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Executives

Bill Kuser - Director, Investor Relations

Eric Wintemute - President & CEO

Trevor Thorley - COO

David Johnson - CFO

Analysts

Jim Bartlett - Bartlett Investors

Brad Evans - Heartland Advisors

Ian Corydon - B. Riley and Company

Jay Harris - Goldsmith & Harris

Frank Bisk - Pilot

American Vanguard Corporation (AVD) Q1 2010 Earnings Call May 6, 2010 12:00 PM ET

Operator

Good day, everyone, and welcome to the American Vanguard Q1 2010 conference call. (Operator Instructions) I will now turn the call over to Mr. Bill Kuser, Director of Investor Relations.

Bill Kuser

Welcome everyone to American Vanguard's first quarter 2010 earnings review. Our speakers today will be Mr. Eric Wintemute, President and CEO of American Vanguard; Mr. Trevor Thorley, AMVAC's Chief Operating Officer; and Mr. David Johnson, the company's Chief Financial Officer.

Before beginning, let's take a moment for our usual cautionary reminder. In today's call, the company may discuss forward-looking information. Such information and statements are based on estimates and assumptions by the company's management and are subject to various risks and uncertainties that may cause actual results to differ from management's current expectations. Such factors can include weather conditions, changes in regulatory policy, competitive pressures and various other risks as they are detailed in the company's SEC reports and filings. All forward-looking statements represent the company's best judgment as of the date of this call and such information will not necessarily be updated by the company.

With that said, I will turn the call over to Eric.

Eric Wintemute

Good morning, everyone, and thank you for joining us today to review the first quarter performance of American Vanguard. Although a number of agriculture and chemical companies have reported first quarter performance declines, I am pleased to report that American Vanguard has achieved increases in both revenues and earnings for the first quarter of 2010.

After a very difficult 2009, we are beginning to see improving market condition. The farm credit difficulties and distributor inventory retrenchment of 2009 have moderated, and improved weather conditions have resulted in more normal planting patterns. After significant recent declines, we also see resurgence in cotton and peanut acreage, which is a very positive development for us given the strong product offering that we have in those crops.

Our sales and marketing efforts have become more focused. Our personnel are highly motivated, and Trevor will provide additional comments on our top-line performance.

As promised in the first quarter, we maintained the financial discipline that we exercised in the second half of 2009. As you review our financial statements and read the commentary included in our 10-Q filing, you will see that when compared to the first quarter of 2009, operating expenses declined by $1.4 million. Inventory levels were more than $38 million lower. Even with higher sales, our receivables were more than $10 million lower. And as a result of these efforts, we were able to reduce our debts by nearly $45 million.

These are important accomplishments, and it is our intention to continue to focus on the balance sheet strength through 2010 and beyond.

During the quarter, we continued to work on several projects that involved either the acquisition or licensing of products that can strengthen our existing portfolio. Similarly, we continued the work that we discussed in our last conference call, involving our in-house product development program. We are making a good progress in all of these pursuits, and our future growth potential will be enhanced by these efforts.

As I indicated in our press release this morning, the combination of more favorable market conditions, increased demand in several key crops, more efficient manufacturing and operating rates, improved organizational capabilities and judicious financial control should allow American Vanguard to achieve better performance in 2010. And we're happy that this first quarter results has started on that path.

I will now ask David to fill in on some of the most important financial details.

David Johnson

As mentioned, American Vanguard sales revenues increased by 5% to $46.7 million in Q1 of 2010 in comparison to the $44.6 million in the same quarter of 2009. Trevor will provide product line detail and explanations of the factors that led to this overall result.

Our cost of sales for Q1 of 2010 was $27.8 million or 59% of net sales compared to $26.1 million or 58% of net sales for the same period in 2009. As we have discussed in the recent conference calls, there are several factors that explain these results.

We have continued to focus hard on inventory levels, making sure that we produce what we need to produce and no more. The benefit is evident in the balance sheet, but the downside has continued under absorption, a fixed factory operating cost. We have significantly lower tolling sales recorded in this quarter compared to the same period of 2009, and we continue to address aggressive price competition internationally.

As a result, our gross profit ended at $18.9 million or 41% of net sales in Q1 of 2010 compared to $18.6 million and 42% of net sales in 2009.

