PolyOne Corporation (PolyOne), a provider of specialized polymer materials, has reported sales of $463.4 million for the first quarter of 2009, compared with the sales of $713.7 million in the year-ago quarter. It has also reported net loss of $9.3 million, or $0.10 loss per share, for the first quarter of 2009, compared with the net income of $6.5 million, or $0.07 per share, in the year-ago quarter.
Strong cash flow from operations drives $78 million increase in cash; Liquidity improves $23 million to $189 million
Cost reductions partially mitigate earnings impact of significant demand weakness as sales decline 35%
Management outlines lean six sigma gross margin improvement target of 100 basis points per year for next three to four years
Included in the results for the first quarter of 2009 are special items totaling $10.5 million of expense (after-tax) and a tax gain from a favorable settlement of a foreign audit for $10.0 million. In addition, during the fourth quarter of 2008, the company began recording a tax valuation allowance against US deferred tax assets. The chart below is intended to facilitate a comparison of first quarter 2009 results with the first quarter of 2008, showing the impact of special items and the above-mentioned tax matters ($ in millions, except EPS):
On a comparable basis, before special items and the tax items noted above, PolyOne reported a loss of $0.04 per share in the first quarter of 2009 versus the $0.08 per share of income reported for the first quarter of 2008.
I am incredibly proud of the way the PolyOne team has focused on reducing working capital, improving cash flow and increasing liquidity during the first quarter, said Stephen D. Newlin, chairman, president and chief executive officer. Given the current economic environment, this remains a near-term priority and we believe we can continue to improve upon first quarter results.
Newlin continued, The first quarter revenue decline reflects lower demand across all of our businesses versus the prior year, underpinning our single largest concern – the health of the global economy. It is encouraging, however, that customer inventory destocking appears to be decelerating and we further believe that exiting the first quarter we are seeing demand stabilize, albeit at a relatively low level. We do not expect a near-term economic rebound and therefore we will continue to aggressively drive cost reductions through the previously announced restructuring actions, lower discretionary spending and reduced capital expenditures.
Consolidated gross margins before special items improved from 12.1% in 2008 to 15.2% in 2009 despite the significant decline in volume and sales which would normally dilute margins. This improvement reflects improved sales mix, restructuring savings, lower raw material costs, and LIFO reserve adjustments. Commenting on the company’s expectation for further gross margin improvement, Thomas J. Kedrowski, senior vice president, supply chain and operations, said, We have selected nearly 70 high-impact projects to be completed this year. For our manufacturing businesses, we expect that on an annualized basis we can improve our gross margins by around 100 basis points per year over the next three to four years as a result of driving lean and lean six sigma principles. This is a critical element of our ongoing long-term transformation process but also helps us in the near term to offset continued pressure from demand erosion due to the global recession.
Special items in the first quarter of 2009 included a pre-tax adjustment of $5.0 million to increase the company’s preliminary estimate of goodwill impairment recorded during the fourth quarter of 2008. Special items during the first quarter of 2009 also include $10.1 million of pre-tax charges recorded related to the combined restructuring actions announced on January 15, 2009 and announced on July 28, 2008.
Commenting on the company’s financial condition, Robert M. Patterson, senior vice president and chief financial officer said, I’m pleased to report that we generated $78 million of free cash flow during the quarter and increased liquidity from year end by $23 million to $189 million as of March 31. Our first quarter cash flow was driven almost entirely by working capital improvement, most notably a reduction of inventory. Our focused efforts in this area continue, and cash and liquidity are even higher at April 30 with $151 million of cash on hand and liquidity of $216 million.
Patterson further stated, Based on our current expectations, we have sufficient liquidity and we do not anticipate drawing upon our accounts receivable facility or accessing the capital markets for additional financing at this time.