Q4 2021 AdvanSix Inc Earnings Call
Good day and welcome to the advancing sports hold or 2021 earnings conference call.
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I'd like to turn the conference over to Adam Creswell Director of Investor Relations. Please go ahead Sir.
Okay.
Thank you Rocco good morning, and welcome to advanced <unk> fourth quarter 2021 earnings Conference call with me here today are president and CEO , Erin Kane, and senior Vice President and CFO Michael Preston.
This call and webcast, including any non-GAAP reconciliations are available on our website at investors <unk> advanced six dotcom.
Note that elements of this presentation contain forward looking statements that are based on our best view of the world and of our business as we see it today.
Those elements can change and the actual results could differ materially from those projected and we ask that you consider them in that light.
We refer you to the forward looking statements included in our press release and earnings presentation. In addition, we identify the principal risks and uncertainties that affect our performance in our SEC filings, including our annual report on Form 10-K as further updated in subsequent filings with the SEC.
This morning, we will review our financial results for the fourth quarter and full year of 2021 and share our outlook for our key product lines and end markets. Finally, we'll leave time for your questions at the end.
So with that I'll turn the call over to advanced <unk> as President and CEO Erin Kane.
Thanks, Adam and good morning, everyone.
Thank you for joining us and for your continued interest in advance X.
As you saw in our press release advances delivered terrific 2021 results I'd like to thank our nearly 1400 teammates who delivered outstanding results for one another and our customers and our shareholders.
2021 was a milestone year for advance ex celebrating our fifth anniversary since the spin off.
We achieved post spin record annual sales EBITDA and free cash flow executed our first acquisition initiated a quarterly dividend entered into a new revolving credit facility and significantly reduced our debt levels to provide optionality for further value creation.
We were also recently named one of Newsweek's, most responsible companies for 2022.
Mike will cover the details of our fourth quarter and full year financials in a moment, but our strong results reflect the resilience and strength of our execution and business model as well as our leadership positions across our diverse product portfolio.
We are highly focused on executing what is in our control, including driving superior operational and commercial performance to meet the evolving needs of our customers building capabilities to strengthen our innovation and portfolio resiliency and maturing our capital stewardship.
On that front, we are very excited to announce today. The all cash acquisition of U S. The means for an estimated net purchase price of approximately $100 million.
You have the means existing portfolio of differentiated margin accretive products is a strong complement to our value chain and support further penetration into high value end markets and applications.
We expect the deal to close in the first quarter of 2022 subject to customary closing conditions.
Building on the success, we had with the C. I S acquisition last year and the initiation of our structural dividend today's announcement marks another step as we evolve and enhance our capital allocation strategy to support sustainable and robust shareholder return.
We are eager to welcome the roughly 50 U S. It means team members to advance it and look forward to their contributions to our continued growth.
As we look ahead, we had a lot of excitement around our organization and the outlook for our business remains favorable.
We're targeting significant earnings growth in 2022, and they continue to execute on our strategic priorities supported as well by an expected robust ammonium sulfate fertilizer performance.
We remain confident that advantage is well positioned to deliver robust returns over the long term.
With that I'll turn it over to Mike to discuss the financial details.
Thanks, Darren and good morning, I'm now on slide four where I'll highlight the full year 2020 on financial results as.
As you can see it was terrific performance across the board sales of $1 7 billion EBITDA of 255 million earnings per share of 481, and free cash flow of $162 million. All represented record annual performance since we became a public company.
We captured pricing net of increased raw material costs achieved sales volume growth and expanded margins further reducing leverage levels throughout 2021.
Our organic investments continue to pay off with strong top and bottom line performance from our differentiated product portfolio and continued contributions from our growth and cost savings capital projects.
Overall strong execution in what was an outstanding year for advances.
Now, let's turn to slide five to recap the fourth quarter results.
Sales totaled $424 million up 25% compared to last year.
<unk> was favorable by 37% comprised of raw material pass through pricing of 12%. Following a net cost increase in benzene and propylene and market based pricing of 25% driven by higher pricing across our ammonium sulfate and nylon product lines.
<unk> volume in the quarter decreased approximately 12% driven primarily by the impact of the planned plant turnaround in the fourth quarter of 2021, as well as lower production volume out of Chesterfield and frankford compared to robust operational performance in the prior year period.
