Cytec Announces Second Quarter 2008 Results

2008-07-17 16:18:00

Reaffirms Full Year EPS Outlook

WEST PATERSON, N.J.–(EMWNews)–Cytec Industries Inc. (NYSE:CYT) announced today net earnings for the

second quarter 2008 of $56.5 million or $1.16 per diluted share on net

sales of $1,006 million. Included in the quarter are special items that

total $2.0 million of net after-tax expense or $0.04 per diluted share

and are outlined further in this release. Excluding these special items,

net earnings were $58.5 million or $1.20 per diluted share.

Net earnings for the second quarter of 2007 were $54.8 million, or $1.11

per diluted share, on net sales of $864 million. Included in that

quarter was an after-tax net restructuring charge of $1.8 million or

$0.04 per diluted share and is described further in this release.

Excluding this item, net earnings were $56.6 million or $1.15 per

diluted share.

David Lilley, Chairman and Chief Executive Officer said, Our

second quarter results reflect the strong performance of our Engineered

Materials segment, with significantly higher selling volumes versus the

same period a year ago. In the Specialty Chemicals segments, we continue

to grow volumes, except in North America where we are still experiencing

lower demand. In addition, we are incurring significantly higher raw

material, energy and freight costs which are impacting our earnings. We

remain committed to raising prices in a selective way to offset the

rising costs and allow a reasonable return on our investment. The

Building Block Chemicals segment was also a strong contributor in the

quarter, as they have successfully passed along the higher selling

prices, more than offsetting the higher raw material costs.

Cytec Performance Chemicals Sales increased 9% to $202 million; Operating

Earnings decreased to $20.5 million.

Mr. Lilley continued, In Cytec Performance

Chemicals, overall selling volumes were up by 2% primarily due to

increases in mining chemicals as our new technologies continue to gain

acceptance in the market. Selling prices in the segment increased by 2%

and the impact of exchange rate changes increased sales by 5%.

Operating earnings of $20.5 million were down

compared to the $23.7 million in the second quarter of 2007. The

decrease is primarily attributable to the higher raw material and

freight costs resulting from the escalation of crude oil prices.

Cytec Surface Specialties Sales increased 13% to $473 million; Operating

Earnings decreased to $22.2 million.

In Cytec Surface Specialties, overall selling

volumes were up by 1% due primarily to volume growth in the Asia Pacific

region as we continued to experience weaker demand in North America and

modest growth in Europe. Selling prices were flat and the impact of

exchange rate changes increased sales by 12%.

Operating earnings of $22.2 million include a

charge of $1.4 million of accelerated depreciation related to the exit

of our Pampa, Texas site. This was lower than the $32.8 million in same

period last year and primarily attributable to higher raw material and

freight costs versus the second quarter 2007.

Cytec Engineered Materials Sales increased 16% to $193 million; Operating

Earnings increased to $41.8 million.

In Cytec Engineered Materials, selling

volumes increased by 13% and selling prices increased by 3%. The volume

increase was across all product lines and customer sectors principally

lead by growth in rotorcraft and large commercial aircraft.

Operating earnings increased to $41.8

million versus $34.8 million in the second quarter 2007. Higher selling

volumes and selling prices were the principle contributors to the

earnings increase and more than offset higher raw material costs and our

increased investments in Research and Development.

Building Block Chemicals Sales increased 48% to $138 million; Operating

Earnings increased to $6.5 million.

In Building Block Chemicals, selling volumes

were up by 2% and selling prices increased by 46%. The increase in

selling prices was to recover the large cost increases of propylene,

natural gas, and ammonia.

Operating earnings increased to $6.5 million

compared to $4.6 million in the second quarter of 2007 primarily due to

the higher selling prices.

Special Items

David M. Drillock, Vice President and Chief Financial Officer commented, We

recorded a number of special items in the second quarter of 2008 that

net to a pre-tax charge of $3.0 million ($2.0 million after-tax) as

follows:

  • Included in manufacturing cost of sales in Corporate and Unallocated

    is a net pre-tax charge of $1.6 million ($1.1 million after-tax) for

    additional restructuring costs primarily associated with manufacturing

    operations in West Virginia, Connecticut, and France. These expenses

    were anticipated but not accruable when the plans were announced.

  • Also included in manufacturing cost of sales in the Cytec Surface

    Specialties segment is a pre-tax charge of $1.4 million ($0.9 million

    after-tax) for accelerated depreciation in relation to Radcure

    manufacturing at our leased facility in Pampa, TX.

In the second quarter of 2007 we recorded an

after-tax restructuring charge of $1.8 million in Corporate and

Unallocated. The costs were principally related to the shutdown of the

manufacturing operations in France.

Interest Expense

Mr. Drillock continued, Interest expense was

reduced 18% from the prior year quarter reflecting the lower debt levels

versus the prior year quarter.

Income Tax Expense

Mr. Drillock added, Our tax provision for

the second quarter of 2008 was $25.8 million, or 31.4%, on earnings

before income taxes compared with $24.3 million, or 30.7%, on earnings

before income taxes in the second quarter of 2007. Our underlying tax

rate for the second quarter of 2008 was 31.5% versus 29.75% for the

second quarter of 2007. The change in the 2008 underlying tax rate is

primarily due to increased earnings in 2008 in higher tax jurisdictions

and also that the U.S. research and development tax credit has not been

renewed.

