PolyOne Reduces Earnings Outlook for Fourth-Quarter 2002
December 16, 2002
* North American demand deteriorates more rapidly than anticipated
* Company outlines steps to realign and reduce costs
* Substantial debt reduction targeted
* Conference call set for 10 a.m. December 18
CLEVELAND, Dec. 17 /PRNewswire-FirstCall/ -- PolyOne Corporation
(NYSE: POL), a leading global polymer services company, announced today that
it expects to report a net loss before special items of between $16 million
and $20 million for fourth-quarter 2002, based on October and November
financial results and the projection for December. This estimate equates to a
loss before special items of $0.17 to $0.22 per share.
For the quarter, special items are expected to include restructuring cost
from previous announcements and the recently announced sale of the So.F.teR
S.p.A. joint venture. These special items are projected to increase the net
loss by approximately $0.01 to $0.02 per share.
"We anticipated a seasonally weak fourth quarter in 2002, but the decline
in our North American sales and in U.S. industrial production overall has been
worse than expected," said Thomas A. Waltermire, PolyOne chairman and chief
executive officer. "The decline has been broad-based across our industrial
market segments. In particular, we experienced slowing from automotive and
Third-Quarter Slowdown Persists
On October 30, 2002, PolyOne stated that it expected revenues to decline
from third-quarter to fourth-quarter 2002, but less steeply than the 11
percent drop experienced in 2001. The Company also said it anticipated that
fourth-quarter 2002 revenues would increase compared with fourth-quarter 2001.
It now appears that revenues for fourth-quarter 2002 should decline
approximately 12 percent from third-quarter 2002 and should approximate
fourth-quarter 2001 revenues of $589.9 million.
Most of the anticipated shortfall is attributable to slower-than-expected
demand in PolyOne's North American Plastic Compounds and Colors (PCC) business
group. The forecast for North American PCC shows sales in fourth-quarter 2002
declining 12 to 14 percent from third-quarter 2002 levels. Customers in most
PCC markets are driving inventories lower in response to both slowing demand
and a focus on improving their year-end working capital positions.
Historically, Company sales trends have correlated closely with the U.S.
Industrial Production Index (less the high-tech component). The index started
declining in third-quarter 2002, has continued to fall in the fourth quarter
and is likely to end the year near fourth-quarter 2001 levels.
In its third-quarter outlook commentary, PolyOne stated that the Resin &
Intermediates equity contribution could decline between $9 million and
$11 million in fourth-quarter 2002 compared with third-quarter 2002. It now
appears that the reduction should be between $10 million and $13 million.
This revised outlook is due primarily to lower polyvinyl chloride (PVC) resin
shipments and market selling prices and lower-than-anticipated market price
increases for caustic soda. Average quarterly market selling prices for PVC
could decline between 2 cents and 3 cents per pound in the fourth quarter
compared with the average for the third quarter of 2002.
PolyOne has made steady progress during the fourth quarter to reach its
commercial working capital targets through inventory reduction. The Company
anticipates reducing its commercial working capital by at least $70 million by
the end of the fourth quarter compared with the end of the third quarter.
PolyOne forecasts that sales in its North American PCC unit should decline
from 4 percent to 5 percent in fourth-quarter 2002 compared with fourth-
quarter 2001. The Company further projects that PCC shipments will decline
from 1 percent to 3 percent in fourth-quarter 2002 compared with fourth-
quarter 2001. This decline will more than offset anticipated year-over-year
revenue improvements from the International and Formulators units and the
Distribution segment, although they, too, are experiencing normal seasonal
Comparing the anticipated fourth-quarter 2002 performance with third-
quarter 2002 results, lower volumes will contribute at least $30 million to
the operating income change. Additionally, unfavorable changes in high-
leverage variables will lower earnings from the Resin and Intermediates
segment by slightly less than $10 million.
Comparing the anticipated fourth-quarter 2002 performance with fourth-
quarter 2001 results, approximately $17 million of the forecasted lower
operating earnings will be due to variable margin compression as a result of
higher chlor/vinyl chain costs and slightly lower compound selling prices in
PolyOne's operating businesses.
Company Charts Actions to Return to Profitability
"Simply put, this performance cannot be allowed to continue. It calls for
immediate action," said Waltermire. "While we have made tremendous progress
in reducing costs and realigning our North American asset base, our financial
results demand both short- and long-term solutions to return us to acceptable
profit levels, improve our balance sheet and strengthen our position within
our markets. Our management team, united in this commitment with our Board of
Directors, will take the necessary actions to accomplish this task swiftly."
During third-quarter 2002, PolyOne's management team initiated a thorough
assessment of the Company's business platforms, its overall cost structure,
the effectiveness of its approach to customers and its debt level. As a
result of this work, the Company will act on a number of significant
recommendations in each of these areas:
- The Company has targeted a reduction of $200 million to $300 million in
its overall debt level. To this end, management is assessing
alternatives for non-strategic assets.
- Effective with the first quarter of 2003, PolyOne will not pay out a
dividend until its balance sheet and operating income performance
improve. In the past, PolyOne declared a $0.0625 per share
(approximately $6 million) quarterly dividend.
