Innospec Inc . (NASDAQ:IOSP) reported its fourth-quarter 2024 earnings, surpassing analysts' expectations with an EPS of $1.41 compared to the forecasted $1.36. The company also reported revenue of $466.8 million, exceeding the expected $458.23 million. Despite these positive results, the stock fell 7.63% to close at $109.88, reflecting investor concerns over certain business segments and future growth prospects. According to InvestingPro data, the company maintains a GREAT financial health score of 3.16, with 12 key investment insights available to subscribers.
Key Takeaways
- Innospec exceeded both EPS and revenue forecasts for Q4 2024.
- The stock price dropped by 7.63% following the earnings release.
- Performance Chemicals and Fuel Specialties showed strong revenue growth.
- Oilfield Services revenue declined significantly by 40%.
- The company maintains a strong balance sheet with no debt.
Company Performance
Innospec's overall performance for the quarter was mixed. While the company managed to beat earnings expectations, it faced challenges in some business segments. Notably, Oilfield Services experienced a substantial decline, which may have contributed to the negative market reaction. Despite these challenges, Innospec continues to focus on innovation and integration of recent acquisitions, positioning itself for future growth.
Financial Highlights
- Revenue: $466.8 million, a 6% decrease year-over-year.
- Full-year revenue: $1.85 billion, a 5% decrease from 2023.
- Adjusted EBITDA: $225.2 million, up from $216 million in 2023.
- Adjusted EPS for the year: $5.92, down from $6.09 in 2023.
- Cash and cash equivalents: $289.2 million with no debt.
Earnings vs. Forecast
Innospec's Q4 2024 EPS of $1.41 beat the forecasted $1.36 by approximately 3.68%. Revenue also surpassed expectations by $8.57 million, indicating a strong finish to the year despite overall revenue declines.
Market Reaction
Following the earnings announcement, Innospec's stock fell by 7.63%, closing at $109.88. This decline suggests that investors may be cautious about the company's future growth, particularly in light of the significant drop in Oilfield Services revenue.
Outlook & Guidance
Looking ahead, Innospec is targeting improvements in operating income and margins, aiming to return to 2022 levels. The company expects sequential quarterly improvements and partial recovery in its Oilfield Services segment in the latter half of 2025. The effective tax rate for 2025 is anticipated to be around 27%. Based on InvestingPro Fair Value analysis, the stock appears fairly valued at current levels, with analysts setting price targets between $125 and $140. The company's 5-year revenue CAGR stands at 6%, suggesting potential for long-term growth despite near-term challenges.
Executive Commentary
CEO Patrick Williams highlighted the company's focus on technologies that lower emissions and improve efficiencies, stating, "Our opportunity pipeline continues to focus on technologies that lower emissions, enable cleaner formulations and increase operating efficiencies." Additionally, Williams expressed optimism about the eventual return of Oilfield Services customers, albeit at lower volumes.
Risks and Challenges
- Continued decline in Oilfield Services revenue could impact overall growth.
- Market volatility and economic uncertainties may affect demand in key segments.
- Maintaining competitive advantage in a rapidly evolving industry remains crucial.
- Potential supply chain disruptions could pose operational challenges.
Q&A
During the earnings call, analysts inquired about the sustainability of margins in the Fuel Specialties segment and the anticipated recovery timeline for Oilfield Services. Management confirmed expectations of sustainable margins and a potential return of Latin American customers in the second half of 2025, albeit at reduced volumes.
Full transcript - Innospec Inc (IOSP) Q4 2024:
Conference Operator: Good day and thank you for standing by. Welcome to the Innospec's Fourth Quarter twenty twenty four Earnings Release and Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please advise that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, David Jones, General Counsel.
Please go ahead.
David Jones, General Counsel and Chief Compliance Officer, Innospec: Thank you. Welcome to Innospec's earnings call. This is David Jones. I'm Innospec's General Counsel and Chief Compliance Officer. Earnings release for this presentation is posted on the company's website.
