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Contact:
Jodi Allen (Investor Relations)
(973) 357-3283
Cytec Announces Third Quarter
2008 Results And Reviews Full Year 2008 Outlook
West Paterson, New Jersey, October 16, 2008 – Cytec Industries
Inc. (NYSE:CYT) announced today net earnings for the third
quarter of 2008 of $46.3 million, or $0.96 per diluted share on
net sales of $963.0 million. Included in the quarter are special
items that total $4.9 million of after-tax expense or $0.10 per
diluted share and are outlined further in this release.
Excluding these special items, net earnings were $51.2 million
or $1.06 per diluted share.
Net earnings for the third quarter of 2007 were $52.4 million,
or $1.06 per diluted share, on net sales of $875.1 million.
Included in that quarter was an after-tax net restructuring
charge of $2.2 million or $0.05 per diluted share and a tax
benefit of $3.5 million or $0.07 per diluted share as described
further in this release. Excluding these items, net earnings
were $51.1 million or $1.04 per diluted share.
David Lilley, Chairman and Chief Executive Officer said, “Our
third quarter results reflect the continued strong performance
of our Engineered Materials segment, delivering higher selling
volumes versus the same period a year ago. In the Surface
Specialties segment, we continued to experience weak demand in
North America, and we began to see a further than expected
slowdown in both North America and Europe toward the end of the
quarter. The Performance Chemicals segment’s excellent results
were led by strong growth in the Mining Chemicals product line.
The Building Block Chemicals segment was adversely impacted by a
major hurricane as well as declining demand for acrylonitrile.”
Cytec Performance Chemicals Sales increased 10% to $199
million; Operating Earnings increased to $28.2 million.
Mr. Lilley continued, “In Cytec Performance Chemicals, overall
selling volumes were down by 2%, selling prices in the segment
increased by 9% and the impact of exchange rate changes
increased sales by 3%. A strong increase in the mining chemicals
product line selling volumes was offset by decreases in the
other product lines where we saw weak demand principally in
North America and Europe.
“Operating earnings of $28.2 million were up compared to $18.3
million in the third quarter of 2007. The increase is primarily
attributable to higher selling prices more than offsetting
higher raw material costs and an improved product mix.”
Cytec Surface Specialties Sales increased 5% to $434 million;
Operating Earnings decreased to $22.2 million.
“In Cytec Surface Specialties, overall selling volumes were down
by 5% due primarily to weak demand in North America and Europe.
Selling prices were up by 3% and the impact of exchange rate
changes increased sales by 7%.”
“Operating earnings of $22.2 million include a charge of $1.4
million of accelerated depreciation related to the planned exit
of manufacturing at our Pampa, TX site. The operating earnings
were lower than the $31.2 million in the third quarter of 2007
and was primarily attributable to lower selling volumes and
higher raw material and freight costs more than offsetting
selling price increases.”
Cytec Engineered Materials Sales increased 18% to $191
million; Operating Earnings increased to $37.9 million.
“In Cytec Engineered Materials, selling volumes increased by 15%
and selling prices increased by 3%. The volume increase was
across most customer sectors principally lead by growth in
business/regional jets and large commercial aircraft.”
“Operating earnings increased to $37.9 million versus $28.8
million in the third quarter 2007. Higher selling volumes and
selling prices were the principle contributors to the earnings
increase which more than offset higher raw material, energy and
freight costs plus higher volume related manufacturing costs and
our increased investments in Research and Development.”
Building Block Chemicals Sales increased 17% to $139 million;
Operating loss of $1.3 million.
“In Building Block Chemicals, selling volumes were down 30% and
selling prices increased by 47%. The increase in selling prices
was primarily to recover the large cost increases of propylene
and ammonia.”
“The operating loss of $1.3 million as compared to operating
earnings of $9.4 million in the third quarter of 2007 resulted
primarily from significantly lower acrylonitrile volumes related
to demand destruction in the acrylic fibers market leading to
very low margin spreads. Operating earnings were also impacted
unfavorably by $3 million of additional costs related to
Hurricane Gustav.”
