Welcome to the
Alcon Corporation First Quarter 20 17 Earnings Conference Call.
At this time, all participants
are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference
is being recorded. I would now like to
turn the conference over to your host, Mr. Bill Bachus, CFO for Alcon Corporation. Thank you, Mr. Bachus. You may begin.
Ladies and gentlemen, thank
you for joining our conference call this morning to discuss the results of Balchem Corporation for the quarter ending March 31, 2017. My name is Bill Backus, Chief Financial Officer, and hosting this call with me is Ted Harris, our President and CEO. 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, which reflect Balchem's expectation or belief 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 ks.
Forward looking statements are qualified in their entirety by this cautionary statement. I will now turn the call over to Ted Harris, our President
and CEO. Thanks, Bill. Good morning, ladies and gentlemen, and welcome to our conference call. This morning, we reported 1st quarter consolidated net sales of $137,700,000 which resulted in record 1st quarter net income of $15,500,000 or $0.48 per share on a GAAP basis. This result includes significant non cash amortization expenses of $7,200,000 for acquisition related intangible assets, which were recorded in these 1st quarter GAAP financial statements.
The amortization expense is a direct result of acquisition, valuation and business combination accounting rules. In addition, this quarter includes a $1,500,000 favorable tax benefit due to the adoption of updated share based payment accounting. Consequently, our 1st quarter non GAAP net earnings of $18,900,000 or $0.59 per share reported in our press release earlier this morning exclude these items to facilitate comparative evaluation of this current period operating performance versus the prior year period. These non GAAP net earnings of $18,900,000 or $0.59 per share were up compared to the comparable prior year quarter of $18,400,000 or $0.58 per share. Adjusted EBITDA of $35,800,000 for the quarter was $345,000 or 1% better than the $35,500,000 posted in the prior year quarter.
Our adjusted EBITDA margin was essentially flat at 26% compared to 26.2% from the Q1 2016. We delivered 1st quarter free cash flow of $19,900,000 while also paying down $11,800,000 of debt, including $3,000,000 of accelerated payments. This further reduced the outstanding balance on our revolving line of credit to $16,000,000 from the $65,000,000 we borrowed partially fund the Albion acquisition. Our first quarter sales of $137,700,000 were 2% higher than the $135,100,000 result of the prior year comparable quarter. Sales growth in 3 of our 4 reporting segments, human nutrition and health, specialty products and industrial products contributed to the increase, with the drivers primarily being the result of 1 additional month of Albion sales, volume increases in choline nutrients, strong domestic and international plant nutrition sales and increased sales into the shale stacking market.
These increases were partially offset by reduced volumes in certain food and beverage segments and a decline in animal nutrition and health sales. Our consolidated gross margin percentage was 32.3 percent of sales in the quarter, up 57 basis points from a 31.7% sales level in Q1 of 2016. Adjusted gross margin percentage adjusted primarily for the previously mentioned amortization expense as a direct result of acquisition, valuation and business combination accounting rules of $641,000 was 32.7 percent of sales, down 110 basis points from a 33.8 percent of sales level in the prior year comparative period. The decline was primarily due to higher raw material costs within the current quarter across several of our businesses and increased competition in the monogastric business. Gross margin percentage for the Human Nutrition and Health segment increased by 91 basis points, primarily due to the acquired Albion product lines generating a higher margin, along with the exclusion of prior year Albion acquisition accounting related to the fair value of acquired inventory.
Gross margin percentage decreased for the Animal Nutrition and Health segment by 204 basis points, primarily due to cost increases of certain key raw materials and the impact from increased competition and unfavorable product mix and certain decreased volumes. Gross margin percentage for the Specialty Products segment increased by 115 basis points, primarily due to the exclusion of prior year acquisition accounting related to the fair value of acquired inventory relating to Plant Nutrition, partially offset by Plant Nutrition sales which carry low margins relative to the legacy specialty products business along with an unfavorable mix and certain higher raw material costs. Industrial products gross margin increased by 4 70 basis points due to a more favorable customer mix and improved cost structure, partially offset by higher raw material costs. Consolidated operating expenses for the 3 months ended March 31, 2017 were $21,700,000 as compared to $22,900,000 for the 3 months ended March 31, 2016. The decrease was principally due to the transaction and integration costs related to the Albion acquisition that were incurred in 2016 and reduced payroll and related costs, primarily offset by a favorable legal settlement in 2016.
