Lubrizol Doubles Profit

Net earnings of $2.52 in the third quarter of 2009 for Lubrizol Corporation (LZ), an Ohio-based specialty chemical company − more than doubled from last year’s 98 cents. The upsurge came on the heels of cost reduction measures that lowered manufacturing costs and reduced selling, technical, administrative and research expenses. Reported earnings matched the Zacks Consensus Estimate.

However, revenues in the quarter slipped 6% to $1.27 billion compared with $1.36 billion in the third quarter of 2008. The Advanced Material segment reported a 10% decline in revenues on a significant 18% fall in volumes. Volume declined 21%, excluding the impact of the Estane engineered polymers acquisition made in 2008. However, the segment saw a 12% surge in volumes sequentially. All product lines in the segment saw sequential volume increases of at least 10%. On a regional basis, volumes were down over 20% in North America and Europe . Excluding the impact of acquisitions, Asia-Pacific volumes declined 5%, although both Performance Coatings and Noveon consumer specialties product lines showed increases in this region. Latin America volume increased 11%, due primarily to increases in TempRite product sales.

Revenues in the Additives segment plunged 5% year over year primarily due to a 3% decline in the combination of price and product mix and unfavorable currency impact of 2%. Sequentially, the segment saw a 14% increase in volumes. Included in these factors was the impact from last year's thermoplastic polyurethane acquisitions in the Advanced Materials segment, which contributed 2% to total revenues. Volume in Asia-Pacific and Middle East zone grew 7% on increasing demand while that in Europe declined 6%. Volume in the Americas was down about 1% on the back of the global downturn, which affected the industrial and driveline businesses.

Lubrizol’s cost of sales of $814 million in the reported quarter reflected a decline of 25% from $1.1 billion in the same quarter of 2008. This led to a gross margin of 64% in the quarter compared with 21% in the year-ago period. Additive business contributed largely to the margins in the quarter.

As of Sep 30, 2009, Lubrizol reported about $1.5 billion. The company plans to prepay its $150 million bank term loan before year-end. Lower working capital requirement improved cash and cash equivalent to $1.1 billion as of Sep 30, 2009, from $186.2 million as of Dec 31, 2008. Lubrizol expects working capital changes to contribute to $280 million to operating cash flows in 2009.

Lubrizol increased its full year 2009 adjusted earnings guidance to $7.10 − $7.30 per diluted share from the previous guidance of $6.10 − $6.40 announced on Sep 14 this year. This revised guidance reflects improving volume trends in the current quarter, the company's ongoing margin management and its maintenance of cost reduction initiatives.

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