Univar Solutions Inc. (NYSE:UNVR) is a leading global solutions provider to users of specialty ingredients and chemicals, as well as a provider of value-added services to customers across a wide range of diverse industries. The company's operations are structured into four reportable segments that represent the geographic areas under which it operates and manages its business: USA, EMEA, Canada, and LATAM.
Financials
In the latest fiscal year, Univar Solutions delivered strong financial results, with annual net income of $545.3 million, annual revenue of $11.48 billion, annual operating cash flow of $546.4 million, and annual free cash flow of $392.6 million. This performance demonstrates the company's ability to navigate dynamic market conditions and execute its strategic initiatives effectively.
For the second quarter of 2023, Univar Solutions reported net sales of $2.57 billion, a decrease of 14.7% compared to the prior-year period. This decline was primarily attributable to lower demand across the company's end markets. Gross profit (exclusive of depreciation) for the quarter was $624.8 million, a decrease of 15.1% year-over-year. The company's Adjusted EBITDA, a key metric used to evaluate its performance, was $221.4 million, down 24.1% from the same period in 2022.
Segment Performance
The USA segment, which accounted for 64.7% of Univar Solutions' total net sales in the second quarter, reported a 15.4% decrease in external sales to $1.67 billion. Gross profit (exclusive of depreciation) for the USA segment declined 15.3% to $419.2 million, while Adjusted EBITDA decreased 21.2% to $156.5 million. The decrease in the USA segment's performance was primarily driven by lower demand and higher input cost inflation.
The EMEA segment, representing 18.4% of total net sales, saw external sales decline 13.2% to $474.9 million. Gross profit (exclusive of depreciation) for the EMEA segment decreased 17.2% to $108.0 million, and Adjusted EBITDA declined 37.9% to $31.3 million. The segment's performance was impacted by lower demand and higher input cost inflation, similar to the USA segment.
The Canada segment, accounting for 9.4% of total net sales, reported a 18.5% decrease in external sales to $243.0 million. Gross profit (exclusive of depreciation) for the Canada segment declined 14.8% to $59.2 million, and Adjusted EBITDA decreased 24.7% to $24.1 million. The segment's results were primarily affected by lower demand.
The LATAM segment, which contributed 7.4% of total net sales, saw external sales decrease 5.5% to $190.0 million. Gross profit (exclusive of depreciation) for the LATAM segment declined 5.9% to $38.4 million, and Adjusted EBITDA decreased 19.8% to $13.0 million. The segment's performance was impacted by lower demand and input cost inflation.
Liquidity
Univar Solutions' liquidity position remains strong, with $429.5 million in cash and cash equivalents and $713.1 million of available borrowings under its committed Senior ABL Credit Facility as of June 30, 2023. The company's primary sources of liquidity are cash generated from operations and borrowings under its committed Senior ABL Credit Facility.
The company's management team continues to focus on sales and earnings growth, while also maintaining a strong emphasis on cost control and working capital management. Univar Solutions' access to debt capital markets has historically provided the company with additional sources of liquidity beyond normal operating cash flows, and management believes the company will continue to have favorable access to these markets in the future.
Outlook
Univar Solutions' capital expenditures for 2023 are expected to be approximately $155 million to $165 million, primarily for maintenance, growth, safety, cost improvements, and ESG investments. Interest payments for 2023 are expected to be in the range of $120 million to $130 million, which the company plans to fund with cash from operations or cash on hand.
The company's management team remains focused on executing its strategic initiatives, which include expanding its presence in high-growth end markets, enhancing its digital capabilities, and driving operational efficiencies. Univar Solutions' diversified business model, strong customer relationships, and commitment to sustainability have positioned the company well to navigate the current market environment and capitalize on future growth opportunities.
Conclusion
Overall, Univar Solutions' second quarter results reflect the challenges faced by the broader specialty chemicals industry, but the company's diversified geographic footprint, focus on value-added services, and strong liquidity position provide a solid foundation for long-term success. As the company continues to execute its strategic plan, investors will be closely watching Univar Solutions' ability to adapt to changing market conditions and deliver consistent financial performance.