AVD - Earnings call transcript Q3 2019 | American Vanguard Corporation

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Operator

Greetings. And welcome to the American Vanguard Third Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]

conference recorded. this reminder, a is being As I to of your like to Investor conference over turn the host, would now Relations. Bill Kuser, Director Please ahead, sir. go

Bill Kuser

Well, everyone And quarter thank nine much, Vanguard’s and review. American third welcome earnings month you very to Hector.

Mr. be Bob Operating David CEO in Mr. Wintemute, the the answering to Trogele, assist company’s Chief Chief your will of today Chairman Vanguard; Mr. American the speakers company’s Officer. Eric Our Also questions, and Johnson, and Financial Officer.

our file details will Tomorrow, XX-Q that with will additional Vanguard American in providing SEC, Form to we the results the this be discussing call.

Before by company our results usual may the current are subject company’s let’s on risks and cautionary the information. a management’s expectations. forward-looking based call, information management uncertainties actual Such and today’s beginning, cause moment various that may discuss statements to to take assumptions reminder. and from and for differ are In estimates

weather be that factors in conditions, judgment risks information company’s not as other changes include policy, best SEC of the and statements various regulatory in reports company. represent All and are date necessarily and this the Such such by call forward-looking can will filings. of competitive updated detailed the company’s the pressures

that With Eric turn over Wintemute. call to we said, the

Eric Wintemute

Thank afternoon, you, everyone. Bill. Good

we and speak performance. picture including non-acquisition will then Let the focus growth. will to development, we would who growing on turn After of organically This sheet activity. products, on of give then balance I topline me David, to our performance I the over and time more support call afternoon which start and SIMPAS. the technology remarks will will Then continued combination the complete new biologic by you launch a to some and Vanguard. thanking like of recap demand, you market are our on factory I American with call through how my of portfolio for I your I with will begin spend David, nine-month underlying inventory our turn three-month conditions. a

metrics a full financial give for will and for I XXXX. of XXXX year outlook the Finally, general

a release fueled in As I have XXXX, a compared performance mentioned quarterly largely XX% in topline to our by sales a International as At same by the in period of increase improved increase lesser domestically. to XX% XX% and sales degree International from sales by XX% today, comparable our same the rose earnings X% a time, from the to total percent period. as

this worth conditions, expansion Before getting that did noting specific into market International accident. it’s happen by not

XX% XXXX, for business. our than International total than as growing while that we time, sales. accounted ratio sales of less doubled overall Since late the more As that even have

lower, result because this years business Five Brazil. towards deliberately trending acquisition this of achieved paying strategy We domestic seeing growth we have markets agility. a That was the our as sense approach that us shifted markets, today. International ago, and such operated America dividends with for we of Central is

supporting addition are Brazilian biological C-crop our and XXXX, During are multiple Shield, a which and Teramore we products the Brazilian on argenfrut January. last sales included crops. largely driver quarter acquired International business, of on citrus Red sales the of growth was the which third products from Key used for during quarter, used primary which

from bananas, stronger they Syngenta further into pineapple of Central sales XXXX. penetration Similarly, as largely quarter we gained for acquired sales, certain drought sells which products, despite Gesapax combination recorded and regions increased in Sable, AgriCenter, from addition, in market the In citrus America. and which the Bravo, enjoyed Mexico

and higher Finally, use we due largely sales for Canada had Assure canola soybeans. to sales of the in II herbicide cereal on

telling Managing percentage topline stage operations the business the this and XX% International Director quarter. from I last Peter the early AgriCenter gross for us that with the I Brazil business for businesses. also recall International for margin note Eilers, September board XX% the grew are our of growth, along our that to

continue further, to efficiencies them we higher and integrate we see As profitability. improved should

not In AMVAC through which a the products next distribute portal stage but third-party of development, we carry only products, will as tend businesses to use also higher we which these margin. a

begun already have this the reintroduction We into with Counter of Brazil.

