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AdvanSix Announces First Quarter 2019 Financial Results

PARSIPPANY, N.J.--(BUSINESS WIRE)--

Sales of $315 million, down 12% versus prior year driven by raw material pass-through pricing

Cash Flow from Operations of $42 million, down 5% versus prior year

Earnings Per Share of $0.68, up 84% versus prior year

Strategic alliance with Oben Group to sell BOPA film offerings in North America; Closure of Pottsville, PA manufacturing by 3Q19

AdvanSix (ASIX) today announced its financial results for the first quarter ending March 31, 2019. Overall, the Company delivered higher earnings compared to the prior year.

First Quarter 2019 Highlights

  • Sales down approximately 12% versus prior year, including approximately 12% lower raw material pass-through pricing, 3% favorable impact of market-based pricing, and 3% lower volume
  • Net Income of $20.2 million, an increase of $8.6 million versus the prior year
  • EBITDA of $42.0 million, an increase of $11.2 million versus the prior year
    • 1Q19 pre-tax income includes: approximately $8 million unfavorable impact from the phenol force majeure and approximately $6.6 million benefit from business interruption insurance proceeds related to the 1Q18 weather event claim
  • Cash Flow from Operations of $42.1 million, a decrease of $2.0 million versus the prior year
  • Free Cash Flow of $2.6 million, a decrease of $10.8 million versus the prior year
  • Repurchased 785,919 shares for approximately $24 million

“In the first quarter, we successfully navigated through shortages and delivery delays of cumene, our key raw material, maintained our focus on safe and stable operations and generated higher earnings versus the prior year. We once again captured the benefit of improved market-based pricing overall, despite ongoing acetone industry challenges," said Erin Kane, president and CEO of AdvanSix. "Our focused efforts and performance have supported smart deployment of capital into high-return growth and cost savings projects, further enhancing our integrated value chain. Further, following a thorough strategic review of our nylon films business, we announced a new strategic alliance with a leading producer of films for the flexible packaging industry and the closure of our Pottsville films plant, which will position us for improved performance in this industry.”

Summary first quarter 2019 financial results for the Company are included below:

             

First Quarter 2019 Results

($ in Thousands, Except Earnings Per Share)   1Q 2019     1Q 2018  
Sales $314,895 $359,238
Net Income 20,174 11,593
Earnings Per Share (Diluted) $0.68 $0.37
EBITDA (1) 42,020 30,790
EBITDA Margin % (1) 13.3% 8.6%
Cash Flow from Operations 42,076 44,067
Free Cash Flow (1)(2) 2,564 13,354
 
(1)   See “Non-GAAP Measures” included in this press release for non-GAAP reconciliations
(2) Net cash provided by operating activities less capital expenditures

Sales of $314.9 million decreased approximately 12% versus the prior year. Pricing overall decreased 9% versus the prior year, including a 12% unfavorable impact from raw material pass-through pricing following cost decreases in benzene and propylene (inputs to cumene which is a key feedstock to our products). Market-based pricing was favorable by 3% compared to the prior year reflecting improved performance in our nylon, ammonium sulfate, and caprolactam product lines, partially offset by declines in chemical intermediates due to the lengthening of acetone supply globally. Sales volume in the quarter decreased 3% versus the prior year primarily due to the unfavorable impact of the phenol force majeure and continued challenging acetone industry dynamics, partially offset by improved nylon production.

Sales by product line represented the following approximate percentage of our total sales:

    1Q 2019       1Q 2018  
Nylon   31%     28%
Caprolactam 20% 18%
Ammonium Sulfate Fertilizers 21% 19%
Chemical Intermediates 28% 35%

EBITDA of $42.0 million in the quarter increased $11.2 million versus the prior year primarily due to the approximately $30 million unfavorable impact of the 1Q18 weather event and favorable market-based pricing, partially offset by the $8 million unfavorable impact of the phenol force majeure, lower than expected operational performance and the unfavorable impact of challenging acetone industry dynamics. First quarter 2019 results also included an approximately $6.6 million benefit from business interruption insurance proceeds related to the 1Q18 weather event.

