LSB Industries Inc. reported that operating income from its Chemical business was off 70 percent, to $6.2 million on sales of $69.9 million for the second quarter ending June 30, compared to the year-ago $20.5 million and $113.4 million, respectively.
LSB pointed out several factors impacting the results. Second-quarter 2008 included a one-time $7.6 million gain from litigation. The current quarter included $3.2 million in start-up costs for the Pryor, Okla., nitrogen plant; $3.1 million in lower profit margins on UAN as a result of lower tons sold and lower margins, offset by $1.1 million of gross profit margins in excess of current market prices due to firm sales commitments made in 2008; and $300,000 on natural gas hedging contracts, compared to gains of $1.2 million in the 2008 quarter.
LSB said the decrease in sales was primarily attributable to declines in selling prices resulting from steep declines in raw material feedstock, and fewer tons of products sold into the industrial and mining markets due to the economic downturn.
LSB Chairman and CEO Jack Golsen said that while both company businesses, Chemical and Climate Control, had respectable numbers in the first half, he did not believe the results were sustainable in the second half due to the current business slowdown. “With respect of our Chemical business, we believe sales and margins in all three of its primary markets will be down due to the decline in business activity in these markets,” said Golsen. “However, it does appear from published reports that nitrogen fertilizer prices and demand are beginning to firm up. Koch Nitrogen Co. has started to pre-sell the UAN production at our Pryor, Okla., plant, and production at that facility is expected to start later in the third quarter, barring delays.”
Six-month Chemical income was $18.8 million on sales of $144.4 million, down from the year-ago $32.6 million and $204.8 million, respectively.
Company-wide, LSB reported second-quarter net income of $8.7 million ($.38 per diluted share) on sales of $138.6 million, versus the year-ago $17.9 million ($.75 per share) and $198 million. Six-month net income was $20.5 million ($.89 per share) on sales of $288.8 million, compared to the year-ago $28.8 million ($1.21 per share) and $358.5 million.