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Contact:
Jodi Allen (Investor Relations)
(973) 357-3283
Cytec Announces
Third Quarter 2011 Results
As-Adjusted Continuing EPS of $1.10 per Diluted Share
Updates Full Year 2011 Guidance
WOODLAND PARK,
N.J., October 20, 2011 -- Cytec Industries Inc. (NYSE: CYT)
announced today net earnings for the third quarter 2011 of $47.9
million or $0.98 per diluted share on net sales of $778 million.
Included in the quarter is a special item from continuing
operations of $6.0 million of net expense after-tax or $0.12 per
diluted share and is outlined further in this release. Excluding
the special item, net earnings attributable to Cytec were $53.9
million or $1.10 per diluted share.
Net earnings for the third quarter of 2010 were $37.7 million or
$0.75 per diluted share on net sales of $700 million. Earnings
from continuing operations attributable to Cytec were $30.0
million or $0.60 per diluted share. Earnings from discontinued
operations were $7.7 million or $0.15 per diluted share.
Included in the quarter was a special item of $2.2 million of
net expense after-tax or $0.04 per diluted share. Excluding the
special item and earnings from discontinued operations, net
earnings from continuing operations attributable to Cytec were
$32.2 million or $0.64 per diluted share.
Shane Fleming, Chairman, President and Chief Executive Officer
commented, “We continue to experience strong demand in our
Engineered Materials business driven by the build rate increases
in both new and legacy aircraft programs. Product demand within
our In Process Separation segment also remains strong due to
continued high production rates in the base metal markets we
serve and our success in developing and commercializing new
applications with our advanced separation technologies. The
weakening demand in industrial markets impacted our Coating
Resins and Additive Technologies segments particularly during
the latter part of the quarter, yet we have demonstrated good
discipline increasing price to offset raw material cost
increases in these businesses. Overall, we delivered 36% as
adjusted operating earnings growth (excluding special item)
versus the third quarter last year.”
Cytec Coating Resins sales increased 6% to $387 million;
operating earnings decreased to $18.0 million.
In Coating Resins, overall selling volumes were down 10% versus
the third quarter 2010, due to weak demand in many of our
industrial markets and inventory control measures by customers,
impacting most product lines particularly in North America and
Europe. Selling prices increased sales by 10% and the impact of
changes in exchange rates increased sales by 6%.
Operating earnings of $18.0 million were down versus $19.5
million in the third quarter of 2010. Higher selling prices of
$38.8 million more than offset higher raw material costs of
$33.3 million. This net benefit, plus the favorable impact of
$1.3 million from incentive compensation accrual adjustments was
more than offset by the impact of lower selling volumes.
Cytec Additive Technologies sales increased 7% to $71
million; operating earnings increased to $11.5 million.
In Additive Technologies, overall selling volumes were down by
7% versus the third quarter 2010, attributed primarily to weaker
industrial end market demand across all regions. This was more
than offset by higher selling prices of 10% and the favorable
impact of changes in exchange rates of 4%.
Operating earnings of $11.5 million were up compared to the $9.1
million in the third quarter of 2010 mainly as a result of
higher selling prices of $7.1 million which more than offset
higher raw material costs of $2.6 million. Earnings also
improved slightly compared to the prior year quarter as a result
of favorable incentive compensation accrual adjustments. This
was partially offset by lower selling volumes of $2.4 million.
Cytec In Process Separation sales increased 19% to $90
million; operating earnings increased to $17.3 million.
In Process Separation selling volumes were up 10% versus the
third quarter 2010, resulting primarily from strong demand in
our copper and alumina markets across most regions. Selling
prices increased sales by 8% and the change in exchange rates
increased sales by 1%.
Operating earnings of $17.3 million were higher compared to
$12.8 million in the prior year quarter, mainly as a result of
higher selling volumes and increased pricing. Volume growth in
the segment was augmented by our continued market penetration
with our newer copper and alumina products. Earnings in the
quarter also benefited slightly from favorable incentive
compensation accrual adjustments. These positive impacts were
partially offset by higher raw material costs of $4.0 million.
