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 today’s 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 Cytec’s
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 Company’s
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 Cytec’s 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 SALES AND EARNINGS FROM OPERATIONS BY BUSINESS SEGMENT of dollars) |
|||||||||||||||||
|
|||||||||||||||||
|
Three Months Ended |
Six Months Ended |
|||||||||||||||
June 30, |
June 30, |
||||||||||||||||
2008 |
2007 |
2008 |
2007 |
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|
|||||||||||||||||
Net sales |
|||||||||||||||||
|
|||||||||||||||||
Cytec Surface Specialties |
$ |
473.4 |
$ |
419.6 |
$ |
922.7 |
$ |
824.1 |
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Cytec Performance Chemicals |
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Sales to external customers |
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