Q4 2024 Minerals Technologies Inc Earnings Call
Thank you.
Speaker Change: Good morning and welcome to the Minerals Technology's fourth quarter 2024 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Speaker Change: Violence disclosed certain risks and uncertainties, which may cause our actual results to differ materially from these forward looking statements also please note 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 web.
Doug: Right now I will turn it over to Doug Doug.
Doug: Yeah, good morning, everyone and thanks for joining today, let's.
Doug: Let's cover a quick outline for today's call.
Doug: First I'll do a quick review of our full year financial highlights.
Doug: And then spend a few minutes reviewing the progress we've made this year on our long term strategy.
Doug: Eric will then take you through the detailed financials for the quarter and full year and I'll come back at the end to give you an overview of what we're seeing in our end markets for 2025.
Doug: Let me start off by saying that 2024 was an incredible year for MTI.
Doug: This was the first full year after a re segmentation and one where we saw the true power of our new organization.
Doug: It was also an impactful year in which we enhanced our financial stability demonstrated.
Doug: It demonstrated the effectiveness of our business system.
Doug: And continue to prove the value that we bring to our customers.
Doug: Very proud of what our teams around the world achieved and want to thank them for their ongoing dedication to delivering outstanding results for our stakeholders.
Speaker Change: I'll start by saying that this ended up being a relatively flat sales year for MTI.
Speaker Change: Our consumer oriented businesses continued on a steady track and we're seeing the growth that we expected from our positions in these expanding markets.
Speaker Change: However, the commercial construction market weakened further throughout the year and our steel and foundry markets that began the year strong softened toward the end.
Speaker Change: Nonetheless, our ability to navigate these issues and remain focused on the execution of our growth strategies turned the revenue we generated into a year of record profitability.
Speaker Change: This is the fourth consecutive quarter and the second consecutive year of record operating income.
Speaker Change: Our solid execution on growing our higher margin products disciplined pricing, capturing cost savings and improving productivity led to an operating margin of 15% in 2024.
Speaker Change: We had planned to achieve by the end of 2025.
There's also the second consecutive year of record EBITDA, reaching over $400 million this year.
Speaker Change: Well your earnings per share were also a record increasing 18%.
Speaker Change: We sustained our strong cash flow generation and strengthened our balance sheet.
Speaker Change: We increased returns to shareholders by completing our previous $75 million share buyback program.
Speaker Change: Further increasing dividends by 10% and authorizing a new $200 million share repurchase program.
Speaker Change: Our strong cash generation profile provides us with significant financial strength and options to drive value.
Speaker Change: Over the past four years, we've acquired three companies paid down debt keeping leverage at or below our target levels and returned over $240 million to shareholders.
Speaker Change: These achievements underlying the effectiveness of our operating model and are the outcome of strategic actions, we've taken over the last couple of years.
Speaker Change: Two years ago, we realigned our organization to enhance operational efficiencies speed.
Speaker Change: Speed up decision, making and better align accountability.
Speaker Change: This change continues to pay off with strong performance by our team.
Speaker Change: Our results. This year were delivered in no small part through our ongoing focus on managing costs and improving productivity.
Speaker Change: All of which would not be achieved if we were not anchored in a culture of operational excellence.
Speaker Change: We have a highly engaged team of colleagues who come to work motivated to provide input and generate ideas at all levels of the organization.
Speaker Change: Last year, we performed over 8500 problem solving kaizen events and implemented more than 80% of the 60000 suggestions we received from our employees around the globe.
Speaker Change: MTI is 4000 employees submit an average of 160 suggestions and conduct 30 problem solving events, each and every day across the company.
Speaker Change: Those are remarkable numbers from a high performing workforce and a powerful example of our people centered operational excellence culture.
Speaker Change: All in all this was a solid year for US one where we made significant progress against our long term goals.
Speaker Change: We also made significant progress in 'twenty 'twenty, four and each product line.
Speaker Change: On the three elements of our growth strategy.
Speaker Change: As a reminder, our strategy has been to grow in consumer oriented markets expand.
Speaker Change: Our positions in our core markets and extend them geographically.
Speaker Change: And continuously introduce new innovative higher margin products to the market.
Speaker Change: Let me walk you through some of these highlights and I think it'll give you a good perspective on how we continue to transform MTI and solidify its foundation for sustainable growth.
Speaker Change: As I just mentioned one of our core strategic tenets is to expand in higher growth consumer oriented markets.