EBITDA was $49 million, an increase of approximately $1 million versus the prior year I'll walk through the key year over year variances on the next slide.
Earnings per share of <unk> 80 increased <unk> 14 per share versus the prior year, we saw a higher effective tax rate in the quarter versus the prior year, primarily driven by an approximately $3 8 million dollar energy tax credit associated with our natural gas boiler investment in the prior year period, which drove the effective tax rate down to 13% last.
Sure.
And finally cash flow from operations reached $33 million, that's down about 14 million compared to last year, primarily due to the unfavorable impact of changes in working capital and lower net income.
This includes the strategic absence of our typical ammonium sulfate pre buy cash advances in the fourth quarter of 2021, reflecting the dynamic raw material and end market environment.
Capex of $19 million increased roughly $4 million year over year.
Let's turn to slide seven.
Here, we highlight a few of the key drivers of our fourth quarter EBITDA performance year over year.
Pricing over raw materials was a 48 $49 million tailwind as we drove value through strong commercial excellence track.
Tracking our key variable margin drivers performance in ammonium sulfate on a net price over natural gas and sulfur basis remained positive year over year, reflecting the strong underlying AD environment as well as our ability to drive value above and beyond the sharp increase in input costs.
Caprolactam and nylon over benzene were up year over year as well, reflecting continued improvement in industry spreads supported by tight industry supply while demand has steadily improved.
Lastly, chemical intermediates reflected a moderation in acetone over propylene propylene spreads compared to robust levels seen in the prior two quarters as we expected.
Planned plant turnarounds were a key consideration for the year over year growth the impact to pretax income was approximately $18 million in the fourth quarter of 2021 as expected versus approximately 2 million in the fourth quarter of 2020, reflecting the timing of our larger Hopewell turnaround during the course of the year and representing an approximately $16 million hedge.
And year over year in the fourth quarter.
Lastly, volume and other items were approximately 32 million unfavorable in the quarter production volume was lower in the fourth quarter of 2021, particularly out of Chesterfield and Frankfurt compared to robust operational performance in the fourth quarter of 2020.
Incentive compensation expense was higher year over year, given strong 2021 performance and we saw a plant spent also increased primarily driven by higher utility cost as a result of sharp increases in natural gas prices now, let's turn to the next slide.
On the left side of slide seven we've highlighted the drivers of the fourth quarter and full year 2021 free cash flow generation.
As I mentioned earlier, the 162 million for the year was a record annual performance and we continue to expect a robust outlook for 2022 from a cash flow perspective.
Given our strategic decision to forgo the typical ammonium sulfate pre buy in the fourth quarter of 2021, we would expect a tailwind sequentially in the first half of 2022 from a cash flow perspective, our sales and the receipt of cash are more closely aligned.
Proved cashflow generation alongside robust earnings has enabled more flexibility to create value for our shareholders on the right side of the page we've depicted our capital deployment. Since 2017 as you can see we had strategically ramped up our capital investments through 2019, including over $100 million deployed towards our high return growth and cost savings projects.
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In addition, we repurchased over 10% of the company's outstanding shares during this time.
As we navigate through the Covid environment in 'twenty, and 2020 'twenty. One we were highly focused on managing our cash and debt levels supporting a significant pay down in debt and driving our net debt to EBITDA leverage ratio below one.
Given the strength in our cash flows and our confidence in future cash generation, we committed to a structural return in the form of a competitive dividend, which we intend to sustain and grow over time.
We also continue to target accretive M&A and are excited to talk more about today's announcement of the acquisition of U S. Amines, you'll notice we anticipate a significant amount of capital deployed in the first quarter of 2022, both organically and Inorganically with the combination of our announced acquisition sustaining our dividend and an increase in capex so over.
All are disciplined in capital and balanced capital allocation strategy that we believe is a value enhancer to our core strategies and a key focus to support attractive total shareholder returns so with that let me turn the call back to Eric.
Thanks, Mike I'm now on slide eight to discuss each of our product lines.
Starting with the nylon he's seen spreads further improving through the end of 2021 on both a year over year and sequential basis the.
The North American market continues to be characterized by robust end market demand with the backdrop of rising input costs and continued industry supply constraints globally.
