Feb 27, 2012
Operator
Again, greetings and welcome to the Balchem Corporation fourth quarter 2011 earnings conference call. At this time, all participants are in a listen-only mode.
A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.
Operator
It is now my pleasure to introduce your host, Mr. Frank Fitzpatrick, CFO for Balchem Corporation.
Thank you, Mr. Fitzpatrick, you may begin.
Operator
Frank J. Fitzpatrick
Thank you. Good morning, ladies and gentlemen.
Thank you for joining our conference call this morning to discuss the results of Balchem Corporation for the period ending December 31, 2012. My name is Frank Fitzpatrick, Chief Financial Officer, and hosting this call with me is Dino Rossi, our Chairman, President and CEO.
Frank J. Fitzpatrick
Following the advice of our counsel, auditors and the SEC, at this time, I would like to read our forward-looking statement. This release does contain or likely will contain forward-looking statements with reflect to Balchem's expectation or beliefs concerning future events that involve risks and uncertainties.
We can give no assurance that the expectations reflected in forward-looking statements will prove correct, and various factors could cause results to differ materially from our expectations, including risks and factors identified in Balchem's Form 10-K. Forward-looking statements are qualified in their entirety by this cautionary statement. The financial information that is referenced in this meeting was disclosed this morning in our quarterly press release at 9
30 a.m. Eastern Time.
We can give no assurance that the expectations reflected in forward-looking statements will prove correct, and various factors could cause results to differ materially from our expectations, including risks and factors identified in Balchem's Form 10-K. Forward-looking statements are qualified in their entirety by this cautionary statement. The financial information that is referenced in this meeting was disclosed this morning in our quarterly press release at 9
I will now turn the call over to Dino A. Rossi, our Chairman, President and CEO.
We can give no assurance that the expectations reflected in forward-looking statements will prove correct, and various factors could cause results to differ materially from our expectations, including risks and factors identified in Balchem's Form 10-K. Forward-looking statements are qualified in their entirety by this cautionary statement. The financial information that is referenced in this meeting was disclosed this morning in our quarterly press release at 9
Dino A. Rossi
Thanks Frank. Good morning, ladies and gentlemen and welcome to our conference call.
We are pleased to report fourth quarter net earnings of $9.5 million on consolidated sales of $69.7 million for the quarter ended December 31, 2011. These fourth quarter results bring to a close a record year for Balchem where we saw our net sales increased 14.4% to $291 million versus $255 million in 2010.
Dino A. Rossi
Our full year 2011 earnings were also a Balchem record, increasing 16.5% to $38.8 million generating $1.28 per diluted share versus net earnings of $33.3 million or $1.12 per diluted share in the prior year. These outstanding results translate to earnings per share improvement of 14.3% for all of 2011.
And during this period of time, we saw our shareholders rewarded as publicly noted with our market cap exceeding $1 billion at the end of 2011 and increasing our cash dividends.
Dino A. Rossi
Focusing back on our fourth quarter results, sales were $69.7 million, we are even with the result of the prior year comparable quarter and we are arrived at with various sector favorable activities as well as various sectors of softness. In the quarter, ARC Specialty Products segment generated record quarterly sales of $12.3 million, a 6.9% improvement over the prior year quarter, principally a result of increases in sales volumes of packaged ethylene oxide in the quarter.
Dino A. Rossi
Animal Nutrition & Health at $47.8 million was up slightly over the prior year comparable quarter as we realized another very strong quarter for our Animal Nutrition & Health ruminant sales, which were up 21%, but was offset by lower sales coming from our basic choline and industrial products, which were down 4% in the quarter. Food, Pharma & Nutrition at $9.6 million closed off approximately 11% while strength in the human grade choline product, which were up 26% was offset by lower quarterly sales of encapsulated products sold into the food market.
Dino A. Rossi
This revenue result also reflects a 300,000 decline in the calcium product line, which was sold late last year. As previously noted, consolidated net income closed the quarter at $9.5 million, up from approximately $9.4 million in the prior year quarter, or an increase of approximately 1%.
This quarterly net income translated into diluted earnings per share of $0.31, which was equal to the $0.31 we posted in the comparable quarter of 2011.
Dino A. Rossi
Looking between the top and bottom line, you will see that our consolidated gross profit of $20.8 million were equal to 29.9% of sales in the quarter. This level, although a modest decline as a percent of sales from the prior year quarter, does reflect gross margin improvement in both the ARC Specialty Products and Food, Pharma & Nutrition segments.
These improvements were however, offset by low gross margins in our Animal Nutrition & Health segment, principally a result of lower sales volumes in the quarter and higher cost of certain key raw materials.
Dino A. Rossi
These raw material increases largely petroleum-derivative were in part realized due to a few force majeure events and particularly affected unfavorably our A&H segment. As mentioned in the last conference call, certain raw material costs continue to rise at a very swift pace in the quarter with a few leveling out.
And while some increases were passed on to customers, additional cost increases have been realized and our current view is that our businesses are likely to remain affected by these higher costs in 2012.
Dino A. Rossi
We continue to work on operational efficiencies and did achieve improvements in the fourth quarter, but they were more than offset by the raw material cost increases and volume decline, hence the slight decline in gross margin noted. At the consolidated operating expense level, you will note expenses totally of $7.2 million for the quarter, which equaled 10.3% of sales versus the prior year 10.7% level.