Excluding non cash operating expense associated with amortization of intangible assets of $6,100,000 operating expenses were $15,200,000 or 11.1 percent of sales. Looking forward, we will continue to focus on tightly controlling our operating expenses and leveraging our existing SG and A infrastructure. U. S. GAAP earnings from operations were $22,700,000 which increased $2,700,000 or 13.7 percent compared with the prior year comparable quarter.
This increase was primarily due to earnings growth in our Human Nutrition and Health, Specialty Products and Industrial Products segments, along with one additional month of Albion in 2017. On an adjusted basis, as detailed in our earnings release this morning, earnings from operations of $29,800,000 were flat with the prior year comparable quarter. Interest expense for the 3 months ended March 31, 2017 was $1,800,000 and our net debt on March 31 was $233,000,000 The company's effective tax rate for the 3 months ended March 31, 2017 2016 were 25.1% and 33.9%, respectively. The decrease in the effective tax rate is primarily attributable to the adoption of ASU 20 sixteen-nine, which required excess tax benefits from stock based compensation to be recognized as to the provision for income taxes as well as lower tax rates in certain jurisdictions. As previously noted, consolidated net income closed the quarter at $15,500,000 up $3,600,000 from the prior year quarter.
This quarterly net income translated into diluted net earnings per share of $0.48 for the current year, an increase of $0.11 per share over last year's comparable quarterly result of $0.37 primarily the result of stronger earnings from operations and the aforementioned tax impact of the accounting standard adoption, which impacted GAAP results by approximately $0.05 per share. On an adjusted basis and as detailed in our earnings release, our adjusted net earnings were $18,900,000 or $0.59 per diluted share, up 3% compared with $18,400,000 or $0.58 per diluted share in the prior year quarter. Our first quarter results generated $35,800,000 of adjusted EBITDA in the quarter compared with $35,500,000 in the prior year, an increase of $345,000 Adjusted EBITDA for the quarter was 26% of sales, which was essentially flat compared to the prior year quarter. As previously noted, our cash flow remains strong as we generated 1st quarter free cash flow of $19,900,000 and closed out the quarter with $37,000,000 of cash. This reflects scheduled principal and net accelerated payments on long term debt of $11,800,000 along with $2,900,000 of capital expenditure funding in the quarter.
Before I hand the call back over to Bill to go through the segment's detailed results, I'd like to update you on a few of our key growth initiatives. We have clearly identified international expansion as an important strategic growth opportunity for several of our businesses. On March 24, we entered into an agreement to purchase the assets of Poemix AFD, a privately held manufacturer of dry choline chloride located in Hungary. This small acquisition will provide our Animal Nutrition and Health segment with additional dry choline chloride capacity in Europe, geographical expansion opportunities in Eastern Europe and interesting technical knowledge supporting the application of liquids on carrier. We celebrated the 1 year anniversary of the Albion International acquisition in February.
And as we look back on the last year, we are very pleased with the contribution of Albion to our strategic position, particularly in the Human Nutrition and Health segment. We achieved expected cost synergies and continue to work on delivering sales synergies and results to date have exceeded our expectations. We are working hard to fully recover from the fire we had in July of last year at one of our 4 sites we acquired as part of the acquisition. We indicated in our last earnings call that while the majority of products were not impacted or were quickly produced successfully at other Bauchamps manufacturing sites or third parties, some of the products have proven to be more difficult to replicate, resulting in some back orders and delayed shipments. We made good progress in the quarter on these issues, although we are still experiencing some back orders and we have recently started construction on the permanent rebuild structure which will expand a current site and result in the consolidation of the site where the fire took place.
