Cytec Industries' CEO Discusses Q1 2012 Results - Earnings Call Transcript

Cytec Industries (CYT)

Q1 2012 Earnings Call

April 20, 2012 11:00 am ET


Jodi Allen -

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

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


P.J. Juvekar - Citigroup Inc, Research Division

David L. Begleiter - Deutsche Bank AG, Research Division

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

Lucy Watson - Jefferies & Company, Inc., Research Division

John P. McNulty - Crédit Suisse AG, Research Division

Robert Koort - Goldman Sachs Group Inc., Research Division

Dmitry Silversteyn - Longbow Research LLC



Good day, and welcome to the Cytec Industries First Quarter 2012 Earnings Conference Call. Today's call is being recorded. For opening remarks and introductions, I would like to turn the conference over to Ms. Jodi Allen. Please go ahead.

Jodi Allen

Thank you, Katrina, and good morning, everyone. We appreciate your participation in our conference call. On 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 2012.

Let me remind you that we also announced a change in our business reporting structure in a separate press release yesterday. The product lines within the scope of the Coating Resins separation evaluation are now under common management and grouped into one financial reporting segment. All results shared with you today are representative of the new structure.

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 material, 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 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 website.

Now let me turn the call over to Shane.

Shane D. Fleming

Thanks, Jodi, and good morning, everyone. I appreciate you 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 $783 million versus $766 million in the prior year quarter. The year-on-year sales growth was driven by sizable volume increases in our 2 growth platforms: Engineered Materials and In Process Separation, as well as price increases across each of our businesses.

First quarter net earnings were $59.8 million or $1.28 per diluted share, excluding special items, which represents a 64% increase versus $0.78 per diluted share in the first quarter of 2011. The earnings growth in the quarter was primarily a result of higher selling volumes in the Engineered Materials and In Process Separation segments, as well as higher selling prices in Coating Resins and In Process Separation.

The significant earnings improvement is further indication of our progress to leverage sales growth into strong earnings for the company.

Slide 4 provides more detail about the Engineered Materials results.

Sales in the segment increased substantially by 17% to $219 million, as we continue to benefit from solid demand across the entire aircraft sector. Selling volumes increased 14% versus the prior year quarter as a result of higher build rates in large commercial transport, with both legacy and new programs contributing to the increase with added growth from the business and regional jet sectors.

Selling volumes from military and civil rotorcraft markets were also higher than the prior year period. So robust demand from each sector of the aerospace market is contributing to our growth in the quarter.

Selling prices also increased by 3%, and the combined top line performance, along with the higher plant operating rates, led to operating earnings of $45 million in Q1, significantly above Q1 2011 earnings of $25 million.

Moving on to Slide 5. The In Process Separation segment delivered sales of $92 million, a 17% increase versus the first quarter of 2011. This was driven by 8% higher selling volumes and a 9% increase in selling price. The selling volume increase was primarily attributable to strong demand for our advanced technologies sold into the aluminum processing industry. Increased pricing in the quarter was also a significant contributor to the improved business performance, with increases across our mining and phosphine product lines.

Earnings in this segment were $22.9 million versus $16.4 million in the prior year period, mainly as a result of higher sales on newer technologies and the positive selling price impact. These favorable impacts were partially offset by higher manufacturing cost of sales and operating expenses of $5 million as we expand and invest in growth in developing markets.

Now on to Slide 6. Additive Technologies had sales of $68 million in the quarter, down about 4% from the first quarter last year. The sales decline was driven by selling volume decreases of 8% in the segment with the largest decrease in Specialty Additives due largely to weak demand in European industrial markets. On the positive side, selling prices in the segment increased by 5%, largely as a result of the increases implemented in the prior year to cover rising raw material cost.

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