This spending level reflects a decrease in expenses related to a slight decrease in employee head count, medical expenses and no M&A consulting expenses.
Dino A. Rossi
On a quarterly sequential basis, operating expenses were down approximately $290,000 due principally to the lower consulting fees and bonus program approvals. We continue to leverage off of our existing SG&A infrastructure and exercise tight control over all controllable operating expenses.
Overall, it was a solid bottom line quarter, especially considering the softer sales results from the FP&N and AN&H segments, as well as the continued escalation of raw material costs.
Dino A. Rossi
Consolidated earnings from operations percentages remained strong and finished at 19.6% of sales or $13.7 million for the quarter. Other income of $79,000 relates principally to favorable fluctuations in foreign currency exchange rates between the U.S.
dollar and functional foreign currencies. Our effective income tax rate for the fourth quarters of 2011 and 2010 were 31% and 32.6% respectively.
This decrease in our effective rate for the quarter was principally a result of favorable adjustments related to changes in state income tax apportionment.
Dino A. Rossi
Our annualized effective income tax rate for all of 2012 was currently estimated to be approximately 33%. Net income of $9.5 million translated to $0.31 per diluted common share, which is equal to the comparative prior year quarter generating approximately $16.1 million of EBITDA in the quarter, which translates into $0.53 per diluted share.
And when including our non-cash stock based compensation charge, we generated $17 million of EBITDA in the quarter, equaling approximately 24% of sales.
Dino A. Rossi
At December 31, 2011, our outstanding borrowings were approximately $1.4 million, but zero net of our cash of approximately $115 million. We continue to aggressively manage all areas of working capital, driving strong cash flow, which also results in improved earnings to generate quality, organic results from our core businesses.
In an effort to detail our consolidated results better for our shareholders, I'm now going to have Frank Fitzpatrick discuss the ARC Specialty Products and the Food, Pharma & Nutrition segments.
Dino A. Rossi
Francis J. Fitzpatrick
Thanks Dino. The ARC Specialty Products segment posted record sales of approximately $12.3 million or a 6.9% increase over the prior year comparable quarter.
This increase in sales was derived principally from both increased volume sold and increased average selling price of ethylene oxide products, which were implemented to offset rising raw material costs. These increases also reflect a 9% increase in small EO canisters sold internationally for hospital autoclave units along with steady growth of PO for the nut fumigation market.
Francis J. Fitzpatrick
ARC quarterly business earnings increased 10.6% to $5 million versus the prior year comparable quarter. This increase is largely a direct correlation to the increased volumes sold of ethylene oxide products and as previously reported, some higher average selling prices on certain products.
We continue to challenge the raw material price escalation and only seek to implement price increases within contractual guidelines for this reason.
Francis J. Fitzpatrick
For the quarter, the Food, Pharma & Nutrition segment realized a 10.6% sales decline to $9.6 million from the prior-year comparable quarter. Business segment earnings of $2.7 million were however up approximately 6.9% over the prior-year quarter.
As stated in this morning's press release, we realized double-digit growth in sales of our human choline products for nutritional enhancement.
Francis J. Fitzpatrick
We continue to focus on building consumer awareness of the benefits of choline, positioning choline with nutritional and pharmaceutical companies as an essential ingredient with excellent, therapeutic benefits for all ages and are now utilizing the three structured function claims awarded by EFSA in Europe. Food sector sales did have a slower quarter as compared to the prior year results.
This was primarily from a reduction in demand largely in the month of December.
Francis J. Fitzpatrick
As in the past, results for this segment continued to reflect the rollercoaster effect of pipeline field, inventory level management and delayed marketing initiatives. Our growth drivers do however, remain intact for this sector and despite some inventory level management and product launch delays, we expect continued revenue in earnings growth year-over-year into 2012.
Switching briefly over to the calcium product line, as previously reported, late in the fourth quarter of 2010, we did successfully close on the sale of this business line.
Francis J. Fitzpatrick
We exited our leased facility at the end of the second quarter in 2011. Exiting this business line had an unfavorable impact on our sales level in this segment for the quarter.
However, did, as expected, nicely contribute to improve operating income for the FP&N segment in the quarter. Our pharmaceutical delivery development efforts continue.
In the quarter, we did not generate any R&D milestone payments; however, a licensee of our technology concluded a Phase III clinical trial, utilizing our technology.
Francis J. Fitzpatrick
We await the un-blinding of this trial and are cautiously optimistic that the trial will yield good end results. In the near-term, this sector remains a net expense to the business segment.
I'll now turn the call over to Mr. Rossi for him to discuss the Animal Nutrition & Health segment.
Francis J. Fitzpatrick
Dino A. Rossi
Thanks Frank. In the Animal Nutrition & Health segment, we realized sales of $47.8 million, an increase of $279,000 or 1% as compared to the prior-year comparable quarter.
Within this segment, ANH ruminant product sales realized 21% growth from the prior year comparable quarter, as excellent product performance and dairy economics continued to support greater demand for our products. These increases are principally a result of improved volumes as Aminoshure-L and M, our rumen protected amino acid and Reashure, our rumen protected choline.
Dino A. Rossi
We continue to be pleased with the progress we have made on the new Aminoshure launches, as more prospective customers trialing the product are also experiencing positive results. These overall increases clearly coincide with the dairy economy that has been very stable during 2011.