Special Items
David M. Drillock, Vice President and Chief Financial Officer
commented, “We recorded a number of special items in the third
quarter of 2008 that total a pre-tax charge of $7.1 million
($4.9 million after-tax or $0.10 per diluted share) as follows:
-
Included in
Corporate and Unallocated is a pre-tax charge of $5.7
million ($4.0 million after-tax or $0.08 per diluted share)
principally for a reduction of approximately 40 employees
mostly in our Specialty Chemical operations.
-
Included in
manufacturing cost of sales in the Surface Specialties
segment is a pre-tax charge of $1.4 million ($0.9 million
after-tax or $0.02 per diluted share) for accelerated
depreciation in relation to the planned exit of Radcure
manufacturing at our leased facility in Pampa, TX.
“In the third
quarter of 2007 we recorded an after-tax restructuring charge of
$2.8 million in Corporate and Unallocated. The costs were
principally related to manufacturing cost of sales with $1.3
million related to a restructuring of our polymer additive
manufacturing operations in West Virginia, $0.8 million related
to a restructuring of our Liquid Coating resins manufacturing
facility in Connecticut and $0.7 million was related to the
shutdown of our manufacturing operations in France.”
Interest Expense
Mr. Drillock continued, “Interest expense was reduced 16% from
the prior year quarter reflecting the lower average debt levels
and lower cost of debt versus the prior year quarter.”
Income Tax Expense
Mr. Drillock added, “Our tax provision for the third quarter of
2008 was $23.1 million, or 33.3%, on earnings before income
taxes compared with $18.4 million, or 26.0%, on earnings before
income taxes in the third quarter of 2007. The overall increase
in the 2008 underlying tax rate of 31.7% over the prior years
30.25% is primarily due to increased earnings in higher tax
jurisdictions.”
Cash Flow
Mr. Drillock further commented, “Cash flows from operations were
$89 million for the quarter and $171 million year to date. For
the quarter, trade accounts receivable decreased by $22 million
and days outstanding are flat versus the end of the second
quarter. Inventory increased approximately $48 million primarily
reflecting higher raw material and energy costs. Days on hand
are 80, up from 73 days at the end of last quarter partly
reflecting the reduced demand levels we experienced towards the
latter part of the quarter. Capital spending for the quarter was
$46 million, bringing our year to date spending to $116
million.”
“During the quarter we purchased 575 thousand shares of our
common stock for $26.9 million. The remaining amount available
under the current share repurchase authorization is
approximately $45 million.”
2008 Outlook
Mr. Lilley commented, “Despite our solid performance in the
first nine months of 2008, we are now faced with weaker market
conditions in Europe and North America, and an ongoing strike at
one of our major customers. Accordingly, as we communicated in
last week’s press release, we have revised our prior guidance
for full year adjusted diluted earnings per share estimate to be
in a range of $3.75 to $3.85 per share, down from our original
estimate of $4.15 to $4.35 per share.”
“On the input side, we continue to operate in a very challenging
environment. While feedstock prices have been declining in the
market, the benefit has not yet translated to the propylene
related derivatives we procure as one would expect. In fact,
some of the materials are in tight supply related to the impact
the hurricanes had on numerous chemical operations in the third
quarter. This tightness is slowing down the process of raw
material cost decreases in the fourth quarter. Therefore, we do
not expect to realize the benefit from reduced materials cost
until late in the fourth quarter.”
Mr. Lilley continued with some additional comments on the
individual segments, “In Cytec Performance Chemicals, we have
been successful by offsetting the raw material cost impact with
price increases. Our Mining Chemicals product line continues to
perform well and grow its selling volumes, although our other
products lines are being impacted by the weakening demand in
North American and Europe. Our operational excellence
initiatives in polymer additives continue to benefit us, and the
net of all this is that our full year guidance remains unchanged
with operating earnings growing about 10% or a range of $77
million to $79 million.”
