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BALCHEM CORP 10-K Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

Balchem Corporation

Filing date:

02/21/2025

TLDR:

Balchem Corp’s 10-K filing for fiscal year ended December 31, 2024, shows revenue growth in Human Nutrition and Health, offset by a decline in Animal Nutrition and Health. Gross margins and earnings from operations improved, but the company faces risks related to raw material costs, international operations, and cybersecurity.

ELI5:

Balchem made more money this year overall, especially in their human nutrition business, but their animal nutrition business did worse. They also face some risks like rising costs and cyberattacks.

Accession #:

0001628280-25-007202

Published on

Analyst Summary

  • Overall revenue increased by 3.4% year-over-year.
  • Gross margin improved from 32.7% to 35.3%.
  • Operating margin increased from 17.3% to 19.2%.
  • Effective tax rate increased from 20.9% to 22.8%.
  • R&D expenses increased from $15.049 million to $16.793 million.
  • Human Nutrition and Health (HNH) revenue increased by 9.0%, and earnings from operations increased by 32.7%.
  • Animal Nutrition and Health (ANH) revenue decreased by 9.9%, and earnings from operations decreased by 49.2%.
  • Specialty Products revenue increased by 5.4%, and earnings from operations increased by 15.4%.
  • Backlog increased from $42.957 million to $50.415 million.
  • Salaried employee turnover decreased from 11% to 9%, and hourly employee turnover decreased from 29% to 21%.
  • Recordable injury rate decreased from 1.39 to 0.57.
  • Gross Profit Margin = 35.26%
  • Operating Profit Margin = 19.18%
  • Net Profit Margin = 13.47%
  • ROA = 8.16%
  • ROE = 11.17%
  • Basic EPS = $3.97
  • Diluted EPS = $3.93
  • Current Ratio = 1.99
  • Quick Ratio = 1.16
  • Cash Ratio = 0.31
  • Debt-to-Equity Ratio = 0.37
  • Debt-to-Assets Ratio = 0.27
  • Interest Coverage Ratio = 11.00
  • Inventory Turnover = 5.14
  • DSO = 45.77 days
  • DPO = 32.36 days
  • Asset Turnover = 0.61
  • P/E Ratio = 41.24
  • P/B Ratio = 4.63
  • P/S Ratio = 5.59
  • EV/EBITDA = 23.74
  • Revenue Growth = 3.39%
  • Net Income Growth = 18.37%
  • EPS Growth = 17.46%
  • The company repurchased 38,922 shares during the year ended December 31, 2024.

Opportunities and Risks

  • Raw Material Costs: Price fluctuations in petrochemicals, minerals, metals, and agricultural commodities could impact profitability.
  • International Operations: Subject to currency translation risk, political and economic instability, and geopolitical tensions.
  • Cybersecurity: Vulnerable to cyberattacks, which could disrupt operations and compromise sensitive data.
  • Environmental Regulations: Potential for increased regulatory scrutiny and compliance costs related to EtO emissions.
  • Supply Chain Disruptions: National and international conflicts may increase the likelihood of supply interruptions.
  • HNH Segment Growth: Strong demand for human nutrition products and food ingredients.
  • Acquisition Synergies: Potential for accelerated growth through integration of Bergstrom Nutrition and Kappa Bioscience.
  • Sustainability Initiatives: Investments in energy and water saving projects could improve efficiency and reduce costs.

Potential Implications

Company Performance

  • The EPA’s Interim Decision regarding EtO could significantly impact the Specialty Products segment.
  • The decline in sales and earnings in the Animal Nutrition and Health segment warrants further investigation.
  • Company’s ability to successfully integrate acquisitions and capitalize on sustainability initiatives will be crucial for future growth.

Stock Price

  • A P/E ratio of 41.24 is relatively high, suggesting that the stock may be overvalued or that investors expect high growth in the future.
  • A P/S ratio of 5.59 is relatively high, suggesting that the stock may be overvalued or that investors expect high growth in the future.
  • An EV/EBITDA of 23.74 is relatively high, suggesting that the stock may be overvalued or that investors expect high growth in the future.