However, we continue monitoring this very closely as potentially higher feed prices could pressure milk producer economics. Despite rising feed prices, milk production advanced -- continues to advance as milk output is expected to rise again in 2012.
Dino A. Rossi
U.S. dairy herds are also expected to decline slightly, with most of the contraction coming in the second half of the year, but improved milk production and output per cow are expected to more than offset this decline in the herd count.
To this end, we are currently planning to break ground on additional plant capacity very shortly to assist in the expected growth of these product lines. As noted in our press release, our global feed grade choline product sales were equal to the prior year comparable quarter, but volumes were lower in the quarter.
Dino A. Rossi
Volumes sold in these markets are strongly influenced by the dynamics of our customer base predominantly the poultry production industry. As previously reported, data from USDA Broiler Statistics projected that boiler chick placements and egg sets would be lower for the fourth quarter due to continued high grain prices along with only minor improvements in the domestic economy, and we did anticipate lower volumes as a result of this.
Dino A. Rossi
These volume declines were however entirely offset by higher average selling prices principally a result of raw material price escalation. And as previously reported, we do continue to evaluate export sales opportunities for the poultry market, but found Q4 to present a very challenging export market, combining raw material cost increases and foreign competitor activities.
Exports of liquid and dry choline from all of our plants declined slightly due to the heightened level of global competition.
Dino A. Rossi
In the coming quarters, we may elect to be more aggressive in seeking to win additional business depending upon the then-current costs and market conditions. Sales of industrial products and derivatives had their first soft quarter of the year.
Methylamines and other industrial products including toll-produced methylamine derivative from our Italian operation, specifically for Europe was slow due to the general poor economic climate in Europe.
Dino A. Rossi
We continue to see solid sales of choline derivative products for various industrial applications in North America, especially for the gas fracking opportunities, however, not as the same level as the prior year comparable quarter. This softness in sales can be attributed to a combination of a recent trend towards increased oil directed drilling in the United States as opposed to gas drilling, which does not have the same plate stabilization requirements.
Dino A. Rossi
This redirection of rig utilization was due to natural gas prices trading at or near 10-year lows and unusually high levels of natural gas inventory. In addition, our success in this space has attracted new competition from imports, which also contributed to this slower quarter.
We continue to evaluate these industrial opportunities with other core technology to determine how we can drive innovative solutions into this market and derive the most positive value.
Dino A. Rossi
The performance of this sector has improved in the earlier part of the first quarter and we remain fairly confident that these products will continue to show strength in 2012, driving increases in sales and profitability. Earnings from operations for this entire segment was $6 million as compared to $6.8 million in the prior year comparable quarter largely due to lower volumes sold.
These earnings were also unfavorably impacted by increases in petrochemical commodities used to manufacture coaling.
Dino A. Rossi
These key raw materials rose at a very swift pace in the quarter and while some were passed on to customers, our pricing initiatives in the quarter were not enough to offset all the cost increases. Additional price increases have been and will be implemented in the first quarter as our businesses are likely to remain affected by these higher costs for the balance of 2012.
Dino A. Rossi
The profitability of the ANH segment continues to be achieved with a constant reevaluation of global raw material cost, product reformulation, currency review and our ultimate ability to meet market needs from our various global facilities and transload sites. The opportunity to capitalize in this fashion is a direct result of our effective integration of acquisitions, growth strategies and the ability to drive costs out of our business model.
Dino A. Rossi
Last quarter, we announced the beginning of commercial production of a new encapsulation technology, targeted to growth opportunities in the ruminant animal market. I'm pleased to report that we have successfully launched and ramped up these new process technology expansions.
These new products lower our overall costs for certain products, facilitate higher throughput in our encapsulation process and reduce the production animal dosage costs to herd managers to the point that we are already planning our next expansion of this product capacity.
Dino A. Rossi
With the bulk of the feed grade choline predominantly going to the poultry and swine markets, we are very sensitive to the continued economic pressures on the large production animal integrators. Feed ration costs have modestly corrected near-team, but retail poultry prices remain low, keeping significant downward pressure on profitability for this global end-market.
We continue to closely monitor raw material costs for all segments of our business and where absolutely necessary, we implement cost pass-throughs as appropriate.
Dino A. Rossi
As noted in previous calls, we at times see a revenue rollercoaster effect quarter-to-quarter in the various products or market sectors. We're extremely pleased with our entire 2011 results and remain committed to growth as we look to continually expand our product offerings and move into new geographies.
We will continue to strengthen our global growth platform and are confident that more business will be generated, based on the unique portfolio of products that we offer to markets we serve.
Dino A. Rossi
Our business continues to create good balance, yielding profitable growth opportunities to the various market challenges of any single segment or product line. We remain focused on helping our customers save and make money in this tough economy while maintaining our own operating discipline.
Overall, we continue to build the financial strength of the company, managing the asset base aggressively, reducing debt and yielding improved financial results.
Dino A. Rossi
Near-term, we remain focused on implementing operational and logistic improvements, new product development and new product introductions. We also continue to explore alliances, acquisitions and/or joint ventures to continue building and leveraging our technology and strong human asset base.
This now concludes the formal portion of the conference.
Dino A. Rossi
At this point, I will open the conference call for questions.
Dino A. Rossi
Operator
We will now be conducting a question-and-answer session. (Operator Instructions) Our first question comes from Tim Ramey of D.A.
