Q1 2021 Minerals Technologies Inc Earnings Call
And then turn it over to Matt to review, our financial results in more detail.
And discuss our expectations for the second quarter.
I'll finish up the call today by outlining the progress, we're making with a broad range of growth initiatives.
Last year, our teams throughout the world.
It's hard to efficiently operate our facilities.
Checked our employees.
Serve our customers and simultaneously position us to capitalize on the recovery.
As a result of these actions and our continued focus on responding to this dynamic environment.
And we're well positioned to leverage the momentum from the end of the year to deliver a strong first quarter.
Before going through the quarter highlights I wanted to share that we will be discussing our business results today and three operating segments rather than four.
As detailed in our earnings release last night, we have realigned our energy services segment and combined it with the environmental products product line and performance materials.
And I'll take you through this further when I speak about our growth highlights.
Our first quarter performance was highlighted by sales and operating growth in every segment.
Specifically, we drove solid geographic growth and our core product lines.
Increased volume through capacity expansions and new PCC satellites startups.
And improved sales from recently commercialized and value added products.
In addition, we continued with our proactive operational measures, including pricing and productivity improvements and overhead cost control all of which drove income and cash flow higher compared to last year.
Okay.
Demand and many of our major end markets continued to trend upward.
All of our markets recovered to pre COVID-19 levels.
These dynamics helped drive sales of $453 million and increase of 5% sequentially and up 8% compared to last year.
Generated $59 million of operating income and earnings per share of $1 17.
Up 4% and a record first quarter EPS for our company.
In addition, cash from operations and free cash flow were up 68% and 142% respectively over last year.
As we discussed on our earnings call in February we expected that demand conditions and our end markets would continue to strengthen through.
And through the first quarter and Thats, how conditions play out.
And our consumer oriented markets, such as pet care fabric care and food and pharmaceutical.
It remained robust through the first quarter, continuing our growth trajectory.
Automotive and residential construction markets remains strong.
Markets further improved from the fourth quarter with utilization rates, reaching close to 80% and the U S.
And our paper and markets continued to rebound from a slow 2020.
Our project oriented businesses, including environmental products and building materials are recovering and indications point to continued improvement through the second quarter.
These mostly favorable and market conditions drove sales growth across the majority of our product lines.
Performance materials sales and our household personal care and specialty business increased 14% driven.
Driven by our global Pet care platform, but also double digit increases and other specialty applications that we've been investing and to enhance our technology and manufacturing capabilities, including fabric care personal care and edible oil purification.
Metal casting business performed well.
Net sales grew 32% driven by strong demand and both North America, and Asia from foundries, serving automotive heavy truck and agriculture markets.
And both regions improved foundry conditions that we saw on the fourth quarter maintained that trajectory through the first.
Specifically metals.
Metal casting sales in Asia were up 52% over 2020 with much of this growth coming from in China.
And attrition of our blended products has also accelerated and China.
And sales increased 62% compared to last year.
In addition, we continue to extend our value proposition with customers beyond China.
Last quarter and India.
Which is the second largest casting market globally.
Sales of our blended products were up 21% over 2020.
Within our specialty minerals segment, our specialty PCC business had another strong quarter with sales up 17% over last year.
And our new capacity expansions are supporting increased customer demand for our food and pharmaceutical and high performance sealant products.
In addition, we benefited from exceptionally strong demand higher than usual and a first quarter from our ground calcium carbonate and talc products that serve the automotive and residential construction markets.
Paper, PCC sales increased 5% driven by improving and market conditions and the ramp up of new satellites.
In fact, the net of the mill closures over the past year.
And the new capacity additions that occurred in 2020.
Paper PCC volumes this quarter were slightly above the first quarter of 2019.
Finishing up our sales highlights our refractories segment had a great quarter with sales, increasing 7% over 2020.
And margins remaining at 16, 2%.
This was achieved despite lower laser equipment sales and commissioning.
Commissioning of new orders continues to be difficult due to COVID-19 travel restrictions.
We also had a solid operating quarter.
And our performance reflects our team's disciplined execution with managing costs implementing pricing measures and driving productivity improvements.
As a result margin has expanded across the majority of our businesses.
Strategically implemented price increases across our portfolio.
These increases have fully offset the higher raw material energy and logistics costs, we are beginning to see.
While margins dipped slightly from the company as a whole this quarter.
This was primarily due to higher corporate expenses.
We see margin above 14% and the second quarter.
And has the potential to move higher towards the second half of the year with continued improvement across our businesses.
Now, let me turn it over to Matt to review this and take you through the financial results in more detail Matt.
Thanks, Doug.
I will review, our first quarter results and performance of our segments as well as our outlook for the second quarter and.
Now lets begin by reviewing the first quarter results.
Overall sales on the first quarter were 5% higher sequentially and 8% higher than the prior year as the majority of our end markets remains strong and each of our segments grew sales versus the prior year.
And that we combine the energy services segment and to environmental products within the performance materials segment this quarter.
Operating income was $58 $8 million or 1% higher than the prior year.
As Doug mentioned.
Operating margins improved across the majority of our businesses as shown on the margin bridge on the bottom right of this page.
However.
A few discrete items impacted our overall margin and the quarter.
First our environmental products and building materials businesses have yet to experience and meaningful recovery due to ongoing project delays and COVID-19 related restrictions.
Lower contribution from these businesses had an unfavorable impact on our margin of approximately 80 basis points and the quarter.
Second.
And while our underlying corporate expenses were stable, we experienced higher than usual mark to market adjustments related to the change and stock price during the quarter.
This is a normal adjustment we make every quarter.
And we are calling it out today because of the size of the variance, which was approximately $3 $5 million year over year.
Adjusting for these impacts.
The rest of MTI grew operating margin by 60 basis points over the prior year.
Continued pricing actions more than offset inflationary cost pressures on raw materials energy and logistics.
