Q4 2021 Minerals Technologies Inc Earnings Call
Please standby were about to begin.
Good day, everyone and welcome to the fourth quarter 2021 minerals technologies earnings call. Today's call is being recorded at this time I'd like to turn the call over to Eric <unk> head of Investor Relations for minerals technologies. Please go ahead Mr Ali.
Thank you Katie good morning, everyone and welcome to our fourth quarter 2021 earnings Conference call.
Today's call will be led by Chairman and Chief Executive Officer, Doug Dietrich and Chief Financial Officer, Matt Garth.
Following Doug and Matt's prepared remarks, well open it up to questions.
I'd like to remind you that beginning on page 15 of our 2020 10-K, we list the various risk factors and conditions that may affect our future results.
And I'll also point out the safe Harbor disclaimer on this slide.
Statements related to future performance by members of our team are subject to these limitations cautionary remarks and conditions now I will turn the call over to Doug Doug. Thanks, Eric Good morning, everyone and welcome to today's call.
I'll walk you through our results for the fourth quarter and the full year of 2021.
I'll also give you my insights on the year, focusing on our key financial and strategic highlights.
As well as the various dynamics, we faced and successfully managed through.
That will then discuss our financial results in more detail and outline our first quarter outlook.
Following that I'll finish up by describing how we see 2022 shaping up as a strong year for us.
Touching on our key priorities growth initiatives and market conditions.
Let me start by going through the takeaways from the fourth quarter, which concluded a very strong year for MTI.
Market demand continued to remain robust and we delivered sales of $477 million, 10% higher than last year and earnings per share of $1 25 and.
An increase of 16%.
Despite the market conditions. This was by far the most difficult operating quarter of the year, because we had to navigate through a variety of inflationary and logistics pressures, which became more pronounced late in the quarter.
Cash flows remained solid through the fourth quarter capping off a strong year.
Operating cash flow was $69 million and free cash flow was $46 million.
Made progress to lower our debt levels by paying down $20 million of debt.
Let me share how the quarter played out from an operational perspective, and the actions we've put in place to address the rapidly changing conditions.
Heading into the fourth quarter.
We anticipated that inflationary cost and logistics and supply chain challenges would persist and we have positioned ourselves to recover these costs through implemented pricing actions.
While much of this transpired as expected we experienced significant additional cost escalations, notably due to rapid energy price Spike in Europe .
We also saw an increase an increase in supply chain disruptions, mainly due to truck and rail availability for shipments.
This was exacerbated by Covid related labor challenges, primarily in the last month of the court.
The combination of these dynamics led to higher plant operating costs and delayed shipments.
<unk> and about $5 million of reduced income in the quarter.
Despite these circumstances, our global team did a great job executing.
Adjusting operating schedules.
Securing freight logistics and taking further pricing measures.
Our order books remain robust and the actions we've taken should more than recover the additional cost pressures, we faced setting us up for a stronger first quarter.
On the growth in business development front, we had several highlights during the quarter.
The integration of nor America is progressing well and we executed on significant opportunities in the quarter to grow our pet care business further in 2022.
We also made a small acquisition of a specialty PCC assets in the Midwest U S, which strengthens our logistics and manufacturing capabilities.
In addition, we signed two new satellite contracts in Asia, one for a PCC facility in India, and another with a packaging customer in China.
All in all it was a productive quarter from a growth perspective, and the operating and pricing adjustments, we've already made position us well for a stronger start to 2022.
Yeah.
Before Matt gets into the financial details for the quarter I'd like to review some highlights from 2021.
It was a strong year for MTI is our business recovered from the 'twenty 'twenty COVID-19 demand lows to deliver record results.
We accomplish this through a combination of operational execution and a focused commitment on advancing our key growth initiatives, which are meaningfully shifted our sales portfolio to be more balanced and stable.
It demonstrates this transition over the past few years revenue from our consumer oriented businesses has doubled and today they comprise 30% of our total sales portfolio.
It is this portion of our portfolio that's positioned in higher growth non cyclical markets.
First and foremost we delivered record annual sales and earnings per share for our company.
Sales increased 17% over last year to $1 9 billion.
Operating income was up 13% to $241 million and our earnings per share grew 26% to $5.02.
Serving our customers and innovating to grow with them is what motivates our team.
We continue to accomplish this while navigating through complex and rapidly changing conditions during the year.
We operated in an environment with sharply rising input costs, which required frequent operational adjustments straw.
Strong supply chain management and process improvements.
Our teams worked closely and transparently with our customers to manage through these dynamics.
And we were successful in implementing a broad array of strategic pricing actions across our portfolio to offset the $50 million in extra costs, we had to absorb.
The past year required a significant amount of agility from our employees and I'm proud how they engage to drive improvements efficiently run our operations and support our customers' evolving needs.
Generating strong cash flow.
Further strengthening our balance sheet and maintaining flexibility with how we deploy our capital our priorities.
Our financial position gives us significant optionality to allocate capital to shareholders, while also investing in attractive growth opportunities.
We demonstrated this in 2020 , one by deploying $86 million to fund high return organic projects.
As well as to maintain and improve the performance and safety of our facilities.
We acquired nor America, and the specialty PCC assets, while also returning $82 million to our shareholders through share repurchases and dividends.
Our balance sheet remains strong and we kept our net leverage ratio near our target target levels of two times EBITDA.
Now let me take you through how we advanced our broad range of initiatives, which sets us up nicely for continued growth in 2022.
I'll start with our consumer oriented products.
Most of these businesses are in our household personal care and specialty product line and they performed very well with sales growth of 21%.
This growth is a result of our positions in these structurally growing and stable markets.
It's been bolstered by our investments in new technologies capacity expansions and through extending the geographical reach of these businesses.
Nor America acquisition is one of those investments as it further expanded our pet care business in North America.
We've also realized significant sales increases and other specialty applications, such as edible oil purification and personal care, which grew by 48% and 80% respectively last year.
The next part of our growth strategy that we delivered on during the year was expanding our core product lines and faster growing geographies.
Our metal casting business continues to glow grow globally, leveraging our blended bond system value proposition with customers in large foundry markets.