Speaker Change: This past year, we completed the integration of the three pet litter companies, we acquired into one unified business called receiver.
Speaker Change: This new name is a way for us to be uniformly recognized by our customers around the world for the value, we can bring to them in any region.
Speaker Change: We're the only company that can offer the combination of vertical integration, our global manufacturing footprint and deep technical capabilities to provide stable supply of innovation innovative solutions.
Speaker Change: This business is well positioned to supply both private label and branded cat litter customers worldwide and generate above market rate sales growth.
Speaker Change: We're also building on the global trend of converting to natural additives in products ranging from personal care to animal health.
Speaker Change: Illustrating this our animal feed additives business has grown at a 25% rate over the past couple of years and we see this pace continuing in 2025.
Speaker Change: Another high margin business, where we're well positioned to continue to grow as our natural oil filtration business or bleaching Earth.
Speaker Change: Which serves the edible oil and renewable fuel markets.
Speaker Change: This business has grown steadily over the last three years and we expect its growth to accelerate as regulation for increased use of sustainable aviation fuel additives is driving higher demand for our products in 2025.
Speaker Change: At the center of the slide are some examples on how we have deepened our positions in core markets and continued to expand them geographically this past year.
Speaker Change: We further solidified our position in the electric arc furnace market through the deployment of our automated men scans.
Speaker Change: Units also position us for sales of our new <unk>, New high durability refractory products for these same furnaces.
Speaker Change: Over the last two years volumes of our foundry Greensand bond systems have grown by 7% in Asia.
Speaker Change: A rate that they have been consistently growing out for the last eight years.
Speaker Change: We made further progress with penetrating into the growing packaging market.
Speaker Change: Since 2021, 60% of the satellite capacity, we've installed has been for packaging applications.
Speaker Change: We also continue to successfully deploy new yield technology that repurpose as customers paper, making waste and three of the five contracts, we signed in 2024 where to deploy this innovative product.
Speaker Change: Lastly, we positioned ourselves as a leader in P fast remediation draw Fluoro Sorb absorbing solutions.
Speaker Change: In 2024, we sold product into 51 projects, including drinking water utilities and groundwater remediation.
Speaker Change: We currently have over 250 floors or projects running around the world.
Speaker Change: And are working with the U S E P. A on a broad based study of our products in several drinking water applications.
Speaker Change: On the right side of this slide are some examples of new product innovation, the third element of our growth strategy.
Speaker Change: The pace of innovation at MTI remain robust in 2024 with our percentage of revenue generated from new products remaining around 18%.
Speaker Change: Let me touch on a few new products released this year that will have a positive impact on our sales going forward.
Speaker Change: They help our cat litter customers maintained their brand we must continue to offer them innovative technologies.
Speaker Change: This year, we have several new products rolling out to our customers with features such as litter with a pet health indicator litter that has better clumping and better odor control and litter that is lighter in weight.
Speaker Change: We also have added to our portfolio of sustainable solutions this past year.
Speaker Change: A few examples our post consumer recycled packaging solutions specialty additives for Bioplastics and lower emission foundry blends.
Speaker Change: And we're excited about our new infrastructure solutions like drilling muds, and grout that provide efficient solutions to support increased drilling activity for hardening of the power grid.
Speaker Change: In summary, we accomplished quite a bit on all strategic fronts. This past year.
Speaker Change: Each of these are examples of moves we've made to drive sales higher in 2020 five but also to further solidify our foundation for long term growth.
Speaker Change: Now, let me turn the call to Eric to take you through the details of our financial results for the fourth quarter and full year Eric.
Eric: Thanks, Doug and good morning, everyone.
Eric: I'll start by providing an overview of our fourth quarter and full year results followed by some detail on the performance of our segments.
Eric: I'll wrap up with our outlook for the first quarter.
Eric: Now, let's review our fourth quarter results.
Eric: We finished the 'twenty 'twenty four with another strong quarter, our operating income and EPS results were record fourth quarter performances for the company all while navigating some mixed market conditions.
Eric: Fourth quarter sales were $518 million.
Eric: You can see from the bridge that sales in our consumer and specialty segment were slightly below prior year driven by specialty additives.
Eric: And in the engineered solutions segment, we saw further softening in the fourth quarter in our steel and foundry markets, which impacted sales in high temperature technologies.
Eric: Despite some challenging market conditions, we delivered another strong operating performance.