In addition, we continue to drive productivity with a 6% year over year improvement and the number of hours worked per ton.
Going forward, we expect operating margin to expand as our project oriented businesses recover and corporate expenses returned to a more normal level.
Earnings per share of $1 17.
Was a record for a first quarter and was 4% above prior year and 8% above the fourth quarter, excluding special items.
Our effective tax rate for the quarter was 18% and.
And we expect our full year effective tax rate to be approximately 20%.
Now, let's review the segments and more detail starting with performance materials.
First quarter sales for performance materials were $230 9 million, 5% higher sequentially and 9% higher than the prior year.
Metal casting sales increased 6% sequentially and 32% versus the prior year as foundry demand remains strong and both North America and China.
Household personal care and specialty product sales increased 7% sequentially and 14% versus the prior year on double digit growth across several consumer oriented product lines.
Building materials sales grew 11% sequentially and.
And were 18% lower than the prior year as project activity started to increase late and the first quarter.
Meanwhile.
Environmental products move through a challenging quarter with sales down 4% sequentially and 29% versus the prior year.
Operating income for the segment was $29 8 million, 9% higher than the prior year.
Operating margin was 12, 9% of sales and <unk>.
Same level as the prior year.
Just as a note. These results include the consolidation of energy services into the segment.
Operating margin was impacted sequentially by seasonally higher energy and mining costs.
I'd like to take a moment to provide some insight on the strength of the margins and this business.
Excluding environmental products and building materials, which had a weaker quarter than last year.
Operating margins for the rest of this segment were above 15% and the quarter.
As our project oriented businesses recover we expect overall segment margins to improve improve accordingly.
And looking to the second quarter, we expect continued strength and household and personal care with some leveling off from a strong start to the year.
Meanwhile, the environmental products and building materials product lines are seeing signs of recovery as more of the types of projects that we serve are getting underway.
And overall for the segment, we expect this strong second quarter with sales at similar levels to the first quarter.
We also expect operating margin to improve on a sequential basis, primarily due to incremental contribution from our project oriented businesses continued pricing actions and continued productivity.
Now, let's move to specialty minerals.
Specialty minerals sales were $147 8 million and the first quarter, 6% higher sequentially and 8% higher than the prior year.
Paper PCC sales were 8% higher sequentially and 5% higher than the prior year as paper mill operating rates continued to improve and all regions grew sales sequentially.
In addition.
Ramp ups continued for our three new paper PCC satellite plants in China, India, and the United States.
Specialty PCC sales increased 4% sequentially and 17% versus the prior year as automotive construction and consumer demand remained strong.
Processed minerals sales increased 5% sequentially and 10% versus the prior year on strength and residential construction and automotive markets.
Okay.
Segment operating income was $21 1 million, 4% higher than the prior year.
Operating margin was 14, 3% of sales.
And was temporarily impacted by seasonally higher energy costs.
Looking ahead to the second quarter.
We expect continued strength and specialty PCC and processed minerals.
Second quarter is typically a seasonally stronger quarter for these product lines as construction activity ramps up.
However, the seasonal dynamics may play out differently. This year given the strong start we saw and the first quarter.
We expect paper PCC demand remained steady and our new satellites will continue to ramp up.
We expect a temporary impact on volumes as North American paper makers take their typically scheduled maintenance outages and the second quarter.
And overall for the segment, we expect second quarter sales to be similar sequentially and.
And we expect higher margin on more favorable operating conditions and continued pricing actions.
Now, let's turn to the refractory segment.
Refractory segment sales were $73 9 million and the first quarter.
At the same level as the fourth quarter and 7% higher than the prior year as continued improvement and steel mill utilization rates was offset by fewer laser measurement equipment sales compared to the fourth quarter.
Segment operating income was $12 million and represented 16, 2% of sales compared to 15% and the fourth quarter and 16, 2% and the prior year.
Steel utilization rates improved to 78% and North America, and 72% and Europe in the first quarter.
Up from 75% and 70%, respectively, and the fourth quarter.
And looking ahead.
We expect the second quarter to be similar from a market perspective.
Note that there are several customer furnace rely on scheduled for the second quarter.
And these <unk> lines result, and temporarily lower demand for refractory products and addition.
While our laser equipment sales are typically weighted to the second half of the year. We are also facing delays on laser equipment installations and servicing during the ongoing COVID-19 restrictions.
And overall for the segment.
We expect sales to be relatively flat on a sequential basis and operating margins to remain strong.
Now, let's take a look at our cash flow and liquidity highlights.
First quarter cash from operations was $51 million versus $30 million and the prior year.
And free cash flow was $33 million versus $14 million and the prior year.
We deployed $18 million of capital during the quarter to grow the business develop our minds and improve our operations.
We used a portion of free cash flow to repurchase $20 million of shares and the first quarter.
And we have repurchased $37 million, so far under our current $75 million program.
The company has and our solid financial position.
With over $650 million of liquidity and a net leverage ratio of one eight times EBITDA.
Our balance sheet strength provides us with significant flexibility for how we deploy capital to the most attractive opportunities.
Now, let me summarize our outlook for the second quarter.
And performance materials, we expect continued strength across the segment with the recovery of our project oriented businesses, which will improve segment margins.
Specialty minerals, we expect similar market conditions, and typical north American paper mill maintenance outages.
And our new PCC satellites will continue to ramp up income.
And our new packaging satellite and Europe, starting at the end of the first quarter second quarter.
And our margin should also benefit from improved operating conditions and pricing.
And refractories, we expect market conditions to remain strong with temporarily lower refractory products volume due to the timing of scheduled customer furnished revives.
And overall for the company.
We expect second quarter sales to be similar to the first quarter.
We see continued strength and recovery across our end markets and in particular, our project oriented businesses should start to see meaningful increases in activity.
