Q3 2024 Balchem Corp Earnings Call
Greetings and welcome to the Balkans third quarter 2024 earnings call.
Speaker Change: At this time all participants are in a listen only mode.
Speaker Change: <unk> and answer session will follow the formal presentation.
Speaker Change: If you require any operator assistance during the conference. Please press star zero on your telephone keypad.
Speaker Change: This conference is being recorded and it is now my pleasure to introduce to you Martin Bengtsson CFO. Thank you Barton you may begin.
Speaker Change: Thank you and good morning, everyone. Thank you for joining our conference call. This morning to discuss the results about Chemed Corporation for the quarter ending September 30th 'twenty 'twenty. Four my name is Martin Bengtsson, Chief Financial Officer, and hosting this call with me is Ted Harris, our chairman President and CEO.
Speaker Change: Following the advice of our counsel auditors and the S. E. T. At this time I would like to read our forward looking statement.
Speaker Change: Statements made in today's call that are not historical facts are considered forward looking statements. We can give no assurance that the expectations reflected in forward looking statements will prove correct and various factors could cause actual results to differ materially from our expectations, including risks and factors identified in <unk>.
Speaker Change: <unk> most recent Form 10-K, 10-Q and 8-K reports.
Speaker Change: The company assumes no obligation to update these forward looking statements.
Speaker Change: Today's call and commentary also include non-GAAP financial measures. Please refer to the reconciliations in our earnings release for further details I will now trying to call over to Ted Harris, Our chairman President and CEO.
Ted Harris: Thanks, Martin Good morning, and welcome to our conference call. This morning, we reported strong third quarter financial results with healthy growth in sales and record earnings from operations and record adjusted EBITDA.
Ted Harris: Excellent results in our human nutrition, and health and specialty products segments more than offset the softness we continue to experience within our animal nutrition and health segment.
Ted Harris: Holidayed revenues of $240 million were higher by four 3% versus the prior year.
Ted Harris: Most margin dollars grew 11.5% and we expanded our gross margin percentage by 230 basis points to 35, 6%.
Ted Harris: Earnings from operations of $48 million were higher by 10% versus the prior year.
Ted Harris: And we delivered record quarterly adjusted EBITDA of $64 million, an increase of seven 6% with an adjusted EBITDA margin of 26, 8% of sales up 80 basis points from the prior year.
Ted Harris: Our third quarter net income of $34 million, an increase of 16.4% resulted in earnings per share of $1.03 on a GAAP basis.
Ted Harris: On an adjusted basis, our third quarter non-GAAP net earnings were a record of $37 million, an increase of 9.3%, which resulted in earnings per share of $1.13 on a non-GAAP basis.
Ted Harris: Cash flows from operations were $51 million for the third quarter of 'twenty 'twenty, four with quarterly free cash flow of $42 million.
Overall, a strong quarter for balkin with performance that highlights the strength and resilience of our business model before.
Speaker Change: Before passing the call back to Martin to go over the financial results in more detail I would like to make a few comments about the overall market environment and some of the new innovative products. We have recently launched in 'twenty 'twenty four we.
Speaker Change: You have seen a stabilization of demand and customers returning to more normalized order patterns. Following the volatility we experienced in 2022 and 2023.
Speaker Change: When we look across our portfolio of businesses, we are seeing excellent performance in our human nutrition and health segment and similar to what we shared on the last call. We continue to see healthy demand for our unique portfolio of minerals nutrients and vitamins and minerals and nutrients business and we continue to see.
Speaker Change: A normalization and more steady and consumer demand in our food systems businesses in the animal nutrition and health segment, we saw sequential improvement in the third quarter compared to the second quarter and we believe we bottomed out in the first half of 'twenty 'twenty four while we are not yet.
Speaker Change: Back to healthy demand levels, we do expect sequential improvement in the second half of 'twenty 'twenty four compared to the first half on improving dairy economics stabilization of the mono gastric business in Europe and the early contribution from our recent product launch of Aminosugar X L.
Speaker Change: For our specialty products segment, our primary business performance gases continues to perform well in a stable market and we expect this to continue.