Cytec Engineered Materials sales increased by 18% to
$230 million; operating earnings increased to $33.1 million.
In Engineered Materials, selling volumes increased by 14%
compared to the prior year period, primarily driven by higher
build rates in both new and legacy large commercial aircraft
programs and rotorcraft. Selling prices increased sales by 3%
and the impact of exchange rates increased sales by 1%.
Operating earnings of $33.1 million were up versus $27.9 million
in the third quarter of 2010, mainly as a result of selling
volume growth and higher pricing. Increased selling prices of
$7.2 million more than covered increased raw material costs of
$6.9 million. Earnings also increased by $0.6 million compared
to the prior year period from favorable incentive compensation
accrual adjustments.
Discontinued Operations
Net earnings for the third quarter of 2010 includes earnings
from discontinued operations net of tax of $7.7 million
associated with the former Building Block Chemicals Segment
which was divested in the first quarter of 2011.
Corporate Unallocated and Special Items
For the third quarter of 2011 Corporate and Unallocated includes
a benefit of $2.1 million related to long term incentive
compensation accrual adjustments. Also included in the third
quarter of 2011 is a net pre-tax special item charge of $9.0
million ($6.0 million after-tax or $0.12 per diluted share) for
restructuring activities mostly related to the closure of our
powder coating resins manufacturing operations in Brazil. The
third quarter of 2010 includes special item net pre-tax charges
of $3.2 million ($2.2 million after-tax or $0.04 per diluted
share) for restructuring costs primarily associated with
consolidating coating resins manufacturing operations in Europe.
Income Tax Expense
Income tax expense related to continuing operations for the
third quarter of 2011 was $17.7 million, compared with a tax
expense of $16.2 million in the third quarter of 2010. The
provision for the third quarter of 2011 includes a tax benefit
of $3.8 million related to a multi-year audit settlement in an
international jurisdiction that was finalized in the third
quarter. Excluding the impact from the aforementioned tax
benefit and the special item previously noted, the underlying
estimated annual tax rate for the third quarter of 2011 was
approximately 31.8% compared to a 32.6% underlying estimated
annual tax rate in the third quarter of 2010.
Cash Flow
David Drillock, Vice President and Chief Financial Officer
commented, “Operating cash flows were $53.8 million for the
third quarter 2011. During the quarter our average net working
capital days were up at 71 days compared to the second quarter
of 2011 of 60 days. Accounts receivable days outstanding were up
3 to 51 although we had sequential improvement as the quarter
progressed. Inventory days on hand were flat at 74 while
accounts payable days declined 7 to 55. The decrease in accounts
payable days is mostly attributable to decreased production
levels and raw material purchases in the Coating Resins segment
reflecting our outlook for lower demand in the fourth quarter.”
“On September 30, 2011, we sold a research and development
facility, located in Stamford, Connecticut for $11.0 million
cash and we are leasing back a portion of the facility for a 7
year period. The facility had a carrying value of $32.5 million
at the time of sale which is $21.5 million above the proceeds
received. As part of the agreement we committed to completing
certain environmental remediation matters at the site and
therefore, as a result of the environmental remediation
obligation, we are precluded from recognizing the sale and the
related loss on the transaction, until the remediation is
completed. The forecasted cost of the remediation work is $1.1
million which we expect to complete well before the end of the
lease term. While the remediation work is being completed we
will accelerate the depreciation of the facility over the 7 year
lease period. We will disclose the amount of additional
depreciation each quarter. Upon the completion of the
remediation, the sale of the facility will be recognized at that
time, including the recognition of a non-cash loss for any
remaining carrying value.”