The only area of uncertainty is the potential impact of semiconductor shortages that may temporarily impact automotive and steel market and demand.
And from an operating margin perspective, we expect to return to above 14% of sales as we continued to implement pricing actions.
Actively manage inflationary cost increases and drive productivity improvements.
We also expect another quarter of strong free cash flow.
In summary, we.
We have the elements in place to deliver another strong performance and the second quarter.
With that I'll pass it back over to Doug to discuss the progress on our growth strategy, Doug Thanks, Matt before opening the call to Q&A, let's.
Let's take a few minutes to highlight the progress we continue to make with our strategic growth initiatives.
As I touched on earlier.
Our portfolio of consumer products, which represents approximately 25% of our total sales.
It remains a key part of our growth strategy and we delivered double digit sales increases and these core businesses.
We continue to see opportunities to organically grow them.
Geographic expansion of our core product lines as one of our growth strategies and Asia is a key region for that growth.
And first quarter sales and Asia increased 33% with all of our major countries contributing.
This was driven by broad base of businesses.
<unk> capacity coming online and our sites in China, and India and.
<unk> penetration of our Greensand bond products.
And and expanding customer base and fabric care pet care and edible oil purification.
Specific highlights in the quarter as our PCC growth, where we signed a contract with volume paper for a 50000 ton satellite in China.
Which should be operational and the second quarter of 2022.
200000 tons of new production capacity that came online at the end of last year, and China, and India will further contribute to volume growth this year as they fully ramp up.
We're also on track to commission two additional satellites this year totaling over 70000 tonnes.
And for our packaging application in Europe, and another for a standard PCC plant and India.
For the past several years, we've invested in developing new technologies for treating industrial wastewater and other environmental water challenges.
Our fluoro sorb product that addresses <unk> contamination is one example of these newer technologies.
As I mentioned earlier, we realigned energy services into environmental products.
With this combination we will accelerate the deployment of these technologies as we bring together the technical knowledge and capabilities and our current environmental products business with the high flow rate processing expertise that we've built and energy services.
This new structure will improve collaboration and better align complementary technologies and capabilities to further drive growth.
New product development is an integral part of our growth strategy and we've taken significant steps to improve the speed of execution.
We increased the number of products commercialized and enhance the impact of our latest solutions.
And as I mentioned, our new product pipeline. Our total portfolio comprises over 300 products from early stage development to commercialization.
Representing around $800 million of revenue at full potential.
This is an increase of about 30% compared to where we were two years ago.
We continue to expand sales of our latest specialty PCC products, which are supported by our capacity expansions.
<unk> to the first quarter, we launched several new bentonite based formulations for construction drilling applications.
Acquisitions are also an important part of how we intend to grow and move MTI to a higher return more balanced portfolio.
Continue to see a strong pipeline of minerals based opportunities that align with our strategic initiatives and we.
We have the balance sheet strength and flexibility to pursue them.
As always we will maintain our disciplined approach to M&A.
To summarize our call today.
The COVID-19 pandemic has challenged our normal ways of working and higher virus rates continued to affect several of our regions.
Our culture of connectivity and collaboration has enabled us to differentiate MTI with our customers.
Maintain our strong safety and operating culture.
We'll continue to build on these strengths during 2021.
Even though a few of our end markets are only now beginning to improve we had a solid first quarter with strong momentum across the majority of our businesses.
The favorable demand trends and our markets are.
Our new technology launches.
Passive additions and continued strong operating performance we have the elements in place to go from one of our most challenging years to one of our strongest.
With that let's open up the call to questions.
Thank you I would like to ask a question on the phone lines today, you from press Star one on your telephone keypad and you are on a speaker phone. Please make sure you're on mute option is turned off to allow your signal to reach our equipment.
Once again, everyone that is star one.
And we'll take our first question from Mike Harrison with Seaport Global Securities.
Hi, good morning, Congrats on the nice start to the year.
Hi, Mike.
On the household household and personal care business.
<unk>.
I think most people associate the pet care business, there as being the biggest piece and maybe you can talk about.
And the strength and opportunities you're seeing there, but it sounded like youre seeing growth in other areas, you mentioned fabric care and health and beauty, maybe some of the edible oils or other food and beverage applications.
Maybe talk a little bit more broadly about what's driving the strength and HTC.
Sure. Thanks, Mike.
And so let me start off and then.
Pass it off to Jon Hastings to give you a little bit more color there.
Yes, the household and personal care business.
The largest portion of that business is petcare.
And as you know we've been investing in.
<unk> organically and Inorganically growing that portion of that segment and that business.
And we see a lot of opportunities to continue to invest organically specifically there.
But we've also invested a lot in non.
On a lot, but we've invested in.
Our other product lines, there, which as you mentioned edible oil purification and in fabric care and those are starting to expand not only from our traditional geographies, but also into Asia is a big area for them and.
And beyond that and so yes, we are investing and those we see a lot of opportunities to grow them organically and <unk>.
John you want to give is there anything you can give more color on some of those product lines and how we're seeing that traction going forward.
Sure happy to Doug and Hi, Mike.
A couple a couple of things start with edible oil purification.
One of the reasons and we're able to grow as we have a very unique.
Positive mineral deposits in Turkey, and that we've been able to.
On mine.
And <unk>.
And we built the plant.
And we run and all sorts of trials with customers and over the course of the past couple of years, we've continued to expand their business as they see the value and that unique mineral deposits.
And that business continues to grow from.
Year on year first quarter.
We doubled the size of the business through prior year and and that was even up from the prior year before that so customers are recognizing the value and they continue to see excellent.
Application on the mineral and and we continue to grow.
And in addition, if you look at our personal care business, we continue to invest and.
And and expand our capability.
Supplying personal care products around the world, but predominantly here in the United States.
Those and again, our unique technologies with new customers.