During this call, we will make forward looking statements, which are predictions about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from the anticipated results implied by such forward looking statements. The risks and uncertainties are detailed in Innospec's ten K, 10 Q and other filings with the SEC. Please see the SEC's site and Inno Specs' site for these and related documents. In today's presentation, we have also included non GAAP financial measures.
A reconciliation to the most directly comparable GAAP financial measure is contained in the earnings release. The non GAAP financial measures should not be considered as a substitute for or superior to those prepared in accordance with GAAP. They are included as additional items to aid investors' understanding of the company's performance in addition to the impact that these items had on financial results. With me today from Innospec are Patrick Williams, President and Chief Executive Officer and Dean Cleminson, Executive Vice President and Chief Financial Officer. And with that, I turn it over to you, Patrick.
Patrick Williams, President and Chief Executive Officer, Innospec: Thank you, David. And welcome everyone to Innospec's fourth quarter and full year twenty twenty four conference call. This was another good quarter for Innospec as we exceeded earnings expectations despite the reduced oilfield services activity in Latin America. In Performance Chemicals, we delivered double digit operating income growth over the fourth quarter last year driven by improved sales and margins. We have a balanced pipeline of growth opportunities across our global personal care, home care, agriculture, construction and other industrial markets.
In addition, the integration and performance of our recent QGP acquisition in Brazil is proceeding to plan and is supporting not only Performance Chemicals, but also Fuel Specialties growth opportunities in the region. Moving to 2025, we continue to target operating income and margin improvement to levels consistent with full year 2022. In fuel specialties, operating income increased 7% over the same quarter last year and operating margin improved to just below our target of 19% to 21%. We remain focused on further margin improvement in parallel with top line growth. With our industry leading innovation and customer service capabilities, we are well positioned to continue advancing our global customers' initiatives.
Our technology will continue to focus on cleaner fuels, lowering emissions and improving efficiency in traditional, renewable and nonfuel applications. In Oilfield Services, as expected, results were similar to the third quarter with no recovery in Latin America production chemical activity. We currently do not expect this activity to resume in the near term. In 2025, we remain focused on continuing to drive sequential quarterly improvements in our core businesses, including U. S.
Completions and production, DRA in The Middle East. Now, I will turn the call over to Ian Clemenson, who will review our financial results in more detail. Then I will return with some concluding comments. After that, Ian and I will take your
David Jones, General Counsel and Chief Compliance Officer, Innospec: questions. Ian? Thanks, Patrick. Turning to Slide seven in
Dean Cleminson, Executive Vice President and Chief Financial Officer, Innospec: the presentation. The company's total revenues for the fourth quarter were $466,800,000 a 6% decrease from £494,700,000 a year ago. Overall, gross margin decreased by 2.3 percentage points from last year to 29.2%. Adjusted EBITDA for the quarter was £56,600,000 compared to £61,600,000 last year. In the fourth quarter, the company concluded the buyout of The UK pension scheme and incurred a noncash settlement charge of million.
And consequently, there was a net loss for the quarter of million. Adjusting for this, the net income was $46,300,000 compared to $37,800,000 a year ago. Our GAAP loss per share of $2.8 including special items, the net effects of which decreased our fourth quarter earnings by $4.21 per share. A year ago, we reported GAAP earnings per share of $1.51 which included a negative impact on special items of $0.33 per share. Excluding special items in both years, our adjusted EPS for the quarter was $1.41 compared to $1.84 a year ago.
For the full year, total revenues of $1,850,000,000 dollars decreased 5% from $1,950,000,000 in 2023. Adjusted EBITDA for the year was $225,200,000 compared to $216,000,000 in 2023. And net income adjusted for the pension settlement was $152,300,000 compared to $139,100,000 a year ago. Our full year GAAP earnings per share were $1.42 including special items, which decreased our full year earnings by $4.5 per share. In 2023, we reported GAAP earnings per share of $5.56 per share, which includes a negative impact from special items of $0.53 per share.
