Lubrizol Corp. (LZ) recently raised its full-year earnings guidance to reflect improving volume trends, ongoing margin management and cost reduction initiatives. The company expects 2009 profit in the range of $5.87 to $6.17 per share, including restructuring and impairment charges of 23 cents per share.

The specialty chemicals company had earlier projected earnings of $5.47 to $5.77 per share. Excluding charges, its new adjusted earnings per share will be between $6.10 and $6.40, up from its prior view of $5.70 to $6.00 per share. The Zacks Consensus Estimate is pegged at $5.96.

Ratings Affirmed

Recently, Fitch Ratings affirmed its BBB rating on Lubrizol, reflecting a low to moderate credit risk. The rating outlook remains Stable driven by the company’s strong position in the additives market, steady free cash flow generation, reasonable credit metrics and cumulative debt reduction since its acquisition of Noveon International in June 2004.

The company’s additives business continues to dominate its overall results. Lubrizol remains the largest single seller of lubricant additives in a market that has few other big players, which results in substantial pricing power and has translated into an ability to pass on costs to downstream customers.

Despite weak volumes, Lubrizol generated healthy operating cash flows in the second half of 2009. This was due to margin expansion, inventory reductions and other favorable working capital changes in the additives business brought about by the sharp drop in energy feedstock costs. Fitch expects Lubrizol to generate strong cash flow in 2009. With a cash balance of $860.8 million at the end of the second quarter of 2009, the company’s liquidity is also strong.

About $1.7 billion in debt is affected by this rating action. Fitch anticipates Lubrizol’s total debt to drop to around $1.5 billion after it repays the remaining 2009 notes, or even lower if it prepays some or its entire $150 million term loan. However, Fitch remains concerned about the company’s volume and margin weakness in the chemicals business. Subdued performance in the advanced materials segment that continues to pressure working capital is also a cause for unease.

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