Mr. Drillock added, “Capital spending for the quarter was $27
million with approximately 70% of the spending attributable to
Specialty Chemical segments and 30% to Engineered Materials,
versus $24 million spent in the third quarter of 2010. Our
outlook for full year capital spending remains in a range of
$120 to $130 million. We do have a number of recently approved
projects in our growth product lines and the timing of some of
the cash spending may move into 2012.”
During the quarter 1,975,000 shares of Cytec common stock were
purchased for $84 million. The remaining amount on the current
share repurchase authorization is approximately $63 million.
2011 Outlook
Mr. Fleming commented, “As we head into our fourth quarter, we
are faced with increasing global macroeconomic uncertainty,
particularly in Europe. Although automotive end market demand is
expected to stay intact, a slowdown in demand in other
industrial markets is expected to continue in addition to the
seasonally weaker fourth quarter, which will negatively impact
our Coating Resins segment. As a result of the increased demand
headwinds, the revised full year sales projection for Coating
Resins is now $1.55 to $1.58 billion, compared with the prior
projection of $1.55 to $1.65 billion. In addition, North
American chemical grade propylene had a major correction in
October, settling down $0.14/lb to $0.625/lb. Given the higher
cost of raw materials currently in our inventory, we do not
expect to see the benefits from lower raw materials costs until
early next year. We plan to maintain our pricing discipline
despite softening feedstock costs and the weakening demand
environment and are therefore projecting volumes to decline
approximately 10% in the fourth quarter of 2011 versus the
fourth quarter of 2010. Taking these factors into account, our
revised full year operating earnings for Coating Resins segment
is estimated to be in a range of $57 to $60 million, down from
the prior projection of $70 to $80 million.
In Additive Technologies, we anticipate a lesser impact from the
macroeconomic environment due to the specialty nature of our
product portfolio, and therefore the full year guidance is only
slightly modified maintaining a sales range of $260 to $280
million and operating earnings now in a range of $34 to $36
million, a slight reduction from the prior range of $37 to $40
million.
In Process Separation demand remains strong, and therefore we
have slightly increased our forecast for the segment. Full year
sales are estimated to be in a range of $330 to $350 million
versus our prior range of $320 to $330 million, and operating
earnings are estimated to be in a range of $63 to $67 million
versus the prior range of $60 to $70 million. ”
Mr. Fleming continued, “In Engineered Materials, we expect
continued strong year-over-year selling volume growth in the
fourth quarter, particularly in the large commercial transport
sector as there is now a backlog of over 8,100 large commercial
aircraft, an all-time record high. We continue to make progress
with our price increase initiatives to achieve our goal of fully
offsetting the margin dilution impact of higher raw material
costs in this business and expect to see additional progress in
the fourth quarter. Our new prepreg plant in China and expanded
line in Germany were qualified in July and we have begun to
transfer the production from our existing U.S. plants to these
sites during the third quarter. The rate of these transfers will
increase throughout the remainder of the year when we expect to
gain the full benefits of the increased production rates. Our
demand and order backlog continue to grow and as a result, we
plan to continue to add manufacturing personnel throughout the
remainder of the year. Taking all of these factors into
consideration for this segment, the 2011 full year sales
projection remains in a range of $880 to $900 million and full
year operating income is estimated to be in a range of $123 to
$127 million versus the prior range of $125 to $135 million.”
On a consolidated level, the guidance for Corporate and
Unallocated excluding special items is expected to be at $14 to
$15 million for the year, down from the prior projection of $16
to $18 million. Guidance for other expense and net interest
expense remains unchanged at $4 million and in the range of $37
to $39 million, respectively. The forecast for the underlying
annual tax rate for ongoing operations remains at the range of
30.5% to 32.5%.
After taking into account all these above factors, the revised
2011 continuing full year adjusted diluted earnings per share is
now in the range of $3.20 to $3.40, on sales of $3.0 to $3.1
billion versus the prior projection of $3.25 to $3.50, on sales
of $3.0 to $3.2 billion.”