Cash Flow

Mr. Drillock further commented, Cash flows

from operations were $44 million for the quarter and $82 million year to

date. For the quarter, trade accounts receivable increased by $30

million principally reflecting higher selling prices and volumes as days

outstanding are flat versus the end of the first quarter. Inventory

increased approximately $24 million primarily reflecting higher raw

material and energy costs. Days on hand are 73, up from 72 days at the

end of last quarter. Capital spending for the quarter was $43 million,

bringing our year to date spending to $70 million.

During the quarter we purchased 232 thousand

shares of our common stock for $14.1 million. The remaining amount

available under the current share repurchase authorization is

approximately $72 million.

2008 Outlook

Mr. Lilley commented, Taking into account

our solid performance in the first half of 2008, together with the

challenges ahead of us, we affirm our prior guidance for full year

adjusted diluted earnings per share is expected to be in a range of

$4.15 to $4.35 per share, up from the 2007 adjusted diluted earnings per

share of $3.90.

On the input side, we continue to operate in

a very challenging environment. We expect crude oil, natural gas, and

propylene costs to remain at todays high

levels for the remainder of 2008. We remain committed to passing along

price increases wherever necessary to offset the impact of these higher

costs.

Mr. Lilley continued with some additional comments on the individual

segments, In Cytec Performance Chemicals, we

are forecasting modest growth across the segment, and we are

experiencing higher raw material costs versus our original forecast. We

plan to offset the raw material costs impact with price increases. Our

full year guidance remains essentially unchanged with operating earnings

growing by just under 10%.

In Cytec Surface Specialties, raw material

costs continue as a significant headwind, with crude oil and propylene

reaching all-time highs during the quarter. We are raising prices to

attempt to cover these higher raw material costs, but it will not be

easy. We are persisting with our operational excellence initiatives to

focus on cost reduction which should enhance earnings. On the demand

side, we expect continuing weakness in North America for the remainder

of the year. We expect Europe to show only flat to modest growth, and we

expect Asia and Latin America to continue at similar rates as the first

half of 2008. Overall, we would expect sales volumes to be equal to 2007

levels. Given this difficult environment, we are now estimating for

Surface Specialties full year operating earnings in a range of $90

million to $95 million, a 5% to 10% decline compared to 2007, versus our

prior expectation of a 10% to 15% increase in operating earnings.

In Engineered Materials, the full year

demand is expected to be strong as build rates continue to increase year

over year across the large commercial transport, business/regional jets,

and military sectors. However, we expect some customer inventory

reductions in the second half of 2008 but our outlook remains positive

for continued strong annual growth in this segment and we are making

important investments in 2008 to meet these growing industry demands.

Based on the first half performance, we are raising our prior guidance

and we now expect full year sales growth of about 15% compared to our

prior estimate of 10%. We now expect operating earnings to be in a range

of $153 million to $158 million for full year 2008 versus our prior

expectations for operating earnings growth of about 10%, which equated

to about $146 million.

In Building Block Chemicals, we expect the

markets to remain balanced, although the high price for acrylonitrile is

creating some demand destruction, but we will continue to pass along

higher raw material costs as necessary. In the second quarter, we

completed our four week maintenance shutdown of the acrylonitrile unit

and all production units are now up and running. The estimate for

operating earnings in the segment has been increased to a range of

approximately $20 million to $22 million for the full year 2008 versus

our prior guidance of $18 million to $20 million.

Our guidance for Corporate and Unallocated

is a net expense of $9 million, improved from our prior forecast of $12

million, other income/(expense) is forecasted to be income of $2 million

versus $2 million of expense and equity earnings are expected to be

about $2 million, down from $4 million. Our forecast for interest

expense remains at about $37 million, and our underlying annual tax rate

for ongoing operations is now in the range of 31.25% to 31.75%, up from

our prior range of 30.25% to 31%. The change in the 2008 underlying tax

rate is primarily due to higher earnings in 2008 in higher tax

jurisdictions and that the U.S. R&D tax credit has not been renewed.

We continue to focus on cash flow and will

maintain similar priorities for our use of cash. Our capital investments

for this year are on track. In the second quarter, we successfully

started up production of our waterborne resin unit in Connecticut and

also successfully started up our Radcure resin line in China. In

Engineered Materials, we began our capacity expansion of the carbon

fiber facility in South Carolina, which is a three year investment. We

expect a ramp-up of capital spending in the second half of the year and

our forecast full year 2008 capital spending remains in a range of $180

million to $200 million.

In closing, Mr. Lilley commented, We have a

number of challenges in front of us, but we also have a considerable

number of opportunities to increase sales and enhance productivity

across Cytec, and with the continued efforts of all the people at Cytec,

we look forward to the sustainable growth of our businesses.