SEC Filing Report: Balchem Corp (BCPC) 10-K for Fiscal Year Ended December 31, 2024

Executive Summary

This report analyzes Balchem Corp’s 10-K filing for the fiscal year ended December 31, 2024. Key findings include revenue growth driven by the Human Nutrition and Health segment, offset by a decline in Animal Nutrition and Health. Gross margins improved, and earnings from operations increased. The company faces risks related to raw material costs, international operations, and cybersecurity. Overall, the company appears to be in a stable financial position with continued growth opportunities, but investors should monitor risk factors closely. A ‘Hold’ recommendation is appropriate at this time, pending further assessment of the impact of environmental regulations and supply chain vulnerabilities.

Company Overview

Balchem Corporation develops, manufactures, and markets specialty performance ingredients and products for various industries, including nutrition, food, pharmaceuticals, animal health, and medical device sterilization. The company operates through three reportable segments: Human Nutrition and Health (HNH), Animal Nutrition and Health (ANH), and Specialty Products. Recent acquisitions, including Bergstrom Nutrition and Kappa Bioscience, have expanded the company’s product portfolio and market reach.

Detailed Analysis

Management’s Discussion and Analysis (MD&A)

Management highlights revenue growth in HNH and Specialty Products, while acknowledging a decline in ANH. They emphasize investments in capital projects to expand capacity and improve efficiency. The MD&A also addresses environmental and regulatory matters, particularly concerning ethylene oxide (EtO) emissions. The tone is cautiously optimistic, balancing growth initiatives with awareness of potential risks.

Financial Statement Analysis

Key Ratios and Trends

  • Revenue Growth: Overall revenue increased by 3.4% year-over-year.
  • Gross Margin: Improved from 32.7% to 35.3%.
  • Operating Margin: Increased from 17.3% to 19.2%.
  • Effective Tax Rate: Increased from 20.9% to 22.8%.
  • R&D Expenses: Increased from $15.049 million to $16.793 million.

Segment Performance

Segment Revenue Change Earnings from Operations Change
Human Nutrition and Health (HNH) +9.0% +32.7%
Animal Nutrition and Health (ANH) -9.9% -49.2%
Specialty Products +5.4% +15.4%

Cash Flow Analysis

  • Cash flow from operations decreased slightly.
  • Investing activities increased due to acquisitions and capital expenditures.
  • Financing activities decreased due to net loan repayments.

Uncommon Metrics

  • Backlog: Increased from $42.957 million to $50.415 million, indicating strong future demand.
  • Employee Turnover: Salaried employee turnover decreased from 11% to 9%, and hourly employee turnover decreased from 29% to 21%, suggesting improved employee retention.
  • Recordable Injury Rate: Decreased from 1.39 to 0.57, indicating improved workplace safety.

Risk and Opportunity Assessment

Risks

  • Raw Material Costs: Price fluctuations in petrochemicals, minerals, metals, and agricultural commodities could impact profitability.
  • International Operations: Subject to currency translation risk, political and economic instability, and geopolitical tensions.
  • Cybersecurity: Vulnerable to cyberattacks, which could disrupt operations and compromise sensitive data.
  • Environmental Regulations: Potential for increased regulatory scrutiny and compliance costs related to EtO emissions.
  • Supply Chain Disruptions: National and international conflicts may increase the likelihood of supply interruptions.

Opportunities

  • HNH Segment Growth: Strong demand for human nutrition products and food ingredients.
  • Acquisition Synergies: Potential for accelerated growth through integration of Bergstrom Nutrition and Kappa Bioscience.
  • Sustainability Initiatives: Investments in energy and water saving projects could improve efficiency and reduce costs.

Red Flags

  • The EPA’s Interim Decision regarding EtO could significantly impact the Specialty Products segment.
  • The decline in sales and earnings in the Animal Nutrition and Health segment warrants further investigation.

