W.R. Grace (GRA, Financial) reported excellent sales growth and solid margins for all of its 3 key businesses with its cash flow expanding 14% year-till-date. The recent decline in crude oil prices is believed to have no major effect on the company’s catalyst business, since its business is primarily driven by solid end-user demand for plastics and transportation fuels.
Making good progress
The impressive increase in the cash flow and no significant effect of the crude oil prices drop on W.R. Grace’s catalyst business is estimated to position the company for considerable future investments.
The overall results of the Catalyst Technologies business exceeded the management’s expectations with robust growth in each of the 3 product groups. The sales of its ART hydroprocessing catalyst joint venture enhanced in double digits; specialty catalyst rose 8% prior to the UNIPOL acquisition and FCC catalyst expanded 10%.
The innovative FCC catalyst launched last year has been very well received by the customers. The fast acceptance of these products highlights its capacity to introduce the accurate technologies for satisfying customers' rapidly changing requirements. Its combined work in ART reported a solid quarter with excellent growth and robust earnings.
The solid growth in each of the company’s existing business segments and newly introduced business segments signifies the rightly and timely placed growth strategies of W.R. Grace.
Growth across the board
The third quarter sales in its Materials Technologies business expanded 4% over last year to $229 million, followed by Engineered Materials illustrating 7% sales growth owing to increased sales volume, better pricing and much required currency translations. Sales for the coating end use which is the company’s major end-use segment enhanced 12% during the quarter. Sales growth remained solid in Asia and North America, but August sales declined in Europe.
Therefore, the demand in the European market has declined and is expected to remain on the lower side during the fourth quarter. In this declining market condition, W.R. Grace is focused on accelerating growth in rapidly-growing markets where it has launched innovative products and minimizing costs where growth is poor.
The Construction Products business segment of W.R. Grace recorded impressive quarter, with approximately 37% of gross margins and nearly 7% increase in sales growth to $298 million. Cement and concrete chemicals illustrated double-digit growth in Asia and North America, expanding 9% during the quarter. Non-residential building materials sales rose 10%. W.R. Grace is performing beyond the market average results and expectations, with solid earnings leverage and excellent margins.
The overall materials and construction products demand remained solid in North America and Asia, however declined in Europe. Further, the company’s decision to focus on the growing markets and leave behind the rapidly dropping European markets might cost heavily to W.R. Grace in a long-term, looking at the huge size of the market.
Year-till-date, W.R. Grace has spent $334 million to buy back 3.5 million shares. During the third quarter, it bought back 1.1 million shares by spending approximately $101 million at an average buy back price of nearly $96 per share. And, the company expects to complete its present repurchase authorization at the current pricing levels earlier than February.
The global ratings agency, Moody's Investors Service has upgraded Grace’s secured facilities to Ba1 from Ba2 by considering its outstanding $1.55 billion first-lien senior secured credit agreement. Concurrently, Moody’s affirmed a Ba3 rating to Grace's planned $1.0 billion of senior unsecured notes payable in 2021 and 2024. Moreover, Moody's has assigned SGL-2 of Grace a hypothetical grade liquidity rating with outlook on all the ratings being is stable.
The significant buy back actions of W.R. Grace signify the robust and stable financial position of the company, allowing it to successfully perform the key repurchases. Moody’s also look positive about the stock with the up-gradation of the ratings for the company.
W.R. Grace has entered into conclusive agreements to acquire the residual 50 percent equity stake in the joint venture it created in 1996 with STFA Yatirim Holding, STFA is expected to sell its 50 percent stake in Grace Yapi Kimyasallari to Construction Products Dubai which is a subsidiary of Grace.
Conclusion
Finally, the investors are advised to invest into the W.R. Grace & Co. looking at the almost accurate company valuations. The trailing P/E and forward P/E ratios of 22.93 and 16.97 respectively indicate the improvement in company operations and thus cost reduction. However, the PEG ratio of 1.13 suggests that the company growth is costly to the investors. Grace also has a huge debt of $2.03 billion compared to total cash of just $608.00 million. Still, the profit margin of 9.03% seems satisfactory for the investors.
