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Executives

Frank Fitzpatrick - CFO

Dino Rossi - Chairman, President and CEO

Analysts

Daniel Rizzo - Sidoti & Company

Greg Garner - Singular Research

Jack Balsam - Private Investors

Lawrence Goldstein - CNP Asset Management

Brian Lawson - Morgan Capital Management

Frank Armitrose - Stock Advisors

Balchem Corporation. (BCPC) Q1 2010 Earnings Call May 4, 2010 2:00 PM ET

Operator

Greetings and welcome to the Balchem Corporation’s first quarter 2010 earnings conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder this conference is being recorded. It is now my pleasure to introduce your host Frank Fitzpatrick, CFO for Balchem Corporation. Thank you, Mr. Fitzpatrick you may now begin.

Frank Fitzpatrick

Thank you for joining our conference call this afternoon to discuss the results of Balchem Corporation for the period ending March 31, 2010. My name is Frank Fitzpatrick, Chief Financial Officer and hosting this call with me is Dino Rossi our Chairman, President and CEO. Following the advice of our counsel, auditors and the SEC at this time, I would like to read our forward-looking statements. This release does contain or likely will contain forward-looking statements, which reflects Balchem's expectations or beliefs concerning future events that involve risks and uncertainties.

We 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 our expectations including risks and factors identified in Balchem’s Form 10-K. Forward-looking statements are qualified in there entirety by this cautionary statement. The financial information that is referenced to this meeting was disclosed this morning in our quarterly press release at 9:30 a.m. Eastern Time. I will now turn the call over to Dino Rossi our President, Chairman and CEO.

Dino Rossi

Thanks Frank. Good afternoon ladies and gentlemen and welcome to our conference call. Throughout the downturns and ongoing challenges in the global economy Balchem has continued to deliver solid operational and financial performance. Thus this afternoon we are pleased to report achieving record net and earnings is $7 million. On consolidated record first quarter revenue particular $59.9 million for the quarter ended March 31 2010.

These records of first quarter sales in $59.9 million were approximately 13.1% greater than the $53 million of the prior year comparable quarter. Disciplined management of our businesses enabled us to improve operating margins and deliver strong profitable and cash flow. All three segments achieved revenue growth this quarter with the animal nutrition and health segment up 12.2% due to the growth from our basic choline products in international market and strong specialty animal nutrition and health sales which were 24%.

The Food, Pharma and Nutrition business close to 20% organic growth with particular strength in the domestic and international food market and human grade Choline products. The (inaudible) segment generated quarterly sales of $9.7 million, a 10% improvement over the prior year quarter principally a result of increases in sales of packaged propylene outside in the quarter. As previously noted, consolidated net income closed the quarter at $7 million up from approximately $6.1 million in the prior year quarter or an increase of approximately 15%. This quarterly net income translated into diluted earnings per share of $0.24, a 14% increase from the $0.21 we posted in the comparable quarter of 2009. Looking between the top and bottom line you will see there are consolidated gross profits of $17.4 million were equal to 29.1% of the sales in the quarter, this level is the 1.7 percentage point decline from the prior year quarter as we did on a comparative basis realized high cost levels in certain key raw materials that are largely petroleum based derivatives. These raw material increases unfavorably impacted both our animal nutrition and health and our specialty product segment.

We did however realize a small increase of sequentially from the fourth quarter of 2009 results even as we realized continued increases in key raw material cost as a gross margin percentage notably in our Food, Pharma and Nutrition segment which improved five percentage points on a sequential basis. Price increases due to the notable raw material cost increases have been and will be implemented where we are contractually able to do so in the second quarter of 2010. There are also some indications that we will see some relief from these higher raw material cost later in the second quarter.