Awareness around choline after the reference dietary intake, RDI, was issued by the Food and Drug Administration and the European Food Safety Authority's announcement of first ever intake recommendations for this essential nutrient continues to progress well. While our sales of vidicholine increased 10% in the quarter, we are most encouraged by the increased activity we are seeing in the marketplace around the inclusion of choline in new products as well as the activity to increase choline content in existing products. This is evidenced by new product launch data for the United States that suggest a measurable increase in new products coming to market that include choline. While we continue to research and leverage other benefits of choline, we believe the RDI and EFSA intake recommendations along with the continued building of consumer awareness will drive the inclusion of vidicholine, ValCAM's premier brand of choline in infant nutrition, supplementation and food fortification applications. The 3rd Phase III clinical trial for the Curemark drug utilized in the treatment of autism is progressing with continued recruiting, albeit at a slower pace than we would like.
Being one step removed from the process, it is obviously very difficult for us to estimate when exactly this trial will be concluded and ultimately when the completed NDA will be filed for review. But given that it's now almost mid year and the recruitment of patients continues at the 33 sites across the country, we now believe the likely timeframe for a completed NDA submission to be toward the end of 2017 or even into the early part of 2018. Despite the extended timeframe, we remain optimistic about this novel treatment for autism and the opportunity it provides for Valsalcast. We are excited by the launch of a new line of specialty nutrients and unique processing additives developed for the pet food market that is being sold under the brand name PetShure. This expansion complements and further expands the line of products that we already offer in the companion animal space.
And in response to the recent approval of formic acid as an acidifying agent in poultry feeding systems, our commercial team has initiated numerous field trials to demonstrate the efficacy of Amicil, our collaborative product offering with BASF in improving feed hygiene and offering a valuable tool to use as producers shift toward more antibiotic free production. This recent activity on the poultry side is complementing further activity related to the pre existing approval for swine fee. Swine and poultry integrators are expressing strong interest to learn more about this new technology into the U. S. Market and we expect to complete many of these key field demonstration trials during the 2nd and third quarters.
I'm now going to have Bill Prakas discuss the segments in more detail. Thanks
Ted. For the quarter, sales of our consolidated Human Nutrition and Health segment were $73,100,000 a record first quarter and an increase of $1,600,000 or 2.2% in the comparable prior year quarter. The sales increase was a result of 1 additional month of the human nutrition portion of Albion and volume increases in choline nutrients and cereal systems, This is partially offset by continued softness in powder systems. 1st quarter earnings from operations for this segment were $10,200,000 versus $8,400,000 in the prior year comparable quarter, an increase of $1,800,000 or 21.8%. Excluding the effect of non cash expense associated with amortization of acquired intangible assets of $6,100,000 adjusted earnings from operations for this segment were $15,800,000 compared to $15,700,000 in the prior year quarter.
Earnings from operations for the quarter were driven by the inclusion of 1 additional month of Albion and volume growth in certain market sectors, partially offset by the previously noted softness in the Powder Systems business. The Animal Nutrition and Health segment sales of $38,100,000 decreased 2.9 percent or $1,200,000 on flat volumes compared to the prior year quarter. Global monogastric species sales including feed grade calling products decreased $629,000 or 2.3% from the prior year comparable quarter, primarily due to lower average selling prices resulting principally from reduced formula pricing based on previous quarter lower raw material costs and increased competitive activity. Sales of product lines targeted for ruminant animal feed markets decreased by $525,000 or 4.2% compared to the prior year comparable quarter due to lower ruminant volumes resulting from customer pre ordering in the Q4 2016 in advance of our January 1 price increases, weakening dairy economics and a significant inventory correction at a large customer, which were partially offset by continued sales growth of 8% in our flagship product line, ReAssure. Milk protein prices in particular have declined and the USDA has recently decreased its milk price forecast for 2017.
We remain confident long term in Animal Nutrition and Health as we continue to prove the value of our existing product portfolio, while focusing on introducing new and novel products to satisfy attractive end market demands through both organic development and strategic alliances. A and H quarterly earnings from operations were 5 $400,000 a decrease of $1,200,000 or 17.7 percent from the prior year comparative quarter. The decrease compared to the prior year quarter was a result of the noted lower sales and cost increases of certain key raw materials within the current quarter. The Specialty Products segment achieved record 1st quarter sales of $18,800,000 for the 3 months ended March 31, 2017, as compared with $17,100,000 for the 3 months ended March 31, 2016. The increase of 9.8% was driven by strong domestic and international plant nutrition sales along with the extra month of sales from the acquisition of the Albion business.
