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KMG Chemicals Posts Drop In Net Income

The Associated Press

HOUSTON (AP) — KMG Chemicals Inc. reported Tuesday a 43 percent decrease in fiscal second-quarter net income, partly due to the higher price of raw materials in inventory.

KMG Chemicals reported net income of $903,000, or 8 cents per share, for the quarter ended Jan. 31, compared with $1.6 million, or 14 cents per share, in the same period a year earlier. Sales were $44.2 million, up 41 percent from $31.5 million in the second quarter of 2008.

The company said higher priced raw materials in inventory affected margins. That resulted in operating income of $2.5 million, compared with $3 million in the second quarter of 2008, the company said.

Chief Executive Neal Butler said the higher priced materials came mainly from the company's wood preservatives business, and the majority has already "moved through the inventory system."

In the first half of the fiscal year, KMG took costs associated with its December 2007 acquisition of its electronic chemicals business from Air Products and Chemicals Inc., in addition to building and staffing costs.

Butler said the company expects to fall "modestly below" its original goal of $200 million in annual revenue due to the economic slowdown, but still expects about 20 percent annual revenue growth and improved earnings from fiscal 2008.

"While second-quarter earnings were lower than originally expected, we believe the company is well positioned in the current economy to have a stronger second half," Butler said.

Shares rose 12 cents to $4.32 in morning trading.

KMG produces and distributes specialty chemicals.