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Lubrizol Announces Continued Strong Performance For The Third Quarter of 2008 Despite A Challenging Environment

Published on 2008-11-04. Author : SpecialChem

CLEVELAND, OH -- The Lubrizol Corporation announced that consolidated earnings for the third quarter ended September 30, 2008 were $63.2 million, or $.92 per diluted share, including after-tax restructuring and impairment charges of $3.8 million, or $.06 per diluted share. Comparable earnings for the third quarter of 2007 were $71.4 million, or $1.02 per diluted share, which included after-tax restructuring and impairment charges of $1.4 million, or $.02 per diluted share.

Third Quarter Consolidated Results

Consolidated revenues for the third quarter increased 22 percent to $1.36 billion compared with $1.12 billion in the third quarter of 2007. The year-over-year increase in revenues was attributable to a 17 percent improvement in the combination of price and product mix, a 3 percent favorable currency impact and a 2 percent increase in volume. Included in these factors was the incremental impact from the refrigeration lubricants acquisition completed in 2007, which contributed 2 percent to consolidated revenues in the third quarter of 2008.

Excluding the restructuring and impairment charges in both periods, adjusted earnings were $67.0 million, or $.98 per diluted share, for the third quarter of 2008 compared with $72.8 million, or $1.04 per diluted share, for the third quarter of 2007.

Lubrizol estimates that Hurricane Ike adversely impacted third quarter 2008 pre-tax earnings by approximately $17 million, or $.18 per diluted share on an after-tax basis, as the company was forced to close its Houston-area manufacturing facilities in Deer Park and Bayport, Texas. These facilities, which primarily serve the Lubrizol Additives segment, were closed for approximately two weeks in preparation for, and recovery from, the storm.

Although weather damage to the facilities was minimal, the company estimates that Hurricane Ike's direct impact on results was $8 million due to unabsorbed manufacturing costs and maintenance and repair costs for storm recovery. The balance of the storm's impact was attributable to shipment delays resulting from the plants' closures. Lubrizol expects to supply the majority of these shipments in the fourth quarter of 2008 and does not expect to lose any business due to these shipment delays.

Adjusted earnings for the third quarter of 2008 decreased compared with the prior-year third quarter largely due to higher raw material costs, higher manufacturing costs, the impact of Hurricane Ike, an increase in selling and administrative expenses and an increase in the effective tax rate. These unfavorable items were offset largely by an improvement in the combination of price and product mix, a favorable currency impact and contributions from the 2007 acquisition. In spite of Hurricane Ike, volume levels, excluding acquisitions, slightly exceeded the prior-year third quarter.

Commenting on the results, CEO James Hambrick stated, "We performed well in a very challenging business environment. Raw material cost increases announced at the end of June continued to impact us early in the quarter, while Hurricane Ike affected us late in the quarter. Our solid quarterly results demonstrate our effectiveness in addressing these challenges with ongoing implementation of pricing initiatives and a superb operational response by our Texas plants. These actions reflect positively upon the core strength and underlying resilience of our business and our people."

Third Quarter Segment Results

In the third quarter of 2008, Lubrizol Additives segment revenues of $941 million were 27 percent higher than the third quarter of 2007. Compared to the year-earlier quarter, revenues increased as a result of a 20 percent improvement in the combination of price and product mix, a volume increase of 4 percent and a favorable currency impact of 3 percent. Included in these factors was the incremental impact from the 2007 refrigeration lubricants acquisition, which contributed 3 percent to segment revenues in the third quarter of 2008. Strong volume growth in Asia-Pacific/Middle East and Europe more than offset a volume decline in North America attributable to the impact of delayed shipments resulting from Hurricane Ike, lower customer demand and the sale of more concentrated products. Compared with the prioryear third quarter, Lubrizol Additives segment operating income increased 1 percent to $98 million. The improvement in operating income in the third quarter of 2008 reflected positive contributions from the combination of price and product mix, currency and volume. These positive factors were offset partially by higher raw material and operating costs and the impacts of Hurricane Ike.

