Q3 2024 Minerals Technologies Inc Earnings Call
Good day, everyone and welcome to the third quarter 'twenty 'twenty for minerals technologies earnings call today's call is being recorded.
Speaker Change: At this time I would like to turn the call over.
Speaker Change: So Libya, coupled over head of Investor Relations for minerals technologies. Please go ahead Ms couple of them.
Lyuba Kopelovich: Thank you Shelly and good morning, everyone and welcome to our third quarter 'twenty 'twenty four earnings conference call today's call will be led by Chairman and Chief Executive Officer, Doug Dietrich and Chief Financial Officer, Eric I'll Duck. Following Doug's notes prepared remarks, we will open it up to questions.
Lyuba Kopelovich: As a reminder, some of the statements made during this call may constitute forward looking statements within the meaning of the federal Securities laws.
Lyuba Kopelovich: The cautionary language about forward looking statements contained in our earnings release and on this slide.
Lyuba Kopelovich: Our SEC filings as well as certain risks and uncertainties, which may cause our actual results to differ materially from the forward. Looking statements was also know that some of our comments today refer to non-GAAP financial measures and reconciliations to GAAP financial measures can be found in our earnings release and in the appendix of this presentation, which are posted on our website now I'll turn.
Speaker Change: And it all went to Doug Doug Thanks.
Doug: Thanks, Olivia good morning, everyone and thanks for joining today.
Oh, let's go for a quick outline for today's call.
Doug: First I'll provide a quick review of our performance highlights for the quarter.
Doug: And then I want to spend a few minutes reviewing the progress we've made with a variety of key initiatives and business development activities.
As well as run through some highlights and key takeaways from our Investor Innovation day that we held in September.
Doug: Eric will then take you through the detailed financials for the quarter.
Doug: We'll try to keep our prepared remarks, a bit shorter this call. So we have more time for your questions.
Doug: Let's start with our Q3 highlights.
Doug: This was a record third quarter for us and we're on track for another record year.
Doug: We did experience a general slowdown across our industrial markets. This quarter, primarily in the engineered solutions segment.
Doug: This softness was offset by growth in our consumer based businesses.
Doug: This is the balanced structure of our portfolio that I often referred to.
And it continues to prove that it can deliver solid results through a range of market conditions.
Doug: Despite the softer conditions in our industrial markets.
Doug: Operating income was a record for a third quarter in both gross and operating margins remained strong.
Doug: Reflecting the increased profitability, we are driving across the company.
Doug: Price improvements higher sales of our newest products input cost savings and productivity improvements all contributed to this performance.
Doug: Operating cash flow increased over last year, and our balance sheet is in great shape.
Doug: We have broad opportunities to invest capital in ourselves both to support our organic growth and to capture manufacturing cost improvements in our facilities.
Doug: With that leverage at our target levels and with our free cash flow generation of around 7% of revenue, we have sufficient financial flexibility.
Doug: We continue to follow our balanced approach to capital allocation, which is to return 50% of our free cash flow back to shareholders, while retaining the other 50% on the balance sheet for inorganic growth opportunities.
Doug: We completed our previous $75 million share repurchase program last week, and last week announced a new $200 million share repurchase initiative.
Doug: We increased the dividend by 10% at the same time.
Doug: Demonstrating the confidence we have in our ongoing financial strength and long term growth prospects.
Doug: Overall I'm proud of our team's performance this quarter and pleased with how well MTI is positioned to continue our strong performance track.
Doug: We made significant progress over the past several quarters with our growth strategies in both segments and I'd like to highlight a few initiatives and accomplishments that will have a meaningful impact on expanding our leadership in key markets and positioning the company for the future.
Doug: In household and personal care.
Doug: We recently launched a new global <unk> brand called <unk>.
Doug: For the past few years, we've built a leading cat litter business.
Doug: Emerging as the leading partner for both private label and well known brands.
Doug: The Seawell identity was established to unify and embody the strength of this global business and its focus on solutions that improve the lives of pet owners and their cats.
No other cat litter manufacturer can offer the level of expertise and service that we can through this through our global mining processing packaging innovation and logistics.
Doug: The <unk> business is positioned to offer our customers the very best assortment of products in every region.
Which we see as an extremely strong base for long term growth.
Doug: Within the specialty additives product line.
Doug: We expanded our offering of products targeting sustainable solutions.
Doug: We've grown our position in paper and packaging markets. This year through the deployment of our new yield recycling technology.
Doug: And we recently launched a new specialty additive technology for the bioplastic market called <unk> bio.
Doug: This additive helps to maintain the plastics physical properties and functionality.
Doug: And in certain applications enables it to be fully composted.
Doug: And the engineering solutions segment, we continued to deploy our men scan LSC automation technology for refractories with two additional installations expected in Q4.
Doug: And we continue to increase the penetration of our foundry blends into the China and India markets with the conversion of several new customers to our blended solution.
Doug: We've made significant progress with the validation and deployment of Florida, RP fast remediation solution.
Doug: As you know, we're collaborating closely with the EPA to further demonstrate the effectiveness of floors and drinking water treatment.
Doug: And have been included in pilots at eight water utilities.
Doug: The results so far are very promising and we anticipate that this thing.
Doug: To accelerate the adoption of floors or across the U S.
Doug: We have other examples of growth initiatives that we have pursued this year, but these are a few that demonstrate how we are aligning the company with secular growth trends developing new sources of revenue and positioning the company for future growth.
One last comment before I move on.
Doug: We tend to focus our comments regarding innovation on new product development.
Doug: We've also made several innovative advancements within our operations and back office processes.
At MTI, we constantly look for ways to remove inefficiencies improve safety and increase our process capability.
Doug: Over the past few years, we've deployed several AI based tools in our operations to aid areas like predictive maintenance and process optimization.
Doug: We've also deployed intelligent tools to supplement our shared service business processes and our R&D capabilities.
We're beginning to see the benefits from these initiatives, which give us greater insight into lowering manufacturing costs aiding our R&D activities and becoming even more efficient in both manufacturing and business processes.
