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Cytec Industries (CYT)

Q4 2010 Earnings Call

January 28, 2011 11:00 am ET


David Drillock - Chief Financial Officer, Chief Accounting Officer and Vice President

Shane Fleming - Chairman, Chief Executive Officer and President

Jodi Allen - Investor Relations


Michael Sison - KeyBanc Capital Markets Inc.

David Begleiter - Deutsche Bank AG

Peter Grondin - OSS Capital

Robert Koort - Goldman Sachs Group Inc.

John McNulty - Crédit Suisse AG

Laurence Alexander - Jefferies & Company, Inc.

P.J. Juvekar - Citigroup Inc


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Previous Statements by CYT
» Cytec Industries Inc. Q1 2010 Earnings Call Transcript
» Cytec Industries Inc. Q4 2009 Earnings Call Transcript
» Cytec Industries Inc. Q3 2009 Earnings Call Transcript

Good day, and welcome to the Cytec Industries Inc. Fourth Quarter Earnings Announcement. [Operator Instructions] For opening remarks and introductions, I would like to turn the conference over to Ms. Jodi Allen. Please go ahead.

Jodi Allen

Thank you, Yvonne, and good morning, everyone. We appreciate your participation in our conference call. For our call today, Shane Fleming, Chairman, President and Chief Executive Officer, will provide an overview of operations; and Dave Drillock, Vice President and Chief Financial Officer, will review the financial results and the special items noted in our press release. Shane will then finish with some commentary on our outlook for 2011.

[Operator Instructions] Throughout the call, we will be referencing the supporting material which can be downloaded from our Investor Relations website under Calendar of Events, or you may follow the slides accompanying today's webcast, which are also available through our website.

During the course of this presentation and in responses to your question, you will hear certain forward-looking statements. Our actual results may differ materially. Please read our commentary on forward-looking statements in Slide #2 of our supporting materials or at the end of our news release or the statements in our quarterly and annual SEC filings. In addition, our discussion include certain non-GAAP financial measurements as defined under SEC rules. We have provided a reconciliation of those non-GAAP financial measures to the most directly comparable GAAP measure at the end of our press release. A copy of our press release is available on our Investor Relations website.

Before I turn the call over to Shane, let me remind everyone that in addition to announcing our fourth quarter earnings, we committed to a plan to divest the Building Block Chemicals business. Accordingly, we have classified the revenues and expenses as discontinued operation. Any allocated continuing costs were reclassified to corporate and unallocated, and the assets and liabilities to be sold were re-classed on the balance sheet to the held for sale category. To aid in your analysis, we have also provided restated 2009 and 2010 results by quarter, reflecting Building Block Chemicals as a discontinued business in the appendix of our supporting materials which can be downloaded from our website.

One other final reminder is that our 2011 guidance is on continuing operations. So stating the obvious, that excludes any results relating to Building Block Chemicals.

With that, I'll turn over the call over to Shane.

Shane Fleming

Thank you, Jodi, and good morning, everyone. I appreciate you taking the time to join our fourth quarter earnings call.

Let me begin by saying that I'm extremely pleased with our 2010 full year results, as each of our businesses delivered significant year-over-year earnings growth due to the improved demand environment, our lower cost structure and excellent execution of our strategic plans and key initiatives. This has enabled us to deliver earnings per share growth for the full year of 170% versus 2009 results.

I will now discuss our results for the fourth quarter, beginning on Slide 3. Overall, sales in the fourth quarter were $700 million, an 8% increase over the prior-year quarter. Keep in mind that our fourth quarter 2009 sales performance was one of the strongest quarters in the year. The year-on-year fourth quarter sales growth was driven primarily by the volume increase in our Engineered Materials business, where we continue to experience strengthening demand across the commercial aerospace sectors.

Fourth quarter net earnings were $42 million or $0.83 per diluted share excluding the special items that Dave will explain shortly. This is a 20% increase versus $34 million or $0.70 per diluted share in the fourth quarter 2009. The earnings improvement in the quarter was primarily related to sales-driven earnings growth in the Engineered Materials business and margin expansion in our Additive Technologies segment. Raw material pressures were much more significant this quarter versus the prior-year quarter, and we were unable to fully recover the cost increases in the Coating Resins business, which I will discuss in more detail as I go into the business segment results.

Beginning on Slide 4. Coating Resins delivered sales of $348 million, a 6% increase versus the fourth quarter of 2009. Selling volumes are flat versus the prior-year quarter as we experienced anticipated seasonal destocking across the industrial coatings markets. Europe was most significantly impacted from customer destocking versus the prior-year period. As you may recall, this region showed the strongest growth in the fourth quarter of 2009.

Selling prices increased by 9% versus the same period last year as we implemented price increases broadly in reaction to the higher raw material cost. The impact of exchange rates decreased sales by 3%. The chart on Slide 5 displays sales revenue for this segment, which shows sales down slightly versus the third quarter 2010 as a result of year end-inventory management actions by our customers including holiday shutdowns.

Coating Resins experienced margin pressure due to the rapidly rising raw material cost related to propylene derivatives. This led to approximately $40 million in increased cost in the fourth quarter that we were not able to fully offset with approximately $30 million in price increases. Operating earnings for the quarter were $3.9 million, down significantly versus operating earnings of $17.6 million in the fourth quarter of 2009.

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