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PolyOne Reports Best First-Quarter Results Since Formation

Published on 2005-04-29. Author : SpecialChem

CLEVELAND -- PolyOne Corporation (NYSE: POL), a leading global polymer compounding and North American distribution company, today reported sales from continuing operations of $576.7 million for the first quarter ended March 31, 2005, an increase of $41.1 million, or 8 percent, compared with the first quarter of 2004. Operating income from continuing operations was $38.7 million for the first quarter of 2005, a $14.1 million improvement over the same period in 2004 and a $22.5 million improvement over the fourth quarter of 2004.

Net income for the first quarter of 2005 was $13.4 million, or $0.15 per share -- an improvement over the first quarter of 2004 of $9.4 million, or $0.11 per share.

Special items for continuing and discontinued operations reduced earnings in the 2005 first quarter by $0.05 per share. The most significant special item was a $10.9 million pre-tax non-cash charge to reflect impairment of net assets associated with discontinued operations.

"We made good progress during the quarter recovering product spreads -- selling price less raw materials -- in our core businesses," said Thomas A. Waltermire, president and chief executive officer. "We also benefited from further improvement in our cost structure and a strong contribution from our equity investments. However, softer demand in the U.S. and Europe limited year-over-year shipment growth for most of our operating units."

Waltermire added, "Cash flow in the quarter was negative, largely due to working capital investment required to support higher sales growth. We do expect to see working capital needs decline during the second quarter. By year end, we anticipate healthy positive cash generation from our operations."

Total Company -- Overall, the Company's continuing business units reported strong revenue and operating income improvement compared with the fourth quarter, driven primarily by seasonal demand, higher selling prices and further strengthening of the Resin and Intermediates earnings. While product spreads are not back to the average levels in 2004, they are substantially improved over the fourth-quarter 2004 level. First-quarter 2005 operating income improved compared with the first quarter of 2004 due to lower S&A costs and higher equity income, partially offset by lower Performance Plastics segment spreads.

For the two discontinued operations, Specialty Resins and Engineered Films, net income before the effect of special items improved over the fourth quarter of 2004 as a result of higher selling prices, demand and improved spreads over raw materials. Net income before the effect of special items in the 2004 first quarter includes earnings from the Elastomers and Performance Additives business, which was subsequently sold in August 2004.

"Our strong earnings performance in the first quarter appears to be continuing into the second quarter, led principally by our equity investments," said Waltermire. "While costs are expected to continue to pressure our margins and overall growth is slow, we are making steady progress in the marketplace with higher selling prices. We remain committed to managing our working capital needs, achieving market growth by increasing the capture rate of targeted customers and returning our North American Color and Engineered Materials businesses to profitability."

PolyOne anticipates that revenues from continuing operations should increase in a range of 7 percent to 10 percent over first-quarter 2005 revenues. Contributing to this estimated increase are projected higher average selling prices plus volume shipment improvements of 3 percent to 5 percent, reflecting an upsurge in seasonal demand in the second quarter compared with the first quarter. PolyOne expects that volume shipments in North America and Europe should be at or slightly lower than second-quarter 2004 levels, as rising prices appear to be motivating customers to manage their inventory levels more carefully.

The R&I segment should continue to benefit in the second quarter from increasing market prices for PVC resins and caustic soda and an increase in PVC resin demand compared with the first quarter. PolyOne projects average industry PVC resin prices to increase in the second quarter by 2 cents to 3 cents per pound due to increases realized during the first quarter and announced for the second quarter. Ethylene costs are expected to be flat to slightly down in the second quarter. Based on these factors, PolyOne anticipates that R&I operating income will increase between $7 million and $10 million in the second quarter compared with the first quarter.

Because all of its operating units raised prices in the first quarter of 2005, PolyOne expects modest sequential spread improvement but does not expect to see spread recovery to mid-2004 levels until the second half of 2005. Further, raw material costs are anticipated to increase in the second quarter. Also, PolyOne does not expect to have the benefit of one-time favorable items during the second quarter, such as the approximately $4 million in the first quarter of 2005 relating to the settlement of legal issues and adjustments to associated reserves.

As a result of this combination of factors, PolyOne anticipates that operating income from continuing operations should increase by $8 million to $12 million over first-quarter 2005 levels. Included in this total is the expected increase in R&I segment operating income.

