KMG Chemicals Provides Update on 2008 Fourth Quarter and Fiscal Year

HOUSTON--(BUSINESS WIRE)-- KMG Chemicals, Inc. (NASDAQ: KMGB), a global provider of specialty chemicals in niche markets, today announced preliminary sales and earnings expectations for the fiscal year ended July 31, 2008. Sales were in excess of $150 million, as previously forecast. Net income on the other hand fell below the Company’s earlier expectations predominantly due to a sales shortfall in its Animal Health segment, specifically of insecticidal ear tags. As a result, management has reduced its 2008 earnings guidance to approximately 36% below fiscal 2007’s diluted EPS of $0.80, versus its earlier expectation of a 10-20% year-over-year decrease.

KMG had looked for Animal Health sales to improve in the fourth fiscal quarter following weaker than expected third quarter sales which it attributed to the delay of the onslaught of the fly season. The pick-up in ear tag sales did not, however, materialize in the fourth fiscal quarter. Neal Butler, President and CEO of KMG pointed out, “Livestock farmers who are confronted with higher prices for necessities such as feed, fuel and fertilizer, have limited their discretionary purchases, and in the case of cattle growers, that includes ear tags.”

He went on to say, “As we entered our fourth quarter, I communicated an expectation that the business would rebound. That expectation was shared by our distributors. Unfortunately, we did not anticipate the severe economic impact cattlemen experienced this season. We do however see the decline in Animal Health sales as a temporary setback. We see a clear path to grow this business unit, expanding by way of acquisition and by penetrating new geographic markets. On the latter point, we have recently received registrations in Puerto Rico, Venezuela, Mexico, and Argentina with pending registrations in Colombia and Brazil. We have established relationships with key distributors, and are submitting other registration applications across Latin America. ”

Normal Operations Following Hurricane Ike

Mr. Butler also reported that all its employees are safe, and that its headquarters in Houston are fully operational following the devastation of Hurricane Ike. KMG has provided uninterrupted service to its customers during this critical time, some of whom purchase KMG products to produce much needed utility poles during the rebuilding efforts following major natural disasters like Hurricane Ike.

Fiscal 2009 on Track for Over $200 Million in Sales & Improved Profitability

Mr. Butler reiterated that KMG is on track to exceed $200 million in sales for the year ending July 31, 2009, accompanied by significantly improved profitability. “Today, our single largest business is Electronic Chemicals, and as we closed fiscal 2008, its annualized sales run rate approximated $105 million. This represents a more than 15% increase over the $91 million of sales it achieved for the 12 months ended September 30, 2007, which was prior to KMG’s acquisition of that business from Air Products and Chemicals, Inc. on December 31, 2007. We expect significantly improved profitability from our Electronic Chemicals business in fiscal 2009 with the completion of the integration into our operations at the end of this month.”

He continued, “It is too early to predict how Animal Health product sales will fare in fiscal 2009 given the recent economic upheaval in the cattle and poultry markets. We remain confident that over the long-term, we will be able grow this business by taking advantage of industry consolidation opportunities and expanding into new markets.” Discussing the outlook for wood treatment products, Mr. Butler noted that demand for creosote should remain strong as railroads continue to purchase ties at near record levels and penta demand should continue at fiscal 2008 levels. Mr. Butler also pointed out that a contributor to the improvement in profitability in fiscal 2009 will come from $1.2 million of reduction in operating expenses as KMG concludes the amortization of certain intangible assets primarily associated with the June 2005 Penta acquisition.

Fourth Quarter and Year–End Results & Conference Call

KMG Chemicals will issue its financial results for the fourth fiscal quarter and year-ended July 31, 2008, on Monday, October 13, 2008 before the stock market opens. Neal Butler, President and CEO, and John Sobchak, CFO, will conduct a conference call focusing on the financial results at 10:00 a.m. ET on Monday, October 13, 2008. Interested parties may participate in the call by dialing 866-861-6730. Please call in 10 minutes before the call is scheduled to begin, and ask for the KMGB call.

The conference call will also be webcast live via the Investor Relations section of KMG’s website at www.kmgchemicals.com. To listen to the live call please go to the website at least 15 minutes early to register, download and install any necessary audio software. If you are unable to listen live, the conference call will be archived on the website.

KMG Chemicals, Inc.
John V. Sobchak, 713-600-3814
Chief Financial Officer
JSobchak@kmgchemicals.com
www.kmgchemicals.com
or
Investor Relations Counsel:
The Equity Group Inc.
Melissa Dixon, 212-836-9613
MDixon@equityny.com
or
Linda Latman, 212-836-9609
LLatman@equityny.com
www.theequitygroup.com