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Contact:
Jodi Allen (Investor Relations)
(973) 357-3283
Cytec Announces First Quarter Results, Provides Full
Year Outlook, and Announces Additional Initiatives to Maintain
Liquidity,
Including a 90% Reduction in the Dividend
Woodland Park, New Jersey, April 16, 2009 – Cytec Industries
Inc. (NYSE:CYT) announced today a net loss for the first quarter
2009 of $0.1 million or $0.00 per share on net sales of $612
million. Included in the quarter are several special items that
total $2.8 million of net expense after-tax or $0.06 per share
and are outlined further in this release. Excluding these
special items, net earnings were $2.7 million or $0.06 per
diluted share.
Net earnings for the first quarter of 2008 were $49.1 million or
$1.01 per diluted share on net sales of $973 million. Included
in the 2008 quarter were several special items that totaled a
net $3.4 million expense after-tax or $0.07 per diluted share.
Excluding these special items, net earnings were $52.5 million
or $1.08 per diluted share.
Shane Fleming, Chairman, President and Chief Executive Officer
commented, “We experienced a significant decline in sales across
all of our chemical product lines caused by the steep downturn
in the automotive, construction and general industrial markets
and weakened further by destocking actions of our customers that
began in late 2008 and continued into the first quarter 2009.
Sales volumes declined in all regions and most of our chemical
plants ran at significantly lower operating rates than the prior
year period. Engineered Materials was also impacted, with lower
volumes from large commercial transport and business and
regional jets, but we did see modest growth in military. We
announced in January various restructuring initiatives,
including a global reduction of approximately 600 positions. We
are on schedule in implementing these actions to reduce our
structural costs and anticipate that most of these positions
will be eliminated in the second and third quarters. These
actions will have an increasingly favorable impact on earnings
as the year progresses. We are also taking additional steps to
maintain liquidity in light of this global recession.”
Cytec Surface Specialties sales decreased 46% to $243
million; operating loss of $20.7 million.
In Cytec Surface Specialties, overall selling volumes were down
by 43% versus the first quarter 2008, with depressed demand in
industrial coatings markets, particularly automotive and
construction, affecting all product lines. Selling prices
increased by 1% and the impact of exchange rates decreased sales
by 4%.
Operating loss of $20.7 million was down versus earnings of
$20.6 million in the first quarter of 2008 and this was
principally due to the weak global economic conditions impacting
volumes across all product lines in this segment. On average,
our Specialty Chemicals plants operated at approximately 50% of
capacity in the quarter. As a result, we have tightened cost
controls and these actions have resulted in approximately 10%
lower manufacturing costs versus the same period in 2008.
Operating expenses were also down 14% versus first quarter 2008
primarily as a result of our restructuring initiatives
previously announced.
Cytec Performance Chemicals sales decreased 28% to $132
million; operating earnings decreased to $5.8 million.
In Cytec Performance Chemicals, overall selling volumes
decreased by 29% versus the first quarter 2008 related to global
economic weakness across all product lines. Selling prices
increased by 5% and the impact of exchange rates decreased sales
by 4%.
Operating earnings of $5.8 million were down compared to the
$13.7 million in the first quarter of 2008 as a result of the
lower selling volumes, particularly in the product lines that
serve the construction and automotive segments. We have taken
measures to reduce production in line with the reduced demand,
and this and other actions have resulted in approximately a 6%
manufacturing cost reduction and a 8% reduction in operating
expenses for this segment versus the prior year first quarter.
Cytec Engineered Materials sales decreased by 15% to
$170 million; operating earnings of $33.1 million.
In Cytec Engineered Materials, selling volumes decreased by 15%,
driven primarily by lower sales from large commercial transport
and business and regional jets due to the reduced build rates
versus the first quarter 2008. Selling prices increased by 2%
and the impact of exchange rates reduced sales by 2%.
Operating earnings of $33.1 million were down versus $44.5
million in the first quarter of 2008, principally related to the
lower selling volumes.
Cytec Building Block Chemicals sales decreased by 52% to
$67 million; operating earnings of $3.2 million.
In Building Block Chemicals, selling volumes decreased by 18%
due to weak demand within the end markets for acrylonitrile and
melamine products across all regions. Selling prices decreased
by 34% due to the significant change in raw material pricing
compared to the first quarter 2008.