Speaker Change: While Q4 is our seasonally weakest quarter, we believe the ongoing strength in human nutrition, and health and specialty products and the continuation of sequential improvement in animal nutrition and health will allow for continued year over year growth as we look to close out well will.
Has been another very strong year for Valkyrie. Additionally.
Speaker Change: Additionally, I'm excited to share that we continue to innovate and launch new and enhanced products to support our growth.
Speaker Change: Animal nutrition and health just recently launched a newly developed product Aminosugar XL, which is a next generation rumen protected precision released lysine designed to consistently reliably and economically meet the lysine amino acid requirements of lactating dairy cattle.
Speaker Change: Sure XL offers leading performance when considering feed stability lysine content and bioavailability and is a great addition to the animal nutrition and health segments portfolio of high performing encapsulated products focused on optimizing dairy cow productivity and sustainability.
Speaker Change: Our human nutrition and health segment also recently brought to innovative new products to market. The first is K to vital delta fermented, which is a vitamin K two from fermentation and a patented micro encapsulated form the second bite of choline pro flow, which isn't it.
Speaker Change: <unk> formulation of our existing Vida choline, specifically designed for inclusion in multi vitamins I'm excited about these recent product launches in both our animal and human nutrition and health segments, which add to the previously announced launch of optic fallen plus earlier this year as we continue to focus.
Speaker Change: On bringing innovative solutions for the health and nutritional needs of the world.
Speaker Change: And with that I'm now going to turn the call back over to Martin to go through the third quarter consolidated financial results for the company and the results for each of our business segments pardon.
Speaker Change: Ted.
Martin Bengtsson: As Ted mentioned overall, the third quarter was a great quarter for about camp with solid sales growth record earnings from operations and a record adjusted EBITDA.
Martin Bengtsson: Our third quarter net sales of $240 million or four 3% higher than prior year driven by strong performance in both our human nutrition, <unk> health and specialty products segments.
Martin Bengtsson: Our third quarter gross margin dollars were 85 million up 11.5% compared to the prior year and our gross margin percent was 35, 6% of sales up 230 basis points compared to the prior year.
The increase in gross margin percent was primarily due to a favorable portfolio mix, where higher margin human nutrition and health and specialty products businesses grew while the lower margin animal nutrition and health business declined.
Martin Bengtsson: Consolidated operating expenses for the third quarter were $37 million as compared to $33 million in the prior year.
Martin Bengtsson: The increase was primarily due to higher compensation related costs and transaction charges, partially offset by lower amortization.
Martin Bengtsson: GAAP earnings from operations for the third quarter were a record of $48 million, an increase of 10% compared to the prior year.
Martin Bengtsson: On an adjusted basis as detailed in our earnings release. This morning, non-GAAP earnings from operations of $53 million were up seven 9% compared to the prior year.
Martin Bengtsson: Adjusted EBITDA was a record of $64 million, an increase of 7.6% compared to the prior year.
Martin Bengtsson: Adjusted EBITDA margin rate of 26.8%.
Martin Bengtsson: Net interest expense for the third quarter was $4 million, a decrease of $3 million compared to the prior year, driven primarily by lower outstanding borrowings.
Martin Bengtsson: We continue to use our strong cash flows to pay down debt and we reduced our debt by $40 million in the third quarter and ended the quarter with net debt of $153 million with an overall leverage ratio on a net debt basis of 0.6.
Martin Bengtsson: The effective tax rates for the third quarter of 'twenty, 'twenty, four and 2023 with 22, 9% and 20.3% respectively.
Martin Bengtsson: The increase in the effective tax rate from the prior year was primarily due to lower tax benefits from stock based compensation and certain higher state taxes.
Martin Bengtsson: Consolidated net income close to quarter at $34 million up 16.4% from the prior year.
Martin Bengtsson: This quarterly net income translated into diluted net earnings per share of $1.03, an increase of 13 cents compared to the prior year.
Martin Bengtsson: On an adjusted basis, our third quarter adjusted net earnings were a record of $37 million, an increase of nine 3% from the prior year, which translated to one dollar and 13 cents per diluted share.
Martin Bengtsson: Cash flows went up from operations were $51 million with free cash flow of $42 million and we closed out the quarter with $74 million of cash on the balance sheet.