Eric: Gross margin improved by 170 basis points versus the prior year to 25, 6% of sales as our teams delivered on price increases cost savings and productivity.
Eric: Operating income increased by 7% year over year to $74 million.
Eric: You can see in the operating income bridge that our pricing actions of $4 million and favorable cost performance of $3 million more than offset the unfavorable volume impact, resulting in an improvement to operating margin of 110 basis points.
Eric: Fourth quarter earnings per share was $1.50, excluding special items, representing a 17% increase versus the prior year.
Eric: Our reported earnings were $1 68, which included a $12 million gain on the sale of our refractory facility in China.
Eric: We sold this facility to the local government who is developing the area.
Eric: This was a very small piece of our refractory business and we've absorbed in the business across our other facilities in the region.
Eric: Now, let's review our full year results.
Eric: Overall 2024 was an outstanding year for MTI.
Eric: The company delivered record performances for operating income EBITDA and earnings per share.
Eric: And we expanded operating margin by 200 basis points versus the prior year.
Eric: Full year sales were $2 $1 billion.
Eric: And the sales bridge you can see that we saw continued growth in the consumer and specialty segment.
Eric: And by lower sales in engineered solutions.
Eric: The environmental and infrastructure product line drove most of the year over year change in sales as weak market conditions for commercial construction and environmental linear applications persisted for most of the year.
Eric: And then high temperature technologies, we experienced slowing demand for steel and foundry products in North America, and Europe as we moved through the second half of the year.
Eric: Operating income was $316 million up 13% overall and up 16% on an underlying basis, driven by favorable mix pricing and cost savings.
Eric: All together, we delivered $44 million of operating income improvement over 2023.
Eric: Adjusted EBITDA was $406 million, representing 19, 2% of sales and up 210 basis points.
Eric: And finally, our full year earnings per share was $6.15, representing an 18% increase over the prior year.
Eric: I'd also like to highlight that over the last five years, our EPS has grown at an 8% compound rate.
Eric: Now, let's review the performance of our segments, beginning with the consumer and specialties.
Eric: Yeah.
Eric: Fourth quarter operating income for the segment was 4% higher than prior year on 1% lower sales.
Eric: Household and personal care sales were 2% higher sequentially and relatively flat year over year.
Eric: Cat litter sales increased 5% sequentially and were up 1% versus prior year.
Eric: And sales of our other high margin specialties in this product line were down slightly due to the timing of customer customer orders.
Eric: Specialty additives fourth quarter sales were 2% lower than prior year, primarily driven by pass through pricing and softer base volumes in paper and packaging.
Eric: Which offset new volumes in Asia in the quarter.
Eric: For the full year segment sales grew 2% and operating income grew 25% on an underlying basis.
Eric: Sales in household and personal care grew 2%, primarily driven by sales of cat litter.
Eric: We also saw growth in animal health personal care edible oil and renewable fuel purification and fabric care.
These are relatively small, but fast growing and high margin businesses will continue to have a larger impact on the segment's growth and margins as they become a larger part of the portfolio.
Eric: Specialty additives sales grew 1% on 3% higher volume.
Eric: Note that some of the growth in this product line was offset by lower energy surcharges and formula price changes.
Eric: Overall, the consumer and specialty segment delivered an impressive operating performance in 2024.
Eric: As Doug outlined we're making progress on growth initiatives, and we're making investments across both product lines to support these initiatives.
Eric: Throughout the year the team adjusted selling prices as appropriate captured cost savings and drove productivity improvements.
Eric: The result was a 260 basis point expansion in operating margin and a 25% increase in operating income.
Eric: Now, let's turn to the engineered solutions segment.
Eric: Yeah.
Eric: Fourth quarter operating income for the segment was 8% higher than the prior year on 2% lower sales.
Eric: High temperature technologies sales were 3% lower than the prior year amid some challenging end markets.
Eric: Steel utilization rates in the U S dropped to as low as 72% in the fourth quarter down from as high as 80% in the third quarter.
Eric: And the European market, which has been weak all year declined further in the quarter.
Eric: On a more positive note our Asia foundry volume grew 10% in the quarter.
Eric: Most of this growth was driven by the continued penetration of our products in the region.
Eric: We also had some customers pull their orders forward into the quarter ahead of the relatively early lunar new year.
Eric: Environmental and infrastructure sales grew 4% over the prior year, a welcome change from prior quarters.