Specialty Products achieved quarterly earnings from operations of $6,500,000 versus $5,300,000 in the prior comparable quarter, an increase of $1,200,000 or 22.2 percent. Excluding the effect of non cash expense associated with amortization of acquired intangible assets of $757,000 adjusted earnings from operations for this segment was $7,200,000 compared to $6,800,000 in the prior year quarter, an increase of $426,000 or 6.3%. In the Industrial Products segment, sales increased $496,000 or 6.9 percent from the prior year comparable quarter, primarily due to significantly higher sales of choline and choline derivatives used in shale fracking applications, partially offset by the lack of sales to our St. Gabriel CC Company LLC partner, which had occurred in the Q1 16 in advance of the joint venture becoming operational. Compared sequentially to the Q4 2016, sales increased $1,600,000 or 25.5 percent on a 39.9% increase in volume.
There remains significant uncertainty in the oil and gas industry. While the rig count in the United States continues to trend up, we still expect headwinds to continue, although we expect year over year comparatives to continue to improve in 2017. Our earnings from operations for the Industrial Products segment were $722,000 an increase of $488,000 compared with the prior year comparable quarter and primarily reflects a favorable customer mix and an improved cost structure.
I'm now going to turn the call back
over to Ted for some closing remarks. Thanks, Phil. We are pleased that in
the Q1 of 2017, we delivered solid results with adjusted net earnings of $18,900,000 and 1st quarter free cash flow of $19,900,000 even while facing a challenging business environment, particularly in the Animal Nutrition and Health segment, but also across other market segments. Our continued strong cash generation enabled accelerated debt payments of $3,000,000 above and beyond the regularly scheduled payments of $8,800,000 reducing our net debt to $233,000,000 on March 31st or approximately 1.5 times 12 months trailing adjusted EBITDA, further strengthening our balance sheet. Accelerated debt payments of $3,000,000 reduced our outstanding revolver balance to $16,000,000 from the $65,000,000 that were borrowed in February 2016 to partially fund the Albion acquisition. While top line challenges remain, we delivered year over year revenue and operating earnings growth in 3 of our 4 segments. The global macroeconomic environment continues to present challenges to our company.
On particular note, our rising raw material costs, the ongoing uncertainty in the oil and gas markets and the strong U. S. Dollar impacting exports amongst others. We are however pleased with the progress made on our key strategic growth initiatives and we will continue to strengthen our company by focusing on these initiatives, exercising disciplined cost management and seeking value creating acquisition opportunities. I would now like to hand the call back over to Bill, who will open up the call for questions.
Bill? Thanks, Ted. This concludes our call for today. And now, I would like to open it up for questions.
Our first question comes from the line of Brett Hundley of Vertical Group. Please proceed with your question.
Thank you. Good morning, guys.
Hey, Brett.
Ted, thank you for your comment on Chearmarks. I didn't have to ask it. And we can move into the current parts of your operating business. So I really wanted to focus my questions on ANH, just given some of the challenges that you mentioned. So first, if I could just ask, did you say ReAssure was up 8% in the quarter?
Yes. Yes, that's correct. Okay.
So I think that's a slowdown maybe from where you've been trending more recently. You can correct me if I'm wrong. I wanted to ask you if ReAssure was part of any pre ordering and just to comment from you on where you believe you're headed with that product specifically?
Yes, Brett. 8% was the growth that we delivered in Q1. I think that came off of about 17% in Q4. In Q4, as Q1 kind of got further along, we realized that the price increases we announced for January 1 did create some pre ordering and ReAssure was one of those products that we announced January 1 price increase. So that impacted the 8% growth in Q1 for sure.
But we're still very bullish on ReAssure and choline nutrition in the dairy industry. We continue to believe that product line should grow at double digit rate in 2017 as it has for the past years. And really that's all about moving from approximately 25% of the Macales in the U. S. To something significantly higher than that and really beginning to more significantly penetrate the European market.
