Balchem (NASDAQ:BCPC) reported second-quarter earnings this week, and it was a mixed bag for investors. The company's biggest segments did well and kept up their slow and steady growth, but struggles continued in the fracking market, and that's hurting the bottom line

As usual, taking the long-term view is always a good idea, so let's dig into the good and the bad from the quarter. 

Supplements in powder and pill form on a table.

Image source: Getty Images.

Balchem results: The raw numbers

Metric Q2 2019 Q2 2018 Change
Sales $161.6 million $163.7 million  (1.3%) 
Net income $19.8 million  $19.7 million  (0.8%) 
Diluted EPS $0.61  $0.61  N/A 

Data source: Balchem Q2 2019 earnings release. 

What happened with Balchem this quarter? 

Balchem's stock dropped more than 10% shortly after earnings were announced, so the market wasn't impressed, but if we dig into the numbers, the quarter wasn't so bad. There was just one big outlier in industrial products. 

  • Human nutrition and health product sales increased 1% to $85.9 million and earnings from operations rose 27.4% to $12.3 million. The jump in earnings was attributed to better mix and a reduction in operating expenses. 
  • Animal nutrition and health sales rose 3.4% to $43.5 million, and earnings from operations fell from $7 million a year ago to $5 million as competition in Europe forced Balchem to compete more on price. 
  • Specialty product sales grew 8.9% to $24.9 million, and earnings from operations inched up 2.4% to $8.9 million. There was some contribution from the acquisition of Chemogas, but that also increased expenses, which is why earnings weren't particularly impressive. 
  • The weakest segment was industrial products, which saw a 47% drop in sales to $7.3 million and a 65.1% plunge in earnings from operations to $0.9 million. Once again, weak demand in the fracking market is what hurt results
  • Cash flow from operations rose 24.1% versus a year ago to $26.3 million, and free cash flow was $20.1 million. 

What management had to say

Balchem has used acquisitions to grow its business over the long term, and the purchase of Chemogas earlier this year represents the next chapter. Management has big plans for the new products, as CEO Theodore Harris explained in the conference call: 

On May 27 of this quarter, we formally closed this acquisition. Chemogas, with its production facilities in Europe and Asia, is a strong fit with our existing ethylene oxide repackaging business within the Specialty Products segment. We are focused on leveraging this acquisition to create a global specialty gases business that services our customers' needs for ethylene oxide and other products worldwide, which we will call Balchem Performance Gases. 

Performance gases may be another growth line for Balchem, and that will be a business worth watching. 

Looking forward

Most of Balchem's segments continue to perform well, and that's what investors should be watching. Don't count on a recovery in fracking demand -- but given the size of the business, that's not going to be a deal breaker in the long term. Growth might not wow investors, but steady improvement in animal, human, and specialty products will drive long-term value for investors. 

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