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TheStreet Open House

KMG Reports Second Quarter 2014 Financial Results

KMG Chemicals, Inc. (NYSE:KMG), a global provider of specialty chemicals to select markets, today announced financial results for the fiscal 2014 second quarter ended January 31, 2014.

2014 Second Quarter Financial Review

  • Net sales were $84.3 million, an increase of 47.9% from last year’s second quarter. The sales increase reflected the addition of the Ultra Pure Chemicals (UPC) business, acquired in May 2013.
  • Adjusted EBITDA 1 was $6.0 million, compared to $5.6 million last year. Second quarter fiscal 2014 adjusted EBITDA excludes $3.2 million of restructuring charges, while second quarter fiscal 2013 adjusted EBITDA excludes $743,000 in acquisition expenses.
  • Adjusted diluted EPS 2, which excludes restructuring charges, was $0.12, as compared to $0.18 in last year’s second quarter. The decrease in adjusted EPS was primarily due to $1.8 million in depreciation and amortization expense, or approximately $0.10 per diluted share, related to the UPC acquisition.
  • GAAP net loss per share was $(0.24) vs. EPS of $0.14 reported in the same period a year ago. The 2014 loss per share was entirely due to restructuring charges.

Chris Fraser, KMG chairman and chief executive officer, said, “During our second quarter we moved aggressively to integrate the UPC business and capture initial synergies from this key acquisition, which positions KMG as the leading global supplier of high purity process chemicals to the semiconductor industry. The strategic manufacturing realignment of our global Electronic Chemicals business is progressing on schedule, as we continued the closing of our Fremont, California, facility and initiated the consolidation of our manufacturing footprint in Europe. We remain confident these actions will generate significant operating efficiencies as they are completed in 2014 and 2015.

“Our second quarter financial results were in line with our expectations, as we experienced seasonal softness in our Electronic Chemicals and Wood Treating Chemicals businesses. In addition, conditions in the rail tie treating market remained challenging. Although seasonality in our Electronic Chemicals business was a headwind during the quarter, this segment’s performance benefited from volume growth at key customers, ongoing cost controls and the realization of supply chain efficiencies. Overall, second quarter adjusted earnings per share was $0.12, down from $0.18 last year, in part due to increased depreciation and amortization expenses resulting from the UPC acquisition as well as higher audit and tax service fees.”

 

Second Quarter Results

Dollars in thousands, except EPS   Fiscal 2014   Fiscal 2013
(unaudited)   As   As
Adjusted Reported Adjusted Reported
(non-GAAP) (GAAP) (non-GAAP)   (GAAP)
 
Net Sales $ 84,253 $ 84,253 $ 56,959 $ 56,959
Operating Income (Loss) 2,588 (1,603) 3,939 3,196
Operating Margin 3.1% (1.9%) 6.9% 5.6%
Net Income (Loss) 1,396 (2,744) 2,100 1,618
Diluted EPS

 

$0.12

($0.24)

 

$0.18

 

$0.14

 
 
Electronic Chemicals

Second Quarter Results

Dollars in thousands Fiscal 2014   Fiscal 2013
  As As
Adjusted Reported Reported
(non-GAAP) (GAAP) (GAAP)
 
Net Sales $ 61,428 $ 61,428 $ 35,647
Operating Income 3,155 2,995 2,429
Operating Margin 5.1% 4.9% 6.8%
 

For the second fiscal quarter, the Electronic Chemicals segment reported:

  • Sales of $61.4 million, up from $35.6 million in the same period a year ago. The increase in sales reflected the addition of the UPC business. Electronic Chemicals sales represented 73% of consolidated second quarter sales.
  • Adjusted EBITDA 3 of $6.4 million, compared to $3.9 million last year.
  • Depreciation and amortization expense of $3.3 million, compared to $1.5 million last year.
  • Adjusted operating income 4 of $3.2 million, up from $2.4 million in the same period of fiscal 2013. Fiscal 2014 second quarter adjusted operating income excludes $160,000 of integration expenses. Electronic Chemicals segment adjusted operating income also excludes restructuring expenses, which are included under corporate operating income (loss).
  • GAAP operating margin of 4.9% vs. 6.8% in the previous year. Excluding the impact of integration expenses, adjusted operating margin was 5.1%. The difference from the prior year was primarily due to increased depreciation and amortization expenses.
 
Wood Treating Chemicals

Second Quarter Results

Dollars in thousands Fiscal 2014   Fiscal 2013
As As
Reported Reported
(GAAP) (GAAP)
 
Net Sales $ 22,795 $ 21,183
Operating Income 1,111 2,220
Operating Margin 4.9% 10.5%
 

For the second fiscal quarter, the Wood Treating Chemicals segment reported:

  • Sales of $22.8 million, up 7.6% from $21.2 million in the same period a year ago. The sales increase was due to higher volumes to the rail tie treating market. Wood Treating Chemicals sales represented 27% of consolidated second quarter sales.
  • EBITDA 5 of $1.2 million, down from $2.3 million last year.
  • Operating income of $1.1 million, or 4.9% of sales, compared to $2.2 million, or 10.5% of sales, last year. The decrease in operating income was due to lower creosote sales prices and a less favorable product mix. Operating income was also negatively impacted by barge cleaning costs in our creosote business.

Outlook

For fiscal 2014, the company issued the following forecast:

  • Consistent with prior guidance, consolidated net sales are forecast to exceed $350 million, benefiting from the acquisition of the UPC business.
  • Projected restructuring charges (excluding accelerated depreciation) remain targeted at $4-5 million, partially offset by an estimated $2-3 million of restructuring-related synergies and commercial benefits. In addition, incremental capital expenditures of approximately $2 million are expected to be incurred to accomplish these plans.
  • Depreciation and amortization expense of approximately $15 million. In addition to this amount, the company expects to incur approximately $3 million in non-cash restructuring charges, representing accelerated depreciation expense related to the closure of the Fremont facility and cessation of manufacturing operations in Milan.

Conference call

Date: Wednesday, March 12, 2014

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