“In Cytec Surface Specialties, we expect further deterioration
in North America and Europe for the remainder of the year. We
are taking action on a number of cost initiatives, but in the
final quarter we will not be able to fully compensate for the
much weaker demand. Given this difficult environment, we have
reduced our estimate for Surface Specialties full year operating
earnings to be in a range of $75 million to $80 million versus
our prior expectation of $90 million to $95 million.”
“In Engineered Materials, we are pleased with the continued
growth and overall performance of the business. Unfortunately,
the full year demand is impacted by the length of the
International Machinists (IAM) strike at The Boeing Company.
Based on our assumption that the strike will continue until year
end, we have reduced our full year 2008 estimate for operating
earnings to be in a range of $138 million to $143 million, down
from our prior estimate of $153 million to $158 million.”
“In Building Block Chemicals, we experienced a negative impact
of approximately $3 million in earnings in the third quarter as
a result of higher costs associated with hurricane Gustav. In
addition to this event, we have witnessed further demand
destruction in the Asian acrylic fibers market due to the high
selling prices for acrylonitrile. This has reduced our sales
volume and we expect it to continue through year-end. As a
result of these conditions, we have revised our operating
earnings estimate for the segment to be approximately $15
million to $17 million for the full year 2008 versus our prior
guidance of $20 million to $22 million.”
“Our guidance for Corporate and Unallocated is a net expense of
$5 million, down from our prior forecast of $9 million as a
result of reductions in performance stock related expense. Other
income/(expense) is forecasted to be an expense of $3 million
versus income of $2 million as a result of unfavorable foreign
currency transaction exchange. Equity earnings are still
expected to be about $2 million. Our forecast for interest
expense remains at about $37 million, and our underlying annual
tax rate for ongoing operations is in the range of 31.0% to
31.5%, primarily due to the reinstatement of the U.S. R&D tax
credit enacted in the fourth quarter.”
In closing, Mr. Lilley commented, “As would be expected in this
economic environment, we face a number of short and medium term
challenges. We are rescheduling production at our Engineered
Materials plants and in some cases reducing operations to offset
some of the impact from the Boeing strike. In Surface
Specialties, we have to react to the new economic realities and
intensify our efforts to significantly reduce operating
expenses. Additionally, we will explore opportunities to lower
our cost base by accelerating the right sizing efforts of our
asset base to better align with market conditions.”
Nine Month Results
Net earnings for the nine months ended September 30, 2008 were
$152.0 million or $3.12 per diluted share on sales of $2,941.7
million. Included in the results for the nine months were – (a)
net pre-tax restructuring charges of $10.8 million ($7.6 million
after-tax or $0.16 per diluted share), (b) a pre-tax charge of
$4.2 million ($2.7 million after-tax or $0.06 per diluted share)
for accelerated depreciation of our Pampa site. Excluding these
items, net earnings were $162.3 million or $3.33 per diluted
share.
Net earnings for the nine months ended September 30, 2007 were
$158.9 million or $3.23 per diluted share on sales of $2,602.6
million. Included in the results for the nine months ended
September 30, 2007 were – (a) a net pre-tax restructuring
charges of $5.4 million ($4.8 million after-tax or $0.10 per
diluted share), (b) a pre-tax gain of $15.7 million ($15.3
million after-tax or $0.31 per diluted share) as a result of
completing the second phase of the sale of our water treatment
chemicals and acrylamide product lines to Kemira Group, (c) a
tax benefit of $3.5 million of $0.07 per diluted share related
to enacted legislation in an international jurisdiction.
Excluding these items, net earnings were $144.9 million or $2.94
per diluted share.
Investor Conference Call to be Held on October 17, 2008 at
11:00AM ET
Cytec will host their third quarter earnings release conference
call on October 17, 2008 at 11:00am 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.
Use of Non-GAAP Measures
Management believes that net earnings 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 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 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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