Ingevity(US:NGVT)2022-11-05 17:19Financial Data and Key Metrics Changes - Ingevity reported record sales, adjusted EBITDA, and adjusted EPS for Q3 2022, with sales up 28% and adjusted EBITDA up nearly 16% year-over-year [21][11]. - Adjusted gross profit dollars increased over 21% year-over-year, while adjusted gross margin declined by 220 basis points due to margin compression from rising input costs [23][21]. - Quarterly diluted adjusted EPS reached a record of $2.09, despite a negative impact of approximately 2% on sales from a strong U.S. dollar [26][21]. Business Line Data and Key Metrics Changes - Performance Chemicals segment achieved record sales of $337 million, up over 30% year-over-year, driven by high-performance derivatized products [30][11]. - Engineered Polymers saw strong demand, particularly in automotive applications, with sales of $69.5 million, up over 31% from the previous year [33][30]. - Performance Materials segment sales increased over 22% to $144.9 million, reflecting a rebound in automotive production [40][11]. Market Data and Key Metrics Changes - Sales in Asia Pacific for Performance Materials were up almost 40% compared to Q2 2022, indicating recovery from COVID impacts [41][40]. - North American automotive production reached its highest level since Q4 2020, contributing to improved sales in the region [41][40]. - Sales in Brazil tripled year-over-year, driven by the implementation of more stringent regulations [42][40]. Company Strategy and Development Direction - The company is focused on attractive end markets and unique performance characteristics to gain market share [12][11]. - Ingevity completed the acquisition of Ozark Materials, enhancing its product offerings and market reach [16][11]. - The company aims to continue improving its product mix towards higher-margin derivatized products, reducing reliance on lower-margin commodity products [27][21]. Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in strong demand across various segments, despite potential economic challenges and customer inventory destocking in certain markets [46][49]. - The company anticipates continued benefits from the recovery in automotive production and infrastructure spending [47][49]. - Management is monitoring the broader economic environment, particularly in Europe, but remains optimistic about growth opportunities [46][49]. Other Important Information - Ingevity received a gold rating for corporate social responsibility from EcoVadis, placing it in the top 3% of respondents in the specialty chemicals sector [19][11]. - The company plans to host an Investor Day event in early 2023 to enhance transparency and share growth opportunities [50][49]. Q&A Session Summary Question: Can you quantify how far behind you might be on the price versus raw materials situation? - Management indicated that they will implement annual price increases in early next year to return to normalized margins, which are typically in the mid-40s percentage range [53][54]. Question: How do you see 2023 layout for paving? - Management noted that while it's early to predict, warm weather is extending the paving season, which bodes well for the end of 2022 and into 2023 [55][54]. Question: Can you discuss the overlap of the Ozark business with your paving business? - Management highlighted significant opportunities for leveraging customer relationships between the two businesses, as they often share the same customer base [56][58]. Question: What is the current state of the European biorefining market? - Management acknowledged the dynamic nature of the CTO market and the impact of reduced Russian supply, while expecting additional production capacity to come online [64][65]. Question: How do you expect your segments to perform in a potential recession? - Management expressed confidence in the automotive recovery and infrastructure spending, which should help mitigate the impact of a broader industrial recession [102][101]. Question: What are the key raw materials experiencing inflation? - Management reported significant inflation across various raw materials, including crude tall oil and phosphoric acid, but noted that some costs appear to be stabilizing [107][106].