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Rohm and Haas Second Quarter Results: Sales up to 5 Persent, Eaenings from Continuing Operations up to 12 Persent on Record Electronic Materials Performance

Published on 2006-07-26. Author : SpecialChem

PHILADELPHIA, PA -- Rohm and Haas Company (NYSE: ROH) reported second quarter 2006 sales of $2,081 million, a 5 percent increase over the same period in 2005, driven primarily by higher demand. Higher selling prices, necessary to help offset continued high raw material and energy costs, were nearly offset by an unfavorable impact of currencies. Second quarter earnings from continuing operations were $192 million, or $0.87 per share, compared to $172 million, or $0.76 per share, for the second quarter of 2005. The prior year results included a net favorable impact of $0.03 per share from favorable tax reserve and valuation allowance adjustments partially offset by restructuring and asset impairment charges.

(in millions, except per share amounts)
2006
2005
% Change
Sales
$ 2,081
$1,978
5%
Net Earnings from Continuing Operations
$ 192
$ 172
12%
Diluted Net Earnings per Share from Continuing Operations
$ 0.87
$ 0.76
14%
Second Quarter

The company intends to sell its Automotive Coatings business and has presented its operations as "Discontinued Operations" for all periods reported. The sale is consistent with the company's ongoing portfolio management strategy. For the quarter, the loss from discontinued operations, after-tax, was $26 million, or $0.12 per share.

"We delivered outstanding sales and earnings growth from all of the businesses within the Electronic Materials segment, with steady growth in demand in a number of our larger chemicals businesses, such as Plastics Additives, Process Chemicals and Architectural and Functional Coatings," said Raj L. Gupta, chairman, president and chief executive officer. "We remain focused on innovation and geographic expansion, with this quarter's results demonstrating accelerating growth in Asia, Central and Eastern Europe and Turkey."

Gupta noted that the company continues to respond to the challenge of an environment of extraordinarily high and volatile raw material and energy costs. "We are proactively managing the raw material/selling price balance while we maintain our strong cost control discipline and invest for growth," Gupta explained.

Second Quarter 2006 Business Results

Coatings

Sales in the Coatings segment of $739 million increased 4 percent over the second quarter of 2005. The improvement was attributed to increased demand and higher selling prices, partially offset by an unfavorable impact of currencies.

  • Architectural and Functional Coatings sales increased 4 percent over the comparable period, with stronger demand and higher pricing the primary drivers of the increase. Growth in the decorative coatings segment reflects both continued growth of technologically differentiated low VOC emulsions, and strong emerging market penetration. As anticipated, our growth in demand in China, India, Turkey and other emerging markets has been strong and shows broad adoption of core Rohm and Haas technologies in decorative coatings.
  • Powder Coatings sales were flat at $85 million when compared to the prior-year period, with higher selling prices, on flat volume, offset by the unfavorable impact of weaker European currencies.

Second quarter earnings for the Coatings business were $71 million, versus $69 million in earnings in the same period in 2005. The second quarter 2005 results included a $7 million, after-tax, charge for restructuring and asset impairments related to the Powder Coatings business. Coatings segment earnings reflect the favorable impact of higher selling prices and improved demand, which were more than offset by higher raw material, energy and operating costs, and increased spending to fund geographic expansion and research.

Monomers

Sales of $499 million were up 1 percent from $495 million in the same period a year ago. Third party sales of $154 million decreased 13 percent from the prior year period, primarily due to decreased demand and lower selling prices. Sales to downstream Rohm and Haas specialty businesses were 8 percent higher versus the prior year, reflecting the impact of higher selling prices along with higher demand.

Monomers earnings of $50 million for the quarter decreased from $53 million in the same period a year ago. Prior period results included $15 million, after-tax, of expenses associated with an unplanned plant outage at the Deer Park, Texas facility. The decrease in earnings is primarily due to the decreased demand and lower selling prices to third party customers, as well as higher raw material and energy costs. In the quarter, approximately 61 percent of Monomers earnings was generated by sales to the downstream businesses, as compared to approximately 43 percent in the same period last year.

Performance Chemicals

Sales of $452 million were up 6 percent over the comparable period in 2005. The increase was driven by improved demand and higher selling prices, partially offset by the unfavorable impact of currencies.