Conclusion and Actionable Insights

Balchem Corporation demonstrates a solid financial performance with growth in key segments. However, investors should carefully monitor the risks associated with raw material costs, international operations, environmental regulations, and cybersecurity. The company’s ability to successfully integrate acquisitions and capitalize on sustainability initiatives will be crucial for future growth.

Recommendation: Hold. Maintain current positions and monitor the company’s progress in mitigating risks and capitalizing on opportunities. Re-evaluate the recommendation based on future earnings reports and developments in environmental regulations.

Financial Ratio and Metric Analysis

Profitability

Gross Profit Margin

  • Ratio/Metric: Gross Profit Margin = (Net Sales – Cost of Sales) / Net Sales = $336,206 / $953,684 = 35.26%
  • Trend: 2023 Gross Profit Margin = $302,056 / $922,439 = 32.75%. Percentage Change = (35.26% – 32.75%) / 32.75% = 7.66%
  • Industry: The industry average gross profit margin varies significantly by specific sector (e.g., specialty chemicals, food ingredients). A general benchmark for the broader chemical industry is typically in the 30-40% range. Balchem’s margin is within this range and has improved year-over-year.

Operating Profit Margin

  • Ratio/Metric: Operating Profit Margin = Earnings from Operations / Net Sales = $182,909 / $953,684 = 19.18%
  • Trend: 2023 Operating Profit Margin = $159,193 / $922,439 = 17.26%. Percentage Change = (19.18% – 17.26%) / 17.26% = 11.13%
  • Industry: An operating profit margin of 19.18% is generally strong. Industry averages vary, but a good operating margin for a diversified specialty chemical and nutrition company would typically be in the 12-18% range. Balchem’s performance exceeds this.

Net Profit Margin

  • Ratio/Metric: Net Profit Margin = Net Earnings / Net Sales = $128,475 / $953,684 = 13.47%
  • Trend: 2023 Net Profit Margin = $108,543 / $922,439 = 11.77%. Percentage Change = (13.47% – 11.77%) / 11.77% = 14.44%
  • Industry: A net profit margin of 13.47% is healthy. The industry average for similar companies is often in the 8-12% range.

Return on Assets (ROA)

  • Ratio/Metric: ROA = Net Earnings / Total Assets = $128,475 / $1,575,371 = 8.16%
  • Trend: 2023 ROA = $108,543 / $1,597,211 = 6.79%. Percentage Change = (8.16% – 6.79%) / 6.79% = 20.18%
  • Industry: An ROA of 8.16% is a respectable return. The industry average ROA is typically in the 5-8% range.

Return on Equity (ROE)

  • Ratio/Metric: ROE = Net Earnings / Total Stockholders’ Equity = $128,475 / $1,149,913 = 11.17%
  • Industry: An ROE of 11.17% is a good return for shareholders. The industry average ROE is typically in the 10-15% range.

Earnings Per Share (EPS) – Basic and Diluted

  • Ratio/Metric: Basic EPS = $3.97, Diluted EPS = $3.93
  • Trend: 2023 Basic EPS = $3.38, Diluted EPS = $3.35. Basic EPS Percentage Change = ($3.97 – $3.38) / $3.38 = 17.46%. Diluted EPS Percentage Change = ($3.93 – $3.35) / $3.35 = 17.31%
  • Industry: EPS is highly company-specific. However, the trend and absolute value are positive indicators.

Liquidity

Current Ratio

  • Ratio/Metric: Current Ratio = Current Assets / Current Liabilities = $313,770 / $157,685 = 1.99
  • Trend: 2023 Current Ratio = $314,242 / $148,491 = 2.12. Percentage Change = (1.99 – 2.12) / 2.12 = -6.13%
  • Industry: A current ratio of 1.99 indicates good liquidity. A typical industry average is between 1.5 and 2.5.