Operating earnings of $3.2 million were down compared to the
$5.9 million in the first quarter of 2008. The reduced earnings
resulted primarily from reduced volumes and the unfavorable
impact of plant shut downs related to scheduled maintenance
turnarounds for our melamine and sulfuric acid plants, partially
offset by improved raw material costs. Due to the turnaround and
weak market demand, the melamine plant operated at approximately
40% of capacity in the quarter, which contributed to the weak
earnings.
Corporate and Unallocated
Corporate and Unallocated also included approximately $3 million
of consulting costs related to the working capital reduction
project which is most of the expense expected to be incurred on
this project during the entire year. Also recorded was a charge
of approximately $4 million to increase certain environmental
remediation reserves based on recent estimates related primarily
to two operating sites in the U.S.
Special Items
In the first quarter of 2009 a number of special items were
recorded that resulted in a net pre-tax charge of $3.2 million
($2.8 million after-tax or $0.06 per share) as follows:
- Included in manufacturing cost of sales and operating expenses
is a pre-tax charge of $3.2 million ($2.2 million after-tax or
$0.05 per diluted share) associated with various restructuring
initiatives across Specialty Chemicals and corporate operations.
As we implement our restructuring initiatives throughout 2009 we
expect more charges over the next three to four quarters.
- Included in Corporate and Unallocated is a pre-tax gain of
$1.6 million ($1.0 million after-tax or $0.02 per diluted share)
related to the sale of polyurethane assets in Europe as well as
a pre-tax charge of $1.6 million ($1.6 million after-tax or
$0.03 per diluted share) primarily related to accelerated
depreciation of assets associated with the planned exit of our
polyurethane product line in Korea.
Income Tax Expense
The tax provision for the first quarter of 2009 was $1 million,
compared with $22.2 million in the first quarter of 2008.
Excluding the special items previously noted, the overall
underlying tax rate for the first quarter of 2009 was 34%. The
increase over the prior year’s underlying rate of 32% is
primarily due to a greater percent of earnings in higher tax
jurisdictions.
Cash Flow
David Drillock, Vice President and Chief Financial Officer
commented, “Cash flow from operations was $63 million for the
first quarter. Trade accounts receivable decreased by $53
million primarily due to an 8 day decrease in days outstanding
versus the end of the fourth quarter. Inventory decreased by $44
million although days on hand were up 9 versus year-end 2008 due
to lower sales volume in the first quarter. We have adjusted our
production schedules accordingly and taken other actions to
decrease our inventory levels. As a result we expect to see
improvement in our days of inventory by the end of the second
quarter. Capital spending for the quarter was $64 million, with
approximately 75% of this spending related to our carbon fiber
plant in Greenville, SC, our prepreg plant in China and planned
maintenance capital work at our Building Block Chemical
manufacturing facility in Louisiana. Work on the prepreg plant
in China is scheduled to be completed in the second quarter.”
2009 Outlook
Mr. Fleming explained, “We began to see some positive signs of
demand improvement in our Specialty Chemical’s businesses
towards the end of the quarter, particularly in Asia and Latin
America. However, we continue to have limited visibility to
future order requirements. We anticipate a modest run-rate
improvement in Specialty Chemicals volume later this year,
provided the destocking impact is essentially complete and
volumes in Asia continue to show improvement. Our expectation is
for volumes in the Engineered Materials and Building Block
Chemicals segments to remain relatively flat for the remainder
of the year.
“We continue to make difficult but prudent management decisions
through this global economic downturn. In addition to the
significant actions we announced in January, we have identified
and begun implementation of additional cost-reduction and
cash-conservation measures across the Company in order to
maintain liquidity and flexibility going forward. In regards to
immediate short-term actions, we will continue to implement
furloughs in certain production facilities in order to better
align our cost structure with our expectations for demand in
2009. We have instituted a global salary freeze and bonus
limitations, except as required by local law and Collective
Bargaining Contracts, and have suspended the company matching
contributions to the 401(k) savings program for all US salaried
employees effective May 1, 2009. These short-term actions are
expected to improve 2009 operating earnings by approximately $55
million.
“In addition, we have begun implementation of additional
headcount reductions which when combined with the actions we
announced in January, will result in over a 12% reduction in our
global work force. In addition to the $55 million short-term
actions discussed above, our structural cost takeout actions are
expected to improve 2009 results by approximately $50 million
and the expected run rate savings related to our structural cost
takeout actions by the end of 2009 has now increased to
approximately $110 million.
