American Vanguard Corporation (NYSE: AVD) — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unaudited consolidated results; amounts below are in USD millions except per-share data. The company reports one segment.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $148.1 | $134.6 | $297.5 | $250.8 |
| Gross profit / margin | $59.8 / 40% | $52.1 / 39% | $121.0 / 41% | $97.3 / 39% |
| Operating income | $10.8 | $9.0 | $25.6 | $12.6 |
| Net income | $6.8 | $5.1 | $16.8 | $8.2 |
| Diluted EPS | $0.23 | $0.17 | $0.55 | $0.27 |
- Q2 sales increased 10%, gross profit 15%, operating income 21%, and net income 33% year over year. Six-month sales rose 19%, gross profit 24%, and net income more than doubled.
- International sales grew 26% in Q2 and 18% year to date. U.S. crop sales rose 1% in Q2 and 29% year to date; U.S. non-crop sales fell 1% and 11%, respectively. Management cited strong international demand and U.S. crop conditions, partly offset by drought-related weakness in soil fumigants and non-crop softness.
- Gross-margin improvement reflected higher pricing, product mix and factory performance; raw-material, freight and logistics inflation partly offset these benefits. Q2 operating expenses included $1.8 million of proxy-defense costs. Without those costs, management said Q2 operating expenses would have been 32% of sales, matching the prior-year rate.
Cash flow, debt and liquidity
- Six-month operating cash flow was a use of $27.2 million, versus a $18.9 million use a year earlier. Working-capital demands included higher receivables and inventories and a $62.8 million reduction in customer prepayments; accrued program costs increased $36.0 million.
- Investing cash use was $6.7 million, including $5.7 million of capital expenditures. Financing provided $40.0 million, including $48.4 million of net credit-line borrowings, $6.2 million of share repurchases and $1.3 million of dividends. Cash ended the period at $22.1 million, up from $16.3 million at year-end 2021.
- At June 30, gross revolving debt was $101.7 million and net long-term debt was $100.8 million, compared with $53.3 million gross and $52.2 million net at December 31, 2021. The company reported $162.6 million of borrowing capacity, a 1.35 leverage ratio against a 3.5 maximum, and compliance with its covenants. Its credit facility matures in August 2026; the reported June 30 interest rate was 2.99%.
- Current assets were $400.1 million and current liabilities $212.9 million. Management said cash, expected operating cash flow and available credit should meet working-capital and cash needs for the next 12 months.
Outlook, commentary and risks
- The filing provides no specific earnings or sales guidance. Management described a continuing agricultural upcycle, strong commodity prices and demand, and generally improved operating results; it also noted supply-chain constraints, inflation, foreign-exchange volatility and uncertainty around future pandemic effects.
- Material regulatory risks include the EPA’s notice of intent to suspend the DCPA registration used in Dacthal, which the company is appealing, and an NGO petition seeking revocation of food tolerances for eight organophosphate active ingredients. Adverse outcomes could affect product registrations and financial performance.
- A DOJ/EPA investigation concerning alleged FIFRA, RCRA and other violations remained unresolved; the company said it could not predict the timing or outcome and had recorded no loss contingency. The filing also describes a product-liability suit alleging injury from Orthene exposure; no reserve was recorded because loss probability and amount could not yet be assessed. A separate Canadian SmartBlock matter has a recorded, non-material contingency.
- Other notable items: the prior-year six-month comparison included $0.7 million of PPP loan forgiveness and a $10 million product-line acquisition payment. Q2 foreign-currency translation reduced comprehensive income by $6.1 million. The company repurchased 333,010 shares for $6.2 million in the first half and paid quarterly dividends of $0.025 per share.
Important facts for investors to verify
- Whether sales growth, pricing and gross-margin gains persist as demand normalizes and inflation and logistics costs continue.
- Working-capital conversion, especially inventory levels, customer prepayments and accrued customer programs, and the timing of operating cash flow recovery.
- Debt growth, borrowing availability, variable-rate exposure and continued compliance with credit-agreement covenants.
- Developments and potential financial or operational effects of the DCPA matter, organophosphate petition and unresolved legal proceedings.
- The sustainability of earnings growth after excluding proxy-defense costs and non-recurring items in the comparison period.