Eric: This was partly due to a large waterproofing project in the quarter, but we also had higher sales of drilling products linked to infrastructure projects.
Eric: And remediation and wastewater was another bright spot up 43% versus prior year on solid demand for industrial wastewater treatment and environmental remediation.
Eric: For the full year operating income grew 7% on 3% lower sales.
Eric: Full year sales in high temperature technologies were 1% lower as solid market conditions at the start of the year Gateway, it's a more challenging conditions as we moved through the year.
Eric: And our Asia foundry volume grew 8% for the year as we continued to penetrate the region with our differentiated products and technical services.
Eric: Okay.
Eric: Full year sales for environmental and infrastructure were 8% lower as this product line experienced significant declines for the first three quarters.
Eric: However, we started to see signs of the market stabilizing in the fourth quarter.
Eric: Overall, despite some challenging market conditions engineered solutions delivered a solid performance.
Eric: The segment's operating performance was driven by consistently strong execution productivity improvements and diligent cost control.
Eric: Now, let me turn to a summary of our balance sheet and cash flow highlights.
Eric: We delivered a strong cash flow performance for the year.
Eric: Cash from operations was $236 million and free cash flow was $147 million, representing 7% of sales.
Eric: We deployed $90 million on Capex paid down $39 million of debt and returned slightly more than 50% of our free cash flow to shareholders through dividends and share repurchases totaling $77 million.
Eric: Our balance sheet continues to be very solid.
Eric: We refinanced our debt in November extending our average maturity to more than five years and increasing our strong liquidity position.
Eric: We finished the year with net leverage at one six times, EBITDA and liquidity of more than $700 million.
Eric: Yeah.
Eric: The steps we took in 2020 for further strengthened our financial position and will help support our long term growth strategy going forward.
Eric: Looking ahead, we expect 2025 will be another strong year from a cash flow perspective, with free cash flow in the $150 million to $160 million range.
Eric: Now I'll summarize our outlook for the first quarter.
Eric: We currently expect first quarter sales of around $500 million.
Eric: Operating income of around $70 million and EPS between $1 30, and $1 35.
Eric: We've had a slow start to the year on both sides of the business with customers, taking a more cautious approach to inventories and shifting around their orders.
Eric: We believe this is partly driven by the uncertainty in some end markets around the potential introduction of tariffs and partly just general conservatism on inventory levels and production schedules.
Eric: However, we don't see this reflecting a fundamental change in the health of our end markets.
Eric: From a market perspective, we expect first quarter demand remains similar on both the consumer and the industrial side of the company.
Eric: We expect sales in consumer specialties will be similar sequentially.
Eric: We expect sales in engineered solutions will be around 5% lower sequentially due to the slow start in January the lunar new year holiday and the large waterproofing projects, we delivered in the fourth quarter.
I'll also note that the stronger U S. Dollar is impacting our sales by approximately 2% to 3% in the first quarter versus last year.
Eric: Overall for MTI, our order books and shipments have been improving every week, which gives us confidence in the health of our end markets and our outlook for the first quarter.
Eric: And we expect further improvement across our end markets as we move into the second quarter.
Eric: Doug will take you through more of what we're seeing for the rest of the year in just a moment.
Eric: Before I hand, the call back over to Doug I'll give some perspective on the current tariff situation and potential implications for MTI as I'm sure. It's of interest to many of you.
Eric: We shared a similar slide in 2018, when the previous round of tariffs was put in place.
Eric: And as we've said previously we primarily source and sell locally in the regions, where we operate which does insulate us from the impact of tariffs.
Eric: On the top left of this slide you can see that a very small portion of our cost of sales of imported into the U S.
Eric: To put this in perspective, the 10% additional tariff on China would increase our cost by approximately $2 million on an annualized basis.
Eric: We also move a small percentage of our finished goods across borders in North America as shown on the bottom left of the slide.
Eric: The potential impact of the proposed tariffs on Canada, and Mexico would be approximately $10 million.
Eric: The actual impact of all these tariffs, though would be less as.
Eric: As we have multiple mitigating actions, we would take for example, shifting production between our facilities if necessary.
Eric: While the tariff outlook is still uncertain, including potential end market effects I'll summarize by saying that MTI is direct exposure is limited and we are well positioned to navigate these dynamics.
Doug: With that let me turn the call back over to Doug for some additional perspective on the year ahead, Doug Thanks, Eric.
