GenCorp Second Quarter Earnings from Operations Improve 20 Percent
16 June 1999
GenCorp Second Quarter Earnings from Operations Improve 20 Percent to $0.61 Per Share on Sales Growth of 19 Percent
FAIRLAWN, Ohio, June 16 -- GenCorp reported today
significantly improved 1999 second quarter earnings of $0.77 per diluted share
compared to $0.51 per diluted share during the second quarter of 1998.
Earnings before unusual items totaled $0.61 per diluted share during the
quarter, an improvement of 20% over the second quarter of 1998. Unusual items
included pretax income of $15.7 million from the divestiture of Penn Racquet
Sports and expense of $3.2 million related to the planned spin-off of the
Decorative & Building Products and Performance Chemicals business units into a
separate publicly traded company.
Sales totaled $514.9 million for the second quarter of 1999, an increase
of 19% compared to $431.9 million during the second quarter of 1998, with all
three business segments posting significant revenue increases. For the six
months ended May 31, 1999, sales increased 20% to $954.5 million as compared
to $797.4 million during the first six months of 1998.
Operating profit totaled $66.6 million for the second quarter of 1999.
Excluding unusual items, operating profit for the current quarter improved 19%
to $51.4 million versus $43.1 million for the second quarter of 1998. For the
six months ended May 31, 1999, operating profit, excluding unusual items,
increased to $89.4 million as compared to $72.7 million during last year's
period, a 23% improvement.
"Earnings per share for the second quarter exceeded expectations, and
added to an excellent record of performance year to date in 1999," said
Chairman and CEO John Yasinsky. "I am especially pleased with the double-
digit revenue growth in all of our business segments during the second quarter
which reflects our continuing success in executing focused growth strategies,"
he said.
"We are on track and making good progress toward completion of our plan to
spin off the Decorative & Building Products and Performance Chemicals
businesses," Yasinsky added. The Company announced the plan for a spin-off on
December 17, 1998, contingent upon a tax-free ruling from the IRS and
shareholder approval, and expects completion to occur in the second half of
1999.
As part of a focused cost reduction program to prepare for the planned
spin-off, GenCorp continued to decrease corporate overhead, reducing corporate
expenses by $1.8 million as compared to the second quarter of 1998. Also
during the quarter, the Company incurred costs of $3.2 million for spin-off
related activities and reflected a tax provision that was $0.6 million higher
than normal because of certain spin-off costs that will not be deductible for
income tax purposes.
Polymer Products -- Net sales for the polymer products segment in the
second quarter of 1999 increased 20% to $210.0 million compared to $174.9
million in the second quarter of 1998. Sales increased in both Decorative &
Building Products and Performance Chemicals, primarily from acquisitions.
Improved sales in European wallcovering, paper laminates, building systems,
paper coatings and specialty chemicals led the increase. Operating profit for
the polymer products businesses increased to $24.9 million for the second
quarter of 1999 versus $23.5 million in the second quarter of 1998. Operating
margins decreased to 11.9% in the second quarter of 1999 compared to 13.4% in
the second quarter of 1998, due primarily to lower average unit selling prices
across certain Performance Chemicals product lines, and increased new product
development spending.
Highlighting the quarter, Performance Chemicals completed the acquisition
of Morton International's global latex floor care business, adding a new and
highly complementary product line and customer base, and expanding presence in
Europe and the Far East. The Morton products will be produced at Performance
Chemicals' Fitchburg, MA, Chester, SC, and Greensboro, NC plants. The
integration of four acquisitions made by Performance Chemicals in 1998 and
1999 continues to proceed ahead of expectations, with over $3 million in
annualized cross-selling opportunities captured during the second quarter.
The business unit accelerated construction of its new pilot plant that will
significantly reduce new product development cycle time when completed later
this year. Performance Chemicals continues to expand capacity through
operational excellence initiatives such as Six Sigma. Its Green Bay, WI,
plant achieved a record production month in May through Six Sigma
improvements.
Within the Decorative & Building Products business unit, the trend of
strong performance improvement for the Building Systems (roofing) sector
continued in the second quarter with a 20% increase in sales. Sales were also
up by 30% in the first half of 1999 within Coated Fabrics' residential
upholstery business. Also during the quarter, Decorative & Building Products'
Columbus, MS plant brought on line its new short run printer which is expected
to improve time and cost efficiencies. Preparation for the start-up of a new
state-of-the-art coater line at the unit's Auburn, PA plant also progressed.
In early May, the Company divested the Penn Racquet Sports business unit
and posted a pre-tax gain of $15.7 million on the transaction. Sales during
the quarter, for the period in which the Company operated Penn, were
$14.1 million, with operating profit of $1.4 million.
Automotive -- The Vehicle Sealing business continued to rebound, with
sales improving 23% to $123.3 million in the second quarter of 1999, versus
$100.6 million in the second quarter of 1998. The sales gain was due to
higher volumes in North America on the General Motors C/K pickup and Grand AM
and the Ford Explorer platforms.
Vehicle Sealing's operating profit rose a substantial 58%, to $9.3 million
in the second quarter of 1999 as compared to $5.9 million for the second
quarter of 1998. Operating profit margins improved to 7.5% in the second
quarter of 1999 compared to 5.9% in the second quarter of 1998 as a result of
higher volumes, lower launch costs, improved operating efficiencies, and the
absence of losses from the Plastic Extrusions division which was sold in 1998.
