IPHS

Innophos Holdings, Inc. (IPHS)

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

Q3 2013 Earnings Conference Call

October 29, 2013 10:00 AM ET

Executives

Mark Feuerbach – Vice President of Investor Relations and Chief Financial Officer

Randolph Gress – Chairman, Chief Executive Officer and President

Analysts

Lawrence Scott Solow – CJS Securities

Peter Cozzone – KeyBanc Capital Markets

Jonathan Bloom – Fiduciary Management Inc.

Presentation

Operator

Welcome to the Q3 2013 Innophos Earnings 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 the conference is being recorded.

And I will now turn the call over to Mark Feuerbach, Vice President of Investor Relations; and currently serving as CFO. You may begin, Mark.

Mark Feuerbach

Good morning and thank you for joining us today for Innophos’ third quarter 2013 results. Joining me on the call today is Randy Gress, Chief Executive Officer. Randy will start with comments on our third quarter performance and progress in executing our strategic initiatives. I will then provide detail on our financial results and a look ahead to the fourth quarter and 2014. Randy will then conclude with some final remarks before we open the call up for your questions.

During the course of this call, management may make or reiterate forward-looking statements made in our October 28 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 risks and other factors as set forth in the forward-looking statements 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 number 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 October 29, 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. Our third quarter performance reflects good progress on our strategic objectives. In particular we are pleased with generating stronger year-over-year Specialty Phosphates sales volumes in spite of a challenging market conditions. We delivered improved volumes year-over-year in our U.S. and Canada Specialty Phosphates business supported by investments in our core business. We also experienced strength in our recently acquired nutrition all ingredients businesses and generated stronger export sales.

In Mexico we talk some important steps to enhance our operations by completing a plant maintain outage and commission a new higher grade food and beverage phosphoric acid or PPA operation. These successes however we are met with some notable challenges during the third quarter. Although, our overall financial results are not where we expected them to be for the quarter. We did achieve what we set out to do for long-term focused improvements and believe we are in a much improved position to grow our profitability going forward.

In our U.S. and Canada segment, our performance in the quarter was affected by several external market factors that reduced our profitability. We continued to face unfavorable mix trends as weak demand from low government spending and flooding in Canada affected our higher margin INNOVALT products, for asphalt modification, which were down 27% year-over-year. This resulted in lower year-over-year operating margins and profitability and Specialty Phosphates.

Although our INNOVALT business has been challenged throughout 2013 by many different external factors, we feel positive on the longer-term growth prospects for this business and are pleased with three active paving trials underway for state DOT approval, plus a fourth schedule for 2014, therefore good progress in four of the remaining nine unapproved states.

Despite the difficult market environment we continued to make progress on our strategic initiatives by investing in our business, focusing on driving growth and strengthening our product portfolio and market position. Overall sales for U.S. and Canada Specialty Phosphates were up 6% on 2% higher volumes in our core business. Our recent acquisitions in the nutrition space contributed 5% to our Specialty Phosphates growth. The negative mix mentioned earlier hurt our top line by 1%.

In Mexico our Coatzacoalcos operating performance improved significantly on a sequential basis achieving higher production yields, which were slightly ahead of target better production rates on the maintained units and a new quarterly production record for the specialty ingredients unit.

Due to an increase in scope, the planned maintenance outage took longer to complete than originally expected which adversely affected profitability by about $2 million. The delay was caused by the sulfuric acid plant requiring additional repair which could only be identified when the maintenance staff had full access and was able to get inside the unit for inspection.

Given the first half reliability issues that we encountered, we took extra time and effort to ensure the proper repairs were completed aimed at increasing future reliability. As a result Mexico Specialty Phosphates profitability was not as strong as anticipated, but volumes and profits were broth improved from the year ago period.

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