Cytec Industries Inc. ( CYT )

Q2 2010 Earnings Call Transcript

July 21, 2010 11:00 am ET


Jodi Allen – IR

Shane Fleming – Chairman, President and CEO

Dave Drillock – VP and CFO


Amanda Sigouin – Jefferies

David Begleiter – Deutsche Bank

John McNulty – Credit Suisse

Mike Sison – Mc/Keybanc

P.J. Juvekar – Citi

Bob Koort – Goldman Sachs



Good day, and welcome to the Cytec Industries Incorporated second quarter earnings announcement. Today's call is being recorded. For opening remarks and introductions, I’d like to turn the call over to Ms. Jodi Allen. Please go ahead.

Jodi Allen

Thank you, Ruth, 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 2010.

This call is being webcast in listen-only mode. And it will be archived in audio format on our Web site for three weeks. Throughout the call, we will be referencing the supporting materials, which can be downloaded from our Investor Relations Web site under Calendar of Events or you may follow the slides accompanying today's webcast, which are also available through our Web site.

During the course of this presentation and in response to your questions, you will hear certain forward-looking statements. Our actual results may differ materially. Please read our commentary on forward-looking statements in slide number two 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 includes 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 Web site.

Lastly, let me point out that Shane’s commentary will be covering our as-adjusted earnings and forecast. And Dave will cover the special items later in his comments. Now, let me turn the call over to Shane.

Shane Fleming

Thank you, Jodi, and good morning, everyone. I appreciate you joining our second quarter earnings call. I'll begin on slide three.

I’m thrilled with our overall results on the second quarter. And as you read in the press release, this is a record earnings performance for Cytec. Our sales growth was driven by increased demand across all of our segments due to the improved global business environment. I'm particularly pleased that we achieved this record earnings level on a much lower sales base than our previous record earnings.

This is the direct result of the actions we took last year to lower our cost base to exit certain low margin products and to focus ourselves in marketing efforts on new product introductions, which had led to improved product mix. These combined initiatives have resulted, excluding the special item charge that Dave will explain later in the presentation in second quarter net earnings of $64.8 million or $1.31 per diluted share on sales of $874 million, a significant improvement when compared to the net loss we had in the second quarter of 2009.

Now, I’d like to provide an overview of the business segment results beginning on slide four. Coating resins delivered sales of $369 million, a 25% increase versus the second quarter of 2009. Selling volumes were up by 27% versus the prior year quarter due to strengthening global demand in industrial coating markets as compared to a period of significant de-stocking in the first half of last year. Selling prices increased by 2% versus the same period last year, while the impact of exchange rates decreased sales by 4%.

The chart on slide five, which displays monthly coating resins revenue, shows the continuing trend as sequential sales growth for this segment since the low point in late 2008. The coating resins segment also benefited from improved operating margins as a result of the higher selling volumes and from our structural cost reduction efforts. To sum up this good performance, operating earnings for the segment were $28 million, with an operating margin slightly over 7.5% of sales, a sharp improvement versus the loss of $19.2 million in the second quarter last year.

Moving to additive technologies, slide six shows sales in the segment of $66 million, an increase of 5% versus the second quarter of 2009. Additive sales growth was particularly strong in North America and in the Asia Pacific regions. Selling volumes of 4%, selling price increased 2%, and exchange increased sales by 1%. As a reminder, we divested certain low value products in 2009. Excluding the impact from the divested business, sales were up 20% in the segment.

I’m particularly excited by the continued earnings expansion in the additive segment, achieving a $10.7 million operating earnings and an operating margin of 16% versus $3.1million in Q2 2009. The considerable improvement comes not only from volume growth, but is also due to the efforts by the business to penetrate growing global markets with additive technologies that add value to the customers and result in significantly improve profitability for Cytec.

Slide seven highlights results for the in process separation segment, which delivered sales of $71 million in the second quarter, a 22% increase versus Q2 2009. Sales volumes were up by 22% versus the prior year quarter, driven primarily by higher production of both aluminum and copper by our customers in Europe and Latin America as well as strong demand for our phosphine gas products sold in the fumigant and electronics markets. Selling prices decreased by 1%. And the impact of exchange rates increased sales by 1%. The segment also achieved excellent operating earnings of $14.3 million or an operating profit margin of 20% versus $2.1 million operating earnings in the prior year period. This improvement reflects the higher selling volumes and favorable product mix.

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