Doug: One significant recent example is the partnership we just announced with a technology company to deploy autonomous mining capabilities.
Doug: We've been working together to refine this technology for the past two years.
Doug: We see this can help us to increase employee safety improve productivity and drive higher utilization of our mining equipment.
I mentioned all of this to highlight that innovation at MTI is deeper than just new product development.
Doug: It's one of the core tenants of our operational excellence culture and is driving improvements in efficiencies across the company.
Doug: Speaking of innovation on September 24th we hosted investors at our innovation day event at our Hoffman estates R&D Center and.
Doug: And for those of you who attended thank you for taking the time to join the event.
Doug: The day focused on three of our four core technologies and primarily around how we apply them in our bentonite based businesses.
We showcased how we apply these technologies and the development of some of our latest products and environmental water remediation health and beauty high temperature foundry systems and pet care.
Doug: But the day was not intended to just demonstrate our products.
Doug: He was the highlight the depth of our technological capabilities their versatility and how they can be applied to create solutions for a wide variety of problems.
An additional point, we were trying to convey during the day was to show that these technological capabilities important as they are our only one piece of what makes MTI unique.
Doug: We demonstrated four key characteristics of MTI.
Doug: Describing our world class mineral reserves these core technologies.
Our deep applications expertise and our intimate knowledge of our customers' products and processes.
The combination of these four and how they are supported by the MTI business system and our culture of operational excellence is what truly differentiates MTI.
It's this architecture that supports our leadership in the marketplace and.
Doug: And what positions us to be able to develop manufacture and deliver valuable products and solutions over the long term.
Doug: If you Werent able to attend this event I would encourage you to access the presentation materials on our website.
Doug: And we look forward to showcasing our other technologies and minerals at another innovation day in the future.
Speaker Change: Now I'll hand, it over to Eric who will walk us through the financial details segment highlights and our outlook for Q4, Eric.
Thanks, Doug and good morning, everyone.
Eric Duck: I will begin by providing an overview of our third quarter results.
Eric Duck: Slowed by some detail on the performance of our segments.
Eric Duck: And I'll wrap up with our outlook for the fourth quarter.
Eric Duck: Following my remarks, I'll turn the call over for questions.
Eric Duck: Now, let's review our third quarter results.
Eric Duck: We delivered another strong quarter.
Eric Duck: Our results represented third quarter records for operating income and EPS, excluding special items.
Eric Duck: Third quarter sales were $525 million.
Eric Duck: Down 2% from last year on an underlying basis as growth in consumer and specialties was offset by lower sales in engineered solutions.
Eric Duck: We experienced a slowing of industrial market activity in the third quarter and you can see how that impacted our high temperature technologies and environmental and infrastructure product lines in the sales bridge on this slide.
Eric Duck: And the operating income bridge, the volume and mix impact reflects this market softness, which you can see we more than offset with continued pricing improvements and cost performance.
Eric Duck: Selling price increases totaled $3 million versus the prior year, which translated to <unk> 40 basis points of margin improvement.
And cost improvements contributed $6 million in higher income and 120 basis points of margin improvement over last year.
Eric Duck: Our teams continue to manage cost well delivering a strong mining and productivity performance.
Eric Duck: And we're realizing the benefits from the cost savings program, we implemented last year.
Eric Duck: Altogether third quarter operating income rose by 3% versus last year to $79 million and operating margin increased by 100 basis points to 15, 1% of sales.
Eric Duck: Earnings per share was $1 51, excluding special items up 1% from prior year.
Eric Duck: And finally, our cash flow remained strong with $60 million in cash from operations in the third quarter.
Eric Duck: Now, let's review the segments, beginning with consumer and specialty.
Eric Duck: Third quarter sales in the consumer and specialty segment increased 1% on an underlying basis from last year to $280 million.
Eric Duck: Sales in house.
Eric Duck: 2% year over year to $131 million.
Eric Duck: We continue to realize solid sales growth in several of our high margin consumer applications, such as personal care, which was up 7%.
Eric Duck: Edible oil and renewable fuel purification of 4%.
Eric Duck: In animal health up 13% over last year.
Eric Duck: Meanwhile, our fabric care sales were temporarily lower than last year due to the timing of customer orders.
Eric Duck: And we expect that to reverse in the fourth quarter.
Eric Duck: Cat litter sales grew 5% sequentially and were up low single digits versus last year.
Eric Duck: After a slower than usual summer period in the U S and Europe, our cat litter sales picked up late in the third quarter and volumes have continued to trend upward in October.
Eric Duck: We're expecting a stronger fourth quarter for the entire household and personal care product line and early indications are that next year is also setting up nicely for mid to high single digit growth.
Eric Duck: In specialty additives sales were 1% higher on an underlying basis.
Eric Duck: Volumes in paper and packaging continued to grow driven by our newest satellites in Asia and.
Eric Duck: And improved demand across Europe, and North America compared to last year.
Eric Duck: Meanwhile, demand for our specialty additives, serving automotive and construction markets has been more tempered.
Eric Duck: Third quarter operating income for the segment was $42 million up 9% year on year on favorable underlying volume as well as strong cost control.
Eric Duck: We captured input cost savings and productivity improvements as we continue to drive production efficiency efficiencies in our acquired cat litter facilities.
Eric Duck: Operating margin for the segment improved 170 basis points from prior year to 14, 9% of sales.
Turning to our fourth quarter outlook.
Eric Duck: In household and personal care, our cat litter business is entering a seasonally strong period and in specialty additives, we expect volume from paper and packaging satellite ramp ups to help offset the seasonal slow period for residential construction.
Eric Duck: Overall for the segment, we expect operating income to be similar sequentially and up over 10% versus last year.
Eric Duck: Now, let's turn to the engineered solutions segment.
Eric Duck: Third quarter sales in engineered solutions were $244 million, 5% lower than last year.
Eric Duck: This is the segment that is most impacted by industrial market conditions.
Eric Duck: Sales in high temperature technologies, our largest product line were $175 million, 1% off from last year, driven by softer demand from foundry is serving the agricultural and heavy equipment market and.
