Business News
PolyOne Updates Second Half 2008 Outlook
Thursday 18. September 2008 - PolyOne Corporation (NYSE: POL) today updated its outlook for the second half of its fiscal year ending December 31, 2008.
The Company expects second half consolidated sales growth of 8-10% versus the second half of 2007, below management’s previous expectation of 15% sales growth. This revision is largely driven by the following factors, including:
— Weakened European demand, previously mentioned in PolyOne’s August 7, 2008 earnings release, has worsened.
— European sales growth is expected to be further reduced by the recent weakening of the Euro which has lost approximately 10% of its value relative to the U.S. Dollar.
— Demand and pricing trends in the North American housing and automotive markets are more challenging than expected in the Company’s Performance Products and Solutions segment.
In addition, the Company temporarily shut down production at two of its facilities in Texas as a direct result of Hurricane Ike. While the Company expects its affected plants to be operational by the end of this week, the full impact that the hurricane has had on customers and suppliers is not yet clear. The Company expects it will experience customer order delays and is already aware of logistic disruptions related to the supply of raw materials.
“First and foremost, we’re relieved to report that our employees and their families were unharmed,” said Stephen D. Newlin, chairman, president and chief executive officer. “We exercised the appropriate safety precautions by closing our plants in advance of the hurricane, and we are now working to restore power and repair what appears to be only minor facility damage. We are concerned about potential delays in customer orders and raw material supply directly related to the storm.”
Commenting on the trends noted above, Mr. Newlin added, “August was a difficult month and early indications are that these industry conditions may continue. Furthermore, while the end result of the unprecedented financial industry crisis and ongoing tight credit policy in the U.S. has not fully played itself out, it is reasonable to expect that it will provide further headwind to near-term economic growth.” Newlin further stated, “During our second quarter 2008 earnings conference call we noted our concern about a possible slowdown in Europe however at that time we did not yet have visibility relative to the magnitude of any such decline which is now becoming apparent.”
Discussing North America conditions, Mr. Newlin continued, “We are disappointed that PolyOne has thus far been unable to capture meaningful selling price improvement in our Performance Products and Solutions segment, despite unprecedented increases in raw material and energy costs. While oil and natural gas prices have recently declined, we have not been a beneficiary of this trend, and we further believe that end users were shielded from much of the previous increases in raw material and energy costs by compounders like PolyOne, who have so far absorbed much of these elevated costs.”
The Company expects earnings from its SunBelt joint venture to benefit from favorable caustic soda price trends which are expected to more than offset weak end-market demand for chlorine derivatives. However, some of this benefit may be offset by potential delays in customer orders as a result of Hurricane Ike. Corporate costs are expected to be lower than previously forecasted as a result of reduced incentive accrual estimates.
Senior vice president and chief financial officer Robert M. Patterson said, “It’s unfortunate that our increasingly successful specialty business focus and growth initiatives are being temporarily overshadowed by weak end- market demand and unfavorable pricing dynamics. Clearly we made the right decision in July to close certain of our manufacturing facilities and reduce overall manufacturing capacity. We will be focusing our efforts on accelerating these previously announced actions to help offset the headwinds outlined above.”
Patterson added, “As a result of the business interruption related to the hurricane and the unfavorable trends observed in our Performance Products and Solutions segment and Europe, we expect it will be a challenge to reach consensus expectations of $0.13 per share for the third quarter, before special items. Further, it is difficult to forecast our results for the year given the number of uncertainties in the market, and therefore we are projecting a range of performance between $0.36 and $0.41 per share before special items for the fiscal year ending December 31, 2008.”
Additional considerations
— The Company expects third quarter special items to approximate $0.17 – $0.19 per share. The majority of these costs relate to the previously announced manufacturing realignment, although the Company also expects to record incremental legacy environmental costs that increased as a result of higher utility cost estimates necessary to support remediation.
— Net interest expense for the remainder of the year is expected to approximate the second quarter run-rate, as anticipated debt reductions will occur toward the end of the year.
— The Company anticipates an effective tax rate between 33% and 35% for the second half of 2008.