Cytec Industries' CEO Discusses Q1 2011 Results - Earnings Call Transcript

Cytec Industries (CYT)

Q1 2011 Earnings Call

April 25, 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

Robert Koort - Goldman Sachs Group Inc.

Laurence Alexander - Jefferies & Company, Inc.

P.J. Juvekar - Citigroup Inc



Good day, and welcome to the Cytec Industries Inc. First Quarter Earnings Announcement. Today's conference is being recorded. At this time, I will turn the conference over to Ms. Jodi Allen. Please go ahead, ma'am.

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 2011. This call is being webcast in listen-only mode and it will be archived in audio format on our website for 3 weeks. Throughout the call, we will be referencing the supporting materials, 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 questions, 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 material or at the end of our new release for the statements in our quarterly and annual SEC filings. In addition, our discussion includes certain non-GAAP financial measurement as define 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.

Now, let me turn the call over to Shane.

Shane Fleming

Thank you, Jodi, and good morning, everyone. Thanks for taking the time to join our first quarter earnings call. I'll begin on Slide 3.

Overall sales in the quarter for continuing operations were $766 million, an 18% increase over the prior year quarter. The year-on-year sales growth was driven by volume increases across all of our business segments, as well as our ability to secure necessary price increases in our Specialty Chemicals businesses to offset the significantly higher raw material costs. First quarter net earnings from continuing operations were $39.1 million or $0.78 per diluted share, excluding the special items that Dave will explain shortly. This represents a 34% increase versus $28.9 million or $0.58 per diluted share in the first quarter of 2010. The earnings improvement in the quarter was primarily a result of higher selling volumes in Engineered Materials and In Process Separation, as well as higher selling prices in Coating Resins.

Beginning on Slide 4, Coating Resins delivered sales of $404 million, an 18% increase versus the first quarter of 2010. Selling volumes increased 5%, mostly related to growth in waterborne and powder coating resins, reflecting strong demand in the automotive, packaging and general industrial market. From a regional perspective, the highest sales growth was seen in Europe and Asia Pacific regions.

Selling prices in Coating Resins increased by 12% versus the prior year quarter, as we've successfully implemented increases across each of our coatings products lines to stay ahead of rapidly rising raw material costs. Raw material costs were higher by $36 million in the quarter, so we faced a significant challenge. Exchange rate increased sales by only 1% in the quarter.

The chart on Slide 5 displays monthly sales revenue for the business, which shows a sequential sales improvement in the quarter, with March having the strongest performance. Coating Resins operating earnings for the quarter were $18.8 million, reflecting a 12% improvement versus the first quarter 2010, which is mostly a result of our higher selling prices combined with the overall increase in global demand.

Moving to Additives Technologies. Slide 6 shows sales in the segment of $67 million, an increase of 8% versus the first quarter 2010. Selling volumes are up 3% as we continue to gain market acceptance with our value-added technologies. The volume increase was driven primarily by improved demand in our specialty surfactants product line as our capacity constraints and polymer additives limited sales growth.

Selling prices for this segment increased by 4% and exchange rates increased sales by 1%. This business was able to offset about $3 million of raw material cost increases in the quarter with higher pricing. The overall result in the Additive segment was operating earnings of $8 million, a slight decrease from $8.4 million earned in the prior year period, with the earnings reduction partially due to higher maintenance costs in manufacturing to sustain operations at full capacity.

Slide 7 highlights results for the In Process Separation segment, which delivered sales of $78 million in the first quarter, an impressive 20% increase versus the first quarter 2010. Selling volumes increased by 16% versus the prior year quarter as a result of both higher demand, broadly for our mining chemical products, as well as our success in commercializing some of the new technologies that deliver high value to our customers. We also secured a long-term supply contract to supply mill extractants to 1 of the major global copper producers, and I'd like to recognize and to thank our sales team for this important win.

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