Market Overview

Chase Corporation Announces Second Quarter Results - Revenue of $66.6 Million - Earnings Per Share of $0.56

Share:

Chase
Corporation
(NYSE:CCF), a global specialty chemicals
company that is a leading manufacturer of protective materials for
high-reliability applications across diverse market sectors, today
announced financial results for the quarter ended February 28, 2019, the
second quarter of its fiscal 2019.

 
SECOND QUARTER     YEAR-TO-DATE SECOND QUARTER
  • Revenue increased 1% to $66.63M
   
  • Revenue increased 9% to $139.13M
  • Operating income decreased 31% to $7.92M
  • Operating income decreased 18% to $20.23M
  • Net income decreased 48% to $5.27M
  • Net income decreased 24% to $14.10M
  • Diluted EPS decreased 48% to $0.56
  • Diluted EPS decreased 24% to $1.49
  • EBITDA decreased 30% to $11.46M*
  • EBITDA decreased 15% to $27.82M*
  • Adjusted EBITDA decreased 18% to $14.14M*
  • Adjusted EBITDA decreased 8% to $30.97M*
  • Adjusted EPS decreased 30% to $0.77*
  • Adjusted EPS decreased 12% to $1.74*
 

* Reconciliations of the non-GAAP financial measures to
Chase's GAAP financial results are included at the end of this release.

See also "Use of Non-GAAP Financial Measures" below.

Adam P. Chase, President and Chief Executive Officer, commented, "Our
second fiscal quarter, traditionally our slowest sales period given the
seasonality of certain product lines, proved particularly challenging
with continued trade-related headwinds and future uncertainties
disrupting normal demand patterns.

"The second quarter revenue increase came from the comparative bump
provided by our Zappa Stewart superabsorbent polymers business, acquired
during the second quarter of the prior year. However, our companywide
revenue mix proved unfavorable compared to the prior year from a margin
perspective. During the quarter the Company continued addressing
challenges with certain prior acquisitions with both Resin
Designs (acquired in fiscal 2017) and the polyurethane dispersions
business (acquired from Henkel in fiscal 2015) requiring additional
management attention, and in the case of the polyurethane dispersions
business a write down in value more fully explained below.

"The Company improved operational efficiencies sequentially,
quarter-over-quarter, in our Oxford, MA and Lenoir, NC locations
following the consolidation of our former Pawtucket, RI facility. Given
increased year-over-year demand for our cable material products during
this time of transition, our operational costs were higher than expected
to maintain service levels.

"Further affecting our margins for the quarter, most prominently in our
Industrial Materials segment, were prolonged elevated raw material
costs, caused by supply and demand imbalances, and further complicated
by the shifting positions of both Brexit and China tariffs. As we seek
to improve operating margins, price increases continue to be passed
along to the market with some not yet fully in effect. To date, the
price increases have covered most, but not all, of the unfavorable cost
impact.

"While remaining cash-flow positive, the top line decline in our
polyurethane dispersions business observed last quarter continued. Given
expected customer demand, especially for those with exposure to the
automotive market, and the current valuation placed on the business, we
recorded an impairment charge in the period to bring the carrying value
in line with its estimated fair value. Chase remains committed to the
business long-term, with allocated R&D resources developing and bringing
next generation technologies to the market.

"Beyond gross profit and the impairment charge, our income before income
taxes was unfavorably affected in the current quarter by increased R&D
and amortization expenses (both related to the prior year purchase of
Zappa Stewart) and pension-related settlement costs due to the timing of
lump-sum distributions, which did not occur in the prior year. The
Company also had benefited from a one-time gain on sale of license in
the prior year."

Industrial Materials:

           
For the Three Months Ended February 28, For the Six Months Ended February 28,
2019 2018 2019 2018
Revenue $ 57,265 $ 55,267 $ 117,425 $ 105,252
Cost of products and services sold   37,558   35,268   77,167   65,732
Gross Margin $ 19,707 $ 19,999 $ 40,258 $ 39,520
Gross Margin % ** 34% 36% 34% 38%
 

**Adjusted to remove the impact of inventory step up, the GM% would
be 39% for both the three- and six-month periods ended February 28, 2018.

