Cytec Industries Inc. (NYSE: CYT) announced today net earnings for the first quarter 2012 of $53.1 million or $1.14 per diluted share on net sales of $783.3 million. Included in the quarter are several special items that total $6.7 million of net expense after-tax or $0.14 per diluted share and are outlined further in this release. Excluding these special items, net earnings attributable to Cytec were $59.8 million or $1.28 per diluted share.
Shane Fleming, Chairman, President and Chief Executive Officer commented, “I am extremely pleased with our strong start to 2012. Engineered Materials delivered excellent results due to strong volume growth across each of our aerospace end markets, higher selling prices, and higher operating rates which translated into increased operating margins. The In Process Separation segment also performed well driven by higher selling prices and strong demand for our specialty mining and phosphine products. Coating Resins also performed better than expected versus the prior year period, which is mostly attributable to higher selling prices that mitigated the impact of lower selling volumes. Overall, our two growth segments contributed significantly to the improved results as we enjoy strong demand in our markets and continue to execute our growth strategy.”
Cytec Engineered Materials sales increased 17% to $219 million; operating earnings increased to $45 million.
In Engineered Materials, selling volumes increased by 14% compared to the prior year period, due to higher build rates in the large commercial transport sector and business and regional jet sectors, including supply to new programs and ramp-ups to support build rate increases. Selling volumes for the military and civil rotorcraft markets were also higher, driven by higher build rates compared to prior year period. Higher selling prices increased sales by 3%.
Operating earnings of $45.0 million were up versus $25.1 million in the first quarter of 2011, mainly as a result of higher selling volumes, increased production levels, and selling price increases. These benefits were partially offset by higher manufacturing and operating expenses as a result of the increased spending to meet the higher demand and to support growth programs.
Cytec In Process Separation sales increased 17% to $92 million; operating earnings increased to $22.9 million.
In Process Separation selling volumes were up by 8% versus the first quarter 2011 driven by strong demand for our mining chemicals across most regions, particularly in Eastern Europe and
Operating earnings of $22.9 million were higher versus operating earnings of $16.4 million in the prior year quarter, mainly as a result of higher selling volumes and prices. These positive impacts were partially offset by higher manufacturing cost of sales and operating expenses of $5.1 million as we invest in growth opportunities in developing markets.
Cytec Additive Technologies sales decreased 4% to $68 million; operating earnings decreased to $6 million.
In Additive Technologies, selling volumes were down by 8% versus the first quarter of 2011 due to soft demand in most regions, most notably in
Operating earnings of $6.4 million were down compared to $8.4 million in the first quarter of 2011 mainly as a result of lower selling volumes and production levels. These unfavorable impacts were partially offset by higher selling prices, which more than covered the impact of higher raw material costs.
Cytec Coating Resins sales decreased 6% to $405 million; operating earnings increased to $29 million.
In Coating Resins, overall selling volumes decreased 9% versus the first quarter of 2011 as we experienced weaker demand across most of our product lines, particularly in
Operating earnings of $28.8 million were up versus $20.0 million in the first quarter of 2011 mainly due to higher selling prices of $19.7 million and benefits from our restructuring initiatives implemented in 2011 which more than offset the unfavorable impacts of lower volumes and higher raw material costs.
Discontinued Operations
Net earnings for the first quarter of 2011 includes earnings from discontinued operations, net of tax, of $43.6 million which includes a gain from the sale of the former Building Block Chemicals Segment of $36.8, net of tax, which was divested in the first quarter of 2011.
Special Items
In the first quarter of 2012 a number of special items were recorded (all in Corporate and Unallocated) that resulted in net pre-tax charges of $10.2 million ($6.7 million net charge on an after-tax basis or $0.14 per diluted share) as follows:
•Included in various manufacturing and operating expenses are pre-tax net restructuring charges of $3.3 million ($2.4 million after-tax or $0.05 per diluted share).
•Included in Research and process development is pre-tax incremental accelerated depreciation of $0.7 million ($0.4 million after-tax or $0.01 per diluted share) related to the sale-leaseback agreement of our research and development facility in Stamford, Connecticut, which was signed in the third quarter of 2011.
•Included mainly in Administrative and general is a net pre-tax charge of $6.2 million ($3.9 million after-tax or $0.08 per diluted share) related to our exploration of the separation of the Coating Resins business.
In the first quarter of 2011 a number of special items (all from continuing operations and in Corporate and Unallocated) were recorded that resulted in net pre-tax credit of $0.8 million ($0.5 million net benefit on an after-tax basis or $0.01 per diluted share).
