Cytec Earnigns Up, Composite Sales Down
WEST PATERSON, N.J. - Cytec Industries Inc. (NYSE:CYT) announced today that net earnings for the third quarter of 1999 were $35 million or $0.79 per diluted share on sales of $344 million.
Included in results for the quarter is a reduction of $8.0 million ($0.18 per diluted share) in income tax expense related to the utilization of additional prior years' tax credits. Partially offsetting this was a charge of $2.5 million ($1.6 million after tax or $0.04 per diluted share) in administrative expense for external costs associated with such tax planning. Additionally, during the quarter, based on the most recent year end projections, the Company reduced its underlying effective tax rate for the nine months ended September 30, 1999 to 34.5%, down from 35.0% utilized for the six months ended June 30, 1999. This reduced the third quarter effective tax rate to 33.5% resulting in increased third quarter earnings of $0.01 per diluted share when compared with what would have been recorded at 34.5%. Excluding the above three items, diluted earnings per share for the quarter were $0.64. Net earnings for the comparable period of 1998 were $27 million, or $0.59 per diluted share on sales of $358 million.
David Lilley, Chairman, President and Chief Executive Officer commented: "We achieved $0.64 per diluted share or 8% growth compared to the third quarter of 1998, excluding $0.15 per share in net tax benefits. Highlights of these earnings are higher unit selling volumes in our two specialty chemicals segments and improvement in operating margins. We increased Cytec's consolidated gross margin by 200 basis points to over 31% and our operating margin increased 120 basis points to 13.6%, excluding the increase in administrative expense for the outside fees for tax planning."
Segment Results
"Water and Industrial Process Chemicals sales increased 4% to $92 million and operating earnings increased 41% to $12 million. The increased sales were in paper, water treatment and mining chemicals. Selling volumes were up 7%, of which 2% is from the recent acquisitions of the Inspec and Nottingham industrial minerals product lines. Selling prices were down approximately 2% and unfavorable exchange rates decreased sales another 1%. Operating earnings are up as a result of the leverage from the higher sales, lower raw material prices and reduced operating costs."
"Performance Products sales increased 5% to $108 million and operating earnings increased 5% to $12 million. Overall, selling volumes were up 7% of which 2% is due to the acquisition of the remaining 50% of our former Dyno-Cytec joint venture in late July of last year. Selling prices for the segment declined 2% with decreases in the three businesses, although the decreases have recently moderated. Polymer additives, along with surfactants and specialty monomers, had strong sales volumes during the quarter. Resins sales volumes, excluding the acquisition, were down modestly as a result of lower sales in Latin America and Europe."
"Specialty Materials sales were $105 million, a decrease of 10%, although operating earnings were flat at $20 million. Approximately 8% of the sales decrease was due to the divestiture of the molding compounds and certain other product lines while the acquisition of The American Materials & Technologies Corporation in the fourth quarter of last year added approximately 4% to sales. Excluding the effect of acquisitions and divestitures, selling volumes were down 4% as a result of reduced commercial aircraft build rates, partially offset by new product introductions, new applications and new qualifications for our products. Selling prices decreased 2% but this was largely offset by lower raw material costs. Operating earnings benefited from the rationalization of manufacturing consistent with reduced commercial aircraft build rates."
Lilley continued, "Building Block Chemicals sales were $38 million, a 22% decrease. Operating earnings were $3 million compared to $7 million for the same period last year. Selling prices for acrylonitrile improved in the quarter but costs for propylene, the key raw material for acrylonitrile, increased at a faster rate, and as a result, acrylonitrile margins remained low. The selling prices and volumes of acrylamide and melamine in both markets have been negatively impacted by new capacity. Due to poor economics, the methanol plant remained shut down for the quarter, and it is expected to remain down for the foreseeable future. For the segment overall, selling prices were down 9% and selling volumes declined 13%. Operationally, the Building Block facilities ran well during the quarter."
Associated Companies Results
Third quarter equity in earnings of associated companies declined $3 million. Lower selling prices as a result of increased industry capacity continues to affect results at Criterion Catalyst. CYRO Industries earnings were also down, primarily as a result of lower selling prices.
Effective Tax Rate
James P. Cronin, Executive Vice-President and Chief Financial Officer commented, "An important part of Cytec's performance is tax planning and strategy. Our efforts have enabled us to lower our effective tax rate again, to a normalized and, we believe, sustainable 34.5%. Our goal had been to achieve a 35% effective tax rate in 1999. Having surpassed our goal, we will continue our efforts to reduce this rate further. Additionally, we have lowered income tax expense for the period by a further $8 million due to the improved utilization of tax credits."
Cash Flow
Mr. Cronin continued, "Our continued strong cash flow has enabled us to continue our stock buyback program; this quarter we repurchased 631,000 shares at a cost of $14.5 million which enhanced our earnings per share. To date, we have repurchased $27.5 million of stock under our current $100 million authorization. Our opportunities for allocating capital include investing internally for growth, acquisitions and returning cash to our shareholders through stock repurchases. Our strong cash flow gives us the capability to do all three while maintaining appropriate debt levels."
Mr. Lilley then added, "The Company and Cytec people globally are really performing in a challenging time for the chemical industry. Our focus is to continue striving for top quartile performance in profitability and returns."
Mr. Lilley concluded, "I expect Cytec's results to continue reflecting our commitment to performance -- through our strategy of focused growth. Our success in new products, global expansion, operational excellence, and strategic acquisitions are producing solid results. At a time of industry tumult, we are delivering excellent results, striving for top quartile performance -- and remain committed to delivering shareholder value."
Nine Month Results
Net earnings for the nine months ended September 30, 1999 were $91 million or $2.05 per diluted common share on net sales of $1,058 million. Net earnings were $93 million or $1.98 per diluted common share on net sales of $1,092 million for the comparable period of 1998.
Company Profile
Cytec Industries Inc. is a specialty chemicals and materials technology company with 1998 sales of $1.4 billion and diluted earnings per share of $2.68. Its growth strategies are based on developing technologically advanced customer solutions for global markets which include aerospace, plastics, industrial coatings, mining, paper and water treatment. Cytec is in the S&P Mid-cap 400 index.
Forward Looking and Cautionary Statements
Except for the historical information and discussions contained herein, statements contained in this release may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Act of 1995. Achieving the results described in these statements involves a number of risks, uncertainties and other factors that could cause actual results to differ materially, as discussed in Cytec's filings with the Securities and Exchange Commission.