of 2011, the Company re-evaluated the criteria used to determine operating segments, and concluded that its two Wood Treating product segments met the criteria of a single operating segment. Then on March 1, 2012, the Company sold its Animal Health business. KMG's reportable segments have been revised to reflect a change from four to two reportable segments: Electronic Chemicals and Wood Treating Chemicals. Prior period information has been reclassified to conform to the current period presentation.

Electronic Chemicals

Net sales in the Electronic Chemicals segment increased 2.4% to $39.4 million in the fiscal third quarter of 2012, as compared to $38.5 million in the third fiscal quarter of 2011. The year-over-year sales increase primarily reflected the positive impact of price increases instituted over the past twelve months. Despite some softening in the European semiconductor market due to economic weakness, our overall sales volumes have remained relatively firm. We expect demand for our electronic chemicals products to improve in calendar 2012, and we will have additional business from a new North American semiconductor fabrication facility that has come on stream.

Segment operating profits improved 146% to $3.9 million, from $1.6 million in the same period a year ago, benefiting from higher product pricing completed over the last twelve months as well as efficiency improvements in our supply chain and the completion of our integration of the General Chemical acquired assets in fiscal 2011.

Wood Treating Chemicals

Net sales in the Wood Treating Chemicals segment increased 16.1% to $27.2 million in the fiscal third quarter of 2012, up from $23.4 million in the third fiscal quarter of 2011. The year-over-year sales increase primarily reflected higher realized pricing for creosote and pentachlorophenol products, although both products also benefited from increased sales volumes. We foresee relatively flat demand in our Wood Treating segment for the remainder of fiscal 2012.

Wood Treating operating income expanded 24.0% in the fiscal third quarter of 2012 to $3.9 million, from $3.2 million in the prior-year period. The increase in operating profits reflected the positive impact of pricing actions implemented to recover previously incurred raw material cost increases, and to a lesser extent, higher sales volumes.

Animal Health Business Sold

On March 1, 2012, KMG completed the sale of the Animal Health business assets to Bayer Healthcare, LLP. In the transaction, KMG sold manufacturing equipment, inventory and product registrations, and retained the real estate at the Elwood, Kansas location. The purchase price was approximately $10.2 million, following the post-closing adjustment for product sold from inventory prior to closing. We are providing manufacturing services to the purchaser under a one year transition services agreement that is renewable for two six-month periods.

Balance Sheet and Cash Flow Overview

John V. Sobchak, CFO of KMG, commented, “At April 30, 2012, total long-term debt declined to $28 million from $41 million at January 31, 2012 and $49.3 million at fiscal 2011 year-end. As of April 30, 2012, our long-term debt consisted of $20 million of fixed-rate notes maturing in December 2014, and $8 million drawn on our $60 million revolving line of credit. Net cash provided by operating activities was $8.5 million in the third fiscal quarter of 2012 and $22.9 million for the nine months of the current fiscal year. Shareholders' equity was $104.6 million as of April 30, 2012.”

Outlook

Mr. Butler commented, “This quarter's strong financial performance reflects the progress we have made in integrating acquired electronic chemicals assets, and remains consistent with our prior guidance that results in the second half of fiscal 2012 will show substantial improvement as compared to fiscal 2011. While economic weakness in Europe may temper near-term results in that region, we expect the overall Electronic Chemicals business to be stable in the fiscal fourth quarter. In addition, we do not expect customer demand in our Wood Treating business to show much change from fiscal third quarter levels for the remainder of this fiscal year. As always, we remain active in our search for additional consolidation opportunities in both Electronic Chemicals and Wood Treating Chemicals. We also remain committed to acquiring a new growth platform by fiscal 2014.”

Conference Call

Date: Friday, June 8, 2012

Time: 10:00 am ET

Dial-in: 888-330-6585 (Domestic), 631-813-4882 (International)

Conference ID: 85549353

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 electronic and industrial wood treatment 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.

       
KMG CHEMICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except for per share amounts)
 
 
Three Months Ended Nine Months Ended
April 30, April 30,
2012 2011 2012 2011
 
 
Net sales $ 66,579 $ 61,899 $ 205,093 $ 184,660
 
Cost of sales   45,973     45,134     148,671     133,545  
Gross profit   20,606     16,765     56,422     51,115  
 
Distribution expenses 7,418 7,413 19,290 20,743
Selling, general and administrative expenses   6,320     5,211     18,390     15,861  
Operating income   6,868     4,141     18,742     14,511  
 
Other income (expense)
Interest income 1 1
Interest expense (504 ) (571 ) (1,610 ) (1,765 )
Other, net   (48 )   50     (195 )   (140 )
Total other expense, net   (552 )   (521 )   (1,804 )   (1,904 )
 
Income from continuing operations before income taxes 6,316 3,620 16,938 12,607
 
Provision for income taxes   (2,417 )   (1,245 )   (6,643 )   (4,255 )
Income from continuing operations   3,899     2,375     10,295     8,352  
 
Discontinued operations:
Gain/(loss) from discontinued operations, before income taxes 182

385

(434 ) 334
Income tax benefit/(expense)   (116 )  
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