Eric Duck: And from some of our customers in the steel industry.
Sales in the environmental and infrastructure product line were 12% lower year over year on continued softness in commercial construction and environmental lining applications.
Eric Duck: Segment operating income of $39 million was 4% lower than prior year driven by lower volumes.
Operating margin remained strong improving by 10 basis points to 15, 9% of sales.
As our teams remained focused on execution and delivered delivered a solid cost performance.
Eric Duck: Looking ahead to the fourth quarter, we expect industrial market conditions to remain soft for high temperature technologies.
Eric Duck: And we are entering the seasonal period when project activity is slower for environmental and infrastructure.
Eric Duck: Operating income for the segment is expected to be approximately 10% lower sequentially, which is a typical seasonal change.
Eric Duck: I will note that there is a little more industrial market uncertainty out there for the next few months.
Eric Duck: However, we expect these more interest rate sensitive and market will strengthen with greater visibility around interest rate reductions.
Eric Duck: Overall, we feel positive about how the economic backdrop is setting up for both of our segments next year.
Eric Duck: Now, let me turn to a summary of our balance sheet and cash flow highlights.
Eric Duck: Okay.
Eric Duck: We delivered another strong cash flow performance in the third quarter.
Eric Duck: Cash from operations was $60 million in the quarter, bringing our year to date total to $166 million, a 20% increase over prior year.
Eric Duck: Year to date free cash flow was $105 million or 55% increase from prior year.
Eric Duck: We continue to expect full year free cash flow in the $150 million range.
Eric Duck: Which would put our full year free cash flow conversion at approximately 7% of sales.
Eric Duck: Capex totaled $25 million in the third quarter, and we expect our full year capital spend to be around $90 million.
Eric Duck: We also deployed $9 million towards debt repayment in the quarter.
Eric Duck: And we completed our previous one year $75 million share repurchase program. This month.
As Doug highlighted our board of Directors recently approved a 10% increase in our quarterly dividend.
The new $200 million share repurchase program, which we expect to execute over the coming years as part of our balanced approach to capital allocation.
Eric Duck: Our balance sheet remains very strong with over $550 million of liquidity and net leverage at one seven times.
Eric Duck: Now I'll summarize our outlook for the fourth quarter.
Eric Duck: We expect overall sales to be similar sequentially and similar to the prior year.
Eric Duck: In past years, we would normally expect lower sales in the fourth quarter due to the seasonality of some of our end markets.
Eric Duck: However, the combination of our growth initiatives and our more balanced portfolio of consumer and industrial products is helping to offset that seasonality.
Eric Duck: We expect sales in consumer in specialties, we expect sales growth in consumer and specialties with stronger cat litter sales and new paper and packaging satellites, helping to offset seasonally lower residential construction activity.
Eric Duck: In engineered solutions, we see lower sales sequentially as industrial end market conditions are expected to remain soft and will be entering the seasonal low period for environmental and infrastructure project activity.
Eric Duck: We typically experienced higher energy and mining costs in the fourth quarter and our margin guidance reflects that typical seasonality.
Eric Duck: We're also expecting overall product mix to be less favorable sequentially given the lower sales in some high margin product lines within engineered solutions.
Overall, we expect to deliver another quarter of year over year margin improvement with operating income between 70% and $75 million and earnings per share between $1 35.
Eric Duck: And $1 45.
And we expect continued strong cash flow generation.
Eric Duck: For the full year, we are on track for another record performance for operating income and EPS.
Eric Duck: And we expect our full year operating margin to be close to 15% ahead of the 14% target we set for this year.
Eric Duck: Overall, despite mixed end market conditions.
<unk> is well positioned heading into next year with multiple levers to drive long term growth and shareholder value.
Eric Duck: With that I'll turn the call over for questions.
Eric Duck: Thank you.
Like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure your mute function.
Eric Duck: Off to allow your signal to reach our equipment.
Speaker Change: Ian you can press star one to ask a question for.
Speaker Change: For just a moment to allow everyone an opportunity to signal for questions.
Speaker Change: Okay.
Our first question is coming from Daniel Moore with CJS.
Speaker Change: J S Securities.
Daniel Moore: Thank you good morning, Doug Good morning, Eric Thanks for taking my questions.
Speaker Change: Hi, Dan Hi, Dan.
Daniel Moore: Start with prepared remarks, if I heard right. I think you said you mentioned your year end markets and new product set you up well for mid to high single digit growth next year across consumer and specialties.
Speaker Change: Did I hear that right number one number two can you break that down a little bit by category and one of the key new products or renovations that give you that confidence.
Speaker Change: Yes, so the comment in the remarks was in reference to household and personal care and the fact that the growth was I think low single digits in the third quarter.
Speaker Change: October is looking pretty strong for pet care and we feel good about the fourth quarter and heading into next year.
Speaker Change: And generally we have been seeing good growth out of that consumer and specialty segments and in particular, the household and personal care product line. It's not just the pet care, but the high margin specialties that we're talking about the bleaching earth edible oil purification renewable fuel purification.
Personal care fabric care.
Speaker Change: Animal health, there's a lot of product lines in there that we feel confident about and so thats what the statement around mid to high single digit growth for next year was about.
Speaker Change: Again that said, we'll take it a little further so.
Speaker Change: High to mid single digits as household and personal care product line, but I do think that.
Speaker Change: Eric made another comment that sets up the backdrop the backdrop for next year could be very positive for both now.
Speaker Change: Interest rates and when and how they will trend down.
Speaker Change: Impact and the delay that it will take to kind of move some of these more industrial markets, especially commercial construction, which we have some projects that we know that are on the sidelines that are ready to go.
This could provide a very nice backdrop next year for both of the segments in terms of growth. So we're setting up nicely in the consumer and specialties business and I think we can be set up nicely next year or so.
Speaker Change: Trends take place, where we could see that revert to our growth and for both segments going that direction. That's we're going to revert back to that mid to high single digits or at least mid single digits for the company.
Very helpful.