“Based on our volume assumptions and the cost reduction actions
detailed above, we expect 2009 full year adjusted diluted
earnings per share to be in a range of $1.35 to $1.75 per
share.”
In addition to the actions discussed above, Cytec is taking a
number of actions to enhance its liquidity. Dave Drillock
commented, “Cytec has a strong balance sheet, but as our results
have weakened with the global economy, we think it prudent to
conserve capital. To this end, the Board of Directors has
reduced Cytec’s quarterly dividend by $0.1125 or 90%, to $0.0125
per share effective immediately. The reduction will conserve
approximately $21 million of cash per year. Mr. Drillock added,
“We recognize the importance of the dividend to our
shareholders, but we believe this is the right precautionary
action, and we will revisit the dividend payout once the global
economy improves.”
During 2009, Cytec expects to contribute approximately $40
million to its pension funds around the world and now plans to
make up to $25 million of these contributions in equivalent
value of Cytec common stock. The issuance of Cytec stock at the
current price would be slightly dilutive to EPS in 2009. Mr.
Drillock added, “We believe this is an appropriate action to
enhance our liquidity in these difficult times. In addition,
because our plans are not fully funded, any increases in Cytec’s
stock price will reduce our future cash contributions to these
plans.”
The Company is also working with its bank group to amend one of
the financial covenants in its $400 million revolving credit
facility. Cytec anticipates incurring up to $100 million in cash
restructuring charges during 2009 and these charges may cause
the Company to be out of compliance with the existing covenants
later this year. It expects to complete the amendment by the end
of the second quarter so that it can continue to invest in these
important restructuring programs. Cytec anticipates that it will
completely pay down the $113 million outstanding balance on its
revolver by year-end from its strong operating cash flows
leaving the revolver available for general business purposes.
Cytec has also reviewed its capital spending plans in light of
the sharp reduction in demand. Taking into account its
expectations of the future business environment and the impact
on the overall demand profile for carbon fiber, the Company has
decided to delay the completion of the carbon fiber expansion
project for at least 12 months. This decision will reduce the
Company’s forecast of total capital expenditures for 2009 to
approximately $180 million, down from its prior estimate of $200
million. Cytec firmly believes that the long-term trend of
higher usage of carbon fiber composites remains intact, and will
continue to monitor market demand to determine the optimum time
period to complete this project.
In closing, Mr. Fleming commented “We are confident that the
immediate actions we have taken will benefit operating earnings,
cash flow and enhance liquidity over the course of the year. The
structural cost reductions and improved working capital
processes we have announced in January and today positions us to
deliver significantly increased future earnings and cash
generation as we execute our growth strategy.”
Investor Conference Call to be Held on April 17, 2009 at
11:00am ET
Cytec will host their first quarter earnings release conference
call on April 17, 2009 at 11:00am ET. The conference call will
also be simultaneously webcast for all investors from Cytec’s
website www.cytec.com. Select the Investor Relations page to
access the live conference call.
Use of Non-GAAP Measures
Management believes that net earnings and diluted earnings per
share excluding special items, which are non-GAAP measurements,
are meaningful to investors because they provide a view of the
Company with respect to ongoing operating results. Special items
represent significant charges or credits that are important to
an understanding of the Company’s overall operating results in
the period presented. Such non-GAAP measurements are not
recognized in accordance with generally accepted accounting
principles (GAAP) and should not be viewed as an alternative to
GAAP measures of performance. A reconciliation of GAAP to
non-GAAP measurements can be found at the end of this release.
Forward-Looking and Cautionary Statements
Except for the historical information and discussions contained
herein, statements contained in this release may constitute
“forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. Achieving the results
described in these statements involves a number of risks,
uncertainties and other factors that could cause actual results
to differ materially, as discussed in Cytec’s filings with the
Securities and Exchange Commission.
Corporate Profile
Cytec Industries Inc. is a global specialty chemicals and
materials company focused on developing, manufacturing and
selling value-added products. Our products serve a diverse range
of end markets including aerospace, adhesives, automotive and
industrial coatings, chemical intermediates, inks, mining and
plastics. We use our technology and application development
expertise to create chemical and material solutions that are
formulated to perform specific and important functions in the
finished products of our customers.
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