Really enjoy and apply it to their specific uses and.
And we continued to grow that business had carrier you know pretty well.
And we're expanding and different geographies, so new markets, we continue to expand with.
New channels, including E Commerce.
We introduced new Skus and new innovation.
Products, all the time and we continue to grow more than twice the market growth.
All sorts of different opportunities fabric.
Wrap up with fabric.
We have the business its mainly goes into dry laundry detergents and as those markets continue.
To grow and different areas of the world we supply the products.
Out of several different plant sites.
And again, we continue to experience that.
Benefits and the technologies and linking up with some of the key producers of the on the.
And on the laundry detergents.
So and again a variety of different reasons for growth with the hope that provides a good clarity.
Mike I'm, just kind of another one on it.
One last thought there and that is.
When we talk about personal care everything that John just mentioned is we have a fundamental capability and the company. Many of these are bentonite based products and technologies that around the adaptation of that mineral or a tangential technology. That's come from that adaptation of that mineral to personal care to edible oil purification.
<unk> pet care fabric care, so a stemmed from a really deep foundation and the company to be able to supply these products and this kind of market and Thats why we feel.
Investing in it organically and Inorganically as something that really fits well with the company.
Alright, and then over on the metal casting side I think you mentioned that the semiconductor shortage and and maybe other supply chain issues.
Is something that is an area of caution on the outlook there maybe talk a little bit more detail, if you've seen a meaningful reduction and in foundry demand at this point or kind of how they're how they're running and approaching the auto business.
Yes, we supply the automotive industry through a variety of products both in our minerals.
Specialty PCC through automotive rheology modification for sealants.
Through our foundry products.
And in and around the world.
Right now we haven't.
And we're keeping our eye on it we've seen some impact I think from right now a lot of the supply chain is a very thin a downstream.
We know the automotive makers are continuing to build and inventories of those and we're seeing that continued pull through and our foundries and through our minerals based businesses that said, we're also aware of some of the commentary and we've seen a couple of shifts a couple of days taking out what we do see and what we do know right now is that.
If this becomes a little bit more.
On the challenge here and the second quarter, we think that it will be short lived and that will be made up through the third or the back half of the year. So little hard to predict the best acknowledged and we have right now is what we've given you and our current forecast.
But.
We're keeping our eye on it but we think if anything that comes through the second we'll just be made up and the back half of the year.
Alright, and then maybe one for Matt.
On the free cash flow was obviously very nice and <unk>.
First quarter here, maybe some thoughts on the cash flow free cash flow outlook for this year compared to the $175 million you did last year.
Yes, I mean, Mike and good to talk to you and typically when we come into a year. We would tell you we were targeting about $150 million of free cash flow.
Obviously, a very strong start to hear.
Here in 2021, but as we look through the rest of the year. We continue to think that the $150 million is a good target embedded and that would be around $80 million to $85 million of Capex, that's about $20 million higher than what we did last year.
And really that that Capex is being directed towards the very strong growth opportunities we have across the businesses.
As we've talked about and our performance review here today, a lot of our product lines are and are either sold out nature or a very strong demand nature, and so being able to make investments that are paying off quickly and our high return and ourselves.
Really what the priority of that cash flow is and how we're deploying it and thus the increase in Capex here this year.
Alright, it sounds good thanks very much.
Thanks, Mike.
Our next question comes from Rosemary Marbella with Gabelli Research. Please go ahead.
Thank you and good morning, everyone.
Hi, Ross.
Looking assume looking at.
Consumer oriented product lines.
That is the largest business that you all of you sneak growing the other categories.
On the is it margin give win.
Substantial between third and for example, edible oil my best guess is that that would be the lower margin.
Well without getting specifically into the margins.
And there are all.
Strong margins.
Yes, there are some differences, but theres also and there is some differences by product category by region.
Our positions are different whether you're talking about some bulk products versus some very high specialty products and Europe I would say our edible oil purification is a very specialized product at the very high value product of leave it at that and and.
And so I would say, that's probably low on the higher end of the spectrum and that segment.
But theres a range of them and I will tell you that they are improving.
<unk> made.
Significant progress with with all of them in terms of our investments of productivity our investments and.
Efficiencies around the production, but also and driving what we feel is the value added pricing of each of them.
And so we're continuing to move those margins north and we still think that.
And through additional scale and those investments that we intend to make we can drive that even further.
Thanks.
Still staying with the Cherokee and the bentonite.
Nine.
With a higher quality than Tonight, and what you had somewhere else and high purity and lightness and so on.
Good day, when you acquired it did they have anything other than the pet care.
Applications.
Have you been developing the other applications from scratch from that particular resource.
Well, let me talk about we have a very high quality bentonite around the world.
And so.
But I think youre, referring to as our <unk> pet care of ACA.
Acquisition.
And that yes that did come with those mines and Turkey. It is a very.
From a color standpoint, very white and and that leads to what we've done in terms of.
And bringing that is a premium product into the pet care market and so we've actually developed that very premium.
And white market in Europe, and so yes, the bleaching Earth products that is a mine that MTI has had and we've developed this bleaching earth product around the uniqueness of that mineral, but we also have mines elsewhere and the world that can support similar applications. So.
It just happens that where we're basing it on those mines.
Now and that's helped us grow not only throughout Europe, but also and that edible oil through.
<unk> broader markets that I mentioned through southeast Asia and into Asia, So it's well positioned.
And to help us continue to expand that customer base like we did and the first quarter.
Okay, and still staying on the bentonite.
You mentioned.
We're developing quite.
Quite a few new projects Bentonite base can you give escalate and more details on what those new projects might be on.
And and market applications.
Yes, sure, we again, where with our bentonite and reserves around the world and obviously the technologies and the capability of the company to adapt it to different.
And users.
And I just wanted to highlight.