Speaker Change: Near term how much of the slowdown youre seeing across the more cyclical pieces of the business.
Speaker Change: How much of it if any relates to customers being cautious and working down their inventories versus actually related to kind of softening end market demand over the next quarter or so.
Let me start off and then ill give it to Brad who is the group President for engineered solutions I think it's a bit of both.
I think we're seeing and we continue to see weakness in or not a lot of movement at all in commercial construction. So I think that's just kind of.
Speaker Change: The economic activity in interest rate driven and the same with some of the environmental projects larger environmental projects I think in foundry and refractories, it's bit of a difference Brett you want to give some color on the two product lines. What you are seeing sure.
Speaker Change: Then for from a metal casting standpoint, mainly in North America.
Speaker Change: It's really the AG market demand has really softened in the third quarter.
Speaker Change: Declined a little bit further than the second.
Speaker Change: A major equipment supplier pulling a lot of production out of the market.
Speaker Change: We also saw other other AG boundaries.
Speaker Change: Take extended outages.
But the core core business is still okay.
Speaker Change: The reduction.
<unk> to be driven by the high interest rates.
Speaker Change: High inventories in.
Speaker Change: Really used and new farming equipment. So so theres just a slowdown in the market itself.
Speaker Change: We in the fourth quarter, though it is expected to hold.
Speaker Change: We don't anticipate that AG market to go down much further.
Speaker Change: In that segment makes up that part of this segment makes up about 15% of the total.
Speaker Change: Metal castings.
Speaker Change: Market. So in North America automotive seems to be okay. It's holding.
So we're.
Speaker Change: We think we're going to see the similar performance in the fourth quarter from a steel side, we are seeing some softening in the market.
Speaker Change: Utilization rates in North America are about 72%.
They have been in the mid seventies, a little bit higher.
Speaker Change: And last year, but it is still doing well most of that decline is in flat roll steel. We are seeing the service centers, reducing some inventories and some of that just based on softer demand in some of its just we're pricing in China trying to get pricing back to.
Speaker Change: Two higher levels.
Speaker Change: Our expectation for for the steel production overall is similar to what I just said in foundries, we think thats going to be pretty flat in the fourth quarter and probably flat in the first quarter as well.
Speaker Change: Europe Europe is still.
Speaker Change: Steel flat.
Speaker Change: But overall, we think by the second quarter. Once the election is over interest rates come back we're going to start to see an increase in trajectory. So we we feel we don't feel like were seeing any any major.
Speaker Change: Dropped like we have years past so overall.
Speaker Change: We feel pretty good about the market.
Speaker Change: And moving it forward.
In the next few quarters.
Speaker Change: Okay.
Speaker Change: That's great color just trying to get a sense for when it turns whether there might be a little bit of extra boost from inventory replenishment so to speak.
Speaker Change: Thats really helpful.
Speaker Change: One I will jump out you have been running ahead of your margin targets.
Speaker Change: 15% op margin this year.
Speaker Change: How do we think about upside to those goals and if so.
Speaker Change: When might you think about updating or establishing kind of new longer and longer term targets. Thanks again for the color and congrats on the execution.
Speaker Change: Thanks, Dan I appreciate that regarding margins Yeah. We think there is some upside to our 15%.
Speaker Change: I think when we have a.
Speaker Change: Let me preface it this way I think it's going to come from a couple a couple of places next year, it's going to come from.
Speaker Change: Volume growth and revenue growth, which as I mentioned in the two segments I think are set up well to deliver that next year.
Speaker Change: As you know us we keep our fixed costs relatively tight we do have capacity in our plants to handle that revenue growth and so I think those contribution at contribution margin is going to drop to the bottom line, that's going to be a positive.
Speaker Change: Second thing is we are seeing acceleration in some of our higher margin products. We've seen that all this year those are new products, but also some of the high temperature technologies as they rebound from the slower second quarter or a slower second half I think those are going to accrete our margins going forward next year or so.
Speaker Change: Price cost you know us.
Speaker Change: We see cost.
Speaker Change: Pressures, we're going to adjust pricing to keep our margins.
Speaker Change: But I think we're largely through that we will be diligent on pricing.
But at the same time I think next year youre going to see that volume growth revenue growth and youre going to see the higher margin products, all accretive bottom lines, where that ends up next year I think we need a little bit better look at getting through the election in the fourth quarter, what the volume outlook outlook looks like next year and we'll give you some targets probably at the end of the year.
Speaker Change: Sounds great. Thank you again.
Speaker Change: Your next question is coming from the line of Mike Harrison with Seaport Research partners.
Speaker Change: Hi, good morning.
Speaker Change: Hi, Mike.
Speaker Change: Well, what we thought we could.
Mike Harrison: Maybe dig in a little bit on the HBC business.
Mike Harrison: Coupled with softer quarters there.
Mike Harrison: Last quarter, we were talking about some changeovers with impacted the pet care business. This quarter as you went through the different product lines within that business. It seems like everything was kind of growing pretty nicely extra fabric care.
Mike Harrison: And I'm just kind of curious how we got to.
Mike Harrison: One or 2% type of.
Growth number.
Mike Harrison: If everything else was growing and it was really just fabric care that was soft can you give us some more details on what you were seeing in that business.
Speaker Change: Sure, let me kick it off Mike and then I'll pass the DJ to give you some more color.
Yes, a couple of areas I mean look this product line is still set up really well.
Speaker Change: It's growing.
Speaker Change: These are some of our newest products.
Speaker Change: Yes, a bit of a softer couple of months in pet care in the slow season.
Speaker Change: A slower than normal, but rebounding nicely and I think into the fabric care was a little bit of order pattern change and shift largely to some of our Asian customers. So I don't think its anything there.
Speaker Change: But these businesses have a lot going.
Speaker Change: <unk> gone ahead, let me get Vijay you want to take them through the product lines and what you are saying, yes gladly.
Vijay: So Michael let me address fabric care, specifically, then we'll talk a little bit more about specialties and then just provide you some color on.
