Cytec Industries Management Discusses Q2 2012 Results - Earnings Call Transcript

Cytec Industries (CYT)

Q2 2012 Earnings Call

July 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


Robert Koort - Goldman Sachs Group Inc., Research Division

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

David L. Begleiter - Deutsche Bank AG, Research Division

P.J. Juvekar - Citigroup Inc, Research Division

John P. McNulty - Crédit Suisse AG, Research Division

Rosemarie J. Morbelli - Gabelli & Company, Inc.

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



Good day and welcome to the Cytec Industries 2012 Second Quarter 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, Ally, 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 continuing operations; and David Drillock, Vice President and Chief Financial Officer, will review the financial results, special items and discontinued operations. Shane will then finish with some commentary on our outlook for 2012.

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 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 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 press release is available on our Investor Relations website.

As a reminder, we are now reporting Coating Resins as discontinued operations so all financial information will be discussed accordingly.

Now, let me turn over the call over to Shane.

Shane D. Fleming

Thanks, Jodi, and good morning, everyone. I appreciate you taking the time to join our second quarter call.

I'll begin on Slide 3. Sales from continuing operations of the quarter were $404 million versus $347 million in the prior-year quarter. The year-on-year sales growth was driven by strong selling volumes in the In Process Separation and Engineered Materials segments. As a reminder, we are now reporting Coating Resins as discontinued operations so all financial information will be presented on that basis.

The second quarter net earnings for continuing operations were $34.3 million or $0.73 per diluted share excluding special items, which represents a substantial increase versus $0.30 per diluted share in the second quarter 2011. The significant earnings growth in the quarter reflects the progress we are making across the businesses as we leverage sales growth and improve product mix into stronger earnings for the company.

Slide 4 provides details on the Engineered Materials results. Sales in the segment increased substantially by 21% to $230 million. Selling volumes increased 70% versus the prior year quarter due to robust demand across each sector of the aerospace market. Higher bill rates and large commercial transports in both legacy and new programs contributed to the increase, along with our growth in military business primarily related to the Joint Strike Fighter and the V22 programs. Selling volumes of regional business jets were also up versus the prior-year period. Selling prices also increased by 4%.

Operating earnings in the quarter were $38.7 million, up 38% versus $28.1 million achieved in the prior-year period. During the quarter earnings were unfavorably impacted by several onetime events. We have scheduled maintenance costs associated with the planned turnaround of our Carbon Fiber facility amounting to $3.5 million. We incurred $1 million of expenses related to settlement of a union contract at a U.S. manufacturing site and we incurred $800,000 in bad debt expense related to a customer in Spain. Aside from these events, the business is operating according to plan and we anticipate solid performance to continue.

Moving on to Slide 5. The In Process Separation segment delivered record sales of $100 million, a 22% increase versus the second quarter 2011. This was driven by 16% higher selling volumes and a 7% increase in selling price. The selling volume increase was attributable to several factors, including strong demand for our Metal Extracting products, including plant sales at 2 new corporations in Africa, one in the DOC and the other in Zambia, accounting for over $6 million in sales. We also saw a strong demand for our mineral processing products in Latin America, Eastern Europe and the Middle East, including the first order for a new copper plant in Kazakhstan.

And finally, phosphine chemicals contributed record sales with strong phosphine gas volumes into the electronics and fumigation markets, as well as strong derivative sales into several applications.

The combined strength across the product lines resulted in earnings in the segment of $27.1 million versus $15.6 million in the prior-year period, driven by the higher sales of value-added technologies and the positive selling price impact.

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