Currency Drags Rockwood Down

Zacks

Specialty chemicals and advanced materials company Rockwood Holdings, Inc. (ROC) recently reported disappointing second-quarter 2012 results, with adjusted earnings of $1.17 per share lagging behind both the Zacks Consensus Estimate and the year-ago quarter earnings of $1.19.

Reported profit jumped massively to $224.9 million (or $2.81 per share) in the quarter from $94.5 million or $1.11 per share a year ago, primarily driven by an income tax benefit of $139 million.

Revenues declined 9.4% year over year to $905.6 million in the quarter, hurt by a negative currency translation of $75.1 million. Sales failed to meet the Zacks Consensus Estimate of $987 million in the quarter. A major portion of Rockwood’s net sales and cost of products sold are determined in euros and thus any unfavorable currency fluctuation can impact the company’s top line.

Segment Performance

Management stated that the company’s lithium, surface treatment and advanced ceramics businesses improved on a year-over-year basis, excluding negative currency effects. Lithium business improved slightly on the back of higher selling prices and higher volumes of lithium battery products, but currency changes and lower volumes of butyllithium in Asia were the dampeners.

Net sales from the Surface Treatment business fell 5.4% year over year, as lower volumes in Europe and negative currency translation mitigated the gains from increased selling prices and higher volumes in the U.S. and Asia.

The Performance Additives business also reported a 7.1% drop in net sales as negative currency translation along with lower volumes primarily in Color Pigments and Services played spoilers. However, increased selling prices and a favorable product mix somewhat compensated for the decline.

Net sales from Titanium Dioxide Pigments declined 17.4% in the quarter due to negative impact of currency changes, but were partially offset by higher selling prices. Net sales from Advanced Ceramics fell 7.9% and Corporate and other fell 24.1% on the back of negative currency translation.

Financial Position

Cash and cash equivalents stood at $343.4 million as of June 30, 2012, up from $235.2 million as of June 30, 2011. Net debt decreased to $1,423.4 million as of June 30, 2012, from $1,555.3 million as of June 30, 2011.

Outlook

The company expects lithium, surface treatment and advanced ceramics businesses to remain stablefor the remainder of the year. Performance Additives, which is driven by trends in the construction market, is expected to remain flat going forward. However, Rockwood expects that its titanium dioxide business will perform well in the long term. The company is set to expand its titanium dioxide business and recently acquired a TiO2 facility in Germany with an annual capacity of 100,000 tons.

Rockwood, which competes with PPG Industries, Inc (PPG), Cabot Corporation (CBT) and Sigma Aldrich Corporation (SIAL), currently holds a Zacks #3 Rank, reflecting a short-term (1 to 3 months) Hold rating.

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