Earnings per share of $0.68 increased 84% versus the prior year driven by the factors discussed above, lower interest expense and a lower share count driven by continued repurchases, partially offset by an increase in our effective tax rate as well as higher depreciation and amortization.

Cash flow from operations of $42.1 million in the quarter decreased $2.0 million versus the prior year. Capital expenditures of $39.5 million in the quarter increased $8.8 million versus the prior year primarily due to an increase in spend on growth and cost savings projects.

Outlook

  • Targeting strong nylon plant utilization rates while navigating through uncertain carpet and auto end markets
  • Nitrogen fertilizer environment expected to strengthen seasonally through Spring planting season
  • Expect global acetone supply to lengthen into 2Q19 reflecting Gulf Coast terminal fire disruption and customer force majeures
  • Continue to expect full year 2019 Capital Expenditures to be $140 to $150 million and full year 2019 pre-tax income impact of planned plant turnarounds to be $35 to $40 million

The Company announced it has entered into a strategic alliance with Oben Group, a leading producer of films for the flexible packaging industry, combining AdvanSix's channel to North America with Oben Group's new state-of-the-art manufacturing facility. The Company also approved the closure of its Pottsville, Pennsylvania films plant as part of its broader strategic efforts associated with the films product line in North America. “This capital efficient and highly synergistic combination best positions us for success in the nylon films industry. We are thankful for the hard work and dedication of the Pottsville team and are committed to ensuring a seamless transition for our employees and nylon films customers. Under our strategic alliance, we look forward to continuing to support our customers through quality products and service," said Kane. The closure is expected to be completed during the third quarter of 2019. Subject to the finalization of certain estimates, the Company expects to take a pre-tax repositioning charge associated with the closure of $10 to $12 million in the second quarter of 2019. The expected charge consists of approximately $6 million associated with a non-cash impairment of plant and business related assets. Future cash expenses associated with the charge are anticipated to be approximately $2 million for employee separation benefits and $3 million of other exit and removal costs.

"Our strategic priorities remain centered on driving safe and stable operations, enhancing our long-term growth capabilities, and making smart and disciplined investments in the business to drive higher returns. We're confident in our ability to build on our advantaged foundation and create value for our shareholders over the long-term,” added Kane.

Conference Call Information

AdvanSix will discuss its results during its investor conference call today starting at 9:00 a.m. ET. To participate on the conference call, dial (786) 789-4797 (domestic) or (800) 239-9838 (international) approximately 10 minutes before the 9:00 a.m. ET start, and tell the operator that you are dialing in for AdvanSix’s first quarter 2019 earnings call. The live webcast of the investor call as well as related presentation materials can be accessed at http://investors.advansix.com. Investors can hear a replay of the conference call from 12 noon ET on May 3 until 12 noon ET on May 10 by dialing (719) 457-0820 (domestic) or (888) 203-1112 (international). The access code is 7296411.

About AdvanSix

AdvanSix is a leading manufacturer of Nylon 6, a polymer resin which is a synthetic material used by our customers to produce engineered plastics, fibers, filaments and films that, in turn, are used in such end-products as automotive and electronic components, carpets, sports apparel, fishing nets and food and industrial packaging. As a result of our backward integration and the configuration of our manufacturing facilities, we also sell caprolactam, ammonium sulfate fertilizer, acetone and other intermediate chemicals, all of which are produced as part of our Nylon 6 integrated manufacturing chain. More information on AdvanSix can be found at http://www.advansix.com.

