Albemarle Corporation (ALB)

ALB 
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Albemarle Corporation (ALB)

Q3 2012 Earnings Conference Call

October 18, 2012 09:00 AM ET

Executives

Luke Kissam - Chief Executive Officer

Scott Tozier - Chief Financial Officer

Lorin Crenshaw - Director of Investor Relations

Analysts

John Hertz [ph] – Citigroup

David Begleiter - Deutsche Bank

Kevin McCarthy - Bank of America Merrill Lynch

Laurence Alexander - Jefferies & Co.

Mike Ritzenthaler – Piper Jaffray

Jeff Zekauskas – JP Morgan

Mike Sison – KeyBanc

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter 2012 Albemarle Corporation Earnings Conference Call. My name is Carissa and I'll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session. (Operator Instruction).

As a reminder this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today’s call Mr. Lorin Crenshaw, Director of Investor Relations. Please proceed.

Lorin Crenshaw

Thank you, Carissa, and welcome everyone to Albemarle's third quarter 2012 earnings conference call. Our earnings were released after the close of the market yesterday and you'll find our press release, earnings presentation and non-GAAP reconciliations posted on our website under the Investors section, at albemarle.com. Joining me on the call today are Luke Kissam, Chief Executive Officer; and Scott Tozier, Chief Financial Officer.

As a reminder, some of the statements made during this conference call about the future performance of the company may constitute forward-looking statements within the meaning of Federal Securities Laws. Please note the cautionary language about our forward-looking statements contained in our press release. That same language applies to this call. Finally, reconciliations related to any non-GAAP financial measures discussed on this call maybe found in our press release or earnings presentation, which are posted on our website.

With that, I'll turn the call over to Luke.

Luther Kissam

Thanks Lorin and good morning everyone. We appreciate the opportunity to share our third quarter results with you today. I'll begin by commenting on the Company's quarterly results and then Scott will review select highlights related to business segment performance and financial results. As usual, at the end of our prepared remarks, we'll open it up for your questions. While we are going to limit your questions to two per person at one time, so everyone has a chance, then feel free to get back in the queue for follow-ups if time allows.

Given the challenging economic environment we faced in the quarter I’m pleased with our results and encouraged by the earnings power the company continues to demonstrate. Although, our income was significantly impacted by macroeconomic and metal trends and the year-over-year drop in the rare earth price index. Our overall profitability is proving resilient and cash generation was excellent.

Third quarter net sales was $661 million and net income was $99 million, $1.10 per share. Segment income was a $146 million and segment margins remained strong at 22%. While all of those metrics were down year-over-year, they were achieved against a much tougher economic environment. If you look at each GDU’s performance in the third quarter Polymer Solutions which was our business’ most negatively impacted by the global economic slowdown reported net sales of $217 million, segment income of $44 million and segment margins of 20%, much stronger performance in polymers than was the case the last time we faced similar economic conditions back in the 2009 time frame.

Catalysts had net sales of $251 million, segment income of $61 million and segment margins of 24%. As we explained in the second quarter call, second half year-over-year comparisons will be tough in 2012. Given the precipitous decline in rare earth index pricing and the impact of that decline on our results, but we are also down sequentially in year-over-year in Performance Catalyst Solutions due primarily to some customers reducing their inventories during the quarter and others having scheduled turnarounds. We expect that to be a one quarter issue.

Fine Chemistry continued to deliver high growth and excellent profitability this quarter with net sales of $193 million, segment income of $42 million and segment margins of 22%. Income was up 39% year-over-year and margins were up 487 basis points year-over-year. The business got a late quarter boost from strong clear bromine fluid volumes in September due to some increased drilling activity in the Gulf of Mexico.

There are a couple of factors impacting our results that are worth noting. First of all as it relates to polymers, throughout the quarter there was a continuation of the broad based deterioration of electronics end markets and that will signal throughout the supply chain indicating a weaker second half. In addition, construction activity overall and in particular in Europe fell off substantially impacting our mineral flame retardant business and HBCD volumes and pricing.

We indicated in our second quarter earnings call that the second half outlook of Polymer Solutions had weakened considerably since the first quarter when we thought that the prospects for a second half recovery looked more promising and it begun to build the inventory in anticipation of that recovery. The outlook has continued to get worse if you look at the indicators that we typically discussed. The IPC book-to-bill ratio is a U.S. only ratio but it is nevertheless a decent proxy for our printed wiring board business.

At the time of our first quarter call, the March reading of this indicator registered 1.05 and it trended up for four straight months. The July reading was 1.0 and was the fourth straight month of decline. The most recent reading ticked up to 1.02, but the trend since March of this year has clearly been downward sloping. The most recent Gartner data on year-over-year global PC shipments indicated a decline during the third quarter of over 8% while the most recent data from iSuppli calls for a 5% decline in global TV shipments for 2012 with the trends most sluggish in developed markets where we tend to see reasonable fire safety standards all set by growth in developing markets which tend not to have a stringent of fire safety standards.

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