Rockwood's Q2 net income soars nearly 94% year-over-year to US$88.9M as sales jump 23% to US$1B, on strong demand, pricing

Liling Tan

PRINCETON, New Jersey , July 27, 2011 (press release) – Rockwood Holdings, Inc. (NYSE:ROC - News), a global producer of specialty chemicals and advanced materials, today reported earnings per share from continuing operations of $1.11 for the second quarter of 2011 as compared to $0.59 for the same period in the prior year. Rockwood’s as adjusted earnings per share increased to $1.17 in the second quarter of 2011 from $0.50 for the same period in the prior year.

“Our businesses performed exceptionally well in the second quarter. Strong demand for our products, combined with improvement in pricing and productivity, enabled us to achieve an all-time high Adjusted EBITDA to sales margin of 23.4 percent. Adjusted EBITDA improved by 43.1 percent versus the second quarter of last year and EPS almost doubled. Rockwood continued to benefit from the fundamental strengths of its focused portfolio of world-class businesses. It is particularly encouraging that all of our business units improved performance as compared to a year ago,” Seifi Ghasemi, Chairman and Chief Executive Officer said.

The highlights from continuing operations for the second quarter and six months ended June 30, 2011 are as follows:

Net sales were $1,000.0 million for the second quarter of 2011, up 22.9% compared to $813.7 million for the same period in the prior year. Net sales were $1,914.0 million for the six months ended June 30, 2011, up 20.2% compared to $1,592.1 million for the same period in the prior year.

Adjusted EBITDA was $233.6 million for the second quarter of 2011, up 43.1% compared to $163.2 million for the same period in the prior year. Adjusted EBITDA was $440.2 million for the six months ended June 30, 2011, up 37.5% compared to $320.1 million for the same period in the prior year.

On a constant-currency basis, net sales and Adjusted EBITDA were up 12.2% and 30.0%, respectively, for the second quarter of 2011 and were up 14.7% and 30.8%, respectively, for the six months ended June 30, 2011 compared to the same period in the prior year.

Net income attributable to Rockwood Holdings, Inc. for the second quarter of 2011 was $88.9 million, including after-tax net special charges of $4.7 million. Net income attributable to Rockwood Holdings, Inc. for the second quarter of 2010 was $45.9 million, including income of $6.9 million related to after-tax net special items.

Net income attributable to Rockwood Holdings, Inc. for the six months ended June 30, 2011 was $152.2 million, including after-tax net special charges of $11.6 million. Net income attributable to Rockwood Holdings, Inc. for the six months ended June 30, 2010 was $78.2 million, including income of $7.8 million related to after-tax net special items.
Diluted earnings per share for the second quarter of 2011 were $1.11, including after-tax net special charges of $0.06. Excluding net special charges, diluted earnings per share were $1.17 in the second quarter of 2011. Diluted earnings per share for the second quarter of 2010 were $0.59, including income of $0.09 related to after-tax net special items. Excluding net special items, diluted earnings per share were $0.50 in the second quarter of 2010.

Diluted earnings per share for the six months ended June 30, 2011 were $1.91, including after-tax net special charges of $0.14. Excluding net special charges, diluted earnings per share were $2.05 for the six months ended June 30, 2011. Diluted earnings per share for the six months ended June 30, 2010 were $1.01, including income of $0.10 related to after-tax net special items. Excluding net special items, diluted earnings per share were $0.91 for the six months ended June 30, 2010.
See reconciliations of net income/EPS as reported to net income/EPS as adjusted at the end of this release for details of the special charges/items discussed above.

Commenting on the outlook, Mr. Ghasemi said, “We continue to be optimistic about the prospects for our businesses. Demand for our products continues to be strong. We expect to maintain our high margins and improve EPS. We intend to use our strong cash flow to invest in our businesses to promote organic growth and to reduce our leverage in line with our long-term objectives.”

Second quarter results, as compared with the same period a year ago, are summarized below:

Specialty Chemicals: Net sales and Adjusted EBITDA increased 24.9% and 25.9%, respectively.
In our Fine Chemicals business, higher volumes of lithium products, as well as increased selling prices, were partially offset by higher raw material costs primarily in our Metal Sulfides business.

In our Surface Treatment business, higher volumes in all markets, particularly in automotive and general industrial, as well as increased selling prices, were partially offset by higher raw material costs.

Performance Additives: Net sales and Adjusted EBITDA increased 10.9% and 24.3%, respectively.

Net sales and Adjusted EBITDA were up from increased selling prices, as well as higher volumes of oilfield applications in our Clay-based Additives business.
Adjusted EBITDA was negatively impacted by lower volumes in our Color Pigments and Services business and higher raw material costs.

Titanium Dioxide Pigments: Net sales and Adjusted EBITDA increased 34.6% and 114.5%, respectively.

Net sales and Adjusted EBITDA were up primarily from higher selling prices and, to a lesser extent, a favorable product mix. Adjusted EBITDA was negatively impacted by higher production, raw material and energy costs and lower volumes.

Advanced Ceramics: Net sales and Adjusted EBITDA increased 19.6% and 24.6%, respectively.

Net sales and Adjusted EBITDA were up from higher volumes in most product applications, including medical applications.

Corporate and other: Corporate costs increased in the second quarter of 2011 due to higher miscellaneous central costs.

Other Items:

Interest expense, net decreased $11.6 million in the second quarter of 2011 compared to the same period in the prior year. The second quarter of 2011 included non-cash losses of $1.4 million and the second quarter of 2010 included non-cash gains of $5.6 million, representing the movement in the mark-to-market valuation of our interest rate swaps. Excluding the impact of these losses and gains, interest expense, net decreased $18.6 million primarily due to debt repayments and lower interest rates related to the refinancing of our senior secured terms loans in February 2011.

Income taxes. The effective income tax rate for the second quarter of 2011 was 27.5% and was favorably impacted by certain domestic income that was not tax effected and a beneficial foreign earnings mix.

Free cash flow was an inflow of $61.4 million for the second quarter of 2011 and consisted of net cash provided by operating activities of continuing operations of $117.2 million plus special items and other, net of $2.6 million, less capital expenditures, net of $58.4 million.

Net debt, which is total debt less cash and cash equivalents, was $1,555.3 million as of June 30, 2011 compared to $1,836.9 million as of December 31, 2010. The decrease in net debt was primarily due to proceeds from the sale of our AlphaGary plastic compounding business in January 2011, partially offset by the impact of currency changes.

Rockwood Holdings, Inc. is a leading global specialty chemicals and advanced materials company. Rockwood has a worldwide employee base of approximately 9,700 people and annual net sales of approximately $3.2 billion. Rockwood focuses on global niche segments of the specialty chemicals, pigments and additives and advanced materials markets. For more information on Rockwood, please visit www.rocksp.com.

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