Forward Looking Statements

This release contains certain statements that may be deemed “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, that address activities, events or developments that our management intends, expects, projects, believes or anticipates will or may occur in the future are forward-looking statements. Forward-looking statements may be identified by words like "expect," "anticipate," "estimate," “outlook”, "project," "strategy," "intend," "plan," "target," "goal," "may," "will," "should" and "believe" or other variations or similar terminology. Although we believe forward-looking statements are based upon reasonable assumptions, such statements involve known and unknown risks, uncertainties and other factors, many of which are beyond our control and difficult to predict, which may cause the actual results or performance of the company to be materially different from any future results or performance expressed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to: general economic and financial conditions in the U.S. and globally; growth rates and cyclicality of the industries we serve; the impact of scheduled turnarounds and significant unplanned downtime and interruptions of production or logistics operations as a result of mechanical issues or other unanticipated events such as fires, severe weather conditions, and natural disasters; price fluctuations and supply of raw materials; our operations requiring substantial capital; risks associated with our indebtedness including with respect to restrictive covenants; failure to develop and commercialize new products or technologies; loss of significant customer relationships; adverse trade and tax policies; extensive environmental, health and safety laws that apply to our operations; hazards associated with chemical manufacturing, storage and transportation; litigation associated with chemical manufacturing and our business operations generally; inability to acquire and integrate businesses, assets, products or technologies; protection of our intellectual property and proprietary information; prolonged work stoppages as a result of labor difficulties; cybersecurity and data privacy incidents; failure to maintain effective internal controls; disruptions in transportation and logistics; our inability to achieve some or all of the anticipated benefits of the spin-off from Honeywell including uncertainty regarding qualification for expected tax treatment; fluctuations in our stock price; and changes in laws or regulations applicable to our business. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this release. Such forward-looking statements are not guarantees of future performance, and actual results, developments and business decisions may differ from those envisaged by such forward-looking statements. We identify the principal risks and uncertainties that affect our performance in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2018.

Non-GAAP Financial Measures

This press release includes certain non-GAAP financial measures intended to supplement, not to act as substitutes for, comparable GAAP measures. Reconciliations of non-GAAP financial measures to GAAP financial measures are provided in this press release. Investors are urged to consider carefully the comparable GAAP measures and the reconciliations to those measures provided. Non-GAAP measures in this press release may be calculated in a way that is not comparable to similarly-titled measures reported by other companies.

       

AdvanSix Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands, except share and per share amounts)

 
March 31, 2019 December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents $ 7,803 $ 9,808
Accounts and other receivables – net 117,247 160,266
Inventories – net 140,598 137,182
Other current assets 3,237 3,807
Total current assets 268,885 311,063
 
Property, plant and equipment – net 685,366 672,210
Operating lease right-of-use assets 116,614
Goodwill 15,005 15,005
Other assets 37,902 36,348
Total assets $ 1,123,772 $ 1,034,626
 
LIABILITIES
Current liabilities:
Accounts payable $ 188,169 $ 231,720
Accrued liabilities 22,910 30,448
Operating lease liabilities – short-term 24,929
Deferred income and customer advances 20,694 22,556
Total current liabilities 256,702 284,724
 
Deferred income taxes 107,466 103,783
Operating lease liabilities – long-term 91,802
Line of credit – long-term 220,000 200,000
Postretirement benefit obligations 22,980 21,080
Other liabilities 5,578 4,701
Total liabilities 704,528 614,288
 
STOCKHOLDERS' EQUITY

Common stock, par value $0.01; 200,000,000 shares authorized;
30,578,212 shares issued and 28,573,744 outstanding at March 31,
2019; 30,555,715 shares issued and 29,345,001 outstanding at
December 31, 2018

306 306

Preferred stock, par value $0.01; 50,000,000 shares authorized and
0 shares issued and outstanding at March 31, 2019 and December
31, 2018

Treasury stock at par (2,004,468 shares at March 31, 2019;
1,210,714 shares at December 31, 2018)

(20) (12)
Additional paid-in capital 213,632 234,699
Retained earnings 207,993 187,819
Accumulated other comprehensive loss (2,667) (2,474)
Total stockholders' equity 419,244 420,338
Total liabilities and stockholders' equity $ 1,123,772 $ 1,034,626
 
   

AdvanSix Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands, except share and per share amounts)

 

 

Three Months Ended
March 31,

2019     2018
Sales $ 314,895 $ 359,238
 
Costs, expenses and other:
Costs of goods sold 266,880 321,320
Selling, general and administrative expenses 19,413 19,213
Other non-operating expense (income), net 1,604 3,546
Total costs, expenses and other 287,897 344,079
 
Income before taxes 26,998 15,159
Income tax expense 6,824 3,566
Net income $ 20,174 $ 11,593
 
