- NORTH CHARLESTON, SC , July 29, 2020 (Business Wire) -
- Ingevity delivers results in line with special, one-time second quarter guidance driven by cost reduction actions and strong execution
- Company reaffirms fiscal year 2020 guidance of sales between $1.10 billion and $1.20 billion and adjusted EBITDA between $310 million and $350 million
- Cost reduction initiatives bolster second quarter profitability, and will save the company $35 million in 2020 and $12 million annually going forward
- Net sales of $270.6 million were down 23.3% versus the prior year quarter as a result of weakened demand, particularly in the automotive industry, driven by the economic impacts of COVID-19
- Operating cash flow of $48.9 million; free cash flow of $33.9 million
Ingevity Corporation today reported its financial results for the second quarter.
“Ingevity delivered second quarter financial results in line with the special, one-time guidance we provided at the end of the first quarter,” said Rick Kelson, Ingevity’s chairman of the board, and interim president and CEO. “While we experienced a sharp decline in volumes attributable to the economic impact of the coronavirus, or COVID-19, our team remained focused and drove cost reductions that were able to partially bolster adjusted EBITDA.” He added that the company generated operating cash flow of $48.9 million, which translated to solid free cash flow of $33.9 million.
Kelson said that the downturn in automotive sales and production in North America and Europe during the quarter significantly reduced revenues for its automotive activated carbon products. This was partially offset by an upturn in demand for similar products in China. He also pointed to reduced demand in industrial specialties applications – such as printing inks – and volatility in the oilfield drilling and production industry as other drivers of the revenue decline.
“As a countermeasure, we took strong steps toward reducing costs across the corporation,” said Kelson. “We implemented initiatives that will save us $35 million this year and will result in annualized savings of $12 million going forward.”
Second quarter net sales of $270.6 million were down 23.3% versus the prior year second quarter. Net income of $20.2 million decreased 64.4% and net income margin of 7.5% was down from 16.1% in the prior year. The second quarter diluted earnings per share were $0.49 compared to $1.34 in the prior year period.
Adjusted earnings of $26.1 million were down 54.6% versus the prior year quarter. Diluted adjusted earnings per share were $0.63, which exclude, net of tax, $0.14 related primarily to restructuring and other charges, net, recognized during the quarter. This compares to diluted adjusted earnings per share of $1.36 in the prior year quarter. Adjusted EBITDA of $67.2 million were down 38.0% versus the second quarter 2019. Adjusted EBITDA margin of 24.8% was down 590 basis points from the prior year’s second quarter.
“In Performance Chemicals, sales to all of the end-use applications declined due to the COVID-19 economic impact in varying degrees,” said Kelson. “We saw comparatively reasonable strength in Pavement Technologies and Engineered Polymers. However, reduced demand in Industrial Specialties and Oilfield Technologies was more significant.”
Sales to Pavement Technologies applications were about even with the prior year as paving in North America continued largely unaffected. In addition, sales to pavement customers in the Europe, Middle East and Africa region (EMEA) increased, albeit from a smaller base. Sales for the Engineered Polymers product line were down somewhat due to reduced industrial demand, predominantly for caprolactone monomer. Sales decreased in Industrial Specialties applications due to demand weakness for printing inks as printed retail advertising declined. Reduced sales of tall oil fatty acid (TOFA) and continued pressure on tall oil rosin (TOR) prices also contributed. Despite oil prices that stabilized in the quarter, sales to Oilfield Technologies customers were cut sharply in line with reduced drilling in North America.
Second quarter 2020 sales in the Performance Chemicals segment were $186.2 million, down 18.9% versus the second quarter 2019. Segment EBITDA were $43.9 million, down 25.6% versus the prior year quarter due to lower volumes. Price/mix impacts, production costs and foreign currency exchange were fundamentally unchanged. Selling, general and administrative (SG&A) cost reductions helped to improve the segment EBITDA. Segment EBITDA margin declined 210 basis points to 23.6%.
“Shutdowns at automakers in North America and Europe resulted in significantly lower volumes in the quarter,” said Kelson. “However, even as OEMs and our Tier One customers worked through inventory, we saw significant demand late in the quarter which enabled us to finish the period strongly. We believe this bodes well for the rest of the year.”
Kelson said that the decline in North American revenue was partially offset by rebounding automotive business in China. Ingevity’s activated carbon pellet sales in China in the second quarter were the second highest on record reflecting the strong demand rebound and the implementation of the China 6 standard, which is essentially completed.
Second quarter 2020 sales in the Performance Materials segment were $84.4 million, down 31.4% versus the second quarter 2019. Segment EBITDA were $23.3 million, down 52.7% versus the prior year period due to the sharp downturn in volumes and resulting decreased production throughput. These were partially offset by decreased plant spending, furloughs at several Performance Materials’ manufacturing facilities, and reductions in SG&A costs. Segment EBITDA margin decreased 1,240 basis points to 27.6%.
Ingevity reaffirmed its fiscal year 2020 guidance of sales between $1.10 billion and $1.20 billion and adjusted EBITDA between $310 million and $350 million.
“Barring any further economic deterioration, we are confident in our ability to meet our current guidance,” said Kelson. “We continue to maintain a strong financial position. Most importantly, we are working on controlling what we can control in this challenging environment.”
Ingevity: Purify, Protect and Enhance
Ingevity provides specialty chemicals, high-performance carbon materials and engineered polymers that purify, protect, and enhance the world around us. Through a team of talented and experienced people, Ingevity develops, manufactures, and brings to market products and processes that help customers solve complex problems. These products are used in a variety of demanding applications, including asphalt paving, oil exploration and production, agrochemicals, adhesives, lubricants, publication inks, coatings, elastomers, bio-plastics and automotive components that reduce gasoline vapor emissions. Headquartered in North Charleston, South Carolina, Ingevity operates from 25 locations around the world and employs approximately 1,850 people. The company is traded on the New York Stock Exchange.