Cytec Industries Management Discusses Q4 2012 Results - Earnings Call Transcript
February 1, 2013 2:50 PM ET
Cytec Industries (CYT)
Q4 2012 Earnings Call
February 01, 2013 11:00 am ET
Shane D. Fleming - Chairman, Chief Executive Officer and President
David M. Drillock - Chief Financial Officer, Vice President and Chief Accounting Officer
Michael J. Sison - KeyBanc Capital Markets Inc., Research Division
P.J. Juvekar - Citigroup Inc, Research Division
Laurence Alexander - Jefferies & Company, Inc., Research Division
John P. McNulty - Crédit Suisse AG, Research Division
Good day, and welcome to the Cytec Industries 2012 Fourth Quarter Earnings Conference Call. Today's call is being recorded. For opening remarks and introductions, I would like to turn the conference over to Ms. Jodi Allen. Please go ahead.
Thank you, Keisha, 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 2013.
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 our website.
During 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.
Now let me turn over the call to Shane.
Shane D. Fleming
Thank you, Jodi, and good morning, everyone. I appreciate you taking the time to join our fourth quarter call. Let me first start by saying how pleased I am with our performance in 2012. It was a year of significant change for Cytec as we continued to execute the portfolio of transformation that we started in 2011. I'm extremely proud of our accomplishments to date. We sold our Pressure Sensitive Adhesives product line, recent agreement to sell the Coatings Resins business and completed the acquisition of Umeco. And at the same time, delivered strong financial results by increasing sales 20% year-over-year.
If you remove Umeco from that equation, sales grew about 10% over the prior year, and segment earnings grew by 26%. Full year net earnings from continuing operations were $141.2 million or $3.02 per diluted share, representing the 72% year-over-year increase in EPS.
Our strong financial performance in 2012 is testament to the improvements we have made in our business portfolio, as we're able to deliver solid sales growth and improve profitability in a challenging global economic environment.
Before I review the results for the quarter, I want to give a brief update on the status of the Coating Resins transaction. We still expect to complete the transaction by the end of the first quarter, and we are not concerned about any regulatory issues. We have received approval from various regulatory authorities, including the U.S., however, we still need others, including Europe and China.
Now let me review our results from the fourth quarter, shown in Slide 3. Sales from continuing operations were $471 million versus $369 million in the prior year quarter, representing the 27% increase mostly attributable to the additional Umeco sales. Without Umeco, sales growth in the quarter was 5% due primarily to the pricing actions we took in all of the business segments, as well as volume growth in our Engineered Materials business.
Fourth quarter net earnings from continuing operations were $33.5 million or $0.72 per diluted share, excluding special items, about 7% higher than the prior year quarter. Dave and I will cover results for the quarter in more detail shortly, but the impact of inventory reduction actions in the Engineered Materials and In Process Separation segment, plus the planned maintenance turnaround of our phosphines plant, reduced earnings for the quarter by approximately $0.10 per share. Overall, a good finish to the year for Cytec.
Moving to Slide 4. Our Engineered Materials segment achieved sales of $231 million, a 9% increase versus prior year period, with 5% from volume growth and the 4% due to selling price increases. The volume growth was mainly driven by higher build rates in the large commercial transport and civil rotorcraft sectors. We also experienced some improvement in business in regional jet sales, as the development on the CSeries program is underway. Offsetting these higher volumes was lower sales for tooling and brakes, which tend to be lumpy.
Operating earnings in the quarter were $41.2 million, slightly down from the prior year quarter. This was primarily a result of lower fixed cost absorption related to finished goods inventory reductions, as we worked to continuously refine our working capital metrics and better align inventory levels to our customers' demand. We have made good progress by working closely with our customers to reduce lead times, thereby allowing us and our customers to carry less inventory. Overall, we achieved excellent results in Engineered Materials in 2012, with record annual sales of $903 million, 14.5% above the prior year, as well as record operating earnings of $165 million, up 32% versus the prior year.
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