Univar Reports Q2 Financial Results

OREANDA-NEWS. Univar Inc. (NYSE: UNVR) ("Univar"), a global chemical distributor and provider of value-added services, announced today its financial results for the second quarter ended June 30, 2016.

For the second quarter, Univar reported net income of $39.8 million compared to a loss of $12.4 million in prior year, largely the result of lower interest expense, and the absence of charges related to the initial public offering and debt refinancing in the prior year quarter. The Company reported earnings per share of $0.29 based on approximately 137.6 million weighted average shares outstanding, compared to a loss per share of $0.12 based on approximately 102.8 million shares in second quarter 2015.

Univar reported net sales of $2.3 billion for the quarter, down $247.6 million or 9.9 percent, and gross profit of $445.4 million, down $21.8 million, or 4.7 percent compared to prior year, largely due to lower demand from the upstream oil and gas market, and a 7.1 percent decline in average selling price. Univar reported second quarter Adjusted EBITDA of $148.2 million, which was moderately higher than the $134.1 million reported in the first quarter, and in line with the Company's previous guidance.

"As expected, we continued to face challenges in the second quarter with sluggish industrial demand, negative comparisons in upstream oil and gas, and lower average selling prices.  Although quarterly results were in line with our previous guidance, I am disappointed in our ability to deliver growth, especially in the U.S." said Steve Newlin, President and Chief Executive Officer. "Since joining Univar as CEO, I have spent the past two months assessing our Company in-depth, and despite the current challenges, I am excited about the tremendous opportunity in front of us. I am confident that the actions we are taking will get us on track to deliver above market profit growth in the intermediate and long term."

Company Performance

The results of the Company's operating performance are described below and, unless otherwise indicated, are a comparison of second quarter 2016 results with second quarter 2015 results, including Adjusted EBITDA, which is reconciled to reported net income in the accompanying supplemental financial information.

Segment Highlights

USA – Net sales for the USA segment decreased 12.7 percent from $1.4 billion to $1.2 billion primarily due to lower sales to the upstream oil and gas market and lower average selling prices associated with lower oil prices. Gross profit decreased $21.1 million, or 7.4 percent, to $263.1 million. Gross margin, increased 120 basis points to 21.7 percent primarily driven by margin maintenance efforts while experiencing lower average selling prices. Adjusted EBITDA decreased 24.4 percent from $110.1 million to $83.2 million. Adjusted EBITDA margin decreased 100 basis points to 6.9 percent primarily due to lower gross profit.

Canada – Net sales for the Canada segment decreased 9.2 percent from $534.6 million to $485.4 million. On a currency neutral basis, sales decreased 3.6 percent, primarily driven by lower sales in the Western Canada upstream oil and gas market, which was partially offset by the benefit of acquisitions. Gross profit decreased 3.8 percent from $63.0 million to $60.6 million. On a currency neutral basis, gross profit increased 1.3 percent, primarily due to changes in product mix. Gross margin increased 70 basis points to 12.5 percent. Adjusted EBITDA increased 3.6 percent from $30.4 million to $31.5 million. On a currency neutral basis, Adjusted EBITDA increased 9.9 percent. Adjusted EBITDA margin increased 80 basis points to 6.5 percent due to lower operating expenses.

EMEA – Net sales for the EMEA segment decreased 1.6 percent from $467.4 million to $459.9 million. On a currency neutral basis, sales decreased 2.1 percent, primarily due to lower average selling prices and changes in product mix. Gross profit increased 4.6 percent from $98.6 million to $103.1 million. On a currency neutral basis, gross profit increased 3.9 percent due to product and customer mix enrichment, and higher sales of pharmaceutical finished goods. Gross margin increased 130 basis points to 22.4 percent. Adjusted EBITDA increased 21.8 percent from $27.1 million to $33.0 million. On a currency neutral basis, Adjusted EBITDA increased 22.9 percent. Adjusted EBITDA margin increased 140 basis points to 7.2 percent, due to higher gross margin and lower operating costs resulting from Univar's 2015 EMEA restructuring program.