Doug: Let me finish up today by giving you an outlook on how our markets are shaping up for 2025.
Doug: Overall, we're set up for a stronger year and anticipate sales growth of between three and 5% for the full year.
Doug: The general framework for how we see the year playing out is that the consumer side of the business will remain solid and continue its growth track.
Doug: <unk> side of the business will have a relatively slow first quarter and strengthened throughout the year.
Doug: Let me break this down for you by segment and point out a few trends in some specific factors in each.
Doug: In consumer specialties, we have a positive outlook on growth for the year.
Doug: In household and personal care, our cat litter business has grown share.
Doug: And secured new sales with customers in North America, Europe and Asia.
Doug: Sales will increase from our new packaging options and from the new technologies that I spoke about earlier.
Doug: Our specialty consumer products like animal health natural oil filtration and personal care products will all continue with their double digit growth rate this year.
Doug: Especially additives product line is also set up for a solid year.
Doug: We have three new paper and packaging satellites coming online and expect stronger demand for our ground and precipitated calcium carbonate additives, serving food and pharma and residential construction end markets.
Doug: On the engineered solutions side, our outlook is a bit more conservative because of the uncertainty. We are currently seeing in a few of these end markets.
Doug: And high temperature technologies. After a slow start we expect the north American steel market to improve as we move into Q2 and through the second half of the year.
Doug: We could also see some increased demand given the potential additional tariffs placed on steel imports, which may result in higher U S production.
Doug: Our metal casting business should remain stable in North America and continue to grow in Asia.
Doug: We could see some potential upside in metal casting in the U S. When the agriculture equipment market rebounds from a challenging 2024.
Doug: Our environmental infrastructure product line has seen the biggest impact on its markets over the past few years due to higher interest rates.
Doug: There are several potential catalysts, which could drive growth in this product line, including increased infrastructure spending and lower interest rates, which support a rebound in commercial construction.
Doug: We are seeing starting to see indications of stabilization in the large landfill lining and commercial construction markets, but it's a bit too early to tell if this is the beginning of a positive inflection.
Doug: We also expect continued growth in Florida and.
Doug: And are set to launch a large product project here in the northeast, which should help generate further sales traction.
Doug: As Eric mentioned, we're watching what happens with regulations taxes, the timing of tariffs and the effect all of this could have in our markets.
Doug: But if she is well positioned for what comes our way.
Doug: We have operations in each of our major markets with capacity to support demand if it moves from one geography to another.
Doug: We have a very agile team and we will quickly adapt to changing circumstances as they unfold.
Doug: Speaking of our team I'd like to thank everyone at MTI again for another great year.
Doug: This is a people centered company and the continued focus on operational excellence across our organization is what sets us apart.
Doug: So those of you on the webcast and dialing in thank you for joining the presentation today now, let's open it up to questions.
Doug: We will now begin the question and answer session.
Doug: To ask a question you May press Star then one on your telephone keypad.
Doug: If you're using a speakerphone please pick up your handset before pressing the keys.
Doug: To withdraw your question. Please press Star then two.
Doug: At this time, we will pause momentarily to assemble our roster.
Doug: Okay.
Doug: Yeah.
Speaker Change: The first question is from Daniel Moore with CJS Securities. Please go ahead.
Doug: Yeah.
Doug: Yeah.
Speaker Change: Thank you good morning, Doug morning, Eric Thanks for the color and taking my questions.
Speaker Change: You start with obviously operating execution has been really impressive euro already basically at your 15% operating margin goal.
Speaker Change: Are your expectations for fiscal 'twenty five.
Speaker Change: Where do you see margins heading over the next two to three years.
Dan: Yeah, Hi, Dan Thanks for the question.
Dan: So yeah, we've had a strong operating performance in 2024, and we reach that 15% operating margin target pretty much a year earlier from where we expected I think for 2025.
Dan: Just from where we sit today, we're expecting to to maintain that 58% margin or improve upon it.
Dan: You know, we do expect the margins to build through the quarters. So what we're guiding to in the first quarter equates to something around a 14% margin, which which is similar to what we had in the fourth quarter and makes sense from a seasonality perspective, and so we would expect to see a margin build as we get into the stronger seasonal quarters in Q2 and Q3.
Dan: There's a little bit of uncertainty in terms of the end market picture as Doug alluded to so.
Dan: A little bit cautious on guiding higher than that 15%, but right now confident in maintaining the 15%. It could go higher from there depending on markets and volume leverage.
