The rubber hits the road this week when Ingevity releases its first quarterly financial results as a standalone company, more or less completing its planned breakaway from WestRock Co.
“It’s been a busy period,” said CEO Michael Wilson, who took over the North Charleston-based specialty chemicals business almost a year ago.
So far, the stock of the region’s newest public company has enjoyed a steep climb, rising about 50 percent since making its Wall Street debut in May. The business was valued at more than $1.6 billion as of last week.
The heady gains came amid heavy trading in the early weeks, typically generated by index funds and other big investors that were either buying or selling shares depending on their investment parameters.
“It is a pretty big transition in terms of the shareholder base,” Wilson said earlier this month. “So we’ve come through that first couple of months pretty well.”
Investors will learn more about how the New York Stock Exchange listing is doing late Wednesday afternoon, when the results for the second quarter are announced.
“At that point we’ll be trading on Ingevity news rather than larger macro sorts of issues,” Wilson said.
Ingevity’s corporate office is on Virginia Avenue, across from the KapStone paper mill, where the business was incubated decades ago as a division of the old MeadWestvaco Corp. to develop new uses for sawdust and other pine tree waste.
The renewable additives that have sprung from the lab are now used in the emissions, oilfield, asphalt, ink and adhesives industries.
In recent years, the once-obscure chemicals division has blossomed into a big business. The company now employs about 1,500 workers at 25 locations worldwide, including a newly built $100 million plant in China. Locally, it has a payroll of about 490 employees at three locations in North Charleston.
KeyBanc Capital Markets initiated coverage of the stock last week, saying the company “offers investors a high-quality specialty chemical portfolio with solid secular growth drivers and manageable exposure to the potential for rising demand in energy markets.”
The spin-off idea took root about 18 months ago, when MeadWestvaco decided to give its existing stockholders new shares in the chemical business. A few months passed before MeadWestvaco announced that it would be sold to rival Rock-Tenn Co. in a deal that created WestRock last summer. The new management proceeded with the separation of MWV Specialty Chemicals.
The division was renamed Ingevity on Sept. 1, the same day Wilson came aboard, in preparation for the handoff.
The company’s first full-quarter earnings report as an independent company follow declining revenue and profits. Sales for the first quarter fell 15 percent to $204 million from a year earlier, while net income tumbled by 64 percent to $8.2 million over the same period.
“Our business is a bit of a tale of two cities,” Wilson said.
The prolonged slump in the North American oil patch is a primary culprit for the drop in sales in the performance chemicals side of the company, he said.
“In that segment, the area that’s most impacted is our oilfield technology business,” he said. “Everybody is familiar with what is happening to drilling activity and the fall in oil prices. With that activity falling off, the demand for our products fell in oilfield technologies. That required us to find other outlets for those products.
“I would say for the most part the diversity of our business has served us well,” Wilson continued. “We’ve been able to take the volumes and move them — not all of them but the majority — into others applications, but sometimes not at as high a margin as we were seeing in the oilfield ... business.”
Analysts at KeyBanc projected sales in that side of Ingevity’s performance chemicals business should bottom out this year.
On the flip side, demand for the company’s gasoline vapor emission chemicals — a powdery substance known as activated carbons — is poised for more double-digit gains as more developing car-crazy nations such as China tighten their automobile pollution regulations.
“That’s a market that we see doubling over the next five to seven years,” Wilson said. “If you do the math on that, it clearly implies a growth rate that’s probably 12 to 15 percent a year. Very strong growth.”
It was the prospect of growth that lured Wilson to Ingevity from Albemarle Corp., where he had been a division president. The University of North Carolina-Chapel Hill graduate was approached about the North Charleston job more than year a ago, he said.
“To be honest, I didn’t have great insight or knowledge of the specialty chemicals division of MeadWestvaco at that time,” he said. “So I did my own due diligence ... and as I dug in and learned more about the business I was just intrigued. At the end of the day, I thought there really was an opportunity for value creation here. Overall, that was what attracted me. ”
Wilson said he was particularly impressed with the organic growth the chemical business had chalked up under MeadWestvaco’s stewardship.
“A lot of work had been done over the last five to seven years to be prepared to go where the opportunities are,” he said.
Many of those opportunities are likely to be overseas for Ingevity, which currently sells about 65 percent of its products to customers in North America. The rest are sold elsewhere around the globe.
“That’s sort of the inverse of every other chemical company that I’ve been involved with in the last 20 years,” he said. “So I saw opportunity for growth in other economies and emerging markets.”
Also, Wilson noted that Ingevity isn’t locked into a single product or industry.
“Sometimes a lot of businesses have pathways to growth that are fairly narrow. ... Here, I saw ... multiple pathways for us to grow the company.”
One promising trend is global demand for the quick-set asphalt additives that work in cooler temperatures, extending the paving season in colder climates. Sales of those commodities have increased about 12 percent a year on average since 2012, Wilson said.
“That’s business you’d think would grow with infrastructure spending. Well, infrastructure spending lately isn’t growing at double-digit rates, so the reason we’re able to do that is not really about the demand for new roads,” Wilson said. “It’s about the technology adoption. Not so much taking market share but creating markets and in some places supplanting other technologies.”
Finally, acquisitions are expected to play a bigger role in Ingevity’s growth as it stands up on its own two legs. Previously, that wasn’t in the cards under MeadWestvaco and WestRock’s ownership
“One thing we didn’t have the flexibility to do as a non-core holding of a big paper and packaging company was to grow through acquisitions. ... Now, we have the strategic flexibility to pursue acquisitions as well.”
While he has no specific targets in mind, Wilson stressed that Ingevity would take a “disciplined” approach toward any buyout deals.
“We need to establish our credibility with our shareholders by delivering results, and I think the acquisitions will come in time,” he said.
Contact John McDermott at 843-937-5572.