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KMG Reports Third Quarter 2014 Financial Results

Stocks in this article: KMG

KMG Chemicals, Inc. (NYSE: KMG), a global provider of specialty chemicals to select markets, today announced financial results for the fiscal 2014 third quarter ended April 30, 2014.

2014 Third Quarter Financial Review

  • Net sales were $84.4 million, an increase of 40.9% from last year’s third quarter. The sales increase reflected the addition of the Ultra Pure Chemicals (UPC) business, acquired in May 2013.
  • Adjusted EBITDA 1 was $7.6 million, compared to $6.3 million last year. Third quarter fiscal 2014 adjusted EBITDA excludes $1.4 million of restructuring charges and integration expenses.
  • Adjusted diluted EPS 2, which excludes restructuring charges and integration expenses, was $0.20, as compared to $0.25 in last year’s third quarter.
  • GAAP earnings per share was $0.11 vs. EPS of $0.25 reported in the same period a year ago.

Chris Fraser, KMG chairman and chief executive officer, said, “In our third quarter we continued to make progress on the integration of the UPC business and strategic manufacturing realignment of our global Electronic Chemicals operations. Most notably, we ceased manufacturing at the Fremont, California facility and successfully shifted production to our other North American locations. Meanwhile, the consolidation of our European operations remains on schedule and we are working closely with our customers on the necessary product qualifications and approvals as we transition production to alternate sites in Europe. We continue to expect these initiatives will generate enduring operating efficiencies and will strengthen our position as the world’s leading supplier of high purity process chemicals to the global semiconductor industry.

Mr. Fraser continued, “Although our Electronic Chemicals sales were somewhat lower than we expected in the third quarter, I am pleased with the improvement in the profitability of our Wood Treating Chemicals segment relative to the second quarter. While our creosote business continues to face challenging market dynamics, we are responding by lowering our supply chain costs and continually looking to reduce operating expenses. As a result, our adjusted earnings per share improved to $0.20, from $0.12 in the second quarter.”

   

Third Quarter Results

Dollars in thousands, except EPS

Fiscal 2014     Fiscal 2013
(unaudited)        
Adjusted As Reported Adjusted As Reported
(non-GAAP) (GAAP) (non-GAAP) (GAAP)
 
Net Sales $ 84,437 $ 84,437 $ 59,929 $ 59,929
Operating Income 4,333 2,914 4,435 4,355
Operating Margin 5.1 % 3.5 % 7.4 % 7.3 %
Net Income 2,388 1,226 2,917 2,865
Diluted EPS $ 0.20 $ 0.11 $ 0.25 $ 0.25
 
   
Electronic Chemicals

Third Quarter Results

Dollars in thousands Fiscal 2014     Fiscal 2013
Adjusted     As Reported As Reported
(non-GAAP) (GAAP) (GAAP)
 
Net Sales $ 61,542 $ 61,542 $ 36,333
Operating Income 3,429 3,175 2,978
Operating Margin 5.6 % 5.2 % 8.2 %
 

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

  • Sales of $61.5 million, up from $36.3 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 $6.5 million, compared to $4.7 million last year.
  • Depreciation and amortization expense of $3.2 million, compared to $1.7 million last year.
  • Adjusted operating income 4 of $3.4 million vs. $3.0 million in the same period of fiscal 2013. Fiscal 2014 third quarter adjusted operating income excludes $254,000 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 5.2% vs. 8.2% in the previous year. Excluding the impact of integration expenses, adjusted operating margin was 5.6%. The difference from the prior year was primarily due to increased depreciation and amortization expenses.
       
Wood Treating Chemicals

Third Quarter Results

Dollars in thousands Fiscal 2014 Fiscal 2013
As Reported As Reported
(GAAP) (GAAP)
 
Net Sales $ 22,851 $ 23,525
Operating Income 2,092 2,546
Operating Margin 9.2 % 10.8 %
 

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

  • Sales of $22.9 million, down 2.9% from $23.5 million in the same period a year ago. Sales declined primarily due to lower penta sales volume, partially offset by an increase in sales to the rail tie treating market. Wood Treating Chemicals sales represented 27% of consolidated third quarter sales.
  • EBITDA 5 of $2.2 million, down from $2.7 million last year.
  • Operating income of $2.1 million, or 9.2% of sales, compared to $2.5 million, or 10.8% of sales, last year. The decrease in operating income was due to lower sales and a less favorable product mix.

Outlook

  • Fiscal 2014 consolidated net sales are forecast to approximate $350 million, benefiting from the acquisition of the UPC business.
  • Fiscal 2014 depreciation and amortization expense is forecast at less than $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.
  • Excluding non-cash accelerated depreciation expense, cumulative restructuring charges in fiscal 2014 and fiscal 2015 are forecast to total $7-9 million. Starting in fiscal 2015, benefits to operating income resulting from the restructuring of $6-8 million on an annualized basis are forecast. In addition, incremental capital expenditures of approximately $2 million are expected to be incurred to accomplish these plans.

Conference call

Date: Friday, June 6, 2014Time: 10:00 am EDTDial in: 877-546-5019 or 857-244-7551Participant passcode: 84116909

The conference call will be webcast live via the “Investors” section of the Company’s website at http://kmgchemicals.com.

If you are unable to listen live, the conference call will be archived on the KMG website. A telephone replay of the call will also be available for one week, starting at 2:00 p.m. EDT on June 6, 2014. To access the call, dial 888-286-8010 or 617-801-6888 using participant passcode 95516291.

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