PHILADELPHIA, July 28, 2004 (PRNewswire-FirstCall) -- Rohm and Haas Co. reported second quarter sales of $1.8 billion, a 15% increase over the same period in 2003, reflecting strong demand in most businesses, along with the favorable impact of currency movement on the revenue line.
Earnings of $118 million, or $0.52 per share, were up substantially over a $3 million loss in the same period a year ago. The second quarter 2003 loss included $94 million, after tax, or $0.43 per share, for restructuring and asset impairment charges.
"We continue to benefit from the strengthening economy, and key businesses are seeing solid gains as a result of new products and technologies," said Raj L. Gupta, chairman and chief executive officer. "We saw growth across most of our businesses and regions, building on the sales momentum that began in late 2003. The positive impact of the higher demand, favorable currency movement and modestly higher selling prices combined to offset the higher costs of raw material used by many of our businesses, driven by the high price of oil and natural gas, geopolitical uncertainties and tight supply. The lag between selling price increases and higher raw material costs put pressure on our gross profit margins. Despite these factors, we delivered a solid quarter," he said.
Sales in the Coatings business of $642 million represent a 14% increase over the same period in 2003, primarily driven by strong demand and favorable currency. Demand was strong in the global Architectural and Functional Coatings sectors, particularly in North America and Asia-Pacific. The North American growth was driven by the solid housing and remodeling markets, while growth in Asia-Pacific occurred across most market segments. Sales in both Powder Coatings and Automotive Coatings were also up over the prior year, primarily due to some improvement in the industrial powder coatings markets, the favorable impact of currency and some share gains. Earnings of $66 million for the Coatings business were up over the reported loss of $(4) million in the prior year period. The prior year period included $63 million of after-tax restructuring and asset impairment charges. The earnings improvement is also attributable to higher demand, efficient operations and favorable currencies. Gross profit margins remain under pressure as a result of the lag in timing between selling price increases and the significantly higher raw material, natural gas and freight-related costs.
Performance Chemicals sales of $398 million were up 13% over the comparable period in 2003, attributable to stronger demand in the Plastics Additives, Process Chemicals and Consumer and Industrial Specialties businesses, as well as favorable currencies. The sales improvement in Plastics Additives reflects a general economic recovery in North America, as well as market share gains in Europe. Sales in Process Chemicals were also up compared with the same period a year ago, with particularly strong growth in Organic Specialties and Ion Exchange Resins. Consumer and Industrial Specialties posted higher sales across all regions, with strong growth of biocides used for wood preservatives in North America. Earnings of $34 million are up compared to the loss of $(2) million in the second quarter of 2003. The prior year period included $25 million of after-tax restructuring and asset impairment charges. The earnings improvement is attributable to higher demand, smooth manufacturing operations, higher selling prices, and the favorable impact of currency.
Monomers sales of $346 million were up 15% over the second quarter of 2003, reflecting higher demand for both captive and merchant markets, increased selling prices, and the impact of favorable currencies. Earnings of $24 million were up significantly from the $12 million in the comparable period last year, as increased selling prices, higher demand, efficient plant operations, and the impact of favorable currency combined to offset significantly higher raw material and natural gas costs.
Sales in Electronic Materials of $319 million were up 25% over second quarter of 2003, reflecting higher demand across all regions, with the largest growth occurring in the Asia-Pacific region. All three Electronic Materials businesses experienced strong growth in the quarter, driven by their advanced product lines. Earnings of $37 million were up 85% over the same period in 2003, with particularly strong demand in advanced technology products.
Adhesives and Sealants sales for the quarter were $174 million, up 9% over the comparable period in 2003, driven by higher demand, the impact of favorable foreign currencies, and higher pricing. In Europe, the market remains soft, while demand across most markets in North America and Latin America is up, with higher demand in Asia-Pacific driven by packaging adhesives and labels. Earnings of $9 million in the second quarter of 2004 were up over the $2 million in the comparable period in 2003. The increase from the prior period is due to cost savings from process efficiencies, higher demand, selling price increases, and the impact of favorable foreign currency more than offsetting higher raw material costs.