Martin Bengtsson: As we look at the third quarter from a segment perspective.
Our human nutrition, and health segment generated sales of $152 million, an increase of 5.4% from the prior year, primarily driven or driven by higher sales within both the minerals and nutrients business.
And the food and beverage markets.
Martin Bengtsson: Our human nutrition and health segment delivered record quarterly earnings from operations of $36 million, an increase of 13.8% compared to the prior year.
Martin Bengtsson: This was driven by the aforementioned higher sales and a favorable mix, partially offset by higher operating expenses.
Martin Bengtsson: Third quarter adjusted earnings from operations for this segment were $39 million, an increase of nine 7%.
We are very pleased with the overall performance of our human nutrition and health segments, delivering solid sales growth and record earnings from operations.
Martin Bengtsson: We continue to see healthy demand in our minerals and nutrients business and a more normalized demand picture in our food and beverage businesses.
Martin Bengtsson: Our animal nutrition, and health segment generated quarterly sales of $53 million, a decrease of 1.9% compared to the prior year.
Martin Bengtsson: The decrease was driven by lower sales in the mono gastric species par.
Martin Bengtsson: Partially offset by higher sales in the ruminant species markets.
Martin Bengtsson: Animal nutrition health delivered earnings from operations of $4 million, a decrease of 34% from the prior year.
The decrease was primarily due to the aforementioned lower sales and higher operating expenses.
Martin Bengtsson: Third quarter adjusted earnings from operations for this segment were $4 million a decrease of 21.2%.
Speaker Change: As we've discussed in earlier calls our animal nutrition and health segment, along with a broader animal feed additives market has been going through challenging market dynamics for a while now.
Speaker Change: And the European animal feed market. This continues to be the case and we see a relatively soft market demand and continued competition from low cost imports flooding the market.
Speaker Change: In the North American market, we're starting to see an improving trend, particularly as it relates to the dairy market improved U S milk and milk protein prices combined with lower feed cost at the dairy farm level are creating a healthier market for our rumen protected encapsulated nutrients as well.
Speaker Change: Salt, we were pleased to see our ruminant business deliberate growth versus prior year in the third quarter.
Speaker Change: For total animal nutrition and health. We were also pleased to see the sequential improvement in the third quarter compared to the second quarter and we expect the second half of 'twenty 'twenty four to be better than the first half.
Speaker Change: Our specialty products segment delivered quarterly sales of $33 million, an increase of 10.6% compared to the prior year.
Driven by higher sales in both the performance gases and plant nutrition businesses.
Speaker Change: Specialty products delivered quarterly earnings from operations of $11 million, an increase of 23% versus the prior year.
Speaker Change: Primarily driven by the aforementioned higher sales and a favorable mix, partially offset by higher operating expenses.
Speaker Change: Quarter adjusted earnings from operations for this segment were $12 million an increase of 18.9%.
Speaker Change: We are very pleased with the performance of specialty products in the third quarter.
Speaker Change: Both from a sales growth and margin perspective.
And we expect demand to remain healthy and our performance gases business and our plant nutrition business will follow the usual seasonality of lower second half demand.
Speaker Change: So overall the third quarter was another solid quarter for Balco.
Ted Harris: I'm now going to turn the call back over to Ted for some closing remarks. Thanks Martin once again, we are very pleased with the third quarter financial results reported earlier this morning, as well as our year to date performance as a company. We continue to show an ability to deliver results in a variety of market can.
Speaker Change: Additionally.
Ted Harris: Given our strong market positions and our value added portfolio of products and we remain confident in our long term growth outlook for <unk> as a company.
I will now hand, the call back over to Martin who will open up the call for questions. Thank you Ted and this now concludes the formal portion of the conference.
Martin Bengtsson: At this point, we will open up the conference call for questions.
Yes.
Speaker Change: Thank you at this time, we'll be conducting the question and answer session. If you would like to ask a question. Please press the star followed by one on your telephone keypad, a confirmation tone will indicate that your line is in the queue. You May press star two to remove a question from the queue for.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment, please when we poll for questions.
Speaker Change: And the first question comes from the line of Robert <unk> with T. J S. Securities. Please proceed with your question.