The global cost curve has steepened in this current energy environment, restoring marginal producers spread back to the 1000 to 1100 dollar per ton range from an end market perspective in North America residential construction has remained strong and we continue to see signs of recovery on the commercial side.
Packaging demand also remains robust.
As for engineered plastics, we are monitoring effects of chip and other material shortages, such as glass fiber to the auto compounding value chain.
However, it was encouraging to see leading automakers in the U S reported a sequential improvement in inventory in the fourth quarter.
Moving forward our efforts continue to focus on being our customers' trusted partner as well as new product and application development.
Includes our 100% postindustrial recycled content resident films, which has been met with positive feedback and commercial orders since its launch in last fall.
Moving to ammonium sulfate a number of key AD indicators continued to trend favorably.
Overall nitrogen industry pricing reached record levels supported by higher raw material input cost industry supply constraints globally, including export limitations and restrictions in various regions and continued strong underlying demand in agricultural fundamentals, including crop prices stock to use ratios and planted acres.
Overall.
As we've discussed previously natural gas and therefore ammonia and sulfur prices have substantially moved higher through 2021 and into 2022.
Over the last several weeks, we have seen global nitrogen prices fall from record highs, but the seasonal lull in demand.
While ammonium sulfate prices here in the U S have remained resilient given the tight supply and demand environment.
We were sitting here today, so a four to five weeks from spring with many waiting to jump into the market.
We do continue to expect a robust demand for this upcoming season, coupled with tight industry supply supported by regional energy call and nitrogen expert curtailments out of countries, including China and Russia.
We believe we're well positioned to succeed in this environment given our footprint here in the U S with access to premium selling regions and our make versus buy advantage on feedstocks.
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And lastly, turning to chemical intermediates.
Industry realized acetone prices over refinery grade propylene costs.
Further moderated sequentially into year end as expected on continued balancing of supply and demand.
Though these prices remain at healthy levels relative to prior years.
As a reminder, the small medium buyer acetone price is reflective of roughly one third of the domestic industry, where pricing is predominantly freely negotiated.
Moving forward, we expect strong demand to continue for a full intermediates product portfolio, which serves a diverse set of end markets and customers across building construction, Aldo paints and coatings sovereigns electronics and pharmaceuticals among others.
We're supporting growth across the portfolio through investments in high value and high purity applications, including a recent two P. L expansion to further grow in Auckland based paints and other applications and ramping up efforts to support sovereigns growth through our NATO cyclohexanone product line.
I'm now on slide nine and excited to speak to our announcement. This morning of the acquisition of U S. Mi.
Atlanta background. The company produces a range of a means at our two U S based manufacturing site located in Inbox, Alabama, and Portsmouth, Virginia.
The global market size for a relative amines, which can be produced at these facilities is estimated to be north of $1 billion with one third of the demand focused in North America, Europe , and Latin America.
Their main products, various alkyl amines and allylamine serve diverse end markets.
Because of their highway activity EMEA find numerous end uses in a wide range of applications and our important intermediates for the chemical synthesis of herbicides the manufacturer of pharmaceuticals, and catalysts for polymerization reaction just to name a few.
In addition, given their footprint and geographical location you have the means has access to reasonably advantaged raw materials, including acetone hydrogen and natural gas.
Roughly 70% of their sales are in the U S with strong positions in export markets as well.
Based on estimated 2022 performance U S. I mean sales are expected to be approximately $70 million. They have a strong and stable financial profile with accretive margins to our intermediates portfolio misplaced strong free cash flow generation and conversion.
Let's turn to slide 10 to further discuss our strategic rationale for the deal.
You have the means checks the box across each of the criteria, we shared at our Investor day in regard to our M&A framework.
Starting from the top with value chain integration to drive profitable growth and molecule upgrade.
The combination of our businesses creates opportunity to enhance our advantaged position through internal supply of materials, our broader strategic co producer arrangements.
Next let's look at strong industry fundamentals an opportunity for broader expansion.
The acquisition provides us with a unique platform in the agrochemical space.
Several of them means produced including mono I saw Propylamine army bomb or die Propylamine. Our G. P. E are important to the synthesis of various herbicide formulations there.
