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Lubrizol Announces 29% Net Income Growth for First Quarter 2005

Published on 2005-04-25. Author : SpecialChem

CLEVELAND -- The Lubrizol Corporation (NYSE: LZ - News) announced that consolidated earnings for the first quarter ended March 31, 2005 were $48.5 million or $.72 per basic share, including a pre-tax restructuring charge of $6.1 million or $.06 per share. Consolidated earnings for the first quarter 2004 were $37.5 million or $.72 per share, which included a currency forward contract gain of $.08 per share related to the acquisition of hyperdispersants for coatings. Excluding the restructuring charge and the currency forward contract gain, earnings of $.78 per share for the first quarter of 2005 were 22 percent higher than $.64 per share for the first quarter of 2004. Earnings per share were based on 67.4 million weighted average shares outstanding for the first quarter 2005 and 51.8 million average shares outstanding for the first quarter 2004.

First quarter 2005 earnings increased over the prior-year first quarter as acquisitions and improved price and product mix more than offset higher raw material costs and lower shipment volume. The acquisition of Noveon International, completed in June 2004, contributed $.03 to earnings per share in the quarter after incremental financing costs, and $.05 per share including a purchase accounting adjustment. The $.06 per share restructuring charge primarily related to the phase-out of manufacturing facilities located in Bromborough, United Kingdom; Linden, New Jersey; and Mountaintop, Pennsylvania.

Consolidated revenues for the quarter were $971.0 million compared to $578.7 million in the first quarter 2004. Excluding acquisitions, revenues increased 6 percent compared to the year-earlier quarter.

Quarterly Segment Results

First quarter 2005 revenues in the Lubricant Additives segment of $524.6 million were 7 percent higher than the first quarter of 2004, reflecting improvements in the combination of pricing and product mix as well as favorable currency, partially offset by higher raw material costs and lower shipment volume. The volume decline was attributed to the previously disclosed loss of a customer's engine oil business, which ceased in August 2004, and the mix effect of the new GF-4 North American passenger car motor oil standard, which is a more concentrated product than its predecessor. In addition, a few customers reduced inventories in the quarter prior to converting to GF-4. Price increases were implemented and a new round of increases was announced in the quarter in response to increases in raw material costs. Lubricant Additives segment operating income of $68.7 million increased 10 percent compared to the first quarter of 2004.

Specialty Chemicals segment revenues were $446.4 million in the first quarter, compared to $86.9 million in the first quarter of 2004. Segment results for both quarters included performance chemicals for coatings and inks, personal care, foam control, mining emulsions and specialty monomers. First quarter 2005 Specialty Chemicals segment results also included the acquisition of Noveon International, completed in June 2004, as well as a full quarter of the acquisition of hyperdispersants for coatings, which was completed on January 30, 2004. Excluding these acquisitions, Specialty Chemicals revenues increased 4 percent compared to the first quarter of 2004, primarily as a result of improved price and product mix, which more than offset lower shipment volume. Price increases were implemented across all product lines during the quarter. First quarter Specialty Chemicals segment revenues by product line consisted of $188.5 million for Consumer Specialties, $144.8 million for Performance Coatings and $113.1 million for Specialty Materials.

The Consumer Specialties product line, consisting of Personal Care Products and Food Ingredients and Industrial Specialties, recorded double- digit revenue and operating income increases compared to pro forma results for the first quarter of 2004. The legacy Noveon Personal Care Products delivered strong volume growth in Carbopol® thickener, botanicals, hair-care fixatives, emollients and a new polymer for personal cleansing products, including clear shampoos and bath gels.

In the Performance Coatings product line, revenues increased slightly as sales growth in specialty papers, paints and coatings and ink additives more than offset lower shipment volumes resulting from weak end markets in North American and European textiles, electronics and graphics for printing and packaging.

In Specialty Materials, TempRite® engineered polymers reported strong growth compared to the first quarter of 2004 for high-performance plastic plumbing and fire sprinkler pipe, which competed favorably against higher-cost copper and steel. Estane® thermoplastic polyurethane's revenues in the quarter reflected selling price increases and shipments to new customers, but were level with sales in the prior year quarter as a result of timing of significant sales for military applications. Medical applications, including intravenous tubes, remained strong year-over-year.

Specialty Chemicals segment operating income was $51.6 million for the first quarter compared to $5.0 million in the first quarter 2004 for the legacy Lubrizol product lines that now comprise the Specialty Chemicals segment.

Earnings Outlook

The company maintained its 2005 earnings guidance excluding restructuring charges that it first issued in February 2005. Projections for restructuring charges have been updated to reflect the company's decisions to close two U.S. coatings facilities. Earnings guidance for the year now ranges from $2.65 to $2.80 per share including restructuring charges of approximately $.10 per share. Earnings guidance excluding restructuring charges continues to be in the range of $2.75 to $2.90 per share.

Commentary

Commenting on the results, James L. Hambrick, Chairman, President and Chief Executive Officer, said, "Our strong first quarter exceeded the guidance we provided in our fourth quarter 2004 teleconference. I am pleased with our revenue growth and our improved profitability for the quarter.

"We made good progress responding to raw material cost increases. Even though we implemented multiple rounds of price increases, our pricing actions lagged raw material cost increases throughout 2004. We briefly closed the gap in the first quarter of 2005, but raw material costs have continued to rise. To counteract these recent increases, we have moved forward again with price increases as quickly and aggressively as we have over the last year.

"Volume was not as strong in some areas as we anticipated, but I am not disappointed considering that we are addressing raw material cost increases and are shifting our strategy to focus on higher-value products. In Lubricant Additives, some of our customers have commented to us that North American trucking activity was healthy in the quarter, while passenger car motor oil sales were soft. Our market share has been stable sequentially. So far, demand appears to be stronger in the second quarter.

"I am very pleased with the performance of both segments. Specialty Chemicals continues its excellent momentum with back-to-back record quarters. We are supporting this growth with North American capacity expansion for Carbopol® thickeners and with a new China Estane® TPU plant coming online this quarter. For both segments, we are making good progress with our plans to divest non-core businesses, to improve our production efficiencies by restructuring manufacturing facilities, to increase organic growth through new product development and geographic expansion and to improve overall profitability.

"Looking forward, I remain confident about the future of the business. April orders are strong, the remainder of the year looks solid and we're continuing to gain new business for the future. "

The Lubrizol Corporation (NYSE: LZ - News) 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; performance coatings in the form of specialty resins and additives; and additives for the food and beverage industry. 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 21 countries, as well as sales and technical offices around the world. Founded in 1928, Lubrizol has more than 7,700 employees worldwide. In June 2004, Lubrizol acquired Noveon International, Inc. With Noveon, Lubrizol generated pro forma revenues of $3.7 billion in 2004 and $3.2 billion in 2003.

This press 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 press release include, but are not limited to, the increased leverage resulting from the financing of the Noveon International, Inc. acquisition; the company's ability to raise prices in an environment of increasing raw material prices; the delay or inability to fully integrate Noveon International and obtain anticipated synergies; 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 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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