Davidson. Please proceed with your question.
Operator
Timothy Ramey
Hi, good morning. Thanks.
Dino, you mentioned the kind of the twin pressure of input cost inflation as well as declining markets in poultry. How should we think about the margin outlook for that product line as we look at 2012?
Is that likely to be a little more competitive and a little bit more difficult to maintain margins?
Timothy Ramey
Dino A. Rossi
Yeah. I think -- well, I think certainly the North American market in and of itself is likely to be flat, maybe plus 1% or 2% at best.
And certainly that's our largest position on a global note is in the North American market. The raw material cost increases clearly have continued to run up, I'd say, it's probably more and quicker than what we had thought that they would.
Our projections right now is that there's going to be some release, maybe starting as early as Q2.
Dino A. Rossi
But to be honest, I don't think it's going to be significant. I think that, again, a little bit of weakening will happen there.
There's a number of outages taking place right now in major chemical producers that are keeping pressure on those key raw material costs. So it's more a function of capacity at that level that's driving a lot of this as ethane costs have come down, it's not being translated into finished cost of raw materials.
So I do think that will start to happen.
Dino A. Rossi
It's going to take that capacity coming back online at those major producers of those products before we really see much relief from that, but I don't also think it's going to continue the pressure up much. So I'd like to think we're at the peak and look forward to decline here over the next quarter.
Dino A. Rossi
Timothy Ramey
Okay. And if I could on the EO business, margins were spectacular there and growth has really been I think above my expectations.
How would you characterize that market? Do you think that the kind of a mid-single digit kind of revenue growth is representative of the number of procedure, hip replacements and knee replacements that never have end-market demand for surgical kits or was there something about 2011 that was anomalous in any way?
Timothy Ramey
Dino A. Rossi
Well, I think a little of apples and oranges in there, because we did have the full year, the Aberco propylene oxide acquisition as well as what was going on in the EO. And clearly the EO is still yet the largest part of that segment, but -- so there was a little differentiator there in terms of this timing of the PO, the other acquisition business being in there or not.
But, as you look at these last couple of quarters, which are certainly comparable, we've seen nice growth, it's still single digit.
Dino A. Rossi
But 6%, 7%, 8% I think and clearly contributed nicely from the EO side of things. Our expectation is that that market is going to continue to grow in that single-digit kind of zone.
Our market share in that space versus radiation continues to be about the same. So, I think the overall market is growing slowly.
A number of operations kind of quicken along aging population and what not I think are contributing to that. So, our view is to still see solid single-digit growth in that segment.
Dino A. Rossi
Timothy Ramey
Got it. And on -- you mentioned earlier in the call that you hadn't made any M&A consulting payments in the quarter.
Should we interpret that to be that to be the environment is less target-rich right now or was that just a--?
Timothy Ramey
Francis J. Fitzpatrick
Yeah. No, that's a fair question.
I wouldn't say it's less target-rich. I think that we had engaged in particular looking at certain transactions.
And quite honestly, those are now, I'd say, at best back cornered. And so, it's not requiring any additional money to be paid.
We still have a number of targets that we are looking at. Just haven't elected to engage what I would say is really consulting-type activities with those acquisitions.
Francis J. Fitzpatrick
Timothy Ramey
Thanks a lot.
Timothy Ramey
Francis J. Fitzpatrick
Thank you.
Francis J. Fitzpatrick
Operator
Our next question comes from Daniel Rizzo of Sidoti & Company. Please proceed with your question.
Operator
Daniel D. Rizzo
Hi, guys. Is there any update, maybe I missed it, on what you're doing with the encapsulation with the Curemark.
Are we just kind of sitting and waiting for the FDA?
Daniel D. Rizzo
Francis J. Fitzpatrick
Yes, there is no update. I think that there's -- it's pretty much as was reported last time.
No new news in the background. We know things are, I would say progressing but still, the data has not been un-blinded, so we don't know what that is, but our sense is that they're working forward.
I'm going to say no news is probably good news at this moment, as they look to get their I's dotted and T's crossed.
Francis J. Fitzpatrick
Daniel D. Rizzo
Do we have any timeframe whatsoever?
Daniel D. Rizzo
Francis J. Fitzpatrick
I've had a number of conversations with them and I think that maybe consistent with what I've said before, the earliest we would probably expect to see anything might be Q4 of this year.
Francis J. Fitzpatrick
Daniel D. Rizzo
Okay, all right. Thank you, guys.
Daniel D. Rizzo
Francis J. Fitzpatrick
Thank you.
Francis J. Fitzpatrick
Operator
Our next question comes from [Glenn Friedman] [ph], a private investor. Please proceed with your question.
Operator
Glenn Friedman
Thank you. Hi, Dino, how are you doing?
Glenn Friedman
Dino A. Rossi
Good, Glenn. Thanks.
Dino A. Rossi
Glenn Friedman
Good. Dino, you mentioned that sales in your industrial products group is down 11% from your prior year.
And I guess you attribute it to, in part, the natural gas prices being at 10-year lows. You also mentioned that the space attracted new competition from offshore producers and are they basically putting any extreme pricing pressures on you that could affect your margins going forward.
And in addition, do you see any way that you can basically reverse the trend as well?
Glenn Friedman
Dino A. Rossi
Yes, it's a great question. Certainly, the reason they are here is, because they dropped their prices and are reluctant to be very, very competitive.
