Superior Plus Corp.
TSX : SPB

Superior Plus Corp.

July 23, 2015 06:45 ET

Superior Plus Provides Preliminary 2015 2nd Quarter Results and Revised 2015 Financial Outlook

CALGARY, ALBERTA--(Marketwired - July 23, 2015) - Superior Plus Corp. (TSX:SPB) ("Superior") today announced preliminary second quarter EBITDA from operations, adjusted operating cash flow ("AOCF") and AOCF per share, and provided an updated outlook for fiscal 2015. Superior still expects to report its full second quarter 2015 financial results on Thursday, July 30, 2015.

2015 Financial Outlook

Superior's 2015 financial outlook of AOCF per share has been reduced to $1.65 to $1.85 from $1.80 to $2.10 per share as provided in the first quarter of 2015. The reduction in the 2015 financial outlook is due to a reduced outlook for the Specialty Chemicals business for the third and fourth quarters of 2015 in addition to lower than expected results for the second quarter of 2015. The reduction in the outlook and second quarter results for the Specialty Chemicals business is due to weaker than anticipated hydrochloric acid pricing and sales volumes and a reduction in second quarter sodium chlorate sales volumes due to longer than anticipated pulp mill plant maintenance closures. See "Specialty Chemicals Financial Outlook" in this release for additional details. Superior continues to see ongoing operational and financial improvements in the Energy Services and Construction Products Distribution ("CPD") businesses. There is no change to the outlook for these businesses.

Due to the reduction in Superior's 2015 financial outlook, Superior is now forecasting a total debt to EBITDA ratio at December 31, 2015 of 3.4X to 3.8X compared to the previously provided range of 3.0X to 3.4X forecast at the first quarter of 2015.

Preliminary Second Quarter 2015 Financial Results

Superior's preliminary 2015 second quarter results of AOCF per share of $0.18 were below management's expectations and $0.08 per share lower than the prior year comparative quarter excluding the prior year impact of restructuring costs. Results in the second quarter of 2015 were impacted by significantly weaker than anticipated results within the Specialty Chemicals business compared to the prior year comparative quarter. Current quarter results in the Specialty Chemicals business were $14.7 million lower than the comparative quarter period due primarily to:

  • Reduced sodium chlorate gross profits as a result of reduced sales volumes;
  • Resulting from extended pulp producer maintenance downtime during the second quarter of 2015; and
  • Chloralkali gross profits were negatively impacted by lower average realized selling prices and sales volumes for hydrochloric acid.

"Although we are disappointed with our 2015 second quarter results and the revision to our 2015 financial outlook, we remain focused on improving our operational and financial performance in the short and medium term. Our primary focus and our day-to-day decision making remains on building a long-term sustainable business. I remain as confident as ever about our operational and financial prospects in 2016 and beyond," stated Luc Desjardins, President and Chief Executive Officer.

