American Vanguard Reports Q1 2024 Results

Rhea-AI Summary

American Vanguard (NYSE: AVD) reported positive financial results for the first quarter of 2024, with net sales reaching $135 million, Adjusted EBITDA up by 35% to $15.5 million, and Operating Income increasing by 87% to $6.1 million compared to the same period in 2023. Despite a slight decrease in net income and earnings per diluted share, the company's Chairman and CEO, Eric Wintemute, highlighted the improved operating leverage and cost control initiatives that contributed to the growth. The company also experienced growth in all three business segments, US Crop, US Non-crop, and International, with stable market conditions and increased sales across various product lines. However, the voluntary suspension of sales of the herbicide Dacthal due to concerns raised by USEPA led to adjustments in annual targets, setting a goal of 6% to 9% increase in net sales and an adjusted EBITDA target of $60 - $70 million for the year.

Positive

• American Vanguard reported a 35% increase in Adjusted EBITDA to $15.5 million and an 87% increase in Operating Income to $6.1 million for the first quarter of 2024 compared to the same period in 2023.

• The company achieved improved operating leverage through cost control initiatives, leading to reduced operating expenses as a percent of net sales despite transformation costs.

• American Vanguard experienced growth in all three business segments, US Crop, US Non-crop, and International, with strong sales across various product lines.

• Stable market conditions with a strong farm economy and relaxed procurement approach within the distribution channel contributed to the company's positive performance during the quarter.

Negative

• The voluntary suspension of sales of the herbicide Dacthal following concerns raised by USEPA led to adjustments in annual targets and uncertainty regarding future approval, impacting the company's revenue projections.

Insights

Financial Analyst

American Vanguard Corporation's Q1 2024 financial results demonstrate substantial growth in operating income, which has nearly doubled compared to the same period last year. This is a strong indicator of effective cost management and operational efficiency, particularly in light of the broader macroeconomic conditions. The company's EBITDA has also seen a significant uptick, suggesting improved profitability. Despite these positives, a slight decline in net income and earnings per share indicates that there may be factors, such as increased cost of goods or taxes, which have offset some of the operational gains. Looking at the sector as a whole, these results may suggest that American Vanguard is outperforming relative to peers, especially given the emphasized growth in all business segments. Investors might see the transformation program as a strategic initiative that could further optimize the company's operations and potentially increase shareholder value in the long-term, especially given its targeted impact on EBITDA. However, the suspension of sales for a herbicide pending regulatory approval introduces an element of uncertainty that may concern investors, as it could have implications for future sales and market positioning.

Market Research Analyst

The report on American Vanguard highlights several key trends in the agricultural sector that investors should pay attention to. First, the growth in granular soil insecticides, herbicides and cotton and peanut products correlates with current agricultural market dynamics, where crop choices and planting acreage can greatly influence demand for these products. The mention of conservative procurement in the distribution channel could be indicative of broader industry trends towards caution in inventory management, which may affect sales cycles and revenue predictability. Internationally, the moderate sales growth, especially in markets like Mexico and APAC, despite overstocking, suggests resilience in American Vanguard's global strategy. For retail investors, understanding these market dynamics is critical, as they can help anticipate potential growth areas for the company and assess the stability of American Vanguard's market share amidst competitive pressures.

Regulatory Affairs Specialist

The voluntary suspension of American Vanguard's herbicide Dacthal sales is a pivotal development from a regulatory standpoint. Investors should be aware that such regulatory concerns can have a dual impact. In the short term, sales and revenue from the product in question might be affected. However, the company's proactive approach towards addressing the USEPA's concerns could mitigate longer-term risks and potentially enhance its reputation for regulatory compliance. It is also essential for investors to monitor the outcome of this situation, as it can set a precedent for how American Vanguard navigates future regulatory challenges. This factor also underscores the importance of a robust regulatory strategy in the agrochemical industry, where product approvals are critical to maintaining market presence and driving growth.

Adjusted EBITDA up 35%, Operating Income up 87%

NEWPORT BEACH, Calif.--(BUSINESS WIRE)-- American Vanguard Corporation (NYSE: AVD) today announced financial results for the first quarter ended March 31, 2024.