I could probably challenge the profitability of their business and maybe at a certain moment we will. But their only calling card is a cheap product.
And so, I think that they definitely have put pressure. The volume that they have brought in has not been huge.
Dino A. Rossi
But clearly they have found the market and have been attracted to it, I would say in a significant way from very little early on in the year to picking up through the year, but then to be honest with you, backing off in December and January. Again, I think consistent with some slowdown in that -- in the end market here.
Can we reverse that? I think that I don't know that we can actually reverse that.
I do know that their raw material costs too have risen as ours have.
Dino A. Rossi
And I think that changes their price points and their ability to be competitive, in particular, the Chinese. And our experience has been when their cost points go up, they will just disappear and so, it would and I firmly believe that their margins are not large enough to sustain any kind of long view to this business.
So, it's a bit disruptive, but our view is that we're going to work through this. We have in fact gotten a little bit more aggressive in this space as well, and so to some degree reacted to that.
Dino A. Rossi
But clearly it's -- they have found the market and I don't know that they'll ever be gone again. But we'll continue to fight for a low cost position and have a significant good quality product into the space.
Dino A. Rossi
Glenn Friedman
Okay, thanks Dino. And one other part in your Food, Pharma & Nutrition segment, you mentioned that there's soft demand in your base business, the encapsulated ingredients business due to pipeline prospects that basically didn't convert.
Now, are these some of those delays you were referring to with the rollercoaster effect and are they delays in actual orders. Were they cancellations?
And going forward, do you expect that rollercoaster effect to kind of kick in and they'll make up for the orders that they didn't place this past quarter?
Glenn Friedman
Dino A. Rossi
Yeah. I wouldn't say it was any order cancellations for sure.
We just saw a little bit of a trending down in those orders being placed with us. And this is not unusual; I've alluded to this before.
The key for us is to have a rich pipeline of opportunities there. You're going to win new pieces of business.
Life cycles of these products are becoming shorter and shorter, so the key is to have a rich pipeline that's going to convert.
Dino A. Rossi
I think there's definitely been additional pressure again if you read the press, P&G has gotten people in curbing marketing efforts in response to what their profitability looks like. So, I think that there is pressure in that end-market and at moments we feel that.
So, the key for us is to continue to get new product development in the forefront with those customers and then, it would be always new products brought to this space whether it's the brand guys or the non-brand guys.
Dino A. Rossi
But -- so we're looking to just kind of broaden our view there to appeal to more of the entire market. But I think definitely we know we've also had some convergence here in Q1 and we'll see those start to pick up here.
So, yeah, I think it's just like I said, I hate to use the word rollercoaster, because it is up and down. But there is that in that space that's kind of been there as long as I've been here.
And I think it's likely going to continue, but like I said, the key for us is to have that rich pipeline.
Dino A. Rossi
Glenn Friedman
Thanks Dino. I appreciate it.
Glenn Friedman
Dino A. Rossi
Thank you.
Dino A. Rossi
Operator
Our next question comes from Lenny Dunn of Freedom Investors Corp. Please proceed with your question.
Operator
Lenny Dunn
Good morning. Actually, I have a request and some questions.
And the request is, because looking at these cash flows, which look terrific especially next to earnings. Is it possible to put a non-GAAP type report out along with the normal GAAP report, because the cash flows look exceptional and the earnings look okay.
So I wouldn't mind seeing that in the release, so we can follow that a little better, because following the cash is very important to my analysis, at least, and I think other people I think look at it the same way.
Lenny Dunn
And otherwise, if you look at the balance sheet it looks terrific at the end of the year compared to last year, and it didn't look bad last year. So, clearly there was a big improvement here that is not reflected in the GAAP earnings.
Lenny Dunn
Francis J. Fitzpatrick
We can certainly have that discussion. That's actually the first time anybody has requested that of us.
So, let us have some discussions and--
Francis J. Fitzpatrick
Lenny Dunn
Yeah, I'm not looking for anything to blind people, put out the GAAP earnings and if the non-GAAP earnings are that strong by comparison. Let people see what's going on, unless I'm misreading this, the cash flow looks like, the cash flows look great.
Lenny Dunn
Francis J. Fitzpatrick
Lenny, I think your observation is correct. We'll see what we can do to try and convey that a little bit better.
Francis J. Fitzpatrick
Lenny Dunn
Okay. And otherwise, although the question is, are you doing something more to hedge these things, when raw material costs which are going to vary obviously, spike up, were a little better protected?
Lenny Dunn
Dino A. Rossi
We have structured our contracts, I think I'm going to say almost as aggressively as we can, trying to get back to key cost drivers, not just the raw material that we're buying. And we've given, I think our size in the bonds that we purchase, we feel like we are probably back about as far as we can, short of becoming basic in the production of some of those, which from time-to-time, we even weigh that as a possibility to further strengthen our buying positions.
Dino A. Rossi
But I think, straight up based on staying in a net buying motive, those key raw materials, we're probably back as far as we can get with the key drivers to give us a position. It's an interesting market, because of force majeure events, unplanned and planned outages that quite honestly are continuing to support a spot market that's very high.
And even kind of in the face of good contracts, it creates challenges because of what those key -- what's happened with those key drivers that are now being pulled in a couple of different directions in particular in the chemical industry.
Dino A. Rossi
So, it's created challenges. Maybe we're always looking to see if we can try to become stronger buyers, if you will.
