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Cytec Industries (CYT)

Q3 2012 Earnings Call

October 19, 2012 11:00 am ET


Jodi Allen

Shane D. Fleming - Chairman, Chief Executive Officer and President

David M. Drillock - Chief Financial Officer, Vice President and Chief Accounting Officer


David L. Begleiter - Deutsche Bank AG, Research Division

Laurence Alexander - Jefferies & Company, Inc., Research Division

Michael J. Sison - KeyBanc Capital Markets Inc., Research Division

Alina Khaykin

Neal Sangani - Goldman Sachs Group Inc., Research Division



Good day and welcome to the Cytec Industries 2012 Third Quarter Earnings Conference Call. Today's call is being recorded. For opening remarks and introduction, I would like to turn the conference over to Ms. Jodi Allen. Please go ahead.

Jodi Allen

Thank you, Brandy, and good morning, everyone. We appreciate your participation in our conference call. For our call today, Shane Fleming, Chairman, President and Chief Executive Officer, will provide an overview of continuing operations; and Dave Drillock, Vice President and Chief Financial Officer, will review the financial results, special items and discontinued operations. Shane will then finish with some commentary on our outlook for 2012.

This call is being webcast in listen-only mode and it will be archived in audio format on our website for 3 weeks. Throughout the call, we will be referencing the supporting materials which can be downloaded from our Investor Relations website under Calendar of Events, or you may follow the slides accompanying today's webcast, which are also available through the website.

Through the course of this presentation and in responses to your questions, you will hear certain forward-looking statements. Our actual results may differ materially. Please read our commentary on forward-looking statements in Slide #2 of our supporting materials or at the end of our news release or the statements in our quarterly and annual SEC filings.

In addition, our discussion includes certain non-GAAP financial measurements as defined under SEC rules. We have provided a reconciliation of those non-GAAP financial measures to the most directly comparable GAAP measure at the end of our press release. A copy of our press release is available on our Investor Relations website.

As a reminder, we are now reporting Coating Resins as discontinued operations so all financial information will be discussed accordingly.

In addition to aiding your analysis, we have also provided restated 2011 results by quarter in the Appendix of our supporting materials, reflecting Coating Resins as a discontinued segment. One other final reminder is that our 2012 guidance is on continuing operations.

Now, let me turn the call over to Shane.

Shane D. Fleming

Thanks, Jodi, and good morning, everyone. I appreciate you taking the time to join our third quarter call.

I'll begin on Slide 3. Sales from continuing operations in the quarter were $455 million versus $363 million in the prior-year quarter, representing a 25% increase. Excluding the impact of the Umeco acquisition, sales were up 7%, with volume accounting for 5% of the growth. The year-on-year volume growth was driven by strong performance on our 2 growth platforms, Engineered Materials and In Process Separation. The top line growth was also supported by improved pricing across all our segments.

The third quarter net earnings from continuing operations were $42.8 million or $0.91 per diluted share, excluding special items which represents a substantial increase versus $0.52 per diluted share in the third quarter of 2011.

I remain extremely pleased with our ongoing progress to leverage sales growth and improve product mix into strong earnings for the company.

Slide 4 provides the summary of results for Engineered Materials, with sales of $224 million, an increase of 12% versus third quarter 2011. Selling volumes increased by 9% in the quarter, driven by higher build rates in the commercial transport sector. This includes large commercial programs, as well as volume growth in the business and regional jet sector.

Demand also remained solid for the civil rotorcraft market. As anticipated, we did experience slightly softer demand patterns later in the quarter as a result of some short-term inventory destocking in the supply chain but volumes still held up well despite this headwind.

Selling prices also increased by 3%, which resulted in operating earnings in the quarter of $40.5 million, up 35% versus $30 million achieved in the period a year ago.

Moving on to Slide 5. We completed the acquisition of Umeco in the third quarter and are reporting results for this business for the first time as a separate operating segment. Please note that results do not represent a full quarter given the timing of the close on July 20. Sales for the business were $66.8 million since the close. We saw a solid performance in the process materials product line despite some softening in the wind energy sector in North America later in the quarter. If you recall, this side of the business supplies specialty vacuum bagging consumables for resin infusion and prepreg processing and represents about 40% of the segment's sales. Demand in the structured materials portion of the business softened in the later half of the quarter, particularly across the industrial sectors in Europe and we are seeing some customers in this market begin to delay orders. As reported, operating earnings since close were $2.9 million, which was somewhat below our expectations, driven primarily by the softer demand for the structural material products.

Slide 6 shows the results for the In Process Separation segment. Following record performances in the first 2 quarters of this year, the segment continues to deliver consistent growth with sales of $98 million in the quarter, a 9% increase versus the third quarter 2011. The selling volume increase of 4% came from continued strong demand from our mineral processing technologies including one new plant fill at a copper operation in Africa, accounting for over $3 million in sales. This demand increase was slightly offset by lower sales in aluminum markets as some customers have reduced output given high inventory levels and low aluminum pricing. Our assessment shows approximately 6 million tons of aluminum capacity or roughly 5% of the global production has been temporary taken offline.

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