Dan: It makes sense I appreciate it and then.
Speaker Change: You know Doug I appreciate the color on end markets just in terms of topline growth consumer and specialty you know the goal is to get to kind of mid single digit growth.
Speaker Change: That'd be some some headwinds in terms of our inventory.
Speaker Change: Customers manage inventories here in the short term.
Speaker Change: What do you need to see to to drive sustained kind of low and mid single digit growth and when do you think we can get there.
Speaker Change: That's consumer and specialty specific.
Speaker Change: Yeah. So so this year I think we're set up for a stronger year of growth in consumer and specialties.
Speaker Change: Looking at the 4% to 8% range for that product for that segment, and it's really going to be driven by what we see is some of the product lines that I talked about pet care pet litter.
Speaker Change: And the new products that we have coming online in the second quarter the market share gains our entry.
Speaker Change: A pretty significant way into Asia, that's going to be driving growth this year.
Speaker Change: We talked I talked about some of our our bleaching Earth with.
Speaker Change: Renewable fuels, we are seeing some significant demand growth in that product line from aviation sustainable aviation fuel.
Speaker Change: I'll, let D J give some more color, but some additive rates have changed in Europe, and it's really pulling harder for that and.
Speaker Change: So we see that being a very positive. So we have a we have a number of things that we feel are positive for that product line going forward I guess the area that.
As I mentioned, there's a little bit.
Speaker Change: Uncertain right now is on the engineered solutions side, we saw.
Speaker Change: A softer second half of the year, and we think that Thats persisting into the first quarter. There are indications we get from customers right now.
And in our order books that we see building in the back half of the first quarter for a stronger second in back half of the year. So it's almost like a mirror image of what happened last year.
Speaker Change: I think if those play out like that we could be on that mid single digits or higher part of the guidance. I gave you I gave you three to five if building and construction and interest rates persist and we don't see we don't see the Dragon building and construction, but we see a plaining over what he might be on the floor of 3% to 4% range. So I guess I'm I'm not.
Speaker Change: Giving you exactly.
Speaker Change: The guide because it is a bit uncertain as we sit today.
Speaker Change: But to get us above that 5% I think what's going to happen is you're going to start to see these consumer specialty business has become a much bigger part of our portfolio.
Speaker Change: They are growing at double digit rates today animal health bleaching Earth, our personal care business with the cat litter growth in that mid single digits. I think is that as that product line. That's been kind of the structure of the company as that product line gets bigger and bigger bigger its going to have those higher growth rates and I think that's going to take us above that 5% pushed us in the high mid single digits over the.
Speaker Change: Long term.
Speaker Change: Does that help.
Speaker Change: Really helpful.
Speaker Change: And then last for me is just leverage continues to tick lower cash flow outlook for 'twenty five is pretty robust. So just talk about capital allocation and you know what the M&A pipeline looks like.
Speaker Change: What types of things you might like to.
Speaker Change: Flesh out or or tuck in obviously always takes too, but just wondering what you're seeing there. Thanks again, you took my answer out of it maybe else yes. It does take two I think there's a we have the balance sheet in great shape I think it provides us a lot of optionality.
Speaker Change: We have a $200 million share repurchase program out there that I think will continue to execute I think you know we look at steering half of our free cash flow back to shareholders.
Speaker Change: What we will do that this year I.
I do think that that preserve some of some capacity to do bolt on acquisitions and to be honest I think there's opportunities across all four product lines.
Speaker Change: <unk> from moving us into new geographies solidifying positions in those geographies, bringing in reserves.
Speaker Change: Adding new technologies and deepening us into areas of environmental and some of these consumer products. So I do think that there's opportunities in each of the four product lines again, we'll see how.
Speaker Change: How some of those play out and how the M&A market and the uncertainty plays out this year, but I think the balance sheet, where we are can support both returns to shareholders and in some acquisitions. This year. So I think that's gonna add.
Speaker Change: What I'm, giving you is organic growth I think those types of things will even add further to that growth rate.
Speaker Change: Going forward. So we have a really positive outlook, Dan and and capacity to use the balance sheet that way.
Speaker Change: Alright, and jump back with any follow ups. Thank you.
David Silver: The next question is from David Silver with C. L. King. Please go ahead.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Yeah, Hi, good morning.
Speaker Change: Thanks for taking the questions.
Speaker Change: Oh.
Speaker Change: Had a couple of questions I guess.