Dino A. Rossi
Lenny Dunn
Well, we're getting margin up now, to you would hope to be a stronger buyer, but you guys are the experts and generally you do a very good job. So, I'm not complaining, I'm just throwing some things out there.
Lenny Dunn
Dino A. Rossi
Thanks.
Dino A. Rossi
Operator
Our next question comes from John Hudson of Greywolf Capital. Please proceed with your question.
Operator
John Hudson
Thank you. Good morning.
I just want to circle back to the revenue drop on the industrial products. Was that -- was lower prices or lower volume the biggest factor in that drop?
John Hudson
Dino A. Rossi
I would say -- it's a little bit of both, but probably the bigger driver was volume. And again, I think that if you want to look at the volume in and it of itself, import versus the market, I think you're going to find that the market slowed down even more, which contributed most significantly to that.
And again, that goes back to the rig counts or I should say the shift in the rigs from oil to gas and there's kind of a slowdown there.
Dino A. Rossi
Because in particular, definitely because there's a lot press out there about what's going on with natural gas prices, extraordinarily low, long inventories to the point where these guys don't have any place to go with it. So, definitely, it's curbed, if you will, the fracking.
Dino A. Rossi
John Hudson
And if you look at the shift in the rig count has gone to more oil drilling I guess, but still on the shale, so is your product just not used for oil at all even if it's in shale?
John Hudson
Dino A. Rossi
Well, it just really depends in a certain shale play whether or not how much plate stabilizer is needed or a percentage of. But typically, as they're going for oil, we have found that they are not looking to use those plate stabilizers.
I won't say they don't need them at all, but we have found the biggest uptake when they're drilling for natural gas specifically.
Dino A. Rossi
John Hudson
Okay. And then just one last thing, Frank, I didn't catch it, in your earlier comments, you were talking about something in the Specialty Product segment about small canisters or autoclaves or something.
What was that?
John Hudson
Francis J. Fitzpatrick
Yeah, we have a product line where we repackage a small canister, single-use canister of ethylene oxide for sterilization. Most of it is going to one particular customer, 3M, a very strong fourth quarter for that business.
And I don't know if it's -- we'll see where that goes here into 2012 in terms of its sustainability, but it's just a nice strong quarter.
Francis J. Fitzpatrick
John Hudson
Okay, great. All right, thanks guys.
John Hudson
Francis J. Fitzpatrick
Yeah, thank you.
Francis J. Fitzpatrick
Operator
Our next question comes from Fred Russell of Fredric E. Russell Investment Management.
Please proceed with your question.
Operator
Fredric E. Russell
Good morning.
Fredric E. Russell
Francis J. Fitzpatrick
Good morning.
Francis J. Fitzpatrick
Fredric E. Russell
I've always thought of Balchem as a company that could crank out pretty steady increases in earnings and cash flow. And so, what I'm hearing now is that there has been a combination of raw material price increases plus competition particularly foreign in many, many areas.
I'm wondering whether the company is losing some of its competitive advantages here, whether you are experiencing a loss in control over some of these markets.
Fredric E. Russell
I hear some comments such as growth drivers, other kinds of things that you hear on conference calls, but is the nature of the company changing? Is it or is this quarter and this year an aberration?
What is the competitive position of the company, I appreciate it. And I do second the gentlemen's request for a cash flow statement or at least a non-GAAP earnings report.
I think a cash flow statement would be more important in the -- to accompany the net income results. Thank you.
Fredric E. Russell
Francis J. Fitzpatrick
Yeah, Fred, I think -- I don't think that we're changing as an entity what we're about. I think we continue to have a very good and strong financial position.
And I would encourage you to look at the year not just the quarter. And certainly our expectation is we are going to continue to grow.
We continue to bring new products to market. We certainly have over the last couple of years grown, if you will, our polling franchise where it is a significant part of our business.
Francis J. Fitzpatrick
And so, I think that there's definitely been some ups and downs in general of those particular economies where we're selling it, whether it's poultry production and/or into the industrial space. This is clearly out of our control, but I think we still have a very, very strong position.
With that said too, we continue to expand in the animal nutrition and health space in particular with the specialties that I mentioned where we're leveraging off of the existing technology.
Francis J. Fitzpatrick
And I'll say growing technology, technologies that we've picked up through acquisitions let alone organically continuing to develop. So, expect to see continued strong growth in almost the counter sectors, if you will, while we hit a little soft spot in some of the other sectors.
I think that in 2011, we had a window there where quite honestly it's like all eight cylinders were firing and everybody loves it when that happens.
Francis J. Fitzpatrick
But I think we can point to every entity out there that now and again, it is going to have a soft spot and I think we have one of those here in Q4. But still certainly believe they're very strongly in I think a lot of the technology that we have, the base, the strength base of our production technology and certainly the human assets we have to drive continued growth.
Francis J. Fitzpatrick
Fredric E. Russell
So you would say then that there has been no significant loss in market share in any of your major areas?
Fredric E. Russell
Francis J. Fitzpatrick
I would say, I think when you talk about the industrial fracking side, I'd quickly pointed out that there was a level.
Francis J. Fitzpatrick
Fredric E. Russell
Yes.
Fredric E. Russell
Francis J. Fitzpatrick
I wouldn't say that it was huge by any stretch of the imagination. Can you clearly say, because there are imports that we lost to market share, the answer would be yes, in the face of what was a smaller “market”.
