Rockwood Holdings Beats Ests, Profit Sinks

Zacks

Specialty chemicals and advanced materials company Rockwood Holdings, Inc.’s (ROC) first-quarter 2013 adjusted earnings (excluding other net charges) of 68 cents per share were down roughly 45% from the last year’s earnings of $1.23, but beat the Zacks Consensus Estimate by a penny.

On a reported basis, the company posted a profit of $18.9 million or 24 cents per share in the quarter, down 75% from $75.8 million or 94 cents per share a year ago. The bottom line was hit by weak results from Titanium Dioxide (TiO2) Pigments and Performance Additives units, partially offset by improved results from Lithium and the Advanced Ceramics medical business.

Revenues rose 2.7% year over year to $934.6 million in the quarter, surpassing the Zacks Consensus Estimate of $901 million.

Segment Performance

Lithium businesses’ net sales increased 3.3% on the back of higher selling prices for most product lines and higher volumes of potash, partially offset by lower volumes of battery products and butyllithium applications.

Net sales from the Surface Treatment segment fell 2.2% year over year, attributable to lower volumes in Europe partly offset by increased selling prices in Europe and U.S. and higher volumes of automotive OEM and aerospace applications.

The Performance Additives division also reported a 9.9% drop in net sales as a result of lower volumes from North American oil and natural gas drilling, coatings applications and also from European construction market.

Net sales from the Titanium Dioxide Pigments unit surged 21.3% in the quarter, mostly due to acquisition of certain assets from Crenox GmbH in Jul 2012, partially offset by lower selling prices.

The Advanced Ceramics segment reported a 1.2% drop in net sales due to lower volumes in most applications, partly offset by higher volumes of medical ceramics.

Net sales from the Corporate and other segment fell 3.8% year over year due to lower volumes in the metal sulfides business.

Financial Position

Cash and cash equivalents stood at $491.1 million as of Mar 31, 2013, up from $97.9 million as of Mar 31, 2012. Net debt increased to $1,730.9 million as of Mar 31, 2013, from $1,425.1 million as of Mar 31, 2012.

Outlook

Rockwood Holdings expects all of its businesses, except TiO2 Pigments, to improve year over year in the remainder of 2013. The TiO2 business is expected to continue its weak performance during the second quarter of 2013 before it turns profitable in the second half. The Performance Additives segment is expected to gain momentum moving ahead on improving U.S. remodeling and construction activities.

Rockwood Holdings will focus on optimizing free cash flows and implementing appropriate capital allocation strategies through dividends and share repurchases and reinvestment in key businesses in 2013. Some of its growth projects include the expansion of the Chilean project for increasing the lithium carbonate capacity and manufacturing facilities in Germany for the production of ceramic hip joints.

Rockwood Holdings currently holds a Zacks Rank #5 (Strong Sell).

Other companies in the specialty chemical space that are worth considering include American Vanguard Corp. (AVD), Ferro Corp. (FOE) and Minerals Technologies Inc. (MTX). While American Vanguard retains a Zacks Rank #1 (Strong Buy), both Ferro Corp and Minerals Technologies hold a Zacks Rank #2 (Buy).
 

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