Rest of World – Net sales for the Rest of World segment decreased 12.0 percent from $118.7 million to $104.4 million. On a currency neutral basis, sales increased 1.0 percent primarily due to favorable changes in sales pricing and product mix. Gross profit decreased 13.1 percent from $21.4 million to $18.6 million. On a currency neutral basis, gross profit increased 0.5 percent. Gross margin decreased 20 basis points to 17.8 percent. Adjusted EBITDA decreased 32.3 percent from $6.2 million to $4.2 million. On a currency neutral basis, Adjusted EBITDA decreased 21.0 percent. Adjusted EBITDA margin decreased 120 basis points to 4.0 percent.

Outlook

In the second half of 2016, the Company expects ongoing sluggish demand in industrial markets and chemical prices to remain lower compared to the prior year. In addition, the Company anticipates the negative impacts from foreign currency translation related to post-Brexit exchange rates. These challenges will be partially offset by the benefits of organic growth initiatives, growth of Univar's service businesses, and acquisitions. The Company expects second half Adjusted EBITDA to be slightly below the Adjusted EBITDA reported in the first half of 2016, and roughly evenly divided between the third and fourth quarters. As a result, full-year Adjusted EBITDA is expected to be between $550 and $565 million.

"We have a strong foundation at Univar, and I am confident we have the right strategy in place," said Newlin. "However, we face several near term challenges. We are already implementing changes to improve our execution with a strong sense of urgency. I expect it will take a few quarters to see the real impact of these changes, but I have no doubt we will deliver consistent and superior profit growth. If there's one thing I've learned in my 37 years in the chemical industry, it's that growth can be achieved in all market conditions by focusing on commercial greatness and operational excellence. These are our clear priorities."

 

Adjusted EBITDA, Adjusted EBITDA margin

The Company monitors the results of its operating segments separately for the purposes of making decisions about resource allocation and performance assessment.  The Company evaluates performance on the basis of Adjusted EBITDA, which it defines as its consolidated net income (loss), plus the sum of interest expense, net of interest income, income tax expense (benefit), depreciation, amortization, other operating expenses, net (which primarily consists of pension mark to market adjustments, acquisition and integration related expenses, employee stock-based compensation expense, redundancy and restructuring costs, advisory fees paid to stockholders, and other unusual or non-recurring expenses), impairment charges, loss on extinguishment of debt and other income (expense), net (which consists of gains and losses on foreign currency transactions and undesignated derivative instruments, ineffective portion of cash flow hedges, debt refinancing costs, and other non-operating activity). The Company believes that Adjusted EBITDA is an important indicator of operating performance because:

• Adjusted EBITDA excludes the effects of income taxes, as well as the effects of financing and investing activities by eliminating the effects of interest, depreciation and amortization expenses;
• the Company uses Adjusted EBITDA in setting performance incentive targets;
• the Company considers gains (losses) on the acquisition, disposal and impairment of assets as resulting from investing decisions rather than ongoing operations; and
• other significant items, while periodically affecting the Company's results, may vary significantly from period to period and have a disproportionate effect in a given period, which affects comparability of its results.
• Adjusted EBITDA margin is Adjusted EBITDA as a percentage of net sales.

Use of Non-GAAP Measures

The Company's management believes that certain financial measures that do not comply with accounting principles generally accepted in the United States ("GAAP") provide relevant and meaningful information concerning the ongoing operating results of the Company.  Such non-GAAP financial measures are used from time to time herein but should not be viewed as a substitute for GAAP measures of performance. Reconciliations of non-GAAP measures to GAAP are provided in Schedules A, B, C and D.

About Univar 

Founded in 1924, Univar is a global distributor of specialty and basic chemicals from more than 8,000 producers worldwide. Univar operates more than 800 distribution facilities throughout North America, Western Europe, the Asia-Pacific region, and Latin America, supported by a global network of sales and technical professionals. With a broad portfolio of products and value-added services, and deep technical and market expertise, Univar delivers the tailored solutions customers need through one of the most extensive chemical distribution networks in the world. Univar is Chemistry Delivered^SM.

Forward-Looking Statements

This press release includes certain statements relating to future events and our intentions, beliefs, expectations, and predictions for the future which are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control. We caution you that the forward-looking information presented in this press release is not a guarantee of future events or results, and that actual events or results may differ materially from those made in or suggested by the forward-looking information contained in this press release. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "plan," "seek," "comfortable with," "will," "expect," "intend," "estimate," "anticipate," "believe" or "continue" or the negative thereof or variations thereon or similar terminology. Any forward-looking information presented herein is made only as of the date of this press release, and we do not undertake any obligation to update or revise any forward-looking information to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise.