Arch Chemicals, Inc. Q2 2010 Earnings Call Transcript

Arch Chemicals, Inc. Q2 2010 Earnings Call Transcript
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Arch Chemicals, Inc. (ARJ)

Q2 2010 Earnings Conference Call

August 4, 2010 11:00 AM ET

Executives

Mike Campbell – Chairman, President and CEO

Rick Walden – SVP – Health and Hygiene and Preservation and Protection Biocides, Performance Products and Asia Pacific

Steve Giuliano – Corporate SVP and CFO

Analysts

Frank Mitch – BB&T Capital Market

Ian Zaffino – Oppenheimer

Douglas Chudy – KeyBanc Capital Markets

Christopher Butler – Sidoti & Co.

Ivan Marcuse – North Coast Research

Presentation

Operator

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Good morning and welcome, ladies and gentlemen, to Arch Chemicals second quarter 2010 earnings conference call. Today’s conference call is available to the public including the media is being recorded for re-broadcasting and all participants are in a listen-only mode.

Today’s conference is being broadcast live at www.archchemicals.com and is Real Media Player and Windows Media Player compatible. If you wish to access the replay for today’s conference, you may do so by dialing 888-203-1112 or if you are outside the U.S. by dialing 719-457-0820. The access number is 732-4316.

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

Mike Campbell

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

Also on today’s call is Rick Walden, Rick as you undoubtedly know is responsible for Arch’s Global Biocides and Performance Products businesses as well as our operations in Asia.

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 website, in the Investor Relation section. I’m extremely pleased to report that we had another excellent quarter, in fact we achieved record earnings in the second quarter.

In the release, we announced that second quarter sales increased 17% year-over-year as a result of strong demand for our Biocides products. This marks the third consecutive quarter of year-over-year volume improvement. Second quarter earnings from continuing operations of $1.73 per share exceeded even our expectations. These record quarterly earnings represent a 40% increase over the year ago period of $1.23 per share.

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

Within the segment in HTH water product sales were up 19% over last year’s quarter due to shipment – increased shipments to mass retail accounts both in the US and in Canada. These increased shipments were principally a result of favorable weather comparisons and different replenishment strategies employed by some of our customers. Second quarter results were favorably impacted by these replenishment strategies as certain shipments were shifted from the first and third quarters.

In addition the quarter included increased shipments to the hardware store channel as well as new mass retail accounts acquired last year. The favorable weather patterns we saw in the second quarter occurred primarily in the Northeast and Midwest as well as in Canada.

Water’s operating income was well above the year ago period due mostly to the higher North American volumes. Furthermore raw material and plant costs were favorable to last year’s quarter.

Now our Personal Care and Industrial Biocides businesses, were sales and operating income increased significantly year-over-year. Sales volumes were up 19% due to increased demand for our Biocides used in personal care products and to a lesser extent industrial applications.

Sales of our Biocides for antidandruff shampoo nearly equaled last quarter’s record. This improved demand was driven by growth in Asia particularly in China, market share gains and we suspect some customer restocking. Furthermore demand for our products used in various surface disinfection applications in the health and hygienic markets continues to grow.

We also experienced increased demand for our industrial Biocides used in building products. The increase is attributable to a modest improvement in the global construction markets. In addition, we saw growth in new applications and markets. As an example our ZOE Biocide used in wet state preservation is seeing a lot of traction as paint formulators convert to low VOC paints and we’re also growing sales in Asia, where our Biocides are replacing older, less environmentally friendly technologies in paints and other building products. And finally demand for our Biocides used in metal working fluids has rebounded from last year as automotive production ramped up.

That’s the sale story. Operating income for Personal Care and Industrial Biocides rose by $10 million over the year ago period. This excellent performance was chiefly due to the higher sales, and favorable product costs resulting from higher plant utilization. The Wood Protection business posted much improved sales and operating results from last year’s second quarter. Sales rose by almost 10% due to improved volumes primarily in North America and in Europe. Favorable foreign exchange rates in Asia were offset by the impact on our average selling prices due to competitive pressures and product mix across all of the region.

Now Wood Protection’s operating results improved from last year, mainly because of lower raw material cost for copper and the increased volumes that I mentioned. On to our Performance Products segment, here, the quarter sales were well above the year ago period while operating results were comparable. Urethane sales increased by approximately 25% year-over-year due to higher selling prices.

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