Univar Announces $200M Accelerated Share Buyback, $1B Buyback; Reports Q3

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Univar Announces $200M Accelerated Share Buyback, $1B Buyback; Reports Q3

Univar Solutions Inc. (UNVR) today announced financial results for the third quarter ended September 30, 2022.

Third Quarter 2022 Highlights

  • Strong net income of $130.0 million was 54.0 percent higher than the $84.4 million reported in the prior-year third quarter. Adjusted net income(1) of $141.1 million compared to $106.3 million in the prior-year third quarter.
  • Earnings per diluted share improved to $0.78 compared to $0.49 per diluted share in the prior-year third quarter. Adjusted earnings per diluted share(1) increased to $0.84 from $0.62 in the prior-year third quarter.
  • Strong Adjusted EBITDA(1) was $259.6 million compared to $210.9 million in the prior-year third quarter. Adjusted EBITDA margin(1) of 8.7 percent improved from 8.5 percent in the prior-year third quarter.
  • Net cash provided by operating activities increased to $257.0 million from $123.7 million in the prior- year third quarter.
  • Leverage ratio(1) was 2.1x at September 30, 2022, compared to 2.2x at June 30, 2022.
  • Executed $100 million of share repurchases during the third quarter.
  • Full-year Adjusted EBITDA(1) guidance is in the range of $1,050 million to $1,070 million.
Univar Solutions Reports Strong 2022 Third Quarter Financial Results

"Over the past three years, we have transformed this company into a reliable solutions provider while also driving impressive financial results through the value we create for both our customers and suppliers," said David Jukes, president, and chief executive officer. "Regardless of the conditions or environment, we have continued to put the customer at the centre of all we do whilst improving and strengthening our operations, especially in North America. This gives us confidence in our ability to navigate whatever market conditions lie ahead. We remain focused on delivering on our business strategy, leveraging our global strength in Ingredients and Specialties, and our strong position in North America. We also are focused on executing a capital allocation strategy that is balanced between investments in global growth and share repurchases, all with the goal of enhancing long-term shareholder value. The additional $1 billion share repurchase authorization announced today is a direct result of our confidence to continue to deliver strong net free cash flow."

(1)

Non-GAAP financial measure. See "Use of Non-GAAP Financial Measures" for further discussion and related schedules attached hereto for reconciliations to the most directly comparable GAAP financial measures and related explanations of ratios or percentages, as applicable.

Company Performance

Univar Solutions operating performance results are described below and, unless otherwise indicated, compare third quarter 2022 results with third quarter 2021 results.

(Unaudited)

Three months ended September 30,

% change constant

(in millions)

2022

2021

$ change

% change

currency(1)

Segment External Sales(2)

USA

$ 2,021.2

$ 1,616.8

$ 404.4

25.0 %

25.0 %

EMEA

486.5

480.3

6.2

1.3 %

24.3 %

Canada

273.9

223.3

50.6

22.7 %

27.4 %

LATAM

201.9

167.5

34.4

20.5 %

22.1 %

Total Consolidated Net Sales

$ 2,983.5

$ 2,487.9

$ 495.6

19.9 %

24.9 %

Gross Profit (exclusive of depreciation)(3)(4)

USA

$ 490.1

$ 410.9

$ 79.2

19.3 %

19.3 %

EMEA

106.9

113.1

(6.2)

(5.5) %

15.6 %

Canada

65.0

56.8

8.2

14.4 %

18.8 %

LATAM

44.1

35.6

8.5

23.9 %

25.3 %

Total Consolidated Gross Profit (exclusive of depreciation)(3)

$ 706.1

$ 616.4

$ 89.7

14.6 %

18.9 %

Total Consolidated Net Income

$ 130.0

$ 84.4

$ 45.6

54.0 %

59.0 %

Adjusted EBITDA(3)

USA

$ 182.5

$ 140.2

$ 42.3

30.2 %

30.2 %

EMEA

35.0

34.4

0.6

1.7 %

28.5 %

Canada

27.9

24.0

3.9

16.3 %

20.4 %

LATAM

17.3

15.7

1.6

10.2 %

11.5 %

Other(5)

(3.1)

(3.4)

0.3

8.8 %

8.8 %

Total Consolidated Adjusted EBITDA(3)

$ 259.6

$ 210.9

$ 48.7

23.1 %

28.1 %

(1)

Represents percentage change for the comparative periods using a constant currency. See "Use of Non-GAAP Financial Measures" for further discussion.

(2)

Segment external sales represent sales to third party customers. Inter-segment sales are excluded from segment external sales.

(3)

Non-GAAP financial measures. See "Use of Non-GAAP Financial Measures" for further discussion and related schedules attached hereto for reconciliations to the most directly comparable GAAP financial measures.

(4)

Gross profit (exclusive of depreciation) is defined as segment net sales inclusive of inter-segment sales less cost of goods sold (exclusive of depreciation).

