Lubrizol Announces Second Quarter 2010 Earnings of $2.88 per Share and Increases Full-Year Earnings Guidance

CLEVELAND -- The Lubrizol Corporation announced that consolidated earnings for the second quarter ended June 30, 2010, were $201.4 million, or $2.88 per diluted share, including after-tax restructuring charges of $0.3 million, or less than $.01 per diluted share, primarily related to restructuring initiatives in the Advanced Materials segment. Comparable earnings for the second quarter of 2009 were $131.9 million, or $1.92 per diluted share, which included after-tax restructuring and impairment charges of $6.5 million, or $.10 per diluted share, primarily related to a non-cash write off of preliminary process engineering design work and expenses associated with the cost reduction actions initiated in the first quarter of 2009.

Consolidated revenues for the second quarter increased 26 percent to $1.40 billion compared with $1.11 billion in the second quarter of 2009. The year-over-year increase in revenues largely was due to 19 percent higher volume and an 8 percent improvement in the combination of price and product mix that more than offset a 1 percent impact from unfavorable currency.

Excluding the special charges in both periods, adjusted earnings were $201.7 million, or $2.88 per diluted share, for the second quarter of 2010 compared with $138.4 million, or $2.02 per diluted share, for the second quarter of 2009.

Adjusted earnings per share for the second quarter of 2010 increased compared with the prior-year second quarter largely due to higher volume, improvement in the combination of price and product mix, lower selling and administrative expenses and increased other income from foreign exchange gains. These positive factors impacting earnings more than offset the effect of higher raw material costs and increased manufacturing costs attributable to higher production levels.

Commenting on the results, CEO James Hambrick stated, "I am extremely pleased by our second quarter results, which further demonstrate the success of our ongoing efforts in providing the innovative chemical and material technologies that are valued by our customers. In a continuation of first quarter trends, all product lines and geographic markets experienced strong year-over-year and sequential volume increases due to further recovery in demand, underlying market growth and favorable order patterns. Also, despite the anticipated pressure on margins from higher raw material costs, operating results in each segment benefited from the strong volume and a favorable product mix from top-performing businesses, such as driveline and industrial additives, Estane(R) engineered polymers and Noveon(R) consumer specialties. Lastly, we continue to manage near-term expenses, while maintaining a proper focus on the long-term investment necessary to build and sustain our market leadership positions."

For the first six months of 2010, consolidated revenues increased 28 percent to $2.72 billion compared with $2.12 billion for the first six months of 2009. Consolidated earnings were $363.7 million, or $5.21 per diluted share, including after-tax restructuring and impairment charges of $0.9 million, or $.01 per diluted share. Earnings for the first six months of 2009 were $196.1 million, or $2.87 per diluted share, including after-tax restructuring and impairment charges of $14.1 million, or $.21 per diluted share. Excluding the special charges from both periods, earnings of $5.22 per diluted share in the first half of 2010 compared with $3.08 per diluted share in the first half of 2009.

Cash flow from operations for the first six months of 2010 was $273 million, down from $447 million in the year-earlier period. The decrease in cash flow from operations primarily was attributable to the change in inventory balances in the two periods together with higher cost inventory in 2010 and higher receivables from increased revenues, partially offset by the improvement in earnings. Capital expenditures in the first half of 2010 were approximately $63 million, which compared with $76 million in the prior-year period. Some of this lower spending was the consequence of continued high plant utilization levels and the allocation of project management resources. The company's cash balance at June 30, 2010, was $972 million compared with a cash balance of $991 million at December 31, 2009.

As previously announced, at their June 29 meeting, the board of directors of Lubrizol authorized a 5 million share increase in the company's share repurchase program. When combined with the shares available under the existing repurchase program, this increase permits Lubrizol to repurchase approximately 7.2 million of its common shares. The total authorization represents approximately 10 percent of the company's common shares currently outstanding.

Through this program, Lubrizol expects to make purchases from time to time either in the open market or through private transactions. Although the repurchase program does not include a specific timetable or price targets and may be suspended or terminated at any time, the company expects the program will be completed within 18 to 24 months.

Year-to-date 2010, the company repurchased 1.575 million shares for $125.5 million at an average price of approximately $80 per share.

On July 19, the company revised and extended its U.S. revolving credit facility, which was set to expire in September 2011. The size of the new facility was increased to $500 million from $350 million and will expire in July 2015. In addition to this credit facility, the company has a 150 million euro credit facility that expires in July 2012. Currently, both the U.S. and the euro credit facilities are undrawn.

The company increased its earnings guidance that was issued on April 29. The company's guidance for 2010 earnings is now in the range of $9.52 to $9.92 per diluted share, including restructuring charges of $.08 per diluted share, primarily related to the closing of a Canadian additives blending facility and restructuring initiatives in the Advanced Materials segment. For 2009, the company reported earnings of $7.26 per diluted share, including restructuring and impairment charges of $.29 per share. Excluding the special charges from both years, the company projects 2010 adjusted earnings in the range of $9.60 to $10.00 per diluted share, which compares with 2009 adjusted earnings of $7.55 per diluted share.

Volume growth of approximately 12 percent for Additives and approximately 15 percent for Advanced Materials compared with 2009;
Consolidated gross margin of approximately 33 percent;
STAR expenses of approximately 12.5 percent of revenues;
An effective tax rate of 32.4 percent for the year;
The euro to average $1.25 for the remainder of the year;
A working capital use of cash of approximately $90 million;
Capital expenditures for the year of approximately $230 million;
Share repurchases of $200 million for the remainder of the year; and
Average shares outstanding of approximately 69.1 million for the year.

Regarding the earnings outlook, Hambrick added, "We project year-over-year volume growth in the second half of 2010, though with a more normal distribution of volume between the third and fourth quarter, unlike last year when we saw significant volume increases associated with inventory restocking by our Additives customers in the third quarter. The diverse nature of our product portfolio, together with the actions we have taken to improve our businesses, has us well positioned to benefit from the gradually strengthening global industrial economy and deliver our seventh consecutive year of growth in adjusted earnings.

"Earlier this year we announced a goal of $10 earnings per share by 2012. We expect to meet this goal ahead of schedule, and we will update our growth goals in the near future. We continue to perform well and our pipeline of innovative technologies is increasing. Additionally, our balance sheet is strong, and we will use it to accelerate growth. We continue our disciplined screening of value-adding acquisition opportunities, and we have more than 7 million shares remaining under our recently expanded share repurchase authorization. I like our prospects for continuing to reward shareholders with superior long-term returns."

The Lubrizol Corporation is an innovative specialty chemical company that produces and supplies technologies to customers in the global transportation, industrial and consumer markets. These technologies include lubricant additives for engine oils, other transportation-related fluids and industrial lubricants, as well as fuel additives for gasoline and diesel fuel. In addition, Lubrizol makes ingredients and additives for personal care products and pharmaceuticals; specialty materials, including plastics technology and performance coatings in the form of specialty resins and additives. Lubrizol's industry-leading technologies in additives, ingredients and compounds enhance the quality, performance and value of customers' products, while reducing their environmental impact.

With headquarters in Wickliffe, Ohio, The Lubrizol Corporation owns and operates manufacturing facilities in 17 countries, as well as sales and technical offices around the world. Founded in 1928, Lubrizol has approximately 6,750 employees worldwide. Revenues for 2009 were $4.6 billion.