Univar Solutions Reports Solid 2019 Fourth Quarter and Full Year Financial Results; Issues Guidance for 2020

DOWNERS GROVE, Ill., Feb. 25, 2020 /PRNewswire/ -- Univar Solutions Inc. UNVR ("Univar Solutions"), a global chemical and ingredients distributor and provider of value-added services, announced today its financial results for the fourth quarter and fiscal year ended December 31, 2019.

Fourth Quarter 2019 Highlights

• Net income (loss) of $(55.1) million compared to $1.2 million in the prior year fourth quarter; Adjusted net income⁽¹⁾ in 2019 of $50.5 million compared to $47.5 million in 2018.
• Earnings per diluted share of $(0.33), compared to $0.01 per diluted share, in the prior year fourth quarter. The current quarter increase from the addition of Nexeo Solutions, Inc.'s ("Nexeo") earnings, better operating performance, and divestiture gain was more than offset by the increase from the impact of taxes, lower demand in global industrial markets, loss on extinguishment of debt, and pension mark to market.
• Adjusted earnings per diluted share⁽¹⁾ of $0.29 in the quarter decreased from $0.33 in the prior year fourth quarter due to increase in earnings from Nexeo and better operating performance, more than offset by lower global demand, higher share count and higher D&A.
• Growth in Adjusted EBITDA⁽¹⁾ of 10.3 percent to $158.8 million and Adjusted EBITDA margin⁽¹⁾ expanded 10 basis points to 7.4 percent from the prior year; Adjusted EBITDA for the current quarter benefited from the Nexeo acquisition, including net cost synergies.
• Net cash provided by operating activities increased to $329.7 million from $292.5 million, in the fourth quarter last year, driven by lower net working capital as well as improved net working capital efficiency. The leverage ratio decreased from 3.9x at September 30, 2019 to 3.3x at December 31, 2019.

Full Year 2019 Financial, Operating and Strategic Highlights

• Net income (loss) of $(100.2) million and adjusted net income⁽¹⁾ of $231.6 million.
• Earnings per diluted share of $(0.61), compared to $1.21 per diluted share in the prior year.
• Adjusted earnings per diluted share⁽¹⁾ of $1.40 compared to $1.62 in the prior year.
• Adjusted EBITDA⁽¹⁾ grew 10.0 percent to $704.2 million, and Adjusted EBITDA margin⁽¹⁾ expanded 20 basis points to 7.6 percent from the prior year; Adjusted EBITDA benefited from the Nexeo acquisition, including net cost synergies of $30 million in the period.
• Net cash provided by operating activities increased to $363.9 million from $289.9 million in the prior year.

"I am very pleased at how we have executed successfully against our strategic priorities of integration and synergy capture from the Nexeo acquisition, portfolio management and strengthening our balance sheet. During the quarter and the full year 2019, we earned solid margins and had strong cash flow generation, despite weakness in some of our end markets and lower chemical prices. Our Nexeo integration team successfully achieved important ERP migration milestones and realigned sales territories to increase our market coverage and increase our salesforce effectiveness. We also completed non-core divestitures, delivering on our commitments to focus on our chemical and ingredient businesses and reduce leverage to our lowest level as a public company, standing at 3.3x at December 31, 2019." said David Jukes, president and chief executive officer. "We are continuing to position Univar Solutions to deliver long-term profitable growth and shareholder value."

Company Performance

Univar Solutions operating performance results are described below and, unless otherwise indicated, are a comparison of fourth quarter 2019 results with fourth quarter 2018 results.

Consolidated Results

Univar Solutions reported net sales of $2.2 billion, up 9.8 percent compared to the prior year fourth quarter on a constant currency basis⁽¹⁾. Sales growth and margins were driven by the contribution from the Nexeo acquisition and strong operating performance. Sales growth was partially offset by chemical price deflation in the U.S., Canada, and EMEA, lower demand for chemicals and ingredients from global industrial end markets and weakness in the energy markets. Similar to the third quarter of 2019, the macroeconomic environment in the USA segment weakened sequentially during the quarter.

Gross profit (exclusive of depreciation) of $522.2 million was up 18.4 percent on a constant currency basis compared to the prior year fourth quarter, driven by the contribution from the Nexeo acquisition, improving sales force execution and favorable product and end market mix.

Univar Solutions reported net loss of $55.1 million, or $(0.33) per diluted share, compared to net income of $1.2 million, or $0.01 per diluted share, in the prior year fourth quarter. The current quarter increase from the addition of Nexeo's earnings, better operating performance, and divestiture gain was more than offset by the impact of taxes, loss on extinguishment of debt, and pension mark to market.

Adjusted EBITDA of $158.8 million increased $14.8 million, or 10.3 percent compared to the prior year fourth quarter, or 11.3 percent on a constant currency basis. Adjusted EBITDA was favorably impacted by contribution from the Nexeo acquisition, improved sales force execution and product mix, in addition to realization of cost synergies from the integration of Nexeo.