So, I think that those played through almost kind of extrapolating on those factors to cause more of a significant difference than otherwise would have been.
Francis J. Fitzpatrick
Fredric E. Russell
So, I guess the answer is no then, within most of your operating areas?
Fredric E. Russell
Francis J. Fitzpatrick
I generally would say that. What I say, if there was a little bit of erosion, yeah.
Alarming me, I wouldn't say so.
Francis J. Fitzpatrick
Fredric E. Russell
Are you -- when you say not alarming, there's kind of suggestion that you can combat any erosion that you've experienced, would that be true?
Fredric E. Russell
Francis J. Fitzpatrick
Well, we've talked and earlier people have asked about, some of these imports coming in and I think I've been pretty quick to point out that the only theme that they bring to the game is a cheaper price. Everybody likes to make money, we like to make money, shareholders like for us to make money.
Sure, we can go out there and drop our prices, and still make money and be competitive and hold on to market share. I'm not sure that's the right thing to do.
Francis J. Fitzpatrick
And that's probably what we evaluated pretty heavily here and I had talked about the export business that we did not chase in Q4, probably our lowest export market maybe ever. But people have been very aggressive out there to the point, I think they're being silly.
And I would tell you, it's not a sustainable business model.
Francis J. Fitzpatrick
Fredric E. Russell
Thank you.
Fredric E. Russell
Francis J. Fitzpatrick
Thank you.
Francis J. Fitzpatrick
Operator
Our next question comes from the line of Lawrence Goldstein from Santa Monica Partners. Please proceed with our question.
Operator
Lawrence J. Goldstein
Good morning. On last August 3, the last question of the conference call was, do you still have a buyback in place?
And Dino, you said “we do”. The stock at that time, that day was actually $43 and change.
And as we speak, you probably don't know it, but I've got a quote machine. Its $31 and change.
And so, my question is what about utilizing that buyback?
Lawrence J. Goldstein
Dino A. Rossi
Well, I'll reinforce the statement. I think we do have a buyback.
And I think, Larry, we continue to watch it. Our desire certainly is to use the cash for acquisitions and other growth opportunities.
I think we can talk about how the market is reacting to this quarterly news all day long and excited to step in and, if you will, pop up the price. I think the Wall Street Journal today had a very good article on lecturing people about the value of buybacks and there's a right way to do them and a wrong way to do them.
Dino A. Rossi
So I won't say that there's not value in them. But I think still yet, we're always looking close as it is what I would say.
And, I also know other things that we're looking to do with the strength of our balance sheet and we'll weigh that, I think as things continue to unwind during the next few months.
Dino A. Rossi
Lawrence J. Goldstein
May I just say one more thing? You did say you had a buyback in place.
Lawrence J. Goldstein
Dino A. Rossi
We do.
Dino A. Rossi
Lawrence J. Goldstein
It's not to say, if you find something to acquire or to use the cash, it's a better thing to do or not a better thing. I don't question that nor your judgment, but -- and you also don't have to do anything to support the price, but we point out that the daily volume of our share is 152,000 shares a day.
And here it is not even noon and share volume is 382,000 shares, well over more than twice. So, all you need to do is hold the basket, not to be aggressive, but to sit there with the basket and catch them.
Lawrence J. Goldstein
Dino A. Rossi
Larry, I'll just say we'll look at it real hard.
Dino A. Rossi
Operator
Our next question comes from the line of Patrick Kirksey from Perimeter Capital. Please proceed with your question.
Operator
Patrick W. Kirksey
Good morning, guys. Can you share with us an approximate percentage of your revenues that are sold into the North American gas fracturing market?
Patrick W. Kirksey
Dino A. Rossi
As Frank is looking for that information right now.
Dino A. Rossi
Patrick W. Kirksey
Okay. And then, reading through the transcript from the third quarter earnings conference call, you had kind of talked about seeing continued strength in North America and you thought that that would continue into 2012.
Did I hear correctly that you said that at least so far in the first quarter you are starting to see a little bit of a recovery at least in some of the soft-demand metrics in the natural gas fracturing area?
Patrick W. Kirksey
Dino A. Rossi
Patrick, I would say yes, I think we've learned that these guys kind of turn on a dime pretty quickly too. But we've seen some improvements and what I will tell you is that me announcing this also tells my competition that I'm seeing improvements.
And believe me, they don't get to a read to our volumes and what not, whereas we get a read to theirs, because of import data. So -- but to be sure that we are seeing some improvements early this first quarter.
Dino A. Rossi
Patrick W. Kirksey
Okay, great. And then, I know you didn't provide a statement of cash flow in the press release.
Could you maybe just share with us what the operating cash flow is worth for the quarter?
Patrick W. Kirksey
Francis J. Fitzpatrick
All right, hang on one second. I'm just still working on your first question here.
Francis J. Fitzpatrick
Patrick W. Kirksey
I got you.
Patrick W. Kirksey
Francis J. Fitzpatrick
Probably the industrial thesis of our total revenue about 16%, 17%.
Francis J. Fitzpatrick
Patrick W. Kirksey
Okay. And is that predominantly natural gas fracturing or is there also some other components in there?
Patrick W. Kirksey
Dino A. Rossi
Probably a solid 10% of that 16% is natural gas fracking and the balance are other products.