Speaker Change: Hi, This is al will on for Bob Congrats on another great quarter.
Speaker Change: Thanks, well.
Speaker Change: Oh, So you guys just announced two new products nation H and on the last call you guys talked about after falling plus and the new A&H rumen protected amino acid.
Speaker Change: So my question here is can you tell us more about your product development process.
Speaker Change: Where do you get your ideas from is it you or your customers. How long is the time to develop and launch.
Speaker Change: And what is the pipeline for new stuff right now thank you.
Yeah. Thanks, well, we really are pleased with the recent product launches not only in human nutrition health, but as I mentioned in animal nutrition health and and you know I think that this really stems from a lot of work that we've been doing over the last year or even three to five years.
And.
Speaker Change: Developing our pipeline process or new product development process, we have kind of our in house development pipeline process that we're very proud of that that are kind of blends.
Speaker Change:
Process, but also speed to market and yeah, we really get our ideas from anywhere we can he has so yes customers.
Speaker Change: But also our significant marketing efforts that we've also been talking about investing in over the last.
Speaker Change: Few years so.
Speaker Change: We feel like we have a very healthy ideation hopper AR as well as kind of healthy.
Speaker Change: Yeah products represented is represented at each stage of a.
Speaker Change: Our process. It normally takes I think you know I would say for that the non food part of our portfolio because food is a little bit faster.
Speaker Change: <unk> given you know the need for a meeting you know taste and texture requirements of of limited time offers.
Speaker Change: As much faster a pipeline, but when you put that aside you know it it typically takes.
About a year I would say two to bring a an idea to a fruition and sometimes a couple of years.
Speaker Change: And we have I think recently done a really good job of using external help in developing some of our new products and that kind of speed things along that also adds to our.
Speaker Change: The the innovation process, but we feel really good about the investments that we've been making over the last few years, both in marketing and in R&D to ultimately result in more products brought to market and are really pleased with these three that we've talked about.
Okay.
Speaker Change: Great. Thank you for the color and then.
Speaker Change: In the minerals minerals and nutrition sub segment and A&H has been particularly strong I think that growth in flavors and powders.
Speaker Change: Fine, but maybe lagged you know a little what is the outlook for each of the next 12 months.
Speaker Change: Yeah, we could not be happier with the performance of our human nutrition <unk> health business the growth that we've really delivered over the last I would say.
Speaker Change: A few years has been a really healthy and certainly over the last a year or so has been particularly.
Strong led by the minerals and nutrients business as we have said.
Speaker Change: And we do.
Speaker Change: Believe that that growth will continue for minerals and nutrients although Adam.
Speaker Change: At a bit of a muted level, just because the year over year comps are becoming a bit more difficult, but we see that business continuing to grow year over year, partly driven by a healthy market growth overall, and then our specific portfolio.
Speaker Change: Products.
Speaker Change: Uh huh, increasing their penetration in the marketplace, so growing at faster rates than the market as a whole. So we continue to see that for minerals and nutrients and I think the good news is that we feel as you pointed out the food business has been performing well, but at a lower growth.
Speaker Change: With rates and we see growth starting to accelerate.
A bit more in the the broader food formulation business with.
Speaker Change: With the market recovering somewhat and again our portfolio of products and are kind of the sub segments that we're focused on like nutritional beverages, and and so forth growing at faster rates. So.
We do feel as though they.
Speaker Change: Food business will as we go forward will be growing at a bit of a faster pace than.
Speaker Change: It has been for the last few quarters, while the minerals and nutrients business will continue to grow but perhaps at a bit of a slower pace than that then it has given the year every year.
Speaker Change: Comps, but we really do feel good about our the products that we have the positions that we have and then the overall market dynamics within our human nutrition and health.
Speaker Change: Thank you very helpful. And then just one more on the A&H side.
Speaker Change: Nook prices are continuing to rebound how dairy farmers reacted in terms of demand for your product.
Speaker Change: Yeah, maybe I'll, let Martin take that one yeah.
Martin Bengtsson: Yeah, well, it's certainly been a positive development over the last number of months in terms of the milk prices and also in terms of the combination for the day with pharma right that one end for them as they milk prices and what they sell out but also their biggest expense is to feed input cost right and they have really come down.