So we see a lot of growth ahead for ReAssure and see the 8% as low for what we should be delivering for ReAssure going forward.
That's really helpful. And you can maybe speak about Q1 in the context of your beliefs longer term and maybe incorporate what you believe is more transitory and what may be something more structural or something here with us for longer than expected. But can you just address, I guess, volumes and I know you pointed out competitive activity on the mono side. But can you just talk to maybe volumes across ANH specifically or broadly? And then competitive activity within mono, can you kind of are volumes in line with where you think they should be at this point?
Do you think that competitive activity is more transitory? And what would be your expectation for volumes on the N
and H side longer term?
Right. So let's maybe there's a lot in there, but obviously we're somewhat disappointed with the Q1 results in ANH or Animal Nutrition and Health after what were really 2 very, very strong quarters in Q3 and Q4 of last year. And really, we have 4 things fundamentally going on. One was what we talked about the impact of the January 1 price increases that clearly played a role in the 24% ruminant growth that we delivered in Q4 and some of the reduction that we saw here in Q1. We are experiencing increased competition in the monogastric business on choline in particular, both from the Chinese as well as East Wind.
This will likely persist for some time, whereas we think the impact of preordering with price increases, that's behind us. So that one's behind us. Competition in monogastric, we believe will continue for some time. We mentioned that one of our largest customers in the ruminant side of the business informed us earlier this year that they have too much inventory and that they need to destock which resulted essentially in no orders to that customer in Q1. We believe that that will continue in Q2 and orders will pick back up in Q3.
So you have a little bit more to go on that one, but after Q2, we see that one going away. And then dairy economics have not improved like we thought. I think in our last call based on milk prices, milk protein prices in November, December and January, things were trending up and they've come back down. And in some cases, actually below where they were at the same period prior year. So that has started to impact particularly our amino acid product line that tends to be more impacted with lower milk protein prices than, for example, ReAssure that is not immune but has not been impacted as much.
So we remain very bullish on the business long term but we're facing a few difficult quarters here including these results. Overall, we should be getting back to your specific point about volume. I think the volume that we're delivering in monogastric is about what we think we should be delivering. That market is growing at about 2%, 2%, 3% and that's about what we grew in Q1 from a volume perspective. We had been growing a little faster than that most of last year and that was because of a shortage in the marketplace of D Pain, a product called D Pain that we have talked about
a little bit in the
past that can be used as a substitute for choline at times and that benefit our volumes and so we were delivering 4%, 5% and 6% type growth last year at times. But we're back to more normal growth and we see that really continuing in monogastric. In ruminant, we continue to believe we should be growing at double digit rates. We delivered that throughout 2016. We didn't do that here in Q1 for some of the reasons that we talked about.
The destocking of that one customer is very significant and was a surprise to us and impacted us pretty heavily. But we continue to believe that we should be growing at double digit rates, volume rates in the ruminant space as we further penetrate the market with our products.
That's really helpful. And I'll yield the floor. I just want to ask Bill, just given the commentary today from you guys, would it still be your opinion that Balchem can grow earnings in 2017 and would there be any comments that you would give us as far as pacing of quarters from a qualitative standpoint?
Yes. We definitely can still grow earnings in 2017 for sure. I mean, we have some of these initiatives still in place that we talked about previously, even like agglomeration as an example and what that should be able to do and add sales and earnings. I think right now, I think the hardest thing for us to predict is probably some of the raw materials that we're dealing with. If you look at the trend and where they're at, we had we knew they were going to be coming into the year.
It actually turned out to be a little bit better through some things we were able to accomplish. But in the end, I think that's probably the biggest concern we'd have right now and where they wind up going. If they continue to go up, then we lag behind any belief that we might have to pass through price increases will lag behind if we flatten out or decrease. And obviously, we're going to benefit from that perspective. So it's kind of hard to tell you that which quarters are from a trend standpoint, I think we're dealing right now in Q2 with still the raw materials we talked about here.
It's sort of hard to predict other than the forecast that we look at and where we'll be in Q3 and Q4. But for sure, I do think we'll be able to finish the year at higher earnings.