Preliminary Second Quarter 2015 Financial Summary

(millions of dollars except per share amounts) Three months
ended June 30
Six months
ended June 30
2015 2014 2015 2014
Revenue 743.9 895.4 1,750.5 2,177.7
Gross profit 192.8 196.0 482.5 486.2
EBITDA from operations (1)(2) 37.2 50.6 155.0 166.4
Interest expense (11.1 ) (11.6 ) (25.4 ) (24.5 )
Corporate costs (2.2 ) (6.0 ) (9.8 ) (10.8 )
Cash income tax expense (0.6 ) (0.5 ) (1.3 ) (0.9 )
Adjusted operating cash flow before restructuring costs 23.3 32.5 118.5 130.2
Restructuring costs - (9.3 ) - (11.1 )
Adjusted operating cash flow 23.3 23.2 118.5 119.1
Adjusted operating cash flow per share before restructuring costs, basic (1)(2)(3)(4) $0.18 $0.26
$0.94
$1.03
Adjusted operating cash flow per share before restructuring costs, diluted (1)(2)(3)(4) $0.18 $0.26
$0.91
$1.00
Adjusted operating cash flow per share, basic (1)(2)(3)(4) $0.18 $0.18 $0.94 $0.94
Adjusted operating cash flow per share, diluted (1)(2)(3)(4) $0.18 $0.18 $0.91 $0.92
(1) EBITDA from operations and adjusted operating cash flow are key performance measures used by management to evaluate the performance of Superior. These measures are defined under "Non-GAAP Financial Measures" in this release.
(2) Superior has reclassified certain of its 2014 second quarter results for the impact of accounting adjustments as disclosed in Superior's 2014 third quarter earnings release dated October 30, 2014. The impact of the adjustment results in an increase in 2014 second quarter EBITDA from operations for the Energy Services segment of $0.7 million ($17.9 million on a total basis compared to the previously reported $17.2 million). There is no impact on operating cash flow per share of $0.18 for the comparative quarter period.
(3) The weighted average number of shares outstanding for the three months ended June 30, 2015 is 126.7 million (2014 - 126.2 million) and for the six months ended June 30, 2015 is 126.4 million (2014 - 126.2 million).
(4) See "Supplemental Financial Information" in this release for additional details on diluted per share amounts.

Segmented EBITDA from Operations

(millions of dollars) Three months
ended June 30
Six months
ended June 30
2015 2014 2015 2014
EBITDA from operations:
Energy Services 14.5 17.9 97.8 99.6
Specialty Chemicals 10.0 24.7 40.5 54.3
Construction Products Distribution 12.7 8.0 16.7 12.5
37.2 50.6 155.0 166.4

Specialty Chemicals Financial Outlook

Superior expects EBITDA from operations for 2015 to be approximately $30 million lower than in 2014. Superior's forecast for its Specialty Chemicals business at the end of the first quarter of 2015 was for results in 2015 to be modestly lower than in 2014. The reduction in the 2015 forecast is a result of lower than anticipated actual results in the second quarter of 2015, in addition to a reduction in the anticipated contribution for the third and fourth quarters of 2015. The reduction in the forecast for the third and fourth quarters of 2015 is due in part to lower than previously anticipated sodium chlorate gross profits as a result of a reduction in sales volumes. The reduction in sodium chlorate sales volumes in the third and fourth quarters of 2015 is due to additional planned pulp producer maintenance and the impact of a stronger U.S. dollar which has resulted in a higher effective price of pulp. The higher effective price of pulp has resulted in upwards pressure on the price of paper and other pulp derivatives which is causing reduced demand and therefore reduced demand for pulp and sodium chlorate. Chloralkali gross profits are now anticipated to be weaker than previously disclosed due to additional weakness in hydrochloric acid sales volumes and pricing. Since the first quarter of 2015, there has been intense pressure on both pricing and sales volumes. In addition to the reduced selling prices due to an oversupplied market, there have been greater than anticipated sales volume declines as inventories from other geographic and end-use markets are being sold into Superior's markets. Sales prices and sales volumes of caustic and chlorine are consistent with the previously provided forecast and are anticipated to be modestly higher than the prior year. Supply and demand fundamentals in the chloralkali markets in which Superior operates are anticipated to remain similar to 2014 with the exception of hydrochloric acid as noted above.

Conference Call

A conference call and webcast for investors, analysts, brokers and media representatives to discuss the Preliminary 2015 Second Quarter Results is scheduled for 7:00 a.m. MDT on Thursday July 23, 2015. To participate in the call, dial: 1-866-223-7781. An archived recording of the call will be available for replay until midnight, Sunday, August 23, 2015. To access the recording, dial: 1-800-408-3053 and enter pass code 4842318. Internet users can listen to the call live, or as an archived call, on Superior's website at: www.superiorplus.com.

Assumptions

Achieving Superior's AOCF depends on the operating results of its three operating segments.