I domestic side are in that, the picture I is different. of ledger, the a On the our into phrase, would to say ground market. a put it down If we had single holding

U.S. back and by X% a has is by throughout market for full Our as year. of regions XX% industry extreme been weather to whole set expected the entire conditions decrease many domestic the the

the in many delay heat of was extreme entirely, and million quarter prevented reduced XXXX, in our reduced $XX down southern to third herbicides. demand for the of at-plant the our addition in defoliants share burn-down during have and in post-harvest cotton which During quarter, $X.XX. persistent our and quarter-over-quarter, defoliant in spring and planting products. turn turn rain our a particular, followed by translated which into In $X.XX for aridity cases Folex the was which region That pattern some for would cold demand weather

we Also, shows industry-wide domestic decrease as X% a the nine-month fact third sales to compared our in recorded in of same quarter performance that light the In XXXX. the trend, increased period is encouraging.

From we can two this, surmise things.

the for turned since First, better the domestic the of our year. performance has start

the on respect should outperform end. our we industry to through continue in current with year trajectory the U.S., topline, average we Second, if

David conditions our hand how market profitability. these affect and affect sheet. let these will matters balance take we weighed into Let’s get they I into in how

as when is dialed of many weather manufacturing conditions, to products As in activity adverse for our we under demand half inventory. control are When are you that margin we down manufacture high these order sold domestically. there know, products, about example, pressure, including for products

and Folex demand. we earlier Thimet midyear. the and Bear through mind, expected in our with with this in that did build Counter year We meet program, to SIOP

the procurement when future slips planning our unexpectedly, However, demand factory adjust periods. over and we

At of inventory have we demand. AgriCenter, started product just turn history how million. inventory we Equus I as actual light that the Abba, XXXX Now production We as to time, have in recent acquired to Parazone and managing with lines. let’s and demonstrate well will at $XXX responded and

the new current we line, at optimize recorded end and activity to history. best in we expected and many imports from we numbers In order our like expense, time, inventory. for that, added the At with order industry, of the we built $XXX XXXX, tariff to in In absorption that businesses, product meet of XXXX, expedited in inventory same the factory With in under certain the our the products both Assure both demands China. million. stood procured and

of while at time, At inventory XXXX, activity With a pulling to we reduced domestic back the second of half levels on to of degree. the a the first were quarter, same end in our demand peak however, rose $XXX the factory million.

we During inventory to expect reduce the another third $XX to million $XXX by to level the at quarter, million, inventory by end. about $XXX end we decreased year million

bring our confident forecast. inventory that can down am we to meet I

much more done have in before this circumstances. difficult We

As in a you industry-wide are maintaining market an of brand may value. factory By recall, far while circumstances XXXX, following and the compelled sell contrast, were we into mild. oversupply down to saturated activity hold more XXXX

key reduce accretive In sheet. I the manage to On we our where active stand looking while our opportunities, on light for are we say subject, would debt, of we one these balance capital of working closely objective remain mindful might that, that and acquisition in strategy. ask considerations, strengthen

David metrics, at me point on call over and David? financial further well performance. elaborate selected who financial as to turn the as upon will this pause Let overall

David Johnson

Thank Good you, everybody. Eric. afternoon,

results, to the As XX-Q tomorrow. financial XX, September we With by grew be time our detailed, by Form company’s international months as to improvement, mentioned, to XXXX X%, XX%. increased last three Within XXXX will our million nine $XXX third while regard quarter U.S. Bill compared filing the $XXX that sales sales just of as the and XX% the for up million, were year. overall months our for sales ended Eric this

portfolio, in the our the notwithstanding short defoliant hot the domestic our was reason weather impacted and the sales Eric which in primary Ag falling to growth southern net sales As limited growth of X%. U.S., strong extremely cotton for our mentioned, the international sales consensus conditions our

pest had strong hand with non-crop Dibrom Our the demand and our sales our quarter both domestic up a for mosquito strips. products driven XX% on business, by other