Thank you
very much. Sure. Our next question comes from the line of Tim Ramey of Pivotal Research. Please proceed with your question.
Thanks so much. First, Bill, a clarification I think on the comments you made on butane versus choline. It's been a while since I've thought about that. But I think you said that beef production was tight for a couple of quarters and that helped pulling, but that's normalizing now. Did I get that right?
That was me, Tim. This is Ted. No, it's obviously complicated, but D Pain essentially was scarce all of last year. And D Pain tends to be a product that goes kind of oversupply, undersupply and so forth. And last year 2016 it was quite scarce.
And so many customers pulled away from using BKane and moved to choline and that allowed us to grow our choline business more. We're seeing the same thing this year. Betaine is kind of naturally sourced from sugar beet And so it's kind of driven by the crop and it's also driven by there's a limited supply and what the ultimate uses are. And right now the use for it overseas specifically in Asia, they're willing to pay significantly higher prices than the U. S.
Poultry market. And so the majority of D chain is headed overseas. And we don't see D chain as being a concern in 2017 either.
Okay. So that accelerates calling growth for you or just it's a steady state versus 'sixteen?
Yes. Now it's a steady state because it accelerated growth as in 20152014, there was a small portion of the market that switched from choline to ethane and essentially in 2016 they switched back. And in 2017 though we believe at this point based on what we see, they'll stay with tolling in large part.
Got it. Thanks for the Scott. And just on the ASU Spectrum 1609
at the top of the call.
Did you
I hear you right to say you exclude that from the adjusted EPS number or it is included? I would assume it's included since it's kind of there every quarter on a go forward basis.
We actually excluded it. And so our adjusted earnings per share would have been about $0.65 if we had included that in our adjusted EPS. So it was a lot of time benchmarking and looking at whether other companies have done and certainly talking to our external auditors and felt as though the majority of companies we saw were excluding that adjustment. It's non cash, it's
volatile. It's volatile. That we have too. So we're trying to just carve it out so you can get a better picture of operating earnings as opposed to having that in there. So when go forward, it's difficult to predict what it will be for sure, because of the factors that go into it.
And that's why we made the decision just to exclude it and have a maybe a more fair comparison for everyone out there.
And that will be your practice going forward, so I shouldn't add that back?
That's correct, yes.
Okay. Yes, in my experience so far, people are concluding it, but you are absolutely right. It just introduced volatility that's unpredictable.
Yes, we just thought it was maybe a more conservative approach and kind of in the spirit of adjusted EPS.
Right. In terms of the I understand what you're saying about ruminant and the customer dislocation. But focusing for a second just on the end market, you feel that Richard can continue to grow even with somewhat sloppy outlook for milk and milk and dairy economics generally?
We really do. And Tim, what that's really based on is last year, certainly at the beginning of the year, dairy economics really were not very good either. And yet we were able to grow a double digit rates. And really the reason that is, Tim, is that what ReAssure does is it certainly addresses issues in cows, fatty liver in particular, that cause a cow to produce less milk. And so if you address the fatty liver by feeding ReAssure, the cow ultimately will produce more milk.
And we have found that even in low milk price times that dairies want to produce more milk, particularly in the U. S, particularly in countries that are not subject to quotas and so forth. So ReAssure has managed to fare quite well through the poor dairy economics. What have not are other nutrients that we supplement, for example, amino acids that tend to have a bigger impact not on the amount of milk produced but on the milk protein within the milk. And if milk protein prices are really quite low, then the dairy will be reluctant to put in the high cost ingredient to produce more milk protein because any milk protein that's not sold just gets lost in the milk.
And so that one is definitely more susceptible to the dairy economics and that's the one that last year we saw some bigger impacts during the low periods and then picking up a little bit when prices picked up. So 'fourteen prices are right now about $1.80 and good prices are above $2 and much below $1.80 it doesn't make a whole lot of sense for nutritionists to add some of the amino acids.
And then just finally, was there a specific FX impact that you could call out in the quarter? And does this new acquisition help you with sales in Europe that might otherwise have FX impacts?
Yes. Ted, it's Tim, it's Phil. To answer the first part of your question, the FX impact was really minimal in the quarter year over year. So there really wasn't much going on with the euro versus where it was last year. I think the facility that we have now in Hungary for sure can help us.