Income Tax Expense
Income tax expense for the first quarter of 2012 was $25.7 million, compared with $15.0 million in the first quarter of 2011. Included in 2011’s income tax provision is a benefit of $2.3 million related to changes in the deferred tax positions of certain international subsidiaries due to tax legislation which reduced tax rates in those jurisdictions. Excluding this impact and the impact from the special items previously noted, the overall underlying annual tax rate for the first quarter of 2012 was 32.5% versus the underlying annual tax rate in the first quarter of 2011 of 31.25%. The 2012 increase in the underlying annual rate was primarily attributable to the expiration of certain
Cash Flow
David Drillock, Vice President and Chief Financial Officer commented, “Cash flows provided by operating activities were $32.3 million for the first quarter 2012. During the quarter our average net working capital days stayed flat at 66 compared to the fourth quarter of 2011. Average accounts receivable days outstanding also stayed flat at 49 days and average inventory days increased by five to 73 days mostly as a result of the higher demand within our growth platforms. Average accounts payable days were up five to 56 days, again related to the aforementioned higher demand.”
“Capital spending for the quarter was $24 million with over 50% of the spending attributable to our growth platforms. Our expectation for capital spending for the full year 2012 is approximately $200 million with all of the increase from prior year related to manufacturing capacity expansions in the Engineered Materials and In Process Separation segments.”
Coating Resins Update
In January 2012, the Company announced that it has retained J.P. Morgan to assist in an analysis of alternatives available to Cytec to effect a potential separation of its entire Coating Resins business. The Company is making good progress on its evaluation of strategic options, and is on schedule to announce a decision regarding the separation of the Coating Resins business during the second quarter of 2012 with an anticipated completion by year end.
2012 Outlook
Mr. Fleming continued, “We entered the year on a solid footing and we remain focused on executing our strategic imperatives to deliver growth and create value for our customers and our shareholders. Our guidance for 2012 full year adjusted diluted earnings per share is a range of $4.35 to $4.65 on sales of $3.19 to $3.27 billion. This compares to sales of $3.07 billion and adjusted diluted earnings per share of $3.66 in 2011. We announced our plan to acquire Umeco Plc on April 12th. Our expected earnings accretion from this acquisition of $0.20 per diluted share, assuming a July closing, is not included in our full year guidance.”
Cytec’s sales and operating earnings guidance by segment follows and as a reminder, the Company implemented organizational changes during the first quarter of 2012 (announced in a separate release dated today, April 19th, 2012) and the guidance is reflective of its new segment reporting structure.
Mr. Fleming added, “In Engineered Materials, demand visibility for this business remains good and our outlook for the global aerospace market remains very positive. For 2012, our estimate is for a 12% to 17% increase in revenues driven by higher build rates in the large commercial programs and steady demand growth in the business jet and rotorcraft sectors along with our pricing initiatives. Sales are projected to be in a range of $880 to $920 million versus sales of $789 million in 2011 and operating earnings are projected to be in a range of $170 million to $180 million, up from the 2011 operating earnings of $125 million.”
“For the In Process Separation segment, the level of customer interest in our specialty technologies remains strong and is driving higher volumes. With our recent purchase in
“In Additive Technologies, we anticipated a slower start this year, particularly in Europe given the weak macroeconomic environment. However, we still expect to see a healthy demand for the year as we continue to drive regional expansion and new market penetration for growth. In addition, we now have the added capacity to meet the increased demand for our specialty products in this segment. Taking this into account, sales are projected to be in a range of $290 million to $300 million compared to sales of $287 million in 2011 and for full year operating earnings to be in a range of $40 million to $45 million, up from the 2011 operating earnings of $39.4 million.”
“For Coating Resins, customers remain cautious as they manage inventory through uncertainties. Although we continue to expect to offset increasing raw material costs with higher pricing, the marketplace remains competitive, and coupled with weak underlying fundamentals in
The guidance for Corporate and Unallocated expenses is approximately $18 to $20 million for the year, Other Expense is forecasted to be approximately $2 million, and interest expense, net is expected to be between $36 and $38 million. The forecast for the underlying annual tax rate is expected to be in a range of 31.5% to 33.5%.”
Mr. Fleming concluded, “We have started the year with good momentum, and we are well positioned to deliver strong growth in 2012. We continue to create value for our customers with our unique technology offerings as we invest in our Engineered Materials and In Process Separation growth platforms. Cytec is poised to deliver another year of double-digit earnings growth while strengthening our portfolio to provide sustained future growth.”