There are also a number of opportunities to support further penetration into high value industries that we know unlike today across our intermediates portfolio, including electronics pharmaceuticals and water treatment.
You want the needs as a cohesive fit with our existing portfolio and creates opportunities for us to leverage our core strengths to enable sales synergies and unlock value.
They are a very complementary business model with long tenured customer relationships and formula pricing mechanisms.
U S. A means and a strong asset operator, and we believe there are opportunities to drive growth through flexibility of assets and product mix optimization, including leveraging our raw material integration larger commercial presence and go to market strategy.
Today's announcement also help strengthen our position in North America as our business is an adjacency to both our ammonium sulfate adjuvant business, which we entered through the C. I S acquisition, and our solvents business within intermediates with the ability to leverage regional scale.
From a financial perspective, we certainly view this acquisition as an accretive deployment of cash and consistent with our capital allocation strategy.
The transaction is expected to close in the first quarter of 2022 and is expected to be accretive to this year's earnings.
I would like to take this opportunity to highlight that starting with our first quarter 2022 earnings release, we will be reporting both adjusted EBITDA and adjusted earnings per share, which will exclude noncash stock based compensation noncash amortization from acquisitions and one time M&A cost.
We believe that this will put us more in line with a prevalent reporting of our peers and a more accurate reflection of our underlying earnings performance for your reference we've included in the appendix of this presentation. A reconciliation of these metrics for the last eight quarters.
We expect the acquisition of the U S. It means to have minimal impact of roughly <unk> three turns toward the net debt to EBITDA leverage ratio and we are confident in our ability to attain solid returns U.
U S amines portfolio with margin accretive term intermediates portfolio, and we will target further upside from growth and asset optimization projects.
So overall, we are very excited about the opportunities that lie ahead to integrate U S amines into our business and support continued growth and value creation moving forward.
Let's turn to slide 11.
As we shared last quarter, we are building on the momentum created as we begin 2022.
Across the various value chains, we participate in we continue to see rising input costs and industry supply tightness at a time when demand overall remains robust.
Our ability to execute and navigate in this environment is core to our integrated business model pricing mechanisms and leading customer positions across a diverse set of end uses and applications.
We are targeting significant earnings growth in 2022, and we continue to execute on our strategic priorities, including superior operational excellence differentiated product growth and being strong and disciplined stewards of capital.
Demand is expected to remain strong across our nylon and chemical intermediate product lines and we are in the midst of the strongest fertilizer environment that we've seen in over a decade.
In 2022, we continue to expect Capex to be in the range of $95 million to $105 million, primarily reflecting an increase in base maintenance capex associated with our turnarounds and timing of project execution relative to 2021.
We are also still executing against our high return growth and cost savings project pipeline have our projects, they're generally smaller in size to what has been completed over the last few years.
We expect our effective tax rate for the year to be approximately 25% and.
And anticipate cash pension contributions to be in the range of $10 million to $15 million compared to approximately $18 million in 2021.
Operationally, we are focused on safe stable and sustainable performance, while driving less variability and utilization rates, which in turn drives improved customer experience and higher returns for the business.
We expect the pretax income impact of planned plant turnarounds to be in the range of $33 million to $38 million in 2022.
With a larger ever hope all turnarounds are about 80% of the full year impact scheduled for the third quarter.
Overall, we expect continued strong execution in 2022 with a number of tail winds at our back to support robust earnings and cash flow performance.
And once they close the U S. It means acquisition will be highly focused on efficiently integrating them into our portfolio and expect the deal to be accretive to earnings this year.
Let's turn to slide 12 to wrap up before moving to Q&A.
As we shared last quarter and at our Investor Day, We believe that advanced six offers a compelling investment thesis over the short medium and long term.
Our integrated business model and unique combination of assets as a source of competitive advantage.
We have leading positions across our product lines, serving a variety of diverse applications, where macro trends are supporting long term growth.
Significantly improve the earnings power of the company.
Lastly, we are enhancing the value creation through our disciplined and balanced capital allocation strategy.
This was on display as we once again differentiate our performance in 2021, we are gaining.
Momentum for our next chapter in 2022 is shaping up to be another exciting year for advance X wherever it is.
We will remain well positioned to deliver robust performance and returns with that Adam let's move to Q&A.