Martin Bengtsson: So that the net margin for the data with farmers is positive where theyre, making money again, where theyre starting to invest again in their thinking more about the productivity and efficiency are and this has translated into increased demand for the feed additives and in their room and protected encapsulates that we did.
Martin Bengtsson: Liver so.
Martin Bengtsson: We have seen that we can see it in our order books, we can see an improvement which is very positive. There is a bit of a time lag that we've talked about before that it's not a the first month, where the dairy farmers see a change that they immediately turn around and place orders, there's usually a delay because they they want to be convinced its sustainable and that it will last and ice.
Martin Bengtsson: Not a short term blip.
Speaker Change: Uh huh.
Speaker Change: But from what we can see in the market. It appears to be a sustainable a and that'll be a much healthier market for the foreseeable future and that is now starting to be reflected in the order books. So it's a very positive outlook from that perspective.
Speaker Change: Great Congrats again and thanks for taking questions.
Speaker Change: Thanks, a lot well.
Speaker Change: And the next question comes from the line of Ram <unk> with H C. Wainwright. Please proceed with your question.
Ram: Alright, thanks, very much for taking my questions and congrats on the performance in the quarter I wanted to ask about how optical and Clos has been doing so far and in particular also if you could give us some additional qualitative color around how you expect the introduction.
Ram: Of the new H N H product to impact gross margins going forward also if you had any commentary to provide regarding vital choline pro flow and how this might change the evolution of the overall Vida choline franchise going forward in terms of broadening its reach and how that might be achieved that would be.
Ram: Helpful.
Ram: Okay.
Ram: Great We got three three parts too.
Speaker Change: That question and maybe I'll I'll take the latter.
Speaker Change: The latter parts of vital choline pro flow is really a.
Speaker Change: An exciting product for us, it's actually a patent pending.
Speaker Change: Product.
Speaker Change: That is encapsulated and.
One of the complexities of choline is as we've probably talked historically is it's hygroscopic in nature. So it attracts water and sometimes that makes it difficult to.
Speaker Change: To deal with and this very unique encapsulated product will allow vida choline more easily.
And efficiently to be included in Multivitamins and that really has always been.
One of the areas that's been a bit more difficult for us. So we tend to see vida choline and choline products and a singular form by themselves and you know were pleased.
Speaker Change: Pleased with excited about the growth that we've been able to deliver kind of despite this this technical hurdle that you often times have to get over and what Vida choline Pro flow does is it addresses that issue, particularly well.
Speaker Change: When trying to formulate a vida.
Speaker Change: Multi vitamin that includes choline in it. So you know we've largely been excluded from the multi vitamin.
Speaker Change: Kind of market and.
Speaker Change: We're excited that we now have a solution that can address that and it really opens up a fairly significant.
Speaker Change: Market for us and so we're.
Speaker Change: Optimistic that we will be able to penetrate that market like we have not been able to do in the in the past. So that's really what it does for US and again you know what we've been been really doing for years is building awareness around the health benefits and importance of choline and.
Speaker Change: Penetrating the market prenatal infant formula nutritional beverage and multi vitamin market as part of that that has really not been available to us. So so it opens up that side of the market somewhat and that's a fairly significant market.
Speaker Change: As far as gross margin goes yeah. These products out of the gates.
Speaker Change: Our higher gross margin than.
Speaker Change: Our typical products so they certainly would not be a.
Speaker Change: Drain on gross margin percent, if you will and would be accretive to our gross margin. So I think that's a very positive and up the fallen plus you know it hasn't really been on the market that long, but we're very pleased that we can say that.
Speaker Change: You know.
Speaker Change: We are selling the product we have orders on the book and I would say in total it adds up to about an annualized.
Speaker Change: The sales rate of about $2 million, which I think is a good and a bit of ahead of our expectations in the very very early days, we have a huge industry conference next week supply side West in Las Vegas, that's very important to us where it will be showcase.
Speaker Change: Seeing.
Speaker Change: These new products that we talked about on the call today as well as optic fallen plus so we're hopeful that that will.
Speaker Change: Further accelerate the excitement around these are these new innovations, but so far so good with the ft fallen plus.