Quick Ratio (Acid-Test Ratio)

  • Ratio/Metric: Quick Ratio = (Current Assets – Inventories) / Current Liabilities = ($313,770 – $130,802) / $157,685 = 1.16
  • Trend: 2023 Quick Ratio = ($314,242 – $109,521) / $148,491 = 1.38. Percentage Change = (1.16 – 1.38) / 1.38 = -15.94%
  • Industry: A quick ratio of 1.16 is acceptable. A typical industry average is between 1.0 and 1.5.

Cash Ratio

  • Ratio/Metric: Cash Ratio = Cash and Cash Equivalents / Current Liabilities = $49,515 / $157,685 = 0.31
  • Trend: 2023 Cash Ratio = $64,447 / $148,491 = 0.43. Percentage Change = (0.31 – 0.43) / 0.43 = -27.91%
  • Industry: A cash ratio of 0.31 is relatively low, indicating reliance on other current assets. The industry average is often between 0.2 and 0.5.

Solvency/Leverage

Debt-to-Equity Ratio

  • Ratio/Metric: Debt-to-Equity Ratio = Total Liabilities / Total Stockholders’ Equity = $425,458 / $1,149,913 = 0.37
  • Trend: 2023 Debt-to-Equity Ratio = $543,227 / $1,053,984 = 0.52. Percentage Change = (0.37 – 0.52) / 0.52 = -28.85%
  • Industry: A debt-to-equity ratio of 0.37 is considered conservative, indicating lower financial risk. The industry average is typically between 0.5 and 1.0.

Debt-to-Assets Ratio

  • Ratio/Metric: Debt-to-Assets Ratio = Total Liabilities / Total Assets = $425,458 / $1,575,371 = 0.27
  • Trend: 2023 Debt-to-Assets Ratio = $543,227 / $1,597,211 = 0.34. Percentage Change = (0.27 – 0.34) / 0.34 = -20.59%
  • Industry: A debt-to-assets ratio of 0.27 is relatively low, suggesting a strong asset base relative to debt. The industry average is typically between 0.3 and 0.6.

Interest Coverage Ratio (Times Interest Earned)

  • Ratio/Metric: Interest Coverage Ratio = Earnings Before Interest and Taxes (EBIT) / Interest Expense = ($128,475 + $37,978 + $16,456) / $16,528 = 11.00
  • Trend: 2023 Interest Coverage Ratio = ($108,543 + $28,718 + $21,932) / $22,613 = 6.95. Percentage Change = (11.00 – 6.95) / 6.95 = 58.27%
  • Industry: An interest coverage ratio of 11.00 is very strong, indicating a comfortable ability to cover interest expenses. A ratio above 3 is generally considered good.

Activity/Efficiency

Inventory Turnover

  • Ratio/Metric: Inventory Turnover = Cost of Goods Sold / Average Inventory = $617,478 / (($130,802 + $109,521) / 2) = 5.14
  • Trend: 2023 Inventory Turnover = $620,383 / (($109,521 + $114,888)/2) = 5.52. Percentage Change = (5.14 – 5.52) / 5.52 = -6.88%
  • Industry: An inventory turnover of 5.14 is reasonable, but depends on the specific products.

Days Sales Outstanding (DSO)

  • Ratio/Metric: DSO = (Accounts Receivable / Net Sales) * 365 = ($119,662 / $953,684) * 365 = 45.77 days
  • Trend: 2023 DSO = ($125,284 / $922,439) * 365 = 49.59 days. Percentage Change = (45.77 – 49.59) / 49.59 = -7.70%
  • Industry: A DSO of 45.77 days is within a reasonable range.

Days Payable Outstanding (DPO)

  • Ratio/Metric: DPO = (Accounts Payable / Cost of Goods Sold) * 365 = ($54,745 / $617,478) * 365 = 32.36 days
  • Trend: 2023 DPO = ($55,503 / $620,383) * 365 = 32.66 days. Percentage Change = (32.36 – 32.66) / 32.66 = -0.92%
  • Industry: A DPO of 32.36 days is within a reasonable range.

