Cambrex sales increase by 5.7% in first quarter 2013

Cambrex CorporationMay 3 2013

Cambrex Corporation (NYSE: CBM) reports results for the first quarter ended March 31, 2013.

Highlights

• First quarter sales increased by 5.7% and excluding the impact of foreign currency, sales increased 4.7% compared to the first quarter of 2012. 
• First quarter Adjusted EBITDA increased 7.6% to $16.8 million compared to $15.6 million in the first quarter of 2012. 
• Debt, net of cash was $41.1 million at the end of the first quarter, an increase of $0.7 million during the quarter. 
• 2013 full year sales and EBITDA guidance confirmed (see Financial Expectations section).

"The first quarter was a solid quarter for us, with overall growth driven by increases in custom development and custom manufacturing, demonstrating the strength of our portfolio of innovator products.  We continue to expect strong sales and EBITDA increases for the full year, consistent with our previous guidance," commented Steven M. Klosk, President and Chief Executive Officer of Cambrex.  "We remain on target for implementation of our key growth-based capital projects, including the large investment at our Iowa facility to expand overall capacity and to make commercial launch material pursuant to a supply agreement signed in 2012."

First Quarter 2013 Operating Results – Continuing Operations

Sales of $74.6 million were 5.7% higher compared to the same period last year, including the favorable impact of foreign exchange of 1.0%.  This increase was primarily due to higher custom development sales related to clinical phase projects and higher sales of certain active pharmaceutical ingredients for branded commercial products.

Gross margins increased to 33.2% from 31.8% compared to the same period last year.  This increase was due to higher sales and production volumes and slightly higher pricing partially offset by unfavorable product mix.  Foreign exchange did not have an impact on gross margins in the first quarter of 2013. 

Selling, general and administrative expenses were $11.1 million compared to $10.0 million in the same period last year.  The increase was mainly due to increased personnel costs including performance share units' expense as a result of a higher Cambrex share price and additional shares expected to vest due to recent favorable performance by the Company against its peers.

Research and development ("R&D") expenses were $2.2 million compared to $2.4 million in the same period last year.  The decrease was primarily due to increased absorption of R&D expenses into inventory and cost of goods sold due to higher revenue-generating custom development activity.

Operating profit increased to $16.1 million from $10.1 million in the same period last year. Adjusted operating profit increased to $11.5 million from $10.1 million in the same period last year.  The increase in adjusted operating profit was primarily the result of higher gross profit partially offset by higher SG&A expenses.  EBITDA was $21.5 million compared to $15.6 million in the same period last year.  Adjusted EBITDA was $16.8 million compared to $15.6 million in the same period last year.  Adjusted operating profit and adjusted EBITDA exclude a gain on sale of an office building of $4.7 million (see table at end of release).

Net interest expense was $0.5 million compared to $0.7 million in the same period last year.  Lower average debt was partially offset by higher average interest rates.  The average interest rate on debt was 2.5% compared to 2.0% in the same period last year, primarily due to a higher proportion of fixed rate debt to floating rate debt pursuant to an interest rate swap agreement in place since March 2012. 

Equity in losses of partially-owned affiliates was $0.4 million compared to $0.5 million in the same period last year for the Company's 51% share in Zenara Pharma ("Zenara"), a pharmaceutical company focused on the formulation of finished dosage form products.  The Company's share of Zenara's losses included $0.2 million and $0.3 million of amortization expense in the first quarters of 2013 and 2012, respectively.  Equity in losses of partially-owned affiliates for the first quarters of 2013 and 2012 also included expenses of $0.1 million and income of $0.3 million, respectively, related to an investment in a European joint venture.

The provision for income taxes in the first quarter of 2013 totaled $3.8 million and resulted in an effective tax rate of 24.8%.  The effective tax rate in the first quarter of 2013 includes a benefit of $1.3 million due to changes in tax laws and expense of $1.5 million related to the sale of an office building. 

Income from continuing operations for the first quarter of 2013 was $11.4 million or $0.37 per share compared to $7.0 million or $0.24 per share in the same period last year. 

Capital expenditures and depreciation for the first quarter of 2013 were $12.7 million and $5.3 million, respectively, compared to $2.6 million and $5.4 million in the same period last year, respectively.  The increase in capital expenditures in the quarter was primarily driven by a previously announced expansion of the Company's large-scale manufacturing capacity at one of its sites to support expected growth in the business, including an agreement signed during 2012 to provide commercial launch material for a customer's clinical phase product.             

Financial Expectations – Continuing Operations

The Company continues to expect that full year 2013 sales, excluding the impact of foreign currency, will increase between 8% and 12% over 2012, and that full year 2013 adjusted EBITDA will be between $62 and $68 million, an increase of 8% to 18% over 2012.  While the Company does not expect to pay cash taxes in the U.S. for the next few years, the Company will record tax expense on U.S. income for the first time in several years beginning in 2013.  The Company estimates that its 2013 consolidated effective tax rate will be between 32% and 38%.  The tax rate will be sensitive to the geographic mix of income and quarterly effective tax rates may be volatile. 

Capital expenditures are expected to be approximately $36 to $40 million and depreciation is expected to be $22 to $24 million in 2013.

These financial expectations are for continuing operations and exclude the impact of any potential M&A, restructuring activities and outcomes of tax disputes, and do not reflect the Company's stake in Zenara, which is accounted for using the equity method.