Cytec Industries (CYT)

Q3 2011 Earnings Call

October 21, 2011 11:00 am ET


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

Shane D. Fleming - Chairman, Chief Executive Officer and President

Jodi Allen - Investor Relations


P.J. Juvekar - Citigroup Inc, Research Division

David L. Begleiter - Deutsche Bank AG, Research Division

Robert Koort - Goldman Sachs Group Inc., Research Division

Laurence Alexander - Jefferies & Company, Inc., Research Division

Michael J. Sison - KeyBanc Capital Markets Inc., Research Division

John P. McNulty - Crédit Suisse AG, Research Division



Good day, and welcome to the Cytec Industries Third Quarter 2011 Earnings Conference Call. Today's call is being recorded. For opening remarks and introduction, 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 the 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, which are available through the 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 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 for press release is available on our Investor Relations website.

Now let me turn over the call to Shane.

Shane D. Fleming

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

Overall sales in the quarter were $778 million, an 11% increase over the prior-year quarter. The year-on-year sales growth was driven by 8% selling price increases across all of our business segments with additional support from foreign exchange. Volumes versus the prior-year quarter were down by 1%, attributal primarily to declines in Coating Resins and, to a lesser degree, in Additives Technologies and largely offset by strong volume growth in the Engineered Materials and In Process Separation segments which I'll describe in more detail in the following slides.

I continue to be pleased with the pricing execution, particularly given the softening demand environment. In the quarter, we delivered $59 million in price versus $47 million in raw material increases, and year-to-date, the company achieved approximately $180 million in price, which more than offset cost increases of $157 million.

Net earnings from operations in the third quarter of this year were $53.9 million or $1.10 per diluted share, excluding the special items that Dave will explain later. This represents a 72% improvement over the prior quarter's -- prior-year quarter's EPS.

Beginning in Slide 4. Coating Resins delivered sales of $387 million, a 6% increase versus the third quarter of 2010. The increase was driven by 10% higher selling prices and favorable currency exchange impact of 6%. We continue to maintain good pricing discipline and have achieved $39 million of selling price increases in the quarter, more than covering the raw material cost escalation. This was partially offset by the 10% volume decline due to weaker demand across a number of global industrial markets, with the greatest drops seen in Europe.

The slowdown has impacted all of the Coating Resins product lines, with the waterborne products down the least at 1% versus the prior quarter. We are also seeing very tight inventory control measures being implemented broadly by our customers. Visibility is becoming more limited and we are now operating at more of a made-to-order basis as a result of short lead times and altered buying patterns.

The chart on Slide 5 displays monthly sales revenue for the business. Although revenue dollars are relatively flat for each months of the quarter, volumes in September were 13% below September last year, most of which was offset by price.

Coating Resins operating earnings of $18 million for the quarter were down about 8% versus earnings of $19.5 million in the third quarter of 2010.

Moving to Additives Technology. Slide 6 shows sales in the segment of $71 million, an increase of 7% versus the third quarter 2010. Once again, increased selling price was the primary driver of growth, achieving 10% versus the prior-year period with an additional 4% benefit from exchange rates.

Selling volumes were down by 7% due primarily to the softening demand environment that has impacted many of our global markets. Order visibility in this segment, however, remains good and we are still getting healthy forecast from customers for our specialty product lines, which remain in tight supply as we are nearing the completion of our expansion work.

Read the rest of this transcript for free on