Cytec Third Quarter Sales and Earnings Drop
WEST PATERSON, N.J.) - Cytec Industries Inc. (NYSE:CYT) announced today that net earnings, before the extraordinary gain, in the third quarter of 2001 were $21.3 million or $0.51 per diluted share on sales of $342 million.
This compares to net earnings in the third quarter of 2000 of $28 million or $0.65 per diluted share on sales of $376 million. Including an extraordinary gain of $4.9 million or $0.12 per diluted share, net earnings for the third quarter of 2001 were $0.63 per diluted share. The extraordinary gain is related to the recent acquisition of the carbon fiber assets of BP.
David Lilley, Chairman, President and Chief Executive Officer said, "We met our EPS objective for this quarter, net of the effect of the carbon fiber acquisition, despite a worsening global economy. On a positive note, our raw material costs continued to decrease sequentially during the quarter, European exchange rates also improved in the latter part of the quarter."
Water and Industrial Process Chemicals Sales decreased 1%; Operating Earnings decreased to $7 million
Mr. Lilley said, "Sales of $83 million were impacted by a general slowing in demand for mining chemicals and wastewater treatment chemicals to the paper industry. Overall, selling volumes were down 1%, excluding a 19% decline from the divestiture of the Paper Chemicals business on November 1st of last year. Exchange rate changes reduced sales by 2% while selling prices were up 2%.
"Operating earnings reflected the impact of the shift in sales mix from mining to water treatment chemicals, partially offset by lower propylene costs, a key raw material."
Performance Products Sales decrease 7%; Operating Earnings decreased to $5 million
"Weak global demand from automotive, industrial and plastics markets continued to impact this segment reducing sales to $110 million. This segment's selling volumes were down 8%, exchange rate changes decreased sales 1%, and selling prices were up 2%.
"The decline in operating earnings reflects the impact of weak demand which reduced our sales and production volumes. Although raw material costs were sequentially lower in the third quarter, they were still higher than the year ago period."
Specialty Materials Sales increase 9%; Operating Earnings improve to $24 million
Mr. Lilley said, "Specialty Materials sales were $113 million in the third quarter. Demand from the commercial airliners, regional and business jets, and military aircraft markets remained strong. Third quarter selling volumes were up 9%, the primary driver of higher operating earnings."
"During the quarter, we completed the acquisition of the carbon fiber business of BP. Our integration team has moved quickly, achieving many of our transition goals in the short time since the acquisition."
"Like all companies serving the aerospace market, we are assessing the impact of events on September 11th on our diversified aerospace markets, this is discussed in our fourth quarter outlook."
Building Block Chemicals Sales down 27% to $36 million; Operating Results declined to a $1 million loss
Mr. Lilley continued, "Building Block Chemicals continues to be impacted by poor demand, particularly for acrylonitrile. This segment's selling volumes decreased 14% and selling prices were down 13%. The majority of the decrease in both volume and price was due to acrylonitrile, and our production volumes have been reduced in line with the lower demand.
"Although propylene costs on average declined during the quarter, acrylonitrile selling prices decreased more rapidly, shrinking the already narrow margin. The cost of our natural gas continued to decrease sequentially and is now equivalent to our cost in the year ago period.
"We have accelerated some of the benefits from our previously announced restructuring program. However, the reductions in operating and raw material costs realized during the quarter did not fully offset the larger impact of reduced sales and production volumes resulting from lower market demand in the third quarter."
Earnings in Associated Companies
James P. Cronin, Executive Vice President and Chief Financial Officer commented, "Our third quarter equity in earnings of associated companies, primarily CYRO, was $1 million. CYRO continues to experience weak demand, accordingly, production levels remain low. We expect this trend to continue until the North American economic recovery begins. CYRO benefited during the quarter from reduced raw material costs and the initial benefits of the recently announced restructuring. These trends are expected to continue in the fourth quarter."
Other Items
Mr. Cronin continued, "Included in earnings for this quarter was an extraordinary gain resulting from Cytec's acquisition of the assets of the carbon fiber business of BP. In this transaction, we assumed the assets and certain limited liabilities of the business. The resulting accounting for the inventory acquired, net of assumed liabilities, resulted in an extraordinary after-tax gain of $4.9 million."
Share Repurchase
Mr. Cronin continued, "During the third quarter we invested approximately $20 million to buy 719,900 shares of Cytec stock, favorably enhancing earnings per share. To date we have invested $54 million and purchased 1,763,000 shares of our stock under the $100 million buyback authorization announced in the fourth quarter of last year."
