Highlights:
Third quarter earnings per share for 2009 were $0.41 per share on $10.3 million of income, which included a charge of $0.7 million, net of tax, or $0.03 per share, related to estimated executive severance. Excluding the estimated executive severance, 2009 earnings from continuing operations were $0.44 per share. Third quarter earnings per share from continuing operations for 2008 were $0.68 on $17.0 million of income. The 2008 results included a net benefit of $0.31 per share from the favorable antidumping ruling for the second period of review and a charge equal to $0.03 per share, related to a pension settlement. Excluding the pension settlement, 2008 earnings from continuing operations were $0.71 per share.
Segment operating income was $20.4 million in 2009 compared to $29.3 million in 2008.
“I am pleased by our strong third quarter results,” said Arch Chemicals’ Chairman, President and CEO Michael E. Campbell. “We realized increased selling prices in several of our businesses and saw higher demand for our health and hygiene biocides. We also benefited from significant cost reduction efforts across all businesses, which mitigated continuing unfavorable sales comparisons across most of our businesses and the protracted impact of unfavorable weather patterns in our North American HTH water products business.”
The following compares segment sales and operating income (loss) for the third quarters of 2009 and 2008 (including equity in earnings of affiliated companies and excluding restructuring and impairment):
Treatment Products
Treatment Products reported sales of $309.7 million and operating income of $25.2 million in 2009 compared with sales of $310.9 million and operating income of $31.2 million in 2008.
HTH Water Products
HTH water products reported sales of $128.1 million and operating income of $9.0 million for 2009 compared to sales of $111.9 million and operating income of $17.3 million for 2008.
Sales increased $16.2 million, or 14 percent. Excluding the impact of the acquisition of the water treatment chemicals business of Advantis Technologies ($17.0 million), sales decreased $0.8 million, or one percent. Improved pricing across all regions was offset by lower volumes in North America and unfavorable foreign exchange. Lower volumes in the North American residential business, principally due to unfavorable weather, were partially offset by higher volumes in Europe and South Africa.
Operating income decreased $8.3 million as 2008 included the benefit related to the favorable antidumping duty ruling for the June 1, 2006 to May 31, 2007 review period of $11.5 million. Excluding the impact of the ruling, operating income improved $3.2 million as higher pricing and the positive contribution of the acquisition of Advantis more than offset lower volumes and higher product costs.
Personal Care and Industrial Biocides
Personal care and industrial biocides reported sales of $77.8 million and operating income of $13.6 million compared to sales and operating income of $78.8 million and $12.3 million, respectively, in 2008.
Sales decreased $1.0 million, or one percent, as lower volumes more than offset improved pricing. Reduced demand for industrial biocides used in antifouling paints and metalworking fluids, due to the global economic recession, was partially offset by increased demand for biocides used in antidandruff products and other health and hygiene applications, partly due to timing. The improved pricing principally related to health and hygiene products.
Operating income increased $1.3 million as higher pricing and favorable foreign exchange were partially offset by lower volumes and higher plant costs related to the new manufacturing facilities in China.
Wood Protection and Industrial Coatings
Wood protection and industrial coatings reported sales of $103.8 million and operating income of $2.6 million compared to sales and operating income of $120.2 million and $1.6 million, respectively, in 2008.
Sales decreased $16.4 million, or 14 percent, as improved pricing in the wood protection business was more than offset by lower volumes and unfavorable foreign exchange in both businesses. In the wood protection business, lower residential and industrial sector volumes in the North American and Asia-Pacific regions due to the continued depressed conditions in global construction markets were partially offset by higher global prices. In the industrial coatings business, the lower volumes were attributable to poor economic conditions throughout Europe.
Operating income was $1.0 million higher than the prior year, due to the wood protection business, as improved pricing and reduced costs more than offset lower volumes and unfavorable foreign exchange. In the industrial coatings business, lower volumes were offset by favorable raw material costs and cost-reduction initiatives.
Performance Products
Performance Products reported sales of $40.8 million and operating income of $3.4 million compared with sales and operating income of $57.0 million and $5.7 million, respectively, in 2008.
Performance urethanes sales decreased $16.7 million. Pricing was below the third quarter 2008 as a result of lower raw material costs. Volumes were lower than prior year due to the downturn in the U.S. economy. Operating income decreased by $3.3 million as a result of the lower volumes.
Hydrazine sales and operating income were slightly higher than 2008.
General Corporate Expenses
General corporate expenses increased due to estimated executive severance costs which were partially offset by lower U.K. pension expense.
