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Lubrizol Announces Second Quarter 2009 Earnings and Increases Full-Year Earnings Guidance

Published on 2009-07-31. Author : SpecialChem

CLEVELAND -- The Lubrizol Corporation announced that consolidated earnings for the second quarter ended June 30, 2009 were $131.9 million, or $1.92 per diluted share, including after-tax restructuring and impairment charges of $6.5 million, or $.10 per diluted share. These charges primarily were related to a non-cash write off of preliminary process engineering design work and additional expenses associated with the cost reduction actions the company initiated in the first quarter of 2009. Comparable earnings for the second quarter of 2008 were $78.1 million, or $1.13 per diluted share, which included after-tax restructuring and impairment charges of $9.1 million, or $.13 per diluted share, primarily related to the closure and realignment of North American coatings production facilities.

Second Quarter Consolidated Results

Consolidated revenues for the second quarter decreased 18 percent to $1.11 billion compared with $1.35 billion in the second quarter of 2008. The year-over-year decrease in revenues was attributable to lower volumes and unfavorable currency that more than offset an improvement in the combination of price and product mix. Included in these factors was the incremental impact from acquisitions completed in 2008, which contributed 1 percent to consolidated revenues in the second quarter of 2009.

Excluding the restructuring and impairment charges in both periods, adjusted earnings were $138.4 million, or $2.02 per diluted share, for the second quarter of 2009 compared with $87.2 million, or $1.26 per diluted share, for the second quarter of 2008.

Adjusted earnings per share for the second quarter of 2009 increased compared with the prior-year second quarter largely due to favorable margin management initiatives, cost savings initiatives that reduced selling, technical, administrative and research (STAR) expenses, lower manufacturing costs and contributions from the 2008 acquisitions. These positive factors impacting earnings more than offset the effect of lower volume, increased performance-based compensation expense, higher net interest expense and an increase in the effective tax rate.

Commenting on the results, CEO James Hambrick stated, "I am very pleased with our second quarter results, as both operating segments benefited from ongoing margin management initiatives. Also contributing to our success in the quarter were the decisive cost reduction actions undertaken early in the year in response to the global recession. But it would be misleading to attribute our performance solely to events in the quarter. For many years we have been working to improve the returns necessary to support the investment in our industry. Our results highlight the cumulative impact of these efforts to build and sustain market leadership positions while providing the innovative technology that is valued by our customers."

Six Month Consolidated Results

For the first six months of 2009, consolidated revenues decreased 18 percent to $2.12 billion compared with $2.58 billion for the first six months of 2008. Consolidated earnings were $196.1 million, or $2.87 per diluted share, including after-tax restructuring and impairment charges of $14.1 million, or $.21 per diluted share. Earnings for the first six months of 2008 were $151.7 million, or $2.19 per diluted share, including after-tax restructuring and impairment charges of $12.1 million, or $.17 per diluted share. Excluding the restructuring and impairment charges from both periods, earnings of $3.08 per diluted share in the first half of 2009 compared with $2.36 per diluted share in the first half of 2008.

Cash flow from operations for the first six months of 2009 was $447 million, up from $99 million in the year-earlier period. The increase in cash flow from operations primarily was attributable to higher net income and a significant reduction in working capital, primarily from lower inventory. Capital expenditures in the first half of 2009 were approximately $76 million, down from $98 million in the prior-year period as the company controlled spending given the uncertain environment. The company's cash balance at June 30, 2009 was $861 million compared with a cash balance of $186 million at December 31, 2008. The higher cash balance largely reflected the company's strong operating cash flow for the first half of 2009 and the proceeds from financing activities undertaken in the first quarter of 2009.

Earnings Outlook

The company increased its guidance for earnings that was issued on April 30. The company's guidance for 2009 earnings is now in the range of $5.47 to $5.77 per diluted share, including restructuring and impairment charges of $.23 per diluted share, primarily related to cost reductions announced in the first quarter of 2009, impaired preliminary process engineering design work and the closing of a Canadian additives blending facility. In 2008, the company reported a loss of $0.97 per share, including restructuring and impairment charges of $5.04 per share, largely related to goodwill impairment, and other adjustments of $.02 per share. Excluding the special charges from both years, the company projects 2009 adjusted earnings in the range of $5.70 to $6.00 per diluted share, which compares with 2008 adjusted earnings of $4.09 per diluted share.

Key updated assumptions for this revised guidance and cash flow include:

  • STAR expenses approximately 2 percent lower compared with 2008;
  • Corporate expense to average approximately $20 million per quarter for the balance of the year;
  • Net interest expense of approximately $105 million for the year;
  • An effective tax rate of 30.7 percent for the year;
  • The euro to average $1.34 for the remainder of the year;
  • Projected pension contributions of $53 million;
  • Cash flow generated by working capital changes of approximately $200 million; and
  • Average shares outstanding of approximately 68.7 million.

Regarding the earnings outlook, Hambrick added, "The economic environment remains challenging and the timing for significant recovery of our end markets is uncertain. Despite this uncertainty, we have continued to perform at a high level. With our increased guidance, we are on track to deliver a significant increase in earnings compared with 2008. If we achieve stronger volume recovery in the second half of this year, we may have the opportunity for further upside in earnings. But given the volatility in business conditions we experienced in the fourth quarter of last year, we also recognize how quickly the drivers of our business can change. So while confident in our success, we will continue to manage our business vigilantly."

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 18 countries, as well as sales and technical offices around the world. Founded in 1928, Lubrizol has approximately 6,800 employees worldwide. Revenues for 2008 were $5.0 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; the impact of our current capital structure on our ability to access the capital markets in the future; 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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