(5)

Other represents unallocated corporate costs that do not directly benefit segments.

Consolidated Results

Univar Solutions reported net sales of $3.0 billion, an increase of 19.9 percent on a reported basis and 24.9 percent on a constant currency basis(1) compared to the prior-year third quarter. Higher sales were attributable to our pricing discipline in inflationary markets and market share gains.

Gross profit (exclusive of depreciation) of $706.1 million increased 14.6 percent on a reported basis and 18.9 percent on a constant currency basis(1). Higher gross profit was driven primarily by our pricing discipline in inflationary markets, operational execution, and market share gains, partially offset by higher input cost inflation. Gross margin decreased 110 basis points to 23.7 percent compared to the prior-year third quarter, primarily due to higher input cost inflation, partially offset by our pricing discipline in inflationary markets.

Net income was $130.0 million, or $0.78 per diluted share, compared to net income of $84.4 million, or $0.49 per diluted share, in the prior-year third quarter. The increase was primarily due to higher gross profit (exclusive of depreciation), partially offset by higher outbound freight and handling, Warehousing, Selling and Administrative (WS&A) costs, and taxes.

Adjusted earnings per diluted share(1) of $0.84 in the quarter increased from $0.62 in the prior-year third quarter primarily due to higher net income.

Adjusted EBITDA(1) of $259.6 million increased $48.7 million, or 23.1 percent, compared to the prior-year third quarter, or an increase of 28.1 percent on a constant currency basis(1). The increase was driven primarily by higher gross profit, partially offset by higher outbound freight and handling, as well as higher WS&A costs.

Net cash provided by operating activities increased to $257.0 million from $123.7 million in the third quarter last year, primarily driven by net working capital improvements and higher net income.

Liquidity was $1,077.3 million as of September 30, 2022, inclusive of $276.3 million of cash on hand and availability under committed, asset-based credit facilities.

(1)

Non-GAAP financial measure. See "Use of Non-GAAP Financial Measures" for further discussion and related schedules attached hereto for reconciliations to the most directly comparable GAAP financial measures and related explanations of ratios or percentages, as applicable.

Segment Results

USA:

  • USA external sales increased 25.0 percent during the quarter, primarily due to our pricing discipline in inflationary markets and market share gains.
  • Gross profit (exclusive of depreciation) increased by 19.3 percent, primarily driven by our pricing discipline in inflationary markets, operational execution and market share gains, partially offset by input cost inflation. Gross margin decreased 120 basis points to 24.2 percent, primarily driven by input cost inflation, partially offset by our pricing discipline in inflationary markets.
  • Adjusted EBITDA(1) increased 30.2 percent to $182.5 million, primarily driven by higher gross profit, partially offset by higher outbound freight and handling as well as WS&A costs. The increase in WS&A was primarily due to higher operating costs and variable compensation. Adjusted EBITDA margin(1) increased by 30 basis points to 9.0 percent, reflecting the business operating leverage.

EMEA:

  • EMEA external sales increased 1.3 percent, or 24.3 percent on a constant currency basis(1). The increase was primarily due to our pricing discipline in inflationary markets and market share gains.
  • Gross profit (exclusive of depreciation) decreased 5.5 percent on a reported basis. On a constant currency basis(1), gross profit increased 15.6 percent, primarily driven by our pricing discipline in inflationary markets, operational execution and market share gains, partially offset by input cost inflation. Gross margin decreased 150 basis points to 22.0 percent, driven by input cost inflation, partially offset by our pricing discipline in inflationary markets.
  • Adjusted EBITDA(1) increased 1.7 percent to $35.0 million on a reported basis, or 28.5 percent on a constant currency basis(1), compared to the prior-year third quarter. On a constant currency basis(1), this increase was primarily driven by higher gross profit. Adjusted EBITDA margin(1) remained flat at 7.2 percent, primarily due to lower gross margin, offset by the business operating leverage.

(1)

Non-GAAP financial measure. See "Use of Non-GAAP Financial Measures" for further discussion and related schedules attached hereto for reconciliations to the most directly comparable GAAP financial measures and related explanations of ratios or percentages, as applicable.

CANADA:

  • Canada external sales increased by 22.7 percent, or 27.4 percent on a constant currency basis(1), primarily due to our pricing discipline in inflationary markets and market share gains.
  • Gross profit (exclusive of depreciation) increased by 14.4 percent, or 18.8 percent on a constant currency basis(1). The increase was driven primarily by our pricing discipline in inflationary markets, operational execution and market share gains, partially offset by input cost inflation. Gross margin decreased 170 basis points to 23.7 percent, primarily driven by input cost inflation, partially offset by our pricing discipline in inflationary markets.
  • Adjusted EBITDA(1) increased 16.3 percent to $27.9 million, or 20.4 percent on a constant currency basis(1) compared to the prior year. The increase in Adjusted EBITDA(1) was primarily due to higher gross profit, partially offset by higher WS&A costs, which was impacted by higher operating costs and variable compensation. Adjusted EBITDA margin(1) decreased by 50 basis points to 10.2 percent, primarily due to lower gross margin, partially offset by the business operating leverage.