First Quarter 2024 Financial Highlights – versus First Quarter 2023:

• Net sales of $135 million vs. $125 million
• Adjusted EBITDA¹ of $15.5 million vs. $11.5 million
• Operating Income of $6.1 million vs. $3.3 million
• Net income of $1.6 million vs. $1.9 million
• Earnings per diluted share of $0.06 vs. $0.07

Eric Wintemute, Chairman and CEO of American Vanguard, stated: “We attained improved operating leverage with a significant increase in adjusted EBITDA and operating income, during the first quarter as compared to last year. This is due in part to our cost control initiatives, on account of which our operating expenses reduced as a percent of net sales, even after including our transformation costs. We expect to gain greater efficiencies through our transformation program which we have begun in earnest and which we expect will generate an additional $15 million of adjusted EBITDA on an annualized basis by 2026.”

He continued, “Further, it is pleasing to note that we experienced growth in all three businesses, US Crop, US Non-crop and International. Within US Crop, we recorded strong sales of granular soil insecticides (in light of a stable farm economy), herbicides (in part due to seasonal demand and favorable weather conditions) and cotton and peanut products (driven by increased planted acres for those crops). The destocking initiatives from last year have begun to subside to a degree; however, the distribution channel is still exercising conservatism in their procurement approach.”

Mr. Wintemute continued, “Within US Non-crop, we experienced significantly higher sales, led by our mosquito adulticides (in anticipation of tropical storm activity), pest strips (with a resurgence in consumer and technical sales) and our OHP products for nursery and ornamental uses. Our International business recorded moderately higher sales, led by Mexico and APAC, despite continued overstocking of generic products in other regions. All in, we are encouraged by the resiliency of our markets during the quarter.”

Mr. Wintemute concluded, “Market conditions remain stable with a strong farm economy and a more relaxed procurement approach within the distribution channel compared to last year. That said, in light of concerns raised by USEPA, we have voluntarily suspended sales of our herbicide Dacthal pending potential approval of a label that we believe should answer the agency’s concerns. In light of these factors, we are adjusting our annual targets to achieve an increase in net sales of between 6% and 9% year over year and are setting our adjusted EBITDA target to $60 - $70 million. We look forward to giving you a more detailed presentation during our upcoming earnings call.”

Conference Call

Eric Wintemute, Chairman & CEO, Bob Trogele, EVP & COO and David T. Johnson, VP & CFO, will conduct a conference call focusing on the financial results and strategic themes at 4:15 pm ET on Thursday, May 9, 2024. Interested parties may participate in the call by dialing 201-493-6744. Please call in 10 minutes before the scheduled start time and ask for the American Vanguard call. The conference call will also be webcast live via the News and Media section of the Company’s web site at www.american-vanguard.com. To listen to the live webcast, go to the web site at least 15 minutes early to register, download and install any necessary audio software. If you are unable to listen live, the conference call will be archived on the Company’s web site.

About American Vanguard

American Vanguard Corporation is a diversified specialty and agricultural products company that develops and markets products for crop protection and management, turf and ornamentals management and public and animal health. Over the past 20 years, through product and business acquisitions, the Company has expanded its operations into 21 countries and now has over 1,000 product registrations in 56 nations worldwide. Its strategy rests on three growth initiatives – i) Core Business (through innovation of conventional products), ii) Green Solutions (with over 120 biorational products – including fertilizers, microbials, nutritionals and non-conventional products) and iii) Precision Agriculture innovation (including SIMPAS prescriptive application and Ultimus measure/record/verify technologies). American Vanguard is included on the Russell 2000® and Russell 3000® Indexes. To learn more about American Vanguard, please reference the Company’s web site at www.american-vanguard.com.

The Company, from time to time, may discuss forward-looking information. Except for the historical information contained in this release, all forward-looking statements are estimates by the Company’s management and are subject to various risks and uncertainties that may cause results to differ from management’s current expectations. Such factors include weather conditions, changes in regulatory policy and other risks as detailed from time-to-time in the Company’s SEC reports and filings. All forward-looking statements, if any, in this release represent the Company’s judgment as of the date of this release.