As a consolidated operating expenses level, you will note a $68,000 decrease to $6.9 million for the quarter which equaled 11.6% of the sales versus the prior year comparable spent which was approximately 13.2% of sales. Our spending level reflects a modest increase in sales and R&D employee as compared to 2009 and external R&D programs in support of existing and new products for all segments. In addition, in the first quarter of 2009, we have increased reserves relating to certain aging receivables for products sold in Central and South America which will finally reverse due to collections in this period. Overall it was another strong quarter, we are particularly pleased with the results from our human, food and choline product lines that generated the margin improvement previously discussed largely due to new product launches, increased volumes, production and logistics sufficiency. As mentioned above we did experience continued increases in certain petrochemical volunteers during the quarter that did particularly impact our ARC specialty products and animal and nutrition and health segment. Operating margins were slightly lower still remained strong for both of these segments and the consolidated earnings from operations at 17.5%.

Other income of $167,000 compares very favorably to the $144,000 of expense incurred in the previous year comparable quarter. This improvement is related to the reduction of long-term debts that was incurred for the 2007 acquisitions and favorable fluctuations in foreign currency exchange rates through the US dollar and the Europe. Net income of $7 million translated to $0.24 per diluted common share or an increase of 14% over the comparative prior year quarter. We also realized approximately $12.6 million of EBITDA in the quarter which translates the $0.43 per diluted share and when including our non-cash stock based compensation charge we generated $13.5 million of EBITDA in the quarter.

At March 31, 2010 our outstanding borrowings were $6 million but zero net of our cash balance of approximately $51.4 million. We are well positioned to strategically reduce our debt levels in the coming months and quarters as we continue to aggressively manage all areas of working capital driving strong cash flow, reducing interest expense and improving earnings generate even more accretive results from our core businesses.

In an effort to detail our consolidated results better for our shareholders, I am now going to have Frank Fitzpatrick discuss the ARC Specialty Products and the Food, Pharma and Nutrition segment.

Frank Fitzpatrick

The ARC Specialty Product segment posted first quarter sales of approximately $9.7 million or 10% increase over the prior comparable quarter. This increase in sales was derived principally from a 12% increase in total volumes sold which was slightly offset by product mix pricing. Our quarterly business earnings decreased 2.2% to $3.3 million versus the prior year comparable quarter. This decline is largely a result of the product mix increased petrochemical raw material cost and increased expenses related to the development of the company’s VRC technology.

We continue working on a number of initiatives to broaden and build on the ARC business model with particular application development work on the ERC license technology to repackage, distribute and deliver another chemical for the fruit ripening industry.

As disclosed in the previous quarter, a number of tests with large fruit producers and wholesalers have continued to take place and our confidence level is building with continuous positive trail results. We have recently been granted a special permit issued by the DOT allowing for the technology to be utilized for intrinsic fruit ripening. We did realized modest revenue in this quarter and expect to see notable product sales from this new technology in this fiscal year.

For the quarter in the Food, Pharma and Nutrition segment realized the 20% sales increased to $10 million from the prior year comparable quarter. Business segment earnings of $2 million were more than double the same period of last year and also improved 37% on a sequential basis. As stated in this morning’s press release, the domestic and international food sectors were up this quarter as we continue to see solid double digit growth of the capsulated ingredients for baking, preservation and confection markets.

In the quarter we also realized double digit growth of our human choline products targeting new food and beverage applications and we also saw some rebound in sales into the supplement marketplace. In 2009, we saw many customers aggressively managing inventory levels down by delaying orders in response certain retail products line slowness. In certain large retail chain, the elimination of multiple SKUs some that previously included choline. We continue to focus on building consumer recognition of the benefits of choline and hence choline inclusion in more foods such as Gerber baby food and fortified beverages.

More independent research on the benefits of choline has been completed. Recently published and available through our choline webpage, we continue to position choline with nutritional and pharmaceutical companies as an essential ingredient with excellent therapeutic benefits for all ages. This first quarter result did see another difficult quarter in our calcium product sales into over-the-counter pharmaceutical markets. During the quarter, we experienced certain production issues relating to this product line, they resulted in an inability to meet all orders in the quarter, we have since made modifications to our equipment and process which are currently being tested to assure that the issues have been resolved.

