Balchem Corporation (NASDAQ:BCPC) recently reported earnings for the third quarter of 2017, and results showed some surprising strength for the industrial manufacturer. Not only were human health and nutrition sales up, but industrial sales to energy companies are also picking up again. 

Here's a look at the headline numbers and then a breakdown of what went well, and what didn't, at Balchem last quarter. 

Nutrition supplements in bowls on a granite countertop.

Image source: Getty Images.

Balchem Corporation: The raw numbers

Metric Q3 2017 Q3 2016 Year-Over-Year Change
Sales $150.7 million $138.5 million  8.8% 
Net income $16.0 million  $14.0 million  14.5% 
Diluted EPS $0.50  $0.44  13.6% 

Data source: Balchem Corporation's Q3 2017 earnings release. EPS = earnings per share. 

What happened with Balchem Corporation this quarter? 

Trends in Balchem's business can be very lumpy, and this quarter was no different. Here's a look at the segment operating results that drove the financial improvements. 

  • Human nutrition and health sales rose 8.6% from a year ago to $81.4 million, driven by its acquisition of Innovative Food Processors. Earnings from operations were flat at $10.4 million, hampered by "plant inefficiencies" and higher raw-material costs. Adjusted earnings from operations, which pulls out amortization of acquired intangible assets, fell $0.3 million to $16.2 million. 
  • Animal nutrition and health segment sales fell 7.2% to $38.0 million, as unfavorable dairy economics hit sales. Earnings from operations fell from $6.8 million a year ago to $5.1 million. 
  • Specialty products sales rose 4.8% to $17.3 million, as plant nutrition sales increased. Earnings from operations were up $0.4 million to $5.6 million. 
  • Industrial product sales were up 128.1% to $14.1 million, as high shale fracking demand drove higher choline and choline derivative sales. Earnings from operations rose from $0.5 million to $2.1 million in the quarter. 
  • Free cash flow for the quarter was $26.9 million. 

What management had to say

CEO Ted Harris said the strong results have allowed the company to de-leverage the balance sheet, which should help reduce investor risk in the future:

The particularly strong third-quarter cash flows allowed us to eliminate revolver borrowings and further strengthen our balance sheet by reducing our overall leverage ratio on a net debt basis to less than 1.4 times.

Long-term debt was also reduced by $26 million to $235.6 million. This leverage reduction will allow the company to return cash to shareholders or make more acquisitions. 

Looking forward

Broad improvement in human nutrition and health products continues, but the bigger surprise was the boost in demand from fracking. If oil prices remain elevated, we could see that become a meaningful growth driver in the future, turning a weak point of the business into a strength. While not all business segments showed improvement, the overall story is one of slow and steady growth at Balchem Corporation. 

Travis Hoium has no position in any of the stocks mentioned. The Motley Fool recommends Balchem. The Motley Fool has a disclosure policy.