Specialty chemicals and advanced materials company Rockwood Holdings, Inc.’s (ROC) second-quarter 2013 adjusted earnings (excluding other net charges and gains) of 73 cents per share were down roughly 41% from $1.24 per share earned a year ago, missing the Zacks Consensus Estimate by 3 cents.
Profit, as reported, tumbled 86% year over year to $32.3 million or 41 cents per share in the quarter from $224.9 million or $2.81 per share a year ago. The bottom line was hit by charges associated with sale of non-core assets, especially advanced ceramics and clay-based additives, and lower earnings from the Titanium Dioxide (TiO2) Pigments division.
Net sales rose 7.8% year over year to $822.3 million in the reported quarter. Consolidated sales (including discontinued operations) rose 7.4% to $972.3 million. By that measure, it beat the Zacks Consensus Estimate of $948 million.
Segment Results
Net sales from Rockwood Holdings’ Lithium unit crept up 0.9% year over year to $125.7 million as higher volumes of lithium carbonate, lithium hydroxide and specialty salts offset a decline in selling prices and volumes for potash and battery products.
Net sales from the Surface Treatment segment rose 4% year over year to $191.2 million, helped by higher selling prices and increased volumes of automotive OEM and general industrial applications.
Revenues from the Performance Additives division clipped 6.1% to $192.9 million as higher volumes from North American oil and natural gas drilling and improved construction volumes in the U.S. was more than offset by lower volumes from timber treatment chemicals, coatings applications and construction in Europe in Color Pigments and Services.
Net sales from the Titanium Dioxide Pigments unit surged 30.3% to $275.8 million, boosted by the acquisition of certain crenox GmbH assets last year and higher demand in most applications, partly ebbed by lower selling prices. However, the segment witnessed a roughly 117% plunge in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) on weak pricing.
Net sales from the Corporate and other segment fell 1.3% to $36.7 million.
Revenues from the Advanced Ceramics segment, which has been classified as discontinued operation, went up 5% to $150 million on higher volumes of medical ceramics.
Financial Health
Rockwood Holdings exited the quarter with cash and cash equivalents of $321.7 million, down 6% year over year. Long-term debt increased 25% year over year to $2.2 billion. Free cash flow for the quarter declined 49% year over year to $19.8 million.
Outlook
Rockwood Holdings expects continued growth and strong margins in its lithium and surface treatment businesses in the second half. It also sees its TiO2 pigments business to achieve a turnaround in the second half and deliver adjusted EBITDA margins of more than 10%.
Rockwood Holdings remains focused on optimizing free cash flows and implementing appropriate capital allocation strategies through dividends and share repurchases and reinvestment in key businesses in 2013.
Rockwood Holdings has entered into definitive agreements to sale its non-core businesses. The company, in June, agreed to divest its advanced ceramics business CeramTec to private equity firm Cinven for €1.49 billion (roughly $2 billion). Moreover, it recently landed a pact with Germany-based ALTANA Group to sell its clay-based additives business for $635 million.
The move is in line with Rockwood Holdings’ goal to become a more focused specialty chemical company. The company plans to use the net proceeds from asset sales to cut debt, return capital to shareholders and re-invest in core businesses.
Rockwood Holdings currently holds a Zacks Rank #4 (Sell).
Other companies in the specialty chemical space with favorabe Zacks Rank are Ferro Corp. (FOE), KMG Chemicals Inc. (KMG) and Sensient Technologies Corporation (SXT). While Ferro retains a Zacks Rank #1 (Strong Buy), KMG Chemicals and Sensient Technologies retain a Zacks Rank #2 (Buy).
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