JACKSON — Since 1990, ChemFirst Inc. (NYSE:CEM) has shrugged unprofitable or stagnant divisions, focusing instead on the development of products and processes for its customers’ next-generation consumer and semiconductors products in high margin businesses.
“We’re more focused,” said J. Kelley Williams, chairman and CEO of ChemFirst. “Semiconductor chemicals and materials is our primary emphasis area. It’s a fast-growing, high-margin business and we’re market leaders in several product lines and technologies. Polyurethane is a good business and a strong cash generator, but it’s a slow growth business for us — kind of a GDP growth rate — so we use cash flow from that business to support growth in electronic chemicals and to fund our stock buyback program.”
Last year’s sales totaled $383.8 million, with 53% of revenue derived from electronic and other specialty chemicals and 47% derived from polyurethane chemicals. EKC and Triquest produce electronic chemicals; First Chemical produces polyurethanes, said James L. McArthur, manager of investor relations for ChemFirst.
“EKC Technology is the bulk of the electronic chemicals company, with production facilities in Hayward Calif.; East Kilbride, Scotland; and Kanawaga, Japan near Tokyo,” he said. “The electronic chemicals industry is where a lot of the focus of the future of the company lies.”
ChemFirst, which has 500 employees, also has production facilities in Dayton, Ohio; Baytown, Texas; and Pascagoula.
“Very few businesses have the kind of trend line growth rate that semiconductors have,” Williams said. “They’re in a terrible recession at the moment, probably the worst ever, but we’ll be coming out of that and the growth will resume.”
The company’s flexibility and rapid response to markets, by moving in and out of profitable areas of the economy, has contributed to its success.
“It’s by design in that way by reacting, but also some of it is just fortuitous,” Williams said. “We got out of the fertilizer business not because we thought fertilizer was going to get killed like it has, but because we thought we had better businesses in which to reinvest and redeploy those assets.”
ChemFirst was organized in December 1996 as the successor company to First Mississippi Corp., following the sale of First Mississippi’s fertilizer operations. First Mississippi Corp. was established in March 1957 as a venture capital company and became a major fertilizer producer in the late 1960s when it pioneered the single train Kellogg ammonia plant technology.
In the mid-1970s, the company began to diversify into other commodities — oil and gas, coal and gold. In 1975, it became the first Mississippi-chartered company to be listed on the New York Stock Exchange. High interest rates and deflation hurt commodities in the 1980s and First Mississippi branched into chemicals.
“We will grow the electronic chemicals area and add complementary technologies and product lines and build on the base we have,” Williams said. “At this time, I don’t see us taking on any new businesses.”
Ashby Foote, president of Vector Money Management in Jackson, said ChemFirst “rightfully made the decision to become a specialty chemical company and focus on niches.”
“The companies that have fared the best in the last 12 months have narrow niches where they don’t have as much price competition,” he said. “They’ve been able to protect their profit margins in this difficult environment. ChemFirst got out of the commodity side of the business. Look at how that compares to Mississippi Chemical, which is more on the commodity side. Even though Mississippi Chemical has made some adroit moves over the last nine months, they have a bigger challenge. I think the moves ChemFirst has made over the last four or five years have been more in the shareholders’ best interest. They started to focus on specialty chemicals and got out of the gold, steel and fertilizer business.”
ChemFirst has purchased about a third of its stock so far in its stock buyback program, Williams said.
“For a company the size of ours with limited float, you have to buy the stock back when the opportunity presents itself,” Williams said. “We’ve had opportunities from time to time, and fortunately we’ve had dry powder to take advantage of them. In general, I’ve been pleased that we’ve been able to buy in about a third of the stock. How much we’ll buy in going forward depends on a number of things we can’t and don’t know at this time…but as long as we think the stock is a good buy, that is it represents a good use of the shareholders money and in a sense it’s undervalued as a bargain, we will continue to buy in stock.”
For the first six months of 2001, ChemFirst’s revenues were $180.68 million, a 9.2% decrease from the first six months of last year. In the second quarter of this year, sales totaled $89 million, a reduction of 11.9% from $101 million in sales from the same time period the previous year.
“The polyurethane business is strong and stable with a good cash flow,” Williams said. “We have that business as a cash generator. The electronic chemical business is a rapidly growing business, but it is subject to the cycles. Fortunately, we’re not dependent on it for cash flow so we’re able to take the cash flow from polyurethane and take advantage of buying investment opportunities in the electronic chemical area in this market environment.
“As far as the viability of the company, I feel very good about it because of that combination. We have essentially no debt and even though earnings are off because of what’s happened in electronic chemicals, earnings are still positive and our cash flow even at depressed earnings is greater than our maintenance capital expenditure requirements so we’re still generating discretionary cash flow even in this environment. You gotta feel good about that,” he said.
Williams said ChemFirst’s goal is to get better, not necessarily bigger.
“This may sound clich