This quarter, we've launched a couple of new I know, it's different we haven't talked about it but some drilling products and why that's important is because we've seen it.
And some really strong customer feedback from our latest products and the drilling and <unk>.
Area and when I talk about drilling I'm talking about large tunneling.
Infrastructure drilling, but also horizontal directional drilling.
And we've <unk>.
And some feedback from customers there are challenges out there around the world and we've adapted some new products to them and recently launched them and the feedback has been very positive. So we think that highlighting not only the capabilities around pet care and around foundry wanted to bring a little bit more to some other areas of the company that we focus on that we can adapt our bentonite based.
Products to deliver to deliver more value and that was one example, other.
Other examples I mentioned today and water treatment.
And we talk a lot about our floors arb product for wastewater treatment.
Or that particular piece.
Wastewater issue.
We've got other technologies behind similar to that type of default, but other contaminant issue.
<unk> that we've been developing and they are all.
And you're surrounded with the technologies that we.
And the company and so we've got a nice portfolio I mentioned 300 different products.
<unk> 800 million potential and value, but there are around a broad range of things continuing to improve our core products, but developing new ones and infrastructure drilling.
Around our wastewater treatment, which we think is a big area that we can grow into as a company and that's also behind.
Combining the technologies of not only the minerals technologies, but the processing technology that we have and energy services that we think the two of those together are really going to bring a nice portfolio of opportunity too.
Thank you and this was very helpful.
Our next question comes from Dan Moore with CJS Securities.
Good morning, and this is Brendan on for Dan.
Just wanted to ask about the <unk>.
Monthly cadence.
And if your revenue and demand recovery this quarter and and anything you could.
You can speak to that.
April as well.
And as we came into the year I think I mentioned that the first quarter.
Typically we have some seasonality, we actually didn't experience that seasonality.
And here in the first quarter those businesses that are impacted year after year from that seasonality or your performance minerals business. Your performance materials business, where you get some slowdowns and customer demand as well as some changes and the mining a picture that we have and those businesses demand remained strong throughout the quarter.
Coming in from January had a very good rate from the fourth quarter I think if you recall, what we said in the fourth quarter.
About the first quarter is that we had very strong momentum that did continue at a nice ratable rate across January and February and March.
And what you are starting to see and I think Doug talked about it a bit you are seeing some some of the movement in the demand for metal casting just based on 102 days from some of our customer.
And most of that did continue through.
And our forecast that we're giving you. So you have that there but for the rest of the portfolio you see a very strong.
Look here in April that momentum is continuing at the same time like I said you saw in the project oriented businesses, a pickup coming in March and that is going to be what we're going to see happening in.
The April May June timeframe to help offset some of the things we talked about that are going to take place and the refractories segment, where youre going to have some re lines with some customer revenue is going to come out. The same thing temporarily same thing is going to happen and your paper PCC businesses when the paper mills take outages. So.
And as those revenues are ramping up and our project oriented businesses. The rest of the portfolio remains very strong outside of those couple of temporary items and.
And that are going to keep sales and a similar basis to where we are and the first quarter.
Sounds good then and then.
Could you speak more on on any any signs that you are seeing a recovery and demand and the two that you called out that environmental services and building materials.
Yeah, I mean, I think and in March we told you sorry, I just told you a year and this presentation.
Youre starting to see some of those projects that we have.
Our products on starting to pick up decisions being made to begin that commercial construction activity.
There, we participate would be and that.
Underground water proofing through the envelope, so youre starting to see those projects begin to be led and that is helping some of the COVID-19 related delays that we have seen are now releasing so people are getting back on to the project site.
And that is helping to drive those those volumes and those businesses.
And Brennan and I'm going to just add a couple of things one is.
I think our kind of as you termed it the cadence of our sales this year.
Is quite a bit different than normal right and.
You are probably seeing that across.
From any other companies.
We had expected a bit of a slowdown seasonally with whether that happens and construction residential construction, but I'll tell you with supply chain, where they were with the automotive.
Our demand through the first quarter has been was very strong and we see that continuing through the second.
There is some typical things, we'll see with some shutdowns of paper mills from maintenance items those are going to be typical this year, but as we go back what we see going on now is even through today with the strong demand we're seeing across our businesses, we still haven't seen that.
Net rebound in several of our product lines and we call them are project oriented product lines, but we see them building through the second quarter, and actually see that strength and even stronger and the back half of the year and and a lot of our offshore on environmental products a lot of our offshore oil drilling we see a much stronger back half of the year.
Offshore usually.
Comes back later than onshore and we see that actually rebounding through the second and even more strongly in the back half of the same thing with our building on waterproofing and those environmental projects. So.
A little bit different usually that's a very strong second and third and actually we think thats all kind of shifting out and the seasonality is kind of a blend and through this year, but we think that momentum is gaining through the second and we actually see that thats going to continue through potentially continue through the back half of the year.
And a little different this year.
Yeah, Okay. Thank you very much.
Our next question comes from David Silver with CL King.
Please go ahead.
Yes, hi, good morning.
So I was hoping to maybe start with a couple of.
Questions on your PCC business.
And in particular, I was hoping the DJ or Doug might be able to do.
And provide kind of a snapshot of.
Your new project pipeline or your new project pharma on I forget how would you characterize it but.
With the global economy reopening and.
A lot more activity and a number of industries I mean is this the.
Is this the type of environment, where we might see.
Quicker pace of project decisions.
Just maybe if you could highlight whats in the project funnel and base.
Based on your experience and other cycles is this the type of environment, where.
Maybe.
The cadence at which.
Customers.
Complete their due diligence and decisions get made.
And maybe a little bit quicker pace. Thank you.
Okay. Thanks, David Yeah, Let me pass on to DJ monarch lighting and give you some insight on kind of current paper market conditions and our pipeline of opportunities.
Thanks for the question David So.
And in General I'd say that just to give you a kind of the backdrop, we're seeing demand.
