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Lubrizol Announces Record Quarterly Earnings of $1.02 per Share for the First Quarter of 2007

Published on 2007-04-30. Author : SpecialChem

CLEVELAND, Ohio -- The Lubrizol Corporation (NYSE: LZ) announced that consolidated earnings from continuing operations for the first quarter ended March 31, 2007, were $71.6 million, or $1.02 per diluted share, including a restructuring credit of $.02 per diluted share. Comparable earnings from continuing operations for the first quarter of 2006 were $45.9 million, or $.66 per diluted share, which included restructuring and impairment charges of $.02 per diluted share.

Q1 Consolidated Results Detail

Excluding the restructuring credit and the restructuring and impairment charges from the respective periods, adjusted earnings from continuing operations were $69.9 million, or $1.00 per diluted share, for the first quarter of 2007 compared to $47.1 million, or $.68 per diluted share, for the first quarter of 2006.

Adjusted earnings from continuing operations for the first quarter of 2007 increased compared to the prior-year first quarter largely as a result of improvement in the combination of price and product mix, reduced net interest expense, increased other income associated with the sale of land and favorable currency. These favorable items were somewhat offset by higher raw material costs, higher manufacturing costs and higher selling, testing, administrative and research (STAR) expenses. The increase in STAR expenses in the quarter impacted both segments and primarily was attributable to higher performance-based incentive compensation.

Consolidated revenues for the quarter increased 9 percent to $1.08 billion compared to $984 million in the first quarter of 2006. Improvements in the combination of price and product mix increased revenues 7 percent and currency had a 2 percent favorable impact, while volume was level compared to the first quarter of 2006. Following the weak volume in the fourth quarter of 2006, volume in the first quarter of 2007 returned to normal order patterns and was slightly higher than expected.

Cash flow from operations for the quarter was very strong at $98 million compared to $26 million in the year-earlier period. Total debt reduction in the first quarter of 2007 was approximately $30 million, comprised primarily of repayments under the company's euro credit facility.

Quarterly Segment Results

In the first quarter of 2007, Lubrizol Additives segment revenues of $696 million were 11 percent higher than the first quarter of 2006. Compared to the year-earlier quarter, revenues increased as a result of a 9 percent improvement in the combination of price and product mix and 3 percent favorable currency, slightly offset by a volume decrease of 1 percent compared to the first quarter of 2006, which benefited from significantly increased demand following the U.S. Gulf Coast hurricanes of 2005. Average raw material cost in the quarter increased 9 percent compared to the first quarter of 2006. Lubrizol Additives segment operating income of $101 million in the quarter reflected progress in recovering higher raw material costs and other income associated with the sale of land near our Texas facilities. The land sale contributed $.05 per diluted share in the first quarter of 2007.

The Lubrizol Advanced Materials segment reported revenues of $381 million in the first quarter of 2007, an increase of 7 percent over the prior-year first quarter results of $357 million. Compared to the year-earlier period, the higher revenues reflected a 3 percent improvement in the combination of price and product mix, a 2 percent increase in volume and 2 percent favorable currency. The Lubrizol Advanced Materials segment experienced volume increases of 57 percent in Latin America, 24 percent in Asia-Pacific and 7 percent in Europe, which offset a 4 percent volume decline in North America largely attributable to weakness in textile coatings and changes in surfactants order pattern for personal care applications. Lubrizol Advanced Materials segment operating income was $45.4 million for the first quarter of 2007, an increase of 2 percent when compared to the year-earlier period. The strong income growth contributed by the Noveon Consumer Specialties and Engineered Polymers product lines in the quarter was significantly offset by the decline in Performance Coatings income. Higher STAR expenses, including spending for growth initiatives, also negatively impacted segment operating income.

Expanded Share Repurchase Program and Dividend Increase

At its February 7 earnings teleconference, the company announced plans to repurchase shares sufficient to offset future dilution from the company's stock-based incentive compensation plans under the company's existing share repurchase program. The company assumed that approximately one million shares would be repurchased under this program in 2007.

On April 23, the company's Board of Directors authorized a new share repurchase program that, combined with its existing repurchase program, permits the company to repurchase up to $300 million of its common shares, effective immediately. Lubrizol expects to implement the program through purchases made either in the open market or through private transactions from time to time. Although the repurchase program does not include a specific timetable or price targets and may be suspended or terminated at any time, the company expects that the program will be accomplished over the next three years.

Also, as announced on April 23, the Board declared a regular dividend of 30 cents per share payable June 8, 2007, to shareholders of record at the close of business on May 10, 2007. The new dividend represents an increase of 15 percent and is the company's first dividend increase since September of 1997. The new dividend reflects that the company has established a track record of earnings growth since mid-2004, and expresses the company's current confidence in its strong performance and cash flow.

Earnings Outlook

The company updated its guidance for earnings from continuing operations issued on February 7. The company's new guidance for 2007, including a restructuring credit of $.02 related to the sale of a closed manufacturing facility, is in the range of $3.72 to $3.92 per diluted share. In 2006, earnings from continuing operations were $2.62 per diluted share, including restructuring and impairment charges of $0.47 per diluted share. Excluding the restructuring credit and the restructuring and impairment charges from the respective years, the company projects 2007 adjusted earnings in the range of $3.70 to $3.90 per diluted share, or approximately 20 to 26 percent higher compared to 2006 adjusted earnings from continuing operations of $3.09 per diluted share.

Key assumptions for this guidance include:

  • Revenue growth of approximately 7 to 8 percent compared to 2006;
  • Raw material supplies to remain tight for the balance of 2007;
  • STAR expenses of approximately 14.5 percent of revenues;
  • Net interest expense of approximately $70 million for the year;
  • An effective tax rate of 34 percent for the year;
  • Depreciation and amortization of $134 million and $24 million, respectively;
  • The euro to average $1.30 for the year; and
  • Capital expenditures of approximately $175 million to $180 million.

Commentary

Commenting on the results, James L. Hambrick, Chairman, President and Chief Executive Officer, said, "I am extremely pleased with our continued excellent results. This sustained level of performance reflects the following three factors:

  • Strong business fundamentals: the demand for our products is healthy, we have good business plans in place, and we are executing those plans effectively;
  • Improvements in product mix: we have benefited from introducing new products into our markets that deliver greater value to our customers; and
  • Improvements in pricing: we have continued to make progress on recapturing margin lost during the unprecedented run-up in raw material costs we experienced over the last several years.

"Our prospects for the remainder of the year look very promising, but good performance in the near and medium term is only part of our challenge. We must sustain our returns, especially in engine additives, so that we can reinvest in the technology and capital equipment that will support our customers' growth. Furthermore, in many product areas we have entered a new performance era where market needs are placing higher demands on the performance of our industry's products. The companies whose products satisfy these new demands will be rewarded, and we aim to be one of them. We hold leading positions in almost all of our business lines and are well situated to compete in this new era. There has never been a better time to be a technical innovator in the specialty chemicals business."

Regarding the increased authorization level for stock repurchases, Hambrick added, "Delivering returns to our shareholders remains our top priority. We believe that our decision announced today, combined with the previously announced increase in our dividend, is a clear demonstration of our focus on maximizing shareholder returns. These actions reward shareholders while preserving our ability to fund organic growth initiatives and complementary acquisitions."

About The Lubrizol Corporation

The Lubrizol Corporation (NYSE: LZ) 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 20 countries, as well as sales and technical offices around the world. Founded in 1928, Lubrizol has approximately 6,800 employees worldwide. Revenues for 2006 were $4.0 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 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 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 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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