Innophos Holdings Inc., the Cranbury, N.J.-based specialty phosphate producer, reported income of $9.2 million ($.43 per diluted share) on sales of $162.5 million for the first quarter ending March 31, 2008, versus the year-ago loss of $2.1 million ($.10 per share) and $136.7 million, respectively. They were the best results Innophos has had as a public company.
The company said volumes were lower primarily due to a GTSP export shipment delayed into April because of a customer’s ocean shipping logistics issues and lower GTSP production for the quarter due to rock supply interruptions because of port congestion and other logistics issues in Morocco.
Innophos reported that its Geismar, La., PWA plant will have a planned three-to-four week outage in the coming quarter. The company is expecting a $5-$6 million impact on gross margin from the outage, primarily from lost production that the company expects to recover during the remainder of the year. Due to current tight supplies, Innophos said there was no purified phosphoric acid available for spot purchases to replace the production lost during the outage.
Innophos noted that it has been increasing prices to customers in order to cover higher raw material costs, most notably rock and sulfur. It estimates that these costs will increase by an amount equivalent to approximately 50-60 percent of 2007 annual sales by the second quarter of 2009, with half of this increase occurring in the second half of 2008 and the balance in the first quarter of 2009.
Innophos told analysts that it has benefited from China’s recent decision to increase duties to keep phosphates in China. “And the Chinese were one of the major sellers of specialty phosphates into North America and Europe and they have pretty well vanished from the scene, and as long as the Chinese government maintains that kind of policy stance, you know, we would expect to get a long-term benefit just from industry structure,” said Richard Heyse, Innophos vice president and CFO.
Heyse also commented on long-term fertilizer prices. “Most experts would say this is a multi-year trend, it’s going to take multiple years to rebuild food stockpiles and on top of that you got the pressure from biofuels that as grain prices start to drop, people would take those grains and convert them to liquid fuel.” He said due to the current, unprecedented environment, it is hard to call the market two-to-three years out.
Innophos also reported that on March 20, 2008, it received a letter from the U.S. Department of Justice indicating that the Environmental Protection Agency had referred Innophos’s case to the DOJ for civil enforcement, contending that the Geismar facility does not qualify for exemptions claim, and alleging the facility violates RCRA by failing to manage two materials appropriately, as well as related administrative violations. This relates back to inspections and questions going back to 2004-2006 regarding hazardous waste regulations. DOJ/EPA seeks unspecified penalties and corrective action, but proposes to discuss the matter to explore a resolution. At this time Innophos plans to meet with DOJ/EPA, but does not know if the discussions will resolve the matter. Innophos has yet to establish a liability on its balance sheet for the matter as of March 31, 2008. If it is liable, it doubts it will have a claim for indemnity against former owner Rhodia Inc.
Innophos has also not established a liability on its balance sheet regarding a DOJ potential antitrust violation relating to sodium tripolyphosphate (STPP). The company does anticipate that it can seek indemnity against Rhodia in this case. The company spent some $2.1 million in the first quarter due to DOJ subpoena requests in this matter.
In another legal matter, Sudamos S.A., an Argentine phosphate producer, has filed a request of arbitration before the ICC International Court of Arbitration in Paris saying Innophos Mexicana agreed to sell Sudamos certain quantities of phosphoric acid for delivery in 2007 and 2008, and seeks an order requiring the company to sell and deliver approximately 12,500 mt during 2008. Innophos claims it has no binding obligation to Sudamos and in turn says it is owed $1.2 million, which Sudamos has refused to pay.