W.R. Grace & Co. (GRA)
Q4 2012 Earnings Call
February 06, 2013 11:00 AM ET
Executives
Mark Sutherland - VP, IR
Hudson La Force - SVP and CFO
Fred Festa - Chairman and CEO
Analysts
Mike Ritzenthaler - Piper Jaffray
Laurence Alexander - Jefferies
Mike Sison - KeyBanc
Jim Barrett - C.L. King & Associates
Presentation
Operator
Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2012 W.R. Grace & Co. Earnings Conference Call. My name is Jessenia and I’ll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.
I would now like to turn the conference over to host for today, Mr. Mark Sutherland, Vice President of Investor Relations. Please proceed, sir.
Thank you Jessenia, well everyone, and thank you for joining us today, February 6th, 2013 for a discussion of Grace’s fourth quarter 2012 results that were released this morning. Joining me on today’s call are Fred Festa, Grace’s Chairman and Chief Executive Officer, and Hudson La Force, our Senior Vice President and Chief Financial Officer.
Our earnings release and the corresponding presentation are available on our website. To download copies, go to grace.com and click on Investor Information. Links are available in the upper right corner of the page.
As you know, some of our comments today will be forward-looking and are made under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected or implied due to a variety of factors. Please see our recent SEC filings for more details on the risks that could impact Grace’s future operating results and financial conditions.
We will also discuss certain non-GAAP financial measures which are described in more detail in this morning’s release and on our website. Reconciliations to the most directly comparable GAAP financial measures and other associated disclosures are contained in our earnings release and on our website.
Our comments on forward-looking statements and non-GAAP financial measures apply both to the prepared remarks and to the Q&A. We wanted to remind everyone that this webcast contains time-sensitive information that is accurate only as of today. Any redistribution, retransmission or reproduction of this call without company consent is prohibited.
With that, I’ll turn the call over to Fred.
Thanks Mark and good morning to everyone. I am pleased with our results for the fourth quarter and our strong finish to the year. Our year-over-year and sequential quarterly performance was good and positions us very well for 2013. Hudson will discuss the fourth quarter in more detail. My comments will focus on 2012 in general.
Organic sales increased 7% in a tough macroeconomic environment and adjusted EBITDA margin increased 160 basis points to 20.2% confirming the strength of Grace’s earnings potential. We made great progress towards our vision of being the premier specialty chemical company.
In January, we introduced a new operating structure, three business segments each run by proven leaders reporting to a Chief Operating Officer who might have great confidence in. by leveraging this one grace platform we were able to reduce cost, grow productivity through the use of common management system business processes. Our structure is an important enabler for driving growth for each business.
In 2012, we took additional action to expand the company’s presence in emerging regions. We announced a joint venture in Abu Dhabi to manufacture refining catalyst. We acquired catalyst manufacturing assets in China which gives us a foothold to better supply refining catalyst in China and East Asia.
We’ve also acquired a concrete add mixture supplier in Brazil that expanded our presence and capabilities and in of the fastest growing construction markets in the world. We’ve invested capital to strengthen our technology base and to improve manufacturing productivity.
We completed several key capital projects at manufacturing facilities in North America and Europe that will support growth in our faster growing polyolefin and catalyst business. These projects include capacity for growth as well as new product technology.
2012 was also a challenging year in many ways. It was a year marked by volatility and uncertainty as manufacturers faced a recession in Europe, lower growth in emerging regions, and uncertainty in the U.S.
We saw significant volatility in currency and rare earth cost. This environment pressure tested our management systems and processes as each segment faced its own challenges. Catalyst technologies managed through refinery closures, rare earth volatility, lower polyethylene demand post a year of almost 10% organic growth.
Materials technology overcame a week first quarter improved throughout the year and exited the year at its target margins for 2013 and construction products delivered its best performance since 2008 as strong growth in emerging region offset that we construction markets in North America and Western Europe.
Our 2012 financial performance is a clear testament to the focus and execution of our employees globally and the strong positioning of our product technologies
In looking ahead 2013, our outlook for adjusted EBIT is $560 million to $580 million, an increase of 8% to 12% compared with 2012. We expect our businesses to manage well in a global economy that may have slowed or uneven growth. We remain confident in our 2014 goal of $850 million of adjusted EBITDA. We are tempering our top line goal to $3.8 billion from the $4 billion.
Macro environment has not been as strong as we have expected, but we have the business levers to keep earnings growing. We’re also confident in our three year adjusted free cash flow goal of more than $1.2 billion.
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