Speaker Change: On pet side as well on the fabric care, yes, little little slow, but if you look at it as Doug said, mostly that was some order pattern issues, primarily with Asia, so that'll be coming back to our expected pace.
Vijay: This quarter and next.
Speaker Change: But long term I guess, if you look at that product line in general.
A lineup that we've got with some of the macro trends out there on natural solutions and environmentally friendly approaches although.
Speaker Change: Those things that we're doing we're seeing.
Speaker Change: Substantial customer poll in fabric care in particular this trend towards dry detergents is where our expertise lies and we're getting increased requests for higher performing additives that do everything from fragrance control to go into some new products that will be.
Speaker Change: Further working through dry products, reducing water consumption and eliminating plastics in that line, but if you look at that broader perspective of that particular product line bleaching Earth. We still continue to get strong poll, especially from renewable fuels and and that is just a nice.
Speaker Change: Forming mineral in that space animal health the drivers again are.
Speaker Change: Improved nutrition for especially these.
Speaker Change: The food animals, the protein source that's out there and we are aligning up with natural solutions that kind of.
Speaker Change: Go along with the trend of moving away from the antibiotics.
Speaker Change: And those sorts of.
Speaker Change: And GMO so.
Speaker Change: We're really comfortable that we're in the right space for.
Speaker Change: For all of those items.
Speaker Change: When you look at pack, a little bit of a slow quarter caught me a little bit by surprise on the early part of the quarter, we're seeing strong.
Speaker Change: <unk> right now from them. So we will see both sequential growth and year.
Speaker Change: Our growth as we go into this quarter Erik already highlighted those items as we go into next year, we're seeing pretty substantial pull on some new products new offerings that we have that's everything from a fragrance.
Speaker Change: To some new packaging, but we're also seeing some.
Speaker Change: Bob.
Speaker Change: Called private label strategy expansion, where people going upscale and downscale, depending on what their particular strategies or an upscale move would be something like a hygiene improvements something.
Speaker Change: With less dust, the higher brightness or something specific for these new robot litter boxes that are going out there and the downscale will just be something that's a more competitive price offering versus an existing private label. So we're lined up well Mike.
Speaker Change: Yeah, Mike the only thing I would add to that is just giving you some perspective so.
Yes, a bit of a slower quarter in some of these product lines, but on a longer term basis.
Speaker Change: And I think a year and a half ago, we laid out that this pet care business at the time.
Speaker Change: <unk> kind of Investor day, we laid out some targets for you I think of the $350 million business.
Speaker Change: That thing is probably going to be pushing 440 $450 million next year and our target by 2027 was get to $500 million.
Speaker Change: And we are well on track if not ahead of that so a little bit slower summer, but with the initiatives that we have in terms of aligning ourselves with some Asia E Commerce business. Some of the new products you saw in Hoffman estates around robotic litter boxes with our new adage, there's all the things DJ just lined up I think we're really well.
Speaker Change: Positioned to not only meet that target, but maybe exceed it so on track.
Speaker Change: Pretty similar for the rest of the product lines in there.
The products in that product line that T. J just mentioned.
Alright, thanks, very much but definitely helpful color.
Speaker Change: Environmental and infrastructure.
Speaker Change: This continues to be pretty soft I think even though we're kind of lapping some easier comps there.
Mentioned that the lower interest rates should help but can you talk.
Speaker Change: A little bit about what you guys are hearing from your key customers, what they're saying about backlog and I'm just kind of curious is there some pent up demand.
Speaker Change: That could start to materialize in the next year or two particularly as interest rates are coming along.
Speaker Change: Yes, sure Brad you want to go through.
Brad: Some of what we're hearing from our customers sure sure.
Brad: Mike Let me, let me just walk you through our key product lines, and where we are and where we think it's going to go up when you look at our building materials of construction market. As you know is continues to be depressed.
Brad: Due really to the economic drag we've seen throughout the world.
Brad: It Hasnt really fully recovered from Covid supply chain crisis interest rates credit tightening.
Brad: So we've been we've been frustrated with it.
But we're starting to see more stability globally.
Brad: And we're starting to see some.
Brad: Extra activity, we're getting spec into several projects.
Brad: But the consensus opinion.
Brad: As again when rates drop further the political situation stabilizes, we're going to start seeing more more movement.
Brad: We're way more optimistic.
Brad: For next year in 2025 than we have been in the last couple of years.
Brad: And our products are used on the front end of projects. So as these <unk> start to be Doug.
On these construction projects or products, they're going to they're going to be there. So so we are more optimistic from an environmental standpoint, which is primarily municipal waste and coal ash let.
Let me talk a little bit about that.
The landfills.
Brad: The municipal waste of course continues to grow.
Brad: And landfills in the U S continue to be a large part of the EPA.
Waste hierarchy plan.
Brad: In Europe, that's not the case theres more incineration.
Brad: Landfills.
Brad: No.
Brad: We will continue to use.
Brad: <unk> clay liners, and when they need aerospace.
Brad: They use our geo synthetic liner so those those products.
Brad: A key base for our business.
Brad: In coal Ash is the more cyclical business coal ash.
Brad: And the drilling.
Brad: That has been very slow for us a metric as a key part of our business.
Brad: And sometimes.
Brad: That takes longer there is a lot of planning stages in that so we think that 2024 was a key planning stage and we are getting a lot more inquiries for 2025.
Brad: For those businesses, so we anticipate that getting.
Brad: Better as well and then drilling drilling actually has been the highlight of the environmental and infrastructure business. This year.
Brad: It is it is produced.
Brad: Decent sales.
Brad: And that's without the traditional heavy construction drilling so when that kicks back in.
Brad: Outside of what we've been selling mainly into the electrical grid clean water broadband internet and energy initiatives.
Brad: The traditional heavy construction drilling kicks back in.
Brad: I think we're going to we're going to be set up for a decent year and then of course wastewater.
Brad: Wastewater we have projects ongoing.
In the industrial manufacturing.
Discharge of wastewater into a municipal sewers in situ remediation and then of course drinking water. So theres a lot of activity going on but unfortunately, it's been really slow and we think we're set up pretty well for some of these these projects that are waiting for.