Net cash provided by operating activities increased to $329.7 million from $292.5 million, in the fourth quarter last year, driven by lower net working capital as well as improved net working capital efficiency. The leverage ratio decreased from 3.9x at September 30, 2019 to 3.3x at December 31, 2019 as a result of net working capital efficiency, our Environmental Sciences business divestiture, and real estate sales from our network optimization.

Segment Results

USA – USA external sales grew 16.6 percent due to the contribution from the Nexeo acquisition, partially offset by chemical price deflation and lower demand for chemicals. Gross profit (exclusive of depreciation) grew 23.2 percent and gross margin expanded 130 basis points to 24.4 percent, reflecting focused margin management and favorable product and end market mix. Adjusted EBITDA increased 15.6 percent to $102.4 million and Adjusted EBITDA margin was flat compared to the prior year at 7.6 percent.

CANADA – Canada external sales decreased 3.1 percent, or 4.0 percent on a constant currency basis, primarily due to the Canadian energy markets and chemical price deflation. Gross profit (exclusive of depreciation) grew 8.2 percent on a constant currency basis, while gross margin increased 230 basis points to 21.8 percent. Adjusted EBITDA grew 4.7 percent on a constant currency basis, and increased 5.1 percent to $22.5 million on a reported basis compared to the prior year.  Adjusted EBITDA margin increased 70 basis points to 8.8 percent. Solid performance in the industrial chemical business and certain commodity products, along with the Nexeo acquisition, were partially offset by lower volumes in the energy sector.

EMEA – EMEA external sales declined 7.5 percent, or 5.3 percent on a constant currency basis, primarily due to chemical price deflation. Gross profit (exclusive of depreciation) declined 1.1 percent on a constant currency basis, however gross margin increased 90 basis points to 23.9 percent. Adjusted EBITDA increased 2.9 percent on a constant currency basis and was up 1.0 percent to $31.1 million on a reported basis compared to prior year. Adjusted EBITDA margin increased 60 basis points to 7.4 percent. Improved performance in the bulk and local distribution was partially offset by continued market pressure in the pharmaceutical finished goods line.

LATAM – LATAM external sales of $126.0 million grew 39.0 percent, excluding the impact of currency, largely due to contribution from the Nexeo acquisition, growth in Mexico's energy sales, and Brazil VAT recovery. Gross profit (exclusive of depreciation) grew 80.1 percent on a constant currency basis, while gross margin increased 600 basis points to 28.3 percent. Excluding the impact of Brazil VAT recovery, external sales, and gross profit, exclusive of depreciation, increased 25.9% and 26.2% respectively. Adjusted EBITDA grew 63.0 percent on a constant currency basis, and increased 47.9 percent to $10.8 million on a reported basis compared to the prior year. Results benefited from solid performance in energy, Brazilian agriculture, the Nexeo acquisition, and Brazil VAT recovery of $1.1 million.

Outlook

The following is an overview of management's expectations for Univar Solutions' financial performance for the first quarter and full year 2020.

For the first quarter and full year 2020, Univar Solutions expects to generate Adjusted EBITDA in the range of $150 million to $160 million and $700 million to $740 million, respectively. Univar Solutions expects continued weak end markets and a challenging competitive environment in the first half of the year, with the first quarter of 2020 to be the weakest quarter of the year. The Company expects to generate $120 million to $170 million in Free Cash Flow in full year 2020, due largely to an expected increase in working capital investment driven by growth in sales. This Free Cash Flow guidance is before acquisition, integration and restructuring charges, as well as other unusual significant events.

In developing this guidance, Univar Solutions made the following assumptions for the full year 2020:

Macroeconomic environment:

• Flat industrial production, weighted to the back-half of the year.
• Energy headwinds in the U.S.
• Pricing pressures in bulk commodity
• Excludes any continuing impact from the Coronavirus outbreak.

Operating improvements:

• Continued improvement in sales force efficiency driven by the sales force territory realignment.
• Growth from new supplier authorizations.
• Nexeo net cost synergies of approximately $40 million.

Other:

• EMEA finished pharmaceutical market pressures of $15 million in EBITDA.
• Interest expense, net of $115 to $125 million, lower than 2019 interest expense, net of $140 million.
• Income tax rate for Adjusted EPS of 28-30%.
• Diluted weighted average common shares outstanding of 175 million, higher than 2019 diluted weighted average common shares outstanding of 164.1 million largely due to the shares issued in the Nexeo transaction being reflected for the full year of 2020.
• Free cash flow assumes capital expenditures of $120 million to $130 million which includes growth initiatives and investments in our digital infrastructure.

Univar Solutions to Host Webcast on February 25, 2020 at 9:00 a.m. ET

The Company will host a webcast with investors to discuss 2019 Fourth Quarter and Full Year Financial Results at 9:00 a.m. ET on February 25, 2020, which can be accessed on the Investor Relations section of its website at http://investors.univarsolutions.com. After the live webcast, a replay of the webcast will be available on the same website.