Mr. Chase continued, "Zappa Stewart, our superabsorbent polymers
business acquired in the prior year, achieved sales growth of $3.02
million over the prior year second quarter, as we enjoyed an additional
month of activity in the current year. In contrast, we saw net
'same-store' sales decline for the Industrial Materials segment.
Following the sales decrease for polyurethane dispersions, which is part
of our specialty chemical intermediates product line, the most
significant period-over-period decline was seen by our structural
composites product line, which recorded no sales in the current year,
following its divestiture in last year's third quarter. During the
current quarter, the Company continued to engage in lower-margin custom
manufacturing-related services for the buyer of the structural
composites business. Our cable materials and pulling and detection
product lines positively impacted sales for the quarter with both
continued volume- and price-related organic growth. Again, these
established businesses capitalized on the ever-growing IoT (Internet of
Things) megatrend."

Construction Materials:

           
For the Three Months Ended February 28, For the Six Months Ended February 28,
2019 2018 2019 2018
Revenue $ 9,366 $ 10,608 $ 21,709 $ 22,540
Cost of products and services sold   5,655   6,723   12,621   13,154
Gross Margin $ 3,711 $ 3,885 $ 9,088 $ 9,386
Gross Margin % 40% 37% 42% 42%

"Our Construction Materials segment recognized lower sales for the
quarter but was better able to maintain and even improve margins," noted
Mr. Chase. "Our second fiscal quarter brings with it winter seasonality,
which negatively affects infrastructure-related project and maintenance
work across much of North America. Further, continued tight credit
markets in the Middle East tempered water infrastructure project work
during the quarter. With its historically best sales periods ahead of
it, the segment anticipates significant growth in the next six months
over the first half of the fiscal year."

Other Matters:

Christian J. Talma, Chief Financial Officer, added, "In the second
quarter of fiscal 2019, we recorded final and complete entries related
to our adoption of U.S. tax reform, which were not a material departure
from the preliminary and conditional amounts recorded in the second
quarter of the prior year. Our recognized effective tax rate of 23.9%
for the quarter is in the expected range for future periods, as we had
no significant discrete items in the current period. The prior year
second quarter rate of 13.8% was not typical, as it was significantly
affected by both the initial adoption of the Tax Act and the recognition
of a stock compensation-related discrete benefit.

"We continued paying down the outstanding balance on our revolving
credit facility, in line with our stated priority of uses of cash. Given
the flexibility of the facility, we can de-lever when we have excess
cash, but also maintain the purchasing power of the $150 million
facility for when an acquisition target is identified."

Mr. Chase also commented, "Our balance sheet remains strong. As of
February 28, 2019, the Company's cash on hand was $25.09 million and our
$150 million revolving credit facility had an outstanding balance of
only $6 million. By maintaining our commitment to our tenets for
strategic growth we remain poised to capitalize on future opportunities
in the second half of fiscal 2019 and beyond."

The following table summarizes the Company's financial results for the
three and six months ended February 28, 2019 and 2018.