- The Company will limit capital spending to approximately $50 million in
2003 versus approximately $75 million in 2002.
- Management intends to reduce its selling, general and administrative
(SG&A) costs to less than 10 percent of sales. The forecast shows that
in 2002, SG&A costs will be about 12 percent of sales.
- To ensure that PolyOne's go-to-market strategy is targeting the
appropriate customer base and is cost effective, management is
reassessing its commercial organization. Already, the North American
Plastic Compounds and Colors unit has taken steps to realign into three
product-focused platforms: vinyl, engineered materials and color.
- A salary freeze for U.S. employees, started in 2002, will continue into
2003 until a clear recovery in the Company's profitability becomes
- The Company is reviewing ways to reduce the cost of various U.S.
employee benefit programs.
By the end of January 2003, PolyOne will provide additional information,
including financial details, on the anticipated impact of these actions. The
Company has adopted an aggressive schedule to implement these changes as early
as feasible in the new year.
PolyOne will host an analyst conference call at 10 a.m. Eastern time on
Wednesday, December 18, 2002. The conference call number is 888-489-0038 or
706-643-1611 (international), conference topic: PolyOne 4Q Outlook Earnings
Call. The call will be broadcast live and then via replay for two weeks on
the Company's Web site: www.polyone.com .
PolyOne Corporation, with revenues approximating $2.6 billion, is an
international polymer services company with operations in thermoplastic
compounds, specialty resins, specialty polymer formulations, engineered films,
color and additive systems, elastomer compounding and thermoplastic resin
distribution. Headquartered in Cleveland, Ohio, PolyOne has employees at
manufacturing sites in North America, Europe, Asia and Australia, and joint
ventures in North America, South America, Europe, Asia and Australia.
Information on the Company's products and services can be found
at www.polyone.com .
PolyOne Media & Investor Contact: Dennis Cocco Chief Investor & Communications Officer 216.589.4018
In this release, statements that are not reported financial results or
other historical information are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Forward-
looking statements give current expectations or forecasts of future events and
are not guarantees of future performance. They are based on management's
expectations that involve a number of business risks and uncertainties, any of
which could cause actual results to differ materially from those expressed in
or implied by the forward-looking statements. You can identify these
statements by the fact that they do not relate strictly to historic or current
facts. They use words such as "anticipate," "estimate," "expect," "project,"
"intend," "plan," "believe" and other words and terms of similar meaning in
connection with any discussion of future operating or financial performance.
In particular, these include statements relating to future actions,
prospective changes in raw material costs or product pricing or product
demand, future performance or results of current and anticipated market
conditions and market strategies, sales efforts, expenses, the outcome of
contingencies, such as legal proceedings, and financial results. Factors that
could cause actual results to differ materially include, but are not limited
to: (1) an inability to achieve or delays in achieving savings related to
restructuring programs; (2) delays in achieving or inability to achieve the
Company's strategic value capture initiatives, including cost reduction and
employee productivity goals, or achievement of less than the anticipated
financial benefit from the initiatives; (3) the effect on foreign operations
of currency fluctuations, tariffs, nationalization, exchange controls,
limitations on foreign investment in local businesses and other political,
economic and regulatory risks; (4) changes in U.S., regional or world polymer
and/or rubber consumption growth rates affecting the Company's markets; (5)
changes in global industry capacity or in the rate at which anticipated
changes in industry capacity come online in the polyvinyl chloride (PVC),
chlor-alkali, vinyl chloride monomer (VCM) or other industries in which the
Company participates; (6) fluctuations in raw material prices, quality and
supply and in energy prices and supply, in particular fluctuations outside the
normal range of industry cycles; (7) production outages or material costs
associated with scheduled or unscheduled maintenance programs; (8) costs or
difficulties and delays related to the operation of joint venture entities;
(9) lack of day-to-day operating control, including procurement of raw
materials, of equity or joint venture affiliates; (10) partial control over
investment decisions and dividend distribution policy of the OxyVinyls
partnership and other minority equity holdings of the Company; (11) an
inability to launch new products and/or services that strategically fit the
Company's businesses; (12) the possibility of goodwill impairment; (13) an
inability to maintain any required licenses or permits; and (14) an inability
to comply with any environmental laws and regulations; (15) a delay or
inability to achieve divestitures necessary to achieve targeted debt levels .
We cannot guarantee that any forward-looking statement will be realized,
although we believe we have been prudent in our plans and assumptions.
Achievement of future results is subject to risks, uncertainties and
inaccurate assumptions. Should known or unknown risks or uncertainties
materialize, or should underlying assumptions prove inaccurate, actual results
could vary materially from those anticipated, estimated or projected.
Investors should bear this in mind as they consider forward-looking
We undertake no obligation to publicly update forward-looking statements,
whether as a result of new information, future events or otherwise. You are
advised, however, to consult any further disclosures we make on related
subjects in our Forms 10-Q, 8-K and 10-K reports to the Securities and
Exchange Commission. You should understand that it is not possible to predict
or identify all such factors. Consequently, you should not consider any such
list to be a complete set of all potential risks or uncertainties. (Ref.