Metal casting sales were up 21% and Asia, because we expanded our customer base and further penetrated into China with sales of our pre blended products increasing by 20%.
We continued to demonstrate our value in other countries and specifically in India, where sales of our blended products were up nearly 40% in 2021.
Okay.
Our PCC business continues to grow geographically with a 22% sales increase in Asia.
We benefited from 280000 tons of new capacity that came online over the past year.
In addition, we signed two new satellite contracts in 2020 , one totaling around 70000 tons, which will be commissioned by the end of this year.
And we're growing in our core markets.
Refractory segment is a great example of this is we've captured significant new business in the electric arc furnace market.
In 2020 , one we signed long term contracts worth $100 million through the deployment of our new portfolio of differentiated refractory products and high performance laser measurement solutions.
Another area, where we have successfully driven new profitable growth opportunities as by tapping into attractive adjacent markets through a broadened product offering.
I'll highlight a couple of areas for you.
We signed a long term agreement in December to deploy ground calcium carbonate technology for a new coated paperboard mill in China with a premier packaging customer.
And we're really excited about this one is it's mti's first GCC satellite offerings, specifically tailored for packaging customers and represents a fundamental step in our ability to drive new growth opportunities in the white paperboard market.
In addition, we have several trials underway with other technologies in both the white and Brown packaging space.
I've talked to you about our broad capabilities and water remediation and the traction we've made with floors or our proprietary solution for Remediated P fast contamination and groundwater.
2021 we completed our first major commercialization for a large scale project.
We generated interest and several other large drinking water and soil stabilization projects.
Our growth this past year and wastewater remediation was 15% and we see this trajectory continuing in 2022.
New product development is an integral part of our growth strategy and we've made significant strides to improve the speed of execution increase the number of products commercialized and enhance the impact of our latest solutions.
Over the past five years, we've cut the time from development to market in half.
During the same timeframe, we've increased the sales generated from new products by more than 60%.
In addition half of our new products are geared towards sustainable sustainability solution for either MTI or our customers.
And lastly, we strengthened our company through the acquisition of North America, which met all of our M&A criteria.
The addition has made US one of the largest vertically integrated private label pet litter providers globally.
And as the commercial and operational integration progresses, we see a clear pathway to drive higher growth rates and profits in our pet care business.
All told this is a really productive year for us on all fronts.
I'll come back to share my perspectives on the year ahead, but some up but some of our growth achievements in the past year puts us and it adds a tedious positioned for a strong 2022.
With that I'll turn it turn it over to Matt to take you through our financial results in more detail that.
Doug.
I'll review, our fourth quarter results the performance of our segments as well as our outlook for the first quarter.
Well, then turn the call back over to Doug for some additional perspectives on the year ahead.
Now, let's review the fourth quarter results.
Sales in the fourth quarter were 10% higher than the prior year and 1% higher sequentially.
Organic growth for the company was 4% versus the prior year and the acquisition of North America contributed the remainder of the growth.
Operating income excluding special items was $54 7 million and operating margin was 11, 5%.
The year over year operating income bridge on the top right of this slide shows that we experienced $27 $4 million of inflationary cost increases versus the prior year, which we offset with $18 $6 million of pricing.
In addition supply chain challenges, including trucking and labor availability resulted in a delay of volumes from the fourth quarter, particularly in our processed minerals and S PCC product bonds.
The sequential bridge on the bottom right shows how inflation continued to accelerate from the third quarter to the fourth quarter.
And heading into the quarter, we expected the pace of inflationary costs to moderate from the third quarter and we expected to recapture some margin with our planned price increases.
As we move through the fourth quarter inflationary costs accelerated to nearly $10 million, including higher energy costs in Europe and Turkey.
We were able to mitigate the unexpected increase with additional pricing in the quarter.
However, a portion of the necessary price adjustments could not be passed through contractually until January one.
In addition, logistics and labor availability challenges resulted in shipment delays lower productivity at our facilities.
And ultimately higher per unit production costs in the period.
Challenges, including the delayed sales volume and the unexpected spike in energy costs resulted in approximately $5 million lower operating income than we originally expected for the quarter.
We've already made additional price adjustments in January and our pricing is expected to exceed inflationary pressures expanding margins in the first quarter.
We also expect to catch up on the operational challenges, we faced in the fourth quarter.
Meanwhile, we continue to control overhead expenses with SG&A as a percentage of sales at 10, 8% 80 basis points below the prior year.
Earnings per share excluding special items was $1 25.
It represented 16% growth versus the prior year.
Earnings per share benefited from foreign exchange gains driven by the depreciation of the Turkish lira as.
As well as lower interest expense and a lower share base versus the prior year as we continued to pay down debt repurchase shares in the quarter.
Full year earnings per share was $5 two a record for the company.
It represented 26% growth versus the prior year.
Now, let's review the segments in more detail starting with performance materials.
Fourth quarter sales for performance materials for $256 2 million, 17% higher than the prior year and 2% higher sequentially.
The acquisition of North America contributed 13% growth versus the prior year and organic sales contributed an additional 4%.
Household personal care and specialty product sales were 24% above the prior year and 4% higher sequentially driven by North America and continued strong demand for consumer oriented products.
Despite strong end market demand and full order book, our global Pet care sales came in lighter than we expected due to logistics challenges in North America and Europe .
Metal casting sales were 9% higher than the prior year and 16% higher sequentially driven by strong demand globally continued penetration of Greensand bond technologies in Asia, and the return of volumes from the third quarter seasonal foundry maintenance outages.
Environmental product sales grew 13% versus the prior year on improved demand for environmental lining systems remediation and wastewater treatment.
Building materials sales grew 21% versus the prior year on higher levels of project activity.
Sales in both of these product lines were lower sequentially due to typical seasonality.
Operating income for the segment was $29 1 million and operating margin was 11, 4% of sales.
Margin was temporarily impacted this quarter by approximately $3 million of logistics challenges and inflationary cost increases that could not be passed through contractually until January 1st of this year, primarily in pet care and our metal casting business in China.
