ACET

Aceto Corporation (ACET)

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ACETO Corporation (ACET)

Q2 2013 Earnings Call

February 08, 2013, 09:00 am ET

Executives

Amy Glynn - IR, The Ruth Group

Sal Guccione - President & CEO

Ronald Gold - President & COO, Rising Pharmaceuticals, Inc.

Douglas Roth - SVP & CFO

Analysts

Daniel Rizzo - Sidoti & Co.

Bill Jones - Singular Research

Gregg Gilbert - Bank of America/Merrill Lynch

Presentation

Operator

Welcome to the ACETO Corporation Fiscal 2013 Second Quarter Results Conference Call. My name is John, and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

This conference call may contain forward-looking statements as that term is defined in the Federal Securities Laws. All statements that address expectations or projections about the future are forward-looking statements. Although, they reflect our current expectations, these statements are not guarantees of future performance, but involve a number of risks and assumptions.

We urge you to review ACETO’s filings with the SEC, including but not limited to ACETO’s Annual Report on Form 10-K for the fiscal year ended June 30, 2012 for a discussion of some of the factors that could cause actual results to differ materially. Copies of these filings are available at www.sec.gov. We do not undertake any duty to update any forward-looking statement.

I'll now turn the call over to Amy Glynn. Amy, you may begin.

Amy Glynn

Thank you. Good morning and welcome to ACETO Corporation’s fiscal 2013 second quarter conference call and audio webcast. With me today are Sal Guccione, President and CEO; Ronald Gold, President and COO of Rising Pharmaceuticals and Douglas Roth, CFO of ACETO.

During this call, Sal will provide a strategic overview of the company and discuss the performance of each business segment and Doug will review the company's financial results for the fiscal 2013 second quarter ended December 31, 2012. Following that we will open the call for questions.

With that, I would like to now turn the call over to Sal Guccione. Sal?

Sal Guccione

Okay, thanks Amy and good morning everyone. This is our first conference call we’ve held since I was appointed CEO. I would like to start by thanking you all for joining me on this call. I would like to take a moment to thank Al Eilender, who remains with ACETO as Chairman of the Board for his many contributions to ACETO both as a Board Member for12 years and a CEO for the last four years. Al provided us with great vision and leadership over that period of time and I look forward to his continuing contributions to ACETO in the future. And also I would like to thank the Board of Directors for forwarding me the opportunity to take the lead in continuing the execution of the company's growth strategy.

Regarding our business performance we are now halfway through our fiscal 2013 year. We’ve had a solid first half of 2013 with sales up 6.5% and adjusted earnings per share up just under 10%. This performance reflects the continued execution of our strategies and we remain excited about our business prospects for the second half of the year.

Our fiscal 2013 second quarter results with sales up 2.9% compared to 2012 and earnings relatively flat. We are now in line with our expectations and reflected the variability of our order stream. As we discussed on our last conference call, we had some acceleration in our order frame in our first quarter of 2013, particularly within the Performance Chemicals segment.

Taking a look at our segment performance for the 2013 second quarter, sales within the Human Health segment grew 9.3%, driven by continued strength in Rising Pharmaceuticals and partly upset by some softness in the Nutritionals business.

Gross profit in Human Health increased by 5.1% to $8.9 million, up from $8.5 million in the second quarter of 2012. Gross margins were 29.8% compared to 31% last year due to less favorable product mix, specifically product royalty in Rising Pharmaceuticals which is phasing out. Within Rising, we launched four new generic drugs in the second quarter for a total of six new launches this fiscal year-to-date. These launches included the signing of an agreement to market an authorize generic of the 10 milligram strength of Tranylcypromine an FDA approved authorized generic version of Covis Pharma's Parnate product. This is our first authorized generic drug and is part of what is an ongoing activity within Rising.

Our pipeline of Rising remains robust with strong visibility and we expect to launch three new generic drugs in the second half of fiscal 2013 for a total of non-product launches targeted for the full-year. I would also like to note that we significantly stepped up our R&D spending at Rising this year as we continue to invest in this new business opportunities.

Turning to the Pharmaceutical Ingredient segment, that segment has sales increase of 2.9% in the quarter as strengthened demand for APIs and intermediates in our international locations was partially offset by weaker demand domestically. Gross profit in the Pharma Ingredient segment was $5.5 million for the quarter versus $5.7 million last year. Gross now at 13.8% compared to 14.7% last year due to less favorable product mix on certain APIs sold in the international locations.

Performance Chemicals sales declined by 1% compared to last year. This decline can be attributable to a few factors including the strength of our order pattern experienced in the first quarter of this year, the decline of sales of some agricultural intermediates and some adverse impact from Hurricane Sandy in October of 2012 as some of our customers temporarily pulled back on production.

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