Cytec Industries' (
) makeover has moved into a higher gear this year, thanks to a
series of deals to expand into certain product areas and exit
Cytec is a global supplier of specialty chemicals and
materials. It makes products for a number of end markets,
including aerospace, industrial coatings, chemicals and
The company used to get about half of its sales from its
Coating Resins business. Other business segments include
Engineered Materials, which makes carbon fiber products;
In-Process Separation, which specializes in mining chemicals and
alumina processing; and Additive Technologies.
Cytec's revenue stream is headed for a big change, however. In
October, the company announced plans to sell its coatings unit to
private-equity firm Advent International for $1.03 billion. The
move will let Cytec focus on more profitable businesses that make
carbon-fiber composites and chemicals.
"This transaction is another significant step in our portfolio
transformation," Cytec Chief Executive Shane Fleming said in a
statement announcing the deal. "The sale enables us to focus on
our industry-leading portfolio of growth platforms, comprised of
advanced materials and separation technologies, to drive
long-term growth and deliver greater returns to our
The decision to sell the coatings business is part of an
overall strategy to "divest low-margin businesses and focus its
growth on its higher-margin franchises," noted Michael Sison, an
analyst at Keybanc Capital Markets.
The coatings transaction is expected to close in the first
quarter of 2013. It follows Cytec's earlier sale of its Pressure
Sensitive Adhesives product line for $105 million in cash.
Cytec hasn't just been selling off businesses, however. It
also has been buying them.
On April 12, Cytec said it would acquire Umeco, a British
provider of advanced composite materials, for $439 million.
That deal, which closed in July, bolstered Cytec's positions
in the aerospace, industrial and automotive sector. Umeco's
customers includeBoeing (
), Airbus and BAE Systems. The unit also makes composite
materials for Formula One race cars.
Despite softness during the third quarter in certain European
markets that Umeco serves, company watchers sound confident the
Umeco business will produce robust returns in coming
"Management noted on the Q3 call that its expects Engineered
Materials to deliver strong revenue and earnings growth in 2013,
and that it remains very positive on Umeco's ability to
capitalize on future growth opportunities in industrial
materials," David Begleiter, an analyst at Deutsche Bank, noted
in a third-quarter earnings report.
The Umeco buyout followed Cytec's $37 million acquisition,
also in April, of the manufacturing assets of India's Star
Orechem International Private Ltd. The acquired operations are
used to manufacture Cytec's Acorga solvent extractant
All of this wheeling and dealing is designed to improve
Cytec's financial returns over the long term even as it faces
lower sales and earnings this year.
As recently as 2008, the company logged more than $3.6 billion
in annual revenue. Analysts expect that figure to be closer to
$1.7 billion this year.
Meanwhile, analysts surveyed by Thomson Reuters expect Cytec
to post 2012 full-year earnings of $2.95 a share, down from $3.66
Despite the lower numbers, Cytec's stock price recently set a
5-1/2-year high of 70.86, thanks in part to a share repurchase
Following its Q3 earnings report, Cytec confirmed that it
would begin repurchasing shares this quarter, noted Citigroup
analyst P.J. Juvekar. However, he reckons the bulk of share
repurchases will occur in the second quarter of 2013.
"The company also reiterated interest in an accelerated share
buyback following the completion of the Coatings sale, which is
expected to close in the first quarter of 2013," Juvekar
Cytec's recent stock gains also stem from "positive insight
into 2013 earnings," Deutsche Bank's Begleiter noted.
During the third quarter, Cytec reported earnings from
adjusted continuing operations of 91 cents a share, up 75% from
the prior year and well above Wall Street estimates for 69
Sales from continuing operations were $455 million, up 25%
from a year earlier but below views for $478 million. Excluding
the impact of the Umeco acquisition, sales climbed 7%.
Engineered Materials sales rose 12% to $224 million during the
quarter, while the unit's selling volumes gained 9%. Growth here
was driven by higher build rates in the commercial transport
"Demand remained strong across the entire aerospace sector,
including large commercial aircraft programs, business and
regional jet markets," Begleiter said.
Cytec's In-Process Separation business unit also delivered
solid results during the quarter. The unit had near-record
operating margins of 25% on volume growth of 4%.
The gains came "despite recent softness in alumina as about 5%
of global production has been taken offline temporarily as a
consequence of high inventories and low prices," Citigroup's