Operating expenses continued to be on the high focus and ended at $1.4 million lower than the same period of 2009. You will see in our 10-Q report that our selling costs were up $400,000 as a result of a different mix of sales and associated program costs, plus the cost of increased advertising spending supporting our brands.

General and administrative costs were $1.3 million lower as a result of not incurring the high expenses we reported in Q1 of 2009 on the potential acquisition. Research and product development costs were down $600,000, mainly timing of particular studies and other development activities.

Freight costs have remained tightly controlled and are in line with last year's percentage of sales, 6.3%, so up $100,000 on volume. Interest expense was $700,000 in Q1 of 2009 compared to $900,000 in Q1 of 2009. The main driver for this result was the average borrowings that were down $27.3 million during the quarter.

As an offset and as reported last conference call, we amended the covenants in our senior credit facility, which includes increased interest rates. However, that did not impact until the last month of the quarter.

During Q1, the company has continued to focus on key working capital drivers. These include holding inventory levels down, ending at $74.3 million as compared to $112.5 million this time last year. This is traditionally a quarter in which we increase inventory. The increased focus on planning production timing and raw material received helped achieve a good inventory performance. Putting it another way, last year in the quarter, we increased inventory by $21.9 million. This year, we increased by only $1.8 million.

Continuing pressure on collecting receivables, which ended at $53.3 million compared to $63.8 million in the same quarter of 2009, even with sales up 5%. Sales programs and payables ended at $33.4 million as compared to $35.8 million this time last year, including the substantial reduction in inventory.

As a result on focusing on these key words and capital drivers, we have achieved a much lower average debt, down $27 million; and quarter-ended debt down $45 million compared to the same quarter of 2009.

It is also noteworthy that we have raised the amortization rate of our term debt to $2 million per quarter, starting with Q1 of 2010. This was part of the original credit facility agreement and is unaffected by the recent amendment.

Income tax level was marginally up compared to last year, 39% versus 38%. This is mainly as a result of the adjustment our tax advisors forecast, as we impact 2010 taxable income with the one-time losses taken in Q4 of 2009.

Net income ended at a profit of $1.8 million or $0.07 per share in 2010 compared to a profit of $700,000 or $0.03 per share in 2009. It is important to note that these earnings are higher than the level achieved in Q1 of 2008 when we earned $1.7 million and $0.06 per share.

As a result of this strong overall financial performance for the quarter, our compliance with our amended covenant is in good shape. You will read in the full 10-Q that borrowing availability at the end of the quarter was approximately $56 million. All of this will be covered in more detail in our 10-Q filing, which will be submitted to the SEC later today.

Now over to Trevor.

Trevor Thorley

As we mentioned, during 2009, distributors and growers followed a very conservative approach towards procurement, reducing their inventories and ordering products much closer to the time of use. Credit restrictions on growers, problematic weather conditions, weak commodity prices and declining prices for fertilizer and glyphosate inputs all contributed to this dramatic change in purchasing behavior.

While conservative inventory management remains a priority for our distributors in 2010, it is clear that destocking has reduced the levels to the point where replenishment of many products is required to facilitate efficient and timely flow of agricultural inputs to the fields. We are seeing that occur this spring.

Further, certain crops in which the company has significant product sales, namely cotton and peanuts, appear to be increasing in planted acres, and favorable weather in the mid-west is permitting corn and other crops to be planted well ahead of 2009 schedule. I'm speaking to you today from Kansas City where I see much completed corn planting and extensive other field work progressing.

Customers that I have visited this week are very pleased with the seasonal progress, especially compared to the last year at this time. Net sales of our largest selling product line, soil fumigants, were up nearly 11% in the first quarter. Some of this increase relates to the fact that an early frost in late 2009 prevented many growers from applying the products after harvest when the fall winter had set in, which suppressed fourth quarter 2009 sales. With the ground (floored) in 2010, these growers were able to treat their acres in the first quarter ahead of planting.

Net sales of our insecticide product lines rose strongly by approximately 29% in the first quarter of 2010 as compared to the same period in 2009. Among the insecticides, sales of Dibrom, our mosquito adulticide, increased strongly over the same period in 2009 largely due to the timing of customer orders. In addition, our cotton insecticide sales have performed well in response to the increased cotton acres that have been planted this year.

