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HERCULES REPORTS SECOND QUARTER 2007 RESULTS |
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Net income from ongoing operations(1) for the second quarter of 2007 was $45.8 million, or $0.40 per diluted share, an increase of 25% per diluted share compared to $35.3 million, or $0.32 per diluted share, in the second quarter of 2006. Please refer to Table 2 for a reconciliation of net income from ongoing operations to reported net income. Net sales in the second quarter of 2007 were $549.0 million, an increase of 10% from the same period last year. Net sales for the six months ended June 30, 2007 were $1.051 billion, an increase of 10% from the prior year, excluding the impact of the FiberVisions transaction. For the second quarter, volume and pricing increased by 7% and 1%, respectively. Rates of exchange increased sales by 3% during the quarter, while mix was 1% unfavorable. Net sales in the second quarter of 2007 increased in all major regions of the world versus the prior year. Sales increased 4% in North America, 18% in Latin America, 15% in Europe (8% excluding the impact of the Euro), and 11% in Asia Pacific. Reported profit from operations in the second quarter of 2007 was $74.5 million, an increase of 14% compared with $65.6 million for the same period in 2006. Profit from ongoing operations in the second quarter of 2007 was $80.9 million, an increase of 10% compared with $73.7 million in the second quarter of 2006. Cash flow from operations for the six months ended June 30, 2007 was $140.5 million as compared to $64.0 million for the same period last year. The Company has now received $221.7 million, including $23.2 million in July, of a total $240 million in expected federal and state tax refunds. The Company also paid $124 million in May 2007 in connection with the Vertac litigation. "The second quarter results demonstrate continued strong sales, earnings and cash flow growth," said Craig A. Rogerson, President and Chief Executive Officer. "Both business franchises, Aqualon and Paper Technologies and Ventures, continue to deliver solid performance. Based on the strength of our financial profile and our expectations as we look forward, we are also pleased to have announced earlier today our Board's approval of a $200 million share repurchase program and the initiation of a dividend on our common stock." Interest and debt expense was $17.8 million in the second quarter of 2007, an increase of $1.1 million or 7% compared with the second quarter of 2006, reflecting increased variable short term rates, partially offset by lower outstanding debt balances and improved debt mix. Net debt was $721.2 million at June 30, 2007, a decrease of $102 million from year-end 2006. Cash and cash equivalents were $237.9 million at June 30, 2007, as compared to $171.8 million at year-end 2006. During June, $84.1 million of the total $100 million outstanding 6.6% notes due 2027 were put to the Company pursuant to the terms of the indenture, requiring payment in August of this year, expected to be paid from existing cash balances. Capital spending was $53.8 million for the first six months of the year as compared to $22.9 million in the same period last year. The increase in spending is directed toward growth and expansion projects in our businesses globally. Segment Results – Reported Basis In the Aqualon Group, net sales increased 11% while profit from operations increased 5% in the second quarter as compared with the same period in 2006. All business units had increased sales in the second quarter as compared to the prior year. In the aggregate, the sales increase was driven by 7% higher volumes, 1% higher prices and 3% favorable rates of exchange. Price increases were achieved in all business units. Coatings and construction sales increased 9% in the second quarter of 2007 as compared to the same period of last year, due to 5% higher volumes, 1% increased pricing and 4% favorable rates of exchange, partially offset by 1% unfavorable mix. Sales into the coatings markets were up 6% in the second quarter of 2007 as compared to the same period of last year. Strong volume growth in Asia, Eastern Europe, Africa and South America offset modestly weaker coatings market conditions in North America. Construction market sales increased 11% as compared to the second quarter of last year. Strong growth was achieved in Asia, along with modest growth in Europe and Latin America. Eastern European markets remain strong. Pricing improvements were achieved in both the coatings and construction markets. Regulated industry sales increased 12% in the second quarter of 2007 as compared to the same period of last year, primarily due to 4% higher volumes, 3% improved product mix, 3% increased pricing and 2% favorable rates of exchange. Sales increased in the pharmaceutical, personal care and food markets by 6%, 18% and 11%, respectively, as compared to the second quarter of last year. Asian and European markets were especially strong during the quarter. Energy and specialties sales increased 14% in the second quarter of 2007 as compared to the same period of last year. The increase was due to 15% higher volumes, 1% higher prices, and 1% favorable rates of exchange, partially offset by 3% unfavorable product mix. The natural gas and oil services sector demand continues to be strong and price increases were achieved across most products families. Profit from operations increased $3.0 million, primarily as a result of higher volumes and the associated contribution margin, increased selling prices and favorable rates of exchange, partially offset