Supplements could be a big growth market for Balchem Corporation in 2016. Image source: Getty Images. 

Balchem Corporation (BCPC -0.68%) recently reported second-quarter 2016 earnings results that showed a steady improvement in the key market of human health, but there were some downsides. Industrial demand, particularly from the oil and gas market, continues to struggle, and that's putting a damper on growth. Here's a look at what investors need to know.  

Balchem Corporation results: The raw numbers

Metric 

Q2 2016

Q2 2015

Growth (YOY)

Sales

$138.8 million

$134.8 million

3%

Net income

$14.2 million

$14.9 million

(5.1%)

Adjusted earnings per share

$0.66

$0.62

6.5%

Data source: Balchem Corporation earnings release. YOY = year over year. 

What happened with Balchem Corporation this quarter?

When you examine the overall numbers, it looks like a slow and steady growth trajectory for sales and adjusted earnings. But a look at the numbers from specific segments shows a more complex story.

  • Adjusted net earnings were actually up 8.3% to $21.1 million, which is why adjusted EPS was up. This accounts for inventory valuation, amortization of intangible assets, and other one-time charges.
  • Human nutrition and health segment sales rose 11.3% to $74.8 million in the quarter, and adjusted earnings from operations were up 13.3% to $16.7 million.
  • Animal nutrition and health segment sales fell 7.8% to $38.4 million, and earnings from operations rose 39.8% to $8.7 million.
  • Specialty products segment sales rose 47.2% to $20.3 million, and adjusted earnings from operations were up 39.8% to $6.2 million.
  • Industrial product sales were hardest hit in the quarter, falling 56.5%, and earnings from operations were just $0.3 million.

What management had to say

Management was very proud of increasing margins, indicated by adjusted gross margin rising 4.6% to 35.8%. Cash from operations of $26.6 million also helped the company pay down long-term debt by $28.8 million in the quarter. 

The Food and Drug Administration's recent recognition of choline as an essential nutrient could also help demand for that product in foods and supplements. Again, this would add to the growth in human nutrition and health right now.

Looking forward

Growth in the human nutrition segment looks like it will continue throughout 2016 and may get a tailwind from choline growth as well. But industrial demand will continue to be a drag, and there's no bounce in sight for oil and gas demand right now.

What should encourage investors most are improving margins, cash flow, and falling debt at Balchem. If those trends continue for the rest of the year, the stock looks poised to become a better value and less risky for investors. And that's a positive trend in a difficult chemicals market.