The North America business has been navigating the same supply chain and inflationary cost challenges as the rest of our business and we have deployed pricing and productivity actions to achieve accretion as planned in 2022.
Now looking to the first quarter we.
We see a significant rebound in margins for this segment driven by pricing actions that went into effect on January one.
Continued strong demand across the product lines overall.
Overall, we expect operating income for this segment to be approximately 20% higher sequentially.
And now let's move to specialty minerals.
Okay.
Specialty minerals sales were $141 $5 million in the fourth quarter, 2% higher than the prior year and 4% lower sequentially.
C C and processed minerals sales were both 2% above the prior year.
This segment was the most impacted by the Spike in energy in Europe , as well as logistics and labor challenges, we saw in the fourth quarter.
Segment operating income was $14 $5 million and represented 10, 2% of sales.
Total operating income was impacted by $4 million in the quarter, which came from approximately $2 million of unexpected energy inflation and additional $2 million due to the sales and productivity impact, resulting from logistics and labor challenges, primarily in our northeast U S plants.
Pricing adjustments were made in January to cover these inflationary costs and low logistics challenges continued into January we do not foresee these challenges persisting through the quarter.
Now moving to the first quarter, we expect higher PCC volume sequentially on the ramp up of our new satellite in India and the restart of a satellite in the U S and we expect.
Continued strength in specialty PCC and process minerals.
We see margins rebounding to more normal more normal levels based on the pricing we have implemented.
We should also see improved productivity and shipment volumes.
Depending on who the extent to which the logistics and labor constraints ease overall.
Overall for the segment.
We expect first quarter operating income to be 20% to 25% higher than the fourth quarter.
And now let's move to the refractory segment.
Refractory segment sales were $79 $2 million in the fourth quarter, 7% higher than the prior year and 4% higher sequentially on new business volumes and continued strong steel market conditions in North America and Europe .
Segment operating income remained strong at $12 $4 million.
12% higher than the prior year and operating margin was 15, 7% of sales.
Turning to the first quarter, we expect another strong operating performance from this segment with operating income up 20% on incremental volumes from new business.
We did see a slight moderation in steel utilization rates in North America in the fourth quarter for the mid 80% range to the low Eighty's. However, the demand fundamentals for this segment remains strong.
Now, let's take a look at our cash flow and liquidity highlights.
Full year cash flow from operations was $232 $4 million capital expenditures were $86 million as we invested in high return growth and productivity projects as well as sustaining our operations.
Free cash flow was $146 $4 million.
The company used a portion of free cash flow to repurchase $75 million of shares completing the prior year share repurchase authorization and beginning the new $75 million one year share repurchase program that the board of directors authorized in October .
As of the end of the fourth quarter total liquidity was over $500 million and our net leverage ratio was two one times EBITDA.
Our balance sheet remains in a very strong position, which provides us with the flexibility we need to continue to invest in high value high return growth opportunities, both organically and inorganically.
Looking ahead, we expect another strong year of cash flow generation with cash from operations, increasing commensurately with higher income.
Our capital spend will be in the range of $85 million to $95 million for 2022.
We have a solid pipeline of high return organic growth opportunities and we plan to deploy capital spend towards these opportunities as well as sustaining and improving our operations.
Overall, we expect free cash flow, increasing to the $150 million to $160 million range for the full year.
So now let me summarize our outlook for the first quarter.
Overall, we see continued strong demand across our end markets and our order books reflect this.
In the fourth quarter, we saw unusually high spikes in energy cost and increased challenges around logistics and labor availability.
Our latest view for the first quarter is that the inflationary pressures and logistics challenges will continue.
We have pricing actions and operational adjustments in place today to more than offset the known increases and significantly expand margins in the first quarter.
Overall for the company, we expect a strong performance in the first quarter with operating income in the range of $63 million to $65 million, 15% to 20% higher than the fourth quarter.
And with earnings per share around $1 25.
With that I'll.
Turn it back over to Doug to provide some additional perspective on the year ahead Doug.
Thanks, Matt as we look ahead.
Going to be another dynamic year with many of the same inflationary and logistics pressures continuing.
But with the momentum across our businesses and the growth projects underway.
Strong operating performance 2022 is shaping up to be another record year for MTI.
Overall I'm very excited about where we are as a company and where we're going.
Transformed MTI into a higher growth higher margin and higher value company.
We have more opportunities in front of us beyond what I've shared with you today.
It will further enhance this trajectory trajectory.
Yeah.
We are well positioned to leverage our balanced portfolio we have.
Have a breath of attractive projects across our businesses that will drive our sales and earnings momentum this year.
We focused on accelerating our geographic penetration in our core product lines.
In building our growth opportunities in adjacent and adjacent markets.
In addition, we will further strengthen our R&D pipeline with a focus on increasing the percentage of revenue from new products as well as introducing solutions withheld, which help us penetrate attractive markets.
With our solid financial footing, we have the resources to execute on all of our growth initiatives.
Our strong balance sheet and cash flow generation give us the flexibility to deploy capital to shareholders. While at the same time accelerating our growth trajectory through acquisitions.
Similar to what we achieved this past year.
We have a targeted list of inorganic opportunities that will continue to transform our company with a focus on profitable growth.
Underpinning everything we do is our culture of continuous improvement.
Operational excellence is embedded in our company with our employees at its center.
It's our employees and their high level of engagement around problem solving through kaizen events utilizing standard work practices and implementing suggestions to improve daily processes, which enables us to adapt to changing environments.
It's this ingrained culture that is the foundation of MTI unique operating capabilities.
Sustainability is a core value of MTI and over the past several years, we've made significant progress to embed our ESG priority deeper into our company, our operating mindset and our growth strategies.
In 2022 will be focused on promoting our safety culture of zero injuries.
Achieving or exceeding our six environmental reduction targets, increasing our product portfolio geared towards sustainable solutions, and making MTI, a more diverse and inclusive place to work.
We look forward to sharing more about these initiatives as we publish our 14th sustainability report in July .
To sum it all up we have a winning formula and engaged team and our leading portfolio of businesses.
