Univar Solutions Reports Strong 2021 Second Quarter Financial Results and Raises Guidance for Full Year 2021

DOWNERS GROVE, Ill., Aug. 2, 2021 /PRNewswire/ -- Univar Solutions Inc. (NYSE: UNVR) ("Univar Solutions" or "the Company"), a global chemical and ingredient distributor and provider of value-added services, announced today its financial results for the second quarter ended June 30, 2021.

Second Quarter 2021 Highlights

• Net income of $153.2 million compared to $1.8 million in the prior year second quarter. Adjusted net income⁽¹⁾ of $97.4 million compared to $55.7 million in the prior year second quarter.
• Earnings per diluted share of $0.90 compared to $0.01 per diluted share in the prior year second quarter. Adjusted earnings per diluted share⁽¹⁾ of $0.57 in the quarter increased from $0.33 in the prior year second quarter.
• Adjusted EBITDA⁽¹⁾ of $197.5 million compared to $163.2 million in the prior year second quarter. Adjusted EBITDA margin⁽¹⁾ of 8.2 percent compared to 8.1 percent in the prior year second quarter.
• Net cash provided by operating activities decreased to $83.7 million from $151.7 million in the prior year second quarter.
• Liquidity as of June 30, 2021 was $882.3 million, inclusive of $207.0 million of cash-on-hand and additional availability under committed, asset-based credit facilities.
• Full year outlook for Adjusted EBITDA⁽¹⁾ is raised and expected to be in a range of $705 million to $725 million.

Univar Solutions Reports Strong 2021 Second Quarter Financial Results and Raises Guidance for Full Year 2021

"We are pleased with another strong quarter of results based on the successful execution of our growing together strategy, the advancement of our Streamline 2022 (S22) program, and market share growth," said David Jukes, president and chief executive officer. "In a period of strong customer demand and constrained supply, we believe our operating infrastructure and ability to identify trends, grow our supplier and customer relationships, as well as build on investments in both digital and our growing global specialty end market verticals, has us well-positioned to support our customer and supplier partners." 

"As we enter the back half of 2021, we expect more normalized margins and continued market share growth as we keep the customer at the center of all we do. Given these factors, we expect third quarter Adjusted EBITDA to be in a range of $175 million to $185 million. Additionally, we are raising our forecast for full year Adjusted EBITDA guidance and expect it to be in a range of $705 million to $725 million and expect Net Free Cash Flow⁽¹⁾ for the year in a range of  $280 million to $300 million," continued Jukes.

Company Performance

Univar Solutions operating performance results are described below and, unless otherwise indicated, are a comparison of second quarter 2021 results with second quarter 2020 results.

Consolidated Results

Univar Solutions reported net sales of $2.4 billion, an increase of 19.2 percent on a reported basis and 15.4 percent on a constant currency basis⁽¹⁾ compared to the prior year second quarter. Higher sales were attributable to the impact of chemical price inflation and higher industrial demand, partially offset by the Canadian Agriculture wholesale distribution exit and the Distrupol and Canadian Agriculture services divestitures.

Gross profit (exclusive of depreciation) of $602.5 million increased 23.2 percent on a reported basis and 19.3 percent on a constant currency basis⁽¹⁾. The positive impact of chemical price inflation and higher industrial demand were partially offset by unfavorable changes in pricing from certain essential end markets⁽²⁾ as compared to the prior year, the effects of the Distrupol and Canadian Agriculture services divestitures and the Canadian Agriculture wholesale distribution exit. Gross margin expanded by 90 basis points to 25.2 percent compared to the prior year second quarter, driven primarily by the Canadian Agriculture wholesale distribution exit as well as the impact of chemical price inflation, partially offset by unfavorable changes in pricing from certain essential end markets⁽²⁾ in the prior year.

Univar Solutions reported net income of $153.2 million, or $0.90 per diluted share, compared to net income of $1.8 million, or $0.01 per diluted share, in the prior year second quarter. The increase was primarily due to higher gross profit (exclusive of depreciation), a gain on the sale of the Distrupol business, and the effect of warrant expiration related to the February 2019 Nexeo Solutions, Inc. ("Nexeo") acquisition. The gross profit increase was partially offset by higher Warehousing, Selling and Administrative (WS&A), primarily due to higher variable compensation costs and other operating costs as well as pension-related expense.