Our granular soil insecticides as a group posted a gain in net sales of about 19% for the period. Among these products, Counter, which is the preferred treatment for nematodes in corn, led this product category with net sales rising nearly 70% over the comparable period last year.

Some recovery in Counter sugar beet usage have also occurred linked to superior university field trial data. We're focusing on the increased sales and marketing support for our Counter and achieving more effective positioning of the product with growers and in distribution channels.

Sales of our other granular corn soil insecticides, such as Fortress, were also strong in the quarter, reflecting growth preference for purchasing the product closer to the growing season rather than at the end of prior calendar year as was traditionally the case.

Net sales of our herbicide products were down slightly about 5% for the quarter. However, with corn planting ahead of last year and lower inventory levels in the distribution channel, we've recorded an increase of approximately 35% in net sales of our post-emergent corn herbicide impact. These gains were offset by reduced sales of Dacthal, which arose in part from regulatory pressure in Europe.

Net sales of our fungicide product line were flat compared to the first quarter of 2009, while our plant growth regulator, NAA, and our slug and snail bait product, Metaldehyde, generated net sales increases during the period. NAA continues to enjoy solid support in the marketplace, while Metaldehyde sales benefited from the ample rainfall within the western states over the course of the winter.

Net sales of our foreign subsidiaries were up approximately 22% over the comparable quarter. I was very encouraged by my visits to large banana plantations, key formulators and distributors in Guatemala and Costa Rica last week.

Our experience and enthusiastic personnel in this region are driving our Counter stewardship in our new and used opportunities in this important international market.

In general, we are seeing solid, predictable and I think sustainable demand for Ag Chemical products that we sell. While the marketplace remains highly competitive, we are finding that our revitalized sales and marketing organization and our new business initiatives are winning additional business.

We continue to focus on the efficiency of our manufacturing operations and seek to reduce the burden of unabsorbed fixed overhead costs wherever possible. Through the inclusion of additional toll manufacturing volumes, technical process improvements, waste minimization efforts and tight control of production scheduling and inventory management, we expect that our manufacturing productivity and overall performance will improve this year.

Now back to Eric.

Eric Wintemute

Thank you, Trevor. By this time, many of you and shareholders have received American Vanguard's 2009 Annual Report and the 2010 Proxy Statement. In the Annual Report, we've referenced the important elements of this company's vitality, its firm financial bounding, its core strength of great products and talented people and its capacity to grow successfully.

The icon we chose to exemplify these attributes is the Oak tree, firmly rooted with a solid trunk and expanding branches. We've withstood the challenges of 2009 and have the strength and a vision to improve in 2010 and beyond.

In our proxy statement, you will notice some proposed changes for the Board of Directors. Glenn Wintemute, one of our founders of American Vanguard, will be retiring from the Board, and two new directors have been nominated for election, Mr. (Al Hingley) and Mr. (inaudible) are highly experienced business executives in agricultural chemical industry whose counsel, judgment, industry knowledge and contacts would be of great value.

We're excited about the prospect of having two highly regarded industry veterans join our board, help guide our strategic direction and endorse our corporate mission.

As we discussed in our last conference call, the new product development program continues steadily with the commercialization of our next product from this program, a potato sprout inhibitor called Smartbox, scheduled for the first half of 2011. Recent trial data has been outstanding and our expectation for the considerable success with this product has been reinforced.

We continue to discuss the addition of other compounds to our pipeline with a number of potential development partners. It is clear to us that global demand for agricultural output will continue to rise. In addition to satisfying the growing populations of developing countries and the greater disposable income of their citizens, recent drought conditions, particularly in Asia, suggest that demand for US produced crops should be strong in coming years.

To meet this need, modern agriculture must have all the available tools required to enhance productivity, improve yields and ensure high crop quality. Crop protection chemicals will play a very important role in achieving those objectives. While genetically modified plant defenses have emerged in recent years to address certain infestation threats, our products provide a wider range of solutions to many of the problems that genetic technology is unable to contain. A case in point is the subject of a New York Times article earlier this week on the evolving development of glyphosate resistant weeds and grasses.

