Cytec Industries (CYT)

Q2 2011 Earnings Call

July 22, 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



Good day, and welcome to the Cytec Industries Second Quarter 2011 Earnings Conference Call. Today’s call is being recorded. For opening remarks and introductions, I would like to turn the call over to Ms. Jodi Allen. Please go ahead.

Jodi Allen

Thank you, Tequila, 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 updated 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 also available through our website.

During the course of this presentation and in responses 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 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 measures at the end of our press release. A copy of our press release is available on our Investor Relations website.

Now let me turn over the call to Shane.

Shane Fleming

Thanks, Jodi. Good morning, everyone. I appreciate you taking the time to join our earnings call. Let me begin on Slide 3. Overall sales in the quarter for continuing operations were $798 million, a 14% increase over the prior quarter. The year-on-year sales growth was driven by 10% selling price increases across our all of our business segments with additional support from foreign exchange. Volumes versus the prior year quarter were down by 1%. And if you recall, Cytec had very strong earnings performance in the second quarter 2010, particularly in Coating Resins and Engineered Materials.

Net earnings from continuing operations in the second quarter this year were $45.9 million or $0.92 per diluted share, excluding the special items that Dave will explain shortly. Although this is a decrease versus the prior year quarter record earnings performance, it does reflect an 18% increase versus $39 million earned in the first quarter of this year.

Beginning on Slide 4, Coating Resins delivered sales of $421 million, a 14% increase versus second quarter of 2010. The increase was driven by 15% higher selling prices and favorable exchange impact of 8%. This was partially offset by volume being down 9% due to weaker demand, particularly, later in the quarter as customers reduced inventory levels, anticipating lower raw material costs in the third quarter. Volume in the quarter was also negatively impacted by the shutdown of our San Fernando, Spain, Radcure monomers plant in March next of this year and bottom slicing actions we have taken with certain solvent-borne commodity products as we move to improve mix and reduce manufacturing cost in this segment.

From a global perspective, volume was down in all regions of the world with the largest decline in Asia Pacific, where the most opportunistic buying practices typically take place. I'm pleased to point out that we were able to grow volume in our waterborne product line despite the softening demand environment.

Our team did a great job executing required pricing actions and were able to secure $54 million in price in the segment, more than offsetting the roughly $47 million in raw material cost escalations.

The chart on Slide 5 displays monthly sales revenue for this business. This shows the strong sales performance in the first 2 months of the quarter with increased revenue from price increases more than offsetting reduced demand and the drop-off in June sales as customers reduced inventories.

Coating Resins' operating earnings for the quarter were $28.2 million, a slight improvement over the very strong prior year quarter. I'm particularly pleased with our disciplined pricing actions in the first half of this year as we accumulatively achieved $98 million in price increases in this segment over the past 6-month period.

Moving to Additive Technologies. Slide 6 shows sales in the segment of $73 million, an increase of over 10% versus the second quarter 2010. Once again, increased selling price was the primary driver of growth, achieving 8% versus the prior year period with an additional 5% benefit from exchange rates.

Selling volumes are down by 3% although this is primarily due to capacity limitations constraining product availability in Polymer Additives rather than reduced demand. That said, we did see a slower pace in the North American market but our results were due much more to volume shortages and the economic slowdown. Also in Specialty Additives, we continued to experience a sold-out situation with some products. The order book in our additives product line remains strong, and we are actively working on capacity expansions to meet increasing market demand.

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