With sales growth of 10% to 15% expected this year combined with our distinct operational capabilities. We have all the elements in place to deliver a very strong performance in 2022.
I'll leave you with a final takeaway.
Over the past two years, we've demonstrated two key attributes of our company.
2020, it's financial resilience during very challenging conditions and this past year its significant growth potential.
It's a more balanced portfolio, which has enabled this performance and which will continue to deliver higher levels of profitable growth going forward.
With that I'll turn the call over to questions.
Thank you if you would like to ask a question you may signal by pressing star one on your telephone keypad.
Using a speaker phone please make sure your mute function has been removed.
All your signal to reach our equipment once again star one for questions.
We'll go first to Daniel Moore with CJS Securities.
Thank you good morning, Doug Good morning, Matt Thanks for the color as always.
Let's start with a couple of housekeeping things just to get out of the way Refractories I think you said Q1 op income up 20% sequentially.
As you gave with the other segments or is that year over year.
All of our guidance is typically sequentially and that is the case for each of the segments and for the full company. So refractories sequential.
Perfect.
So the just to clarify the 5 million costs labor logistics et cetera, do you expect to get those all back in Q1 or over the course of Q1 I'm just trying to see how much recoveries embedded in the guide.
Yeah. So if you take a look at that $5 million the easy way to break it out if you listen to the prepared remarks about $2 million of that was inflation that we said we were going to capture with pricing going into the first quarter and then the other $3 million was largely related to the logistics and some of the labor challenges that we saw and the impact on.
Our operations.
What we've said is we're going to be able to recover that in the first quarter. So that is embedded in the move from the 54, 7% to 63 to 65 range.
Perfect, Okay and then.
Just looking at the sorry about that.
Refractories I know you talked about this previously.
You know the new project that would be.
You're about $100 million incremental revenue benefit over the next five years.
When do you expect that to start to kick in in terms of timing and ramp.
Sure, let me kick it off and then I'll, let Brett <unk>, who runs the business, giving them a little bit more color Dan.
Some of those have already started to kick off probably more later in the first quarter second quarter and throughout the year. We have other projects that are planned to kick in probably third and fourth quarter.
I think theres, all told breath seven contracts eight contracts totaling $100 million over the next six years once you give a little color on that yes sure.
The there is there are seven seven of the contracts, we anticipate kicking in in in 2022, 7% of the eight or so.
We anticipate a couple of those starting sometime in the first quarter and then they will gradually expand through through the year.
These these projects of course.
They are based on our key initiatives that are that are driving the.
New products durable products more efficient applications and safer processes. So so it's really driving into the new market expansions.
A lot of a lot of growth, there's about 5 million tons of new steel coming into the market and we're happy to say, we're part of that and where we're initiating all of our our segments into those those growth areas. So we're pretty excited about.
Yeah.
That helped them so $100 million over five years, it averages out to 'twenty, but they'll wrap up a little bit later this year. So you might see an incremental $15 million from those contracts this year as they ramp up but yeah.
I'm pretty excited about the new technologies that we've deployed in this market and should provide that growth through this year and beyond for our refractories.
Excellent that's very helpful.
Bigger picture just from an M&A perspective.
So you've been focused on for us.
Been a little bit more vocal about the growth in your consumer oriented businesses is that the primary area of focus for future M&A or are you looking at a sort of a wider array of opportunities. Thanks, Doug.
Yes, it's a wider array, yes, I think we do highlight.
Now did you picked up on in our consumer oriented portfolio and we think that's important because in.
And my last comments were that we do think that this provides us.
Bigger portion of the company that sits in structurally growing non cyclical markets and that balances out.
Some of the the industrial markets that we're in and there's some cyclicality that as you've noted.
And so yes, I think we are we see opportunities to continue to expand and that consumer where we have you know vertical integration capabilities number one.
But also where we have technical capabilities to supply those types of consumer specialties.
But I think Theres also opportunities in our core markets.
Minerals around the world that we're also looking at so I think it's it's balanced.
Across all of the industrial and consumer, but certainly we are focused on.
Continuing that balance through additions to that consumer specialty business, where we think we add a lot of value.
Alright, very good I'll jump back in queue with any follow ups. Thanks.
Yeah.
Thanks, Dan.
We will take our next question from Silicon.
With JP Morgan.
Hi, good morning, how are you.
Okay.
That's a great question.
On the household.
Yeah business.
It looks like that.
24% growth in the quarter.
That contribution.
Sure.
The America and.
Maybe that was.
Yes, it looks like maybe that was at 28, 28% contribution that was like higher price or a couple of percent, maybe you know that 4% to where the volumes down about eight and was that all related to that.
Pet care business do you think.
Yes.
That is all going to come back in first quarter or was that spread out over the next year. So my first question.
So to make sure I understand.
Youre looking at.
Volumes in your question is why were volumes in pet care.
Down the estimated at 8% is that.
Where it is.
It's generally due to some of the logistics challenges that Matt was talking about.
There's a couple of fewer days in the fourth quarter versus the third so that played a few percent into it but that largely so because that is.
Let me describe some of that what what some of these logistics challenges are.
You touched on something I think I want to make sure we're clear on the <unk>.
Fourth quarter and largely in December .
And I think you've probably heard this from a number of different companies trucking was challenging and so Israel and that was due to drivers and probably had some issues with COVID-19 and what was going on with.
Supply of labor throughout December .
And so yes, we had things on the dock ready to go and if a truck doesn't show up you've got a you know readjusted and you've got to move some stuff around in and that causes productivity issues in your plant and then the truck that you thought was yesterday shows up tomorrow and you got a loaded up and then some trucks just didn't show up during the past few weeks so.
Our order books.
Regardless of that are extremely strong.
In North America, we faced a lot of those the same logistics issues.
I don't think the trucking strike in Canada that happened recently helped all of this whole situation.
But we see that that's probably not going to continue through the first quarter and so a lot of that volume decline you saw in pet care was due to just getting that stuff off the dock and navigating those logistics challenges that said those order books are full we see that loosening up through the quarter and we see getting all of that out through the first and that's and so we have a positive outlook on the first and to Dan's last question.
