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PolyOne Second-Quarter Earnings Increase 28 Percent

Published on 2006-08-03. Author : SpecialChem

CLEVELAND -- PolyOne Corporation (NYSE: POL), a leading global supplier of specialized polymer materials, services and solutions, reported sales of $686.4 million for the second quarter ended June 30, 2006, an increase of 11 percent compared with second-quarter 2005 sales of $620.4 million.

The Company reported income before discontinued operations of $42.4 million, or $0.46 per share, in the second quarter of 2006, compared with $33.0 million, or $0.36 per share, in the second quarter of 2005, a 28 percent increase.

Income before discontinued operations for the first six months was $91.3 million, or $0.99 per share, compared with $58.0 million, or $0.63 per share, an increase of 57 percent over the same period in 2005.

"Our Performance Plastics and Distribution business segments capitalized on solid demand in our North American and International markets during the first half of 2006 to realize strong sales and earnings improvements," said Stephen D. Newlin, chairman, president and chief executive officer. "Coupled with cash distributions from our Resin and Intermediates segment, these results enabled us to reduce our long-term debt during the second quarter and further strengthen our financial profile."

Net cash provided by operating activities for the first half of 2006 was $46.2 million compared with $11.1 million for the first half of 2005. Operating cash flow(1) for the first half of 2006 was $51.0 million compared with a negative $39.8 million for the first half of 2005. This increase stemmed primarily from stronger earnings and significant improvements in working capital efficiency. In the second quarter of 2006, the Company retired $15.8 million of long-term debt.

Segment Highlights

Performance Plastics segment: Sales were $537.6 million, an increase of $51.9 million, or 11 percent, compared with second-quarter 2005 sales. Operating income in the second quarter of 2006 increased $2.5 million, or 10 percent, compared with the 2005 second quarter.

Distribution segment: PolyOne Distribution's sales were $189.7 million, an improvement of $19.5 million, or 11 percent, compared with the second quarter of 2005. Operating income of $5.1 million in the second quarter of 2006 was 28 percent higher than in the second quarter of 2005.

Resin and Intermediates segment: In the second quarter operating income reached $28.9 million compared with $28.5 million in the second quarter of 2005. Oxy Vinyls, LP earnings remained strong during the quarter. Nevertheless, industry spreads for polyvinyl chloride (PVC) resins in the second quarter of 2006 were slightly lower than in the first quarter as lower average ethylene costs only partially offset a decline in quarterly average market prices for PVC. SunBelt Chlor-Alkali reported record quarterly earnings and continued to benefit from strong caustic soda and chlorine demand.

Segment Other: Compared with the second quarter of 2005, the Company realized a $2.4 million net benefit from adjustments to various operating reserves and favorable litigation settlements. Included in this amount was $6.1 million of net pre-tax benefit from the combined effect of legal dispute settlements and adjustments to litigation reserves.

Third-quarter 2006 Business Outlook

PolyOne is cautious about third-quarter demand within Performance Plastics, due to a forecasted slowing in the North American automotive and building products markets. Management's view, however, is that sales and shipments should approximate second-quarter 2006 levels. The Company projects that operating income should improve compared with the 2005 third quarter, but is likely to decline compared with the 2006 second-quarter performance as operating margins are anticipated to come under pressure as energy-derived raw material costs increase.

PolyOne projects that Distribution segment sales and shipments should be slightly lower than in second-quarter 2006, but should improve compared with the third quarter of 2005. Third-quarter 2006 operating income should decline sequentially, but approximate the third-quarter 2005 performance.

In the Resin and Intermediates segment, PolyOne expects earnings for both OxyVinyls and SunBelt to improve significantly compared with the third quarter of 2005, but to trend lower sequentially. Both businesses would be adversely affected by forecasted lower caustic demand and pricing. Additionally, industry PVC resin product spreads are projected to narrow as announced PVC price hikes may lag realized and announced ethylene cost increases. Energy costs are anticipated to move upward as well during the quarter.

The Company anticipates that adjustments to operating and litigation reserves and legal settlements should result in a net benefit in the third quarter of 2006. While the net impact of non-recurring events is difficult to predict, PolyOne projects that this benefit could approach the net benefit realized in the second quarter of 2006.

