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WIKI ANALYSIS
Headquartered in Houston, Texas, KMG Chemicals(NASDAQ: KMGB) produces and distributes established specialty chemicals in niche markets in North America and globally. The company is growing primarily by acquiring and optimizing stable checmical product lines and businesses with established production processes. KMG improves operating efficiencies, product quality, distribution and responsiveness to customers, thereby expanding profitability and extending the economic life of mature chemicals. Current operations are focused primarily on wood treatment (79% of last twelve months sales), animal health products (17% of last twelve months sales) and agricultural chemicals (4% of last twelve months sales).[1]
Operating Segments
- Industrial Wood Treating Chemicals (79% of sales)
These products protect and prolong the useful life of wood, thus controlling operating costs invarious industries while also conserving forest resources. KMG sells these products to wood treaters who supply the railroad, utility and construction industries with treated lumber.
Products
- Creosote - industrial wood preservative used by wood treaters that mainly process crossties for railroads. KMG believes that 15-21 million crossties are purchased each year in the United States, almost all of which are treated with creosote. KMG is the U.S. merchant market leader, and believes that it supplies the wood treating industry with almost all of its annual consumption of creosote (excluding any creosote produced for internal use by other companies). KMG is also the only company in North America currently capable of importing creosote. The company imports more than half the creosote it sells. It is worth noting that Home Depot (HD) and Lowe's Companies (LOW) no longer sell rail road ties because they are toxic; however, this may not impact KMGB.
- Pentachlorophenol ("Penta") - industrial wood preservative used to treat utility poles. KMG estimates that approximately half of the utility poles in the United States are treated with penta.[2]
- Animal Health Procducts (17% of sales)
The animal health sector of the agricultural chemicals market holds significant opportunity for KMGB. It is a sector of the market that is largely ignored by the large chemical companies, yet offers attractive margins and growth potential.
- Agrochemicals (4% of sales)
According to the company, the consolidation in the agricultural chemicals space is driven considerably by research and advances in biotechnology. Additionally, the need to fund large research and development budgets compels companies to merge and become more efficient. Maturing chemicals consequently become available for divestiture as the larger companies focus on newer products.[3]
References
1. KMG Chemicals' Company Fact Sheet
2. Company Fact Sheet
3. Company Fact Sheet
References
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