We're going to capture that we've already got pricing activities in place to more than capture that $5 million.
And move on with that growth that we see.
And dropping that to the bottom line. The first so I hope that helped with some of where that pet care volume went but it's not a demand related issue.
So you should see ottens being equal and maybe Thats a question for the performance materials business overall, given that it was acquisition benefits of positive price like it looked like there was like no volume growth.
Performance materials segment in the quarter.
Really strong volume growth.
Okay.
Yes, we're expecting that again, we had some challenges across the business in terms of of last few weeks of the year of shipments and so some of that is delayed into the first week.
We definitely have the order book to fulfill all of it.
So it's not a demand related issue right now it is it is more making sure the operations and getting that packaging and yeah. We had to move some shifts around with give you a perspective and I know.
10% of our North America plant based Workforces quarantine at some point through December January . So that's what my comments were that the teams did a great job navigating shifts schedules moving things around getting the plans to continue to produce getting things off the dock shifting orders.
Yeah, It was a challenging quarter.
But like I said, it's not a demand related issue we've made those corrections in our plants, we see the logistics loosening up.
And we've put pricing in place to more than cover the inflation that we saw acutely in the quarter. So we'll get all of that back order books are good and we see a much stronger first quarter.
Coming this is what we think is more of a fourth quarter kind of acute issue.
That's helpful. I didn't I didn't mean to criticize I thought everybody has the same issue that was just fine.
How much volumes might not have been shipped.
Mike comment.
Next year.
To better model it that way.
No.
That's the question.
I appreciate that I just took your question as an opportunity to lay out some more clarity on what went on that's all so I appreciate that.
That's really helpful. Thank you.
Yes.
Hey, Brett business businesses affected by the by the strike in Finland.
Well, you're PCC paper business.
That definitely that doesn't exist yet.
It's hard to gauge.
What exactly is happening at the plant to operate.
No we did not see any impact from that.
In the first quarter from that seem to have happened in the beginning of the year.
That has not affected us in any meaningful way this quarter.
Okay.
Thats helpful.
Yeah.
Hum.
Yep.
Lastly, I'd like sort of trying to gauge whether there are any.
Geopolitically that what's happening between Russia, and Ukraine have your customers voiced any concern what might happen there.
Input pig iron was there any conceptualization because the nice thing is is that there's a lot of.
Capacity that's coming on.
Production that's expected.
In terms of steel production in 2020, then this issue or whether.
All of the raw material that can be gotten does your customer base have you how things might play out.
Okay.
Let me give you the impact certainly that is a risk right. So everything you know.
We've given you is forecasting.
Relatively.
Similar current geopolitical environment, so I'm not going to predict what's going to happen.
With the Russia, and Ukraine, However, I can tell you, what where we sell and what directly would impact the company right. So directly.
Sales into Russia, very small five below $5 million. So it's not a sales issue for us we do source some things from.
From Russia, and if that were to be interrupted we have backups and but thats also a very small portion of what we actually source. So I think the impact on us would be more tangentially.
And on our customers and what I mean by that I guess, another direct impact could be energy, we've seen a lot of energy price increase.
In Europe should there be energy disruptions, that's something that could impact the company.
In certain areas.
And many companies by the way I would I would imagine.
And then the tangential impacts of what sanctions were put in place if any and how they affect markets and demand.
And that ripple effect I'm not in a position right now to tell you exactly what those would be because I don't know, but as a direct impact from MTI, our supply chains are secure and our and our sales are very small into Russia and Ukraine in total so.
But we do see that.
Is it should be as a risk to the global economies and in.
And that could have an impact on the company obviously.
What others.
So you see a U S refractory customers have not expressed a concern that that might not be able to employ them.
Pick a watchful eye.
Well you got to continue to operate them.
No no our where we're.
Anything that would support our refractory business in North America is either self manufactured or sourced outside of Russia, So Russia would not be where the Ukraine would not be an issue for us we do source magnesium oxide in.
In Turkey, we manufacturer in mind, our own and we also source from China, and we've largely already secured those suppliers throat throughout the year and moved them frankly, and as a matter of fact out of China before the Olympics. So we had planned on a lot of things happening in China. So those are secure.
We do manufacture our own calcium metal.
We manufacture that we're the only calcium metal manufacturer in North America in the Western Hemisphere frankly.
And we have sourced calcium metal out of Russia, but we also have other sources for that to be able to show up that supply chain and that goes into our calcium wire that goes into the steel industry in the U S. But right now we've looked at those redundancies or supply redundancies around the world in and ensuring that that's not going to be a disruptive effect on any customer here in the United States or Europe for that matter.
That's helpful. Mike.
Mike and I won't belabor it I'll move my concern is that.
Sure.
I'll echo with less worried about getting the mechanisms, yes, I was worried about.
Correct.
Yes, if you can get people out.
Yes, I think Russia is what $1 3 million.
Yes imported into the United States. So I think there's probably capacity to be able to bring that up in the United States, we see with the new capacity coming online the 5 million tons that Brett just mentioned, Russia imports about 1.3 into the U S. I think the U S will be able to absorb it and certainly we have the capacity to be able to support them from a refractory standpoint.
That's great. Thank you for making me.
And my last question.
With that with that PCC specialty business that you bought in November like what you're paying for that Mike.
What are the sales setup.
That up coming from that business. Thanks, so much.
Yes, it's a small it's a small bolt on silica I think the revenue.
It's like a $10 million type revenue business in the Midwest. So.
Small relatively small purchase price for a valuable asset like that.
That's great. Thank you.
Thank you we'll take our next question from Mike Harrison with Seaport Research partners.
Yeah.
Hi, good morning.
Hi, Mike.
Wanted to go back to the the household.
Bold and pet care segment with a couple of questions first of all.
Maybe a good time to just discuss how the North America integration has been going I mean aside from the the logistical issues that you saw or are you seeing the integration and maybe some of the synergies that you anticipated there playing out.
And maybe talk about kind of underlying trends around private label and our premium cat litter as we get into 2022.
Sure. Thanks, Mike.
So the integration is going well.
We've captured over half of the synergies already and the others are more timing related of timing related to vertically integrating the clay supply.