Considering all the above factors, PolyOne expects earnings during the third quarter to improve compared with the same period in 2005, but to decline sequentially.

PolyOne continues to anticipate that operating cash flows for the year should substantially exceed those generated in 2005.

  1. Operating cash flow is a non-GAAP financial measure. A discussion occurs at the end of this release on the use of non-GAAP financial measures.

About PolyOne

PolyOne Corporation, with 2005 annual revenues of approximately $2.5 billion, is a leading global supplier of specialized polymer materials, services and solutions. Headquartered in northeast Ohio, PolyOne has operations in North America, Europe, Asia and Australia, and joint ventures in North America and South America. Product offerings include vinyl and other thermoplastic compounds, polymer coating systems, color and additive masterbatches, and specialty vinyl resins.

Use of Non-GAAP Financial Measures

This earnings 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 and per share impact of special items. The most directly comparable GAAP financial measures are: net cash provided (used) by operating activities, operating income (loss) and income (loss) per share.

PolyOne's chief operating decision makers use these financial measures to monitor and evaluate the ongoing performance of the Company and each business segment, and to allocate resources. In addition, operating income before special items and operating cash flow are components of various PolyOne annual and long-term employee incentive plans.

Tables included in this news release reconcile each non-GAAP financial measure with the most directly comparable GAAP financial measure (Attachment 6) and provide detail about special items (Attachment 5). Also attached are standard financial schedules and a summary of segment results.

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 limitation, 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. Factors that could cause actual results to differ materially include, but are not limited to:

  • the effect on foreign operations of currency fluctuations, tariffs, nationalization, exchange controls, limitations on foreign investment in local businesses and other political, economic and regulatory risks;
  • changes in U.S., regional or world polymer consumption growth rates affecting PolyOne's markets;
  • changes in global industry capacity or in the rate at which anticipated changes in industry capacity come online in the polyvinyl chloride (PVC), chlor-alkali, vinyl chloride monomer (VCM) or other industries in which PolyOne participates;
  • fluctuations in raw material prices, quality and supply and in energy prices and supply, in particular fluctuations outside the normal range of industry cycles;
  • production outages or material costs associated with scheduled or unscheduled maintenance programs;
  • costs or difficulties and delays related to the operation of joint venture entities;
  • lack of day-to-day operating control, including procurement of raw materials, of equity or joint venture affiliates;
  • partial control over investment decisions and dividend distribution policy of the OxyVinyls partnership and other minority equity holdings of PolyOne;
  • an inability to launch new products and/or services within PolyOne's various businesses;
  • the possibility of further goodwill impairment;
  • an inability to maintain any required licenses or permits;
  • an inability to comply with any environmental laws and regulations;
  • the cost of compliance with environmental laws and regulations, including any increased cost of complying with new or revised laws and regulations;
  • unanticipated developments that could occur with respect to contingencies such as litigation and environmental matters, including any developments that would require any increase in our costs and/or reserves for such contingencies;
  • an inability to achieve or delays in achieving or achievement of less than the anticipated financial benefit from initiatives related to cost reductions and employee productivity goals;
  • a delay in achieving or inability to achieve targeted debt level reductions;
  • an inability to access the receivables sale facility as a result of breaching covenants due to failure to achieve anticipated earnings performance or for any other reason;
  • any poor performance of our pension plan assets and any obligation on our part to fund PolyOne's pension plan;
  • any delay and/or inability to bring the North American Color and Additives Masterbatch and the Engineered Materials product groups to profitability;
  • an inability to raise prices or sustain price increases for products;
  • the occurrence and timing of any benefits from legal settlements or adjustments to litigation reserves;
  • an inability to maintain appropriate relations with unions and employees in certain locations in order to avoid disruptions of business; and
  • other factors beyond our control affecting our business, including, without limitation, changes in the general economy, changes in interest rates and changes in the rate of inflation.

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements.

We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our reports on Form 10-Q, 8-K and 10-K provided to the Securities and Exchange Commission. You should understand that it is not possible to predict or identify all risk factors. Consequently, you should not consider any list to be a complete set of all potential risks or uncertainties.

Source: PolyOne Corporation


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