Other Items
During September 2009, the Company issued $75 million principal amount of unsecured Series A Senior Notes (the Notes) to certain affiliates of Prudential Investment Management, Inc. (Prudential). The Notes mature in August 2016 and bear a fixed annual interest rate of 6.70%. Proceeds from the issuance of the Notes were used primarily to pay down a portion of the Company’s revolving credit facility. The Notes were issued under a $150 million Note Purchase and Private Shelf Agreement that also provides for the additional purchase by Prudential of notes, in amounts to be mutually agreed, up to a maximum of $75 million over the next three years on terms to be determined.
In October 2009, the Company entered into a new trade accounts receivable securitization facility with PNC Bank and its affiliate, Market Street Funding LLC, which will provide up to $80 million of funding to the Company. This facility replaces the Company’s previous securitization facility with SunTrust Bank and its affiliates.
2009 Outlook
The Company has narrowed the range of its earnings forecast for the full-year 2009 from continuing operations and before estimated executive severance to be in the $1.65 to $1.80 per share range compared to the Company’s previous guidance of $1.60 to $1.80. Full-year sales are expected to be approximately six to seven percent lower than 2008, as the contribution from the acquisition of Advantis and higher pricing should be more than offset by lower volumes and unfavorable foreign exchange. The Company now expects depreciation and amortization to be in the $45 to $50 million range. Capital spending continues to be in the $30 to $35 million range and the effective tax rate remains in the 34 to 35 percent range.
The Company anticipates results from continuing operations to be in the range of breakeven to a loss of $(0.15) per share for the fourth quarter of 2009. Fourth quarter 2008 loss from continuing operations was $(0.75) per share, which included a net charge of $0.97 per share primarily for a goodwill impairment charge. Excluding the net charge, earnings per share from continuing operations for the fourth quarter of 2008 were $0.22. The expected decrease in the fourth quarter results is principally due to lower results for the industrial biocides and performance urethanes businesses. The decrease for industrial biocides is principally the result of higher plant costs related to the Company’s new manufacturing facilities in China and unfavorable foreign exchange. The Company expects lower demand and higher raw material costs will negatively impact the performance urethanes business.
Commenting on the Company’s full-year outlook, Mr. Campbell said: “We remain on target to achieve our earnings forecast. While end-use demand for our products appears to have stabilized, we are not yet experiencing a marked recovery in demand. Our results are benefiting from numerous supply chain, manufacturing and SG&A cost-reduction initiatives across all of our businesses.” He added: “Our relentless commitment to improve operating margins by raising prices wherever possible, aggressively reducing costs, optimizing our portfolio and maximizing cash generation will sustain Arch through these challenging times, and is the driver of our long-term profitable growth.”
Note: All references to earnings per share above reflect diluted earnings per share.
About Arch
Headquartered in
Except for historical information contained herein, the information set forth in this communication contains forward-looking statements that are based on management's beliefs, certain assumptions made by management and management's current expectations, outlook, estimates and projections about the markets and economy in which the Company and its various businesses operate. Words such as "anticipates," "believes," "estimates," "expects," "forecasts," "intends," "opines," "plans," "predicts," "projects," "should," "targets" and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("Future Factors"), which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expected or forecasted in such forward-looking statements. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of future events, new information or otherwise. Future Factors which could cause actual results to differ materially from those discussed include but are not limited to: general economic and business and market conditions; continued weakening in U.S., European and Asian economies; increases in interest rates; changes in foreign currencies against the U.S. dollar; customer acceptance of new products; efficacy of new technology; changes in U.S. or foreign laws and regulations; increased competitive and/or customer pressure; loss of key customers; the Company's ability to maintain chemical price increases; higher-than-expected raw material and energy costs and availability for certain chemical product lines; a change in the antidumping duties on certain products; increased foreign competition in the calcium hypochlorite markets; inability to obtain transportation for our chemicals; unfavorable court decisions, including unfavorable decisions in appeals of antidumping rulings, arbitration or jury decisions or tax matters; the supply/demand balance for the Company's products, including the impact of excess industry capacity; failure to achieve targeted cost-reduction programs; capital expenditures in excess of those scheduled; environmental costs in excess of those projected; the occurrence of unexpected manufacturing interruptions/outages at customer or Company plants; a decision by the Company not to start up the hydrates manufacturing facility; unfavorable weather conditions for swimming pool use; inability to expand sales in the professional pool dealer market; the impact of global weather changes; changes in the Company’s stock price; ability to obtain financing at attractive rates; financial market disruptions that impact our customers or suppliers; and gains or losses on derivative instruments.
FOR THE FULL FINANCIAL TABLES, PLEASE SEE THE EARNINGS PRESS RELEASE IN THE INVESTOR RELATIONS SECTION OF OUR ARCH WEB SITE.