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (Unaudited)
ASSETS		March 31, 2024				December 31, 2023
Current assets:
Cash		$	13,709			$	11,416
Receivables:
Trade, net of allowance for credit losses of $7,798 and $7,107, respectively			187,197				182,613
Other			7,395				8,356
Total receivables, net			194,592				190,969
Inventories			228,309				219,551
Prepaid expenses			7,446				6,261
Income taxes receivable			2,889				3,824
Total current assets			446,945				432,021
Property, plant and equipment, net			75,909				74,560
Operating lease right-of-use assets, net			23,084				22,417
Intangible assets, net of amortization			168,723				172,508
Goodwill			50,469				51,199
Deferred income tax assets			3,307				2,849
Other assets			13,188				11,994
Total assets		$	781,625			$	767,548
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	64,642			$	68,833
Customer prepayments			28,520				65,560
Accrued program costs			74,343				68,076
Accrued expenses and other payables			15,927				16,354
Operating lease liabilities, current			6,358				6,081
Income taxes payable			5,633				5,591
Total current liabilities			195,423				230,495
Long-term debt, net			187,017				138,900
Operating lease liabilities, long term			17,407				17,113
Deferred income tax liabilities			7,157				7,892
Other liabilities			3,038				3,138
Total liabilities			410,042				397,538
Commitments and contingent liabilities
Stockholders' equity:
Preferred stock, $0.10 par value per share; authorized 400,000 shares; none issued			—				—
Common stock, $0.10 par value per share; authorized 40,000,000 shares; issued 34,754,634 shares at March 31, 2024 and 34,676,787 shares at December 31, 2023			3,475				3,467
Additional paid-in capital			113,223				110,810
Accumulated other comprehensive loss			(7,527	)			(5,963	)
Retained earnings			333,613				332,897
Less treasury stock at cost, 5,915,182 shares at March 31, 2024 and December 31, 2023			(71,201	)			(71,201	)
Total stockholders’ equity			371,583				370,010
Total liabilities and stockholders’ equity		$	781,625			$	767,548

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)
		For the three months ended March 31
		2024				2023
Net sales		$	135,143			$	124,885
Cost of sales			(92,725	)			(86,348	)
Gross profit			42,418				38,537
Operating expenses
Selling, general and administrative			(30,621	)			(26,402	)
Research, product development and regulatory			(5,706	)			(8,870	)
Operating income			6,091				3,265
Change in fair value of an equity investment			638				(22	)
Interest expense, net			(3,693	)			(1,686	)
Income before provision for income taxes			3,036				1,557
Income tax (expense) benefit			(1,484	)			361
Net income		$	1,552			$	1,918
Earnings per common share—basic		$	0.06			$	0.07
Earnings per common share—assuming dilution		$	0.06			$	0.07
Weighted average shares outstanding—basic			27,844				28,367
Weighted average shares outstanding—assuming dilution			28,128				29,073

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES ANALYSIS OF SALES (Unaudited)
		For the three months ended March 31,
		2024				2023				Change				% Change
Net sales:
U.S. crop		$	67,257			$	61,876			$	5,381				9	%
U.S. non-crop			17,768				13,899				3,869				28	%
Total U.S.			85,025				75,775				9,250				12	%
International			50,118				49,110				1,008				2	%
Total net sales		$	135,143			$	124,885			$	10,258				8	%
Total cost of sales		$	(92,725	)		$	(86,348	)		$	(6,377	)			7	%
Total gross profit		$	42,418			$	38,537			$	3,881				10	%
Total gross margin			31	%			31	%

