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W.R. Grace & Co. Reports Operating Results (10-Q)

August 07, 2009 | About:

W.R. Grace & Co. (GRA) filed Quarterly Report for the period ended 2009-06-30.

W. R. Grace & Co. produces specialty chemicals. They primarily operate through the following two business segments: Davison Chemicals and Performance Chemicals. Davison Chemicals manufactures catalysts (fluid cracking hydroprocessing and polyolein) and silica and zeolite absorbents. Performance Chemicals produces specialty construction and building materials along with container and closure sealants. W.R. Grace & Co. has a market cap of $1.28 billion; its shares were traded at around $17.75 with a P/E ratio of 13.4 and P/S ratio of 0.4.

Highlight of Business Operations:

Sales for the three month period ended June 30, 2009 were $711.0 million compared with $900.0 million in the prior year period, a 21.0% decrease (13.4% before the effects of currency translation). The sales decrease is due primarily to lower sales volumes and unfavorable currency translation. Sales were down 19.7% in North America, 25.4% in Europe, and 24.6% in Asia and up 10.9% in Latin America. Sales in the second quarter of 2009 were up 4.2% compared with sales in the first quarter of 2009. Excluding sales of hydroprocessing catalysts, which are subject to uneven order patterns, sales in the second quarter were up 12.7% compared with sales calculated on the same basis for the first quarter of 2009. Gross profit percentage for the three month period ended June 30, 2009 was 33.8% compared with 30.6% for the prior year period and 24.7% in the first quarter of 2009. The improvement in gross profit percentage is due to price increases implemented primarily in the second half of 2008, the decreases in raw materials and energy costs since their peak in the fourth quarter of 2008, and lower factory overhead expenses resulting primarily from our restructuring activities. Net income attributable to Grace (Grace net income) for the three month period ended June 30, 2009 was $19.3 million, or $0.26 per diluted share, compared with $32.1 million, or $0.44 per diluted share, for the prior year period, a 39.9% decrease. The results for each period were negatively affected by Chapter 11 expenses, litigation and other matters not related to core operations. Excluding Chapter 11 expenses, the loss on noncore activities, and their tax effects, Grace net income would have been $41.7 million for the three month period ended June 30, 2009 compared with $57.5 million calculated on the same basis for the prior year period, a 27.5% decrease. Pre-tax income from core operations (Core EBIT) was $74.4 million for the three month period ended June 30, 2009 compared with $101.8 million for the prior year period, a 26.9% decrease. Core EBIT was up $77.8 million over the first quarter of 2009, primarily due to a 9.1 point increase in gross profit percentage. This improvement in gross profit percentage is attributable to lower raw material costs and lower factory overhead expenses, primarily due to restructuring activities. Sales for the six month period ended June 30, 2009 were $1,393.1 million compared with $1,659.2 million for the prior year period, a 16.0% decrease (9.1% before the effects of currency translation). Grace net loss for the six month period ended June 30, 2009 was $19.6 million, or $0.27 per diluted share, compared with Grace net income of $49.8 million, or $0.69 per diluted share for the prior year period. Excluding Chapter 11 expenses, the loss on noncore activities, and their tax effects, Grace net income would have been $33.8 million for the six month period ended June 30, 2009 compared with $92.8 million calculated on the same basis for the prior year period, a 63.6% decrease. Core EBIT was $71.0 million for the six month period ended June 30, 2009, down 58.2% from the prior year period. Operating free cash flow was $147.0 million for the six month period ended June 30, 2009 compared with $65.9 million in the prior year period, a 123.1% increase. The increase in operating free cash flow was due primarily to improvements in working capital and lower 53

capital expenditures, partially offset by the impact of lower Core EBIT. Net cash provided by operating activities was $118.6 million in the six month period ended June 30, 2009 compared to net cash used for operating activities of $85.9 million in the prior year period.

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