KMG Chemicals (KMGB)

Q2 2012 Earnings Call

March 09, 2012 10:00 am ET


Devin Sullivan - Senior Vice President

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

John V. Sobchak - Chief Financial Officer and Vice President


Rosemarie J. Morbelli - Gabelli & Company, Inc.

Thomas Claugus



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

Devin Sullivan

Thank you, Jackie. Good morning, everyone, and welcome to the KMG Chemicals Inc. Fiscal 2012 Second Quarter Financial Results Conference Call. We'd like to begin by reminding you that the information on 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 other 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 commission of capital markets in light of interest rate and currency fluctuations and general economic conditions, environmental liability, the ability to obtain registration and reregistration of products, increased environmental compliance cost of products, and general political and economic risks and uncertainties.

That said, I would now like to turn the call over to Neal Butler, President and CEO. Please go ahead, Neal.

J. Neal Butler

Thank you, Devin. Good morning, and again welcome to KMG's Fiscal 2012 Second 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 will be pleased to address your questions.

Our earnings release were issued this morning, and we plan to file our 10-Q on Monday.

In last quarter's call, we reiterated our optimism following the successful completion of our plant consolidation. I'm pleased to report that narrative continues following the completion of our fiscal 2012 second quarter.

Sales increased in our Electronic Chemicals and Wood Treating Chemicals business segments, and we benefited from improved operating efficiencies in Electronic Chemicals, both in supply chain and in manufacturing. We also took an important and previously indicated step of selling our Animal Health business. We closed on the sale to Bayer HealthCare on March 1, 2012. While the business has contributed to our bottom line each and every year that we owned it, we determined that this sector no longer fit with our growth strategies, as we were not able to effectively execute the consolidating transactions necessary to drive its long-term success. To that end, we remain focused on finding additional acquisitions in Electronic Chemicals and Wood Treating Chemicals, as well as attractive opportunities to expand into a new platform.

Proceeds of the sale were used to reduce our revolver borrowings by $10 million on March 1. As of today, we have $31 million of outstanding debt, an $18.3-million reduction from the beginning of the fiscal year, and the balance sheet to support significant future growth. Although we were disappointed in $1.5 million of nonrecurring charges taken in the second quarter of fiscal 2012, these expenses should not mask considerable progress we have made this fiscal year and/or dilute the optimism we feel for the balance of fiscal 2012 and beyond. We will not risk our past performance. We have implemented a robust continual improvement program across the entire organization, after achieving significant improvement in operational efficiencies through the utilization of this program. Our goal is continue to increase the value of KMG for our shareholders. We are confident that barring any significant economic downturn, we will produce improved results for fiscal 2012 compared to last year.

Reflecting this confidence, our Board authorized a 20% increase in our cash dividend to $0.03 per share from $0.025 per share.

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 7.3% to $69.7 million from $64.9 million in the second quarter of fiscal 2011. Our Electronic Chemicals and Wood Treating Chemicals segments reported net sales increases of 7.2% and 10%, respectively, over the prior year period, while sales in Animal Health declined. Electronic Chemicals sales rose to $38.6 million, driven primarily by price increases implemented at the end of fiscal 2011 in response to raw material cost increases. Additional pricing actions taken beginning in January on certain targeted product group for that same reason.

The global semiconductor market experienced a softening in production during the fourth calendar quarter roughly for the rest of the year. This was mostly felt in Europe and Asia. Electronic Chemicals sales were flat in our second fiscal quarter relative to the first quarter, as our customer base proved to be relatively stable and sales to newly constructed fabricated facilities in the U.S. offset the general market softness. As the U.S. leader in the growing high-purity process chemicals market, we'll continue to expect that this segment will be a strong contributor in the second half of fiscal 2012 due to post-consolidation, operating efficiencies and recent pricing actions.

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