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
		For the three months ended March 31
		2024				2023
Cash flows from operating activities:
Net income		$	1,552			$	1,918
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization of property, plant and equipment and intangible assets			5,441				5,539
Amortization of other long-term assets			189				714
Provision for bad debts			700				581
Stock-based compensation			2,005				1,474
Change in deferred income taxes			(1,025	)			122
Change in liabilities for uncertain tax positions or unrecognized tax benefits			35				371
Change in equity investment fair value			(638	)			22
Other			(5	)			72
Foreign currency transaction gains			(373	)			(446	)
Changes in assets and liabilities associated with operations:
Increase in net receivables			(5,579	)			(8,779	)
Increase in inventories			(9,353	)			(33,731	)
Increase (decrease) in prepaid expenses and other assets			(1,466	)			600
Change in income tax receivable/payable, net			1,014				(2,965	)
(Decrease) increase in accounts payable			(3,951	)			5,655
Decrease in customer prepayments			(37,037	)			(22,759	)
Increase in accrued program costs			6,399				10,660
Decrease in other payables and accrued expenses			(332	)			(500	)
Net cash used in operating activities			(42,424	)			(41,452	)
Cash flows from investing activities:
Capital expenditures			(3,565	)			(2,590	)
Proceeds from disposal of property, plant and equipment			23				—
Acquisition of a product line			—				(703	)
Intangible assets			(25	)			(15	)
Net cash used in investing activities			(3,567	)			(3,308	)
Cash flows from financing activities:
Payments under line of credit agreement			(35,346	)			(27,300	)
Borrowings under line of credit agreement			83,463				72,000
Net receipt from the issuance of common stock under ESPP			430				480
Net (payment) receipt from the exercise of stock options			—				18
Net payment from common stock purchased for tax withholding			(14	)			(13	)
Repurchase of common stock			—				(557	)
Payment of cash dividends			(834	)			(851	)
Net cash provided by financing activities			47,699				43,777
Net increase (decrease) in cash			1,708				(983	)
Effect of exchange rate changes on cash and cash equivalents			585				223
Cash at beginning of period			11,416				20,328
Cash at end of period		$	13,709			$	19,568

AMERICAN VANGUARD CORPORATION AND SUBSIDIARIES RECONCILIATION OF NET INCOME TO EBITDA (In thousands) (Unaudited)
Reconciliation of Net Income to EBITDA		March 31, 2024				March 31, 2023
Net income, as reported		$	1,552			$	1,918
Provision for income taxes			1,484				(361	)
Interest expense, net			3,693				1,686
Proxy costs			—				541
Depreciation and amortization			5,630				6,253
Stock compensation			2,005				1,474
Transformation costs			1,152				—
Adjusted EBITDA2		$	15,516			$	11,511

______________________________
¹ Adjusted earnings before interest, taxes, depreciation, and amortization. Adjusted EBITDA is not a financial measure calculated and presented in accordance with U.S. generally accepted accounting principles (GAAP) and should not be considered as an alternative to net income, operating income or any other financial measure so calculated and presented, nor as an alternative to cash flow from operating activities as a measure of liquidity. The items excluded from adjusted EBITDA are detailed in the reconciliation attached to this news release. Other companies (including the Company’s competitors) may define adjusted EBITDA differently.
² Adjusted earnings before interest, taxes, depreciation, and amortization. Adjusted EBITDA is not a financial measure calculated and presented in accordance with U.S. generally accepted accounting principles (GAAP) and should not be considered as an alternative to net income, operating income or any other financial measure so calculated and presented, nor as an alternative to cash flow from operating activities as a measure of liquidity. The items excluded from adjusted EBITDA are detailed in the reconciliation attached to this news release. Other companies (including the Company’s competitors) may define adjusted EBITDA differently.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240509081007/en/

Company Contact:

American Vanguard Corporation

Anthony Young, Director of Investor Relations

(949) 260-1200

anthonyy@amvac-chemical.com

Investor Representative:

The Equity Group Inc.

www.theequitygroup.com

Lena Cati

Lcati@equityny.com

Source: American Vanguard Corporation

FAQ

<p>What were American Vanguard's net sales for the first quarter of 2024?</p>

American Vanguard reported net sales of $135 million for the first quarter of 2024.

<p>What was the percentage increase in Adjusted EBITDA for American Vanguard in Q1 2024?</p>

American Vanguard recorded a 35% increase in Adjusted EBITDA to $15.5 million for the first quarter of 2024 compared to the same period in 2023.

<p>Why did American Vanguard suspend sales of the herbicide Dacthal?</p>

American Vanguard suspended sales of the herbicide Dacthal due to concerns raised by USEPA and pending potential approval of a label to address the agency's concerns.

<p>What are American Vanguard's annual targets for net sales and adjusted EBITDA?</p>

American Vanguard adjusted its annual targets to achieve a 6% to 9% increase in net sales year over year and set an adjusted EBITDA target of $60 - $70 million for the year.