Excluding special items in both years, our adjusted EPS for the year was $5.92 compared to $6.09 a year ago. Turning to Slide eight. Revenues in Performance Chemicals for the fourth quarter were $169,200,000 up 23% from last year's $137,200,000 dollars A negative pricemix of 2% was offset by acquisition growth of 7%, a volume growth of 17% and a positive currency impact of 1%. Gross margins of 22.7% were up 1.4 percentage points from last year and operating income increased 14% to $20,600,000 dollars For the full year, revenues of $653,700,000 were up 16% from last year's $561,600,000 and operating income increased by 52% to $82,900,000 Moving on to Slide nine. Revenues in Field Specialties for the fourth quarter were $191,800,000 up 5% on the $182,100,000 reported a year ago.
Volumes increased by 9% and a positive currency impact of 1% offset a negative price mix of 5%. Fuel Specialty's gross margins of 34.4% improved by 1.5 percentage points from 32.9 last year and operating income increased 7% to $34,900,000 For the full year, revenues were up 1% to $701,100,000 and operating income increased 18% to $129,600,000 Adjusting for the impact of non recurring Brazil inventory charges in 2023, full year operating income grew by 4%. Moving on to Slide 10. Revenues in Oilfield Services for the quarter were $105,800,000 dollars down 40% from 175,400,000 in the fourth quarter last year. Gross margins of 30.1% were down 7.9 percentage points on last year's 38% and operating income of $7,500,000 was down 59% from eighteen point three million dollars a year ago.
For the full year, revenues of $490,600,000 were down 29% from last year's $691,300,000 and operating income decreased to 51% to 38,800,000 Excluding the Latin American production activity, our core business has grown sales and operating income year over year. Our expectation for 2025 is that we will see further sequential improvement in the core oilfield business. Turning to Slide 11. Corporate costs of $20,600,000 decreased by $3,800,000 from last year, which included $1,300,000 relating to acquisition costs. The full year adjusted effective tax rate was 26.4% compared to 23% last year due to the geographical mix of taxable profits.
For 2025, we expect the full year effective tax rate to be around 27%. Moving on to Slide 12. Cash generated from operations in the quarter was $25,700,000 before capital expenditures are $20,600,000 dollars In the quarter, we paid the previously announced semiannual dividend of $0.79 per common share. This brought the total dividend for the full year to $1.55 per share, a 10% increase over 2023. For the full year, cash from operations after capital expenditures was $122,700,000 compared to $130,200,000 in 2023.
As of 12/31/2024, Innospec had $289,200,000 in cash and cash equivalents and no debt. And now I'll turn it back over to Patrick for some final comments.
Patrick Williams, President and Chief Executive Officer, Innospec: Thanks, Ian. Innospec achieved another good set of results over the quarter and full year. Strength in Performance Chemicals and Field Facilities continue to offset lower results in Oilfield Services. Our 2025 outlook remains for continued growth in Performance Chemicals and Fuel Specialties along with sequential quarterly recovery in oilfield services. In all, our businesses remain focused to deliver best in class surface active chemistry technologies and technical service to our global customers.
Our opportunity pipeline continues to focus on technologies that lower emissions, enable cleaner formulations and increase operating efficiencies. We view these as long term customer priorities in all our markets. Operating cash generation was positive in the quarter and our net cash position closed with over $289,000,000 We continue to have significant flexibility and balance sheet strength for further M and A, dividend growth, share repurchases and organic investment. Now I will turn the call over to the operator and he and I will take your questions.
Conference Operator: Thank you. And the first question comes from Jeong Tanwanteng from CJS Securities. Please go ahead. Your line is now open.
John Tanwanteng, Analyst, CJS Securities: Good morning. Thank you for taking my questions and congrats on a nice quarter. My first one is, could you just talk about the year over year volume increases in both the fuels and the chemicals segments? Were those just easy comps or were there timing factors or were there just a significant improvement in the underlying run rate demand there?
Patrick Williams, President and Chief Executive Officer, Innospec: I think it was a significant improvement. It was projects that we had organic based projects that came to fruition. Market conditions stabilized for us and we continue to grow in our customer base. So I think it was overall just a general improvement.
John Tanwanteng, Analyst, CJS Securities: Got it. And the sustainability of that demand into Q1, have you seen those trends continue?
