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Cytec Industries Inc. Reports Operating Results (10-Q)

October 28, 2009 | About:
10qk

10qk

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Cytec Industries Inc. (CYT) filed Quarterly Report for the period ended 2009-09-30.

Cytec Industries Inc. is a global specialty chemicals and materials company focused on developing manufacturing and selling value-added products with sales. The company's products serve a diverse range of end markets including aerospace adhesives automotive and industrial coatings chemical intermediates inks mining and plastics. The Company use its 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. Cytec Industries Inc. has a market cap of $1.77 billion; its shares were traded at around $36.43 with a P/E ratio of 50.5 and P/S ratio of 0.5. The dividend yield of Cytec Industries Inc. stocks is 0.1%. Cytec Industries Inc. had an annual average earning growth of 5.6% over the past 10 years.

Highlight of Business Operations:

Manufacturing cost of sales was $605.4 or 81.8% of sales in the third quarter of 2009, compared with $765.8, or 79.5% of sales in the third quarter of 2008. The 2.3% increase in manufacturing cost as a percent of sales, is primarily due to lower fixed cost absorption, higher restructuring expenses and unfavorable mix, partially offset by raw material price decreases. The lower fixed cost absorption relates to lower production volumes resulting from lower demand and our initiative to lower inventory levels. Manufacturing costs decreased $160.4, which includes $60.9 associated with the lower production volumes, $110.8 related to lower material costs, $21.1 related to reduced spending and cost savings initiatives and $11.2 due to changes in exchange rates partially offset by $27.2 of unfavorable fixed cost absorption as described above. The third quarter of 2009 includes a restructuring charge of $21.0 which is substantially comprised of a manufacturing cost savings initiative mostly related to the announced closure of our Specialty Chemical manufacturing operations in La Llagosta, Spain and Bogota, Colombia as well as an additional restructuring initiative launched in the third quarter of 2009 within our Engineered Materials segment. The third quarter of 2008 included a net restructuring charge of $1.5 primarily related to restructuring our Specialty Chemical segments. See Note 4 to the consolidated financial statements for additional detail. The third quarter of 2008 also includes $1.4 of incremental accelerated depreciation on assets at our Pampa, Texas site that we exited in 2008.

Selling and technical services expenses were $48.6 in the third quarter of 2009 versus $57.4 in the third quarter of 2008. The decrease includes $6.8 related to reduced spending and cost savings initiatives, $1.5 related to changes in exchange rates, and $2.7 of lower costs associated with restructuring initiatives. Research and process development expenses were $17.2 versus $19.2 in the prior year. The decrease includes $1.6 related to reduced spending and cost savings initiatives and $0.2 related to changes in exchange rates. Administrative and general expenses were $29.6 versus $30.8 in the prior year. The decrease includes $2.3 related to reduced spending and cost savings initiatives, $0.7 related to changes in exchange rates and $0.5 of lower restructuring expenses. These decreases were partially offset by $1.9 of consulting costs incurred related to working capital and savings initiatives launched in 2009 and $0.5 of higher credit facility fees.

Net income for the third quarter of 2009 was $12.5 ($0.26 per diluted share), a $33.8 decrease from the net earnings of $46.3 ($0.96 per diluted share) in the same period in 2008. Included in the third quarter of 2009 was a $15.3 of after-tax expenses related to restructuring costs, an after-tax loss of $5.5 associated with the repurchase of debt under a tender offer, an after-tax gain of $5.7 associated with the transfer of ownership of land to a third party, and an after-tax benefit of $0.1 associated with an update of our asbestos contingent liability and related insurance receivable. Net earnings for the third quarter of 2008 include a $0.9 after-tax charge related to incremental accelerated depreciation on our Pampa, Texas manufacturing site that we exited and relocated the manufacturing to one of our other existing facilities. Also included in the third quarter of 2008 are $4.0 of after-tax restructuring costs primarily related to our Coating Resins segment.

Earnings from operations were $18.5 or 6% of sales in 2009, compared with earnings from operations of $22.7 or 5% of sales in 2008. The $4.2 decrease in earnings is principally due to the negative impacts of $23.4 from lower selling prices, $27.7 due to lower selling volumes, and $10.6 of lower fixed cost absorption due to reduced production volumes as a result of the aforementioned lower selling volumes and our initiative to reduce inventory levels. These negative impacts were partially offset by favorable impacts of $39.3 from lower raw material costs, $11.6 from lower manufacturing and operating expenses due to reduced spending and cost savings initiatives, $4.0 from lower freight costs due to lower volumes, and $1.2 from changes in exchange rates. Manufacturing cost of sales in 2008 also included $1.4 of incremental accelerated depreciation on assets at our Pampa, Texas site given our decision to exit the site and consolidate production.

Earnings from operations were $3.1 or 5% of sales in 2009, compared with $6.1 or 8% in 2008. The $3.0 decrease in earnings is principally due to the negative impacts of $4.4 of lower fixed cost absorption due to reduced production volumes as a result of the aforementioned lower selling volumes and our initiative to reduce inventory levels, $3.3 related to lower selling volumes, and $0.8 of lower selling prices. These negative impacts were partially offset by favorable impacts of $4.1 from lower manufacturing and operating expenses due to reduced spending and cost savings initiatives, $1.2 from lower freight costs due to lower volumes, $0.3 of lower raw material prices, and $0.1 related to changes in exchange rates.

Earnings from operations were $12.5 or 18% of sales in 2009, compared with $19.0, or 23% in 2008. The $6.5 decrease in earnings is principally due to the negative impacts of $5.7 related to lower selling volumes, $2.0 of lower fixed cost absorption due to reduced production volumes as a result of the aforementioned lower selling volumes and our initiative to reduce inventory levels, $1.7 of higher raw material prices, $0.9 of lower selling prices, and $0.8 of increased manufacturing costs. These negative impacts were partially offset by favorable impacts of $2.3 from lower freight costs due to lower volumes, $1.3 from lower operating expenses due to reduced spending and cost savings initiatives, and $1.2 from changes in exchange rates.

Read the The complete ReportCYT is in the portfolios of Arnold Schneider of Schneider Capital Management, Kenneth Fisher of Fisher Asset Management, LLC.

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