Cash Flow
Mr. Cronin added, "During the third quarter we generated $36 million of cash flow from operations. We reduced our investment in inventory. However, our accounts receivable increased during the quarter due to slower customers payments and an increase in our product-swap balances. We will continue to pursue vigorous collection of our accounts receivable and reductions of inventory. We have a strong balance sheet and are generating substantial free cash flow. These will continue to be the top priorities of the Cytec team."
Fourth Quarter 2001 Outlook
Mr. Lilley concluded, "Our previous EPS objectives considered the reduction in general industrial demand due to the slowing global economy. However, continuing strong demand from the aerospace market and overall lower raw material and energy costs were expected to drive a sequential increase in fourth quarter earnings. Since then a number of significant changes have occurred.
"Since September 11th, the outlook, primarily for commercial airliner build rates, has declined significantly. Specialty Materials sales to the commercial airliner segment were about $173 million in 2000. Lower orders from our customers are expected to begin impacting us in the fourth quarter, but the rate of decline in airliner production and its flow through the supply chain is still being quantified."
"We expect small reductions in sales to the regional jet and brake markets. Specialty Materials sales to business and military aircraft, satellite and launch vehicles, and high performance markets, should continue to grow. However, the net effect is significantly lower sales and earnings than previously expected from our Specialty Materials segment in the fourth quarter of 2001.
"Our Performance Products segment is sensitive to changes in industrial economic activity. The slowing in the global economy will continue to impact demand from its markets in the fourth quarter. Lower raw material and operating costs will be a small positive. However, earnings are expected to be lower in the fourth quarter.
"In our Water and Industrial Process segment the economy will continue to impact demand for our products from the paper effluent and mining markets. In addition, we expect a temporary increase in propylene costs. This will further impact fourth quarter profitability.
"In Building Block Chemicals fourth quarter, tight propylene supply is expected to increase raw material costs, further narrowing the margin spread on sales of acrylonitrile. Due to weak demand, selling prices are not expected to increase proportionately. While Building Block Chemicals will continue reducing operating costs, the near-term benefits will not be large enough to avoid a fourth quarter operating loss. This will significantly increase the segment operating loss -- previously expected to be a $5 to $10 million loss for all of 2001.
"Based on these factors we are reducing our full year normalized 2001 EPS estimate to a range of $1.80 to $1.85, excluding the second quarter restructuring charges and the third quarter extraordinary gain. Our fourth quarter earnings are expected to be in a range of $0.25 to $0.30 per share.
"We are currently in our 2002 business planning process, which will be complete at the end of this quarter. However, we are taking actions to bring costs in line with our forecasts of reduced demand. Our focus will be to accelerate the initiatives that improve our operational performance, productivity and cost. Clearly 2002 will be a very difficult year, we will continue taking aggressive actions to improve performance going forward," Mr. Lilley concluded.
Nine Month Results
Normalized net earnings for the nine months ended September 30, 2001 were $64 million or $1.54 per diluted share on sales of $1,072 million. Excluded from normalized net earnings are restructuring charges of $7.7 million ($5.0 after tax) or $0.12 per diluted share and an extraordinary gain of $4.9 million after tax or $0.12 per diluted share.
Normalized net earnings for the nine months ended September 30, 2000 were $92 million or $2.14 per diluted share on sales of $1,134 million. Excluded from normalized net earnings are an after tax gain of $8.7 million or $0.20 per diluted share related to insurance settlements.
Investor Conference Call to be Held on October 12, 2001, 11:00 A.M. EDT
Cytec will host their third quarter earnings release conference call on October 12, 2001 at 11:00 a.m. EDT. Information to access the call has been faxed to institutional investors. The conference call will also be simultaneously webcast for all investors from Cytec's website www.cytec.com. Select the Investor Relations page to access the live conference call.
A recording of the conference call may be accessed by telephone from 2:00 p.m. EDT on October 12 until October 16, 2001 at midnight EDT by calling 888-203-1112 (U.S.) or 719-457-0820 (International) and entering access code 763560. The conference call recording will also be accessible on Cytec's website for 3 weeks after the conference call.
The content of the webcast contains time-sensitive information that is accurate only as of October 12, 2001. This call is the property of Cytec Industries Inc. and any redistribution, retransmission, or rebroadcast of this call in any form, without the express written consent of Cytec is strictly prohibited.
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 Reform 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.
Corporate Profile
Cytec Industries is a specialty chemicals and materials technology company with sales in 2000 of $1.5 billion and diluted earnings per share of $2.85 (excluding special items). Its growth strategies are based on developing technologically advanced customer solutions for global markets, including: aerospace, plastics, industrial coatings, mining, and water treatment. Cytec is in the S & P Mid-cap 400 index.