Brad: Should be initiated.
Speaker Change: So now Mike Alright. Thanks.
Speaker Change: Super helpful and maybe just a quick follow up.
Mike Harrison: Think of that project based businesses.
Mike Harrison: Very high incremental margin or being a place where more activity can leverage really nicely.
Mike Harrison: Is that still the right way to be thinking about that.
Mike Harrison: The environmental and infrastructure business.
Mike Harrison: Yes. It is I think it's if you look at the whole engineered solutions segment.
Mike Harrison: It is a segment has the highest margins in the company and so I think.
Mike Harrison: Back to the earlier question on margin improvement as you see.
Mike Harrison: The industrial activity around foundry or on refractories and these projects that have high contribution, especially in the construction market as that starts to move back and not only that growth that that contribution will come in and Thats, where we see some of that margin improvement and profit improvement coming next year.
Alright very helpful. Thanks, so much.
Speaker Change: Our next question is coming from the line of Kyle May.
Speaker Change: Hi, good morning, stiffer zani on for Kyle I appreciate all the detail. This morning, Joe generic I wanted to ask about the upside size to share buyback just curious is that still a one year.
Speaker Change: And also related to that.
<unk> was it greater cash conversion the improved balance sheet.
Speaker Change: You look at the valuation I know the support decision or the flip side being maybe M&A candidates out there or is there still priced too high or maybe they just arent a ton out there just a glass half full or glass M. D type question.
Speaker Change: We're definitely glass half full here.
Speaker Change: Steve Thanks for the question, let me, let me take it back to just kind of are.
Speaker Change: And our capital allocation policies and generally when we're at when the balance sheet, where it is now in our leverages around two times or below and as Eric mentioned were one seven times, we like to steer capital back to shareholders, 50% of our free cash flow on.
Speaker Change: On average goes back to shareholders each year and the other 50% we'd like to keep on the balance sheet for opportunistic M&A.
Speaker Change: We did finish so on 150 to 60 million of free cash flow $80 million, a year $75 million to $80 million a year. We did that this past year through a $75 million share repurchase and dividends I think totaled about $96 million back to shareholders $95 million back to shareholders.
Speaker Change: Going forward, we see the growth, we see improved margins and we see improved cash flows.
Speaker Change: And I think that supports both that capital allocation strategy and additional inorganic opportunities if they arise.
Speaker Change: So we did that through this time of $200 million share repurchase initiatives. There is really no timeframe on this one.
Not a one year, but we plan on.
Speaker Change: Purchasing those shares gives us a little more flexibility through that kind of 50 50 balanced allocation of capital. Okay. So it will be doing that over the next year or two years.
Speaker Change: Two to three years, probably finish that program up but we'll see how that goes and we also saw that with that kind of increased.
Speaker Change: Cash flow of the company is generating.
Speaker Change: With with the forward sales projections in the positions we're in the confidence too.
We doubled our dividend last year, but now add another 10% of that so.
Speaker Change: I think with our financial strength that gives us a lot of options and flexibility to both keep the balance sheet in great shape.
Speaker Change: <unk> increased the dividend.
Speaker Change: Repurchase shares and at the same time as you mentioned, we still have retain the opportunity for M&A. So it's not one or the other it's not give shares share repurchase or M&A. We think we can do both.
Speaker Change: Thanks, Doug.
Speaker Change: Can I ask about the.
Speaker Change: AI applications to the mining processes.
Speaker Change: If you are making these investments and I know you highlighted worker safety, but if youre going to make these investments.
Speaker Change: Assuming you see some margin enhancing potential I think you talked about productivity and I know you are in the early stages is that the goal that you think of it longer term and what would your confidence level that those could contribute.
Margin enhancement.
Speaker Change: I think so so over the past couple of years, we've been working on.
Speaker Change: Highlighting this one just because I did want to we just came off of an innovation day on products and.
Innovation around new concepts and I wanted to highlight that it's deeper than that and that's where my comments that we're looking at tools.
Speaker Change: AI tools that other tools that we use every day in our operations in here was one that we felt that was very interesting the way out to announce in the reason. This one is important is because yes. There are some direct savings and efficiencies in fuel, but more to that.
Speaker Change: It can help us use equipment when we typically wouldnt use it. So this is helping with safer operations because of ways of running that equipment and sometimes challenging.
Speaker Change: Circumstances with our employees, but also if weather inclement weather in at night. These are non times, we're going to be running that equipment, it's not safe to do so but this gives us the opportunity for asset utilization improvement, which ultimately will be.
Speaker Change: Long term costs cost savings. So it may not be a huge margin improvement our mining folks are fantastic at what they do but being able to use this equipment on a 27 basis is a big thing.
Speaker Change: Excellent. Okay. Thanks, one last one from me on Florida, you talked about some.
The progress on those eight pilot programs can you talk about when we can actually move to an implementation phase is that going to be driven more by the success of those programs what are the regulatory requirements timing wise.
Speaker Change: Well, we're already in the implementation stage I guess, it's just a matter of trajectory and timing and adoption from from the marketplace.
Speaker Change: We are in for.
Utilities already.
I'm, sorry, I, just got cigarette six utilities already by ourselves are removing <unk> from.
Speaker Change: From water. So we're already implementing that I think the engagement with the EPA is really.
Speaker Change: We're already validated as a very high functioning T force removal agent. What this is doing is.
Speaker Change: Having the EPA kind of utilize the three technologies primary technologies that are out there ours being one of them in eight studies now I think that will just add to the confidence level of floors or as a very effective.
Speaker Change: <unk> removal.
Speaker Change: Media and and will likely accelerate its adoption it will give.
Speaker Change: Utilities.
Speaker Change: The confidence that this is a.
Speaker Change: <unk>.
Speaker Change: A good solution for P. Fast one I think it will accelerate it now regulation and the utilities really not.
Speaker Change: Going in until 2029, it's.
Speaker Change: That's not to say that water utilities are waiting so it will ramp up and it will ramp up as we get closer to that.
Speaker Change: And we're also working in.
