W.R. Grace & Co.'s CEO Discusses Q1 2012 Results - Earnings Call Transcript

W.R. Grace & Co. (GRA)

Q1 2012 Earnings Call

April 25, 2012 11:00 am ET

Executives

J. Mark Sutherland - Vice President of Investor Relations

Alfred E. Festa - Chairman and Chief Executive Officer

Hudson La Force - Chief Financial Officer and Senior Vice President

Analysts

Robert Walker - Jefferies & Company, Inc., Research Division

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

Christopher L. Shaw - Monness, Crespi, Hardt & Co., Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2012 W.R. Grace & Company Earnings Conference Call. My name is Keith, and I will be your operator for today. [Operator Instructions] As a reminder, today's conference is being recorded for replay purposes. And I would now like to turn the conference over to your host for today, Mr. Mark Sutherland, Vice President, Investor Relations. Please go ahead, sir.

J. Mark Sutherland

Thank you, Keith, and good morning, everyone. And thank you for joining us today, April 25, 2012, for a discussion of Grace's first quarter 2012 results released this morning. Joining me on today's call are Fred Festa, Grace's Chairman and Chief Executive Officer; and Hudson La Force, our Senior Vice President and Chief Financial Officer.

Our earnings release and the corresponding presentation are available on our website. To download copies, go to grace.com and click on Investor Information. Links are available on the upper right-hand corner of the page.

As you know, some of our comments today will be forward-looking and are made under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected or implied, due to a variety of factors. Please see our recent SEC filings for more detail on the risks that could impact Grace's future operating results and financial condition.

We will also discuss certain non-GAAP financial measures, which are described in more detail in this morning's release and on our website. Reconciliations to the most directly comparable GAAP financial measures and other associated disclosures are contained in our earnings release and on our website.

Our comments on forward-looking statements and non-GAAP financial measures apply both to the prepared remarks and to the question and answer. We want to remind everyone that this webcast contains time-sensitive information that is accurate only as of today. Any redistribution, retransmission or reproduction of this call without company consent is prohibited.

With that, I'll turn the call over to Fred.

Alfred E. Festa

Good. Thanks, Mark. Hello, everyone. Thank you for joining us this morning. We're off to a good start in 2012. We performed well in the quarter led by the results in our Catalyst Technologies and Construction Products segments.

For the quarter, sales increased 8% to $754 million, gross margins improved 40 basis points to 36.7%, adjusted EBIT increased 16% to $111 million and adjusted EBITDA margin improved 70 basis points to 18.7%.

We also saw good sequential improvement across our businesses. Hudson will walk you through the details shortly.

It was a busy first quarter. First, we divided the Grace Davison business into 2 operating segments; Catalysts Technologies and Material Technologies. We are now reporting our financial results in 3 operating segments, these 2, plus the Construction Products group. Catalysts Technologies is now the home for all of our catalysts businesses, including refining catalysts and additives, polyolefin catalysts and chemical catalysts. Our ART hydroprocessing joint venture is managed in this segment as well.

By combining all of our catalyst activities into a single unit, we have enhanced our critical mass in terms of research, innovation and customer reach. And this will enable us to do what we do best: anticipate customer needs and increase the value of their business. Additionally, we believe this will increase the public recognition of Grace as the industry-leading innovator and manufacturer of specialty catalysts.

Moving to 2 segments -- in moving from 2 segments to 3, we are actually simplifying our organization as well. We are moving to a more closely integrated operating structure, we call it, One Grace. The manufacturing, supply chains and functional support services are being consolidated. As a result, we've taken a restructuring charge this quarter of approximately $3 million as we eliminate some redundancies.

This restructuring will provide cost savings of just under $6 million this year and about $10 million in annual savings in 2013. These savings were anticipated in our 2012 outlook and the 2014 targets.

I am challenging our leaders to continue to find ways to move the business forward. We've had some good examples to share from the past quarter. We signed a memorandum of understanding to form a joint venture in Abu Dhabi to build a new catalyst and additives plant for Middle East and South Asian opportunities. We project growth of $150 million for the next 5 years from new refineries in the region. We established a partnership with Dow, which includes licensing to develop new polypropylene catalyst, which will enable producers to improve plastics performance including clarity, stiffness and impact strength.

We announced a successful clinical trial for novel use of silica for drug delivery. Innovation came out of our discovery sciences product group, a component of the Materials Technology segment. This development showcases how we apply our historical silica applications expertise to new and potentially large addressable markets. These are all exciting developments. We'll be hearing about more opportunities like these in the future as we continue to advance our business. I'd also like to update you on the bankruptcy.

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