The Lubrizol Advanced Materials segment reported revenues of $422 million in the third quarter of 2008, an increase of 10 percent over the prior-year results. The higher revenues reflected a 12 percent increase in the combination of price and product mix and a 2 percent favorable currency impact, partially offset by a 4 percent decline in volume. The segment experienced a significant volume increase of 20 percent in the Asia-Pacific/Middle East region largely as a result of record TempRite® engineered polymers volume. While product line volumes in other regions declined in aggregate, all product lines were successful in implementing price increases in response to escalating raw material costs. In the third quarter of 2008, Lubrizol Advanced Materials segment operating income was $28 million, a decline of 8 percent. The unfavorable factors impacting segment operating income in the third quarter of 2008 primarily included higher raw material and manufacturing costs, lower volume and higher administrative expenses associated with the implementation of a common information systems platform. These factors more than offset the favorable improvement in the combination of price and product mix. Regarding the segments' results, Hambrick added, "Global demand for our Lubrizol Additives product lines continued to be strong. Although we are pleased with our results, we would have had a much stronger quarter if not for the hurricane. We were relieved that the impact from the storm caused only temporary disruptions to our production and allowed us to continue to fulfill the majority of our customers' requirements. We are confident that we will recover the delayed shipments, driving strong volumes in the short term.

"Weaker demand in the U.S. and Europe together with higher costs weighed on Advanced Materials' overall performance. Some of our volume decline in this segment was anticipated as part of our product management activity in which we selectively shed high-volume, low-margin business. I am pleased with the pricing actions undertaken by the product lines, as well as the business improvement initiatives implemented to date. As a result, we made progress improving the unit margins in this segment, but we have not yet recovered the full increases in recent raw material costs. This segment needs to continue to grow volume through innovation for substantial earnings improvement. Economic weakness will continue to challenge us, so this is a perfect time to work on internal efficiencies and innovation."

Nine Months Consolidated Results

For the first nine months of 2008, consolidated revenues increased 18 percent to $3.94 billion compared with $3.35 billion for the first nine months of 2007. Consolidated earnings were $215 million or $3.12 per diluted share, including after-tax restructuring and impairment charges of $15.9 million, or $.23 per diluted share. Earnings for the first nine months of 2007 were $224 million or $3.19 per diluted share, including after-tax restructuring and impairment charges of $.2 million. Excluding the restructuring and impairment charges from the respective periods, earnings of $3.35 per diluted share in the first nine months of 2008 increased 5 percent compared with $3.19 per diluted share in the first nine months of 2007.

Cash flow from operations for the first nine months of 2008 was approximately $183 million compared with the record result of $407 million for the same year-earlier period. Cash flow from operations for the first nine months of 2008 was affected primarily by higher inventory costs and higher receivables reflecting the impact of raw material cost increases and selling price increases, respectively. Lubrizol repurchased $75 million in shares outstanding through the first nine months of 2008 under the company's share repurchase authorization.

Earnings Outlook

The company updated its guidance for earnings that was issued on July 31. Guidance for 2008, including restructuring and impairment charges of $.24 per diluted share, is in the range of $4.19 to $4.34 per diluted share. In 2007, earnings were $4.05 per diluted share, including restructuring and impairment charges of $.01 per diluted share. Excluding the restructuring and impairment charges from the respective years, the company reaffirms 2008 adjusted earnings in the range of $4.43 to $4.58 per diluted share, or approximately 9 to 13 percent higher compared with 2007 adjusted earnings of $4.06 per diluted share.

Regarding the earnings outlook, Hambrick added, "Despite the uncertain economic environment, we are well positioned for the final quarter of the year. We are committed to our strategies for top line and earnings growth. We will take the necessary steps to maintain a balanced perspective for both the near and long term, as we continue to demonstrate our value to our customers and provide the products and services they need. We remain confident in our outlook for the remainder of the year."

Hambrick continued, "The financial turmoil in the global markets is impacting our business outlook for 2009 as economists are projecting lower growth in many of the markets we serve. Our operating expense and capital expenditure budgets for next year will reflect what we believe will be a challenging operating environment. However, we are a financially sound and disciplined company that supplies distinctive technologies to diverse end-use markets. With these strengths, I am convinced in our ability to be successful in the uncertain times ahead."

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' 5 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 19 countries, as well as sales and technical offices around the world. Founded in 1928, Lubrizol has approximately 6,950 employees worldwide. Revenues for 2007 were $4.5 billion.

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 forwardlooking 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 company's ability to raise prices in an environment of increasing raw material costs; conditions affecting the company's customers, suppliers and the industries that it serves; competitors' responses to the company's products; the increased leverage resulting from the financing of the Noveon International, Inc. acquisition; 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: Lubrizol


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