  • Sales in Plastics Additives were up 9 percent, primarily due to stronger demand in most regions, combined with higher pricing. The business saw strength in both the Building and Construction and Packaging markets in Asia, as well as solid growth in the PVC window markets in Germany and Turkey.
  • Consumer and Industrial Specialties sales increased 2 percent compared to the same period last year, largely due to increased demand. The business enjoyed healthy growth in all regions, except Europe, where softness in dispersants and polymers depressed sales.
  • Sales for Process Chemicals were up 4 percent from the comparable period a year ago. The increase reflects strong demand for ion exchange resins across all regions.

Performance Chemicals earnings were $42 million in the quarter, up from $38 million in the prior year period, as the favorable impacts of higher pricing, strong demand, and efficient operations more than offset increased raw material and energy costs, and higher levels of spending to support business development and new product introductions.

Electronic Materials

Record quarterly sales of $393 million were up 21 percent over the same period in 2005, primarily due to strong demand across all businesses, especially in North America and Asia-Pacific. The business continues to deliver innovative technologies to meet the needs of this dynamic marketplace. Second quarter sales were up 5 percent sequentially over the first quarter of 2006.

  • Semiconductor Technologies sales increased 22 percent over the same period in 2005, driven by strength in demand for CMP pads and slurries in all regions, along with increased sales of advanced photoresists and related products in all regions.
  • Circuit Board Technologies sales were up 11 percent over the same period in 2005, reflecting ongoing strength in Asia-Pacific, up 17 percent versus a year ago, which more than offset decreased demand in North America.
  • Packaging and Finishing Technologies sales were 28 percent higher than the same period a year ago, primarily driven by increased precious metals usage and the pass-through of higher precious metals prices. Process sales increased 4 percent during the quarter.

Electronic Materials' advanced technology products, such as deep ultraviolet photoresists, anti-reflective coatings and CMP pads and slurries, posted a 28 percent increase in sales year-over-year.

Second quarter 2006 earnings for Electronic Materials were a record $60 million, 58 percent higher than the second quarter of last year, reflecting increased sales of advanced technology products and strong discipline in cost management.

Salt

Sales of $160 million were up 6 percent versus the same period a year ago, primarily due to higher selling prices. Demand was down slightly overall, largely due to lower volumes for ice control salt and other bulk products. The Salt business recorded earnings of $1 million for the quarter, up $3 million from a loss in the prior year period. Higher selling prices, to offset increases in production and distribution costs, and a shift in sales mix toward higher margin products, both contributed to the change in earnings.

Adhesives and Sealants

Sales of $183 million were down 2 percent versus the comparable period in 2005, with slightly higher pricing more than offset by the unfavorable impact of currencies as well as lower demand. Growth in the core business segments was more than offset by the impact of prior portfolio management initiatives.

Earnings of $12 million were up versus break-even results in the second quarter of 2005, which included a non-cash impairment charge of $16 million, after-tax, in the prior-year period. Higher raw material, energy and operating costs and the unfavorable impact of currencies more than offset the favorable impact of higher selling prices.

Corporate

Corporate expense of $44 million, after-tax, for the quarter was up from $24 million, after-tax, in the second quarter of 2005. The increase reflects the absence in 2006 of a net $28 million benefit from tax reserve and valuation allowance adjustments, resulting from tax audit settlements.

Discontinued Operations

The company intends to sell its Automotive Coatings business, and as a result, has presented the business' results as "Discontinued Operations" for all periods reported. The loss from discontinued operations for the quarter, after-tax, was $26 million, or $0.12 per share, compared to a gain of $6 million, or $0.03 per share, in the same period last year. The loss is mainly attributable to $27 million in after-tax charges from the recognition of certain deferred tax liabilities and asset impairments triggered by the decision to sell the business.

Second Quarter 2006 Regional Sales Performance

North American sales of $1,061 million were up 4 percent over the comparable period in 2005, the result of higher selling prices and flat overall demand. The higher pricing across most of the chemicals businesses reflected efforts to mitigate the impact of higher raw material and energy costs. European sales were $521 million for the quarter, flat when compared to the same period last year, as the impact of increased demand was largely offset by the unfavorable impact of currencies. Demand was particularly strong in the Monomers, Plastics Additives, Architectural and Functional Coatings, and Electronic Materials businesses. Asia-Pacific sales were $418 million, a 15 percent increase over the same period last year, with all businesses contributing, led by Electronic Materials and Coatings. Latin American sales of $81 million in the quarter were 8 percent higher than the same period last year, reflecting increased demand, higher selling prices and the favorable impact of currencies. The higher demand was experienced primarily in the Architectural and Functional Coatings, Plastics Additives, and Process Chemicals businesses.

