PolyOne Corporation (POL)
Q4 2012 Earnings Call
January 30, 2013 8:30 a.m. ET
Steve Newlin - Chairman, President and CEO
Bob Patterson - EVP and COO
Rich Diemer - SVP and CFO
Cynthia Tomasch - VP, Planning, IR
Frank Mitsch - Wells Fargo Securities,
Laurence Alexander - Jefferies & Co
Mike Sison - KeyBanc
Kevin Hocevar - Northcoast Research
Dmitry Silversteyn - Longbow Research
Christopher Butler - Sidoti & Company
Good morning ladies and gentlemen and welcome to the PolyOne Corporation Fourth Quarter 2012 Conference Call. My name is [Senal] and I will be your operator for today. At this time, all participants are in listen-only-mode. We will have a question-and-answer session at the end of the conference. As a reminder, this conference is being recorded for replay purposes.
At this time, I would like to turn the call over to Cynthia Tomasch, Vice President of Planning and Investor Relations. Please proceed.
Thank you, [Senal]. Good morning and welcome to everybody joining us on the call today. Before beginning, we would like to remind you that statements made during this conference call, which are not historical facts, may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements will give current expectations or forecasts to future events and are not guarantees of future performance.
They're based on management's expectations and involve the number of business risks and uncertainties any of which could cause actual results to differ materially from those expressed and/or implied by the forward-looking statements. Some of these risks and uncertainties can be found in the company's filings with the Securities and Exchange Commission as well as in today's press release.
During the discussion today, the company will use both GAAP and non-GAAP financial measures. Please refer to the earnings release posted on the PolyOne website where the company describes the non-GAAP measures and provides a reconciliation of them to the most comparable financial measures. Operating results referenced during today’s call will be comparing the fourth quarter of 2012 to the fourth quarter of 2011 unless otherwise stated.
Joining me today on the call is our Chairman, President and Chief Executive Officer, Steve Newlin; Executive Vice President and Chief Operating Officer, Bob Patterson; and Senior Vice President & Chief Financial Officer, Rich Diemer.
Now I will turn the call over to Steve Newlin.
Well thanks, Cynthia and thanks again to everyone who’s joining us on the call this morning. We always welcome the opportunity to speak with our investors and analysts about PolyOne’s recent performance. I’m very pleased to share our fourth quarter results with you as it caps off another record year for PolyOne on many fronts. We delivered fourth quarter record adjusted EPS of $0.21 and that’s a 17% increase over last year, which marks our 13th consecutive quarter of double digit year over year adjusted EPS growth. Each of our four segments improved organic operating profits over last year’s fourth quarter.
As has been the case throughout the year and well documented in the media, the extremely sluggish demand in Europe continues to be a challenge for companies. Our results reflect our effectiveness in moderating year-over-year declines in European business, improving specialty mix and curtailing and pruning of lower margin business. For the full year 2012 sales totaled $3 billion as we delivered record adjusted EPS of $1.20 a share. That’s an 18% increase over our prior record set in 2011. These full year results are particularly encouraging as they were generated by record-breaking performances in each of our three strategic platforms despite the previously referenced European headwinds.
In 2012, 40% of the specialty platform earnings were generated in Europe compared to 52% in 2011 on a pro forma basis. Nevertheless all three platforms delivered record earnings and operating margins. Both our distribution and the specialty platforms achieved record annual revenues.
As evidence of our mix improvement success during 2012 gross margins expanded from 16.6% to 19.5%. Healthcare continues to be one of our best performing areas of growth and it now represents 12% of total company revenues or $350 million in 2012.
For those analysts and investors who know us well, you know we don’t rest on our laurels and there is no complacency here at PolyOne. We hit our targets but we don't do so at the expense of our long-term strategic position. And while we delivered many record performances in 2012, we also accomplished several other achievements, including the successful integration of ColorMatrix, completion of the Glasforms acquisition and the agreement to acquire Spartech.
The first with respect to Spartech, we anticipate a first-quarter close for this deal. Pending shareholder approval, we’re still of course somewhat limited in the discussions that we can have with Spartech team. However, based on the interactions that we have had and the planning meetings that have taken place, we were increasingly excited about the opportunity before us. More than ever we’re convinced the Spartech solutions portfolio provides an impactful complement to PolyOne’s leading specialty presence in the industry and we will apply the same four-pillar strategy that transformed our specialty businesses to the Spartech business and we’re going to do this swiftly and great success.
We remain very confident in our synergy capture projection of $65 million run rate by the end of year three. In addition to synergies related to manufacturing alignment and the elimination of duplicate public company costs, we believe significant technology and cross-selling synergies exist. Our initial review of the Spartech technology and product lines confirmed that these opportunities are abundant. For example, PolyOne’s low smoke and halogen free technology used in our ECCOH and Geon product lines has very interesting application in some of Spartech’s sheet and laminate applications.
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