I mean, if we can produce a local currency that could be a good thing. It obviously gives us some expansion opportunities, not only in the dry coal and chloride, which we needed, but there's some other opportunities for us over there also. So it certainly gives us some flexibility, which maybe helps us to manage some of the any foreign currency impacts we might be dealing with at any point in time. But the Q1 was really not much of an impact year over year.
Perfect. Thanks.
Thanks, Tim.
Our next question comes from the line of Tony Pollock of Parekhus Capital. Please proceed with your question.
Good morning. Good morning.
Just give
us an idea of the volume that the plant in Hungary is doing? You want to tell me that though? We have the extra volume.
Yes. The volume for the plant in Hungary is about 3,000 tons, I believe. We feel that, that again it's quite a small acquisition but provides us additional capacity in Europe, it provides us expansion opportunities in Eastern Europe and they also have some pretty interesting technology. And we think as we combine their existing sales with a growth that we're going to bring to that asset that it will add about $5,000,000 of revenue to us next year. And it's about 3,000 tons of capacity.
Little bit less,
but In terms of the fire and you said we had some back orders and integration problems. Could you quantify that in terms of dollars that you're missing in terms of orders in this quarter or this year?
Sure. And I would say just kind of picking on one of your comments, integration really has gone remarkably well and we're very, very pleased with this integration overall. Relative to the fire, we believe that we were impacted in Q1 by about $1,200,000 of essentially orders that we could have filled in the quarter if we had full operations. So they were deferred to Q2. We have as I've also said we've just started the construction of the new site that will be completed by the end of the year.
So we think we have a few more quarters of delayed orders, if you will, that are impacting the business, but it's about Q1, it was about order of magnitude $1,200,000
Okay. And is there a status on insurance on that?
We received some of proceeds. We're still working on settling some of the items that are open, but we've absolutely received some cash payments in advance of the final settlement.
And how is that treated
in terms of extraordinary income or is that just floating income statement normally?
Yes. So we had some write downs obviously of what was destroyed. It's really just offsetting that. We had book receivables at the time for where we're at. Certainly, if we wind up with anything in excess of what we expected, that would just wind up being below the line other income.
Okay. Thank you.
Thanks, Tony.
We have
one follow-up question from the line of Tim Maney of Cinnabar Research. Please proceed with your question.
Thanks again. Yes, I just was looking for a little bit more information on Fedsure and what you think the market opportunity is
there? Sure. Yes, we're really quite bullish on the pet or companion animal market, I guess, as we say. And about a third of our existing monogastric business is companion animal, but it really is our basic choline, liquid choline and dry choline product. And what we've done here, obviously, the pet food market is growing faster than the overall market.
It's probably growing about double what the monogastric market is growing as a whole. And so we have launched a line of products, one of which is a non grain, non GMO choline chloride, which is very unique to the marketplace and you probably see a lot of ads on TV about non grain jet foods and so that's important development. And then very interestingly, we're using a lot of our food ingredient and ingredient solutions formulation expertise to develop products for pet food. So they're encapsulated products that provide functionality and so forth. And it really as the pet food market moves to non grain, non GMO, fresh, that really kind of plays into what we're trying to do here.
And we are targeting about $30,000,000 of growth just in these new products that we've introduced over the next 4 to 5 years. And so that's kind of the order of magnitude in there. These products would all be higher margin products than our base monogastric products. So we're quite excited about this and think it's a good growth opportunity for the monogastric business that has been kind of relatively steady growth over the years.
And what specifically is Pletcher? It is a it's a non GMO going forward?
Petcher is actually our brand name that we're using broadly across all of these products. So we have launched about 9 products and they all come under the brand name Pet Share. So we do have a product that is called Pet Share choline that is a non grain, non GMO choline product under that PetShure brand.
Got it.
Thanks a lot.
Thanks, Tim.
Our next question comes from the line of Francisco Pellegrino of Sidoti and Company. Please proceed with your question.
Good afternoon, guys.
Hey, Francisco.
