Tuesday, specialty chemical company W. R. Grace & Co. (GRA) reported an increase in fourth quarter earnings, helped by lower raw material and energy costs, overhead expenses and price increases. The company also provided an update on its Chapter 11 proceedings and an outlook for fiscal 2010.
Net income attributable to the company for the quarter rose to $46.4 million or $0.63 per share from $43.4 million or $0.60 per share in the corresponding period last year. On average, two analysts polled by Thomson Reuters expected the company to earn $0.65 per share for the quarter. Analysts estimates usually exclude special items.
The company noted that financial results for the most recent quarter and the prior year period were negatively affected by Chapter 11 expenses and other matters not related to core operations. Chapter 11 expenses, net of filing entity interest income, were $11.6 million compared with $17.4 million in the prior year quarter.
Excluding Chapter 11 expenses, the loss on noncore activities, and noncore tax items, net income increased 83.1% to $46.5 million from $25.4 million in the prior year quarter.
Quarterly sales declined 11.7% to $678.3 million from $768.4 million in the corresponding period last year. The sales decrease was due to lower sales volumes, the previously announced deconsolidation of the Advanced Refining Technologies or ART joint venture, and lower cost of metals passed through to customers, partly offset by favorable currency translation and price increases.
Gross margin increased to 36.6% from 27.2% in the prior year quarter. The company attributed the increase to reduced raw materials and energy costs, lower factory overhead expenses resulting primarily from restructuring activities, and price increases compared to the prior year.
Fred Festa, Grace's chairman, president and chief executive officer, said, "We aggressively reduced costs, decreased working capital intensity, and realigned our product portfolio to increase gross profit margin and return on invested capital in sustainable ways."
For the twelve-month period, net income declined to $71.2 million or $0.98 per share, from $121.5 million or $1.68 per share last year. Sales declined to $2.83 billion from $3.32 billion in the previous year.
On April 2, 2001, Grace and 61 of its United States subsidiaries and affiliates, filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code in order to resolve the company's asbestos-related liabilities.
On September 19, 2008, Grace filed a Joint Plan of Reorganization with the Bankruptcy Court. The Joint Plan is consistent with the terms of the previously announced settlements of Grace's asbestos personal injury liability and requires the establishment of two asbestos trusts to which all present and future asbestos-related claims would be channeled.
Grace said the timing of its emergence from Chapter 11 will be uncertain and subject to this uncertainty, it is preparing to consummate the Joint Plan in June 2010. Further, the company said it expects to adjust its accounting for the Joint Plan when the consideration can be measured and material conditions to the Joint Plan are satisfied. Grace expects that such adjustments may be material to its consolidated financial position and results of operations.
The company expects to report 2010 sales of $2.65 billion to $2.75 billion. Grace expects increased sales volumes of 3% to 7% to be offset by decreased sales from the deconsolidation of the ART joint venture effective December 1, 2009 and the three non-strategic product lines sold in 2009. The company expects to maintain its gross profit percentage in the mid-30 percent range for 2010 and sees core EBITDA to be $425 million to $460 million.
GRA is currently up $1.80 or 7.20% and trades at $26.80.
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