Speaker Change: Environmental remediation groundwater cap.
Speaker Change: <unk> systems as well so it is only one element of Ppl's removals drinking water, we have other environmental water cleanup projects as well so we're already in implementation.
Speaker Change: Dave Steve excellent Okay, great. Thanks, so much John.
John: Thanks, Steve I appreciate it.
Speaker Change: Our next question is coming from the line of David Silver with CL King.
Speaker Change: Okay.
Speaker Change: Yes.
David Silver: Yes, hi.
Morning.
Speaker Change: Hum.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: I think the first topic I'd like to go out as kind of the cost performance. This quarter. So looking at slide eight bottom bottom right hand corner, but Eric highlighted about $6 million benefit at the operating income line.
Speaker Change: Year over year.
Speaker Change: And I'm, just wondering I mean, I do see prices up marginally as well so price up a little costs down but more on the cost side would you say that that $6 million benefit.
Speaker Change: Net net I mean is that a function of lower raw materials is that better mining efficiencies at lower fixed costs.
Speaker Change: What would you point to kind of.
Speaker Change: Characterize.
Speaker Change: The.
Speaker Change: Cost benefit that you experienced this year versus one year ago.
Speaker Change: Yes, Thanks, Dave This is Eric.
Eric Duck: Kind of all of the above that you mentioned, it's about if you want to break it down it's about a third raw materials, a third energy and a third productivity and productivity I'll throw in kind of fixed cost savings as well, but from a productivity perspective, we're performing really well this year.
Eric Duck: We typically we go into every year targeting 10% productivity improvements from our tons per hour worked perspective, and 3% variable conversion cost improvements and those are aggressive targets and but this year, where we're above 5% from from productivity savings.
Eric Duck: Across across the company.
Eric Duck: And a lot of that is coming from our newly acquired pet care facilities were still.
Eric Duck: Driving efficiencies in those facilities as we continue to automate and bring these these new plants up to kind of the MTI standard from a productivity perspective, and a variable conversion cost per tonne standpoint.
Eric Duck: So there are savings there and then on the fixed cost side.
Eric Duck: We're staying disciplined around fixed cost I mentioned, we did have that savings program that we implemented last.
Eric Duck: Q3, and so we've got the full run rate of that in effect as well.
Eric Duck: Across the board where.
Eric Duck: Performing well from a cost standpoint.
Speaker Change: Okay, great. Thank you for that.
Speaker Change: I'd like to ask a question I think it's going to build on the PFS question that was asked.
Speaker Change: Previous previously, but maybe I'll throw in scan as well but.
Speaker Change: Just sticking with DFAST for a minute, but you said you have a pilot projects underway.
And this is my opinion, but I think between now and let's say 2026 or so.
Speaker Change: When the water utilities have to kind of define.
Speaker Change: Define their particular positioning relative to the EPA standards and then.
Speaker Change: Sketch out a plan for remediation, but so in that interim period.
Speaker Change: <unk>, there's going to be a steep ramp up in pilot projects in beta testing and whatnot.
Speaker Change: And I'm wondering whether that has a net.
Speaker Change: Economic cost impact for the for your company in other words is this the kind of thing where you.
Speaker Change: No.
The increase.
Speaker Change: Testing and rollout of <unk>.
Speaker Change: Your products to potential customers.
Speaker Change: Causes are meaningful I don't know upfront.
Speaker Change: Cost impact so.
Speaker Change: Maybe I'll just stop there, but how should we think about we're always thinking about price and volume but.
Speaker Change: If you are rolling out new products on maybe a larger.
Speaker Change: For a more broad scale than historic Lee with other new product.
Speaker Change: Initiatives that might be more targeted.
Speaker Change: How should we think about how the upfront expenses or the pilot testing period.
Speaker Change: Impacts your financials.
Speaker Change: Sure. Thanks, David Let me just.
Speaker Change: Okay.
Speaker Change: Perspective, and I'll pass it to Brett again.
We talk about eight pilot trials with EPA and we've talked about we're in six water utilities.
Speaker Change: We're actually running 250 different pilots around the world in terms of P. Faas right. So these can be.
Speaker Change: Test small tests.
Speaker Change: They move them into more full scale trials.
So this isn't just small small scale here, where it's pretty broad in terms of how we're testing this in different.
Speaker Change: Situations now most of those were getting paid for it so they may be small in revenue, but and.
Speaker Change: And they do cost us to manufacturer, but we're getting paid for those and making profit on them now the potential of those 250.
Speaker Change: As they.
Speaker Change: Become full scale and as they move through their pilots with different technologies over the next three or four years, that's the kind of breadth.
Speaker Change: If they go to scale the type of volume that will be pulled into.
Speaker Change: Some of them will use <unk> and some might use others and we might be used in conjunction with different technologies.
Speaker Change: But.
Speaker Change: That's when the volumes will start to really drive and the contribution will start to kick in for this product. So I don't know Brad you want to give a little bit more color on that I just wanted to give some perspective for a passenger yeah hi, David.
Speaker Change: That's right I mean, we have over 250 pilots.
Speaker Change: Active pilots and keep in mind I think Mike May have mentioned that Barry mentioned it.
Speaker Change: At our conference.
Speaker Change: There is minimal to no capital or equipment, we don't have the capitalized equipment.
Speaker Change: More absorbed can be used in existing municipality equipment. So so if the cost outlay is very minimal for us because our product was designed to work right through those those products are.
Through the existing equipment, so with the work we're doing with the EPA, that's going to that should accelerate it.
Speaker Change: When we see a hockey stick.
Speaker Change: Probably not in the next couple of years, it's going to take some time, but again as Doug said, we have eight pilots that we just brought on we have six full scale drinking water systems that are utilizing our floor absorbed we have two additional full scale.
Speaker Change: The projects that are coming on in the fourth quarter. So so we're really excited about it and internationally, we're seeing an uptick in <unk>.
Speaker Change: Active piloting for the floor absorb.
Speaker Change: In other EU countries for drinking water, but keep in mind this product can be used.