We do expect to see an upturn in this product line in the balance of 2010. Also in addition to our existing products, a number of new calcium products are currently under development or have been sampled to prospect in the nutritional supplement marketplace. Our pharmaceutical drug delivery commercial development efforts continue, in the quarter, we do not generate any significant R&D milestone payment, however, as previously reported a licensee of our technology has been authorized by the FDA to commence a Phase III clinical trial containing our technology, a modest number of patients have been enrolled and the trial is currently underway. With this progressive step, we are cautiously confident that these efforts will yield good end results but in the near term sector remains a net expense to the business segment.

I will now turn over the call to Mr. Rossi for him to discuss the animal, nutrition and health segment.

Dino Rossi

Thanks Frank. In the animal, nutrition and the health segment we realized sales of $40.3 million, an increase of $4.4 million of 12.2% as compared to the prior year comparable quarter. Within these segments, specialty ANH product sales realized 24% growth from the prior year comparable quarter as some implement in dairy economics created greater demand to our products. These increases are principally a result of increased sales of ReaShure, NitroShure, Chelated minerals and AminoShure-L our rumen-protected lysine.

We continue to be pleased with the progress we have made with AminoShure-L launch as more perspective customers trying the products are realizing private experiences and on a sequential basis our Specialty Products sales improved 7.6%. These overall increases coincide with the dairy economy that has improved over the last several months. However, we are monitoring this very closely as futures currently towards dairy prices that are at levels which will continue to challenge the economics core producers.

Sales of our largest ANH product group (inaudible) choline products increased approximately 1.2% over the prior year quarter. This increase in the quarter was from a number of factors including slightly improved sales of liquid choline into the North American feed segment reflecting poultry production levels that appear to have stabilized and are even showing some modest growth.

Exports of liquid and dry choline from our North American plants declined as rising raw material costs in combination with global competition resulted in our declining to bid on certain business in the quarter. We will continue to evaluate these export sales opportunities in the coming quarters and they will have to be more aggressive in thinking to when this business depending upon the then current cost and market conditions

Sales for our liquid and dry Italian produced choline improved 4% in the quarter with improved export volumes sold outside of Western Europe. Sales of industrial derivatives while small sector of NAH improved approximately 44% over the prior year quarter. Sales of methylamine and other industrial products including a methylamine derivative from our Italian operations specifically into Europe. And started the year by strong despite the continued poor economic climate in Europe. We also again saw improved sales of choline derivative products being sold from their industrial applications in North America.

Earnings from operations for this entire segment improved to $5.2 million as compared to $4.9 million in the prior year comparable quarter largely due to improved volume sold, product mix and certain favorable production and logistic efficiencies. This improved all of profitability of NA segment was achieved with a constant revaluation of global raw material cost, product re-formulation, currency review and our ultimate ability to meet market needs from our various global facilities. The opportunity capitalized in expansion as the direct result for acquisitions and growth strategies and the ability to drive cost out of our business model.

With the bulk of the feed grade calling predominately going to the poultry and swine markets. We are very sensitive to continue to economic pressures on the large production animal integrators. De-ration cost that are corrected to some degree but retail poultry and swine prices remain very well, keeping significant downward pressure on profitability with this global end market. As indicated in our press release this morning we will continue to monitor closely our raw material cost for all segments of our business. And implement cost pass through us as appropriate. As noted in previous calls we continued to see a revenue roll-coaster of tax quarter to quarter in the various market sectors. But we are very pleased with this overall quarterly consolidated earnings result. We continue to strengthen our global growth platform and our confident as more business will be generated based on unique platform of products that we offer or soon will offer to market. Our business portfolio continues to create good balance, yield in profitable growth opportunities through the various challenges of any single segments or product lines. We continue to deliver solid revenue and operating income growth by staying focused on helping our customers stay and make money in this tough economy while maintaining our own operating discipline.

While we continue to build the financial strength of the company managing the asset base aggressively, reducing debt and interest expense which also assist in yielding improve financial results. Near term remained focus on implanting operational and logistic improvement, new product development and new product marketing. We have to continue to explore alliances, acquisitions, enter into new adventures to continue building and leveraging our technology and strong human asset base. This now concludes the formal portion of the conference. I would ask the operator to now open the floor to questions.

Question-and-Answer-Session

Operator

(Operator Instructions). Our first question comes from Daniel Rizzo from Sidoti & Company.

