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Solutia: third-quarter results suffer from slowing auto and air industries

Solutia Inc.“s third-quarter results are expected to be hurt by a decline in auto production and air travel, and its fourth-quarter results will likely be down from the third quarter, the chemical co…

Solutia Inc.“s third-quarter results are expected to be hurt by a decline in auto production and air travel, and its fourth-quarter results will likely be down from the third quarter, the chemical company“s executives said during a recent press statement. Solutia announced that it expects its third-quarter earnings to be 6 cents to 9 cents a share. Previously, Solutia said it expected to earn “modestly” less than the 12 cents a share it earned in the second quarter. Analysts polled by Thomson Financial/First Call had a third-quarter consensus estimate of 10 cents a share prior to Solutia“s announcement. That consensus has not changed since the announcement. Solutia“s third-quarter earnings will be affected by a decline in auto production, slowing demand for air transportation and sluggish consumer confidence, the company said in a slide presentation at a chemical conference in New York. Solutia said its September business was affected by the attacks in New York and Washington. In addition, there was a downturn in demand from Europe and Asia starting at the end of June. Solutia saw a change in shipment patterns after 11 September, said Liesl Livingston, director of investor relations. Some orders were cancelled or dislocated because ports were closed, she added. Aside from that, Solutia has not seen changes in order patterns, said Livingston, though she added that could change in the fourth quarter. Solutia also said it sees a “strong possibility” for a modest loss from operations during the fourth quarter, and that fourth-quarter earnings likely will be down from the third quarter. A continued slowdown in Europe, weakness in North American demand and uncertainty about raw material and energy costs will affect fourth-quarter results, Solutia said. Prior to Solutia“s announcement, analysts forecast earnings of 13 cents a share for the fourth quarter. That consensus hasn“t changed since the announcement. Solutia has made US$ 50 million in cost reductions this year to help offset slowing demand, the company said. Solutia expects another US$ 50 million in cost reductions next year, it said in its slide presentation. The company said its capital spending this year will be less than US$ 100 million as capacity expansion is put on hold. Capital spending in 2002 will depend on how the economy is doing, Livingston added. The exception to Solutia“s pullback on spending is its pharmaceutical services business, which continues to grow in line with expectations. Solutia recently signed a five-year, US$ 50 million contract with a leading pharmaceutical company that is already a Solutia customer, said Livingston, who did not name the company. The contract means Solutia will have seven projects with the company, up from the four it currently has, she said.

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