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Texas Petrochemicals, Inc. (TXPI)

F1Q10 Earnings Call

November 13, 2009 10:30 am ET

Executives


Robert Whitlow – Investor Relations

Charles W. Shaver – Chief Executive Officer, President & Director

Ruth I. Dreessen – Chief Financial Officer & Senior Vice President

Analysts

Adrel Askew – Hartford Investment Management

[Cynthia Marino – Lloyds Bank]

Gregg Goodnight – ChemAnalysis

[Brian Doherty – Calidas Capital Management]

[Tyler Gentry – 40/86 Advisors]

Presentation

Operator

Welcome to the Texas Petrochemicals first quarter earnings conference call. During today’s presentation all parties will be in a listen only mode. Following the presentation the conference will be opened for questions. Instructions will be given at that time. This conference is being recorded today, Friday November 13, 2009. I would now like to turn the conference over to Bob Whitlow, Vice President of Finance.

Robert Whitlow

Welcome to Texas Petrochemicals 2010 first quarter conference call. My name is Bob Whitlow, Vice President of Finance. With me today are Charlie Shaver, President and Chief Executive Officer and Ruth Dreessen, Executive Vice President and Chief Financial Officer. As usual, we’re making this call available to investors and media via webcast. An archive of the webcast will be available for replay on our website shortly after the call. Around 6 am this morning, November 13th our earnings release went out and has been posted on the Internet on TPC’s website www.TXPetrochem.com.

As you know, some of our comments today may include statements about our expectations for the future. Those expectations involve risks and uncertainties. We can’t guarantee the accuracy of any forecast or estimate and we don’t plan to update any forward-looking statements during the quarter. Please note that the information reported on this call speaks only as of today, November 13, 2009 and therefore you are advised that time sensitive information may no longer be accurate as of the time of any replay.

In addition, some of our comments may reference non-GAAP financial measures. Reconciliation to the most directly comparable GAAP financial measures and other associated disclosure are contained in our earnings release on our website. Our earnings release and our annual reports are available on the Internet at www.TXPetrochem.com in the investor relations section.

I would now like to introduce Charlie Shaver.

Charles W. Shaver

Although overall economic activities remain generally sluggish in the US, we started off our new fiscal year with a pretty solid quarterly performance. The improvement in our business conditions that we experienced in the final quarter of last year continued on through the first quarter of our new year. As we’ve previously discussed, the end use market for all of our key products have been greatly impacted by the economic downturn and the significant destocking that took place in our second and third fiscal quarters last year.

With our customer inventory at those low levels we saw demand steadily improve through the first quarter and along with that better pricing for our products as well. On the operations side we continue to operate all of our plants safely and with good environmental performance. Our manufacturing facilities ran generally as planned during the quarter. We did experience an unplanned outage at one of our facilities for about a week during the quarter and that ultimately affected our production in volumes as we rounded out the quarter.

In regards to pricing and raw materials, we continue to see a more stable energy complex and in turn a more normal pricing environment for our slate of products. During the first quarter we saw higher and more stable petroleum prices which benefit our businesses. While prices of crude oil experienced an uptick, natural gas continued to be impacted by the weak domestic economy and less than robust demand overall. Natural gas prices as a result remained depressed relative to crude oil.

These comparatively lower gas prices continue to have a major impact on ethylene producers and their feedstock preferences ultimately affecting crude C4 availability. As we noticed in last quarter’s call the lighter feed slate continue to be the most favored due to the economic differential between the lighter cracking materials derived from natural gas and the heavier crude oil based feed stocks. Ethylene crackers with flexible cracking capabilities clearly favored ethane and this was anticipated during the quarter and we believe it will continue for the foreseeable future.

For the industry availability of crude C4s continue to be constrained by historical standards tightening the overall supply demand balances and strengthening the price of downstream products such as butadiene. TPC’s C4 processing business segment which includes butadiene, butane-1, [inaudible] and MTB performed well in the quarter. As you will recall, we completed the rationalization of our manufacturing facilities at the end of last year’s third quarter. This fight well with the overall market conditions and the level of availability of crude C4s.

With the operating rates for US ethylene crackers being over 80% for the quarter, we were successful in sourcing adequate crude C4 from our contract suppliers and other sources to adequately meet customer demands. However, petroleum prices in these very tight spot conditions drove price increases and underpinned our overall pricing in that business segment. Please note that we’ve also provided some additional financial metrics on our website to help further understand these comparisons and Ruth will cover this in a little greater detail in her remarks.

Moving on to our performance products business segment which includes isobutylene products, polyisobutylene, diisobutylene and our propylene derivatives businesses. This segment experienced improvement in business conditions with volumes up over 20% compared to fourth quarter of last year and on par with the volumes that we registered in the previous year’s first quarter. These businesses have clearly been impacted by the weak economic conditions that affect these end use markets early in the year. However, we do see the fundamentals for these businesses continuing to improve month by month with higher volumes and improved margins.

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