Daniel Rizzo - Sidoti & Company.

You indicated that you'll be raising prices where contracts allow it. I was just wondering what rate percentage of your overall price increase will you recapture? Is it a small percentage or is it like are you going to get most of it back?

Dino Rossi

Well, I didn’t say I think our incentives going to be the try and get after as much of that is we can within region, I think in the different business segments well our approach there is a little bit differently. In the gas business, we would look to pass longer the cost increase but as I mentioned a couple of quarters ago we actually backed off from the price increase that we had implemented about a year ago kind of irresponsive of that the raw materials have come down. So we kind of move I mean to say, little bit on the late basis but generally across the board in that business. When you jump over to the animal, nutrition and health business which is the other segment that’s I am going to say most likely effected by again petroleum derivatives we have a pricing model in place in North America where on our quarter delayed basis we can pass on those raw material cost increases to the North American market.

That doesn’t speak to that export market for sure because that’s more bid sensitive and much more aggressive. So it’s a little bit of a mix bag, I don’t know that there is a hard and fast percentage that we can grab and take to answer that question on a quarter-by-quarter basis. But certainly I think within reasons we would look to recruit those raw material cost increases, as it affects the each and anyone of those segments.

Daniel Rizzo - Sidoti & Company

Okay. I got you. And just with the recent problems in Europe with the weakness in the Euro, are you seeing any downturn in demand from the export market or just the European market as a whole?

Dino Rossi

In general I mean if the focus here being the Italian operation we continue to see very good up take in the product and we are over there with a quality product and lets say largely competing against the Chinese. I will tell you there is a marketplace there that’s willing to pay for quality products and certainty we’ve been very successful in moving our trade volume at that kind of price point in response to what other customers are looking for.

Daniel Rizzo - Sidoti & Company

Okay. And last question, you said you expect notable sales beginning now from the banana ripening system. Is that hundreds of thousands of millions? What are we talking about in general?

Dino Rossi

Yeah I think you know just came up maybe a couple quarters ago, Dan, how quickly might this ramp up I think that’s the ultimate I have known here. But I think for some reasonable level our expectations this year is maybe to do as much as a million dollars in revenue out that business. And I like to believe that kind of touching tip of iceberg. But we will have to see how that, and how that ramp goes, its difficult for me because it is a new innovative technology into that space whether its been pretty good lease activity all the trials have gone there well, the general consensus that everyone understands the value of this. So we are hoping that once we get up and running in a significant way that will spread on as we catch fire.

Operator

Thank you. Our next question comes from Greg Garner - Singular Research.

Greg Garner - Singular Research

Just a follow-up from the last question about the new gas product. Can you walk me through the economics how beneficial it is for the food ripener? Is it beneficial more for the glower or for the distributor or how does that work?

Dino Rossi

Well I think that in many cases the grower is the distributor in the North American market and there is three major producers of bananas and distributors in the North American market today and I think you know who they are and you know the reality is it that bananas are harvested green somewhere along the [equator] and then shift to one of seven ports in the North America market at which point they unloaded and make on to conditioning operations also they are handled loading unloading in the (inaudible) containers and then they are conditions locally in these rooms using additional labor and then put into containers back into containers (inaudible) shipped into distribution. So the idea here is that quite a lot of the labor if you will on land and quite honestly shorten the inventory supply chain time to market. So you are getting to a lot of issues in terms of the value of being labor saving, being taking money out of the inventory supply chain not having to invest in the hard assets to conditioning rooms either at the port or inland and other distribution points. So there is a lot of value there to be extracted but quite honestly for each one of those, it's likely going to be slightly different scenario but net-net I think there is good economic value here for those producers who go down this path and I think that as we get it up and running more and more will see that and hopefully you’ll see more adoption of it.

Greg Garner - Singular Research

And do you expected to be used in other fruits, other than bananas?

Dino Rossi

The answer is yes, but let me be sure to tell you it's cannot be used or does not need to be used for all fruits and so selectively we are going to find a way to largest fruit importers of bananas that's why our focus has been there.

Greg Garner - Singular Research

Does the fruit need to have a hard casing like a banana that's not edible or it's not generally eaten?

