Commenting on the third quarter results, Patrick S. Williams, President and Chief Executive Officer, said,
“We are reporting some very good results this quarter against a backdrop of negative messages from many in our industry. At times like this, we believe that our balanced portfolio of businesses allows us to take advantage of positive trends in some sectors, while dealing with challenging market conditions. Overall, we have delivered a further 17 percent improvement in adjustednon-GAAP EPS.”
“Fuel Specialties had an excellent quarter with further sales in the marine business adding to good growth in our traditional markets. A particularly rich product mix this quarter also delivered margins at the high end of our expected range.”
“The markets served by our Performance Chemicals business saw reduced demand in the face of global trade disputes and government policies. With these headwinds, our business has performed reasonably well. Although revenues are down this quarter, gross margins continue to improve in line with our objectives. We have a number of opportunities which make us feel optimistic that we will have a stronger fourth quarter, but the market conditions for 2020 remain unpredictable.”
“Oilfield Services once again performed extremely well, improving revenue by 17 percent and continuing its recent track record of margin improvement. This performance was impressive, given the volatile state of the underlying market. We believe that customers continue to find that the combination of our excellent technology and service levels brings tangible benefits to their operations. We have also seen our first sales in our differentiated DRA (drag reduction agents) technology, which is part of our strategy intended to reduce the cyclical nature of this business.”
“Revenues in Octane Additives were as anticipated, with the completion of an order for $6.5 million during the quarter. The prognosis for this business remains unchanged.”
Net sales in Fuel Specialties for the quarter were $144.1 million, a 7 percent increase from $134.9 million last year. Volume growth of 12 percent, which benefitted from a stronger aviation contribution, was partly offset by a negative price/mix impact of 3 percent and an adverse currency impact of 2 percent. Gross margins in the segment were 37.5 percent, towards the higher end of our expected range, moving up by 1.3 percentage points compared to the same period last year. Operating income for the quarter was $31.1 million, up 8 percent from last year’s $28.8 million.
In Performance Chemicals, net sales of $99.9 million were down 13 percent on last year, driven by volume reduction of 7 percent, a negative price/mix impact of 3 percent and an adverse currency impact of 3 percent. The segment’s gross margin improved to 22.6 percent in the quarter, up from 22.0 percent in the same period last year. Operating income of $9.3 million for the quarter was down 25 percent compared to the $12.4 million recorded a year ago.
Sales in Oilfield Services were $121.4 million, up 17 percent on the $104.2 million recorded in the same period last year, mainly driven by positive customer activity in the North American markets. Gross margins of 33.9 percent were unchanged from the second quarter but up from 32.1 percent in the third quarter of 2018, largely as a result of a favorable sales mix. Operating income of $10.0 million in the quarter was up 43 percent on the $7.0 million reported in the same period last year.
In Octane Additives, net sales for the quarter were $6.5 million, with the current small order being fulfilled as expected. Operating income of $0.8 million was down compared to the $2.7 million recorded a year ago.
Corporate costs were $13.0 million and within our expected range, up from $12.7 million a year ago. The effective tax rate for the quarter was 20.4 percent compared to 32.2 percent in 2018 as a consequence of the geographical location of taxable profits.
Net cash provided by operating activities in the quarter was $40.0 million, compared to $34.8 million a year ago. As of September 30, 2019, Innospec had $110.3 million in cash and cash equivalents, and total debt of $133.0 million, further strengthening our balance sheet and moving our net debt to approximately 0.1x EBITDA.
Mr. Williams concluded,
“These are complex times for the chemical industry. We face headwinds from trade disputes, uncertain government policies causing slower growth in many downstream applications. However, we continue to successfully develop new technologies and provide excellent service to customers which has allowed us to outpace the market.”