Such examples underscore the ag industry's need for both genetic and chemical-based defenses to complement each other and fill the inevitable gaps that resistant development creates.

As we state in our annual report, American Vanguard is positioned to succeed. We have the skill, the drive, and the capacity to succeed and we are driven to turn our business success into financial success to give all shareholders return on investment that they deserve.

Thank you and we'll now gladly respond to your questions. Sarah?

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Jim Bartlett with Bartlett Investors.

Jim Bartlett - Bartlett Investors

In that article, that New York Times article, it mentions various roundup resistant weeds in various parts of the country. Could you give us a little more input of how you've been affected so far in those areas, and what you view your outlook because of the resistance build up?

Eric Wintemute

Well, I'll start off; and, Trevor, you can kind of (inaudible) as well. We spent time with Monsanto, talking to them about this issue. We had a discussion with them about how Impact, our corn herbicide product could help in those resistant areas. They did add Impact to their label as a product that could be used for this purpose.

And frankly, I think it becomes the function of, as the resistance continues, we are certainly one of the several chemicals that are looking to be a product of choice for treatment of resistance. And we've got efforts that maybe Trevor can talk a little bit about.

Trevor Thorley

Well, Eric mentioned Impact there and that clearly fits in very well with the corn crop. The other area on herbicides that we're looking at is in our development pipeline. We have some products in there that can fit clearly in the future and part of our strategic decisions are linked to developing products that in a few years time fit to this developing resistant situation.

The other aspect is insecticides, particularly on corn again. The marketplace is getting very dependent upon traits as it's moved that direction in the last few years. And again, our university data on our corn soil insecticides, on yield improvement, working with the traits, working with seed treatment, have been very positive.

So we see a cycle, of a lot of these things, and I think the opportunity is there for the herbicide and the insecticides linked to the co-existence, the working together of traits with the traditional chemicals.

Eric Wintemute

And Jim, I think you were talking about the geographical as well and I think there was a mention about Georgian pigweed. When we were working through this discussion, my estimates at the time, maybe 3 million acres a couple of years ago that were impacted and I think the article mentioned of about 7 million to 10 million acres a couple of years later.

So it is pockets that are growing. I also for the first time saw that they were seeing these types of things pop up in other countries as well. So I hope that answers your question.

Jim Bartlett - Bartlett Investors

Yes. I'm just wondering is because the article's saying that Ian Heap, Director of the International Survey of Herbicide Resistant Weeds, said that roughly 7 million to 10 million out of 170 million (planted with) corns were the crops most affected. Was there any forecast in that study of what's it going to look like in three years or five years?

Eric Wintemute

We're not aware of it, and we just saw the article the same time you did. So, Trevor?

Trevor Thorley

Yes, it's a moving target, I've not seen that. I think some others may be able to answer that question a lot better than we can with regard to American Vanguard.

Operator

(Operator Instructions) And you do have a follow-up question from the line of Jim Bartlett with Bartlett Investors.

Jim Bartlett - Bartlett Investors

Could you just talk a little bit more about the inventory levels you'd mentioned last year, with all stocking that went on? And now you've seen that I guess hit bottom and better reordering. Can you give us a little better idea of where you think you are in that cycle? In other words, if there's quite better catch up that needs to be done because the inventories were below the use level? And if so, what would be the gain that they would need to get there?

Eric Wintemute

Trevor might want to handle that, but I think, Jim, what you're referring to is inventories in the channel not (alarming) to us, right?

Jim Bartlett - Bartlett Investors

No, in the channel.

Trevor Thorley

Right, yes. Great question. I actually met with one of our distributors and his purchasing manager yesterday. We talked about that very subject. There is a reordering happening through the whole chain, but the feeling from this meeting yesterday and some other conversations the last month, it's not going to immediately return to what it was in the last two to three years. People have been a little cautious still. It's more optimism than a year ago, but people are watching the balance sheet just as we are, a lot closer and that is going through the system. We've instituted a lot closer working with our big customers on forecasting and communications and supply, within the benefits of some of that.

Also being a producer here in USA, with our manufacturing sites here, we're not reliant upon product coming from overseas, which many of our competitors are. So we're in a good position here, but I don't see it returning necessarily to the huge loading up of the products we've had in some of the previous years.