Dino Rossi

Not necessarily, no. You take an apples references generate a lot of their own ethylene which is used to help ripen them as well and there you have the skin that’s eaten so exposure from that standpoint to this product is not at all I think difficult to kind of understand. We are doing a lot of experiment with the pears for instance and again kind of where the skin of the pear is consumed they are not really that hard. Like pineapples for instance the outside coating is so hard and waxy that this product is of no value. So you’ve got to go through selectively and understand where it will look and where it lump.

Greg Garner - Singular Research

And so with the bananas have to be put in one container with this gas and stay in that until it's distributed to the end point? Is that the idea?

Dino Rossi

That’s the idea.

Greg Garner - Singular Research

Okay. And does there need to be approval outside of United States to use this?

Dino Rossi

That’s an excellent question. I know that our focus right now has been stripping North America and certainly some discussions that run to if successful in North America could be a global product and that’s why some of the same large players if you will that are producing in shipping bananas into those countries. So that regulatory issue would be a hurdle that they would have to clear.

Greg Garner - Singular Research

Initially you would sell it at the location where it's imported into the US and then it's put into a container with this gas that controls the ripening? Is that right?

Dino Rossi

That’s correct what we ultimately we would like to do is put it in a container when they are first harvested. But right now the focus is once they get the (inaudible).

Greg Garner - Singular Research

And on the new pharmaceutical product, it was mentioned that the trial was modestly subscribed to or for the Phase III. Does that mean it's moving slower than originally anticipated?

Dino Rossi

I don’t know that it means that it’s moving slow. I think that there is a certain protocol of candidates for the program. So I think the process of identifying them with the right time of biological markers is important. And so I think there is a very deliberate effort to make sure that the candidates chosen are the one’s that are really targeted for this. And I think the process just takes a little bit longer than upside perhaps we had expected an also we having been not really been in the pharmaceutical space.

Greg Garner - Singular Research

So we're still looking towards the end of this year or early next year for any initial revenues from that product?

Dino Rossi

I am not even looking this year I think it is definitely next year, the next year before the clinicals are down and the results are determined, but I’d say maybe at the end of mid next year.

Greg Garner - Singular Research

And the intention objective to raise prices as a result of the cost increases, might this be difficult at all with the poultry and the dairy markets not really being very robust?

Dino Rossi

Well I think that’s a great question, there is always a challenge when you look at to pursue a price increase. So we’ve introduced this model in North America and everybody, too much closely understand how it’s supposed to work and does work and basically we you know have a scenario. We have an index that’s composed of those 3Q raw materials that go into manufacturing this product and until that index kind of fits on top of the base price of the product. And that index is what we basically monitor and adjust in and plus or minus quite honestly there has been some minuses while we have taken price down as well since we implemented this. So the industry sees how it works it goes both ways and let me point out I do think that we are going to see some relief here maybe late in Q2 and hopefully through the balance of the year so while there maybe looking at a near term increase I hope for their sake that the price will come back down.

Greg Garner - Singular Research

Okay. And just two items on the Food, Pharma, Nutrition. The increase there, is that partly due to a snap back from the channels being overfilled last year and may have been overly deleted or depleted, I mean? And so here we're having a little snapback. Is that a good way of characterizing the strong revenue growth in this quarter?

Dino Rossi

I would say that to some degree that's the case on the choline products, we know for sure there was I am not saying depletion of inventory that took place early last year and before in particular the supplements that contains a choline and so I think as what we have noticed or may that the supplement market has picked up in general and so I think the more of SKUs are back on the shelf and inventory levels are returning so I think that there is some increase there, I don't think it's kind of a restocking if you will scenario, I think it just getting some product back on the shelves and our expectations is that going to continue through the balance of the year. Overall on the fruit side I think it's more an issue of, I mean we did introduce choline into a couple of new products in particular Gerber baby food came out in Q1 containing choline. So that was positive new launch. Also on the food side there has been a couple of other products that we have launched into confectionary product and also a Asian sauce of the large chain that now has the product out in grocery channels. So I think it’s a combination of but what I would tell you is we do not believe that "rebound" as you identified, its kind of a major lease stalking and its going to drift back. I think that there is definitely some up tick there that we expect to see just kind of continue steady stay.

