Press Releases
Cytec Announces First Quarter Results
Reaffirms Full Year Earnings Guidance
April 19, 2007
West Paterson, New Jersey, Cytec Industries Inc. (NYSE:CYT)
announced today net earnings for the first quarter of 2007 of
$51.7 million or $1.05 per diluted share on net sales of $864
million. Included in the quarter are several special items as
outlined further in this release. Excluding these special items,
net earnings were $37.3 million or $0.76 per diluted share.
Net earnings for the first quarter of 2006 were $38.1 million,
or $0.79 per diluted share, on net sales of $819 million.
Included in the quarter were several special items as outlined
further in this release. Excluding these special items, net
earnings were $39.6 million or $0.82 per diluted share.
David Lilley, Chairman, President and Chief Executive Officer
said, “The Engineered Materials segment had a very good quarter
as selling volumes were significantly higher than the prior
year, particularly in the large commercial aircraft sector.
Overall for Specialty Chemicals, after taking into account the
water treatment divestiture, selling volumes were down, with
increases in Europe and Asia more than offset by lower selling
volumes in North America. The specialty chemicals segments were
also negatively impacted by the higher costs in inventory at
year end and consumed in the quarter, partially offset by
selling price increases. In Building Block Chemicals, selling
volumes showed good growth and they benefited from lower raw
material costs for propylene.”
Cytec Performance Chemicals Sales decreased 20% to $179
million; Operating Earnings decreased to $13.0 million
Mr. Lilley continued, “In Cytec Performance Chemicals, the
effect of the divestiture of the water treatment chemicals
product line decreased sales by 20%, other selling volumes were
down 2%, selling prices increased 1% and the impact of exchange
rate changes increased sales by 1%. Mining chemical sales were
down primarily due to a large mine fill in the prior year while
phosphine sales were adversely impacted by order pattern.
Partially offsetting this were higher polymer additive sales due
to higher volumes of our technologically differentiated products
and new business.
“Operating earnings of $13.0 million were down compared to the
$17.9 million in the first quarter of 2006 primarily due to the
lower sales volumes plus the loss of earnings associated with
the divestiture of the water treatment chemicals product line in
October 2006.
Cytec Surface Specialties Sales increased 8% to $405 million;
Operating Earnings decreased to $15.7 million
“In Cytec Surface Specialties, overall selling volumes decreased
by 3% with declines in North America only partially offset by
increases in other regions. The decline in selling volumes in
North America was the result of several factors, overall weak
demand for wood, furniture, coil and architectural coatings, a
certain customer internally producing a product versus
purchasing and reduced volume due to price competition. Selling
prices increased by 5% and the impact of exchange rate changes
increased sales by 6%.
“Operating earnings of $15.7 million were down compared to the
$29.4 million in the first quarter of 2006. The decreased
operating earnings were primarily due to higher costs in year
end inventory reflected in the first quarter cost of sales which
were not completely covered by selling price increases, the
lower selling volumes and an unfavorable product mix.
Cytec Engineered Materials Sales increased 18% to $163
million; Operating Earnings increased to $32.6 million
“In Cytec Engineered Materials, selling volumes increased by
15%, selling prices increased by 2% and the impact of exchange
rate changes on sales increased sales by 1%. The increase in
selling volumes was primarily due to increasing build rates for
large commercial aircraft, launch vehicles and rotorcraft.
“Operating earnings of $32.6 million were up compared to the
$23.9 million in the first quarter of 2006 primarily due to the
increase in sales volume and the resulting leverage on operating
costs.
Building Block Chemicals Sales increased 45% to $117 million;
Operating Earnings increased to $2.6 million
“In Building Block Chemicals, the effect of the divestiture of
the acrylamide product line decreased sales by 20% which was
more than offset by a 27% increase due to sales of acrylonitrile
to the purchaser of the divested product line. Acrylonitrile is
the key material used to make acrylamide and in conjunction with
the divestiture we signed a long-term agreement to provide
acrylonitrile to Kemira. Excluding these two factors, selling
volumes increased by 33% primarily due to higher selling volumes
of melamine principally in North America and acrylonitrile
shipments to Europe. Selling prices increased by 5% and the
impact of exchange rate changes was neutral.
“Operating earnings increased to $2.6 million compared to a loss
of $0.1 million in the first quarter of 2006. The improved
earnings are due to the higher selling volumes and increased
acrylonitrile spreads. Our manufacturing plants ran well
although the sulfuric acid plant was down for about a month in
the quarter for scheduled maintenance work including process
enhancements and this adversely impacted earnings as did the
divestiture of the acrylamide product line.
Special Items
James P. Cronin, Executive Vice President and Chief Financial
Officer commented, “Included in Corporate and Unallocated in the
first quarter of 2007 are several items as follows.
“In January 2007, we recorded a net pre-tax gain of $15.7
million (after-tax $15.2 million) as a result of completing the
second phase of the sale of our water treatment chemicals and
acrylamide product lines to Kemira Group. This second phase
completes the transfer of the Botlek site in the Netherlands to
Kemira and adds approximately $21 million of proceeds to the
$208 million received for the first phase closing. We also
received $6 million for the final working capital settlement
from the first phase closing. The remaining phase includes
certain assets at various subsidiaries in Asia-Pacific and Latin
America which are expected to close in the next one to three
months and we expect an estimated $10 million of additional
proceeds upon completion. The remaining closings are subject to
certain other conditions and the amounts could change due to
final working capital transferred.”
