Innophos Holdings, Inc. (IPHS)
Q1 2009 Earnings Call
May 5, 2009 10:00 am ET
Bill Farran - VP and General Counsel
Randy Gress - Chairman, President and CEO
Richard Heyse - VP of Finance and CFO
Edward Yang - Oppenheimer
Christopher Butler - Sidoti & Company
Frank Mitsch - BB&T Capital Markets
Olga Guteneva - JPMorgan
Previous Statements by IPHS
» Innophos Holdings Inc. Q3 2009 Earnings Call Transcript
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Thanks for joining us today for the Innophos Holdings, Inc. conference call to discuss first quarter 2009 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 May 4 press release regarding financial performance and future events. We will attempt to identify these statements by use of words such as expect, believe, anticipate, intend or 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 May 5, 2009. 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.
Now, I'd like to turn the call over to Randy Gress, CEO of Innophos.
I will start off with some comments about the first quarter and discuss our current outlook. Then Richard will give us the financial highlights for the quarter. I'll discuss the new initiatives we are considering for alternative rock supply and finish with a short summary after which we will take your questions.
Net sales for the first quarter 2009 were a solid $190.8 million, an increase of $28.3 million over the same period in 2008, driven by higher selling prices put into place throughout 2008. Soft demand in all segments led to volume declines. We continued to see the majority of the effect in the technical grade products, both specialty salts and purified phosphoric acid, which in part go to the industrial markets and agricultural sectors.
Total tons of product shipped excluding changes driven by GTSP was down 34%, with the leading driver being the reduced demand of our existing customers. During the quarter, the fertilizer market again began to function albeit at lower prices than we enjoyed in 2008, enabling us to clear our excess GTSP co-product inventory sooner than we had forecasted.
So while STPP and other products showed a net volume in mixed decline, it was positively affected by increased GTSP sales volumes which were slightly above historical averages. Including GTSP on the total tons shipped basis, volumes were down only 15%.
However, we continue to face a weak economic environment, in which overall demand seems softer and competition more intense. Conditions are variable and subject to very rapid change, so we don't believe we are in a position to offer operating income guidance for the full year.
On a sequential basis, we currently expect second quarter 2009 volumes excluding GTSP fertilizer sales to be approximately 5% higher than the first quarter's for several reasons. First is the direction of the trend we saw through the first quarter. While totals were weak overall, January was the low point. Daily shipping rates improved in the subsequent two months.
Additionally, the second quarter has generally been better for cyclical reasons. Agricultural buying picks up, demand increases in our food markets and it is the beginning of our road-paving season.
The second quarter 2009 selling prices are expected to move lower than in the first quarter, while the second quarter raw material cost structure will be $15 million to $18 million higher. This is related to higher phosphate rock costs in Mexico in line with indications we gave earlier, the first quarter inventory repricing benefit and the mix of phosphoric acid supply in the United States. This increased cost will be offset somewhat by improved fixed cost containment.
Looking beyond the second quarter of 2009, we can't predict overall volumes because we are dependent on the depth and length of the recession and overall competitive intensity. Through the rest of the year, we expect overall average selling prices to continue to move down, while increased phosphate rock costs in Mexico will affect our cost structure fully in the third quarter of 2009.
We are, therefore, remaining flexible as to the appropriate level of production in Mexico. We continue to operate at reduced levels through manufacturing efficiencies and cost reductions and work on the planned conversion of technical grade acid capacity in the Coatzacoalcos plant to food grade acid capacity, which will more than double our existing food grade capacity at the site.