Speaker Change: As we mentioned earlier.
Speaker Change: And drinking water.
Landfill leachate wastewater and remediation. So so yeah, we got we're excited about it.
Speaker Change: How soon it's going to hit us.
Speaker Change: A little bit little bit iffy, but we're going to stick with our target of $30 million by 2027.
Speaker Change: And we will when we hope to accelerate that.
Speaker Change: Okay.
Speaker Change: Okay, great thanks for walking through that.
Speaker Change: I have a question Thats more China related so I guess part metal casting part PCC.
Speaker Change: But.
Speaker Change: By all accounts this has been a low.
Speaker Change: Rebound or slow slower period of slower economic activity in China, and the government. There recently has taken some.
Speaker Change: Incentive.
Speaker Change: Incentive measures.
<unk> tried to get the economy kicking into higher gear.
Speaker Change: And I know Youre part of the Chinese economy is limited, but from what you could see thus far I mean has.
Speaker Change: The.
Speaker Change: Economic.
Speaker Change: Supporting measures by the government has that had any noticeable impact on your relevant businesses they're in.
Speaker Change: Is any of that if there is improvement there is that factored into your I don't know your view for 2025.
Speaker Change: So.
Speaker Change: I think it's a bit to answer that last question I think it's a bit early.
Speaker Change: See if whether the stimulus that was put in place in China is having a major impact my thought is yes, it will but maybe a little bit too early to call that one in terms of our business and volumes.
Speaker Change: I will say, though that though.
Ana has been the economy, there has been a bit slower over the past couple of years.
Speaker Change: We've continued on our growth track in foundry our volumes are up 8% this year.
Speaker Change: Relatively I guess folks would call a weaker Chinese economy.
Speaker Change: And and I put that into my comments, because I wanted to highlight that fact that says look we're continuing to build the thesis that we have for Asia in India, China, and India and foundry is that.
Speaker Change: Even through.
Speaker Change: Higher levels of demand will help it but even at lower periods of demand like we are right now are more moderate levels were still able to grow at this kind of 8% to 10% rate. We always have been and that is because of the penetration of the market to our solution.
Speaker Change: Is only at about 25% and we've been driving that over the past 10 years from 5% to now 25% and there is a lot more to go in both in India. As further back in terms of penetration. So there is an enormous addressable market for us there and despite.
Speaker Change: It might be weaker economy in China over the past couple of years.
Speaker Change: It's enabling us we're able to continue to drive that penetration and drive volume growth for our company.
Speaker Change: On the paper side of things a little bit different than kind of economic stimulus will help some of that but.
Speaker Change: It's a different dynamic there again, its penetration where both in India, and China as consolidation of paper and packaging production into newer machines newer technologies come in we are the provider of that newest and latest technology recycling environmental.
Speaker Change: <unk> technologies are becoming a forefront of how we sell there and those are taking hold and so again, even with flat production of paper and packaging in China and India. We are able to continue to penetrate with our technologies into the market and so that's what's really driving our economics or at least our revenues streams.
Speaker Change: Should those economies continue to.
Speaker Change: Move higher in terms of GDP It will only drive those further.
Speaker Change: Okay.
Speaker Change: Very good.
Last question and I have to confess this probably the first time I've ever.
<unk>.
The question about <unk>.
Speaker Change: Your most recent dividend hike.
Speaker Change: In my opinion, I think the context for that is kind of a little different than for most other companies I follow I mean, you're you've been public for over 30 years and I think.
Speaker Change: Over that time.
Speaker Change: The number of dividend increases you've announced can fit on the fingers of one hand, probably with one or two leftover.
Speaker Change: So we're in an environment you did double the dividend a year ago and now.
Speaker Change: One year later, you are coming back with a sizable but historically more modest.
Speaker Change: Dividend hike so.
Speaker Change: When I think about two dividend hikes more than doubling the previous off of the base that you're more than doubling now.
Speaker Change: Is this part of our longer term strategy for distributing cash to shareholders or <unk>.
Speaker Change: How should I think about a relatively rare event now now becoming a little more common.
Speaker Change: Well you are right the number of times, we've increased the dividend I think is a total of four in the Companys history, but David I think let me take it to a different place I think.
Speaker Change: I think the company is different than it is now different than it was.
510 years ago.
Think we focused more on.
Speaker Change: On share repurchases earlier in the company's history give the company flexibility to pursue growth.
Speaker Change: And I am not saying Hey, this is a maturing company I just think that we've put ourselves in position for much more stable revenue growth stable profit growth and stable cash flow growth, okay, and so youll notice, we still are tending more towards share repurchase and that flexibility and giving the company.
Speaker Change: We think that theres inorganic opportunities out there and we think that share repurchase provides our ability to move.
Speaker Change: Toward a high value acquisition versus share repurchase, but it does also where the company is today and flow forward profile support more of a dividend now you might say, 10% is modest we will continue to evaluate that cash flow growth as we go next year.
Speaker Change: It could end up being something that will do regularly but I think it's just getting to a place where we feel we can easily support a dividend increase of doubling last year and another increase this year also a share repurchase program.
Speaker Change: And inorganic opportunities.
Speaker Change: That's quite a bit of flexibility and financial power for our company.
Speaker Change: So it's also the confidence that we have in the model that we have this the structure of balanced structure of the company being able to move through economic conditions, and still generate 7% of cash flow to sales.
And we think well okay well.
Speaker Change: <unk> increased the dividend and we will have a share repurchase program and we still have capital left for inorganic opportunities and I think thats, just reflective of where the company sits today.
Speaker Change: That helps.
Speaker Change: Yes, no I really appreciate the context there. Thank you.
Speaker Change: For me I appreciate all the all the color. Thank you.
Speaker Change: Thanks, David.
Speaker Change: Okay.
Speaker Change: And at this time I would like to turn the call back to Mr. <unk> for any closing remarks.
Speaker Change: Thank you very much for attending this quarter's call. We look forward to chatting with you at year end and giving you our full year results in January take care.
Speaker Change: This concludes today's call. Thank you for your participation you may now.