NORTH CHARLESTON, SC , April 29, 2020 (Press Release) -
- Net sales of $288.2 million were up 4.1% versus the prior year quarter’s sales of $276.8 million.
- Net income of $45.3 million was up 99.6% versus net income in the prior year quarter of $22.7 million; net income as a percentage of sales was 15.7%, compared to 8.2% in the prior year quarter; diluted earnings per share were $1.08 compared to $0.54.
- Adjusted earnings of $47.2 million were up 12.6% versus adjusted earnings in the prior year quarter of $41.9 million; diluted adjusted earnings per share were $1.12 versus $0.99 in the prior year quarter.
- Adjusted EBITDA of $92.2 million were up 10.4% compared to first quarter 2019 adjusted EBITDA of $83.5 million; adjusted EBITDA margin of 32.0% increased 180 basis points versus first quarter 2019.
- Operating cash flow of $60.2 million versus -$8 million in the prior year quarter; free cash flow of $40.7 million versus -$36.1 million in the prior year quarter.
- Total debt to last twelve months’ net income ratio is 7.25; net debt to last twelve months’ adjusted EBITDA ratio is 2.74.
- Company revises fiscal year 2020 guidance to sales between $1.10 billion and $1.20 billion and adjusted EBITDA between $310 million and $350 million.
- Company expects that second quarter 2020 revenue will be down 25% to 30% and adjusted EBITDA will be down 35% to 40%.
Ingevity Corporation today reported first quarter net sales of $288.2 million, representing an increase of 4.1% versus $276.8 million in the prior year’s first quarter. Net income of $45.3 million, increased 99.6% versus $22.7 million in the previous year’s quarter. Ingevity’s first quarter net income margin of 15.7% was up from 8.2% in the prior year. The first quarter diluted earnings per share were $1.08 compared to $0.54 in the prior year period.
Adjusted earnings of $47.2 million were up 12.6% versus prior year quarter of $41.9 million. Diluted adjusted earnings per share were $1.12, which exclude, net of tax, $0.04 related to both restructuring and other (income) expenses, net, and costs associated with the acquisition of the Capa® caprolactone business, net of discrete tax provision recognized during the quarter. This compares to diluted adjusted earnings per share of $0.99 in the prior year quarter. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $92.2 million were up 10.4% versus first quarter 2019 adjusted EBITDA of $83.5 million. Adjusted EBITDA margin of 32.0% was up 180 basis points from the prior year’s first quarter adjusted EBITDA margin of 30.2%.
“Ingevity delivered a strong first quarter, despite initial impacts from the coronavirus, or COVID-19,” said Rick Kelson, Ingevity’s chairman of the board, and interim president and CEO. “We posted adjusted EBITDA that were 10% higher on net sales that were up 4%, and increased our adjusted EBITDA margin by 180 basis points. What’s more, we generated outstanding free cash flow of $41 million. This enabled us to reduce our leverage which now stands at 2.7 times net debt to adjusted EBITDA.”
Kelson said that the effects of the coronavirus on first quarter financial results were not as severe as the company had expected in mid-February. “The reduction in Chinese auto demand muted our Performance Materials results to the extent we expected; however, most other COVID-19 related impacts in Performance Chemicals appear to have been delayed,” he said. “We expect the effects of the coronavirus to more significantly begin in the second quarter.”
Kelson said that the company’s balance sheet is strong and that the company recently withdrew $250 million from its revolver out of an abundance of caution.
First quarter 2020 sales in the Performance Chemicals segment were $167.1 million, down $0.6 million, or 0.4%, versus the first quarter 2019. Segment EBITDA were $31.0 million, down $1.3 million, or 4.0%, versus the prior year quarter segment EBITDA. Segment EBITDA margin declined 70 basis points to 18.6%.
“Sales in the Performance Chemicals segment were essentially flat as increases in Pavement and Oilfield Technologies, and the addition of the Engineered Polymers business, were offset by weakness in Industrial Specialties applications,” said Kelson.
Sales decreased in Industrial Specialties applications due to demand weakness, particularly in China, and continued pressure on rosin markets. Sales to new Middle East and China Oilfield Technologies customers drove a slight increase, despite reduced North American drilling driven by reduced demand and lower oil prices. Sales to Pavement Technologies applications were up solidly as the paving season in North America jump-started in combination with strong growth in several South American countries. Sales for the Engineered Polymers product line were down on a pro forma quarter-over-quarter comparison largely due to a strong first quarter in 2019. Nonetheless, Kelson said, the business performed well in the quarter due to increased sales of thermoplastics, particularly in North America and Asia.
Segment EBITDA were impacted by slightly lower volumes, price / mix impacts and foreign currency exchange, but were largely offset by reduced spending.
First quarter 2020 sales in the Performance Materials segment were $121.1 million, up $12.0 million, or 11.0%, versus the first quarter 2019. Segment EBITDA were $61.2 million, up $10.0 million, or 19.5%, versus the prior year segment EBITDA. Segment EBITDA margin increased 360 basis points to 50.5%.
“The Performance Materials segment grew respectably in the quarter,” said Kelson. “Revenues in China increased significantly in the year-over-year quarter as automakers there have essentially completed the implementation of the China 6 standard. That said, the significant downturn in auto production in China caused by the coronavirus impacted our sales sharply in February and muted what could have been an extraordinary quarterly sales result. Fortunately, Chinese automakers are now rapidly coming back on line.”
Kelson said the segment experienced strong growth in sales of both its base automotive activated carbon products and its ‘honeycomb’ scrubber products as automotive customers complete implementation of the U.S. and Canadian regulatory standards. This occurred despite moderate impacts in the quarter related to the current coronavirus-driven OEM shutdowns.
Segment EBITDA increased due to improvements in price and mix. The segment also benefitted from reduced production costs. These improvements were partially offset by modest increases in SG&A and other expenses.
“Overall, while revenue growth was somewhat muted in the segment versus our expectations,” Kelson said, “our execution was excellent and led to a sharp increase in margins.”
To account for the uncertainties related to COVID-19, Ingevity revised and broadened its fiscal year 2020 guidance to sales between $1.10 billion and $1.20 billion and adjusted EBITDA between $310 million and $350 million. In addition, the company provided one-time information on the coming quarter, and expects that second quarter 2020 revenue will be down 25% to 30% versus the prior year’s quarter and adjusted EBITDA will be down 35% to 40% versus the prior year.
“We’re working from a position of financial strength, and we’re working to control what we can control in a tumultuous environment,” said Kelson. “We’re largely reliant either way on conditions in our key end-use applications, particularly the automotive industry. As auto OEMs and customers in other key industries important to Ingevity recover, we will be prepared and in a solid position to bounce back with them.”
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