           
For the Three Months Ended February 28, For the Six Months Ended February 28,
All figures in thousands, except per share figures 2019 2018 2019 2018
Revenue $ 66,631 $ 65,875 $ 139,134 $ 127,792
Costs and Expenses
Cost of products and services sold 43,213 41,991 89,788 78,886
Selling, general and administrative expenses 13,086 11,975 26,448 23,871
Loss on impairment of goodwill 2,410 2,410
Acquisition-related costs 393 393
Exit costs related to idle facility       260  
Operating income 7,922 11,516 20,228 24,642
Interest expense (162) (440) (366) (485)
Gain on sale of license 1,085 1,085
Other income (expense)   (828)   (421)   (1,122)   (903)
Income before income taxes 6,932 11,740 18,740 24,339
Income taxes   1,659   1,618   4,644   5,902
Net income $ 5,273 $ 10,122 $ 14,096 $ 18,437
Net income per diluted share $ 0.56 $ 1.07 $ 1.49 $ 1.95
Weighted average diluted shares outstanding   9,373   9,329   9,377   9,357
Reconciliation of net income to EBITDA and adjusted EBITDA
Net income $ 5,273 $ 10,122 $ 14,096 $ 18,437
Interest expense 162 440 366 485
Income taxes 1,659 1,618 4,644 5,902
Depreciation expense 1,253 1,364 2,491 2,618
Amortization expense   3,112   2,919   6,225   5,233
EBITDA $ 11,459 $ 16,463 $ 27,822 $ 32,675
Cost of sale of inventory step-up 1,530 1,530
Acquisition-related costs 393 393
Gain on sale of license (1,085) (1,085)
Loss on impairment of goodwill 2,410 2,410
Exit costs related to idle facility 260
Pension settlement costs   273     473  
Adjusted EBITDA $ 14,142 $ 17,301 $ 30,965 $ 33,513
Reconciliation of net income to adjusted net income
Net income $ 5,273 $ 10,122 $ 14,096 $ 18,437
Transitional impact of the Tax Cuts and Jobs Act, net (140) 548 (140) 548
Excess tax benefit related to ASU No. 2016-09 (977) (977)
Cost of sale of inventory step-up 1,530 1,530
Acquisition-related costs 393 393
Gain on sale of license (1,085) (1,085)
Los on impairment of goodwill 2,410 2,410
Exit costs related to idle facility 260
Pension settlement costs 273 473
Income taxes ***   (563)   (215)   (660)   (215)
Adjusted net income $ 7,253 $ 10,316 $ 16,439 $ 18,631
Adjusted net income per diluted share (Adjusted diluted EPS) $ 0.77 $ 1.10 $ 1.74 $ 1.97
 

*** For the three and six months ended February 28, 2019, represents
the aggregate tax effect assuming a 21% tax rate for the items impacting
pre-tax income, which is our estimated effective U.S. statutory Federal
tax rate for fiscal 2019.
For the three and six months ended
February 28, 2018, represents the aggregate tax-effect assuming a 25.7%
tax rate for the items impacting pre-tax income, which was our effective
U.S. statutory Federal tax rate for fiscal year 2018 following the
enactment of the Tax Cuts and Jobs Act in December 2017.

Chase Corporation, a global specialty chemicals company that was founded
in 1946, is a leading manufacturer of protective materials for
high-reliability applications throughout the world.

Use of Non-GAAP Financial Measures

The Company has used non-GAAP financial measures in this press release.
Adjusted net income, Adjusted diluted EPS, EBITDA and Adjusted EBITDA
are non-GAAP financial measures. The Company believes that Adjusted net
income, Adjusted diluted EPS, EBITDA and Adjusted EBITDA are useful
performance measures as they are used by its executive management team
to measure operating performance, to allocate resources to enhance the
financial performance of its business, to evaluate the effectiveness of
its business strategies and to communicate with its board of directors
and investors concerning its financial performance. The Company believes
Adjusted net income, Adjusted diluted EPS, EBITDA and Adjusted EBITDA
are commonly used by financial analysts and others in the industries in
which the Company operates, and thus provide useful information to
investors. Non-GAAP financial measures should be considered in addition
to, and not as an alternative to, the Company's reported results
prepared in accordance with GAAP.

Cautionary Note Concerning Forward-Looking Statements

Certain statements in this press release are forward-looking. These may
be identified by the use of forward-looking words or phrases such as
"believe"; "expect"; "anticipate"; "should"; "planned"; "estimated" and
"potential", among others. These forward-looking statements are based on
Chase Corporation's current expectations. The Private Securities
Litigation Reform Act of 1995 provides a "safe harbor" for such
forward-looking statements. To comply with the terms of the safe harbor,
the Company cautions investors that any forward-looking statements made
by the Company are not guarantees of future performance and that a
variety of factors could cause the Company's actual results and
experience to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements. The
risks and uncertainties which may affect the operations, performance,
development and results of the Company's business include, but are not
limited to, the following: uncertainties relating to economic
conditions; uncertainties relating to customer plans and commitments;
the pricing and availability of equipment, materials and inventories;
technological developments; performance issues with suppliers and
subcontractors; economic growth; delays in testing of new products; the
Company's ability to successfully integrate acquired operations; the
effectiveness of cost-reduction plans; rapid technology changes; and the
highly competitive environment in which the Company operates. Readers
are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date the statement was made.

View Comments and Join the Discussion!
 
Fastest Market News Application
You'll Hear It First On Pro
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Trading Daily
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com