IPHS

Innophos Holdings, Inc. (IPHS)

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Innophos Holdings, Inc. (IPHS)

Q3 2008 Earnings Call Transcript

November 4, 2008 10:00 am ET

Executives

Bill Farran – VP & General Counsel

Randy Gress – CEO

Richard Heyse – VP and CFO

Analysts

Frank Mitsch – BB&T Capital Markets

Christopher Butler – Sidoti & Company

Jeff Zekauskas – JPMorgan

Mark Connelly – Credit Suisse

Edward Yang – Oppenheimer

Chris Shaw – UBS

Alec Henry – Corsair Company

Richard O'Reilly – Standard & Poor's

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the third quarter 2008 Innophos results conference call. My name is Madge, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be conducting a question-and-answer session towards the end of this conference. (Operator instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Bill Farran, Vice President and General Counsel of Innophos. Please proceed.

Bill Farran

Thanks for joining us today for the Innophos Holdings, Inc. conference call to discuss third quarter 2008 results. Conducting the call today are Randy Gress, Chief Executive Officer; Richard Heyse, Chief Financial Officer; and myself, Bill Farran, General Counsel.

During the course of this call, management may reiterate forward-looking statements made in our November 3rd press release regarding financial performance and future events. We will attempt to identify these statements by use of such words as expect, believe, anticipate, intend and other words that denote future events. These forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.

We caution you to consider the important risk factors that could cause actual results to differ from those in the forward-looking statements as contained in this conference call and in our earnings reports and filings we make with the SEC. We will make a replay of this conference call available for a limited time over the telephone at the number set forth in our press release and via a webcast available on the company website.

In addition, please note that the date of this conference call is November 4, 2008. Any forward-looking statements we may make today are based on assumptions that we believe to be reasonable as of this date, and we undertake no obligation to update these statements as a result of future events. We also note that our release of factual business and forward-looking information in this call should not be construed as an offer to sell or a solicitation of an offer to buy any securities of Innophos.

Now I'd like to turn the call over to Randy Gress, CEO of Innophos. Randy?

Randy Gress

Thanks, Bill. Good morning, everyone. I’m very pleased to be able to talk to you about another successful quarter, the third in a row where Innophos delivered record results. Overall, the price increases implemented to anticipate and offset the movements of raw material cost and attempt to achieve full value for our products resulted in a positive impact on revenue of $165 million across all product lines and produced net sales of $292 million. Operating and net income at $113 million and $79.7 million respectively set new company records, as we continue to operate successfully in an extremely dynamic pricing and cost environment.

Third quarter US volumes remained strong and fourth quarter demand outlook remains firm for Specialty Salts and Specialty Acids as well as purified phosphoric acid throughout all of our segments. However, our Mexico segment sales in the quarter were down 37% on volume and mix impacts due primarily to the slowdown in Latin American phosphate fertilizer markets, into which we sell our co-product fertilizer GTSP. In addition, the limited reformulation we saw in the technical sodium tripolyphosphate or STPP market in the detergency area was roughly at the same level as the second quarter. So while present, reformulation did not increase.

Innophos’ core products are primarily sold to consumer product manufacturers, primarily in the food, beverage, detergency, oral care, and nutraceutical and pharmaceutical markets. In 2007, over 60% of our sales were into such consumer non-discretionary markets. Demand from these markets is very consistent throughout economic cycles. And this holds true even in the current environment, as we see consistent demand coming from our core customer base. In some of our markets, such as leavening ingredients, we actually see an increase in demand during slow economic times as people have a tendency to eat more often at home and therefore home baking increases.

However, as you are already aware, Innophos shares a common set of raw materials with phosphate fertilizer producers, and we market a fertilizer co-product that is made in tandem with our purified phosphoric acid process in Mexico. So the recent rapid collapse in fertilizer markets, similar to those that have occurred in other basic materials markets, is very relevant to Innophos and has both a positive and negative implications for us.

For phosphate fertilizer markets, it appears the demand destruction, due to a number of factors including annual price increases exceeding 300%, normal seasonal demand patterns, high customer inventory levels, tight global credit reducing lending to farmers for working capital, and rapidly falling grain prices, have led to a rapid shift in phosphate fertilizer customer sentiment. This is driving extremely cautious purchasing behaviors.

In the world marketplace, during the third quarter, phosphate fertilizer buying slowed dramatically, particularly in South America where a combination of poor weather conditions, increased domestic production, low sales, and large inventories appears to have caused importing of fertilizer to essentially come to a halt during August.

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