our our season. steady wet progress and in unusual we this worked just following conditions year, mentioned, focus undermining as I As Eric The mentioned, plan extreme our has during on earlier temperatures to Midwest on we somewhat continued the the quarter, growing levels. inventory of current had manufacturing inventory the impact an through

to The change overhead international with with in in quarter-over-quarter our recovery gross in calls. costs, which during of decline faster manufacturing a in is activity coupled margins previous XX%, growth contributed to markets, line comments and our associated

year. driven XX% This at during the XX% of by net few factors. a quarter, time expenses operating sales, this ended was change last our compared to Also,

of quarterly number liabilities XX businesses a And the past months. related value fair acquired to adjustments of we second, have First, we transactions. with in acquisition our products made and some intervening new associated

XXXX, third in and to By In our of benefited XXXX. these costs operating would year, this adjustment the million. these operating amount beneficial been quarter of period amounted have in expenses time $X non-recurring XX% last of adjustments, required the comparison same Absent XX% $XXX,XXX. the in XXXX the

provided driven net last level increased was per over interest share, activity rates. the line on which LIBOR the XX with income and preannouncement levels our various $X.XX with dynamics expected, As the our predicted of our market working acquisition we October when generated increased capital by These expense months, interest we based diluted higher a XXth. in

year. period were For period for X% last to million, up $XXX at the net the $XXX sales September XXXX, million nine-month compared ended XX, same as

have margin the calls. Gross also with line levels indicated XX% we is was at in which in previous

lower as expenses, as compared year. the to months acquisition legal the same XXXX, included increased in a of expenses compared operating nine to operating sales, period costs fee prior In of XXXX. the on Our potential when percentage and when XX%, a to XX% first breakup expressed a of

well have additional businesses since manage changes, Offsetting last time as the products value adjustments to these acquisition-related consideration. we beneficial fair acquired as expenses decrease and picked to this year, in necessary deferred a up

$XX.X first $XX.X in of period of compared the XXXX amounted Our XXXX. net or same for or income nine $X.XX months million as $X.XX, to the to million

the focus perspective, the my company From of consistent. financial remains

First, to inventory planning disciplined with to forecasts our to and optimize follow recovery levels. working balancing a approach activity, continue demand we factory overhead

higher than XXXX, of for pattern and slightly the end levels of were annual as our those compared year is at manufacturing XXXX, end. quarters work when September plan. though the the normal inventory we a to XXXX first company At through This second down our

two activity is of final sales their end example, quarters stronger in the busy America levels At distribution midst businesses meet and order of our requires for needs. of were customer season. the Generally, September, year South Central and our the in in the inventory to in higher

for the was growing And Our of finally, in Ag States. were market United the to the up XXXX/’XX start Midwest of period. the fumigation the ramp in sales beginning season middle

Given inventories our manufacturing forecast compared and revised million. is by to year target see expect million $XXX previous reduce final to which to quarter of the $XXX annual our plan, we end, about

our strong we have when compared XXXX. XXXX, ended however, to international is Second, which exactly the and rates higher rate effective XX.X% at year-to-date, in in are The countries in drivers, especially tax line In with different. businesses tax seen growth our with U.S.

market in Conversely, did of our domestic performing repeat Act, the addition, and been At Ag related implementation both and were we in strongly, the to in our not expense XXXX, XXXX. Jobs a the took international domestic which time, one-time and tax Cuts weak. same businesses comparatively Tax has

forecast changes reflects tax in year. The earlier make we the -- profit differs the mix regarding XXXX latest from of that current year-to-date some in country-by-country reflect the in to where rate expect year-to-date

point, recently year We are our between products tax rate our integrate as continue we projected XX% of businesses. XX%. to and income the expectations adjusting mix for this full analyze acquired At and regional taxable we our to

stood to as at the flat million, quarter, regard availability to this time million last with compared investors. I reported of line our at credit last year. $XXX This the end with position the Third, third we broadly briefed under is $XX liquidity, when

first expanded year because Further businesses. we number in nine and of our weather working increase months of a increased U.S. the business capital. conditions of is of due an in and international the in the of this half different last in the XXXX and products in business to buy seen comparison this of to challenging in have the dynamics year managing second order XXXX to borrowings liquidity time change The needs

In flat a with see of distribution by $XX as $XXX that fourth debt $XX the in last on this XX, at million. million, and the second have was XX, at small acquisition in we quarter. current debt completed Brazil purchased which expecting Indebtedness quarter. to we Since our At quarter, million. time, about decline XXXX, forecast is position as the are businesses December we our of the September call, XXXX, our stood end

have summary, looking of year International sales In which by increase, significant when sales market, generally some a we say financial results, offset challenging Ag our we weather domestic conditions. can year-to-date and recorded that extreme at has a as strong non-crop growth a result had U.S.

Furthermore, handling we succeeded holding international our margin manufacturing strong lower levels, have even at back gross while average generally inventory in performance. control and margins overall growth, to maintaining

Our sales. have increased percentage related and for months acquisitions have flat of remained the XX of operating adjusted expenses to as consideration a because in deferred completed when primarily reassessment approximately fair expressed when value last

need multiple financial exercising the across has to while At we I this balance point -- in as meet are ourselves Eric XXXX, positioning emphasized, on markets. assure the to improving and you fixed demand sheet discipline, that, can

I hand that, Eric. With to back will

Eric Wintemute

Thank you, David.

from and to of the our conditions future areas sheet like balance growth Now turn I’d and to market outlook.

successfully have our offering bring we non-acquisition continue as are this to diligently well, of business to new both products customers. growth and combinations acquisition, existing through we old solutions formulations working grown we and of developing While products, new on new by

product the a and version XX in Oximus, are SC, followed Bromacil a highlights non-crop of launches XXXX SmartChoice NAVIGATOR herbicide herbicide a liquid a by DF, based and insecticide, corn year this the GHL. ImpactZ, new Among Krovar fungicide, non-crop index, Force of

corn development two Counter insecticide, use XXXX, corn generate zinc next AZTEC combinations in introduce based taken under nematicide, over impact products a product, expect introduction together, maturity. two the in to to a new HC, for In SIMPAS, million nutrition three and and products of and we soil to sales XXG, years $XX

and have of been developing a high-margin, addition, marketing biological stable In we products. high-growth quietly

As availability to the or the environment. you agricultural a designed of category increase living may a active ingredient food organism. which are products consists derived of in low from a know, biologicals They with on is effect are

like, biological XX today, products nearly biochemicals, volume sales today we as steroids of biofertilizer, such including offer that biostimulants, and and As copper, boron by botanical Racino lemongrass and These XXXX. to generate including million extracts and we over expect $XX solutions microbials. double seaweed, globally of oil, and

advance beta an is In of peers units. multiple our addition have SIMPAS product to development, to as on we of layers application entire multiple of crop distributors input and a to rollout we suite the assembled integrates host retailers, of XXXX, In continue team the full testing technologies. part put precision This it -- growers, exciting channel.

and that grower pull-through results from And a plant agronomists with support will and grower products and or prescription will as apply treatment, for agronomists to provide support needed, his additional needed, the on should and field micronutrient and her SIMPAS app nematicide, where through positive from insecticide retailer purchase peers. growers push from an retailers rootworm lead

row domestic fumigants levels. quarter certain such into our products of sales channel as pushed crops, the our full in at Nevertheless, the low typically I markets, fourth technology, admit forecasting year. Further, the a of in challenge this relatively application From in quarter. is to let’s cases turn post-harvest to applied has be third may year some important have forecast. been inventory

that For of XXXX, full will gross $XXX an $XXX margin neighborhood we about XX%. year in operating will rate around expenses tax XX%, sales million the overall net be be and million, approximately expect

inventory and million. of reduction $XX about in debt targeted a by about in reduction By year-end, have we additional $XX million

at As of and XXXX, bottomlines. we the forecast overall growth top

As Brazil earlier, available is traction Mexico, Central the and continue market mentioned gain we I in where to total significant. America,

margin in source XXXX. succeeded weather products crop low return in incrementally Also, activity. certain of account and a taking in factory assuming front, inventories stronger were and more a we domestic sales levels the securing channel, typical of levels higher expect we of that in higher short patterns have to the row On products into of supply

For with million first per over last which Bromacil received $XX example, should the have year average sold we multiple April, just of of margins. out of than but sales generate higher shipments,

assimilate takes of lower it to operating activity. us controlling conditions. suppliers, our model, levels, cash expenses. generating the year-to-date, freedom a inventory and In effects down to fully summary, for of which foreign time the Nevertheless, degree U.S. continue recalibrate and market factory are permits we of to to Because procurement from committed we us manufacturing bringing

well-positioned greater results from will In of means seek businesses will including which call. our our during I by next SIMPAS products parallel, expand, will advance non-acquisition we detail biologicals XXXX, these to improved through in to and efficiency technology. we newer gain to cover application precision combination in greater be and means, Through deliver to

questions field now, you have. may Hector? any will And we

Operator

Joseph comes Partners. question. Thank Capital from of your question line with with the you. [Operator first Your Roth proceed Reagor Please Instructions]

Joseph Reagor

Good Thanks for guys. questions. taking afternoon, the

Eric Wintemute

Hi.

Joseph Reagor

I inventory just what be to guess, goal the be for thing clear first is -- end? year just

Eric Wintemute

$XXX

David Johnson

Yeah. $XXX.

Eric Wintemute

$XXX.

Joseph Reagor

do you kind impact maybe question, think of on what And the a of guys Okay. sales has picture year, weather of bigger net then basis? for you been a percentage this

Eric Wintemute

know Well, mean, XX. bigger the two. cotton was it’s I effective talked our mean, -- we much between than are from we trying think we where XX and -- guess, Folex, that Parazone I year-over-year. to I I are defoliant expectations most and I chlorthalonil, the am about

-- the Just a think trying me here for quarter. take to look just quick let

Let’s the year-to-date maybe, you yeah, asking that what year-to-date quarter? are recorded or just yes, just two, you see, if paraquat, for is are talking like, or

Joseph Reagor

full you Or -- just the on $XXX are mean planning based I million the for year. number

Eric Wintemute

Well… Oh!

Joseph Reagor

to, like, like gap giving $XXX say, that year, by assuming if be What you normal we you What entire guys back? get that so, theoretically, would should you all next weather think expecting out you think, year, million. I compared that would started and weather,

Eric Wintemute

have the close fairly so did to looking far get $X the contributed that, back. again, we about is, think, generally, we are And supply Bromacil to million, probably U.S. expectations. are I Much outside position that of we that on

Joseph Reagor

then were or of Okay. up year back They a towards Is XX% is And made you the margins. are of moving time forward? They slightly margins, there that on improvement like looks those margin hoping businesses. track XX% XX% to for on number over might this acquisitions lot a range. the see maybe any lower chance expecting kind fair

Eric Wintemute

which to Well, we we international the we progress are said, have have in I we at we think moved piece, made mean, -- XX%. XX%, as I

So difference calling we as profitable. are products big start that that makes a out less

all are where basically dampened as those paraquat our impacted been that margins Equus inventories not on large sitting imported by competitors well, and have and We materializing, are markets those particularly and products with there. the typically has

products to So as those our -- margin it’s is biologicals that there’s SIMPAS higher straight the obviously, certainly goal & royalties we I increase see we that we are which And products. and Procter as higher mentioned, a the margins, plays margins, well. improves Envance out be from think, as then to again, TyraTech, from expect because margin royalty deal, coming payment. where Gamble,

So your question… I just answered

Joseph Reagor

Okay.

Eric Wintemute

Yeah. we We up would as synergies start margins moving look gaining forward. to move

Joseph Reagor

Okay. Thanks. I will turn it over.

Operator

with Your the next [Operator proceed Please Markets. with Chris question comes line Capital your Loop Kapsch question. Instructions] from of

Chris Kapsch

afternoon. Good Hi. Yeah.

