KMG Chemicals (KMGB)

Q1 2012 Earnings Call

December 09, 2011 10:00 am ET


J. Neal Butler - Chief Executive Officer, President, Director and Member of Risk Oversight Committee

Devin Sullivan - Senior Vice President

John V. Sobchak - Chief Financial Officer and Vice President


Thomas Claugus

Unknown Analyst

Jay Richard Harris - Goldsmith & Harris Asset Management, LLC

Rosemarie J. Morbelli - Gabelli & Company, Inc.



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Greetings, and welcome to the KMG Chemicals Inc. Fiscal 2012 First Quarter Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Devin Sullivan, Senior Vice President of the Equity Group. Thank you. Mr. Sullivan, you may begin.

Devin Sullivan

Thank you, Christine, and good morning, everyone. Welcome to the KMG Chemicals Fiscal 2012 First Quarter Financial Results Conference Call. We would like to begin by reminding you that the information in this conference call includes certain forward-looking statements that are based upon assumptions that in the future may prove not to have been accurate and are subject to significant risks and uncertainties, including statements as to the future performance of this company. Although the company believes that the expectations reflected in its forward-looking statements are reasonable, it can give no assurance that such expectations or any of its forward-looking statements will prove to be correct. Factors that could cause results to differ include, but are not limited to, the loss of primary customers, successful implementation of internal plans, product demand, the impact of competing products, increases in the price of raw materials and active ingredients, successful acquisition and integration of additional product lines and businesses, the condition of capital markets in light of interest rate and currency fluctuations and general economic conditions, environmental liability, the ability to obtain registration and re-registration of products, increased environmental compliance, cost of products and general political and economic risks and uncertainties.

With that, I would now like to turn the call over to Neal Butler, President and CEO. Please go ahead, sir.

J. Neal Butler

Thank you, Devin. Good morning, and again, welcome to KMG's Fiscal 2012 First Quarter Conference Call. John Sobchak, our CFO, and I will take you through the financials and provide an overview of each of our businesses. We will then discuss our expectations for fiscal 2012. After our comments, we'll be pleased to address your questions. Our earnings release was issued early today, and we plan to file our 10-Q on Monday. Many of you listened to us over the past year discuss our optimism for the business once we completed the consolidation of the Electronic Chemicals acquisition. This consolidation was a notable undertaking, and as earlier reported, the associated costs plus higher-than-expected raw material prices impacted our results during the final 3 quarters of fiscal 2011.

We were, however, confident that we were on the correct path and the long-term benefits that we would accrue as a result of this consolidation would exceed the incremental costs we incurred during this implementation. We communicated that pricing actions were being taken to move back to more normalized margins, and those have indeed been implemented and margins are moving positively. We believe that our operating results for the first quarter of fiscal 2012 are an indication that the confidence was warranted. Although we still have some work to do, we believe that barring any significant economic downturn, we will produce significantly improved results for fiscal 2012 compared to last year.

Hopefully, everyone has had the opportunity to review our press release, so I'll simply provide you with an overview of how we did this past quarter, and John will provide greater financial detail in his remarks.

Net sales rose by 18% to $73.3 million from $62.1 million in the first quarter of fiscal 2011. Each of our segments reported higher net sales over the prior-year period, with our Wood Treating Chemicals business leading the way with a 37% increase in segment sales due to increased volumes in both our Penta and Creosote product lines.

Electronic Chemicals sales rose about 4% to $38.4 million. This was driven primarily by price increases, as the market experienced a slight decline in semiconductor manufacturing in the U.S. and a somewhat greater decline in Europe and Asia during our first fiscal quarter. Per industry forecast, we expect the decline to flat line through the end of the calendar year and rebound in the January and February time frame. Overall, we expect this segment of our business to be a strong contributor in fiscal 2012.

Following the Electronic Chemicals acquisition in March 2010, we have secured our leadership position in the growing high-purity process chemicals market at what we view as a most opportune time given the activity and calendar 2012 outlook in semiconductor manufacturing.

Sales in the Animal Health segment rose by almost 54% due to higher sales of Rabon in the U.S. and ear tags in our international market. We also received new registrations for our products in several Latin American countries.

Our entire company's operating income rose 17.1% to $6.5 million from $5.6 million in last year's fiscal first quarter. [indiscernible] 2012, consistent with the first quarter of last year. The prior year period benefited from the decrease in income tax expenses associated with the reduction of a valuation allowance related to our Italian subsidiary.

We ended the quarter in a strong financial position, with $5.1 million in cash and an improved debt profile. We also generated net cash from operating activities of $13.6 million.

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