IPHS

Innophos Holdings, Inc. (IPHS)

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Industry: Consumer Durables
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Innophos Holdings, Inc. (IPHS)

Q4 2012 Earnings Call

February 15, 2013 10:00 am ET

Executives

Mark Feuerbach – Vice President, Treasury, Financial Planning & Analysis

Randolph Gress – President, Chief Executive Officer

Neil Salmon – Vice President, Chief Financial Officer

Analysts

Larry Solow – CJS Securities, Inc.

Peter Cozzone – KeyBanc Capital Markets

Edward Hoon Shik Yang – Oppenheimer Securities

Christopher Butler – Sidoti & Company

Chris Shaw – Monness, Crespi, Hardt & Co., Inc.

Paul Owen Moomaw – Goshawk Global Investments Llc.

Rick D'Auteuil – Columbia Management

Presentation

Operator

Good morning ladies and gentlemen and welcome to the Innophos Fourth Quarter and Full Year 2012 Results Conference Call. My name is Christine and I’m your operator for today. 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.

I would now like to turn the presentation over to your host for today’s call Mr. Mark Feuerbach, Vice President, Investor Relations, Treasury, Financial Planning & Analysis. Sir, you may begin.

Mark Feuerbach

Good morning and thank you for joining us today for Innophos’ fourth quarter and full year 2012 results. Joining me on the call today are Randy Gress, Chief Executive Officer, and Neil Salmon, Chief Financial Officer.

During the course of this call, management may make or reiterate forward-looking statements made in our February 14 press release regarding financial performance and future events. We will attempt to identify these statements by use of words such as expects, believes, anticipates, intends, 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 and other factors as set forth in the forward-looking statement section and in Item 1A Risk Factors in our annual reports on Form 10-K as filed with the SEC that could cause actual results to differ from those in the forward-looking statements made in this conference call.

We will make a replay of this conference call available for a limited time over the telephone at the numbers set forth in our press release and via webcast available on the company website. In addition, please note that the date of this conference call is February 15, 2013. 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.

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

Randolph Gress

Thanks, Mark, and good morning everyone. My opening comments will concentrate on fourth quarter performance and how we have continued to deliver on our strategic initiatives. Neil will then summarize our financial results and provide a look ahead to the 2013 first quarter after which I will conclude with some final remarks and then we will take your questions.

Overall, for the company, we achieved net sales of $209 million in the fourth quarter, flat from last year. Diluted earnings per share were $0.62 compared to the $0.88 recorded in the fourth quarter of 2011 after giving effect to the disclosed adjustments for each quarter. There were three main reasons for the lower earnings per share.

Firstly, and as expected, we continued to experience lower profitability in our co-product GTSP on a combination of lower phosphate fertilizer market prizes and relatively high market raw material cost compared to the advantage market conditions of last year. This accounts for roughly half of the earnings per share variance.

Secondly, although we achieved an improved sequential performance in our Mexico Specialty Phosphates business as that business recovered from the weather and production related issues in the third quarter, we were not able to match a very strong fourth quarter last year. Our Mexican manufacturing operations have successfully completed an extensive program of scheduled maintenance outages. However, the resulting production restrictions from the outages and subsequent higher maintenance expenses limited the business’ ability to match the quarterly result of a year ago.

Overall, for the year, Mexico Specialty Phosphates matched a strong 2011 performance and we have continued to invest in improved manufacturing capabilities in a more differentiated product line positioning this business for further improvement in 2013. The combined effects of these Mexico shortfalls were primarily responsible for year-over-year decline in earnings. The sequential declines primarily arose in our U.S./Canada business were the economic uncertainties that existed at the end of 2012 led to a larger than normal seasonal decline in our U.S. /Canada business and therefore the results in this segment excluding acquisitions were flat versus last year.

We believe the primary cause of weaker year end demand was customer destocking. The strong recovery in shipments in January 2013 supports our view. Excluding destocking effects, market demand continued to be flat or moderately lower than the year ago period. However, I'm confident that we are seeing improving momentum in our geographic and product led growth initiatives.

Overall, sales for the U.S./Canada Specialty Phosphates were up 4% on the benefit of our recent acquisitions. However, we did not see any significant earnings accretion in the quarter from these acquisitions after including acquisition accounting effects.

Our first acquisition, Kelatron, completed in the fourth quarter of 2011, performed very well on 2012 and with the acquisition of AMT Labs in the third quarter and our latest acquisition, Triarco Industries, completed on December 31 I believe we have a strong platform for future growth in an attractive market segment.

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