Speaker Change: Okay, Great and then with respect to how you anticipate allocating capital in terms of commercial support in particular for the H NH assets I was wondering if you could comment on two things. One is how you are looking at allocating a dip.
Speaker Change: No capital too you know sales and marketing expenses going forward, particularly in support of the new product lines and to what extent you expect that to potentially yield accretive results you know more sales and marketing our investment so to speak and if there are any new sales and marketing channels that you are contemplating employing going forward.
Speaker Change: And then secondly, if you could comment on broadly speaking the long term strategy and eats in Asia in particular as it pertains to what we see is burgeoning interest in the two areas of anti aging and weight loss and if you see any opportunities potentially for biochem to become more meaningfully involved.
Speaker Change: And that on the health care consumer products side within the Anh segment. Thank you.
Speaker Change: Yeah, great. Thanks, Rob and thanks again for the <unk>.
Speaker Change: Questions, Yeah relative to two H N H, we feel like.
Speaker Change: We are getting a good return on our increased marketing dollars as well as our increased R&D dollars. So yeah, we're going to continue to allocate capital in an increasing way to marketing and.
Speaker Change: R&D, particularly for our H and H and I don't want to overstate that I think it's it's a.
Speaker Change: Kind of material from from our perspective, but but it's not going to be.
You know.
Speaker Change: C change if you will and in the spend there, but we will be growing our R&D spending faster than our overall spend will be growing our marketing spend faster than our overall spend.
Speaker Change: And so far we feel like we're getting a return on investment and you know where that spend will go will be you know continuing some of the marketing efforts that we've been talking about in the past relative to building awareness.
You talked about the recent.
Recent sponsoring of the Jets, we're going to continue to do things like that Europe is a real opportunity for us to find ways to do something similar and we're going to be doing.
Speaker Change: Things like that and you know you kind of mentioned you know other channels we do.
Speaker Change: I believe and now feel as though we have.
Speaker Change: A good plan around and increasing our investment relative to social media marketing and and.
Speaker Change: That will also be receiving increased allocation of capital for us because we really see an opportunity there with Ben I think dipping our toes in that over the last six to 12 months and I think we've seen some good results from from those kind of.
Speaker Change: Pilot situations, and we will be allocating more capital.
Speaker Change: They're so.
Specifically marketing and R&D will receive increased.
Speaker Change: Our capital relative to anti aging and weight loss.
Speaker Change: I think that that Oh overall sort of you know the kind of sports nutrition.
Speaker Change: You know adult nutrition has been a focus for us we've talked in the past about being you know a kind of overly weighted towards a kind of infant nutrition infant talk cognition and in prenatal and so forth. So some of these marketing efforts in <unk>.
Speaker Change: R&D efforts are moving us squarely into other categories anti aging is a broad category that I think does work very well with many of our products with you know from from K two to M. S M to.
Speaker Change: Choline and and so forth. So anti aging I think is square kind of in the are in the middle of of our focus area not so much weight loss that that has not been a K.
A major focus area, nor one that that are our products necessarily.
Speaker Change: Played significant roles and but there is this ancillary.
Speaker Change: Roll that that comes into play when you know if somebody's on.
You know a weight loss drug for example of some sort I do think overall.
Speaker Change: You know vitamin mineral nutrients supplementation, sometimes becomes even more important in that a weight loss program.
Speaker Change: And I think there's a clear role for us to play there so anti aging for sure and sort of an ancillary role to play I think in the overall weight loss category as well both of which are obviously very important today.
Speaker Change: Great and then just very quickly two quick question for Martin.
Speaker Change: One is with respect to you know the continued evolution of interest rates.
Speaker Change: And you know the possibility of you are having access to lower cost of capital on the debt side do you think that that is likely to change in any way the manner in which Falcon prioritizes debt repayment and then secondly, just a standard question on where you think the long term effective tax rate.
Speaker Change: It is gonna go and if you believe that 23% is still a reasonable assumption.
For modeling the effective tax rate over the course of 2025.
Speaker Change: Yeah. Thank you Rob I think for the second part of the question on the tax rate I do feel that that you.