Quality ratings from automotive customers improved significantly during the
quarter and Vehicle Sealing's German subsidiary, Henniges, was profitable for
the quarter and the six months ended May 31, 1999.
Vehicle Sealing achieved a major milestone during the quarter with a new
customer, Saturn, by successfully launching the sealing system for the Z car
at Saturn's Spring Hill, TN plant. In the third quarter, Vehicle Sealing will
launch a second program for Saturn as production begins on the new LS
platform.
Aerospace and Defense -- At Aerojet, net sales increased 16% to
$181.6 million in the second quarter of 1999 as compared to $156.4 million in
the second quarter of 1998. Higher volumes in Fine Chemicals, the Space-Based
Infrared System (SBIRS), Special Sensor Microwave Imager/Sounder (SSMIS) and
Sense and Destroy Armor (SADARM) were partially offset by lower volumes on the
Defense Support Program (DSP) and Titan.
Aerojet's operating profit for the second quarter of 1999 was
$17.2 million, compared to $13.7 million in the second quarter of 1998.
Operating margins improved during the quarter to 9.5% from 8.8% in the second
quarter of 1998, due to higher Fine Chemicals volumes and contract performance
in strategic and space propulsion.
Related to Aerojet's Fine Chemicals business, pharmaceutical industry
reports revealed record-breaking sales during the first year following
introduction of Celebrex for public use. Fine Chemicals provides the primary
intermediate chemical for this revolutionary new anti-inflammatory (COX2)
inhibitor.
Aerojet received two new contracts during the quarter, together valued in
excess of $17 million. Litton subsidiary, PRC Inc., awarded the segment a
four-year contract with follow-on options for its reliable Mark VI Attitude
Control system, which will guide NASA's sounding rocket missions. A second
contract was awarded by Boeing to supply attitude control systems for the
National Missile Defense first stage booster rocket.
A Titan launch from Vandenburg Air Force Base on May 22 continued
Aerojet's 100% successful performance record for its first and second stage
engines on this space launch vehicle. Aerojet's contract backlog at May 31,
1999 stood at $1.7 billion.
This earnings release contains forward-looking statements as defined by
the Private Securities Litigation Reform Act of 1995. All statements in this
release and in subsequent discussions with the Company's management, other
than historical information, are forward-looking statements. A variety of
factors, which are listed in the Forward-Looking Statements section of
Management's Discussion and Analysis in the Company's 1998 annual report and
in the annual report on Form 10K filed with the Securities and Exchange
Commission, could cause actual results or outcomes to differ materially from
those expected by the Company and expressed in the Company's forward-looking
statements.
GenCorp is a $1.7 billion technology-based manufacturer with leading
positions in numerous markets served by its Performance Chemicals, Decorative
& Building Products and Vehicle Sealing businesses, and its aerospace &
defense segment, Aerojet.
Business Segment Information (Unaudited)
GenCorp Inc.
Three Months Ended Six Months Ended
(Dollars in millions, May 31, May 31, May 31, May 31,
except per-share data) 1999 1998 1999 1998
Net Sales
Aerospace and defense $181.6 $156.4 $331.9 $291.8
Polymer products 210.0 174.9 395.5 322.4
Automotive 123.3 100.6 227.1 183.2
Total $514.9 $431.9 $954.5 $797.4
Income
Aerospace and defense $17.2 $13.7 $35.6 $27.9
Polymer products 24.9 23.5 41.7 38.1
Automotive 9.3 5.9 12.1 6.7
Unusual items 15.2 .2 15.2 .2
Segment Operating Profit 66.6 43.3 104.6 72.9
Interest expense (5.5) (3.1) (10.9) (5.2)
Corporate other income
and (expense), net (.3) (.3) .2 (2.2)
Corporate expenses (2.5) (4.3) (6.1) (8.5)
Unusual items (3.2) -- (3.7) --
Income tax provision (22.6) (14.2) (34.4) (22.8)
Net Income $32.5 $21.4 $49.7 $34.2
Earnings per common share:
Basic $.78 $.51 $1.19 $.83
Diluted $.77 $.51 $1.18 $.81
Average number of shares
of common stock outstanding
(in thousands):
Basic 41,748 41,482 41,658 41,416
Diluted 42,200 42,210 42,108 42,064
Capital expenditures $27.7 $20.0 $46.7 $32.9
Depreciation $18.5 $16.0 $36.2 $31.7
Condensed Consolidated Balance Sheets (Unaudited)
GenCorp Inc.
May 31, Nov. 30,
(Dollars in millions) 1999 1998
Assets
Cash and equivalents $21.1 $28.6
Accounts receivable 267.1 275.7
Inventories 180.5 165.3
Prepaid expenses and other 54.6 59.1
Total Current Assets 523.3 528.7
Recoverable from U.S. government and third
parties for environmental remediation 144.7 149.3
Deferred income taxes 137.4 136.9
Prepaid pension 145.7 127.4
Investments and other assets 307.1 301.4
Property, plant and equipment, less
accumulated depreciation 494.6 499.7
Total $1,752.8 $1,743.4
Liabilities and Shareholders' Equity
Notes payable $61.2 $14.4
Accounts payable-trade 85.5 118.7
Income taxes 47.6 34.0
Other current liabilities 262.1 263.2
Total Current Liabilities 456.4 430.3
Long-term debt 310.9 356.2
Postretirement benefits other than pensions 311.8 318.4
Environmental reserves 243.5 245.7
Other liabilities 52.2 49.3
Shareholders' equity 378.0 343.5
Total $1,752.8 $1,743.4