In addition to the operating results of Superior's three operating segments, significant assumptions underlying Superior's 2015 financial outlook are:

  • Economic growth in the U.S. is expected to be similar to or modestly higher than in 2014 and growth in Canada is anticipated to be similar to or modestly lower than in 2014;
  • Superior is expected to continue to attract capital and obtain financing on acceptable terms;
  • Superior's estimated total debt to EBITDA ratio is based on maintenance and growth related expenditures of $91.0 million in 2015 and working capital funding requirements which do not contemplate any significant commodity price changes;
  • As at July 31, 2015, Superior is substantively hedged for its estimated U.S. dollar exposure for 2015, and due to the hedge position, a change in the Canadian to U.S, dollar exchange rate for 2015 would not have a material impact on the translation of Superior's U.S. dollar exposures. The foreign currency exchange rate between the Canadian dollar and U.S. dollar is expected to average $0.80 in 2015 on all unhedged foreign currency transactions;
  • Financial and physical counterparties are expected to continue fulfilling their obligations to Superior;
  • Regulatory authorities are not expected to impose any new regulations impacting Superior;
  • Superior's average interest rate on floating-rate debt is expected to remain consistent with 2014 levels; and
  • Canadian and U.S. based cash taxes are expected to be minimal for 2015 based on existing statutory income tax rates and the ability to use available tax basis.

Energy Services

  • Average weather across Canada and the Northeast U.S., as measured by degree days, for 2015 is anticipated to be consistent with the 5-year average period;
  • Total propane and U.S. refined fuels-related sales volumes are expected to decrease modestly in 2015 due primarily to lower oilfield customer demand related to the decline in the price of oil and lower residential volumes as weather is expected to be consistent with the five-year average, partially offset by customer growth initiatives and retention programs;
  • Wholesale propane and U.S. refined fuels-related prices are not anticipated to significantly affect demand for propane and refined fuels and related services;
  • Supply portfolio management gross profit for 2015 is expected to be consistent with normalized 2014 gross profit;
  • Fixed-price energy services results for 2015 are expected to increase from 2014 due to assumptions weather will be consistent with the 5-year average and the absence of market challenges experienced during the first quarter of 2014; and
  • Operating costs are expected to decrease in 2015 from 2014 due to improvements in operational efficiencies from the completion of restructuring activities.

Specialty Chemicals

  • Sodium chlorate contribution will decrease from 2014 due to lower sales volumes, higher electricity rates and higher plant operating costs;
  • Chloralkali contribution will decrease from 2014 due to lower sales prices for hydrochloric acid and caustic. The chloralkali segment will have higher sales volumes associated with the completion of the Port Edwards and Saskatoon HCl burner expansions. Sales volumes of caustic soda, potassium caustic and hydrochloric acid are anticipated to be modestly higher than in 2014. Supply and demand fundamentals in the chloralkali markets in which Superior operates are anticipated to remain similar to 2014 with the exception of hydrochloric acid as noted above; and
  • Average plant utilization will approximate 90%-95% in 2015.

Construction Products Distribution

  • Revenues will increase over 2014 due to continued growth in U.S.-based GSD sales as the U.S. residential market continues to improve, higher C&I sales revenue due to improvement in the U.S. industrial construction segment, a stronger U.S. dollar, and the product expansion of drywall into ceiling-only branches. Canada revenue will grow modestly as the Canadian residential market remains challenging;
  • Sales margins will increase from 2014 due to the continued focus on price management, customer profitability and procurement. Gross profit for 2015 will increase due to higher revenue and higher gross margins; and
  • Operating costs as a percentage of revenue will be comparable to 2014 due to anticipated savings from restructuring efforts and other cost management activities, offset in part by investments in sales and supply chain capability and system integration costs. Operating costs will increase modestly from 2014 due to higher sales volumes and activity, partially offset by further improvements in operational efficiency related to restructuring in 2013 and 2014.