Earnings per common share
Basic $ 0.70 $ 0.38
Diluted $ 0.68 $ 0.37
 
Weighted average common shares outstanding
Basic 28,820,603 30,488,601
Diluted 29,786,957 31,285,365
 
     

AdvanSix Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)

 

 

 

Three Months Ended
March 31,

2019     2018
Cash flows from operating activities:
Net income $ 20,174 $ 11,593

Adjustments to reconcile net income to net cash
(used for) provided by operating activities:

Depreciation and amortization 13,915 12,542
Loss on disposal of assets 415 311
Deferred income taxes 3,747 1,741
Stock based compensation 2,762 2,281
Accretion of deferred financing fees 107 1,480
Changes in assets and liabilities:
Accounts and other receivables 43,018 33,092
Inventories (3,416) 4,573
Accounts payable (30,674) (15,652)
Accrued liabilities (7,232) (9,631)
Deferred income and customer advances (1,862) (68)
Other assets and liabilities 1,122 1,805
Net cash provided by operating activities 42,076 44,067
 
Cash flows from investing activities:
Expenditures for property, plant and equipment (39,512) (30,713)
Other investing activities (587) (1,002)
Net cash used for investing activities (40,099) (31,715)
 
Cash flows from financing activities:
Payments of long-term debt (266,625)
Borrowings from line of credit 85,500 246,000
Payments of line of credit (65,500) (16,000)
Payment of line of credit facility fees (1,362)
Principal payments of finance leases (145) (75)
Purchase of treasury stock (23,853) (370)
Issuance of common stock 16
Net cash used for financing activities (3,982) (38,432)
 
Net change in cash and cash equivalents (2,005) (26,080)
Cash and cash equivalents at beginning of period 9,808 55,432
Cash and cash equivalents at the end of period $ 7,803 $ 29,352
 
Supplemental non-cash investing activities:
Capital expenditures included in accounts payable $ 14,039 $ 9,753
 
 

AdvanSix Inc.

Non-GAAP Measures

(Dollars in thousands)

 

Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow

 
Three Months Ended
March 31,
2019   2018
Net cash provided by operating activities $ 42,076 $ 44,067
Expenditures for property, plant and equipment (39,512) (30,713)
Free cash flow (1) $ 2,564 $ 13,354
(1)   Free cash flow is a non-GAAP measure defined as Net cash provided by operating activities less Expenditures for property, plant and equipment
 

The Company believes that this metric is useful to investors and management as a measure to evaluate our ability to generate cash flow from business operations and the impact that this cash flow has on our liquidity.

 

Reconciliation of Net Income to EBITDA

 

Three Months Ended
March 31,

2019   2018
Net income $ 20,174 $ 11,593
Interest expense, net 1,107 3,089
Income taxes 6,824 3,566
Depreciation and amortization 13,915 12,542
EBITDA (2) $ 42,020 $ 30,790
 
Sales $ 314,895 $ 359,238
EBITDA margin (3) 13.3% 8.6%
 

(2)

EBITDA is a non-GAAP measure defined as Net Income before Interest, Income Taxes, Depreciation and Amortization

(3)

EBITDA margin is defined as EBITDA divided by Sales

 

The Company believes these non-GAAP financial measures provide meaningful supplemental information as they are used by the Company’s management to evaluate the Company’s operating performance, enhance a reader’s understanding of the financial performance of the Company, and facilitate a better comparison among fiscal periods and performance relative to its competitors, as these non-GAAP measures exclude items that are not considered core to the Company’s operations.

                             

AdvanSix Inc.
Appendix
(Pre-tax income impact, Dollars in millions)

 

Planned Plant Turnaround Schedule (4)

 

1Q

2Q

3Q

4Q

FY

2017 ~$10 ~$4 ~$20 ~$34
2018 ~$2 ~$10 ~$30 ~$42
2019E ~$5 ~$5 $25-$30 $35-$40
2020E X X

In-line with
historical
averages

 
(4) Primarily reflects the impact of fixed cost absorption, maintenance expense, and the purchase of feedstocks which are normally manufactured by the Company
 

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