Great. Thanks, Erin Rocco could you. Please open the line for questions, Yes sure.
Two questions. Please first I haven't run on your Touchtone phone.
Using a speaker phone.
Please pick up your handset before pressing the keys.
If you'd like to withdraw your question. Please press Star then two once again, ladies and gentlemen that starwood.
I will pause momentarily to assemble our roster.
Uh huh.
Yeah.
Yes.
Gentlemen, My first question today comes from Vincent Anderson of Stifel. Please go ahead.
Yeah. Good morning can you guys hear me okay.
Yes. Good morning, good morning, good morning, good morning.
Congratulations on the year end and the acquisition.
It looks very good.
Hum.
Jim Thanks.
Yes.
You can imagine I'm going to spend most of the time on that so.
I'm trying to understand the raw materials stay here. So so is the plan for you as a means to supply.
I am a plant from Hopewell.
Specifically the ammonia I would imagine or is it more that you just have this natural hedge on the company's input costs.
If you are going to supply it internally.
Have enough excess capacity in an ammonia I imagine cyclohexanone.
Al.
Yes, no great question.
Things because we think it's important for you know relative to the framework, we shared at the Investor day that we are interested and you know moving and molecule upgrades and as you point out.
No. There there are a number of things here to consider one acetone is their largest raw material purchase them. There there is ammonia as you point out.
To make all of the Damian Chemistries, we also see opportunity through our cyclohexanone all in some chemistries as well.
So certainly it is core to take Chemistries and and raw material change that we know and understand.
I think that the fact that we supply these raw materials offer a.
A second source of supply and a supply security and redundancy and then it also opens the opportunity set for us to think about the ecosystem.
You know there is theres local supply, but then there's also the ability for us to think about how we best optimize the ecosystem potentially throw coal producer arrangements and swaps.
Okay, Okay that makes sense.
And then I guess could you just spend a minute on how.
This portfolio fits specifically with their solvent portfolio.
And you May have mentioned this further any other markets that use it means isn't selling into today that you would like to help kind of drive it towards.
Yeah. So when you think about the chemistries they practice and one of the things that we really liked about the assets that we're acquiring here is that they are a multi purpose in nature and.
All her battery actions as well and so they're quite a lot of flexibility and optionality.
One of the you know opportunities is to think about those chemistries.
They they have the ability to also make alcohols and so when we think about expanding beyond where acetone, we've got cyclohexanone IPA could sit there as well and so think about it in that regard as we continue to build out and.
In those sectors.
Okay. Okay.
That makes sense and you kind of answered my next question in terms of how flexible the assets are in terms of moving between products.
It looks like.
Correct me if I'm wrong.
Cyclo Hexcel I mean is that that is separate capacity down there in Alabama is that.
Is that true is that a separate line in process and if so can you talk about maybe specifically what that product goes into it is that.
Capacity is pretty well filled out.
Yeah, So you know across the across.
Across the asset base again, there there's various trains different configurations of the things that we will look forward into.
The the opportunity set for us to to grow and and optimized when you think about Cyclohexylamine. There are certainly applications into water treatment. It also is a it's a catalyst for our polymerization reaction.
So and including nylon. So you know again, just other other opportunities for us to think about synergistic fit.
Gotcha, Okay very helpful and I think just one more quick one I mean, when you think about synergies.
Beyond raw materials, I would imagine that the sales force is pretty pretty well.
Specified for what what they do but.
Should we think about.
Back office consolidation.
10% of revenues.
Earmarks.
No we I.
I wouldn't want anyone thinking about the acquisition is targeting cost synergies per side, I think theres, a tremendous amount for us to put one on one together unmake three plus.
Relative to the growth aspect here.
They have again strong execution I think they run a great shopping the the targeted the integration out of the outset is to go in and learn they're highly nimble and agile and now those are characteristics that we aspire to and so we'll we'll make sure. Obviously there are there are core functions that we can bring our strengths.
Two as well, but and.
And hopefully that just gives you a little bit more perspective, how we're thinking about it and then the only other thing I'd add is there what we see as we see opportunities for growth non capex related growth just in the various different end markets and opportunities.
We're discussing but it also opens up the aperture for additional organic capex opportunities on the side there are a lot of brownfield.