There were some contracts in place when we bought North America from other place suppliers that we look to integrate and as they expire. So those are the remaining the remaining synergies to capture and that should be done through the second quarter of this year, so largely from a from an operation standpoint.
It couldn't be happier to have the new employees, we have gone through extensive safety training operational excellence training working through their plants and upgrading them in terms of starting to upgrade them from a from a capability standpoint.
You know just really wanting to bring them to where you see the standard of education in operation and MTI and that's still ongoing so back office already integrated.
All of that going really well the challenges we've had obviously is purchased.
Purchased it and we absorbed some inflation so a lot of packaging inflation logistics challenges throughout the four months that we've owned it.
Many of those contracts to be able to push that pricing through as Matt mentioned, we're done on January one so.
I guess the challenge and maybe not surprised was that we had to we had to deal with some issues through the end of the year, but largely they've made those corrections and we're well on our way from a from a from an operation standpoint.
With that integration I'll, let John talk a little bit more about the market, where we are from a private label standpoint, what the demand outlooks looks like John sure. A couple a couple of things just to reiterate.
Synergies certainly well in hand.
We're working with all of our customers and the market has been very strong demand is there.
As we've been retooling our operations. We've also been retooling some of our customer relationships. We've worked with them on pricing like we do everybody else that's been extremely successful.
And everything is in place in addition to that like I said demand is extremely strong we've we've picked up new customers, we're adding our share positions.
Winning new contracts and that will push more volume through our plants as well and we're retooling those plants.
Our debottlenecking them and we're expanding our capacity so so from a market demand perspective, again, very very strong and we.
We see that in Canada, and also the U S and we're well positioned to take advantage of it.
Yeah.
Alright, Great and then my other question on the consumer side of the business you mentioned edible oil purification and some of the personal care.
Businesses had grown pretty nicely during 2021.
Maybe just talk about is that an area, where some of these new products and innovation are starting to contribute.
Maybe talk about kind of how youre growing that organically and are you going to get to a point, where you maybe need to look at an acquisition to expand capabilities.
Yeah.
Yeah, Mike.
This is John .
As you know we've had a.
A large success with our existing.
Business as we've.
Built that plant a couple years ago, we filled it up we've.
We've been growing with customers in new products and innovation.
That team has been very energized and looking for opportunities with customers.
Around the world.
In Europe , and North America also in Asia.
We continue to see that growth.
Expanding as.
As we continue into the.
The year to come and also the years going forward.
We have been Debottlenecking, our plant there as well expanding capacity and at the right time, we will make investments where needed.
In order to continue.
Supplying the products and the demand that our customers are asking for so so a very successful and we'll will continue we will continue expanding as we can.
Yes, Mike we have.
We've got a lot of opportunities across these consumer businesses and I mentioned wastewater and further development of our floors are product.
Our personal care business, which has some bentonite based portions of it and polymer based portions where we have very unique capabilities.
Edible oil, which is a bentonite based business so.
We're going to with the growth trajectory, we're seeing will probably make some investments and some and expanding capacity in the near future to make sure we keep pace with that growth, but it is also an area where.
As I mentioned, we'd look to acquire so.
Some some additional position so yes on both fronts, we see a good opportunity set to grow this further.
And these are these are higher margin products. So these are part of that accretive to our margin growth going forward and our margin targets. So a good outlook for for both of these businesses.
Alright sounds good and then my last question is around pricing.
If I do the math it looks like you got about four 5% year on year pricing overall for the company.
Is that correct.
Where do you expect that pricing number to be as.
As we get to Q1, and maybe talk about what kind of pricing contribution by segment are there areas, where you feel better about.
Being caught up against inflation and in areas where.
You're kind of further behind.
Yeah, Yes, you have the numbers.
Accurately Mike I think we.
Simply to breakdown, our 10% to 15% growth.
Last quarter I said five five from organic volume five from North America, and we see another 5% probably in pricing, so between 10% and price and volume and how that plays out that could be higher depending out of these markets go.
And we have 5% from just the year over year impact from North America. So we see even without that inorganic piece of North America up in that 10.
Type 10, plus range and with that kind of volume in the operating capabilities. It's why we're we're really positive about 2022, yes, we're going to have these challenges we're gonna be navigating getting stuff off the docks, we're gonna be making sure we secure trucks and we supply our customers, but we've been doing that all last year too.
You know, it's hard to predict where COVID-19 goes but.
Seeing this past us through December and January we have a better outlook we think.
A lot of our employees returning to work moving through it.
It's going to bode well for us So we look for.
We're going to be probably above that 5% pricing in the first quarter and we're going to maintain that over our costs throughout the year.
So we're gonna get back.
Deficit that we had from last year and exceed it and that's why we're bullish on our margins as well through the year.
The place that were probably a little bit behind but it's not because of any actions from ours, it's more contractual.
A piece of that energy increase we saw in the fourth quarter was in our paper business and that'll get pass through probably second quarter of this year or late second quarter. So that's just contractual timing.
So part of that is.
We're a little bit we have some delay as things go up and that paper business, but the rest of the business I think really happy we're right on top of stuff we've.
We've really changed our.
Contracts to shorten them up we've changed our ability to move quickly we've increased the speed of dialogue and transparency with customers.
I mentioned before we used to raise prices maybe once a year. We've done at five six times last year, and so that pace that agility and being able to have our contracts and dialogues in place with customers to be able to do that.
That's that's where we are.
We continue to probably have to face that this year.
But we're positioned to do so.
One additional thing to add just on the mixed component that you were talking about Mike If you take a look at that.
The third and fourth quarter of.
2021 really good performance in the performance materials business, yes, rising costs I've talked in the prepared remarks, a little bit about some of the delays that impacted that business because of the contractual nature of getting those increases in on January one.
That but as we move into first quarter Youre going to see as Doug said semi segment start to get some more pricing so a little bit of the changes to where you're seeing the pricing coming.
Sure.
Alright sounds good thanks very much.
Thanks, Mike.
We'll take our next question from David Silver with CL King.
Yeah, Hi, good morning.
