Kraton Corporation (NYSE:KRA)

We began tracking Kraton Polymers on May 10, 2010  @ $20.05. KRA reported 2010 second quarter results yesterday evening, crushing EPS estimates of $0.66:

2010 SECOND QUARTER HIGHLIGHTS

• Sales volume increased 21% year-on-year to 86 kilotons
• Sales revenues increased 42% year-on-year to $332 million
• Earnings per diluted share were $1.24 compared to a loss of $0.22 per diluted share in the second quarter 2009

Outlook:

"In our second full quarter as a public company, Kraton delivered strong financial and operational results. The record profitability in the quarter was primarily driven by higher sales volume, and the impact of several price increases we implemented in response to changes in raw material costs, increased demand for our products and other manufacturing considerations," said Kevin M. Fogarty, President and Chief Executive Officer.  "While our sales volume in the quarter includes the impact of a seasonal increase attributable to our global Paving and Roofing business, it also reflects improvement in demand across all of our end use markets as the worldwide economy continued to recover from 2009 lows, continuing the year-on-year growth trend we have now experienced for the past three quarters," added Fogarty.  "In addition, we are equally pleased with the continued success of our innovation-led market development activities, particularly in China, which contributed as well to the 21% growth in quarterly volume.  We therefore see the need, and have begun the review process, for additional HSBC capacity in Asia, to meet the future growth needs of our global customers."

"The rate of increase in raw material prices slowed in the second quarter and has recently started to level off.  We expect prices for our manufacturing inputs to remain relatively stable for the balance of the year," said Fogarty.  "Based upon the solid volume growth we experienced in the second quarter, we remain positive on the near-term outlook for our business.  At this time we expect third quarter sales volumes to be generally in line with the second quarter.  That said, we will continue to monitor the pace and strength of the economic recovery for any material change that could potentially impact demand in our end use markets."  

The GeoTeam^® will look to close out its August $22.50 strike call option position it initiated on May 12, 2010 @ $1.60. Today's opening price of the options will likely be around $5.00 

“The operating leverage we created in 2008 and 2009 is becoming clearly visible on our bottom line as volumes continue to recover and grow. The year-over-year volume growth in our first quarter 2010 marks the second consecutive quarter where we have perceived evidence of a recovery in economic conditions, yielding a substantial improvement in earnings compared to the first quarter 2009,” said Kevin M. Fogarty, President and Chief Executive Officer. “The increase in revenues reflects solid volume growth, with the strongest sales growth coming from our Paving and Roofing end use, which was particularly hard-hit by the general economic slowdown. The pull-through effect from increased sales volume and lower costs allowed us to expand Adjusted EBITDA margins to 16%, as compared to (5)% in the first quarter 2009, and 14% in the fourth quarter 2009. In the first quarter 2010, we also announced several rounds of price increases in response to rising raw material and energy costs, consistent with our ‘price right’ strategy.”

“Our business momentum is encouraging as we enter what has traditionally been our seasonally higher volume second and third quarters. However, we should not extrapolate our most recent quarter’s volume growth through the entire year, as the pace and strength of the economic recovery remains uncertain,” noted Fogarty. “We currently estimate that our second quarter sales volume will continue to yield growth over the prior comparable period.”

"The positive volume momentum that began in the second quarter of 2009, continued into the third quarter of 2009. Our quarterly sales volume, as compared to the previous year’s comparable quarter, improved from a 24.0% decline in the second quarter of 2009 to a 9.7% decline in the third quarter of 2009, with our September 2009 sales volume narrowing to a 2.1% decline compared to September 2008."

"We believe the positive volume momentum will continue into the fourth quarter of 2009. As a result, we currently expect that our fourth quarter 2009 sales volume should exceed our fourth quarter 2008 sales volume."

Source: SEC Filing 424B (December 16, 2009)