UPDATE 3-Rockwood Holdings Q1 trumps Street; shares soar

Thu Apr 29, 2010 1:29pm EDT

* Q1 adj EPS $0.47 vs est. of $0.21

* Q1 revenue jumps 26 pct, beats estimates

* Sees strong profit margins through 2010

* Shares up as much as 18 percent (Adds comments from conference call, analyst; share movement)

By Antonita Madonna Devotta

BANGALORE, April 29 (Reuters) - Rockwood Holdings Inc (ROC.N) posted first-quarter earnings that breezed past analyst estimates on higher pricing and rigorous cost controls, and the chemicals company expects strong profit margins for the rest of the year.

Shares of Princeton, New Jersey-based Rockwood rose about $5 to $31.28, their highest in nearly two years, after paring some gains to trade at $30.59 Thursday afternoon on the New York Stock Exchange.

The company has seen the pick up in its end markets, like the automotive sector, consumer electronics and medical industry, result in higher volumes for almost all of the high value-added specialty chemicals and materials it produces.

On a conference call with analysts, Chief Executive Seifi Ghasemi said he expected second-quarter growth in lithium product volumes and surface treatment business sales at the company's largest segment -- specialty chemicals, which accounts for about 35 percent of its total revenue.

"We do have enough visibility to say that we feel pretty good about the second quarter, but want to be cautious for the summer holidays and after that see what happens to auto production in Germany...but otherwise, things are looking strong," he said.

Credit Suisse analyst John McNulty upgraded the company to "outperform" from "neutral," citing the company's strong first-quarter results and on expectations of better-than-expected earnings going forward, despite weaker lithium pricing and negative foreign exchange headwinds.

"While Rockwood's first-quarter earnings were impressive, given their cost cuts in businesses that already had sizeable normalized margins, we believe the company should be able to drive significantly more earnings and cash as volumes return," he wrote in a note to clients.

The analyst also raised his price target on the stock to $38 from $30.

In the latest quarter, the specialty chemicals company swung to a profit of $36.9 million, or 48 cents a share, from a loss of $1.5 million, or 2 cents a share, a year ago.

Excluding items, the company said it earned 47 cents a share.

Revenue for the quarter rose 26 percent to $833.9 million, on a strong rebound in volumes across almost all business units.

Analysts, on average, were looking for earnings of 21 cents a share, before items, on revenue of $775.2 million, according to Thomson Reuters I/B/E/S.

"Our adjusted earnings before interest, taxes, depreciation and amortization margins were 19.8 percent, one of the highest we have achieved since becoming a public company," Ghasemi said.

The company's primary specialty chemical segment saw sales rise about 29 percent and adjusted EBITDA surge 47 percent.

"Although we are experiencing levels of business activity which are healthier than last year, it is difficult to assess the impact that replenishment of our customer inventories is having on sales," Ghasemi said in a statement. (Reporting by Antonita Madonna Devotta in Bangalore; Editing by Maju Samuel, Aradhana Aravindan)

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