US A Schulman confident despite expiry of auto incentives

08 January 2010 18:11  [Source: ICIS news]

TORONTO (ICIS news)--US plastics compounds and resins firm A Schulman is confident its engineered plastics business will cope even after the expiry of auto industry incentives in the US and Europe, which may have caused a “bubble”, it said on Friday.

While the US auto incentives benefited Schulman in its fiscal 2010 first quarter ended on 30 November, it was too early to say if, or to what extent, there was a bubble effect, chief financial officer Paul DeSantis told analysts during the company’s fiscal 2010 first-quarter results conference call.

“Right now, we think it is too soon to tell if we have a bubble effect in our global engineered plastics business, or how much this could be,” DeSantis said.

Meanwhile, in Europe the “cash for clunkers” programmes may have had only a limited benefit for A Schulman, he said.

The European incentives targeted small, fuel-efficient cars, a market that was not Schulman’s “sweet spot,” and as such the majority of the company’s auto-related European engineered plastics business did not benefit, DeSantis said.

But even with the incentives now no longer available, Schulman was confident about the prospects of the plastics business as it had been reducing its dependency on automotive markets, chief executive Joseph Gingo said.

Schulman had cut exposed capacities, particularly in North America, and walked away from low-margin businesses, he said.

In the quarter ended 30 November, only 13% of Schulman’s total sales were auto related, compared with 14% in the year-earlier quarter.

At the same time, a lot of Schulman’s automotive niche businesses remained “extremely profitable,” Gingo added.

Gingo also said Schulman would, given the opportunity, make another acquisition, following its $191m (€134m) deal in December to buy Houston-based specialty resin producer ICO.

However, with the uncertain economic outlook, Schulman remained cautious and would not “make an acquisition to make an acquisition,” he said.

The company earlier this week posted fiscal 2010 first-quarter net earnings of $17.0m, up 107% from $8.2m in the year-ago quarter.

It cited cost reduction initiatives, purchasing savings and a better product mix for the improvement, as well as a bubble effect from the incentives.

($1 = €0.70)

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By: Stefan Baumgarten
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