by higher raw materials, increased supply chain costs and startup costs at our new methylcellulose production site in our Chinese venture. Selling, general and administrative (SG&A) costs were higher compared to the prior year, reflecting increased sales, marketing, business management, technology and other spending to support growth. "Aqualon’s global presence and scale continue to deliver improved results in spite of challenging North American coatings and construction markets and startup costs associated with new production capacity," said Mr. Rogerson. In the Paper Technologies and Ventures Group, net sales in the second quarter increased 8% and profit from operations increased 58% compared with the same quarter in 2006. Paper Technologies sales increased 9% due to 10% increased volumes, 1% increased prices, and 3% favorable rates of exchange, partially offset by 5% unfavorable product mix. Volumes increased in all major regions of the world. Volumes were up 3% excluding the impact of the Mead Westvaco rosin size alliance. Sales in emerging markets were up 22% compared to the prior year. Price increases were achieved primarily in North America with modestly lower pricing in Asia. Sales of new products continued to drive growth in overall sales and profitability. Ventures sales increased 5% primarily due to 4% higher prices and 2% favorable rates of exchange, partially offset by 1% unfavorable mix. Sales increased in all Ventures business units except in polyols/lubricants. Significant growth was achieved in our building products venture. The increase in profit from operations reflects higher volumes, improved selling prices, favorable rates of exchange and lower SG&A costs, partially offset by higher raw material and tolling costs. Severance, restructuring and other exit costs, accelerated depreciation of impaired assets and legal settlements taken in the second quarter of 2007 were $0.5 million, significantly lower than the $4.7 million recorded in the same period of 2006. SG&A costs were lower primarily due to higher patent defense costs incurred in the prior year. "Our results continue to demonstrate our innovations and execution serving our customers in paper chemicals," commented Mr. Rogerson. "Sales of innovative higher margin products continue to support margins overall." Outlook "We expect continued strong results in sales, earnings and cash flow in 2007," said Mr. Rogerson. "With our strong cash flow generation, we will continue to focus on our high return business franchises, both through organic growth as well as acquisitions." Second quarter Conference Call and Webcast The Company will discuss second quarter 2007 results tomorrow, July 24th, at 10:00 a.m. (Eastern).
# # # Hercules manufactures and markets chemical specialties globally for making a variety of products for home, office and industrial markets. For more information, visit the Hercules website at www.herc.com. This news release includes forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, reflecting management's current analysis and expectations, based on what management believes to be reasonable assumptions. Forward-looking statements may involve known and unknown risks, uncertainties and other factors, which may cause the actual results to differ materially from those projected, stated or implied, depending on such factors as: ability to generate cash, changes resulting from ongoing reviews of tax liabilities, ability to raise capital, ability to refinance, ability to execute productivity improvements and reduce costs, the success of outsourcing initiatives, ability to execute and integrate acquisitions, ability to execute divestitures, ability to increase prices, business climate, business performance, changes in tax laws or regulations and related liabilities, changes in tax rates, economic and competitive uncertainties, higher manufacturing costs, reduced level of customer orders, changes in strategies, risks in developing new products and technologies, risks in developing new market opportunities, environmental and safety regulations and clean-up costs, foreign exchange rates, asset dispositions, the impact of changes in the value of pension fund assets and liabilities, changes in generally accepted accounting principles, adverse legal and regulatory developments, including increases in the number or financial exposures of claims, lawsuits, settlements or judgments, the financial capacity of settling insurers, the impact of increased accruals and reserves for such exposures, the outcome of litigation and appeals, and adverse changes in economic and political climates around the world, including terrorist activities, international hostilities and potential natural disasters. Accordingly, there can be no assurance that the Company will meet future results, performance or achievement, or continue the repurchase program or the payment of dividends, expressed or implied by such forward-looking statements. As appropriate, additional factors are contained in reports filed by the Company with the Securities and Exchange Commission. The words or phrases "will likely result," "should," "are expected to," "will continue," "is anticipated," "expect," "estimate," "project" or similar expressions are among those which identify forward-looking statements. This paragraph is included to provide safe harbor for forward-looking statements, which are not generally required to be publicly revised as circumstances change, and which the Company does not intend to update.
HERCULES
INCORPORATED (Dollars in millions, except per share data) (Unaudited)
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