Morning, David.
Hey, I'd like to pick up I think on one of Mikes Mike's first question about North America. Your answer was very good in terms of discussing the qualitative progress of that.
Acquisition and integration, but.
When I reviewed my.
<unk> notes.
And to prepare for this call I guess.
Last quarter, you did set out some quantitative targets and I was wondering if you could comment on two things first.
Weather norm Erika was accretive in the fourth quarter and then secondly for full year 2022.
Is it still your expectation that.
North America will be 5% to 7% accretive.
And whether I don't know the middle of that range or the low end or the high end is more appropriate now.
From February 4th perspective, Thank you.
Yes. So in America was accretive in the fourth quarter, but I will tell you. It was less than we had originally planned and that's largely due to we captured the synergies that we expected through the fourth quarter, but we faced some inflationary pressures that were unexpected and some shipping delays that were unexpected that said I've mentioned those contracts.
As they've changed on January one that's been taken care of and all of that cost is.
It should recover that loss, so a bit of a delay there in terms of that accretion David but that said, where we are with those operations with the employee base with the order book pricing.
We see achieving that 5% to 7%.
About 5% now 5% to 7%.
We're going to be right on track with that 5% to 7% accretion number for 2022 so.
Back on track, we just needed to get through absorbed some of that costs that we saw in the back half of the year and get on with those changes in the first part of this year.
From a synergy perspective, which we also laid out that 5% to $7 million on tracking on pace with the synergies again, Doug already outlined some of the challenges from an operating income perspective that we saw in the fourth quarter, but the synergies and the integration are moving along as we thought they would.
I think.
Go ahead, David I'll, let you finish your question.
No no go if you wanted to add on please do think you know I was going to say, yes. Thank you I was going to mention though that.
Despite that we see the same the thesis that we had when we went into North America is well intact.
The accretion will come in the 2022 as planned.
But I think John mentioned this we're seeing a couple of the reasons. We bought it is because it positions us around the north American market to be able to serve a broader array of customers and with our vertically integrated position that a lot more value to those customers.
And we're seeing that play out we're starting to see opportunities more opportunities new contracts new business that I think that is that the perception of the market is that the capability. We are is that kind of supplier.
Not just North America, but demonstrated in Europe and globally.
That's being noticed and I think that thesis of being able to grow this business and grow it profitably.
US more significantly then.
Prior to the acquisition I think is all intact. So we're excited about it we're going to move through this inflationary period like the rest of the businesses.
But the thesis of how we bought it and what it's going to deliver the companys intact.
Okay great.
My next question I was hoping to get maybe a broad like a 360 perspective on your metal casting.
Business, so year over year metal casting revenues were up 24%, but.
To me, even more interestingly I mean, they're 10% or so above 2019, so in other words, 10% above pre pandemic levels.
And when you look at your global business, a couple of questions, but how much of that growth from your perspective is quote unquote just cyclical just the end markets recovering versus how much is maybe company specific or company driven with your customize blends and mark.
Getting initiatives et cetera.
And you know maybe if you could comment on whether the recent strength.
Is indicative should I be able to read through that and then say global auto builds are.
Primed to.
Pick up meaningfully, let's say in the first half of 'twenty.
<unk> 2022, thank you.
Yeah, Let me see if I can give you some perspective, so 20, 24% growth in metal casting.
I gave you China. This year grew our 2020 , One Asia grew 21% that includes China and India.
North America volume growth this year was 10% and that included.
Sales were up higher than that through pricing, probably 14%, but that included some back half of the year slowdown due to some of the automotive and what we're seeing in terms of our customers who supply automotive that that in North America and actually globally production.
Ford numbers anywhere from 17% to 25%.
Then this past year. So we had a strong year last year in North America supplemented by a consistent.
We've had 10% compound annual growth in China in metal casting last year was 20%.
So a bigger year last year, we see that compound annual growth outside of the United States continuing.
And we see that we're able to have as we're going into a stronger year in metal casting then we left in 2021, given the auto demand we have a strong order book across the industrial off highway agricultural business, and then with automotive coming back we think it's shaping up to be at least as we see it today a strong year John is that they care.
It drives that accurately that we're seeing are very much. So I mean I was looking at the segments. I mean auto is a piece of it's probably 35% to 40% of our business and we've talked about that heavy truck AG municipal they're all you know demand is extremely strong we see it in China, we see it in India, we see it in North America, We also see it in South East Asia.
So what we are what we predict is going forward into 2022.
Strong demand continues the demand you you asked about the product portfolio the penetration of our blended products continues.
We see the substitution, especially in Asia.
But also including India.
That team is very innovative.
As you know we work with each of our customers and we try to.
To ensure that we deliver the products that they need for their specific plans, so very very well positioned and the demand is there from all of the segments.
Of course, we're working through.
Through the ups and downs associated with the with the demand profiles based on the auto market. So to answer your question, David I'd say 50, 50 half of the growth. This year was probably due to strong demand in North America and then the other half is just the continued penetration of our products in value and in Asia, but we see that continuing again this year, because we see a strong north mill.
Auto market and the continued growth in China, India Southeast Asia.
Okay, I'm going to just sneak a quick one in here, but I was interested in your recent announcement about the <unk>.
Packaging targeted PCC.
Satellite in China.
And.
I was wondering if you could just talk about you know.
The issues involved in accomplishing that in other words is the technology, especially different are you differentiated from your other competitors globally is this something that they have not done yet.
And then what other issues I mean can you followed the same model satellite model.
With you now.
The basic or your legacy PCC business or are there meaningful differences either in technology or capital cost store or other other types of issues. So how might the packaging piece.
PCC opportunity differ.
Structurally from.
Your legacy PCC satellite business right.
So.
Yeah. We are excited about this one I'll, let D. J talk more about some of the technology and et cetera, but this is structured it's similar and it's different from PCC is structured with long term contracts similar to our PCC contracts satellite contracts.
It's a similar level of capital investment.
It's a little bit different because the volumes are three X a PCC plant I mean, these are 350000 tons of GCC, but it set up more as a technology and tolling because in this instance, the customers providing some of the a limestone that we're creating into ground calcium carbonate and delivering on a on a constant basis.
