Balchem's (BCPC -3.05%) fourth-quarter 2018 results, reported this week, showed continued solid revenue and earnings growth. Notably, the specialty-ingredients supplier achieved growth this year without the benefit of large acquisitions, which have helped results in the past.
Here's a look at the highlights from the quarter and where there's strength (and weakness) in the business.
Image source: Getty Images.
Balchem: The raw numbers
| Metric | Q4 2018 | Q4 2017 | Year-Over-Year Change |
|---|---|---|---|
| Sales | $163.5 million | $159.3 million | 2.7% |
| Net income | $20.3 million | $42.0 million | (51.6%) |
| Adjusted EPS | $0.77 | $0.68 | 13.2% |
Data source: Balchem Q4 2018 earnings release. EPS = earnings per share.
What happened with Balchem this quarter?
Steady growth continues for Balchem, driven by its largest segments, animal and human health. Here's a look at the segment results and why there was a big drop in net income last quarter.
- The net income number you see above is down from a year ago because of a one-time benefit from the tax cuts passed in late 2017. On an adjusted basis, net income was up 14.9% year over year to $25.1 million for the quarter.
- Human nutrition and health segment sales rose 4.8% to $87.2 million, and earnings from operations were up 2% to $12.3 million. Strong demand for powder and flavor products for food and beverage drove higher sales, but rising raw materials costs hurt earnings.
- Animal nutrition and health sales rose 5.7% to $47.1 million as ruminant species volumes rose. Earnings from operations fell from $8.1 million a year ago to $7 million on lower volumes and margins in Europe.
- Specialty product sales were up 6.2% to $17.6 million as demand rose in the ethylene oxide market. Earnings from operations rose $1 million, to $5.8 million.
- Industrial product sales fell 22.2% to $11.6 million, and earnings rose 6.7% to $2.2 million. Weak demand in the fracking market led to a drop in sales.
Free cash flow in the quarter was $33.6 million, and for the full year was $99.5 million, up 19.8% from a year ago.
Check out the latest earnings call transcript for Balchem.
What management had to say
CEO Ted Harris praised the company's results and indicated that the economic backdrop wasn't very favorable to the company: "We ended the year with a solid fourth quarter, highlighted by record fourth-quarter sales, adjusted net earnings, and free cash flow. These results once again highlight the strength and resilience of our business model in what has proved to be a challenging business environment."
The one weak performer was the industrial segment, which felt a sting from slower fracking demand. But that's a business that tends to go up and down quarter to quarter, so results may pick up in 2019 if oil prices rise. In the meantime, positive earnings was good news for the segment.
Looking forward
The diverse product line has helped Balchem report solid results despite segment fluctuations quarter to quarter. With the healthy amount of cash being generated and only $156 million of debt on the balance sheet, the company could make more acquisitions in 2019. At the very least, the company is well positioned for strong earnings again next year.