Patrick Williams, President and Chief Executive Officer, Innospec: We have. So far we have, John.
John Tanwanteng, Analyst, CJS Securities: Got it. And the margin obviously in fuel specialties was pretty outstanding. Do you think that is maintainable or sustainable for the future?
Patrick Williams, President and Chief Executive Officer, Innospec: Yes, I'd probably be holding the same margins that we held in the quarter.
John Tanwanteng, Analyst, CJS Securities: Got it. And then just on the Oilfield segment, you mentioned that you don't expect that large customer to come back in the coming quarters. I'm wondering what your long term expectation for that customer is, if maybe six months down the line, a year down the line, do you think they might come back?
Patrick Williams, President and Chief Executive Officer, Innospec: Yes, I think you probably answered. We're probably thinking a second part of the year second half of the year, I should say. We know what's going on internally. It's very political right now. There's been articles out about some of the crude coming out of it's hit the heavy crude with all the water and U.
S. Refineries not taking or being able to handle that crude. So we know at some point in time, John, they're going to have to come back as a function of wind and to what volume. I do know if they come back, it's probably going to be at a lower volume, but that's okay. I think that our technology is, in my opinion, the best technology in the marketplace to treat those fruits.
And we're there, we're ready, just a function of timing in my opinion.
John Tanwanteng, Analyst, CJS Securities: Got it. Is there a risk that the refineries retool to use different kinds of fruits in the market?
Patrick Williams, President and Chief Executive Officer, Innospec: They could treat it at U. S. Refineries, but there's so much water in that crude right now that it's very expensive to do. We could use our products that we probably use in Mexico at U. S.
Refineries to help them. And that's part of the plan is to have a dual attack there, because we could definitely help The U. S. Refineries that are taking that heavy crude. And so we are talking to them.
Again, I think it's just a function of timing. It's just a lot of water in their crude and U. S. Refineries aren't really prepared to take on that much water.
John Tanwanteng, Analyst, CJS Securities: Got it. Okay. And just one housekeeping item. You had a pension settlement charge in the quarter. Can you just give a little color and details around that?
Did you spend any cash? And what are the what's the pension liability going forward here?
Dean Cleminson, Executive Vice President and Chief Financial Officer, Innospec: Yes, sure, John. So we flagged this probably about two years ago that we were heading towards this point. We concluded the buyout in the fourth quarter. Essentially, what that does, it then removes the company's obligation to provide the sort of the cost of the pension scheme,
John Tanwanteng, Analyst, CJS Securities: and
Dean Cleminson, Executive Vice President and Chief Financial Officer, Innospec: it removes all those legislation changes, risks of investment returns, assumptions on inflation and such things. They're all now removed from the company's balance sheet. So this is actually a very positive thing for us. Part of The U. S.
GAAP accounting was to recycle all those historic gains and losses that were in the reserves back into the income statement. That gave us 155,000,000 charge. We've adjusted that out in the quarter. So this is a noncash charge. It was a one off event.
As we move into 2025, the one thing that is going to be slightly different for us is that in 2024, we have a service credit flowing through our other income line below operating income. That's about $7,200,000 We won't have that credit flowing through in 2025. So there's a $0.22 headwind there as we head into this year. That's the only impact that we've got ongoing. Everything else is pretty much wrapped up now.
There'll be no ongoing costs, no ongoing charges running through the income statement.
John Tanwanteng, Analyst, CJS Securities: Got it. Thank you.
Dean Cleminson, Executive Vice President and Chief Financial Officer, Innospec: No problem.
Conference Operator: Thank you. As there are no further questions on the phone lines, I would now like to hand back to Patrick Williams for any closing remarks.
Patrick Williams, President and Chief Executive Officer, Innospec: Thank you to all for joining us today and thanks to all our shareholders, customers and Innospec employees for your interest and support. If you have any further questions about Innospec or matters discussed today, please give us a call. We look forward to meeting up with you again to discuss our first quarter twenty twenty five results in May. Have a great day.
Conference Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
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