Ingevity 4Q 2019 results: net sales up 8.9% from year ago to $303.4 million

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Ingevity 4Q 2019 results: net sales up 8.9% from year ago to $303.4 million

February 04, 2020 - 04:39
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NORTH CHARLESTON, SC , Feb. 3, 2020 (Press Release) -FOURTH QUARTER

  • Net sales of $303.4 million were up 8.9% versus the prior year quarter’s sales of $278.6 million
  • Net income of $44.3 million was up 5.2% versus net income in the prior year quarter of $42.1 million; net income as a percentage of sales of 14.6% was down 50 basis points versus the prior year quarter; diluted earnings per share were $1.05 compared to $0.99
  • Adjusted earnings of $46.5 million were up 2.6% versus adjusted earnings in the prior year quarter of $45.3 million; diluted adjusted earnings per share were $1.10 versus $1.07 in the prior year quarter
  • Adjusted EBITDA of $91.1 million were up 24.3% compared to fourth quarter 2018 adjusted EBITDA of $73.3 million; adjusted EBITDA margin of 30.0% increased 370 basis points versus fourth quarter 2018
  • Operating cash flow was $85.5 million which was flat to prior year quarter; free cash flow in the quarter increased 4.6% to $50.5 million versus the prior year quarter

FULL YEAR

  • Net sales of $1.293 billion were up 14.1% versus the prior year’s sales of $1.134 billion
  • Net income of $183.7 million was up 1.0% versus net income in the prior year of $181.8 million; net income as a percentage of sales of 14.2% was down 180 basis points versus the prior year; diluted earnings per share were $4.35 compared to $3.97
  • Adjusted earnings of $208.1 million were up 18.8% versus adjusted earnings in the prior year of $175.2 million; diluted adjusted earnings per share were $4.93 versus $4.11 in the prior year
  • Adjusted EBITDA of $396.9 million were up 23.8% compared to 2018 adjusted EBITDA of $320.5 million; adjusted EBITDA margin of 30.7% increased 240 basis points versus 2018
  • Operating cash flow increased 9.4% to $275.7 million versus the prior year; free cash flow for the year increased 2.0% to $160.9 million versus the prior year
  • Total debt to last twelve months’ net income ratio is 6.9x; net debt to adjusted EBITDA ratio ends the year at 2.8x

OUTLOOK

  • Company announces fiscal year 2020 guidance of sales between $1.30 billion and $1.35 billion and adjusted EBITDA between $400 million and $420 million; free cash flow of $200 million to $220 million is expected

The results and guidance in this release include Non-GAAP financial measures. Refer to the section entitled “Use of Non-GAAP Financial Measures” within this release.

Ingevity Corporation (NYSE:NGVT) today reported fourth quarter net sales of $303.4 million, representing an increase of 8.9% versus $278.6 million in the prior year’s fourth quarter. Net income of $44.3 million, increased 5.2% versus $42.1 million in the previous year’s quarter. Ingevity’s fourth quarter net income margin of 14.6% was down 50 basis points versus the prior year quarter. The fourth quarter diluted earnings per share were $1.05 compared to $0.99 in the prior year period.

Adjusted earnings of $46.5 million were up 2.6% versus prior year quarter of $45.3 million. Diluted adjusted earnings per share were $1.10, which exclude certain items, net of tax, of $0.05 per share which are primarily costs related to both restructuring charges and costs associated with the acquisition of the Capa® caprolactone business, net of discrete tax provision recognized during the quarter. This compares to adjusted earnings per share of $1.07 in the prior year quarter. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $91.1 million were up 24.3% versus fourth quarter 2018 adjusted EBITDA of $73.3 million. Adjusted EBITDA margin of 30.0% was up 370 basis points from the prior year’s fourth quarter adjusted EBITDA margin of 26.3%.

“As expected, we finished the year with strong performance in the fourth quarter,” said Michael Wilson, Ingevity’s president and CEO. “Despite continued macroeconomic pressure – particularly in industrial applications – we benefitted from growth in end-use applications that are driven more by regulation, technology adoption and infrastructure spending. We delivered improved profitability in the quarter with adjusted EBITDA up 24% on a revenue increase of 9%. As a result, our adjusted EBITDA for the year were above the midpoint of our most recent guidance.”

For the full year, net sales were $1.293 billion, representing an increase of 14.1% versus $1.134 billion in the prior year including the addition of the engineered polymer product line, formed through the first quarter 2019 acquisition of the Capa caprolactone business. Net income of $183.7 million was up 1.0% versus $181.8 million in the previous year. Ingevity’s full year net income margin of 14.2% was down 180 basis points compared to the prior year. The full year diluted earnings per share were $4.35 compared to $3.97 in the prior year period.

Adjusted earnings of $208.1 million were up 18.8% versus prior year of $175.2 million. Diluted adjusted earnings per share were $4.93, which exclude certain items, net of tax, of $0.58 per share which are primarily costs related to restructuring charges and costs associated with the engineered polymers acquisition, net of discrete tax benefits recognized during the year. This compares to adjusted earnings per share of $4.11 in the prior year. Adjusted EBITDA of $396.9 million were up 23.8% versus 2018 adjusted EBITDA of $320.5 million. Adjusted EBITDA margin of 30.7% was up 240 basis points from the prior year’s adjusted EBITDA margin of 28.3%.