Use of Non-GAAP Measures

In this press release, the Company's financial results are provided both in accordance with accounting principles generally accepted in the United States of America (GAAP) and using certain non-GAAP financial measures. In particular, the Company presents the non-GAAP financial measures gross profit (exclusive of depreciation), adjusted gross profit (exclusive of depreciation), gross margin defined as gross profit (exclusive of depreciation) divided by net sales on a consolidated level and by external sales on a segment level, adjusted gross margin defined as adjusted gross profit (exclusive of depreciation) divided by net sales on a consolidated level and by external sales on a segment level, Adjusted EBITDA, Adjusted EBITDA margin defined as Adjusted EBITDA divided by net sales on a consolidated level and by external sales on a segment level, Adjusted net income, Adjusted earnings per diluted share, free cash flow and impacts of foreign currency on current period results using prior period translation rates. The non-GAAP financial measures are included as a complement to results provided in accordance with GAAP because management believes these non-GAAP financial measures help investors' ability to analyze underlying trends in the Company's business, evaluate its performance relative to other companies in its industry and provide useful information to both management and investors by excluding certain items that may not be indicative of the Company's core operating results. Additionally, the Company uses Adjusted EBITDA in setting performance incentive targets to align management compensation with operational performance. The non-GAAP measures should not be considered a substitute for or superior to GAAP results and may vary from others in the industry. For further information related to the Company's use of non-GAAP financial measures, and the reconciliations to the nearest GAAP measures, see the schedules attached hereto.

The Company evaluates its results of operations on both an as reported and a constant currency basis. The constant currency presentation is a non-GAAP financial measure, which excludes the impact of fluctuations in foreign currency exchange rates. The Company believes providing constant currency information provides valuable supplemental information regarding its results of operations, consistent with how it evaluates its performance. The Company calculates constant currency percentages by converting its financial results in local currency for a period using the average exchange rate for the prior period to which it is comparing. This calculation may differ from similarly-titled measures used by other companies.

Management does not provide guidance on GAAP financial measures, as we are unable to predict with certainty items such as the impact of foreign currency gains and losses, gains and losses on divestitures, refinancing costs, potential impairments, discrete tax items, or other items impacting GAAP financial metrics. As such, we have included above the impact of only those items about which we are aware and are reasonably likely to occur during the guidance period covered.

The non-GAAP measures should not be considered a substitute for or superior to GAAP results and may vary from others in the industry. For further information related to the Company's use of non-GAAP financial measures, and the reconciliations to the most directly comparable GAAP measures, see the schedules attached hereto.

About Univar Solutions 

Univar Solutions UNVR is a leading global chemical and ingredient distributor and provider of value-added services to customers across a wide range of industries. With the industry's largest private transportation fleet and North American sales force, a vast supplier network, deep market and regulatory knowledge, world-class formulation and recipe development, unparalleled logistics know-how, and industry-leading digital tools, Univar Solutions is a committed ally to customers and suppliers, helping them anticipate, navigate, and leverage meaningful growth opportunities. Learn more at www.univarsolutions.com.

Forward-Looking Statements

This press release includes certain statements relating to future events and our intentions, beliefs, expectations, and predictions for the future which are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended.  Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control.  These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions. A detailed discussion of these factors and uncertainties is contained in the Company's filings with the Securities and Exchange Commission. Potential factors that could affect such forward-looking statements include, among others: fluctuations in general economic conditions, particularly in industrial production and the demands of our customers; significant changes in the business strategies of producers or in the operations of our customers;  increased competitive pressures, including as a result of competitor consolidation; significant changes in the pricing, demand and availability of chemicals; our indebtedness, the restrictions imposed by our debt instruments, and our ability to obtain additional financing; the broad spectrum of laws and regulations that we are subject to, including extensive environmental, health and safety laws and regulations; an inability to integrate the business and systems of companies we acquire, including of Nexeo Solutions, Inc., or to realize the anticipated benefits of such acquisitions; potential business disruptions and security breaches, including cybersecurity incidents; an inability to generate sufficient working capital; increases in transportation and fuel costs and changes in our relationship with third party providers; accidents, safety failures, environmental damage, product quality and liability issues and recalls; major or systemic delivery failures involving our distribution network or the products we carry; operational risks for which we may not be adequately insured; ongoing litigation and other legal and regulatory risks; challenges associated with international operations; exposure to interest rate and currency fluctuations; potential impairment of goodwill; liabilities associated with acquisitions, ventures and strategic investments; negative developments affecting our pension plans and multi-employer pensions; labor disruptions associated with the unionized portion of our workforce; and the other factors described in the Company's filings with the Securities and Exchange Commission. We caution you that the forward-looking information presented in this press release is not a guarantee of future events or results, and that actual events or results may differ materially from those made in or suggested by the forward-looking information contained in this press release.  In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "plan," "seek, "will," "expect," "intend," "estimate," "anticipate," "believe" or "continue" or the negative thereof or variations thereon or similar terminology.  Any forward-looking information presented herein is made only as of the date of this press release, and we do not undertake any obligation to update or revise any forward-looking information to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise.