Balchem Corporation Sees Steady Health and Nutrition Growth

By Markets Fool.com

Nutrition is driving Balchem Corporation's results right now. Image source: Getty Images.

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The diverse business Balchem Corporation (NASDAQ: BCPC) has built the ability to offset a bad business segment with one or two that are performing well. In the third quarter of 2016, one really bad segment was offset by three that performed very well. And that left investors with relatively flat results. Here's what you should know about the quarter.

Balchem Corporation results: The raw numbers

Metric

Q3 2016

Q3 2015 Actuals

Growth (YOY)

Sales

$138.5 million

$140.1 million

(1.2%)

Adjusted net earnings

$19.5 million

$19.4 million

0.3%

Adjusted earnings per share

$0.61

$0.61

N/A

YOY = Year over year. Data source: Balchem Corporation Q3 2016 earnings release.

What happened with Balchem Corporation this quarter?

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The business overall looks fairly stagnant, but the underlying business segments tell a very different story. Broadly, nutrition and health products are improving slowly, but they're being offset by weakness in industrial products. Here are the highlights:

  • Human nutrition and health revenue rose 2.7%, to $74.9 million, in the quarter, but earnings from operations fell $1.1 million, to $10.5 million. Lower sales volumes from the powder systems business led to most of the decline in earnings.
  • Animal nutrition and health revenue rose 2.5%, to $40.9 million, and earnings from operations rose 20.6%, to $6.8 million. The business saw a 6.6% increase in volume, offset slightly by a decline in sales prices.
  • Specialty products was the biggest bright spot, with revenue up 19.2%, to $16.5 million, while adjusted earnings from operations rose 2.4%, to $6.3 million.
  • The industrial products segment continues to struggle, with low oil and natural gas prices resulting in less fracking in the U.S. Revenue fell 53.9%, to $7.2 million, and earnings from operations dropped from $1.1 million a year ago to just $0.5 million.
  • $25.8 million of principal payments, including early payments, were made on the company's debt.

What management had to say

CEO Ted Harris pointed to Balchem's ability to expand margins and pay down debt as signs the business is slowly improving. And the industrial business is now so small that it'll be less and less of a drag on the top line going forward. That could mean Balchem's top line will return to growth in the near future.

Looking forward

The two things to watch in the future are the top-line sales figure, which may come under pressure due to the slow growth of the economy right now. Another way the company can add value is by expanding margins. Gross margin increased from 30.8% a year ago to 32.2% in the quarter, and if the trend continues, it'll help the bottom line and could give the stock a jolt.

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Travis Hoium has no position in any stocks mentioned. The Motley Fool recommends Balchem. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.