Speaker Change: You know, 22% to 23% as sort of the right number two to use if you just sort of do the basic math your land closer to 23, but we tend to always sort of find and work on a creative things to to lower that a little bit of we've proven over time that we have.
Ben.
Speaker Change: Good at lowering that rate a little bit.
Speaker Change: But I think you'll be in that 22% to 23% range for sure year to date. We're at 22.2, I believe and I think we'll end the year in that 22% to 23% range.
Speaker Change: Range.
Speaker Change: So I wouldn't expect a big change there based on what I'm seeing and based on the geographies, we operate in and the regulation and.
Speaker Change: And the different jurisdictions et cetera.
Speaker Change: In terms of the access to debt and the debt markets and some some of the changing environment. There are and so forth. We keep assessing it we meet with the various players on an ongoing basis. So we get updated on what's happening and what's changing and what's available to us.
Speaker Change: And what's not and we constantly assess that.
Speaker Change: None of it has triggered a a change yet in our behaviors, but that's not to say that that it won't at some point, if we think that something is more favorable to us.
Speaker Change: For now we are we're happy with the revolving credit facility that that we have in place that we believe we have at a fairly attractive rate as well compared to the alternatives are.
Speaker Change: But it also depends what our overall.
Speaker Change: That structure and burden it looks like in that various of locks as it goes hand in hand, with our M&A strategy.
So M&A S. S can be unpredictable in terms of timing and in terms of size.
Speaker Change: And you know should we enter into some transaction at some point that that puts more debt on our balance sheet. Then we will certainly also assess sort of what their rights are debt structure and source of that is to optimize for about cancer.
Speaker Change: They are all the options are on the table and it's just a constant evaluation, but we have.
Speaker Change: Good relationships and good insights and in good discussions around it so well decide as we go along.
Speaker Change: Thank you very much.
Rob: Thanks, Rob.
Speaker Change: And the next question comes from the line of Tahoe.
Speaker Change: Adobe. Please proceed with your question.
Hey, good morning, everyone, maybe for Martin to follow up on the last question.
Speaker Change: Just wondering if you could get us give us a sense of what youre seeing in the M&A market kind of deal flow and maybe areas of interest and then secondly.
Speaker Change: I appreciate that you try and keep the.
Speaker Change: Our balance sheet to get place for those opportunities but.
Speaker Change: If nothing were to arise and given where.
Speaker Change: The balance sheet is now are there any additional uses of cash that you could kind of deploy to return that to shareholders.
Speaker Change: Yeah, So first on their M&A deal flow.
Speaker Change: I would say, it's it's improving in terms of the activity in the market. The last two years have been very quiet just in terms of any quality assets out there too.
Speaker Change: To discuss there is an improving trend for sure in terms of activity and sort of the deal flow that we see come across our desks and and so did the willingness for <unk>.
Owners and sellers to to initiate discussions I would still not call. It a.
Speaker Change: You know hot market or a booming market or anything like that but it's starting to pick up a little bit. So if this trend continues you would think that as you go into 'twenty 'twenty five that it would be a fairly active market or that would be my expectation.
Speaker Change: So.
Speaker Change: The other part of your question in terms of returning.
Speaker Change: Value or cash to shareholders, we have in the past done stock buybacks for anti dilution and to keep our share count flat.
Speaker Change: When we've had periods, where whether it's been no M&A and strong cash flow generation.
Speaker Change: So we always assess that as an alternative.
Speaker Change: Two returning.
Speaker Change: Value to our shareholders.
Speaker Change: But I think at the end of the day, if you take a step back I think what you've seen in the past of how we operate in are our capital allocation philosophy of first really investing in our organic growth and augmenting that with M&A and in serving our death and continuing to sort of pay and grow the dividend, which we've done.
Speaker Change: Natalie now for for over a decade.
Speaker Change: And then sort of the stock buyback being sort of the last lever in this equation.
That that will continue we're not doing any fundamental strategic change in how we deploy our capital or our philosophy. So I think you should probably expect more of the same.
Speaker Change: Okay got it that's helpful.
Speaker Change: And then maybe just kind of housekeeping.
Speaker Change: Operating excuse me operating margins continued to remain strong.
Speaker Change: Even better than last quarter, just can you provide any guidance or thoughts about what we could see in <unk>.
