Cytec Industries Earnings Call Nuggets: Industrial Materials Segment and Buyback Downsides
Industrial Materials Segment
John McNulty – Credit Suisse: So with regard to the Industrial Materials segment, when I look at your full year guidance, you’re looking for about $20 million, give or take a little bit. You just did $2.6 million, so you basically need to kind of run at double the rate that you just did in the last quarter in each of the next three. So I guess are you at those kind of run rates now or is this a very back end loaded type year for you in that business? Like how should we think about that and the potential for you to reach those targets?
Shane D. Fleming – Chairman, President and CEO: I wouldn’t say it’s extremely backend loaded, but clearly we do have to see some sales growth, which we do have some line of sight to. As I noted in my prepared comments, we do see some uptick now and typically see an uptick in our Formula One business in the second half of the year. We also see some growth programs coming in high performance auto area. And then I also spoke about some growth we are seeing in the wind blade markets down in South America. So, some of this is driven by top line growth. We also had some unfavorable one-timers in the first quarter. I talked about the $100,000 cost to exit a distribution agreement that goes away. So, yes, there is some growth through the last three quarters, but some of this is elimination of some unfavorable one-timers as well.
John McNulty – Credit Suisse: And in the ISP business, in the release you had mentioned that, there was some manufacturing and commercial cost to get ready for an increased revenue growth that you expect to kind of progress as the year goes on. It seemed like you had a lot of capacity already in place just from – last year you obviously had a really strong year in that business. So, I guess what are you ramping up for, like what did you need to put in place that you didn’t already have in place in that segment?
Shane D. Fleming – Chairman, President and CEO: its two things, it’s now (filling the full cast) of the acquired assets in India. So, we’ve got the MEP assets and we’ve got a capital project ongoing there to get that site debottlenecked and producing. So, there is a little bit on the capital side, but more of it, John, is related to commercial expenses. A lot of these startups that we have supported recently and the startups projected over the next couple of years are in far flung places, Eastern Europe, Mongolia, parts of Africa. So, it’s really more around getting our commercial and marketing teams staffed up and that needs some more R&D headcount as well to support future growth…
John McNulty – Credit Suisse: Just one last question, on the share repurchase, it seems like you are pretty committed to putting the full 490 to work. If I’m doing my math right, that essentially means you have to buy back about 20% of every day’s average trading volume, at least based on the kind of past levels that we’ve seen in terms of your stock trading every day. Are you comfortable doing that or do you really need to do kind of an accelerated program at some point, whether it’s a tender or what have you?
David M. Drillock – VP and CFO: Yeah, John as I said, we are comfortable doing that and we had done that proportions of our fourth quarter even in the first quarter, and if we need to do an accelerated program to complete that towards the end, that’s what we’ll do.
David Begleiter – Deutsche Bank: David, just again on the buyback, just what’s a downside of doing accelerated share buyback, buying back? You need to buy back (2.5) million shares. Wanted to do it next week as appose to – what’s the downside of doing now?
David M. Drillock – VP and CFO: Let me just clear our thoughts on this, John. Is that though we committed to the year-end target and we feel open market purchases give us the most flexibility on pricing, and as we get closer to them, we can always do an accelerated program. So I don’t see any downside to doing that other than it puts us in more control of the shares and the price.
David Begleiter – Deutsche Bank: Shane, just on the IPS business, what’s the potential for delay in any of these four mine fields you mentioned?
Shane D. Fleming – Chairman, President and CEO: There is always some potential. We certainly see these startups slip quarter-to-quarter, they don’t usually move much more than that. I guess there’s a little bit of risk here, because we’ve got the bulk of these in the second half of the year. So, yeah, there is some risk and maybe one of these moving, but I don’t think it’s much greater than that. I think that the thing that need to happen for us deliver the earnings target is to get the bulk of these startups, get these fill orders in and to see some recovery in aluminum market. We were hardened by what we’ve heard recently. I think, Arch Coal came out with some positive news on their view of alumina picking up in the second half. So, if we do indeed see that happen, I feel quite confident that we can hit the numbers.
David Begleiter – Deutsche Bank: Any impact from the 787 delay in your numbers either in Q1 or for the full year.
Shane D. Fleming – Chairman, President and CEO: No, at this point there hasn’t been any impact on 787 and that’s way we’ve built our outlook that we are willing to work the way through this battery issue, would not cut rate at any point in time and in fact would hit their yearend run rate of 10 per month. So that’s the basis for our guidance and at this point in time I still think that’s pretty solid.
A Closer Look: Cytec Industries Earnings Cheat Sheet>>