Opportunities that we see there on site and so it just completely opens up this additional.
They get opportunity to expand and grow and grow organically.
Okay, Thanks, and actually I did have just one more I promise so.
It looks like several of these specific chemicals.
Our.
Functionally duopolies at least in terms of U S capacity.
What is kind of the representation of imports and some of them and I guess, maybe the core chemistries at these facilities.
And then maybe like contract structure.
Or at least sell structure of sales generally speaking around these markets.
Yeah, I mean, I think when you one of my commentary I mean, youre going to have you know primary customers and again a range of large and regional.
You know consumers.
Yes the.
You know there's a handful of other you know U S producers, but theyre also importers as well.
Depending on the chemistry and in one case, a U S means as a sole producer of know Mala. So you know it kind of varies across the full chemistry set.
You know as you say, there and you know again with with long tenured customer relationships there our formula mechanisms, which again is a is a nice fit right to how we know we succeed and and very complementary to how we approach.
You know our markets overall.
Alright, Thanks, I'll turn it over.
Thanks, Thank you.
Our next question today comes from Charles Lieber with Piper Sandler. Please go ahead.
Good morning, guys can you hear me okay.
Yes, good morning, Okay. Good.
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Just on the on the acquisition this is all going to be.
That totally or is there some cash coming off the balance sheet on this.
And then looking at it.
He said the.
So to specified synergies, but I mean, I'm, assuming that there is some amount of that and is there.
And EBITDA that's associated with the with.
With the.
Well with this price or with the sales.
Yes, so I mean, I think you broke up a little bit on the first question Charlie but I think your question is how are we funding the acquisition and we have plenty of capacity with the with our existing credit facility, which has a revolver structure, which we just renewed.
Our new five year structure. So we have all the capacity, we need and as it is available for us to fund the acquisition through that so not an issue in that regard.
And maybe I'll take your second half here.
You know when we think about.
How we report our financials.
Again, we don't report segment financials, both for you know how the P&L as are our nested here, but also from the standpoint of a competitive.
Nature, So what what I would share is I think the we gave you. So did the view on the top line.
This portfolio has demonstrated and why we like it right the ability to earn our target differentiated product gross margin at one and a half to two XR based business.
So we kind of look over our history or our average gross margin for advantage that's been in the low teens. So you know again. This this accretion opportunity for US and then when we think about probably haven't.
Want to fight if you will to your point the the cells.
Oh Geez again for the things that we like relative to you know highly flexible asset the brownfield space for expansion when we look at our initial pipeline.
Our synergies and our targets here. It really does suggest we can double the earnings of the business through both Capex three and high return projects and initiatives as Mike pointed out in three to five years.
Yeah and then.
Oh no no.
On the other side they said they buy a lot of acetone.
I'm, assuming that youre going up.
At some point going forward youre going to be supplying most of that I mean, I would assume that that's a fairly significant step up in the profitability of acetone unless you have an extremely strong you know cyclical rebound in acetone or is it always going to get covered anyway, even in the even in the times when advertisers, making a cyclical upswing.
Yeah. So.
The top end.
Speak Yeah, no yeah, maybe just to build on the.
The the question even that the Vincent sorry, with two here just to reiterate.
They have a strong supplier partnership today, which again, we we value through the diligence.
Certainly it is one of their raw materials.
But again as we think about the opportunity set for US here is one that provides security of supply.
And redundancy and then two you know we have to think about the the trade off and we do think that the ecosystem can be optimized.
Whether it's direct shipments or really a broader you know co producer swap arrangement to yeah.
Yes, I totally get the value of the integration without the physical product actually moving.
Got it.
Last question, there's been some small issues in South America on the crop side, you know some dry weather things like that.
Do you expect that to affect any of your sales there in the seasons that you typically move into South America or is that sort of next next season. So we're not really worried about the current growing situation down there.
Yeah. So when we really think about it again, when we did that big shift to South America really comes in in the back half of the year right. Our primary focus as we sit here today is ensuring we've got our supply ready for our key customers as the season hits here in the next couple of weeks.
In the domestic market.
Got it and I assume that's pretty robust given what you know some of the other fertilizer guys have been saying about this season that they had really strong early seasons and they are expecting a pretty pretty robust.