Increase we're seeing extremely strong operating rates and the U S.
That is helpful.
And and a lot of pull especially from Asia for interest and our products.
So as I as I translate that that strong demand what balance is that demand is is when you shift to us. There is there is some risk of change.
But so the value is there the risk of change is still there.
But we are seeing increased low.
If I were to give you some further dimension behind that what we're seeing in particular.
Things like the Bayou and paper project, where our Chinese paper make our approach us and we were able to convert that into a.
Signed agreement and a relatively short time, we've got a couple of more.
And conversations that we're having with folks.
And that same sort of light, who offering that same sort of economic value equation and one of the things that they are getting ready for is they see on major paper maker like Chien Ming putting out a higher quality paper and the region and they want to be more competitive both from a quality standpoint, and the economic standpoint.
By the way another tailwind on that is very high pulp prices right now, which are helping our value equation.
And so strong demand in China and that continues.
Strong demand and <unk>.
India as well that continues and these are what I would say traditional PCC applications and printing and writing grades. We are seeing some pull also in China for some of our new packaging offerings, and but that's a little earlier stage and the development.
The other thing in terms of our pipeline I'd say and the other areas around the world not China and.
And India.
And as there's been some trials and some poll for a new variant of our new yield product. This is a.
Product that we've been having good trials with and this helps a customer release, some environmental pressures provides a high value pigment that we're able to.
Do more than just help them with the cost equation and we've got advanced trials and that and I would hope that we're able to to commercialize or at least one of those soon and particular in Europe.
And then further back and the pipeline I would say.
Most of the stuff. That's early stage is about some of our penetration and the packaging and those are traditional PCC projects, but also a couple of new products that we're trying to.
Capitalize on and get into the market.
If I could just follow up on a couple of points. So first of all I'll be stealing your risk of change comment and kind of like that.
Description, but you mentioned and the U S market and.
Some time ago, you secured a restart.
The Phoenix paper project in Kentucky, and I was wondering if maybe you could just provide a real quick update on the progress there and whether that trend towards restarting day.
Domestic capacity might continue and then secondly on your packaging comments would you say that the packaging opportunities you see or more.
A continuation I guess of the liner board area of packaging or are you potentially pursuing additional.
Sub sectors I guess within packaging grade papers. Thank you.
So let me try and take them and the sequence with which offered him up David So first off happy about the way Wickliffe came on and it's come on strong.
And we're seeing good volumes and it's.
Indicated and all the comments that Matt had made regarding our growth.
What I would tell you is I don't see a lot of restarts. So so what we see happening.
And is 95% operating rates and North America demand over the short term, probably increasing as schools and folks come back to work, we'll have to see how that.
Shapes up but certainly as we get into the fall we would expect.
And increased somewhat of an increase in demand.
And that demand might be offset by greater imports. So so that is a calculation that we see going on across the board and the industry. What we're also seeing though and this is going to dovetail into the packaging comment.
And.
International paper converted their Selma operation.
Last year, two from printing and writing grades to our packaging grade, we were able to help and that transition.
I offered and new premium a white top liner board. So because we had a PCC plant on site, we're able to.
Modify our products to help with our strategic goals, we see a similar thing going on in North America had a place like Jackson, Alabama, where PCA or packaging Corporation of America has announced that there'll be converting those machines from free sheet opportunities to to our packaging.
And again and it remains to.
B C and exactly how we'll be able to assist them and that but they've got the strategic capability that we offer them to go into those those white top liner board grades.
We are seeing and in terms of our broader packaging portfolio, we're seeing a couple of things and the and the white top grades like I mentioned at Selma like I mentioned that Jackson like we discussed is coming on and the second half of this year and Europe. Those are liner boards with a white top and on.
Our PCC products can be modified to assist there.
We've got some excellent coating PCC that are really good in and solid White board that it has a premium application or premium printing demand and something that.
Once someone wants to show nicely on the on the shelf. So we're seeing increased pull for that product, both in China and and in the U S.
And then finally, we do have to have some new products that we're orienting towards very traditional brown grades of paper and those are variance off of some of our environmentally oriented projects like new yield has and application there, but we do have some some new technologies that we're looking to put into just straight brown boxes.
And we're in the early stages of that as well.
So lots of things going on.
But I don't see a lot of.
Conversion back to printing and writing grades and the U S. Other than wet cliff, but but in general I see us being able to help with that transition that we see and packaging in particular.
And so David back to your original question.
Sorry to interrupt.
Question and as the environment different today for an improvement or a speed of.
Of opportunity capture.
I think and somewhat similar in some ways, yes. It is different and I think we've done that because we broadened our product offering and our portfolio from not only just based pillar, which is improving we have a number of opportunities for just those because of the conversions and the cost savings and quality requirements that are needed and the market.
We've also new technologies around packaging and our environmental solutions and as our customers are challenged with those with higher quality great packaging as D. J just mentioned, but also the environmental challenges we have those technologies too. So I think we've positioned ourselves to put ourselves to put ourselves into place to capture more and I think our pipeline.
Opportunities. If you asked at the DJ has grown because of that and so yes, I think we are well positioned to accelerate on new opportunities on a broader range of of areas.
Okay. That's great and then maybe I do have kind of and M&A.
Our capital deployment related question.
So in the past several weeks.
Pick of outside interest and elemental.
And have cropped up again.
And.
There are some similarities with the new suite or there are some differences et cetera, but I am.
Just wondering Doug if you could comment on kind of the M&A pipeline that you see and.
And again, whether the the you used opportunity capture but is the environment, one where you think valuations might be and.
<unk> are rising and therefore.
Some of your.
Pipeline opportunities might be just out of your.
Comfort zone in terms of valuation or.
Maybe if you could you characterize at this stage.
And how you see the the opportunity set and.