Dino A. Rossi
Patrick W. Kirksey
I got you, got you, great.
Patrick W. Kirksey
Francis J. Fitzpatrick
Hang on a second. I'm going to look at my cash flow here.
Francis J. Fitzpatrick
Patrick W. Kirksey
Now, last quarter you guys also kind of talked about, despite all the headlines over in Europe, that you had actually kind of seen some continued industrial strength in the European markets that appear to have reversed a little bit this quarter. Any view on how the first quarter is shaping up at least over in Europe on the industrial side?
Patrick W. Kirksey
Dino A. Rossi
Yeah. I would say January started out a little slow, February seems like it's ticking upwards now.
But, not a further decline for sure so that's encouraging and so, we expect it is going to continue to grow from what was a bit of a slow Q4.
Dino A. Rossi
Patrick W. Kirksey
Okay, great. Hey, thanks a lot guys.
I appreciate it.
Patrick W. Kirksey
Dino A. Rossi
Thank you.
Dino A. Rossi
Francis J. Fitzpatrick
Yeah. Just real quick, on a year-to-date basis our net cash provided by operating activities is about $44.9 million.
Total cash used for investing activities was a use of about $6.6 million. And so, that resulted in an approximate increase in cash and cash equivalents of about $37.5 million for the year.
Francis J. Fitzpatrick
Patrick W. Kirksey
Thanks guys.
Patrick W. Kirksey
Francis J. Fitzpatrick
Thank you.
Francis J. Fitzpatrick
Operator
Our next question comes from Gerald Mason of GIC Group. Please proceed with your question.
Operator
Gerald Mason
Hi, guys. Thanks for my call.
You guys continue to do pretty well within the ruminant space, particularly Aminoshure and Reashure. For the 2011 campaign, if you would, what could you say as the revenues per product within the North American space?
Gerald Mason
Dino A. Rossi
Frank is looking for some numbers.
Dino A. Rossi
Gerald Mason
Did you guys get it?
Gerald Mason
Francis J. Fitzpatrick
Yeah, so I think on the Shure solution line of products that you're talking about in particular. In 2011, we probably did about $20 million of revenue in that.
Francis J. Fitzpatrick
Gerald Mason
Okay.
Gerald Mason
Francis J. Fitzpatrick
Yeah.
Francis J. Fitzpatrick
Gerald Mason
And for Reashure or Aminoshure, because I believe Aminoshure came out with a new version this summer. Kind of want to know how that's doing, if they want to be accepted and what revenues can be brought in for this year.
Gerald Mason
Francis J. Fitzpatrick
Yeah, the Aminoshure product line contributed probably between $8 million and $9 million.
Francis J. Fitzpatrick
Gerald Mason
Okay.
Gerald Mason
Francis J. Fitzpatrick
And I would say that the largest piece of that certainly was on the new and improved products that came out here, launched mid-Q3. And certainly, I alluded to about us doing a plant expansion here that we're studying right now and that's really based on the strength of this product line continuing to move very, very strongly.
Francis J. Fitzpatrick
Gerald Mason
Okay. And in terms of the choline chloride space, you guys are pretty good at finding new and diverse markets in order to -- is there a particular space that you may envision choline chloride playing a significant role as was the natural gas fracking space?
Gerald Mason
Francis J. Fitzpatrick
You mean additional markets?
Francis J. Fitzpatrick
Gerald Mason
Yes.
Gerald Mason
Francis J. Fitzpatrick
Yeah, I think there's a couple other applications that we're studying right now. I don't know if it would be a straight-up choline chloride product as much as it might be a derivative that we're working on in response to what we know to be some open markets there.
I'd say there are more industrial applications than there are Animal at the moment. But I also wouldn't rule out further growth yet in the Animal and it may not be in poultry, but some other space as well.
So, I'd say predominantly the work that is being done is looking at other industrial applications.
Francis J. Fitzpatrick
Gerald Mason
Okay. One last question in terms of M&A activity this year was not existent.
Is there a particular space that you may find attractive for future growth or to complement what you guys already have?
Gerald Mason
Francis J. Fitzpatrick
Yeah, I don't know that we are being -- I would say that there's a couple of things that we had targeted in particular that while to some degree was background integration as well as forward integration. Certainly, we're looking to aggressively grow our Animal Health position globally.
I think the Food, Pharma and Nutrition offers us as well opportunities for growth in a larger way. Probably, the ARC Specialty Products business is one that's a little bit more challenging to match things up with, but I think the other two segments for sure offer that upside opportunity.
Francis J. Fitzpatrick
Gerald Mason
Okay, thanks guys.
Gerald Mason
Francis J. Fitzpatrick
Thank you.
Francis J. Fitzpatrick
Operator
Mr. Fitzpatrick, there are no more questions at this time.
I would like to turn the floor back over to you for closing comments.
Operator
Francis J. Fitzpatrick
I'll just say thanks to everybody for attending the conference call. Certainly, it was a little bit of challenging quarter, I think, by all past expectations perhaps.
But we still feel very confident in the basis that we have, the new products are being launched, new technologies expanding in other areas where we've kind of been exceeding opportunities. So we do expect to continue to grow here in 2012.
So thanks for tuning in today and I'll talk to you soon. Thanks.
Francis J. Fitzpatrick
Operator
This concludes today's teleconference. You may disconnect your lines at this time.
Thank you for your participation.