Georgia Gulf (GGC) Q4 2011 Earnings Call February 16, 2012 11:00 am ET Executives Martin Jarosick - Executive Director of Investor Relations Paul D. Carrico - Chief Executive Officer, President and Director Gregory C. Thompson - Chief Financial Officer and Principal Accounting Officer Analysts Brian Maguire - Goldman Sachs Group Inc., Research Division Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division Andrew W. Cash - UBS Investment Bank, Research Division Roger N. Spitz - BofA Merrill Lynch, Research Division Bill Hoffman - RBC Capital Markets, LLC, Research Division Charles N. Neivert - Dahlman Rose & Company, LLC, Research Division Gregg A. Goodnight - UBS Investment Bank, Research Division Christopher W. Butler - Sidoti & Company, LLC Presentation Operator
I will now turn the call over to Paul to begin the review of the fourth quarter. Paul?Paul D. Carrico Thanks, Martin, and good morning, ladies and gentlemen. We appreciate you joining us this morning. For the full year 2011, we reported net sales of $3.2 billion and adjusted EBITDA of $230.3 million compared to net sales of $2.8 billion and adjusted EBITDA of $208.5 million in 2010. Adjusted EBITDA increased approximately 10% over 2010, but it did come in below our most recent guidance. And I'll comment on that later. As Greg will go through in detail, we generated about $121 million of free cash flow in 2011, and this exceeded the top end of our guidance. As you know, during the last 4 years, we've experienced the most severe recession and depressed housing and construction market in the U.S. since World War II. During these times of slow growth and poor housing, the management team has focused on debt reduction and optimizing our cost structure to react to demand that was difficult to forecast. These are things that we can't control in a top market. For the last couple of years, this focus allowed us to generate over $250 million of free cash flow. Generating such significant cash at the bottom of the cycle gives us confidence that we should produce substantially more free cash flow during the cycle upturn. This sets the foundation for us to be in a position to exceed the levels generated in past up cycles when looking at Georgia Gulf's history. As I previously mentioned, our fourth quarter 2011 net sales and adjusted EBITDA came in below what we have projected. The largest impact here was a $16 million inventory holding loss in Aromatics caused by a 25% decline in benzene and a 40% decline in propylene prices during the quarter. And not surprisingly, these prices have substantially recovered in the first quarter. Additionally, the concerns in the global markets during the fourth quarter that have been well-publicized reduced demand for PVC and Aromatics as customers de-stocked and the uncertainty reduced overall demand. The volumes and pricing fell more than was expected for the normal seasonal drop-off.
In addition, these factors led to more aggressive PVC contracting positions for 2012. The net result was a significant downward pressure on PVC pricing in the fourth quarter, squeezing margins more than expected. These price drops played out in both the domestic and export markets. This $0.03 per pound price increase we have seen in January reflects PVC producers' desire to get some positive margin back in that business. In addition to the factors I have outlined, we did experience an unplanned outage in our Plaquemine site in late December that resulted in a loss of about 16,000 ECUs across the fourth quarter of 2011 and first quarter of 2012.Reflecting back on the total year, the operational issues at Plaquemine and specifically our chloralkali unit are not acceptable in the future. Even though our chloralkali unit ran at higher operating rate than the industry in the fourth quarter of 2011, we target for those units to run more consistently than the results demonstrate for the past year. During the year, we were approximately 11% below target for annual capacity operating rate. While some of these issues were the result of uncontrollable forces such as the Mississippi River flooding and other natural causes, others are correctable, and we intend to substantially improve the reliability of this plant for the controllable items. Read the rest of this transcript for free on seekingalpha.com