Eric Wintemute

I think Jim, what you're kind of looking at and saying, okay, inventory levels are low. We last year kind of reported that a lot of use of our products at the grower level was similar to what it was in 2008. So that was our concept that it had shrunk, and clearly if we see that levels are similar, with low inventories, that would lead one to think that sales for our products would be higher this year.

Operator

Your next question comes from the line of Brad Evans with Heartland Advisors.

Brad Evans - Heartland Advisors

Thank you for the attention to the balance sheets. It's very pleasing to see.

Eric Wintemute

I know it's one of your concerns.

Brad Evans - Heartland Advisors

Well, thank you for paying attention to our concerns. I know you're not in the habit of giving guidance, so I appreciate any color you might be able to help us with, with respect to my question. And the question is, in 2007 and 2008, the company generated relatively high levels of profitability, $40 million to $50 million of annual EBITDA. And the first quarter this year, your EBITDA is on track with a number that is similar to the first quarter of '06 and '07. And I guess I'd love from your perspective to help us understand what are the tail wins and what are the head wins that you think you will face that would impact your ability to get to a $40 million to $50 million EBITDA number for 2010?

Eric Wintemute

We have, as you know, core products that perform fairly consistently. Obviously, there are weather issues and bug pressures and all those sort of things, planting times. But on a normal basis, they seem to respond in a regular fashion. There are the exceptions that certainly Dibrom can be a much (inaudible) volume depending on the presence of tropical storms. So that's one that's a pretty good variable. Impact is one that we're hopeful with more normal planting times that the herbicide market will be a stronger one. So that would be something reflected in this quarter.

But I think generally the outlook that we feel, obviously we've made statements that we should have improved performance, and at this point I think we're feeling relatively bullish about it.

Trevor Thorley

Just one additional comment there Brad is, cotton acres are returning to the level that they were in that 2007-2008 period. And that's a real strategic crop for AMVAC, American Vanguard. So that would be a good indicator to help us with that particular part of the portfolio.

Eric Wintemute

That of course, then that's a function of, do the bugs show up.

Brad Evans - Heartland Advisors

Okay, you can't control that, but I do appreciate helping us to at least build the mosaic. And then just a technical question in terms of two things. I jumped on the call late, so I do apologize if this was mentioned, but what is your capital budget for 2010? And can you give us a sense of where you are from a cash utilization perspective in the first quarter?

David Johnson

From the cash utilization perspective, can you clarify what you mean by that?

Brad Evans - Heartland Advisors

I'm sorry, capital spending for 2010?

David Johnson

In the first quarter, as you'll see on the earnings announced, it'll be some $1.9 million, which is about twice what we spent last year. And I think that kind of reflected what we think the budget is going to be for this year.

Brad Evans - Heartland Advisors

Any thoughts on capacity utilization?

David Johnson

We are anticipating that having taken the pain of reducing inventories at the end of 2009, we will see a better utilization performance in 2010.

Eric Wintemute

Without giving specific guidance or the percentage (inaudible).

David Johnson

Exactly.

Trevor Thorley

We're working very hard that these improve, I can assure you.

Eric Wintemute

And again, by really focusing down, this is another advantage in the period, it becomes very transparent what that number is, and it's a focal point for a number of people. And it's listed as goals for a number of people in our organization, just as targets we have on freight, when we talk freight go up dramatically, inventory levels rising, this is a focal point that has full attention within the organization.

Brad Evans - Heartland Advisors

I'd want a couple more questions if you don't mind. Do you believe that the Board may revisit, reinstating the dividend that was produced through the middle of the downturn last year?

David Johnson

Well, we maintained dividend. Typically we've looked to pay a dividend about let's say 10% of earnings, right? And so obviously when we didn't have earnings and we pay the penny based on the one-time write-down, reflects our confidence. And I think the expectations, at least from my side, would be that we probably look at the similarities to what we've done in the past. So as we see earnings in the first half, assuming they improve, our dividend will improve.

Operator

Your next question comes from the line of Ian Corydon with B. Riley and Company.

Ian Corydon - B. Riley and Company

Two questions; first, I wonder if you could expand a little bit on your comment about freight competition out of Asia. And then second, if you could just speak to the gross margin outlook, either quantitatively or qualitatively?