Six Month Results

Net earnings for the six months ended June 30, 2008 were $105.7 million

or $2.17 per diluted share on sales of $1,979 million. Included in the

results for the six months were (a) pre-tax

net restructuring charges of $5.0 million ($3.6 million after-tax or

$0.07 per diluted share), (b) a pre-tax charge of $2.8 million ($1.8

million after-tax or $0.04 per diluted share) for accelerated

depreciation of our Pampa site. Excluding these items, net earnings were

$111.1 million or $2.28 per diluted share.

Net earnings for the six months ended June 30, 2007 were $106.5 million

or $2.17 per diluted share on sales of $1,728 million. Included in the

results for the six months ended June 30, 2007 were

(a) pre-tax net restructuring charges of $2.6 million ($2.6 million

after-tax or $0.05 per diluted share), (b) a pre-tax gain of $15.7

million ($15.3 million after-tax or $0.31 per diluted share) as a result

of completing the second phase of the sale of our water treatment

chemicals and acrylamide product lines to Kemira Group. Excluding these

items, net earnings were $93.8 million or $1.91 per diluted share.

Investor Conference Call to be Held on July 18, 2008 at 11:00AM ET

Cytec will host their second quarter earnings release conference call on

July 18, 2008 at 11:00am ET. The conference call will also be

simultaneously webcast for all investors from Cytecs

website www.cytec.com. Select the

Investor Relations page to access the live conference call.

Use of Non-GAAP Measures

Management believes that net earnings and diluted earnings per share

before special items, which are non-GAAP measurements, are meaningful to

investors because they provide a view of the Company with respect to

ongoing operating results. Special items represent significant charges

or credits that are important to an understanding of the Companys

overall operating results in the period presented. Such non-GAAP

measurements are not recognized in accordance with generally accepted

accounting principles (GAAP) and should not be viewed as an alternative

to GAAP measures of performance. A reconciliation of GAAP to non-GAAP

measurements can be found at the end of this release.

Forward-Looking and Cautionary Statements

Except for the historical information and discussions contained herein,

statements contained in this release may constitute forward-looking

statements within the meaning of the Private

Securities Litigation Reform Act of 1995. Achieving the results

described in these statements involves a number of risks, uncertainties

and other factors that could cause actual results to differ materially,

as discussed in Cytecs filings with the

Securities and Exchange Commission.

Corporate Profile

Cytec Industries Inc. is a global specialty chemicals and materials

company focused on developing, manufacturing and selling value-added

products. Our products serve a diverse range of end markets including

aerospace, adhesives, automotive and industrial coatings, chemical

intermediates, inks, mining and plastics. We use our technology and

application development expertise to create chemical and material

solutions that are formulated to perform specific and important

functions in the finished products of our customers.

CYTEC INDUSTRIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Dollars in millions, except per share amounts)

 

 

 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 

 

2008

 

2007

 

2008

 

2007

 

 

 

 

 

 

 

 

 

Net sales

 

$ 1,005.8

 

$ 864.0

 

$ 1,978.8

 

$ 1,727.5

Manufacturing cost of sales

 

796.2

 

662.8

 

1,568.8

 

1,361.7

Selling and technical services

 

60.1

 

53.1

 

118.7

 

103.0

Research and process development

 

21.7

 

19.2

 

43.4

 

37.6

Administrative and general

 

29.8

 

28.9

 

58.8

 

55.2

Amortization of acquisition intangibles

 

10.3

 

9.7

 

20.4

 

18.9

Gain on sale of assets held for sale

 

 

 

 

15.7

Earnings from operations

 

87.7

 

90.3

 

168.7

 

166.8

Other income (expense), net

 

3.4

 

0.1

 

3.1

 

1.5

Equity in earnings of associated companies

 

0.5

 

0.1

 

1.0

 

0.4

Interest expense, net

 

9.3

 

11.4

 

19.1

 

21.6

Earnings before income taxes

 

82.3

 

79.1

 

153.7

 

147.1

Income tax provision

 

25.8

 

24.3

 

48.0

 

40.6

Net earnings

 

$ 56.5

 

$ 54.8

 

$ 105.7

 

$ 106.5

 

 

 

 

 

 

 

 

 

Basic net earnings per common share

 

$ 1.18

 

$ 1.14

 

$ 2.20

 

$ 2.22

Diluted net earnings per common share

 

$ 1.16

 

$ 1.11

 

$ 2.17

 

$ 2.17

 

 

 

 

 

 

 

 

 

Dividends per common share

 

$ 0.125

 

$ 0.10

 

$ 0.25

 

$ 0.20

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding (in thousands):

 

 

 

 

 

 

 

 

Basic

 

47,972

 

48,178

 

47,978

 

48,071

Diluted

 

48,824

 

49,237

 

48,802

 

49,147

CYTEC INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED NET

SALES AND EARNINGS FROM OPERATIONS BY BUSINESS SEGMENT
(Millions

of dollars)

 

 

Three Months Ended

Six Months Ended

June 30,

June 30,

2008

2007

2008

2007

 

Net sales

 

Cytec Surface Specialties

$

473.4

$

419.6

$

922.7

$

824.1

Cytec Performance Chemicals

Sales to external customers

Cytec Industries Inc.
Jodi Allen, 973-357-3283

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