The overall environment valuation and willingness to deal.
As you see and thank you.
Sure.
Well both.
Look I have commented.
The.
<unk> are going to be.
A way that we see able to grow the company.
We've got.
A nice portfolio of things that we've been looking at that we think fit.
With our strategy and our growth strategy and things that we feel are core to what we do and that we feel we can extend.
On a valuable.
That said and.
And again many of those are in our core product lines, they deal with our core minerals or their tangential.
And adjacencies to what we do but pretty close to a market that we currently serve or a minerals thats of a technology that we're very very comfortable with its deep into our kind of culture and the company.
That said I think two things have happened I think there's been there is there is theres a lot of money out there. So I think that could play to higher valuations.
But I also think that.
Through the past year.
Companies May have made some decisions about things they want to keep and they don't want to keep and so I think we'll watch and.
And so I think there might be some opportunities that come up.
Things that people decided that now is the time that we ought to be moving on from these that and we'll be looking at those that might fit us of course as I mentioned, we're going to be disciplined and what we feel we can deliver value for.
And if things get.
Two heated and that's okay. We keep very disciplined about how we're going to approach M&A and how we're going to deliver value for that cash because we have options for that cash and have options to put that money into ourselves and we've got plenty of opportunities to grow organically.
And we've talked about many of them today.
We have opportunities for shareholders.
In terms of direct.
Returns and when we see good opportunities for M&A that we think have the highest return value we'll pursue those.
Yes.
Alright, that's great. Thank you very much.
Alright.
Sure.
We'll take our next question from Silke Kueck with JP Morgan.
Hi, good morning, how are you.
Okay, and so how are you.
I have a question about Europe.
On your guidance and so this is like from like the third quarter on and around that Youre, giving like flat sales guidance and I think and the fourth quarter, you beat that guidance and I cannot.
And I don't know like $40 million or saw in this first quarter you beat it by $20 million and Youre getting next slide sales guidance again and usually on.
Usually that took a step up on for Mike and I still would give us $75 million from the first and second quarter and I understand that you started strong and theres some shutdowns by about those happen and legal.
And so.
Why the conservative.
This guidance with adjusted is it just the very low and of what you.
And what you. Thank you.
And you plan to achieve.
No I think what we do every quarter is try and give you the best.
Perspective on what we see at the time.
And obviously there is favorability there is also risk and our forecast and so we manage those as we move through the quarter I think what <unk> seen over the last call. It two or three quarters is a return to the markets that has been very strong and that has helped drive <unk>.
Volumes faster I think than what we or anyone else.
Has been expecting.
And so yes that plays through here and the first quarter remember and I think you just spoke to it we typically see a seasonal impact and our first and fourth quarters of about 10% and sales.
And what we just said was we didn't really see a lot of that and the fourth quarter, we didn't see it and the first quarter and so youre operating at a very strong rate across those businesses that are typically seasonally impacted and so that carries through to the second quarter right. When you would typically see that normal normal seasonal bump up that you just saw.
Poke about while there are already operating at that rate, but.
The difference here and the second quarter like we spoke about yes, you have the typical outages and paper PCC. Those are temporary that a typical you have your temporary impacts and the refractories business, where their customers are doing the re lines. This and some of those had been pushed out and overtime.
Theyre going to need to be done and so you've seen and our refractories business those three lines being pushed out and so now and now theyre going to start happening.
That is and the forecast when you look at what is offsetting those and I think this is what youre speaking to some of the businesses that haven't really come back yet that you haven't seen the.
And the demand returns so those project oriented businesses and you just heard Doug speak about are quite a few of the specific.
Impacts from those businesses and building materials, environmental products and energy services, and how theyre going to transact through the course of the year you are starting to see those revenues and those projects begin to be let and that's what's pulling differently to offset those temporary and typical shutdowns and impacts that we have the other thing that we have and our outlook.
And is the impact from the chip shortage that may impact the automotive and steel markets and so like we said we haven't given a significant one.
Amount in terms of what that could be because at this point, we haven't seen it our customers are continuing to perform and Paul.
But should there be something there that's a caveat we've taken some.
Conservatism based on the fact.
And that we do have customers, who were pulling off shifts and so I think we're giving you a very robust view of what the second quarter could look like from a top line perspective, and importantly, let's remember this what we're talking about is from a margin perspective, driving the margin back above 14% right and on our.
And as we've talked about previously to getting back to above 15%.
And which Doug said, you may see that coming later in the year as volumes continue to return.
<unk> been were doing with a number of inflationary factors didn't necessarily impact us and the first quarter, our pricing more than offset the inflationary factors those are going to continue and energy and and freight into the second quarter, but guess what our teams have been very active and at the forefront speaking with customers driving value through the <unk>.
<unk> that we have and you heard us all say it on this call we price on the value that we deliver not necessarily on the commodity value. So.
A good point in fact here is in the performance minerals business, you've seen us raise prices three times already this year, we're going to continue to drive at that and so and maintaining that stature that connection with our customers staying ahead of it to move that margin and it's also important part.
Okay.
Okay. Thank you for that.
Secondly, net usually and the first quarter.
It's normally the highest quarter for working capital use and.
Yes.
And the first one is relatively low and are you able to.
What does like noticeably.
And your payables are down quarter over quarter and.
Is it the case that the second timing issue or are you able to just manage on.
Working capital net of matter.
Yes, I think we've done some very good things over the past couple of years focusing on all components of working capital. What you are seeing here and the first quarter is the fact that we've been able to improve the efficiency pretty sizeable and both our accounts receivable and and inventories so.
And we did last year, obviously work on our position our efficiencies in terms of both of those two categories Youre seeing that translate here into the first quarter, where you typically see.
Straw down and some areas, but revenues are typically rising and so the efficiency. If you look at it on a days basis as improved dramatically on a year over year basis.
And.
Yeah and lastly.