Eric Wintemute

So I think if I got that right, Ian, you are asking about the international competition that we mentioned. And the second is where we see margins over time. Again, one of the things that we did on margins by expensing any, and absorbed as if we do, kind of at least not penalize ourselves going forward in that arena. Trevor, if you would like to talk about the international competition.

Trevor Thorley

We take it on a case by case basis, some of our international sales into the Asia market, and we've been making choices and decisions there whether we respond or don't respond. My trip to Central America last week, where we have a significant counter business in Thimet, those products are differentiated. We don't have the direct competition there, particularly because we're doing stewardship, we're doing added value.

So, where we are trying to grow is where we've got the differentiation in those values, where we've got a more direct price comparison.

We're basically being cautious and making choices on individual situations.

Operator

Your next question comes from the line of Jay Harris with Goldsmith & Harris.

Jay Harris - Goldsmith & Harris

Could you talk a little about how the opportunities for bedbug control are likely to emerge?

Eric Wintemute

Trevor, do you want to start on that?

Trevor Thorley

Yes, we're doing some extra advertising; we're working with a lot of the scientists on this area. We've launched a second product into the consumer market with a partner on that side of it.

Jay Harris - Goldsmith & Harris

What's the (inaudible) name that will show up as?

Trevor Thorley

Sorry?

Jay Harris - Goldsmith & Harris

When you say in the consumer market, will that show up in retail or through an applicator?

Trevor Thorley

Retail.

Jay Harris - Goldsmith & Harris

And what kind of trade name?

Trevor Thorley

Let me follow back to you a little later, Jay. I haven't got it here right in front of me and I want to make sure I've got it accurate for you on that side. In the professional side, we're actually trying to hire a new salesperson at the moment behind what we're doing in that side; we've done a video, we're doing promotional materials, we're working with the big distributors on putting support behind it.

So that's where we are with that at the moment. We also have some new product offerings in at EPA that we're trying to get through, that hopefully will fit in for next year.

Eric Wintemute

Yes, those are Jay, a combination of DDVP and Permethrin and then DDVP and bifenthrin. We've talk to our customers and they say they like the DDVP strips. We're kind of expanding use as much as in the bedbugs but also trashcans. Number of things we talked about in the past that are now coming to fruition.

Black Flag is a company that has sold DDVP in the past and are looking to bring that on in the near future. And they've been the one retail one that you were thinking of Trevor.

Trevor Thorley

That's the second one, yes.

Eric Wintemute

The second one, okay.

Jay Harris - Goldsmith & Harris

What quarters of the year will these revenues likely to show up?

Eric Wintemute

Well, it does go throughout the year, depending on the period that we were talking. We basically have orders that go year round. But typically things in first and second quarter for the summer periods, usually summer periods are more traditional for our strips but then this bedbug market is something completely unique and new for us.

So there are constant bedbug conferences that seem to be going on every month now and we're a big part of those discussions, and researchers are telling people more and more so word seems to be getting out. And as Trevor mentioned, we've just completed our video, and that's getting distributed through the system.

Anyway, we're pleased. It never moves as fast as you'd like it to move, but it's definitely moving in the right direction.

Jay Harris - Goldsmith & Harris

One of the other questions that occurs to me, as I look back at your quarterly pattern of revenues in the second quarter of last year and in the fourth quarter of last year, you suffered significant declines from the prior year in terms of revenues. The other two, the first quarter and the third quarters were comparable, let's say.

It's clear that the opportunities that the company is facing in terms of a marketing season for Impact, which is probably going to be, I don't know, twice as long this year in the second quarter as it was last year or maybe even longer than that, the opportunities for the corn soil insecticides in terms of the time to get on the field, the higher acreage of cotton and peanuts, is there any way that you could give us some guidance?

I know that's a lousy word, but can give us some guidance in terms of how these opportunities might translate into dollars of revenues and what those are contingent on?

Trevor Thorley

The Impact season is a very good point you made Jay. I don't know, it could be twice as long, but the corn being in the ground at this stage, and particularly in the United States through the Midwest here, getting them into good seedbeds, a higher potential for yields, means that the growers will support spending on the products.

So that is a positive there. The guidance thing, I'm going to avoid that a little bit and I think you know why.

