American Vanguard Corporation — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; comparison with Q1 2012. The company reports one business segment. Financial statement amounts below are in millions of dollars unless otherwise noted.
Financial performance
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Net sales | $121.5 | $87.3 | +39% |
| Gross profit / margin | $53.8 / 44% | $37.4 / 43% | +$16.4; margin +1 point |
| Operating income | $26.2 | $14.4 | +82% |
| Net income attributable to American Vanguard | $16.9 | $8.7 | +94% |
| Diluted EPS | $0.59 | $0.31 | +$0.28 |
| Cash used in operating activities | $18.1 | $7.6 | Use increased |
| Cash and cash equivalents at quarter-end | $10.0 | $14.7 | Down $4.7 year over year |
Sales growth was led by crop products: crop sales rose 45% to $115.5 million, while non-crop sales declined 19% to $6.0 million. Insecticide sales increased 41% to $78.9 million and herbicide sales increased 68% to $33.0 million. U.S. sales rose to $103.1 million from $69.6 million; international sales were $18.4 million versus $17.7 million.
Operating expenses rose 20% to $27.6 million, including higher general and administrative costs, primarily from incentive compensation, legal expenses, insurance, and branding work. Interest expense net of capitalized interest was $0.35 million versus $0.70 million. The effective tax rate was 34.8%, compared with 36.3%.
Balance sheet, liquidity and cash flow
- At March 31, current assets were $286.5 million and current liabilities were $168.6 million; cash was $10.0 million.
- Total debt was $49.9 million, down from $52.4 million at December 31, 2012. Substantially all assets were pledged as bank collateral. The company reported compliance with its credit-facility covenants and up to $75 million of additional borrowing capacity under the facility, based on covenant capacity.
- Operating cash use reflected seasonal working-capital needs: receivables increased $70.9 million and inventories increased $21.5 million. Management said most receivables were due in the period beginning April 1, and inventory supported expected demand over the following 3–6 months.
- Investing activities used $8.1 million, including $4.4 million of capital expenditures and a $3.7 million investment in TyraTech Inc. Financing activities used $2.7 million.
Material changes, outlook and risks
- Management attributed strong crop-product demand particularly to corn-related products. Sales increases were mainly volume-driven, with approximately 6% attributable to price for the cited insecticide and herbicide growth. Impact herbicide supply availability improved for the 2013 season.
- Wet conditions improved soil moisture but delayed spring planting in parts of the Midwest; management did not expect the delays to affect use of its soil insecticides. Dibrom mosquito-adulticide sales were down 66%, which management attributed to weather-related demand shifting later in the year.
- Management reported continued strong demand into the next quarter, but provided no quantified full-year earnings or revenue guidance. It noted manufacturing-capacity spending in response to demand.
- Risk factors include product demand and acceptance, weather, regulatory policy, competition and pricing, foreign exchange, product development, supply and capacity constraints, and availability of capital. The filing reported no material changes to the risk factors in the 2012 Form 10-K.
- In Delaware DBCP litigation, one case and a related case involving 235 workers remained stayed pending a state Supreme Court decision on cross-jurisdictional tolling. Oral argument occurred April 10, 2013; a ruling was expected by the end of July. AMVAC disputed that the individual plaintiff was exposed to DBCP supplied by the company. The filing does not provide a clear quantified litigation exposure.
- The board declared a $0.07-per-share dividend, payable April 19, 2013 to holders of record April 5. Management stated disclosure controls were effective and reported no material changes in internal control over financial reporting during the quarter.
Key facts investors should verify
- Whether strong corn-product demand and management’s stated demand outlook persisted after the quarter, and whether planting delays affected subsequent sales.
- Collection of the seasonal receivables buildup and conversion of inventory into sales and cash; operating cash flow was materially negative despite higher earnings.
- Use of the reported borrowing capacity, covenant headroom, and exposure to variable interest rates and the interest-rate swap.
- Progress and any financial consequences of the DBCP cases, as well as the costs and expected returns from capacity expansion and the TyraTech investment.