LATAM:

  • LATAM external sales increased by 20.5 percent, or 22.1 percent on a constant currency basis(1), largely due to our pricing discipline in inflationary markets and the Sweetmix acquisition.
  • Gross profit (exclusive of depreciation) increased by 23.9 percent, or 25.3 percent on a constant currency basis(1), primarily due to our pricing discipline in inflationary markets and the Sweetmix acquisition, partially offset by input cost inflation. Gross margin increased 50 basis points to 21.8 percent, primarily driven by our pricing discipline in inflationary markets, partially offset by input cost inflation.
  • Adjusted EBITDA(1) increased 10.2 percent to $17.3 million on a reported basis, or 11.5 percent on a constant currency basis(1). Adjusted EBITDA(1) increased primarily due to higher gross profit, partially offset by higher WS&A costs given increased corporate cost allocation as a result of the SAP implementation and higher operating costs. Adjusted EBITDA margin(1) decreased 80 basis points to 8.6 percent, primarily due to higher WS&A costs.

(1)

Non-GAAP financial measure. See "Use of Non-GAAP Financial Measures" for further discussion and related schedules attached hereto for reconciliations to the most directly comparable GAAP financial measures and related explanations of ratios or percentages, as applicable.

Outlook

The Company expects Adjusted EBITDA(1) to be between $180 million and $200 million for the fourth quarter of 2022 as compared to $207.1 million for the fourth quarter of 2021. For full-year 2022, the Company expects Adjusted EBITDA(1) in a range of $1,050 million to $1,070 million, as compared to $797.7 million for full-year 2021. Our forecast reflects anticipated continued strong operational execution, continued market share growth and disciplined cost management. Net Free Cash Flow(1) for full-year 2022 is expected to be approximately $400 million.

The Company provided the following objectives through 2025 and expects to deliver:

  • Adjusted EBITDA(1) margins of greater than 9 percent
  • 2025 Adjusted EPS(2) greater than $4.50
  • 50 percent Net Free Cash Flow(1) conversion
  • Deliver greater than 20 percent Return on Invested Capital (ROIC)(1)
  • Maintain leverage ratio between 2.0x and 2.5x
  • Continued pursuit of accretive strategic M&A opportunities
  • Average annual capital return to shareholders of ~50 percent of Adjusted Net Income(1)

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 September 30, 2022.

Share Repurchase Authorization

The Board of Directors ("Board") has approved an increase in the amount of authorized purchases under the Company's existing share repurchase program by $1 billion. The Company also has entered into an accelerated share repurchase ("ASR") agreement with Goldman Sachs & Co. LLC ("Goldman") as part of the upsized repurchase program. Under the terms of the ASR, the Company has agreed to repurchase an aggregate of $200 million of its common stock from Goldman, with an initial share delivery equal to approximately 75% of the notional value of the ASR, based on current market prices. The final number of shares to be repurchased under the ASR will be based on a discount to the average of the daily volume-weighted average stock prices for Rule 10b-18 eligible transactions in Univar Solutions common stock during the term of the ASR. Purchases under the ASR are expected to be completed prior to the end of Q1 2023. The additional Board authorization, together with the remaining $245 million available at September 30, 2022 under the initial authorization in November of 2021, provides the Company with $1.245 billion available to be used for the $200 million ASR and future buyback activity through October 2026.

Under the share repurchase program, the Company may purchase shares from time to time at the discretion of management through open market purchases, privately negotiated transactions, block trades, accelerated or other structured share repurchase programs, or other means. The manner, timing, pricing and amount of any share repurchase transactions will be based upon a variety of factors, including market conditions, applicable legal requirements and alternative opportunities that the Company may have for the use or investment of capital.

(1)

Non-GAAP financial measure. See "Use of Non-GAAP Financial Measures" for further discussion and related schedules attached hereto for reconciliations to the most directly comparable GAAP financial measures and related explanations of ratios or percentages, as applicable.

(2)

The Company is not providing a reconciliation of forward-looking Adjusted EPS to the most directly comparable forward-looking GAAP measure because the information is not available without unreasonable effort. This is due to the inherent difficulty of forecasting the timing and amount of certain items, such as, but not limited to, (a) business acquisition and integration expenses, (b) non-operating retirement benefits, (c) gains and losses on foreign currency transactions and undesignated derivative instruments and (d) debt refinancing costs. Each of the adjustments has not occurred, are out of the Company's control and/or cannot be reasonably predicted. For this reason, the Company is unable to address the probable significance of the unavailable information.

Conference Call and Webcast Details

The Company will host a webcast with investors to discuss third quarter 2022 results at 8:30 a.m. ET on November 2, 2022, 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 until November 2, 2024.

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