Lubrizol Posts Billion-dollar Quarter


Fourth-quarter revenue reached $1 billion at Lubrizol Corp., setting a record for the Wickliffe, Ohio, based specialty chemical company. The final quarter’s strong performance, as well as a full year of owning Noveon International brought the company’s revenues for all of 2005 to $4 billion, a gain of 30 percent over 2004’s revenue (which only included seven months of results from Noveon).

Earnings for the quarter ended Dec. 31, 2005, reached $32.1 million, the company announced yesterday, an increase of 61 percent over the $19.9 million posted in the prior-year fourth quarter. The gain was primarily due to improvements in volumes shipped, successful implementation of higher selling prices, and improved pricing and product mix, the company said. Fourth-quarter segment operating income increased 20 percent for Lubricant Additives and 17 percent for Specialty Chemicals, which largely includes the former Noveon operations.

“We delivered a fourth-quarter revenue record and strong growth in segment operating income, thanks to solid demand, continuing successes with necessary price increases, and good management of our controllable expenses,” commented James L. Hambrick, Lubrizol chairman, president and CEO. “This capped a year where the fundamental strength of Lubrizol’s businesses and our effective execution produced record income from operations and record cash flow from operations.”

For all of 2005, the company produced consolidated earnings of $181.3 million, or $2.67 per share from continuing operations, including restructuring and impairment charges. In 2004, it had consolidated earnings of $90.6 million, or $1.63 per share. Discontinued operations accounted for in the quarter included the Noveon’s Telene resins business, and Lubricant Additives’ Engine Control Systems, both of which were sold.

The company’s Lubricant Additives segment contributed about 57 percent of total revenues in the fourth quarter, with sales amounting to $594 million, compared to $496 million in fourth-quarter 2004. For full year 2005, Lubricant Additives sales hit $2.28 billion, a 14 percent lift over 2004.

The company credited the additive segment’s higher revenues in the fourth quarter to a 14 percent improvement in its price/product mix, and to 8 percent higher shipment volumes overall. Even if you exclude spot sales made due to a competitor’s supply disruption and hurricane delays that held up shipments from the third quarter until the fourth quarter, Lubrizol noted, the Lubricant Additives segment shipped 6 percent more volume in the quarter.

Average raw material cost for the segment, however, went up 21 percent in the quarter, versus the year-ago period, prompting the company to impose price increases, including one announced at the end of December and being implemented in the first quarter of this year.

“As we expected, the limited availability of some raw materials, aggravated by hurricane-related supply disruptions, kept our costs high throughout the quarter,” Hambrick noted. “This challenge forced additional rounds of price increases to recover part of our margin compression.”

Lubricant Additives posted fourth-quarter 2005 operating income of $48.4 million, 20 percent above the same period in 2004. For the full year, the segment’s operating income reached $266.6 million — 11 percent over 2004 — and margins reached 12 percent, similar to 2004.

Lubrizol’s Specialty Chemicals segment had fourth-quarter revenues of $438.8 million, up 3 percent compared to fourth-quarter 2004. The company noted that shipment volumes for the segment declined 5 percent, though its price/product mix improved more than enough to offset that. Price increases were imposed here as well, in response to higher raw material costs, the parent company reported.

For full year 2005, Specialty Chemicals’ revenues rose to $1.76 billion, compared to $1.11 billion during 2004 (which had only seven months of results from Noveon). The segment’s operating income for the year reached $193.6 million, versus $83.9 million the year before.

Specialty Chemicals operates in three main areas: Specialty Materials, Performance Coatings, and Consumer Specialties. The last includes Personal Care products, Food Ingredients and Industrial Specialties. The company noted that most of FIIS is targeted for divestiture.

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