So I think you've addressed pretty well, just on the struggles of the legacy business. And I just wanted to dig a little bit deeper into Albion because it seems that the extra month with Albion, if I look back into the Q1 of 2016, I think it contributed something like $20,000,000 in sales over the 2 months in that quarter. So I would just think that maybe the extra month contributed an incremental $10,000,000 in this Q1. You backed that out, you have revenue down 7%.
And as I said, I just want
to dig deeper into Allianz. What type of growth rates, organic growth rates are we talking about right now with Allianz? It seems to be attractive, I would think.
Yes. Let me just take a step back here, Francesco. I think there's some seasonality in here for sure in their numbers with the Plant Nutrition. So I can tell you that the January the extra month of January was only about $3,500,000 of additional sales. So you got to take that into when you're looking at the plant side.
I mean, there's a lot more there that comes into And while we're talking consolidated,
like all of that between specialty and human.
Right. And that's what I'm talking about with the one additional month. It's only about $3,500,000 or so for January.
So January was only $3,500,000 but when I looked at what you contributed to February March of last year, it was that much higher?
That's right. Between Plant Nutrition and the Fire, I think you have 2 things going on. Plant Nutrition last year was not as good as we've achieved this year, but it's just that seasonality of when that's occurring. And then as Ted indicated before, also some of these sales being deferred on the fire, so.
Okay. Knowing that now, then what's it I guess maybe then just looking at February and March, what are we looking at for organic growth at Trevalion?
I think we're it is attractive, as
you indicated, and we expect to grow this business in sort of the high single digit growth rate. That's really what we expect. We're accomplishing probably a little more than we've expected here in this past year. And I think that's really sustainable from our perspective.
Are you getting margin expansion from Albion enabled to leverage the legacy business into that margin expansion? Or I'm just trying to figure out why margins were so impressive in specialty as well as in the human nutrition. And try and maybe trying to figure out how much of that was associated to Albion?
Yes, absolutely. In the human nutrition and health segment, for sure, it creates margin expansion overall for the segment. It's a better margin than any other businesses we had in H and H. Conversely, on the specialty side, it's actually lower than the legacy ARC business. And I think you realize just how high those margins are in legacy ARC.
So in the end though, those gross margins, as we had indicated in the past, are typically in the high 40% range and we really believe they're sustainable and there's room for expansion too. I mean as we have better throughput and continue to increase our volume going through the plants, there's no reason to expect not to expect that we couldn't expand margins. Okay.
Within the Human Nutrition and Health segment, I saw that you guys added higher volume sales of choline nutrients.
Is there any way to sort of quantify what the volume increase of
the human grade choline market
was on a
percent basis?
Yes, we grew volume about 10% in actually, I'm sorry, 12 percent revenue was 10%, but volume was 12% in Q1. And so we were quite pleased with that.
Okay. And I just want to revisit the dairy economics that you're hitting on a little bit earlier with Brett. I know this has been something that Trump has been trying to take on by instituting a lower tariff ironically. But maybe could you just discuss briefly the different margin structure for your ReAssure and amino acid business, if you have this data available within Canada as compared to the U. S?
I would say the Canadian market is much more lucrative.
That's one you're stumping us with, Frances. I don't know what the margin differential is in Canada for us in ReAssure nor any other products. I would say the vast majority of our business is in the United States and so our business in Canada remains quite small. So we can get back to you on that. But I think that it is a fairly small part of our overall U.
S./Canadian business. Canada is a small piece.
Okay. That's it for me. Thanks, guys.
All right.
Thanks a lot. Thank you.
There are no further questions over the audio portion of the conference. I I would now like to turn the conference back over to Mr. Ted Harris for closing remarks.
Thank you. I'd just like to again thank everybody for joining us this morning. I'd like to remind you that our annual meeting will be held on June 13 at the Michelangelo Hotel in Manhattan at 4:30 p. M. We hope that we will see some of you there.
We also will be presenting at the Vertical Group's Ingredients Conference on May 17th and the Houlihan Lokey Industrials Conference on May 18th, both in Manhattan. So hopefully, with those three events, we can see some of you there. Otherwise, we'll talk to you next quarter. Thanks again.