Albemarle Corporation (ALB)

ALB 
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Albemarle Corporation (ALB)

Q4 2009 Earnings Call

January 26, 2010 10:00 am ET

Executives

Sandra Rodriguez – Director, IR

Mark Rohr – Chairman, President & CEO

John Steitz – EVP & COO

Luke Kissam – EVP, Manufacturing, Law, Secretary and Health, Safety & Environment

Rich Diemer – SVP & CFO

Analysts

P.J. Juvekar – Citigroup

Laurence Alexander – Jefferies

Kevin McCarthy – Banc of America

Steve Schwartz – First Analysis

David Begleiter – Deutsche Bank

Mike Sison – Keybanc

Dmitry Silversteyn – Longbow Research

Todd Vencil – Davenport & Company

Robert Koort – Goldman Sachs

Edward Yang – Oppenheimer

Presentation

Operator

Good day, ladies and gentlemen and welcome to the Q4 2009 Albemarle Corporation earnings conference call. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions).

I would now like to turn the call over to Sandra Rodriguez, Director of Investor Relations. Please proceed, ma'am.

Sandra Rodriguez

Thanks Antwain. Good morning, everyone and thank you for joining us today for a review of Albemarle's fourth quarter and full year results, which were released after the market closed yesterday. Our press release contains preliminary results for the quarter, which, as you know, is subject to further review by the company and our auditors as part of our year-end review process.

Please note that we have posted supplemental sales information, as well as reconciliations for net debt and EBITDA on our website under the Investor Information section at albemarle.com. I would also like to caution that remarks today contain forward-looking statements. Factors that could cause results to differ from expectations are listed in our Annual Report on Form 10-K.

Participating with me on the call this morning are Mark Rohr, Chairman and Chief Executive Officer; Luke Kissam, Executive Vice President; John Steitz, Chief Operating Officer; and Rich Diemer, Chief Financial Officer.

Before I turn the call over to Mark, I would like to ask everyone to save the date for Albemarle's 2010 Analyst and Investor Conference, which will be held in New York City on May 13. Registration and event details will be sent out in the coming week.

At this time, I'll turn the call over to Mark.

Mark Rohr

Thanks, Sandra, and good morning, everyone. We appreciate you joining us today as we report fourth quarter earnings. I'd like to begin with highlights of some of our strategic initiatives before commenting on the company's results and our view of current market trends impacting our business. Luke Kissam will follow with a brief update on the company's productivity and cost reduction efforts. John Steitz will then cover business segment performance and some specifics about new product introductions. And Rich Diemer will wrap up with the financial highlights.

With our asset base in Jordan, Arkansas, and China, our bromine business has tremendous global reach. We have the commercial viability and know-how from which to produce unique bromine derivatives that go into many end-use markets including pharmaceuticals, fire safety, energy recovery, food, biocidal [ph] applications and emissions reductions, just to name a few. We continue to invest in resources to develop new solutions for our customers, strengthening this bromine franchise.

And I would like to mention two such initiatives we have underway. First is a recent launch of our Earthwise family of eco-friendly products. Over the last several years, our scientists have invented what we think as unique breakthrough technology that meets the needs of our customers, provides better performance, and has an outstanding environmental profile.

Our first product launched under the Earthwise brand is a fire safety solution we call GreenArmor. And we are getting good feedback from our customers that are now testing this polymeric solution. We hope for commercial sales by the end of this year. These new products specifically designed to improve efficacy and promote recycling, while also eliminating concerns over toxicity issues, provides a new direction for bromine chemistry. Through this year, you will hear more about this eco-friendly brand and new products that fit this profile.

You may have also seen our press release last week announcing Albemarle and Chemtura's long-term strategic supply agreement. Luke will tell you more about the agreement shortly, but I'll say we are pleased with the outcome and believe both companies will benefit. Albemarle has positioned itself as a leading bromine supplier with low-cost supply options and this deal with Chemtura further strengthens this position. We have sufficient bromine capacity to meet demand for the foreseeable future and expect to run assets at higher rates as we do so.

Now, let me shift to our release. Our fourth quarter results cap a year of execution agility and perseverance carried today. The demand picture in the quarter reflected strengthening across many of the markets we serve. This progress was reflected in reported net income of $62.3 million or $0.68 per share. Excluding restructuring charges and tax benefits, earnings from operations were $0.64 per share for the quarter compared to $0.41 per share at a much lower tax rate than prior year.

The restructuring charges relate to planned workforce reductions at a number of our sites in connection with project one Albemarle and asset write-offs in Arkansas as a result of the Chemtura agreements. The one-time tax benefit is from final settlement of the prior year tax audits. Together, those audits benefitted fourth quarter earnings by $0.04 per share.

Net sales revenue for the fourth quarter totaled $558 million. That's up 8% from last year and 8% sequentially. All in all, our business delivered solid top line growth and strong earnings in the fourth quarter.

Excluding special items and tax benefits, full year 2009 earnings were $1.86 per share compared to $2.39 per share in 2008. Over one-third of our 2009 earnings were achieved in the last quarter of the year. On a full year basis, net sales totaled $2 billion, down 19% compared to $2.5 billion in 2008.

Through 2009, we overcame weak markets and substantial unallocated fixed costs at many of our facilities. We set our focus on cash generation and took very aggressive steps to pull back capacity and eliminate cash cost. You've seen the past three quarters where production assets were running at reduced rates, our fixed cost was spread over lower volumes and unheard profitability.

Painful as it was, we dramatically improved liquidity and strengthened our balance sheet in the year with over $300 million in cash. During the year, we repaid over $120 million in debt, funding capital expenditures of over $100 million, and paid dividend to shareholders of $44 million.

In the fourth quarter, we also made a $25 million contribution – voluntary contribution to our defined benefit plans and repurchased approximately 175,000 shares of common stock for $5.8 million. Good business execution coupled with our continued productivity efforts lead all three segments to year-over-year and sequential margin improvement. Segment margins increased 600 basis points year-over-year from 10.5% in the fourth quarter of 2008 to 16.7% Q4 2009.

Our Polymer Solutions business recorded its highest quarterly segment income since 2007, realizing segment income margins of approximately 16%. Demand was stronger than anticipated and we did not see the normal levels of seasonal decline typical at year-end. That said, the sequential volume recovery slowed in the fourth quarter compared to the previous three quarters and we think signaling stabilization of manufacturer's inventory.

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