Improved selling prices and shipments for Specialty Resins and Engineered Films are anticipated to increase net income from discontinued operations in the second quarter compared with the first quarter. After consideration of the impairment and other non-operating charges recorded in the first quarter, this improvement is anticipated to be between $14 million and $15 million, resulting in net income from discontinued operations of between $8 million and $9 million.

Other expense, net was only $0.8 million in the first quarter 2005, a substantially lower amount than the $4.2 million quarterly average in 2004. This improvement was driven principally by favorable foreign exchange, reduced post-retirement benefit costs and no debt repurchase premiums. It is anticipated that Other expense, net in the second quarter 2005 would increase to approximately $3 million.

PolyOne will continue to maintain a full valuation allowance associated with U.S. federal taxes. Consequently, PolyOne's reported net income will reflect only foreign tax liabilities. The Company expects the effective foreign tax rate to remain at approximately 30 percent.

PolyOne projects generating positive operating cash flows in the second quarter. Compared with the first quarter, cash flows should benefit from higher earnings, cash distributions from equity affiliates (as expected, none were received in the first quarter) and further working capital efficiency improvements, partially offset by higher cash interest payments.

Form 10-Q

The Company filed with the Securities and Exchange Commission (SEC) its Quarterly Report on Form 10-Q for the first quarter of 2005. The Form 10-Q contains more details of PolyOne's performance as well as information on key drivers of operating results.

In-quarter Update Policy

PolyOne intends to release an in-quarter update sometime during June, the final month of the quarter. The purpose of this release is to inform investors of any material changes to major business drivers as discussed in the "Outlook" section of earnings releases and Form 10-Q or Form 10-K.

Use of Non-GAAP Financial Measures

This press release includes the use of both GAAP (generally accepted accounting principles) and non-GAAP financial measures. The non-GAAP financial measures are: operating cash flow, operating income (loss) before special items on a consolidated basis and per share impact of special items. The most directly comparable GAAP financial measures are: net cash used (provided) by operating activities, operating income (loss) and income (loss) per share.

When PolyOne's chief operating decision makers review consolidated and segment results, special items are excluded from operating income and are evaluated on a per-share basis to enhance understanding of current profitability levels and how current levels may serve as a base for future performance. PolyOne's chief operating decision makers also use these non- GAAP financial measures for decisions regarding allocation of resources. In addition, operating income before special items is a component of the PolyOne Annual Incentive Plan at the corporate level and is used in debt covenant computations. PolyOne's chief operating decision makers use operating cash flow as an internal measure of cash generation from operations, and it is also a component of the PolyOne Annual Incentive Plan at the corporate level.

PolyOne is providing these non-GAAP financial measures because it believes they offer investors a top-level management view of PolyOne's financial performance and enhance investor understanding of current profitability levels and how current levels may serve as a base for future performance.

Special items include charges related to specific strategic initiatives such as the consolidation of operations; restructuring activities such as employee separation costs resulting from personnel reduction programs, plant closure and phase-out costs; asset impairments; environmental remediation costs for facilities no longer owned or closed in prior years; gains and losses on the divestiture of joint ventures and equity investments; adjustments to reflect a tax benefit on domestic operating losses; and deferred tax valuation allowances on domestic operating losses.

About PolyOne

PolyOne Corporation, with 2004 annual revenues of approximately $2.2 billion, is a leading global compounding and North American distribution company with continuing operations in thermoplastic compounds, specialty polymer formulations, color and additive systems, and thermoplastic resin distribution. Headquartered in northeast Ohio, PolyOne has employees at manufacturing sites in North America, Europe, Asia and Australia, and joint ventures in North America and South America.

Forward-looking Statements
In this press release, statements that are not reported financial results or other historical information are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward- looking statements give current expectations or forecasts of future events and are not guarantees of future performance. They are based on management's expectations that involve a number of business risks and uncertainties, any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. You can identify these statements by the fact that they do not relate strictly to historic or current facts. They use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe" and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions; prospective changes in raw material costs, product pricing or product demand; future performance, including, without limitations, meeting cash flow goals, receiving cash distributions from equity affiliates and achieving working capital targets; results of current and anticipated market conditions and market strategies; sales efforts; expenses; the outcome of contingencies such as legal proceedings; and financial results.

Source: Polyone Corporation


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