Balchem Corporation Releases Second Quarter Results

NEW HAMPTON, N.Y., July 28 /PRNewswire-FirstCall/ --

Net sales and net earnings for the second quarter ending June 30, 2003 were below the previous year quarter by 5.2% and 23.3% respectively. Consolidated results of this second quarter were nearly identical to the first quarter of 2003 reflecting the combination of factors noted in the Company's press release with respect to first quarter results. Diluted net earnings per common share declined 24.4% from the comparable prior year quarter, and were flat compared with the first quarter of 2003.

The ARC Specialty Products segment generated a new quarterly record in net sales of $6.4M, an increase of 16.6% over the prior year comparable quarter. This result was largely driven by increased sales volume of ethylene oxide for medical device sterilization. The BCP Ingredients Unencapsulated Feed Supplements segment generated $2.7M in net sales, for an increase of 11.1% over sales of the prior year comparable quarter, principally as a result of increased sales volume in liquid and dry choline chloride as well as other derivative products. The Encapsulated/Nutritional Products segment did, however, see continued slowness, with net sales of $5.8M in the second quarter, a decline of 25.7% from the prior year comparable quarter. This segment realized continued softness in two key sectors, the U.S. food and dairy markets, contributing to a quarter of lower volume and relatively weak average prices due to product mix.

The Encapsulated/Nutritional Products segment continues to see conservative purchasing patterns as customers have reduced inventory levels on existing product lines and postponed marketing spending on new product launches in the U.S. food market. The operating environment for the segment continues to be challenging as customers pursue cost reductions aggressively. The U.S. dairy industry continued to operate at very low milk prices (although improving slowly in the second quarter). Sales of our Reashure(R) product for the animal nutrition and health industry continue to feel the effects of poor dairy industry economics.

Consolidated gross profit in the quarter ended June 30, 2003 declined $1.1M, or 16.4%, over the comparable prior year period due largely to the decline in sales volume and lower margin product mix in the Encapsulated/Nutritional Products segment as noted above. Operating (Selling, R&D, and Administrative) expenses were $2.7M in the quarter, or 18.3% of net sales, as compared to 18.5% of net sales in the prior year quarter.

Consolidated cash flow from operations continued to be strong in the quarter, as the Company reduced long term debt by $0.4 million and incurred $0.6 million of capital projects, that are focused on growth areas of the business.

For the six months ended June 30, versus the comparable prior year period, consolidated net sales are off 1.3%, or $0.4 million, net earnings are down 7.4%, or $0.3 million, and diluted earnings per share declined 8.1%. The strength of the ARC Specialty Products and BCP Ingredients Unencapsulated Feed Supplements segments was offset by the weak performance of the Encapsulated/Nutritional Products segment.


Commenting on the outlook for 2003, Dino A. Rossi, President and CEO of Balchem, said, "Strength in the ARC Specialty Products and BCP Ingredients Unencapsulated Feed Supplements segments should continue. Our Encapsulated/Nutritional Products segment, while seeing signs of volume improvement in the domestic food sector and increasing milk prices which should improve the dairy economy, will likely improve compared to the first six months of 2003; however, this segments full year sales are not expected to generate results equal to our full year results of 2002. We remain focused on exploiting our technology in each business segment and, given our current results, combined with factors affecting the Encapsulated /Nutritional Products segment, we now expect flat consolidated earnings for the year compared to 2002."

Segment Information

Balchem Corporation consists primarily of three business segments: ARC Specialty Products, Encapsulated/Nutritional Products, and Unencapsulated Feed Supplements. Through ARC Specialty Products, Balchem provides specialty-packaged chemicals for use in healthcare and other industries. The Encapsulated/Nutritional segment provides proprietary microencapsulation solutions to an expanding variety of applications. The Unencapsulated Feed Supplements segment (through BCP Ingredients, Inc.) manufactures and supplies choline chloride and derivatives used primarily in the poultry and swine industries.

Forward Looking Statements

This release contains forward-looking statements, which reflect Balchem's expectation or belief concerning future events that involve risks and uncertainties. Balchem 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 Balchem's expectations, including risks and factors identified in Balchem's annual report on Form 10-K for the year ended December 31, 2002. Forward-looking statements are qualified in their entirety by the above cautionary statement.

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