The difference is and why we're excited about this is because we have both the PCC and the ground calcium carbonate package that we can deploy because in many cases in these packaging.
Opportunities, it's both they use both ground calcium carbonate and PCC and so we've developed a solution to be able to deliver through this contract mechanism that we have a.
Kind of an approach that they can have a one stop shop for their carbonate supply for that whole packaging product.
Theres room to grow for that and well, let me let D. J talk about what the market looks like and maybe a little bit more about our technology.
Yeah, So David on on this particular application.
As we've been describing the packaging market in the past. This is on that higher end packaging. So it's an all white board.
<unk>.
Be familiar with it on anything from a.
Box that holds golf balls to ice cream packaging, that's the market that we're in and as Doug was talking about the basic business model is holding true we've got an investment we get a good return on that investment.
And what it really does for us it allows us to bring our applications expertise.
Into that market, where we think that we've got an awful lot to offer our customers.
The satellite model. So we can tailor the product for the specific customers needs plus we bring our operational excellence, where we give some level of improvement over time in this application does put his whiteboard. It also.
<unk> broadens our ability to bring in PCC as well so several of these.
Board manufacturers will look to upgrade their product line. So we're starting off with GCC, but we've already have other request to bring in GCC and PCC. So so we feel that we've got an awful lot to offer there now in that 60 million ton market that is this this.
White packaging board.
Yes.
A lot of that market is well served with our current infrastructure. These opportunities in particular are pursuing the growth that is available in Asia, where the satellite model applies so that's what we're excited about.
With this opportunity and we already see several other opportunities.
Coming coming forward.
Just expanding a little bit further on that technology, David we still are making great progress I gave a snapshot when we last chatted about progress, we're making in the brown boxes again, thats a different technology.
And we continue to run trials there.
And so we are.
We're very excited about.
<unk>.
Making progress in the brown market as well as this top and white market and then that last aspect of packaging network doing as standard PCC on this white top market as we've grown in Selma, Alabama as we've grown in Europe as well, we're getting a couple of other opportunities for that as well so.
Quite a quite a bit of activity in the packaging space hopefully hopefully that helps.
Yeah, that's terrific color. Thank you very much.
Thanks, Dave.
We will take our next question from Christopher Hernandez with Sidoti <unk> Company.
Hi, Thank you for taking my question.
Most of my questions.
Uh huh.
But.
I have a couple of housekeeping questions.
They're more tenure alwyn.
So on the North America.
Thank you Sue with US what was the contribution.
Hum.
Revenue in the fourth quarter.
Yes, it was $28 million.
Thank you Matt.
Okay, Great and then.
Regarding.
No.
Expansion of margins in the first quarter you had previously said.
Do you expect it to be back to.
Marking levels on a product basis.
On a dollar basis.
Not on a percentage base.
In the first 122.
Is that.
Yes. So what we said is that we were going to get on a dollar basis caught up with the inflationary costs that we have been experienced over the past couple of quarters and obviously in the fourth quarter inflation continue to rise at a rate that was higher than we expected, but we also showed you that pricing.
That we put into place captured about 80% of what we saw in the fourth quarter, that's going to carry through into the first quarter plus the items that we told you about in the segments, where we were getting January 1st pricing taking place. So we will actually come net dollar ahead at the end of the first.
<unk> for the first quarter and overall, we're continuing to drive margin with those price increases against that inflation.
Booked through the full year from a margin perspective, we're going to come through the first half of the year youre going to see that year over year inflationary impact in the financials first quarter second quarter, because remember in 2021 inflation wasn't really as a significant factor in the first half early.
Second half component and as we get into the second half with the pricing that we have in place. The additional actions were taking getting through some of the logistics and labor challenges you're going to see that margin continued to expand significantly into the second half towards our target levels.
Okay, So obviously with that.
Having a lot more difficult to get to.
Our margin levels.
Ed.
What is the expectation regarding that can we get to pre pandemic.
Call It 14 plus.
Operating margin in the foreseeable future.
So let.
Let me see if I can grab it this way we have pricing actions in place given the inflation, we've experienced and expect to experience. This year that will get us back to those levels or close to those levels. We also believe that our product line growth.
Will be accretive to those margins so that by the end of this year, we could hit our target level.
And what is that.
And that's around that 14%, 15% range. So as we sit today, we've got stuff that we've got a projection that sees our growth in our higher margin businesses and pricing in place now, let's say, we're going to have to keep that that spread we're going to have to what Matt was saying is pricing in place will catch us up with what was delay.
<unk>.
And cost price through the first half and that margin expansion will occur towards the second half.
No.
That's laid out on paper, we got to stay ahead of that inflation. We expect we're going to see more inflation, we're going to have to be nimble, we're going to have to get it off the docs are going to have to do a whole bunch of stuff like we did last year to meet to deliver that.
But we see we have actions in place and we we do see that through dialogues, we're able to keep that kind of pricing pace to be able to hit those kinds of targets now.
We're going to we're into a very volatile still a year and it could even be more volatile in the beginning of this year than last and so we're just gonna have to stay on top of it but but the mechanisms in the company.
And the foresight, we have and some of the cost we've already locked in.
We've already locked in many of these things through the year, where were shorter last year set us up to be able to keep that spread on price price cost to get ourselves back to those margins.
Well. Thank you so much for the color.
Hopefully that helps.
Absolutely.
As a reminder, star one if you'd like to ask a question. We will go next to it will take a follow up from Daniel Moore with CJS Securities.
Yeah no. Thank you the follow up one or two have been covered so I appreciate the color again.
Okay.
Thank you with no additional questions in queue at this time I would like to turn the call back over to Mr. Dietrich for any additional or closing remarks.
Thanks, Katie I appreciate it.
Appreciate everyone joining today.
Hopefully we answered your questions.
Anything else you have will certainly be willing to follow up with you and we'll talk to you I believe in late April early may It Matt is that we're there okay. Thank you very much stay safe.
That will conclude today's call. We appreciate your participation.
Yes.
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Yes.
Okay.
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