Industry News

Lubrizol Announces 2009 Results and 2010 Guidance

Published on 2010-02-15. Author : SpecialChem

The Lubrizol Corporation announced consolidated earnings for the fourth quarter ended December 31, 2009, of $134 million, or $1.92 per diluted share, including after-tax restructuring and impairment charges of $2 million, or $.03 per diluted share. In the fourth quarter of 2008 the company reported a consolidated loss of $281 million, or $4.16 per diluted share, including after-tax restructuring and impairment charges of $330 million, or $4.86 per diluted share, and an after-tax write-off of acquired in-process research and development of $1 million, or $.01 per diluted share. The fourth quarter 2008 restructuring and impairment charges consisted primarily of a non-cash goodwill impairment charge related to the company's Performance Coatings and Engineered Polymers product lines.

Fourth Quarter Consolidated Results

Consolidated revenues for the fourth quarter of 2009 increased 9 percent to $1.19 billion compared with $1.09 billion in the fourth quarter of 2008. The year-over-year increase in revenues was attributable to higher volume and favorable currency that more than offset a decline in the combination of price and product mix. Included in these factors was the incremental impact from acquisitions completed at the end of 2008, which contributed 2 percent to consolidated revenues in the fourth quarter of 2009.

Excluding the special charges in both periods, adjusted earnings were $136 million, or $1.95 per diluted share, for the fourth quarter of 2009 compared with $50 million, or $.74 per diluted share, for the fourth quarter of 2008. Adjusted earnings per share for the fourth quarter of 2009 increased compared with the prior-year fourth quarter largely due to effective margin management, increased volume, a lower effective tax rate, cost savings initiatives that lowered selling, technical, administrative and research (STAR) expenses and contributions from the 2008 acquisitions. These positive factors impacting earnings more than offset higher performance-based compensation expense, manufacturing costs and net interest expense.

CEO James Hambrick commented, "I am very pleased with our results this quarter. The strong performance of both operating segments enabled us to post the third best quarterly results in our history. Additives continued to sustain the strong performance they established earlier in the year. Advanced Materials benefited from strong volume increases and success in delivering valuable technology to our customers while continuing to control costs and spending. And with their strong finish to the year, both segments delivered record operating income in 2009."

Consolidated 2009 Results

For the full year of 2009, consolidated revenues decreased 9 percent to $4.59 billion compared with $5.03 billion for the full year of 2008. Earnings for the full year of 2009 were $501 million, or $7.26 per diluted share, including after-tax restructuring and impairment charges of $19.8 million, or $.29 per diluted share. For the full year of 2008, the company reported a loss of $66 million, or $.97 per diluted share, including after-tax restructuring and impairment charges of $346 million, or $5.04 per diluted share, and a $1.0 million, or $.01 per diluted share, after-tax write-off for in-process research and development. Excluding the special charges in both periods, earnings of $7.55 per diluted share for 2009 compared with $4.09 per diluted share for 2008.

Cash flow from operations for the year ended 2009 was $951 million compared with $223 million for the year ended 2008. The increase in cash flow from operations primarily was attributable to higher net income and a significant reduction in inventory. Capital expenditures for 2009 were $140 million, down from $203 million in the prior year, as the company carefully managed spending in 2009's uncertain economic environment. The company's cash balance at December 31, 2009, was $991 million compared with a cash balance of $186 million at December 31, 2008. The higher cash balance largely was due to the company's strong operating cash flow for the year.

Continued Hambrick, "2009 was an excellent year for our company. Our success was a direct result of our employees' commitment and dedication, diligent control of operating expenses and a continued emphasis on delivering high-value products, all built on the foundation of many years of planning and solid execution. The Lubrizol organization responded extraordinarily well to the challenges we faced this past year, especially during the first six months."

Fourth Quarter Financing Activities

On October 1, 2009, the company repaid at maturity the remaining $205 million of its 4.625% senior notes. Also, on December 9, 2009, the company prepaid without penalty its $150 million bank term loan. Following these repayments, the company's total debt at December 31, 2009, was approximately $1.4 billion. Reflecting Lubrizol's strengthened credit quality, on January 29, 2010, Standard and Poor's Ratings Services raised its long-term debt rating on the company to BBB+ with a stable outlook.

Lubrizol Additives Capital Investment Plan

On January 19, 2010, the company announced its decision to proceed with a 10-year phased investment plan to upgrade operations and increase global capacity in Additives. The centerpiece of the investment plan is a new, wholly-owned greenfield plant in China supplemented by select debottlenecking projects and infrastructure improvements at existing plants in the United States and Europe.

This plan was announced originally in 2008 but was placed on hold in 2009 due to the global recession and resulting uncertainty regarding demand. Worldwide additive demand recovered significantly in the second half of 2009, and returned to its expected normal market growth rate of 1 to 2 percent annually. This investment program is needed to keep pace with demand and to ensure the security of future supply and reliability of operations.