Spring coming as well as that seemed to be the case, so far as you're seeing.
Exactly you know I think is where we're a couple of weeks away, but we've seen truck shipments pick up so early signs certainly our mid Atlantic. It's got warm here. So you know I think.
That does again the primary focus is to be staged and ready and I think we're well positioned to be you know again primary focus on servicing our customers and make sure. They have the product they need one of the season hits and.
It should be a good good.
Good season here domestically.
Great. Thanks, very much I'll pass along.
Okay.
And our final question today comes from David Silver CL King. Please go ahead.
Final question Okay. Thanks.
Okay. So just a couple of questions I mean, maybe I would just like to start with your overall inventory levels, but I'm you know I'm looking at your year end inventory, a little under $150 million, that's well down from 12 months ago and really it's it's barely up.
From the.
The other quarters of 2021, and I'm, just scratching my head and I'm thinking of the direction of.
The feedstock costs that are that are implied there so a couple of.
<unk>, but you mentioned so sorry so.
Sorry a.
Couple of questions first I mean, how should we think about that December 31, our inventory level in other words is that been bulked up.
In the month and a half since since the end of the quarter.
And you know.
I guess I'm, just wondering how does that kind of compare with you know based on your comments about you know went up the.
Optimistic comments about the demand outlook.
I mean.
You know will you be able to let's say match I think the volumes.
<unk> sold in 2021, which I believe was a record record year for your company I mean, how does that how does just the overall volume.
Projection look for 2022 compared to 2021.
Yeah, I mean, I would I would say just when you think about the end markets and demand demand continues to be strong and robust across all the product line. So.
No issue there.
You do point out the inventory for <unk> for the quarter, we did add and at $150 million of inventory.
But when you look at that the finished goods inventory.
Was the lowest it's been in a number of quarters, certainly the lowest all year and probably in a number of years.
When you look at the activity within the quarter, we did have our large turnaround. So when we do run through the turnaround our inventories duty do tend to get a little slimmer with.
With respect to particularly in finished goods.
We also had a less robust operational quarter relative to the prior quarter, the third quarter and also the fourth quarter of of 2020.
The other thing I'll point out as you know through the year. Many of our competitors did experience force matures and industry supply was was very low and challenge because of that and as a result, we did benefit and we're able to get some sales during the year.
The goal as we get into the first quarter is.
To see improved operational performance, which we are seeing and also build those buffer inventories back up to levels that.
Our more normalized but you know in terms of meeting the demand and the demand trends in growth. That's all still strong and theyre in front of us to be had.
Okay, you know Mike this one might be for you as well, but I wanted to follow up on a comment you made in your opening remarks, I think you used the term dynamic but has to do with I guess the the.
Pre buy or the fill season for your fertilizer business, but.
If I look on the current liabilities on the deferred income and customer advances line.
Sequentially I'm again, the balance was kind of flat here in the fourth quarter and that compares to a plus 20 million change one year ago, and a plus I don't know.
No I think $18 million a year before that.
So Brian can you just kind of interpret that I mean, I apologize I used to know this stuff a little bit better, but what what why why the flatness and how does that relate to either you know you're shipping the timing of your shipments or your marketing strategies with what's what does that flatness reflects.
Yeah, So we did decided to forgo.
The ammonium sulfate pre buy in the fourth quarter of this year and if you think about the end market environment days. When you look at the raw materials right that sort of feed into the fertilizer space with Solta are up 165% year over year in the fourth quarter natural gas up 125.
You said I mean, clearly we've seen an escalating raw material environment as well as a lot of volatility and volatility in the raws, but also in the in the end market in terms of pricing and given all those dynamics we decided.
To forego the pre buy in the fourth quarter and continue to monitor and track and serve our customers as best we can in a very volatile and dynamic environment.
As a result, some of that cash will come in in the first half of the year as we indicated as the sales and the cash are more closely aligned as we head into the season, but that's really the decision behind forgoing the pre buy in the fourth quarter and we think that was a prudent move given given the environment.
Okay. I hope you don't mind, I'm going to just keep going a little bit, but just real quick I think in your release, you said volume shipment volumes were down 12% year over year would.
Would you actually have the trend for the sequentially for the third quarter to the fourth quarter what was the.