Just persists will regarding positive long? to understand -- year? on so, it reduce you potential more have sales timing a drag Do performance contributors some specificity in any like how margin next gross have then with reduced going is that bit that metric And know next bit suppose working frame I little to -- sort could margin into you the the several of sounds inventories. XXXX, think year, that you a up impact if gross gross least wanted if given margin at mix more for couple as a of little to are you on to try the that standpoint. from a

Eric Wintemute

as we also. being So some do Folex insecticide see That such to with about performance, factory we inventory have the that said, talked in holdovers, regard we provider do improvements.

So those negatives. kind will be of

strong, do we first pretty quarter, But and our we for I season, corn into quarter. quarter think and third and build the feel products look again, XXXX fourth

well will the ‘XX. So positive have and effect a as -- ‘XX that will have the

will we improvement So see there.

what regarding question -- As margins question, the far or… I think, as, was XXXX your for second was second

Chris Kapsch

Yeah. Yeah.

Eric Wintemute

the products... Was the …you your XXXX? mean that for question products

Chris Kapsch

improvement improvement expectation there’s on, based lot we have obviously, might the Yeah. will of be up but what moving XXXX year? to frame on you try If based mix for gross could the next pieces, margin fact a that

Eric Wintemute

Yeah.

position to we into then competitive in hangover, tariffs. So I were tariffs that If XXXX know function we we with a effect are that it’s move in inventory have the still I I we need go has to sitting the have and don’t of with that inventory. good would got, then mean, say, a

be we we offer of those we generic -- don’t, are they are we And that do for not make to and competitor -- minimal customers. try we full that sell are we great are support drag service then continue generic. that a If products on kind us margins to that to will our and because we have have a

So bit that will drag. little a a of be

mentioned, will Bromacil $XX a up that’s in million… be will pick the margin product, high We because I which

Chris Kapsch

Yeah.

Eric Wintemute

next … year, margin. which is higher level at

we maybe tick for from to I So, up year. guess, tried XX% this X% XX% have next to

Chris Kapsch

I that’s reasonable. think

Eric Wintemute

think kind we at. looking that where I are of

Chris Kapsch

ad a feel Eric, this talk bit on the gives going maybe sort that experience XXXX down surrounding counterintuitive cycle you in of you like, industry have a just inventories little XXXX channel call surplus have you so the visibility visibility, few pronounced then it’s pretty of the and post good for here weak a was with about, years, the that a are. and of corn about to inventories there you issues a drought where Can in in mentioned because might you what because overall the be with the challenge channel little sales improve confidence with channel? inventories taken your XXXX in you And pretty but measures then then, there back having

Eric Wintemute

pre-emergence Yeah. the probably hit I hardest. mean, got the

well. are index did post-emergent impact Our

percentage channel have insecticides less both even so with from been a better they were the previous than Our the volume. in coming back and net corn actually on did soil returns and basis years, on

didn’t a acres done and lot indicated planted very where treatments and for a or that was us than sales told being ground So high. get in have challenging either expectations time would particularly of that that have weren’t on didn’t have year, better

somewhat I XXXX. think prospects for optimistic team the about our is

Chris Kapsch

you. Thank Helpful.

Operator

And [Operator Instructions] the end remarks. I Ladies and to for management the like turn session. of would to gentlemen, we question-and-answer call have back reached the closing

Eric Wintemute

you final much. Hector. call. quarter. forward very the on I to you, We move further appreciate as Thank Bye. Thanks progress everybody look we this participating through giving

Operator

concludes conference. today’s This

your You lines you time. may at this disconnect your Thank for participation.

Bill Kuser	Director, Investor Relations
Eric Wintemute	Chairman and CEO
David Johnson	Chief Financial Officer
Bob Trogele	Chief Operating Officer
Joseph Reagor	Roth Capital Partners
Chris Kapsch	Loop Capital Markets

American Vanguard (AVD) 10 Nov 192019 Q3 Earnings call transcript