Image source: Balchem Corporation.

Market conditions in the specialty ingredients business have been challenging in 2015, but Balchem Corporation (BCPC -3.05%) has managed to navigate the conditions well. Despite a big drop in demand, recently reported fourth-quarter adjusted earnings were flat from a year ago. Here's a look at what Balchem reported and what they see in the future. 

Balchem Corporation results: The raw numbers


Q4 2015 Actuals

Q4 2014 Actuals

Growth (YOY)


$132.7 million

$162.7 million


Net income

$15.6 million

$19.0 million


Adjusted EPS




Image source: Company earnings release.

What happened with Balchem Corporation this quarter?
There were a lot of headwinds for Balchem in late 2015, and the fact that adjusted earnings were nearly flat was a sign of how well management adjusted to challenges. Low dairy prices and low energy prices are taking their toll on results, something that isn't really in management's control. Here are a few highlights from the quarter.

  • SensoryEffects segment sales dropped 4% to $70.3 million. Warm weather extended the ice cream season, leading to improved sales in Flavor Systems. Operating earnings for the segment increased 40.7% to $9.9 million in the quarter.
  • Animal Nutrition & Health sales dropped 11% to $41.5 million, due to lower selling prices of some products. Volume sales were actually up 4% in the quarter, but low dairy prices led to the low pricing environment.
  • Specialty Products sales fell 6.7% to $13.0 million as order timing and customer destocking hit sales.
  • The biggest driver of the sales decline was a $21.3 million, or 72.9%, reduction in Industrial Product sales. Declines in both prices and volumes in oil and gas fracking sales really hurt demand, and that pressure will likely continue long-term. The good news is, despite the decline in sales, Balchem was still able to squeak out $0.2 million in operating earnings.
  • Balchem recently announced the acquisition of Albion International for $111.5 million. The company makes organic mineral compounds and will add to Balchem's human health and wellness solutions. Albion had 2015 revenues of about $53.5 million. 

What management had to say
There's no question that declining demand in energy is hurting results, and that will likely continue well through 2016. But cost reductions have offset most of those losses and management is very bullish on the Animal Nutrition & Health and SensoryEffects businesses.

We're far more likely to see improved pricing in the dairy industry before fracking demand increases. Low oil prices look to persist throughout the year, and drilling budgets have been slashed this year, so there's no light at the tunnel from an energy demand standpoint.

Looking forward
The ability to align costs with current market conditions has been impressive and should give Balchem leverage if/when market conditions improve. What investors will want to watch for going forward is where sequential demand trends. The year-over-year numbers will likely be light in the first half of 2016, but if sequential demand starts rising, it could be a sign revenues have hit bottom and that operational improvement is on the horizon.