Greg Garner - Singular Research

Okay. And, finally, on the Food, Pharma and Nutrition again, how are things going in Europe? How would you characterize demand there?

Dino Rossi

On the Food, Pharma and Nutrition side?

Greg Garner - Singular Research

Yes.

Dino Rossi

What certainly we are seeing good effect on the food side and the platforms that we are working here preservation, baking, all our platforms that are consistent in any one of these markets. We have changed down put some new distributors and place in the European market ReaShure. So we are seeing good up tick there. Choline going into food as well as supplement is going very, very low over there. As a matter of fact this first quarter we’ve been in a debottlenecking process in our choline operation in Italy. That should be deep water debottlenecking online here within the next month. So that should give you an idea. Certainly we see growth going on there and expect and need to be able to support it.

Operator

Thank you. (Operator Instructions). Our next question comes from Jack Balsam with Private Investors.

Jack Balsam - Private Investors

My question has to do with the long-term debt that we have on the books of about $6.3 million. Are we locked into that or can we prepay it?

Frank Fitzpatrick

No we certainly have an ability to prepay it, that debt is based over with our Italian operation and it is actually Euro debt. So we actually were having that conversation as the dollar has strengthened here, we may take an opportunity or going to look in our opportunity to maybe to buy some Euros and take it down.

Jack Balsam - - Private Investor

We certainly have 50 million in cash it seems that we can eliminate that whole long term debts?

Frank Fitzpatrick

I am just looking for the right opportunity with, the currency rates.

Jack Balsam - - Private Investor

Okay. One other question. CNN Money on its Balchem quote list continues to show incorrect D ratio of 41 instead of 20 something and the dividend yield of only 0.29% instead of 0.4% something percent. I wonder if you could look into that and make sure that they change it?

Frank Fitzpatrick

Right absolutely we are actually aware of it and have made some inquiries on as to what the problem is and we will follow-up on that again.

Operator

Thank you. Our next question comes from the line of Lawrence Goldstein - CNP Asset Management.

Lawrence Goldstein - CNP Asset Management

Do you know, the only phrase used in describing any part of the business that you didn't attach an adjective to, positive adjective, was early on you said something to the effect of about in this business climate, indicating things are tough, what might you have looked like if this business climate were booming?

Dino Rossi

All I can say is probably a lot better last I don't its very difficult to say but certainly I think if stars were aligned a little bit better and I am not complaining that’s for sure, it could have been tremendous but so we are very pretty pleased with the overall growth for sure.

Operator

Thank you. Our next question comes from (inaudible) Capital Management.

Unidentified Analyst

Can you talk a little bit about the human choline talk, you mentioned bakery I think in Candy or in confectionary, your Gerber baby products talk about some of the broader product lines that you guys are kind of pushing into?

Dino Rossi

With choline?

Unidentified Analyst

Yes, with choline for the human consumption?

Dino Rossi

Yes, well certainly we mentioned the Gerber product line, there is a number of drinks out there that have the product I think Frank alluded to those here before, where we have gotten into some of cereals as well. Post Alphabet, Kashi Cereals, Minute Maid juices . And I think in general we are just seeing people willing to look at a little bit more as more and more companies out there are now including their product in theirs.

Speaking of consumer awareness I think we are looking to be the key driver here and we are trying to bring the scientific value of the product to, I am going say fruit producers in general and but I don't say that you can some people they are looking into choline as the sodium replacement product which the pressure on sodium levels (inaudible). And so we have people looking at it from that standpoint let alone in nutritional value of the choline so really starting to starting more continuing to see people work with the products and get it incorporated and ready to see it as a discernible differences that they can kind of wave the flag with.

Unidentified Analyst

On some of the animal nutrition side you talked ReaShure and [NitroShure] if you go down to the dairy farm, milk prices per hundred weight were almost cut in half or more so last year to this year, what is driving the unit economics of the farmer who is not receiving those wholesale prices to buy supplements that will induce higher production per cow or whatever? What are some of the economics?