Non-GAAP Financial Measures

Superior has used the following terms that are not defined by GAAP, but are used by management to evaluate performance of Superior and its business. Since Non-GAAP financial measures do not have standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other companies, securities regulations require that Non-GAAP financial measures are clearly defined, qualified and reconciled to their nearest GAAP financial measures. Except as otherwise indicated, these Non-GAAP financial measures are calculated and disclosed on a consistent basis from period to period. Specific adjusting items may only be relevant in certain periods.

The intent of Non-GAAP financial measures is to provide additional useful information to investors and analysts and the measures do not have any standardized meaning under IFRS. The measures should not, therefore, be considered in isolation or used in substitute for measures of performance prepared in accordance with IFRS. Other issuers may calculate Non-GAAP financial measures differently.

Investors should be cautioned that EBITDA and AOCF should not be construed as alternatives to net earnings, cash flow from operating activities or other measures of financial results determined in accordance with GAAP as an indicator of Superior's performance.

Non-GAAP financial measures are identified and defined as follows:

Adjusted Operating Cash Flow

AOCF is equal to cash flow from operating activities as defined by IFRS, adjusted for changes in non-cash working capital, other expenses, non-cash interest expense, current income taxes and finance costs. Superior may deduct or include additional items in its calculation of AOCF; these items would generally, but not necessarily, be items of a non-recurring nature. AOCF is the main performance measure used by management and investors to evaluate Superior's performance. AOCF represents cash flow generated by Superior that is available for, but not necessarily limited to, changes in working capital requirements, investing activities and financing activities of Superior.

The seasonality of Superior's individual quarterly results must be assessed in the context of annualized AOCF. Adjustments recorded by Superior as part of its calculation of AOCF include, but are not limited to, the impact of the seasonality of Superior's businesses, principally the Energy Services segment, by adjusting for non-cash working capital items, thereby eliminating the impact of the timing between the recognition and collection/payment of Superior's revenues and expenses, which can differ significantly from quarter to quarter. Adjustments are also made to reclassify the cash flow related to natural gas and electricity customer contract-related costs in a manner consistent with the income statement's recognition of these costs.

EBITDA

EBITDA represents earnings before taxes, depreciation, amortization, finance expense and certain other non-cash expenses, and is used by Superior to assess its consolidated results and those of its operating segments. The EBITDA of Superior's operating segments may be referred to as EBITDA from operations.

A reconciliation of Superior's non-GAAP measures, including a summary of comparable GAAP financial information, will be included in Superior's 2015 second quarter management's discussion and analysis which is anticipated to be released on Thursday, July 30, 2015.

Comparable GAAP Financial Information

(millions of dollars except per share amounts) Three months
ended June 30
Six months
ended June 30
2015 2014 2015 2014
Net earnings 40.9 5.9 31.1 56.0
Net earnings per share basic $ 0.32 $ 0.05 $ 0.25 $ 0.44
Net earnings (loss) per share diluted $ 0.25 $ (0.02 ) $ 0.24 $ 0.44
Net cash flows from operating activities 68.1 121.5 200.0 172.6
Net cash flows from operating activities per share basic $ 0.54 $ 0.96 $ 1.58 $ 1.37
Net cash flows from operating activities per share diluted $ 0.53 $ 0.93 $ 1.53 $ 1.32

Supplemental Financial Information

Diluted AOCF Per Share

There were no dilutive instruments for the three months ended June 30, 2015 and 2014. For the six months ended June 30, 2015, the dilutive impact of the 7.50%, October 31, 2016 convertible debentures was 6.1 million shares (132.5 million total shares on a dilutive basis) with a resulting impact on AOCF of $2.6 million ($121.1 million total on a dilutive basis). For the six months ended June 30, 2014, the dilutive impact of the 7.50%, October 31, 2016 convertible debentures was 6.6 million shares (132.8 million total shares on a dilutive basis) with a resulting impact on AOCF of $2.8 million ($121.9 million total on a dilutive basis).

