Innospec reports Second Quarter 2017 financial results

ENGLEWOOD, Colo., Aug. 08, 2017 (GLOBE NEWSWIRE) — Innospec Inc. (NASDAQ:IOSP) today announced its financial results for the second quarter ended June 30, 2017.

Total net sales for the quarter were $326.3 million, up 43 percent from the $228.0 million reported in the corresponding quarter last year. Net income was $26.1 million, or $1.06 per diluted share, compared to $28.9 million, or $1.18 per diluted share, recorded a year ago. Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization and acquisition fair value adjustments) for the quarter was $48.9 million, a 10 percent increase from $44.3 million in 2016’s second quarter.

Results for this quarter include special items summarized in the table below. Excluding these items, adjusted non-GAAP EPS was $1.16 per diluted share, compared to $1.03 per diluted share a year ago, a 13 percent increase. Innospec closed the quarter in a net debt position of $206.1 million. As expected cash generation was positive with an operating cash inflow of $9.0 million, before capital expenditures of $6.4 million.

Adjusted EBITDA, income before income taxes and net income excluding special items, and related per-share amounts, are non-GAAP financial measures that are defined and reconciled with GAAP results.

Commenting on the second quarter results, Patrick S. Williams, President and Chief Executive Officer, said, “Overall, this has been another good quarter. We have once again showed the value of our well balanced portfolio in generating reliable returns for our shareholders across all our businesses.”

“The performance of Fuel Specialties has continued its steady progress. Our improved new technologies have resulted in some customer reformulations, which have created a slight improvement in margins, but have impacted sales revenues. All regions have contributed well, and I am pleased that our business in the Americas has sustained its recent improvement.”

“Performance Chemicals had a mixed quarter. Sales growth is ahead of target, but our margins were impacted by some one-off events including a plant outage, raw material purchasing and pricing issues. We achieved our target of a further 10 cents of EPS from the acquired business, and the prospects for Performance Chemicals remain very much aligned with our expectations.”

“Market conditions in Oilfield Services have continued to improve, and our business performance has been excellent. Sales showed a strong improvement both on the comparative quarter, and sequentially. We have been careful to control the rapid expansion of this business, and I am happy to note that the business returned to cash generation as expected.”

“In Octane Additives, we delivered the final portion of the order received in Q1, and the first half of a new
order for $20 million of sales received during this quarter. While we expect to deliver the balance of this order in Q3, we have no further visibility beyond that.”

Net sales in Fuel Specialties were $121.3 million for the quarter, a 6 percent decrease from $129.3 million last year. While the underlying business remains in good shape, volumes in the quarter were impacted by customer reformulation to our new technologies and phasing of demand in aviation. Overall there was a volume reduction of 14 percent and a negative currency impact of 2 percent. This was somewhat offset by a favorable price/mix improvement of 10 percent. By region, revenues were down by 5 percent in EMEA and by 4 percent in Asia Pacific but remained flat in the Americas. The aviation business experienced a softer quarter, due to the phasing of orders. Gross margins of 37.3 percent were up slightly on the first quarter of 2017, but improved by 3.5 percentage points from last year as a result of a stronger sales mix. Operating income for the quarter was $23.8 million down 2 percent from $24.2 million a year ago. Operating income for the first half of 2017 is 5 percent ahead of the same period last year.

In Performance Chemicals, net sales of $104.9 million were up from $35.3 million a year ago with a significant part of the comparative improvement driven by the acquisition from Huntsman. The heritage business grew by 3 percent compared to last year as volume growth of 8 percent offset an adverse price/mix of 3 percent and currency impact of 2 percent. Sales increased by 11 percent on the first quarter of 2017, with good underlying growth in both the heritage and acquired businesses. Sequentially gross margins were down slightly at 16.6 percent impacted by some one-off events including an unplanned plant outage, some raw material purchasing and pricing issues. Operating income was up by 38 percent from last year at $6.5 million, and increased 8 percent on the sequential quarter.

In Oilfield Services, sales of $76.1 million were up 64 percent on the second quarter of 2016, driven by continued improvement in customer activity, especially in completion. Overall volumes increased by 62 percent and there was a favorable price/mix impact of 2 percent. Revenues were also up 14 percent sequentially over the first quarter of 2017. Gross margins were down 4.7 percentage points on the comparative quarter but remained steady from Q1 2017 at 38.1 percent. The business made an operating profit of $3.7 million during the quarter, compared to a loss of $1.6 million in the same quarter last year.

In Octane Additives, net sales for the quarter were $24.0 million compared to $16.9 million a year ago. Gross margin was 56.3 percent, and operating income of $12.8 million compared to $9.6 million in last year’s second quarter.

Corporate costs for the quarter were $12.1 million, similar to the $12.4 million recorded a year ago, and within the expected range. The effective tax rate for the quarter was 25.0 percent, and the tax rate for the full year is expected to be similar.

Net cash generated from operations was $9.0 million, compared to the $50.4 million a year ago. Strong cash generation in the quarter led by Fuel Specialties was somewhat offset by the continued investment in the growth of Performance Chemicals. As of June 30, 2017, Innospec had $48.8 million in cash and cash equivalents, and total debt of $254.9 million. In the second quarter, the Company distributed $9.2 million to shareholders for the semi-annual dividend.

Mr. Williams concluded, “The underlying performance of all our businesses was very positive in the quarter, while some one-off events prevented us delivering even better results. The benefit of the balance within our portfolio continues to be apparent, even though some of our markets remain challenging.”

“Oilfield Services continued its recent trends, and showed marked improvements, not only compared to prior year, but also sequentially. We believe that prospects in this business look good for the rest of this year. Fuel Specialties continued to generate good earnings and cash. Margins in this business remain at the high end of our range. Performance Chemicals has performed well, with sales ahead of expectations and we feel very positive about our on-going prospects for this business.”

“While we returned to positive cash generation in the quarter, further investment in working capital to support our growth has been necessary. We expect our cash conversion to improve in the second half of the year. However, our balance sheet remains very strong, and our net debt represents leverage of approximately 1.4 times adjusted EBITDA. We believe that this puts us in a good position to focus on organic growth and look at other acquisition opportunities at the appropriate time.”

“The execution of our strategy is on track, and we feel positive about meeting our full year expectations. We are confident that our R&D pipeline is delivering exciting new technologies that are meeting our customers needs. We anticipate that these new products will help us underpin growth in the longer-term and that with our balanced capital management program this will allow us to continue to create shareholder value.”