Cytec Results Excite Investors

| About: Cytec Industries (CYT)

Despite a loss in the 2nd quarter ended 30th June 2009, Cytec Industries (NYSE:CYT) stock has moved up 10% as investors seem be positive about the future.

Cytec Industries Inc. reported a loss of $25 M as against a profit of $57 M a year ago. The key reason for this loss is the fall in demand across segments as seen from a 20% y/y company wide drop in volumes. A 9% drop in price due to lower raw material cost being passed through to consumers in the building block segment and a 3% forex impact saw revenues drop 32% y/y.

While customers have been reducing inventory, the company also has slowed down manufacturing to reduce inventory. A 17% reduction in inventory has helped boost cash flow from operations for the quarter to $168 M from $44 M a year ago.

The company's major business- coatings and resins (43% of revenues) witnessed a 38% revenue decline as Automotive sales dropped and construction activity slowed down. All other businesses continued to report operating profits despite reduction in revenues.

As adding features to a product adds to pricing and innovation helps get new customers, the company has maintained its spend on R&D in absolute terms.

Capital expenditure for next few quarters is likely to be muted as the company has slowed down activity on a new carbon fiber plant. This was to help meet the demand of the Boeing 787 and other regular customers in the Aviation space. At $180-190 M, the capex is still higher than the $110-115 M depreciation likely for FY09.

The company has elongated its debt maturity schedule by repurchasing 2010 and 2013 maturity debt and issuing $250 M 2017 debt at 8.95% coupon.

A few interesting quotes from the latest conference call:

  • We’ve experienced sequential volume improvements over the last several months that we’re hopeful signal the end of the de-stocking.
  • We’re seeing some early signs of demand recovery in Asia.
  • In the Americas and Europe, while there has been substantial improvement since the first quarter, we don’t expect year over year improvement in demand until the fourth quarter when the comparisons become easier.
  • We are affirming our recent guidance for full year adjusted diluted earnings to be in the range of $0.60 to $0.90 per share

As the company supplies to companies that sell to consumers, the impact of increased consumer spending will be delayed by 1-2 quarter after an increase in consumer spend. At best, this seems to be in late 2009 for some segments and mid-2010 for some.

Estimates do suggest a sequential improvement in performance of the company and the higher end of the guidance is significantly higher than the consensus. A 10% rise in the price after the result suggests that investors have been positively surprised.

Disclosures: No positions in CYT