Dino Rossi

The key economics there these guys are at bit in the fluid side, the price of the fluid milk these are like prices did drop in half earlier this year that came back pretty strongly and had moved from like an $8 - $9 per hundred weight loads to places and futures in the $16 per hundred weight and now future central effect of $14, $13 a hundred and so as these guys were looking to make money as milk prices moved up and I would say the balance of the ration cost itself has declined with corn prices coming down and the LFC thus involved there. But at the end of the day I mean each and everyone of these guys measures their milk yield as a key driver and there are may be some other variables in there, a percent of fat in the milk and things like that. It could also make a difference, but at the end of the day, its still about our volume with milk and dairy farmers are, when prices are down they want to create more milk, when prices are up they want to create more milk and that’s how they make money.

So you know when you get into each one of our products. There are different drivers if you will to talk to in the value proposition. And maybe its changing a [ration], maybe its substituting our products, substituting something else in the rash that maybe the cost of that ingredient has gone up dramatically and makes our product even more valuable. You know so I’d say any given month and any given quarter you are going to see movements in some of those variables in [ration] that are going to drive. If you will additional value already, you know there is moments where we start to get pinched in terms of value to but they kind of validate keeping our product in ration.

Brian Lawson - Morgan Capital Management

Okay. Fair enough. Give us a sense as you guys look at your budgets for 2010 here kind of what your CapEx budget is and then maybe what tax rate might be.

Dino Rossi

Yeah the CapEx budget this year is expected right now to be probably $8.8 million to $9 million. And that’s a little bit higher than normal for us for sure, you know some of that is same business type capital. We now had seven plans and that includes entire operations as well. So we are also looking to implement a of couple new technologies in our production/process of some of these products in an effort to come up with a lower cost, more competitive products. So there is probably a solid 4 million to 5 million that’s been directed to new technology introduction at plant level. Our tax rate we are looking at right now probably run about 34%.

Brian Lawson - Morgan Capital Management

About 34. And then anything relative to the healthcare bill, its impact on salary, wages, benefits as it applies to Balchem?

Dino Rossi

No I would say right at the moment we are not really projecting any kind of differences Maybe we'll see as some of this settles out a little more, but right now we don't expect to see any significant difference.

Operator

Thank you. Our next question comes from Frank Armitrose, Stock Advisors

Frank Armitrose - Stock Advisors

Quick question about trajectory of AminoShure versus ReaShurewhen you might think given the larger side of that market when you past ReaShure and also the implications of the Gulf spill for fish meal versus soy meal and how that may impact the use of your product?

Dino Rossi

Well, first say in response to your question about Lysine versus ReaShure, the basic product is continue to do pretty nicely in the face of a tough day economy so I think it's the economics I'm going to say held up at this moment plus our expectations as AminoShure could pass ReaShure within a year or two years for sure maybe sooner but so that's again really contingent on the economic diary milk price wise. As it relates to the oil spill in the Gulf, we haven't really projected any kind of oil difference yet and maybe that because we really haven't been confronted with it but like I would say it's still a general or things that we watch very closely, everything from shipping line down there that might be affected because of our plant in Louisiana export of products out of there. I probably get a little bit more concerned about well how that would impact us versus fish meal and soy meal although I won't make light I think that those are all things that we will be paying much more closer attention to especially if and it appears unfortunately this is going to be a wrong time to get result.

Frank Armitrose - Stock Advisors

In terms of revenue in the quarter from AminoShure and ReaShure, give us a sense may be approximates.

Frank Fitzpatrick

ReaShure did about $2.5 million in the quarter and Amino did about $600 million.

Operator

Thank you. At this time we have no further questions. I’d like to turn the call back over to Mr. Rossi for any closing comments.

Dino Rossi

I think that’s all we have. I appreciate everybody listening in to the call today. Again I think it was a pretty good quarter, and I want to thank you all for being investors with the company and look forward to talking to you again at the end of the next quarter, thanks.

Operator

Thank you. This does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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Source: Balchem Corporation, Q1 2010 Earnings Call Transcript
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