Speaker Change: The.
Speaker Change: Obviously, we're very very pleased with the margin rates, we're seeing at the moment.
Speaker Change: As I mentioned briefly in the prepared remarks, we're benefiting a little bit from a favorable portfolio mix.
Where H N H and specialty products are.
Speaker Change: Growing in an a and H being lower margin relatively speaking to the other two segments declining so that's having a positive impact to the overall margin cents, even within that right. If you look at a H N H minerals and nutrients being relatively speaking higher margin than the food.
Speaker Change: Hence in minerals and nutrients growing faster has favorable mix impact as well so.
We're benefiting from that.
Speaker Change: So as we look forward, we think some of that will moderate try it in the margin rate will contract a little bit.
Speaker Change: As a result of a N H returning to growth.
As we enter into 2025.
Speaker Change: The food ingredients versus system minerals will well grow.
Speaker Change: Not necessarily faster than minerals and nutrients, but it will it will grow.
Speaker Change: So I think there'll be a little bit of a moderation there.
Speaker Change: From a rate perspective, the other thing also is that from.
Speaker Change: From an input cost and raw materials, we've sort of gone through this deflationary period for a time, where our raw materials were decreasing from a year over year and sequential perspective, and that have sort of stopped and plateaued. So we don't have that benefit anymore.
Speaker Change: Our of sort of our input costs and raw materials coming down.
Speaker Change: So I think.
Speaker Change: That favorable timing lag that you have in that scenario will also go away, which will put a little bit of a of a.
Speaker Change: Our pressure on the margin rate so.
I think it will contract a little bit but still remain.
Speaker Change: Strong and healthy if you look at it from a historic perspective.
Speaker Change: Great that's really helpful.
Speaker Change: And then maybe one last one for me and apologies if I've missed this but the.
Speaker Change: The European food market or feed market.
Speaker Change: Our A&H I believe you pointed to or mentioned that that's stabilizing.
Speaker Change: Any additional perspective on how.
And how we should think about that going into 2025.
Speaker Change: Okay.
Speaker Change: Yes, I think it will as such that the feed market in Europe, and that's where we saw a big decline in this year are primarily driven by sort of low costs.
Speaker Change: International product being flooded into that market.
So prices came down right. So volumes have remained.
Speaker Change: Somewhat stable as we've defended our share but prices came down significantly as a result of this flooding of the market.
Speaker Change: We saw that in the early part of the year sort of late last year and early part of this year was really when we saw the big change.
Speaker Change: And then for the last call it quarter or or two it's more stabilized and sort of found a balance and it's humming along at that level. So I think as you think a as you look into the future 2025, I expect it to remain relatively unchanged I don't see a big change in.
Speaker Change: Market or end market demand or anything that's driving a big rebound.
Speaker Change: Nor do I see barring any structural change the flooding of the market to stop unless there's some intervention from sort of an EU perspective of wanting to have to look after that situation.
Speaker Change: So barring any structural change I think it will remain kind of the same not getting worse, but not getting better either just sort of plateaued.
Speaker Change: Okay. That's helpful. Thanks.
Speaker Change: Thanks for the time this morning.
Speaker Change: Thank you Kai.
Speaker Change: And there are no more questions at this time I would like to turn the floor back over to Ted Harris for any closing comments.
Thanks, John once again, thank you very much for joining our call today, we really appreciate your support as well as your time today and we look forward to reporting out it's hard to believe it's going to be 2025, but for Q.
Speaker Change: Q4, 'twenty 'twenty four results in February.
Speaker Change: Next year in the meantime, we will be participating in Baird's 2024 Industrial conference in Chicago on November 12th and 13th and we certainly hope to see some of you. There. So thanks again for joining today.
Speaker Change: Okay.
Speaker Change: And ladies and gentlemen that does conclude today's teleconference. You may disconnect. Your lines at this time I have a great rest of your day.
Speaker Change: Yeah.
Speaker Change: Okay.
Yeah.
Mhm.
Speaker Change: Hum.
Speaker Change: Okay.
Speaker Change: Mhm.
Speaker Change: Oh.
Speaker Change: Uh huh.
Speaker Change: Hum.
Speaker Change: Hum.