May 2 2005
PolyOne Corporation has reported sales from continuing operations of $576.7 million for the first quarter ended March 31, 2005, an increase of $41.1 million, or 8 percent, compared with the first quarter of 2004. Operating income from continuing operations was $38.7 million for the first quarter of 2005, a $14.1 million improvement over the same period in 2004 and a $22.5 million improvement over the fourth quarter of 2004.
Net income for the first quarter of 2005 was $13.4 million, or $0.15 per share -- an improvement over the first quarter of 2004 of $9.4 million, or $0.11 per share.
Special items for continuing and discontinued operations reduced earnings in the 2005 first quarter by $0.05 per share. The most significant special item was a $10.9 million pre-tax non-cash charge to reflect impairment of net assets associated with discontinued operations. A definition and a list of special items appear in Attachment 4.
"We made good progress during the quarter recovering product spreads -- selling price less raw materials -- in our core businesses," said Thomas A. Waltermire, president and chief executive officer. "We also benefited from further improvement in our cost structure and a strong contribution from our equity investments. However, softer demand in the U.S. and Europe limited year-over-year shipment growth for most of our operating units."
Waltermire added, "Cash flow in the quarter was negative, largely due to working capital investment required to support higher sales growth. We do expect to see working capital needs decline during the second quarter. By year end, we anticipate healthy positive cash generation from our operations."
PolyOne has outlined four financial priorities for 2005:
- Accelerate organic business growth: For continuing operations, PolyOne's targets are a 3 percent to 5 percent sales increase from volume and a 4 percent to 6 percent increase in revenues. In addition, PolyOne has set a minimum goal of $20 million in sales of a wide array of products incorporating new technologies, which PolyOne is developing in Europe, Asia and North America. The sales growth of nearly 8 percent in the first quarter, compared with the same quarter in 2004, was due largely to price increases, with some contribution from favorable foreign currency exchange effects. Shipment volume, excluding sales of the Melos rubber granulates business that was sold in June 2004, decreased approximately 1 percent. On the plus side, both the North American Plastic Colors and Additives business and Asian operations posted strong year-over-year improvements in shipments.
- Build the North American Colors and Additives and the Engineered Materials businesses into strong earnings contributors: The Company projects that both businesses should become profitable in 2005, with an operating income improvement exceeding $10 million and an increase in positive cash flow. In addition, both businesses are focused on market share gains and sales of higher-value products. Although slightly unprofitable in the first quarter of 2005, North American Color and Engineered Materials are moving in the right direction. Their combined operating income improved approximately $3 million and $0.4 million compared with the fourth quarter of 2004 and the first quarter of 2004, respectively.
- Complete the return to a strong financial position: PolyOne's 2005 goal is to lower its debt coverage ratio to less than 3.0 by paying down debt with cash generated from improved earnings and the proceeds resulting from the divestiture of the Specialty Resins and Engineered Films businesses. PolyOne noted that restoring spreads over raw materials will be key to improving operating earnings. In the Performance Plastics segment, every business unit achieved some level of higher selling prices in the first quarter of 2005, which resulted in an improvement in operating income over fourth-quarter 2004 levels. In Distribution, higher selling prices and shipments helped boost operating income nearly $1.6 million. As anticipated, short-term borrowing through PolyOne's receivable sales facility increased in the first quarter of 2005 compared to the fourth quarter 2004, resulting from higher working capital required to support strengthening seasonal demand.
- Ingrain the drive for continuous productivity gains: For 2005, PolyOne seeks to lower the total cost of producing and selling a pound or kilo of product by further improving working capital efficiency, reducing unit manufacturing costs and keeping selling and administrative (S&A) costs under 9.5 percent of sales.
Reflecting the Company's success to date, S&A expense in the first quarter of 2005 was $11.1 million lower than in the first quarter of 2004. This reduction is due to spending cuts, reduced benefit expenses, and one-time favorable items totaling approximately $4 million relating to the settlement of legal issues and adjustments to associated reserves. Even without the one-time favorable adjustment, the S&A-to-sales ratio in the first quarter would have been favorably below PolyOne's targeted level.
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