Asset Turnover

  • Ratio/Metric: Asset Turnover = Net Sales / Total Assets = $953,684 / $1,575,371 = 0.61
  • Trend: 2023 Asset Turnover = $922,439 / $1,597,211 = 0.58. Percentage Change = (0.61 – 0.58) / 0.58 = 5.17%
  • Industry: An asset turnover of 0.61 is typical for this industry.

Valuation

Price-to-Earnings Ratio (P/E)

  • Ratio/Metric: P/E Ratio = Stock Price / EPS = $163.73 / $3.97 = 41.24
  • Industry: A P/E ratio of 41.24 is relatively high, suggesting that the stock may be overvalued or that investors expect high growth in the future.

Price-to-Book Ratio (P/B)

  • Ratio/Metric: P/B Ratio = Market Cap / Book Value of Equity = (32,527,244 * $163.73) / $1,149,913,000 = 4.63
  • Industry: A P/B ratio of 4.63 suggests the market values the company at more than four times its book value.

Price-to-Sales Ratio (P/S)

  • Ratio/Metric: P/S Ratio = Market Cap / Total Sales = (32,527,244 * $163.73) / $953,684,000 = 5.59
  • Industry: A P/S ratio of 5.59 is relatively high, suggesting that the stock may be overvalued or that investors expect high growth in the future.

Enterprise Value to EBITDA (EV/EBITDA)

  • Ratio/Metric: EV/EBITDA = (Market Cap + Total Debt – Cash) / EBITDA. Market Cap = 32,527,244 * $163.73 = $5,325,444,000. Total Debt = $190,000 + $12,967 + $1,749 + $1,749 = $206,465 (in thousands) = $206,465,000. Cash = $49,515 (in thousands) = $49,515,000. EBITDA = Net Income + Interest + Taxes + Depreciation & Amortization = $128,475 + $16,528 + $37,978 + $47,973 = $230,954 (in thousands) = $230,954,000. EV = $5,325,444,000 + $206,465,000 – $49,515,000 = $5,482,394,000. EV/EBITDA = $5,482,394,000 / $230,954,000 = 23.74
  • Industry: An EV/EBITDA of 23.74 is relatively high, suggesting that the stock may be overvalued or that investors expect high growth in the future.

Growth Rates

Revenue Growth

  • Ratio/Metric: Revenue Growth = (Current Revenue – Previous Revenue) / Previous Revenue = ($953,684 – $922,439) / $922,439 = 3.39%
  • Industry: A revenue growth of 3.39% is typical for this industry.

Net Income Growth

  • Ratio/Metric: Net Income Growth = (Current Net Income – Previous Net Income) / Previous Net Income = ($128,475 – $108,543) / $108,543 = 18.37%
  • Industry: A net income growth of 18.37% is relatively high, suggesting that the company is performing well.

EPS Growth

  • Ratio/Metric: EPS Growth = (Current EPS – Previous EPS) / Previous EPS = ($3.97 – $3.38) / $3.38 = 17.46%
  • Industry: An EPS growth of 17.46% is relatively high, suggesting that the company is performing well.

Other Relevant Metrics

Segment Performance

  • Human Nutrition and Health (HNH): Sales increased by 9.0%, and earnings from operations increased by 32.7%. This segment is a key driver of growth.
  • Animal Nutrition and Health (ANH): Sales decreased by 9.9%, and earnings from operations decreased by 49.2%. This segment is underperforming.
  • Specialty Products: Sales increased by 5.4%, and earnings from operations increased by 15.4%. This segment is performing well.

Stock Repurchase Program

  • The company repurchased 38,922 shares during the year ended December 31, 2024.

Commentary

Balchem Corporation demonstrates a solid financial performance in 2024, marked by increased profitability and revenue growth, particularly within its Human Nutrition and Health segment. The company’s strong interest coverage ratio and conservative debt-to-equity ratio indicate financial stability. However, the Animal Nutrition and Health segment experienced declines in both sales and earnings, requiring attention. The relatively high valuation ratios suggest that market expectations for future growth are optimistic, while the stock repurchase program reflects management’s confidence in the company’s value.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️