The Delta on your shipment volumes.
Yes.
Was.
It wasn't quite as down what I would say is the third quarter of 2021 had similar operational performance as the fourth quarter of 'twenty.
So volume was down when you when you look sequentially from the third to the fourth quarter not quite as much.
As we saw year over year, but still I'll call. It mid to upper teens volume decline and I will say in both of those quarters. The operational performance was very very robust right.
We didn't.
We had very strong results from Hopewell and the other sites as well.
But we want to make it clear that we're not seeing it.
Issues with demand demand is still robust and strong.
We did see some discrete impacts on various unit operations here in the fourth quarter of 2021 that reduce output.
And with some of the discussion around inventory levels and the fact that the finished goods inventory was relatively low we didn't necessarily have the the buffer inventories we would normally have to navigate through some of these disruptions. If there was a power outage or things of that nature, but again as we head here into the first quarter.
Seeing improved operations improved performance, we're going to get those inventory levels built back up and be in a very good position in 2022.
Yeah.
Okay, and maybe my my last question, but as you know I'm going to go to the outlook section of the earnings release.
And you know the very first bullet point under there.
Yeah, I'm going to just quote some.
Some snippets, but you say you're targeting quote unquote significant earnings growth in 2022.
And then separately you say robust ammonium sulfate fertilizer performance. So I'm just trying to put those two together and then I understand the demand outlook. Currently is very good but I also understand you know I've heard on this call several times dynamic and volatile and.
Cost pressures and some supply chain issues. So you know and I hope this doesn't sound too naive but.
You are coming off of a record year for your company and yet you're targeting quote unquote significant earnings growth in 2022.
And I guess just.
From your perspective looking at all these moving parts I mean, you felt confident and in making that statement about.
Not just growth, but significant growth so.
What can you point to qualitatively that tells you that things.
We are going to break the right way. So in other words have you pre sold all of your fertilizer or do you have strong volume commitments in your in your state.
Stable margin your margin stabilized product line so.
Just qualitatively what is it that.
Made you comfortable saying significant earnings growth over and above.
The record earnings here you just completed.
Yeah.
Sure David and <unk>.
And Kelly there, yeah, I'll point to a lot of the things that you've you've printed on right relative to your your view of our opportunity set in 2022 and some of your most recent publications as well in and draw on some of the messages we had in the Investor day as well.
We haven't we're more than an island company right. We've got an intermediate portfolio, we've got a plant nutrients portfolio and we've got our our nylon space, We show back in Investor Day, how.
The nuances of the the shorter cycle on the longer cycle mix right, we're starting to turn with a longer cycle AG markets and he got Aggies is secular heightened but does have.
Its a its implications here tied to the energy environment.
Environment as well as nearer term supply demand you know considerations and.
That that AG market is and in fertilizer industry.
And as we've been saying has has made it turn this will be a strong season, just about everybody has made that call and.
The the fertilizer season from July 'twenty, and 'twenty one into June of 2022.
You know I think that our order books are strong we are not fully sold out no no player is.
To our knowledge, but.
Certainly we are finishing up Q1 and heading into into Q2, so consistent with a lot of those brought our peer comments that are.
That is going to support certainly first half.
Do you use across the board and then we've got what we've been working on rate all of our strategic priorities around driving higher highs are playing out right our ability to expand the earnings base of the company.
Around our differentiated product portfolio saw great growth last year and again targeting mid.
Mid teens CAGR is on those product lines were adding in.
Have a great portfolio with U S amines and so.
Much of what you've already sort of captured and tried to call out is pointed to what our opportunity set is in 2022.
Is is what gives us the confidence in our statement here today.
Alright, that's great. Thank you very much.
Thanks, David Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Erin Kane for closing remarks.
Perfect. Thank you all again for your time and interest this morning.
2021 resorts represented standout performance and I'm very proud of how our organization continues to support our customers while navigating the current dynamics, we are executing against focused strategies align with our ability to drive and achieve attractive total shareholder return over the long term.
To close where I started we are gaining momentum into 2022 and remain confident that advances is well positioned to deliver robust performance and returns I hope you are excited about our future as we are so with that we'll look forward to speaking with you again next quarter stay safe and be well.
Thank you Ma'am. This concludes today's conference call. Thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.