“Also in the quarter we recorded pre-tax net restructuring
charges of $0.8 million (after-tax $0.8 million). The costs are
principally related to the shutdown of our manufacturing
operations in France which were expected but not accruable as
part of the charge taken in the fourth quarter of 2006.”
Included in Corporate and Unallocated in the first quarter of
2006 was a pre-tax net restructuring charge of $0.4 million
(after-tax $0.3 million) related to the formation of Cytec
Specialty Chemicals, which combined the specialty chemicals
product lines into one organization under one leadership team.
Interest Expense
Mr. Cronin continued, “Interest expense decreased primarily due
to the overall lower debt level. In the quarter we used the net
proceeds from the aforementioned divestiture to further pay down
debt.”
Income Tax Expense
Mr. Cronin added, “Our tax provision for the first quarter of
2007 was $16.3 million, or 24.0%, on earnings before income
taxes. Impacting the rate for the quarter was the limited tax
expense on the gain recorded on phase two of the divestiture and
the fact that no tax benefit was recorded on the French
restructuring charge. Excluding these items, our underlying
effective tax rate for the first quarter of 2007 was 29.75%
versus the underlying rate for the first quarter of 2006 of 27%.
The increase in the tax rate is primarily due to the effect of
the divestiture of the water treatment chemicals and acrylamide
product lines and unfavorable changes in U.S. tax laws regarding
manufacturing and export incentives.”
Cash Flow
Mr. Cronin commented further, “We had good cash flow provided by
operations of $24 million for the quarter, up from the prior
year’s $21 million. In-line with the increase in sales, trade
accounts receivable dollars increased $60 million as days
outstanding are flat with the days outstanding at year end 2006.
Inventory dollars decreased $7 million and days on hand are down
about 10 from the 77 days on hand at year end. Accounts payable
increased $23 million which is in-line with our increased
production levels, while accrued expenses declined $21 million
primarily due to payment for incentive compensation and profit
growth sharing. Capital spending for the quarter was $15 million
although we expect this to trend higher throughout the rest of
the year as activity on our expansion projects increases. We
continue to pay down debt in advance of scheduled payment dates,
primarily from the net proceeds received from the divestiture,
and during the quarter we paid down $44 million of our debt.
“As previously announced we reinstated our stock buyback program
and during the quarter we purchased 170 thousand shares of our
common stock for approximately $10 million leaving about $59
million remaining on our current authorization.”
2007 Outlook
Mr. Lilley commented, “While our first quarter was challenging
for our specialty chemical segments, overall, we believe we are
on track with our previous guidance for 2007 full year adjusted
diluted earnings per share of $3.60 to $3.80 which is up from
the 2006 adjusted diluted earnings per share of $3.45.
Despite the slowdown in North American markets for our Specialty
Chemical segments, we did see good growth in Asia and Europe and
we expect this to remain for the balance of the year. On the
input side, we were impacted in the first quarter by the higher
costs in inventory as they flowed into cost of sales but we were
pleased to see some reduction in raw material costs in the later
part of the quarter. We are hopeful this trend will continue but
we do however, remain cautious about raw material and energy
costs as the main inputs for our raw materials, oil and natural
gas, are still very volatile. We continue our efforts of
reviewing various options on improving the underlying
profitability of our Specialty Chemicals segments and are on
track to complete this review during the third quarter. Our
aerospace markets continue to grow from increasing build rates,
particularly in the large commercial aircraft, business jet and
rotorcraft sectors. The opportunities in this area continue to
grow as new composite applications on new aerospace platforms
provide more value to our customers.
In closing Mr. Lilley commented, “We have a number of
opportunities and challenges in front of us and with the
continued efforts by the people of Cytec we look with confidence
to our future performance.”
Investor Conference Call to be Held on April 20, 2007 11:00
A.M. ET
Cytec will host their first quarter earnings release conference
call on April 20, 2007 at 11:00 a.m. ET. The conference call
will also be simultaneously webcast for all investors from
Cytec’s website www.cytec.com. Select the Investor Relations
page to access the live conference call.
A recording of the conference call may be accessed by telephone
from 2:00 p.m. ET on April 20, 2007 until May 11, 2007 at 11:00
p.m. ET by calling 888-203-1112 (U.S.) or 719-457-0820
(International) and entering access code 5874916. The conference
call recording will also be accessible on Cytec’s website for 3
weeks after the conference call beginning at 2:00 p.m. ET on
April 20, 2007.
Use of Non-GAAP Measures
Management believes that net earnings, basic and diluted
earnings per share before special items, which are non-GAAP
measurements, are meaningful to investors because they provide a
view of the Company with respect to ongoing operating results.
Special items represent significant charges or credits that are
important to an understanding of the Company’s overall operating
results in the period presented. Such non-GAAP measurements are
not recognized in accordance with generally accepted accounting
principles (GAAP) and should not be viewed as an alternative to
GAAP measures of performance. A reconciliation of GAAP
measurements to non-GAAP can be found at the end of this
release.
Forward-Looking and Cautionary Statements
Except for the historical information and discussions contained
herein, statements contained in this release may constitute
“forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. Achieving the results
described in these statements involves a number of risks,
uncertainties and other factors that could cause actual results
to differ materially, as discussed in Cytec’s filings with the
Securities and Exchange Commission.
Corporate Profile
Cytec Industries Inc. is a global specialty chemicals and
materials company focused on developing, manufacturing and
selling value-added products. Our products serve a diverse range
of end markets including aerospace, adhesives, automotive and
industrial coatings, chemical intermediates, inks, mining and
plastics. We use our technology and application development
expertise to create chemical and material solutions that are
formulated to perform specific and important functions in the
finished products of our customers.
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