Arch Chemicals, Inc. Q1 2010 Earnings Call Transcript

Arch Chemicals, Inc. Q1 2010 Earnings Call Transcript
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Arch Chemicals, Inc. (ARJ)

Q1 2010 Earnings Call Transcript

May 6, 2010 11:00 am ET


Mike Campbell – Chairman, President & CEO

Joe Shaulson –SVP, Wood Protection, Industrial Coatings & Personal Care Ingredients

Steve Giuliano – SVP & CFO


Sabina Chatterjee – BB&T Capital Markets

Ivan Marcuse – North Coast Research

Ian Zaffino – Oppenheimer & Co.

Christopher Butler – Sidoti & Co.



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Good morning, and welcome, ladies and gentlemen, to Arch Chemicals first quarter 2010 earnings conference call. At this time, I would like to inform you that the conference call is available to the public, including media is being recorded for re-broadcasting and that all participants are in a listen-only mode.

This call is being broadcast live at and is Real Media Player and Windows Media Player compatible. If you wish to access the replay for this call, you may do so by dialing 800-642-1687 or if you are outside the U.S. by dialing 706-645-9291. The access number is 679-11-110.

I’d now like to turn the conference over to Mr. Michael Campbell, Chairman, President and CEO. Please go ahead, sir.




Thank you very much, operator. Good morning, everyone. Thanks for joining us. With me today are Steve Giuliano, Chief Financial Officer; and Mark Faford, Vice President of Investor Relations.

I said that on each of these calls we have one of our Senior Vice Presidents of Operations participate. Joe Shaulson, Senior Vice President of our Global Wood Protection and Personal Care Ingredients business has joined us today. Joe is also had responsibility for the Industrial Coatings business and most recently led the Arch’s team and divesting this business to Sherwin-Williams on March 31



I’m very pleased to report that we’re off to a great start in 2010, both strategically, and financially. I’m certain you’ll all agree that our sale of the non-core industrial coatings business was welcome news. We’re excited because it provides us with additional resources to invest in growing our Biocides businesses, which now comprise over 85% of our portfolio.

Before I comment on the quarter I wanted to remind you that throughout this call we’ll make statements regarding estimates of future performance. Actual results could differ significantly from those projected and some of the factors that could cause such differences are described in our earnings release.

Earlier today, we filed our earnings release, as part of an 8-K that’s been posted on the Arch Chemicals Web site, in the Investor Relation section. In the release, we announced that first quarter sales increased 14% year-over-year due to higher volumes and favorable foreign exchange. In fact, we achieved record quarterly sales of Biocides used and personal care products such as antidandruff shampoos and cosmetics.

First quarter earnings from continuing operations of $0.27 per share exceeded our expectations driven by the higher demand. Earnings from continuing operations in the year ago period were $0.19 a share.

Taking a closer look at the quarter our newly renamed Biocides product segment posted double-digit sales and operating income growth compared to last year due to higher volumes across all businesses and favorable foreign exchange.

Within the segment HTH water product sales were up over last year’s quarter due to favorable foreign exchange and higher volumes in North America. The increases volumes were from repacker, branded distribution and surface water segments as well as from several new mass retail accounts.

As forecast, water products operating income was below 2009. Higher volumes were more than offset by increased raw materials, packaging costs, and sales mix.

As expected, sales were lower in the overall mass retail segment because as we discussed on our last call one of our strategic customers move the placement of our products from their toy department to the lawn and garden department. As a result we forecasted lower demand in the first quarter due to the new department’s different replenishment strategy. Simply put, they manage inventory levels more in line with seasonal consumer demand.

This change in replenishment strategy as we anticipated adversely impacted first quarter sales and operating income. Overall though, we expect sales and profits for the full year will improve because of the shift to the lawn and garden department and we’ll see the benefit of that shift starting in the second quarter.

In short while other products remain very much on track it has met all of our expectations for the first quarter and we anticipate the same will be true in the second quarter.

In our Personal Care and Industrial Biocides businesses, sales and operating income increased significantly year-over-year. The record sales of Biocides used in antidandruff shampoo was driven by growth in Asia, particularly, in China where antidandruff shampoos account for 50% of all shampoos sold.

And the record sales of our Personal Care Ingredients were a result of improved demand and customer restocking in North America and Europe. These ingredients are used primarily in skin care cosmetics.

We also experienced significantly increased demand for our Industrial Biocides used in building products. This increase is attributable to a modest improvement in the global construction markets.

In addition, we saw a growth in new applications in market. There is an example. Our ZOE biocide used in wet state preservation is seeing a lot of traction as paint formulators convert to low VOC paints.

We’re also growing sales in Asia, where our Biocides are replacing older less environmentally friendly technologies in both paints and building products. And finally demand for our biocide used in metal working fluids has rebounded from last year as automotive production has ramped up.

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