Salt sales of $138 million increased approximately 1% over the same period in 2003 as demand for both new products and the water conditioning product line, higher pricing, and the favorable impact of currency offset decreased ice-control sales. The year-on-year sales comparison is impacted by near record ice-control sales that occurred in the second quarter of 2003. Break-even results are down from the comparable period in 2003. The favorable impact of pricing and currency was offset by higher operating costs, particularly for natural gas, higher promotional expenses related to new product introductions, higher employee-related expenses, and the lower demand for ice-control products.
Corporate expenses increased $18 million for the quarter over the prior year period, primarily due to the negative impact of foreign currency translations, higher consulting expenses, and increased environmental reserves.
2Q 2004 Regional Performance
Sales in North America were up 11% over the comparable period in 2003, due to the higher demand across many of the businesses, as well as the favorable impact of currency exchange between the U.S. and Canadian dollars. The decorative coatings market in the region continues to remain strong, as well as construction related markets supported by the Plastics Additives and Consumer and Industrial Specialties businesses. European sales for the quarter were up 10% over the second quarter of 2003, reflecting higher demand and the impact of a weak U.S. dollar. The higher demand in this region was driven by the solid consumer and construction related markets, while industrial and adhesives markets remain soft. Sales in Asia-Pacific are up 30% over the comparable period last year, reflecting the continued strengthening of the electronic materials markets, as well as solid demand in most other key markets the businesses serve in the region. Latin America sales are up 33% over the prior year period, reflecting an improved economic environment throughout the region.
Comments on the 2Q 2004 Income Statement
Gross profit margin in the quarter was 28.2%, compared to 29.4% in the same period last year, as higher raw material and natural gas costs more than offset the impact of favorable product mix, modestly higher selling prices and efficient plant operations.
Selling and Administrative (S&A) expense of $240 million reflects higher employee costs and consulting expenses related to business process reengineering activities, as well as the unfavorable impact of currency movement, which were only partly offset by recent cost-saving initiatives. S&A spending as a%age of sales was 13.3%, down from the 14.3% in the comparable period in 2003.
Research expense for the quarter was $64 million, up approximately 7% from the same period a year ago, reflecting higher employee-related costs and spending on new product and technology development consistent with our strategy.
Interest expense was $33 million for the quarter, up 6% from the same period in 2003, primarily due to a reduction in capitalized interest.
Income tax expense for the quarter was $47 million, with an effective tax rate of 28.5%.
Year-To-Date 2004 Performance
Sales for the six months ending June 30, 2004 were $3,633 million, representing a 14% increase over the comparable period in 2003. All businesses posted higher sales due to increased demand across all regions, the impact of favorable currencies and moderately higher selling prices. Earnings for the six months ending June 30, 2004 were $232 million or $1.03 per share, compared to $71 million or $.32 per share in the prior year period, reflecting increased demand, higher pricing, and the impact of favorable currencies, which more than offset the higher raw material, energy and employee-related costs. The year-on-year comparison includes $98 million, after tax, for restructuring and asset impairment charges in the same period in 2003.
Full Year Guidance
In discussing the outlook for the remainder of the year, Gupta noted that the overall economic outlook is positive, and the company expects continued growth in demand, yet the significantly higher raw material, natural gas and freight costs will limit the full impact of the sales growth on earnings. "The escalation of raw material and natural gas costs is occurring at rates faster than our price increases can fully recover," Gupta said. "As the remainder of the year progresses, we will also experience the normal seasonal shift from our Coatings business to Salt and Electronic Materials, and expect full-year sales growth in the 11 to 13% range, with full-year sales in the range of $7.2 billion, assuming current currency exchange rates hold. This growth, combined with our ongoing focus on operating efficiencies and closing of the gap between raw materials and selling prices, should enable us to deliver full-year earnings in the $2.05 to $2.15 range."
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