W. R. Grace & Co. (NYSE: GRA) announced third quarter net income of $75.5 million, or $0.99 per diluted share. Net income for the prior-year quarter was $81.3 million, or $1.07 per diluted share. Adjusted EPS was $1.04 per diluted share compared with $1.16 per diluted share for the prior-year quarter. Net income for the nine months ended September 30, 2012, was $205.7 million, or $2.70 per diluted share, compared with $211.3 million, or $2.80 per diluted share for the prior-year period. Adjusted EPS was $3.07 per diluted share compared with $3.06 per diluted share for the prior-year period. “Our results were in line with our plan,” stated Fred Festa, Grace’s Chairman and Chief Executive Officer. “All three of our operating segments improved base pricing and increased sales volumes as strong growth in the emerging regions offset weaker demand in the advanced economies. Our disciplined approach to productivity, cost control and working capital improved earnings and cash flow in the quarter.” Third Quarter Results Third quarter sales of $776.6 million declined 10.1 percent compared with the prior-year quarter as improved base pricing (+3.7 percent) and higher sales volumes (+1.6 percent) were offset by lower rare earth surcharges (-9.5 percent) and unfavorable currency translation (-5.9 percent). Sales in emerging regions represented 39.1 percent of sales and grew 16.8 percent compared with the prior-year quarter. Acquisitions contributed $7.2 million to sales in the quarter, while divestitures decreased sales by $5.3 million. Gross profit of $284.8 million declined 10.0 percent compared with the prior-year quarter as improved base pricing and higher sales volumes were more than offset by unfavorable currency translation, unfavorable product mix and the impact of lower rare earth costs and volumes on capitalized inventory values. Gross margin of 36.7 percent increased 10 basis points compared with the prior-year quarter, continuing at the top-end of the company’s target range of 35 to 37 percent.
Jefferies analysts note that recent construction spending data indicates a cycle rotation away from construction-exposed names and toward industrial- and durable goods-levered firms could be playing out.