Adjusted earnings per diluted share⁽¹⁾ of $0.57 in the quarter increased from $0.33 in the prior year second quarter primarily due to higher net income.

Adjusted EBITDA⁽¹⁾ of $197.5 million increased $34.3 million, or 21.0 percent, compared to the prior year second quarter, or an increase of 16.2 percent on a constant currency basis⁽¹⁾. The increase was primarily driven by chemical price inflation, higher industrial demand and the realization of Nexeo net synergies, partially offset by higher WS&A, the effects of the Distrupol and Canadian Agriculture services divestitures and the Canadian Agriculture wholesale distribution exit.

Net cash provided by operating activities decreased to $83.7 million from $151.7 million in the second quarter last year, primarily driven by higher net working capital use attributable to higher sales, partially offset by higher net income.

The Company's leverage ratio⁽¹⁾ at June 30, 2021 was 3.2x compared to 3.6x in the prior year second quarter.

Segment Results

USA: 

• USA external sales increased 28.3 percent during the quarter primarily due to higher industrial end market demand and chemical price inflation.
• Gross profit (exclusive of depreciation) was higher by 26.2 percent. Gross margin decreased 40 basis points to 25.5 percent, driven by unfavorable product mix.
• Adjusted EBITDA⁽¹⁾ increased 31.9 percent to $125.6 million driven primarily by higher industrial end market demand, chemical price inflation, and Nexeo net synergies, partially offset by higher WS&A. The increase in WS&A was primarily due to higher variable compensation and other operating costs. Adjusted EBITDA margin⁽¹⁾ increased by 30 basis points to 8.4 percent primarily due to operating leverage and the realization of Nexeo net synergies.

EMEA: 

• EMEA external sales increased 23.0 percent, or 14.3 percent on a constant currency basis⁽¹⁾ primarily due to chemical price inflation and higher industrial end market demand, and partially offset by the effects of the Distrupol divestiture.
• Gross profit (exclusive of depreciation) increased 20.2 percent, or 11.3 percent on a constant currency basis⁽¹⁾, and gross margin decreased 60 basis points to 25.4 percent driven by unfavorable changes in pricing from certain essential end markets⁽²⁾ as compared to the prior year.
• Adjusted EBITDA⁽¹⁾ increased 20.4 percent to $47.8 million on a reported basis, or 11.1 percent on a constant currency basis⁽¹⁾, compared to the prior year quarter. This increase was primarily driven by chemical price inflation as well as higher industrial and consumer solutions end market demand, partially offset by the Distrupol divestiture, anticipated declines in pharmaceutical finished goods, and higher WS&A, primarily due to higher variable compensation and other operating costs. Adjusted EBITDA margin⁽¹⁾ decreased 20 basis points to 9.5 percent primarily due to lower gross margins.

CANADA: 

• Canada external sales decreased by 28.0 percent, or 36.1 percent on a constant currency basis⁽¹⁾, primarily due to the effects of the Canadian Agriculture wholesale distribution exit and Canadian Agriculture services divestiture.
• Gross profit (exclusive of depreciation) increased by 5.9 percent, or decreased by 6.1 percent on a constant currency basis⁽¹⁾, and gross margin increased 790 basis points to 24.7 percent, driven by the exit from the Canadian Agriculture wholesale distribution business and favorable product mix.
• Adjusted EBITDA⁽¹⁾ decreased 0.8 percent to $25.0 million on a reported basis, or 12.7 percent on a constant currency basis⁽¹⁾ compared to the prior year. The decrease in Adjusted EBITDA⁽¹⁾ was primarily due to the effects of the Canadian Agriculture wholesale distribution exit and Canadian Agriculture services divestiture, partially offset by chemical price inflation and higher industrial demand. Adjusted EBITDA margin⁽¹⁾ increased by 290 basis points to 10.5 percent, primarily due to higher gross margins.

LATAM: 

• LATAM external sales increased by 53.3 percent, or 41.1 percent on a constant currency basis⁽¹⁾, largely due to higher demand for products in industrial solutions as well as chemical price inflation.
• Gross profit (exclusive of depreciation) increased by 38.3 percent, or 26.7 percent on a constant currency basis⁽¹⁾ and gross margin decreased 240 basis points to 22.2 percent, primarily driven by unfavorable changes in pricing from certain essential end markets⁽²⁾ as compared to the prior year.
• Adjusted EBITDA⁽¹⁾ increased 20.9 percent to $13.3 million on a reported basis, or 10.0 percent on a constant currency basis⁽¹⁾. Adjusted EBITDA⁽¹⁾ increased primarily due to higher demand for products in industrial solutions and chemical price inflation. Adjusted EBITDA margin⁽¹⁾ decreased 230 basis points to 8.8 percent, primarily due to lower gross margins.

Nexeo integration & Streamline 2022 (S22) Update

The Company continues to actively manage its expense base in an effort to maintain financial strength while continuing to serve the needs of its suppliers and customers. The Company expects to achieve the targeted $120 million in annual Nexeo net synergies by early 2022.

The Company made significant progress in the second quarter on its previously announced S22 Program, which is designed to improve operational agility, drive faster sales growth, particularly in North America, and maximize net free cash flow conversion. Under the S22 Program, the Company is also focused on improving Adjusted EBITDA margins⁽¹⁾ to nine percent by the end of 2022 and expects to reduce leverage to 2.7x or lower by the end of 2021.

Outlook

The Company expects Adjusted EBITDA⁽¹⁾ to be between approximately $175 million and $185 million for the third quarter of 2021 as compared to $164.6 million for the third quarter of 2020. Adjusted EBITDA⁽¹⁾ for full-year 2021 is now expected to be within a range of $705 million to $725 million, compared to $635.8 million for full year 2020. The forecast versus prior year reflects the effect of divestitures and a more normalized level of essential end market⁽²⁾ product margins.

The Company is forecasting 2021 year-end liquidity to be greater than $800 million (consisting of cash and availability under committed asset-based credit facilities), inclusive of $100 million of debt pay down in the second half of the year and expects to reduce leverage to 2.7x or lower, also by the end of 2021. The majority of the Company's debt obligations mature in 2026 and beyond. The Company is in full compliance with the covenants under its credit agreements as of quarter end.

Univar Solutions to Host Webcast on August 3, 2021 at 9:00 a.m. ET

The Company will host a webcast with investors to discuss 2021 second quarter results at 9:00 a.m. ET on August 3, 2021, which can be accessed on the Investor Relations section of its website at https://investors.univarsolutions.com. After the live webcast, a replay of the webcast will be available on the same website.

Use of Non-GAAP Measures

In this press release, the Company's financial results are provided both in accordance with accounting principles generally accepted in the United States of America (GAAP) and using certain non-GAAP financial measures. In particular, the Company presents the non-GAAP financial measures of gross profit (exclusive of depreciation), adjusted gross profit (exclusive of depreciation), gross margin defined as gross profit (exclusive of depreciation) divided by net sales on a consolidated level and by external sales on a segment level, Adjusted EBITDA, Adjusted EBITDA margin defined as Adjusted EBITDA divided by net sales on a consolidated level and by external sales on a segment level, Adjusted net income, Adjusted earnings per diluted share, leverage ratio, net free cash flow and results on a constant currency basis. The non-GAAP financial measures are included as a complement to results provided in accordance with GAAP because management believes these non-GAAP financial measures help investors' ability to analyze underlying trends in the Company's business, evaluate its performance relative to other companies in its industry and provide useful information to both management and investors by excluding certain items that may not be indicative of the Company's core operating results. Additionally, the Company has used, and may continue to use, Adjusted EBITDA and Adjusted earnings per diluted share in setting performance incentive targets to align management compensation with operational performance.

The Company evaluates its results of operations on both an as reported and a constant currency basis. The constant currency presentation is a non-GAAP financial measure, which excludes the impact of fluctuations in foreign currency exchange rates. The Company believes providing information on a constant currency basis provides valuable supplemental information regarding its results of operations, consistent with how it evaluates its performance. The Company calculates constant currency percentages and other information by converting its financial results in local currency for a period using the average exchange rate for the prior period to which it is comparing.