About the Corporation

Superior consists of three primary operating businesses: Energy Services includes the distribution of propane and distillates, providing fixed-price energy services, and supply portfolio management; Specialty Chemicals includes the manufacture and sale of specialty chemicals; and Construction Products Distribution includes the distribution of specialty construction products.

For further information about Superior, please visit our website at: www.superiorplus.com

Forward-Looking Information

Certain information included herein is forward-looking information within the meaning of applicable Canadian securities laws. Forward-looking information may include statements regarding the objectives, business strategies to achieve those objectives, expected financial results (including those in the area of risk management), economic or market conditions, and the outlook of or involving Superior, Superior LP and its businesses. Such information is typically identified by words such as "anticipate", "believe", "continue", "could", "estimate", "expect", "plan", "intend", "forecast", "future", "guidance", "may", "predict", "project", "should", "strategy", "target", "will" or similar expressions suggesting future outcomes.

Forward-looking information in this document includes: preliminary financial information for the second quarter of 2015, future financial position, consolidated and business segment outlooks, expected EBITDA from operations, expected adjusted operating cash flow (AOCF) and adjusted operating cash flow per share, expected leverage ratios, future supply and demand fundamentals for North American sodium chlorate, business strategy and objectives, cost structure and other operational improvement projects, expected product margins and sales volumes, market conditions in Canada and the U.S., future economic conditions, future exchange rates, exposure to such rates and incremental earnings associated with such rates, expected income taxes, expected weather, expectations in respect to the global economic environment, the impact of certain hedges on future reported earnings and cash flows, commodity prices and costs, the impact of contracts for commodities, demand for chemicals including sodium chlorate, chloralkali, caustic and chlorine, demand for propane, heating oil and similar products, expected governmental regulatory regimes and legislation and their expected impact on Superior, Superior's ability to obtain financing on acceptable terms, and the effect of operational and technological improvements.

Forward-looking information is provided for the purpose of providing information about management's expectations and plans about the future and may not be appropriate for other purposes. Forward-looking information herein is based on various assumptions and expectations that Superior believes are reasonable in the circumstances. No assurance can be given that these assumptions and expectations will prove to be correct. Those assumptions and expectations are based on information currently available to Superior, including information obtained from third party industry analysts and other third party sources, and the historic performance of Superior's businesses. Such assumptions include anticipated financial performance, current business and economic trends, the amount of future dividends paid by Superior, business prospects, availability and utilization of tax basis, regulatory developments, currency, exchange and interest rates, trading data, cost estimates, our ability to obtain financing on acceptable terms, the assumptions set forth under the "Assumptions" section of this release, and are subject to the risks and uncertainties set forth below.

By its very nature, forward-looking information involves numerous assumptions, risks and uncertainties, both general and specific. Should one or more of these risks and uncertainties materialize or should underlying assumptions prove incorrect, as many important factors are beyond our control, Superior's or Superior LP's actual performance and financial results may vary materially from those estimates and intentions contemplated, expressed or implied in the forward-looking information. These risks and uncertainties include incorrect assessments of value when making acquisitions, increases in debt service charges, the loss of key personnel, fluctuations in foreign currency and exchange rates, inadequate insurance coverage, liability for cash taxes, counterparty risk, compliance with environmental laws and regulations, operational risks involving our facilities, force majeure, labour relations matters, our ability to access external sources of debt and equity capital, preliminary second quarter 2015 financial results may differ from the final results and the risks identified in (i) our first quarter 2015 MD&A under the heading "Risk Factors" and (ii) Superior's most recent Annual Information Form. The preceding list of assumptions, risks and uncertainties is not exhaustive.

When relying on our forward-looking information to make decisions with respect to Superior, investors and others should carefully consider the preceding factors, other uncertainties and potential events. Any forward-looking information is provided as of the date of this document and, except as required by law, neither Superior nor Superior LP undertakes to update or revise such information to reflect new information, subsequent or otherwise. For the reasons set forth above, investors should not place undue reliance on forward-looking information.

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