Lastly, I was wondering.
And how much of the.
All from price increases that you have announced and.
And in general like how much of Dallas.
<unk> achieved gross that you said you know we are targeting 3% for <unk>.
PCC.
And maybe five to 10 slide on.
And <unk>.
And what's your black and white range, rather, especially proud I think net 3% to 10% and how much have you Scott and so far and.
And how much more you're trying to achieve for the rest of day.
So let me let me grab that one.
I will tell you, it's we've pretty much well, let me go back some of our price increases and like paper is contractual so we will pass through pricing, we have different contracts and refractories that we can move pricing every six months or so I think when you're referring to some of the percentage increases yes, we've put up prices we're seeing.
And conditions.
And new product and value for those products that we feel we can price.
And I would say that we've captured 100% of that price increase those initiatives I'll also tell you that and some cases, we're moving pricing already three times this year, alright, something that might only happen once a year and.
And certain conditions, we're moving pricing and some product lines already three times and the first half. So it's different I would say we've been very successful we have very closer relationships with our customers. We want to make sure that that pricing reflects the value delivered.
And we also are seeing a lot of high demand for from any of our products that we are accommodating and so.
Look I think we worked closely with our customers to make sure that things are price right, but yes, we've been we've done very well and making sure we capture it and yes that has covered.
All of the inflationary increases that we've seen.
Hey.
Phenomenal job on thanks very much.
Sure. Thank you.
And a follow up question from Mike Harrison with Seaport Global Securities.
Hi, Mike Hi.
Just one more and I apologize if you.
Discussed this in and greater detail already but are there some cost benefits from putting the energy services business into the.
And the environmental business and kind of removing that segment structure or is that pretty de minimis.
No I think there's not this is not a lot of cost synergies associated directly with that I think though that the efficiencies associated with it.
Being able to tie and those technologies to sell new products and more of the efficiencies we see on the commercial side.
Also efficiencies with combining.
And the knowledge base I think will happen so not a lot of direct cost synergies much more on the synergies in terms of technology development joint development and on the commercial side.
Okay, and then in terms of the inflationary environment and you guys. I think did a good job telegraphing that you expected some seasonal increases in energy and in mining costs were all of those increases pretty much in line with your expectations or.
They run on.
A little bit higher than what you were anticipating when you gave your Q1 outlook.
Pretty much in line I think obviously the way you forecast things and never always plays out exactly that so I think the team has done a great job just making sure we're keeping our eye on everything coming at us not only just and the first quarter, but we're looking at that next quarter and all of the quarters out so.
We've got like I like to call. We got the we have the headlights on and the team has done a great job I would say areas that have been some challenging and I think you'll hear this from other companies logistics are very tight ship.
<unk> logistics doesn't necessarily impact us, we don't export as much we operate pretty much localized and the countries, where we manufacture and sell logistics are challenging.
But we've been working the team has done a great job working through those items, so maybe a little bit differently and forecast, but from a total aggregate basis pretty much right on what we thought.
Okay and.
And then last question from me is on Refractories. It seems like that business typically has stronger margin in Q1, and then the rest of the year is more subdued is there something structural that causes that or is it just.
And kind of coincidence that that seems to be the trend.
Trend for the last few years.
Okay.
Yes.
And typically the margins are historically, the margins have been higher and the fourth quarter and that's because.
That's usually where we sell quite a bit of our fair Tron laser equipment.
And I think we've talked about this and I'm going to pass it over to Brett <unk>, who runs the business but.
Past several years the businesses has really changed kind of its profile and how it is done and how its margin profile has expanded and so it's not necessarily.
Our first quarter fourth quarter anymore, it's a different structure and its not just occurred now its occurred over the past several years, Brett you want to highlight a little bit more about what you've been doing sure sure. Thanks for the question Mike.
Yeah really it's there's a couple a couple of factors of course, the steel production is critical so you see the stronger utilization rates.
There's higher steel prices, so that's driving those those rates.
And then again as Matt pointed out and the steelmakers are pushing those furnaces pretty hard to capture those those steel prices.
And then there is the second part of its ongoing business focus.
This has been in place for some time.
Over the last several years and really a key focus and product development, we've really started developing more efficient formulations.
Our customers with improved performance and really reduce cost per ton of steel.
The laser equipment.
And laser equipment, although it has slowed down.
Because of COVID-19.
We continue to invest and that technology.
And and.
And that that's going to come back soon because theres still a lot of customer pool.
And and in addition.
We've done a really good job with expense control.
Price and price management and manufacturing efficiencies.
We're also backward we have our backward integration and Turkey with.
And with our NGO and.
And also and our wire and Cana.
And so we've become very efficient. This team has worked very well together and then lastly, it's really the new business growth, we have we announced on our last last call.
<unk> new.
On new accounts.
Net our summit ranked four or five greenfield sites and that includes refractory alloy wire and calcium wire. So so really a pretty strong performance across the board from from our team.
And Mike one of the things, we don't talk about very often but breakfast mentioned it is.
Our vertical integration and calcium we are the only manufacturer of calcium metal and the western Hemisphere, I don't think people know that but in times like this with demand and logistics and challenges around the world and moving products.
Being able to be vertically integrated and a core product that's essential to steel manufacturers around the world.
That's been demonstrated to our customers so not only on product development that Brett mentioned, our vertical integration and stability through times like this has really resonated I think with the customer base and so we're helping bring them more value and stability and I think that's accruing to us as well.
Alright sounds like a lot of positive dynamics there thanks for the color.
Thanks for the question.
Yeah.
And at this time I would like to turn the call back to Mr. Doug Dietrich with any closing remarks.
Thank you very much.
And I appreciate everyone joining today and look forward to talking to you after our second quarter take care everyone.
And that does conclude todays presentation. Thank you for your participation you may now disconnect.
Yeah.
And.