As part of the 10-year plan, Lubrizol has signed a letter of intent to reserve land use rights for a wholly owned manufacturing site in South China within the Zhuhai Gaolan Port Economic Zone. A wholly owned manufacturing facility will be developed and phased in to meet market demand. By phasing in select capacity additions in China, Lubrizol plans to respond to lubricant growth in Asia and better match its manufacturing capabilities with global demand patterns. The location of the new facility is well situated for exporting products throughout Asia.

The China plant will require an investment in excess of $200 million over the next three years. Lubrizol plans to break ground at the Zhuhai Gaolan site in late 2010. The new plant will complement Lubrizol's existing joint venture, Lanzhou Lubrizol Lanlian Additive Co., Ltd., which will benefit by doing more business with Lubrizol.

Lubrizol will continue to reinvest at existing Additives plants for upgrading infrastructure, as well as comply with increasing health, safety and environmental requirements.

Earnings Outlook

The company issued full-year 2010 earnings guidance in the range of $7.63 to $8.23 per diluted share, including restructuring charges of $.07 per diluted share related to the closing of a Canadian additives blending facility and facility closures announced in the third quarter of 2009. In 2009, the company reported earnings of $7.26 per share, including restructuring and impairment charges of $.29 per share. Excluding the special charges in both years, the company projects adjusted earnings in the range of $7.70 to $8.30 per diluted share compared with 2009 adjusted earnings of $7.55 per diluted share, an increase of 2 percent to 10 percent.

Key assumptions for this guidance include:

  • Consolidated volume growth of approximately 5 to 6 percent compared with 2009;
  • Consolidated gross margins of approximately 32 percent;
  • STAR expenses essentially unchanged from 2009;
  • Net interest expense of approximately $95 million;
  • An effective tax rate of 32 percent for the year;
  • The euro to average $1.45 for the year;
  • Depreciation and amortization of $155 million and $25 million, respectively;
  • A working capital use of cash of approximately $45 million;
  • Capital expenditures of approximately $280 million; and
  • Pension expense of $46 million and contributions of $60 million.

Regarding the earnings outlook, Hambrick remarked, "The economic resiliency of our product lines was proven in 2009. And while we are not expecting sharp recoveries in 2010 for some of our end-use markets, such as construction, we project a volume increase this year due to emerging market growth, continued inventory replenishment and the recovery of some deferred demand. I expect the Additives business to sustain its current level of performance and for the Advanced Materials business to continue to demonstrate steady improvement."

Added Hambrick, "We are properly positioned for another year of earnings growth in 2010. Last year we concentrated our efforts on those items under our control: improving operating profitability and efficiency, and enhancing our innovation capabilities. As a result, we emerged as a stronger company with ample resources to execute our long-term strategy for growth. We will use our resources to drive organic growth through geographic expansion, as evidenced by the investment in a new China plant for Additives. We will continue to evaluate value-adding acquisition opportunities that will build out our portfolio. And, because of our strong balance sheet and our confidence in our ability to generate strong cash flow going forward, we are resuming our share repurchase program in 2010."

About The Lubrizol Corporation:

The Lubrizol Corporation is an innovative specialty chemical company that produces and supplies technologies that improve the quality and performance of our customers' products in the global transportation, industrial and consumer markets. These technologies include lubricant additives for engine oils, other transportation-related fluids and industrial lubricants, as well as fuel additives for gasoline and diesel fuel. In addition, Lubrizol makes ingredients and additives for personal care products and pharmaceuticals; specialty materials, including plastics technology and performance coatings in the form of specialty resins and additives. Lubrizol's industry-leading technologies in additives, ingredients and compounds enhance the quality, performance and value of customers' products, while reducing their environmental impact. With headquarters in Wickliffe, Ohio, The Lubrizol Corporation owns and operates manufacturing facilities in 17 countries, as well as sales and technical offices around the world. Founded in 1928, Lubrizol has approximately 6,700 employees worldwide. Revenues for 2009 were $4.6 billion.

Forward-looking statements

This release contains forward-looking statements within the meaning of the federal securities laws. As a general matter, forward-looking statements relate to anticipated trends and expectations rather than historical matters. Forward-looking statements are subject to uncertainties and factors relating to the company's operations and business environment that are difficult to predict and may be beyond the control of the company. Such uncertainties and factors may cause actual results to differ materially from those expressed or implied by forward-looking statements. Uncertainties and risk factors that could affect the future performance of the company and cause results to differ from the forward-looking statements in this release include, but are not limited to, the company's ability to manage margins in an environment of volatile raw material costs; conditions affecting the company's customers, suppliers and the industries that it serves; competitors' responses to the company's products; changes in accounting, tax or regulatory practices or requirements; and other factors that are set forth in management's discussion and analysis of the company's most recently filed reports with the Securities and Exchange Commission. The forward-looking statements contained herein represent the company's judgment as of the date of this release and it cautions readers not to place undue reliance on such statements. The company assumes no obligations to update the statements contained in this release.

Source: The Lubrizol Corporation

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