“During 2019, we made significant progress on our strategic initiatives aimed at delivering organic and inorganic growth,” said Wilson. “We grew revenues by 14% and adjusted EBITDA by 24% despite a sluggish global industrial business environment. In this type of environment, crisp execution is even more important, and our team delivered significant revenue and earnings growth, margin accretion, lower core SG&A, improved working capital and outstanding cash flow.” Wilson added that the strong cash flow enabled the company to significantly de-lever throughout the year. The company ended the year with a net debt to adjusted EBITDA ratio of 2.8 times.

Performance Chemicals

Fourth quarter 2019 sales in the Performance Chemicals segment were $175.2 million, up $9.1million, or 5.5%, versus the fourth quarter 2018. Segment EBITDA were $32.4 million, up $2.0 million, or 6.6%, versus the prior year quarter segment EBITDA.

Segment EBITDA margin increased 20 basis points to 18.5%.

“Sales in the Performance Chemicals segment were higher due to the addition of the engineered polymers product line, and strong performance in pavement technologies,” said Wilson. “Pro forma revenues for engineered polymers decreased due to weaker demand, specifically for monomer products. Higher-value derivative product sales were relatively stronger. As a result, gross margins remained strong. Sales to pavement technologies applications were also strong, up 16% due to growth in North America, China and South America, albeit in a seasonally slow quarter.”

Sales decreased in industrial specialties applications due to demand weakness, specifically in low-margin ink applications, and due to the exit of an unprofitable distributor agreement. Oilfield applications sales declined due to reduced drilling activity in North America, but less so than the year-over-year decline in U.S. rig count, owing to beneficial exposure to oil production and growth in opportunities outside the U.S.

Segment EBITDA also benefitted from lower spending, particularly at manufacturing facilities, and increases in price and mix, but were partially offset by unfavorable foreign currency exchange of approximately $3.0 million, and slightly lower volumes.

For the full year 2019, segment sales were $802.3 million, up $69.1 million, or 9.4%, versus 2018. Segment EBITDA were $183.5 million, up $32.4 million, or 21.4%, versus the prior year segment EBITDA. Segment EBITDA margins increased 230 basis points to 22.9%.

Performance Materials

Fourth quarter 2019 sales in the Performance Materials segment were $128.2 million, up $15.7 million, or 14%, versus the fourth quarter 2018. Segment EBITDA were $58.7 million, up $15.8 million, or 36.8%, versus the prior year segment EBITDA. Segment EBITDA margin increased 770 basis points to 45.8%.

“The Performance Materials segment’s exceptional growth was fueled by automakers’ continued implementation of China 6 gasoline vapor emission control standards,” said Wilson. “Segment sales in China were up 270%.”

Wilson said the segment is continuing to see strong growth in sales of its patented ‘honeycomb’ scrubber products used by automotive customers to meet U.S. and Canadian regulatory standards.

Segment EBITDA increased due primarily to strong volume growth, favorable price and mix, and excellent plant throughput, but were partly offset by increased legal expenses associated with protecting intellectual property.

For the full year 2019, segment sales were $490.6 million, up $90.2 million, or 22.5%, versus 2018. Segment EBITDA were $213.4 million, up $44.0 million, or 26%, versus the prior year. Segment EBITDA margins increased 120 basis points to 43.5%. This performance was delivered despite weak global auto demand, particularly in China, and significantly higher legal costs, up $10 million for the year.

Outlook

Ingevity announced its fiscal year 2020 guidance to sales between $1.30 billion and $1.35 billion and adjusted EBITDA between $400 million and $420 million. Free cash flow will be between $200 million and $220 million.

“Our guidance reflects little to no improvement in the global macroeconomic environment, yet assumes limited impacts from the coronavirus in China, which remains unknown,” said Wilson.

“That said, we expect our Performance Materials segment to deliver double-digit revenue growth and accretion in adjusted EBITDA margins,” he said. Moreover, Wilson also noted that the recent initial determination made by an administrative law judge for the U.S. International Trade Commission denying Ingevity’s request to ban MAHLE’s importation of patent-infringing activated carbon has no impact on the outlook for the company’s Performance Materials segment in 2020. Wilson said that the company will discuss its overarching strategy to build on its leading position in gasoline vapor emissions control applications on the conference call scheduled for later this morning.

For the Performance Chemicals segment, the company expects revenues to be flat to down slightly. Engineered polymers will deliver solid growth due to new product and innovation projects in the pipeline and pavement technologies will see continued solid growth driven by adoption of our Evotherm® warm mix technology and global expansion. This growth will likely be offset by continued pressure in industrial specialties and oilfield applications. “We anticipate that Performance Chemicals segment adjusted EBITDA margins will be flat to down modestly for the year,” said Wilson.

“Overall, despite challenging global macroeconomic conditions, we will deliver strong results in 2020,” said Wilson. “Earnings growth and accreting margins, coupled with lower capital demands, will result in substantially higher free cash flow. Any improvement to the global industrial economy would serve as a welcome tailwind.”

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, bioplastics 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 1,750 people. The company is traded on the New York Stock Exchange.

[For the full report and financial tables, click here.]