Comments on the Second Quarter 2006 Income Statement

Gross Profit Margin in the quarter was 30.2 percent, compared to 29.7 percent in the same period last year, as higher demand, increased selling prices, and the absence of prior year charges for a temporary Monomer production outage more than offset higher raw material, energy and freight costs, and the unfavorable impact of currencies.

Selling and Administrative (S&A) spending of $254 million was $11 million, or 5 percent higher, compared to 2005, largely reflecting increased spending to support growth initiatives. As a percentage of sales, S&A spending of 12.2 percent was virtually unchanged when compared to the same period in 2005.

Research spending of $71 million was $6 million, or 9 percent higher, versus the same period a year ago, due largely to increased spending to support growth projects in Electronic Materials, Coatings and Performance Chemicals.

Interest expense for the quarter was $27 million, down 7 percent from the same period in 2005, primarily due to lower levels of debt and a lower overall effective interest rate.

Income tax expense for the quarter was $73 million, reflecting an effective tax rate of 27.2 percent, as compared to income tax expense of $40 million, or an effective tax rate of 18.7 percent in the prior year period. The lower effective tax rate in the prior year period was primarily due to the adjustment of a net $28 million in tax reserves and valuation allowances resulting from tax audit settlements.

Year-To-Date 2006 Performance

Sales for the six months ending June 30, 2006 were $4,139 million, a 4 percent increase over the comparable period in 2005, driven by broad-based growth in demand. Higher selling prices, necessary to help balance continued high raw material and energy costs, were nearly offset by an unfavorable impact of currencies. Earnings from continuing operations for the first six months of 2006 were $399 million, or $1.79 per share, compared to $325 million, or $1.44 per share, a 23 percent increase over the prior period. Higher selling prices, increased demand, and lower interest expense more than offset the impact of higher raw material, energy, freight and operating costs, along with higher spending in S&A and research activities. During the first six months of 2005, significant favorable tax adjustments were more than offset by charges for restructuring, debt extinguishment, and the acceleration of stock-based compensation for retirement-eligible employees, for a net unfavorable impact of $0.04 per share.

Full-Year Guidance

Gupta noted that, while the ongoing pressure from extremely volatile and high raw material and energy costs will likely continue throughout the remainder of the year, the economic environment of the company's key markets remains sound, and provides a strong foundation for solid performance throughout 2006. "These market trends, together with our emphasis on innovation and geographic expansion, should result in full-year sales growth in the 4 to 5 percent range, yielding record annual sales of $8.3 billion and earnings from continuing operations in the $3.30-$3.45 range."

About Rohm and Haas Company

Rohm and Haas is a global leader in the creation and development of innovative technologies and solutions for the specialty materials industry. The company's technologies are found in a wide range of markets including: Building and Construction, Electronics, Industrial Process, Packaging and Paper, Transportation, Household and Personal Care, Water, Food and Retail and Pharma and Medical. Its technologies and solutions help to improve life everyday, around the world. Based in Philadelphia, Pa, the company generated annual sales of approximately $8 billion in 2005.

This release includes forward-looking statements. Actual results could vary materially, due to changes in current expectations. The forward-looking statements contained in this announcement concerning demand for products and services, sales and earnings forecasts, and actions that may be taken to improve financial performance, involve risks and uncertainties and are subject to change based on various factors, including the cost of raw materials, natural gas, and other energy sources, and the ability to achieve price increases to offset such cost increases, development of operational efficiencies, changes in foreign currencies, changes in interest rates, the continued timely development and acceptance of new products and services, the impact of competitive products and pricing, the impact of new accounting standards, assessments for asset impairments, and the impact of tax and other legislation and regulation in the jurisdictions in which the company operates. Further information about these risks can be found in the company's SEC 10-K filing of March 2, 2006.

Source: Rohm and Hass


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