Jay Harris - Goldsmith & Harris

I am not surprised.

Trevor Thorley

On the corn soil insecticides, I did mention a counter and the very positive result in the first quarter. Again, discussions with a distributor yesterday, we feel that the product we have out there, because they've had the opportunity to use it and plant in a more orderly fashion, we shouldn't have as many returns, we've had some good top-up orders again.

So I'm feeling pretty good on that. I'm quite pleased with what's happening there. And the cotton peanuts, particularly the cotton, look at the commodity price, the economics of the crop are very positive for the cotton grower. That fits very well.

Just added a new regional manager which I'm very excited about for the Southeast of the country, and we're looking to add another sales rep in one particular geography there at the moment. And really excited about the people that want to join on back and be part of our future and growth.

So those are all real positives. And I'm not going to give you a number. If Eric wants to give you a number, I'll let him comment.

Eric Wintemute

I think you said it well, Trevor.

Jay Harris - Goldsmith & Harris

Well, you guys, when you prepare your budgets, you take certain factors into account. It would be very helpful if you could relate acreage increases, and time the marketing for those of us who's followed the company for a good number of years, without necessarily promises to the accuracy of the result of the calculation.

And I'd love to hear comments about what factors are likely to positively impact the fourth quarter. We chatted a little right now about the June quarter.

Eric Wintemute

I think fourth quarter, I think we've kind of had a little shift with distribution from some of our products that might be ordered in the fourth quarter historically, or third quarter historically for the season and we seem to kind of move it a little bit forward.

Again, basically the third and fourth quarter are peak times for our soil fumigant clients. And those, certainly again going back to what I said earlier, we have core products that perform at normal fashion.

So, overall we feel optimistic about the year, and as I said just in this quarter, this first quarter, we had a tolling product that shifted into another quarter, into the second quarter. So, sometimes it moves from quarter to quarter, but overall for the year we think it looks pretty good.

Operator

Your next question comes from the line of Frank Bisk with Pilot.

Frank Bisk - Pilot

I had a question on I guess, stock flow and I guess, you said that was weak in this quarter and you talked about regulations in Europe. I thought the regulations weren't occurring until 2011. Can you just kind of walk me through that?

Eric Wintemute

You're talking about Dacthal?

Frank Bisk - Pilot

Yes.

Eric Wintemute

Trevor?

Trevor Thorley

We're working through those regulations. We're working through the timing, and my head of regulatory has been spending a lot of time in Brussels and Europe. And so there's a lot of discussions going on. But there is some uncertainty, and the customers are obviously being cautious on what they are taking in because of that.

Operator

(Operator Instructions) Your next question comes from the line of Jim Bartlett with Bartlett Investors.

Jim Bartlett - Bartlett Investors

Can you expand on the 22% increase in your (inaudible)?

Eric Wintemute

I'm sorry, Jim. Was that the 20% increase in the international?

Jim Bartlett - Bartlett Investors

Yes. It is.

Eric Wintemute

Trevor?

Trevor Thorley

If you've details in front of you David or Eric.

Eric Wintemute

What you are looking for is why we had the increase?

Jim Bartlett - Bartlett Investors

Yes.

Eric Wintemute

Well, I think part of what we're looking at last year at this time was a real concern over credit. And so there were a number of sales that we were not willing to take. And as we go into this year, we've got a small provision for bad debt. At this point it doesn't look like we're going to experience any bad debt from that period.

So I think as we see cash flows working better with our customers, we're opening up a little bit more. It's a function of that. We've also seen Costa Rica, our sub there getting good traction. Trevor mentioned earlier, just been down there last week, where our team on the ground, through stewardship and pretty efficacious products, Counter and Thimet out, we're seeing increased usage with growers in that area.

David Johnson

And a little bit of its timing, and also Mexico, we've had some good orders that we've been happy with the credit situation, so we've moved forward with.

Operator

At this time, there are no further questions. I would like to turn the call back over to management.

Eric Wintemute

Thank you Sarah, and thank you everyone for joining us, very good questions. And I look forward to updating you with further results as we go through, and I'll talk with you in the next quarter. Thank you very much.

Operator

This concludes today's conference call. You may now disconnect.

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Source: American Vanguard Corporation Q1 2010 Earnings Call Transcript
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