In closing, Mr. Fleming commented, “I remain confident in the
ability of the people of Cytec to react quickly and execute
effectively in this highly dynamic global environment. We
continue to maintain a strong balance sheet which will provide
us with the required strategic flexibility to deal with the
current volatility. We remain focused on growing our core growth
platforms while maximizing cash generation and mitigating the
impact of the challenging demand environment in industrial
markets. Favorable secular trends for our In Process Separations
and Engineered Material segments remain intact and will continue
to provide strong growth in the short, medium and long term.”
Nine Month Results
Net earnings for the nine months ended September 30, 2011 were
$166.2 million or $3.35 per diluted share on sales of $2,342
million. Earnings from continuing operations attributable to
Cytec were $123.7 million or $2.49 per diluted share. Earnings
from discontinued operations were $42.5 million or $0.86 per
diluted share.
For the nine months ended September 30, 2011, a number of
special items (all from continuing operations) were recorded
that resulted in a net pre-tax charge of $21.9 million ($15.1
million net charge on an after-tax basis or $0.30 per diluted
share) as follows:
-
Included in
Corporate and Unallocated are pre-tax net restructuring
charges of $20.8 million ($14.5 million after-tax or $0.29
per diluted share) primarily related to Coating Resins.
-
Included in
Gain on sale of assets is a pre-tax gain of $3.3 million
($2.1 million after-tax or $0.04 per diluted share) related
to a sale of land at our manufacturing site in Colombia
which was shutdown in the second half of 2009.
-
Included in
Other Expense is a pre-tax charge of $4.4 million ($2.7
million after-tax or $0.05 per diluted share) related to an
increase in the environmental liability at inactive sites
for updated estimates of future remedial costs.
Excluding these items and earnings from discontinued
operations, net earnings from continuing operations
attributable to Cytec were $138.8 million or $2.79 per
diluted share.
Net earnings for
the nine months ended September 30, 2010 was $124.3 million or
$2.50 per diluted share on sales of $2,049 million. Earnings
from continuing operations attributable to Cytec were $101.6
million or $2.04 per diluted share. Earnings from discontinued
operations were $22.7 million or $0.46 per diluted share.
Included in the results for the 2010 nine months were:
-
Included in
Corporate and Unallocated, is a net pre-tax charge of $7.7
million ($4.9 million after-tax or $0.10 per diluted share)
associated with various restructuring initiatives across
Specialty Chemicals.
-
Included in
income tax expense is a charge of $8.3 million or $0.17 per
diluted share due to the U.S. Health Care Reform legislation
that eliminated a tax benefit on a subsidy given to
employers with respect to certain prescription drug benefits
to retirees equivalent to those provided under U.S. Medicare
Part D.
Excluding these
items and earnings from discontinued operations, net earnings
from continuing operations attributable to Cytec were $114.8
million or $2.31 per diluted share for the nine months ended
September 30, 2010.
Investor Conference Call to be Held on Friday October
21, 2011 at 11:00am ET
Cytec will host their third quarter earnings release conference
call on October 21, 2011 at 11:00am ET.
The conference call will be simultaneously webcast for all
investors from Cytec’s website.
Select the Investor Relations page to access the live webcast.
Use of Non-GAAP Measures
Management believes that net earnings from continuing operations
attributable to Cytec excluding special items and diluted
earnings per share (continuing operations attributable to Cytec)
excluding 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 to
non-GAAP measurements 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’s vision is to deliver specialty chemicals and materials
technologies beyond our customers’ imagination. Our focus on
innovation, advanced technology and application expertise
enables us to develop, manufacture and sell products that change
the way our customers do business. Our pioneering products
perform specific and important functions for our customers,
enabling them to offer innovative solutions to the industries
that they serve. Our products serve a diverse range of end
markets including aerospace composites, structural adhesives,
automotive and industrial coatings, electronics, inks, mining
and plastics.
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