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W.R. Grace's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Third, we had strong margins due to continued focus on items above and below the gross margin line. Gross margin continued at the high end of our target range of 35% to 37%. For the first six months of 2012, our gross margin of 36.8% is 60 basis points better than full year 2011 and 130 basis points better than full year 2010. Adjusted EBITDA margin was 21% for the quarter.

I’m also pleased with the strong margins in the Materials Technologies and Construction Product segments. As you remember, we stumbled a bit in Material Technologies in Q1. In Q2, we improved our performance with targeted sales gains, operational improvements and cost controls. And our operating margin improved 380 basis points sequentially.

Construction Products had higher sales volume, which translated into better operating leverage and higher margins. Gross margins were 35.1% and operating margins were 13%. We achieved these results in an operating environment which is clearly more difficult than we initially projected for 2012.

The most significant change and challenge to our original plan is the uncertainty coming from Europe. We saw this in weaker end market demand and unfavorable currency impacts. We also lost some FCC catalyst sales due to refinery closures in the mature markets. These closures are part of the global shift in refining capacity to the emerging regions where demand for transportation fuels is growing the fastest. We have anticipated this trend and plan to add FCC catalyst capacity in Abu Dhabi and China in response.

As the industry works through this regional shift of capacity, we will see some short-term impact to sales. But we are confident in our ability to maintain our industry leadership position given our strong value proposition and global presence.

Our businesses are managing well in the more challenging environment and we affirm our full year outlook for adjusted EBIT in the range of $510 million to $530 million.

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