Adjusted EBITDA, Adjusted EBITDA margin, gross profit (exclusive of depreciation), adjusted gross profit (exclusive of depreciation), gross margin, Adjusted net income, Adjusted earnings per diluted share, leverage ratio, net free cash flow and constant currency are not measures calculated in accordance with GAAP and should not be considered a substitute for net income or any other measure of financial performance presented in accordance with GAAP. Additionally, other companies may calculate Adjusted EBITDA and other such metrics differently than the Company does, limiting their usefulness as comparative measures. For further information related to the Company's use of non-GAAP financial measures, and the reconciliations to the most directly comparable GAAP measures, see the schedules attached hereto.

About Univar Solutions

Univar Solutions (NYSE: UNVR) is a leading global specialty chemical and ingredient distributor representing a premier portfolio from the world's leading producers. With the industry's largest private transportation fleet and North American sales force, unparalleled logistics know-how, deep market and regulatory knowledge, world-class formulation and recipe development, and leading digital tools the Company is well-positioned to offer tailored solutions and value-added services to a wide range of markets, industries, and applications. Univar Solutions is committed to helping customers and suppliers innovate and grow together. Learn more at www.univarsolutions.com.

Forward-Looking Statements

This press release includes certain statements relating to future events and our intentions, beliefs, expectations, and outlook for the future, which are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, statements regarding the impacts of the effects of COVID-19 on the Company, the Company's anticipated future results and financial performance, liquidity position and cash flows, actions regarding expense control and cost reductions, expected net synergies from the Nexeo acquisition, capital expenditures and other statements regarding the Company's Streamline 2022 Program and other initiatives. Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be beyond the Company's control. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions. A detailed discussion of these factors and uncertainties is contained in the Company's filings with the Securities and Exchange Commission. Potential factors that could affect such forward-looking statements include, among others: general economic conditions, particularly fluctuations in industrial production and consumption and the timing and extent of economic downturns and potential recoveries the sustained geographic spread of the COVID-19 pandemic; the duration and severity of the COVID-19 pandemic; current and new actions that may be taken by governmental authorities to address or otherwise mitigate the impact of the COVID-19 pandemic; the potential negative impacts of COVID-19 on the global economy and our employees, customers, vendors and suppliers; and the overall impact of the COVID-19 pandemic on our business, results of operations and financial condition; significant changes in the business strategies of producers or in the operations of our customers; increased competitive pressures, including as a result of competitor consolidation; significant changes in the pricing, demand and availability of chemicals; our indebtedness, the restrictions imposed by and costs associated with our debt instruments, and our ability to obtain additional financing; the broad spectrum of laws and regulations that we are subject to, including extensive environmental, health and safety laws and regulations; potential business disruptions and security breaches, including cybersecurity incidents; an inability to generate sufficient working capital; increases in transportation and fuel costs and changes in our relationship with third party providers; accidents, safety failures, environmental damage, product quality issues; delivery failures or potential hazards and risks related to our operations and the hazardous materials we handle, potential inability to obtain adequate insurance coverage; ongoing litigation; potential product liability claims and recalls and other environmental, legal and regulatory risks; challenges associated with international operations; exposure to interest rate and currency fluctuations; risks associated with integration of legacy business systems; possible impairment of goodwill and intangible assets; an inability to integrate the business and systems of the companies we acquire, including failure to realize the anticipated benefits of such acquisitions; negative developments affecting our pension plans and multi-employer pensions; labor disruptions associated with the unionized portion of our workforce; and the other factors described in the Company's Annual Report on Form 10-K for the year ended December 31, 2020, as well as other filings with the Securities and Exchange Commission. We caution you that the forward-looking information presented in this press release is not a guarantee of future events or results, and that actual events or results may differ materially from those made in or suggested by the forward-looking information contained in this press release. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "plan," "seek, "will," "expect," "intend," "estimate," "anticipate," "believe" or "continue" or the negative thereof or variations thereon or similar terminology. Any forward-looking information presented herein is made only as of the date of this press release, and the Company does not undertake any obligation to update or revise any forward-looking information to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise, except as required by law.

Schedule A
Beginning in Q1 2021, the Company excluded amortization expense and non-operating retirement benefits from its Adjusted EPS measure but continued to include restructuring, employee severance and other facility closure costs other than Nexeo acquisition-related items, the gain or loss on sale of property, plant and equipment and certain other non-operating items. The table below presents a reconciliation for Adjusted EPS on this new basis for the three and six months ended June 30, 2021.

Schedule B

Schedule C