Speaker Change: Firstly.
Speaker Change: I'm going to go back to a topic that was discussed.
Speaker Change: In the third quarter conference call and that was kind of the sources of your.
Speaker Change: Efficiencies. So you know I'll Echo Dan's comments about you know the impressive nature of the productivity and margin strength.
Speaker Change: But last quarter, you know Eric I believe did a pretty good run down of efficiencies that you gained within your pet litter business tightening the integration of the recent acquisitions.
Speaker Change: When I looked at the reported results and then again at the slide deck I mean, there's a pretty big margin improvement on the other side on you know high temperature technologies in environmental and infrastructure. So you know modest revenue performance, but 150.
Speaker Change: This point margin improvement year over year in the quarter and then also full year.
Speaker Change: If you were to kind of target one or two areas within the.
Engineered solutions area, where productivity or margin enhancing moves really came through in 'twenty four.
Speaker Change: Could you call out one or two of those and then you know whats the outlook for further gains there in 2025.
Speaker Change: Thanks, David for the question, let me start and then I'll pass it over to Brett.
Speaker Change: <unk>.
Speaker Change: The first thing I'd highlight is that.
Speaker Change: We're always targeting productivity improvements across the company and we're finding ways to achieve them every year I think this year for the entire company productivity improvement was 4%.
Speaker Change: So we're able to and we've averaged kind of three or four 5% per year for <unk> for many many years and that's that's.
Speaker Change: That's because we're finding ways as a company as a team our employees are finding ways to do things more efficiently.
Speaker Change: And that doesn't just include in our processing plants.
Speaker Change: And in particular some of the productivity improvements this year in engineered solutions, where in the mining side.
Speaker Change: But that's in our our our back office systems right. So we're looking at.
Speaker Change: You know, we're looking at ways to do things efficiency more efficiently closing the books. So a lot of those kinds of events are just looking at how to bring in sales without having to grow our overheads.
Speaker Change: <unk> seen our percentage our overhead our SG&A as a percent of sales that continues to go down and that's the leverage youre seeing on our sales.
Speaker Change: So being able to hold fixed costs.
Speaker Change: Flat and bring in revenue.
Speaker Change: And then being able to keep variable costs and control through productivity and a variable basis in our plants is exactly what we do day in and day out and Brett I guess and energies are engineered solutions. Some things you want to point out, particularly for margin growth sure. Thanks, Doug.
Brett: Hi, David look I think Doug Doug hit the highlights, but let me let me break it down into the two product lines. If you look at the high temperature technologies our.
Speaker Change: Our refractory growth initiatives continue to benefit the segment.
Brett: Very high value products.
Brett: Or are men scan scan for OE equipment continues to grow.
Brett: We've got 17 units in place we have a we have about eight more on the books for this year. So that's a huge impact to the high temperature technologies D. The metal castings business continues to be solid.
Brett: Our growth opportunities that we as we've discussed in the past are primarily in Asia Asia Asia signed up 14, new customers in 2024, So we anticipate that continuing to grow it's been pretty solid trying to get those those blends into Asia is our goal and we will continue to push that.
Brett: Of course, the cost control as Doug pointed out and the productivity improvements continue to.
Brett: To be looked at but when you look at the other side of the business.
Brett: Of course, it's it's it's been it's been a tough market.
Brett: The environmental and infrastructure has struggled for the last last two years because of market conditions, but the good news is.
Brett: We're starting to see some activity in the fourth quarter, we start to get more.
Brett: Construction projects a question, we got specified into some of the other some projects for when that market market comes back and investment.
Brett: Continues.
Brett: We talked about the large project in California, a waterproofing projects, that's going to continue in 'twenty. Five later, probably in the second half of the year.
Brett: So theres more to come of course, the drinking water. We continue to work on the drinking water and remediation projects and also the drilling products. So we've got a lot in the pipeline.
Brett: We need a little a little help from the market, but we feel pretty good about about where we're at now and where we're headed.
Speaker Change: And David Let me, let me just add one thing I do probably another question, but I think some of the most impressive engineered solutions offense, Brett was good good progress this year, but the consumer and specialty side and especially in that pet care business had some significant margin improvement and.
Speaker Change: And I think that translated into that 25% operating income growth and I think that's exact example of what I'm talking about being able to integrate these facilities.
Speaker Change: We've lowered our fixed cost base and worked on productivity in these new acquisitions and D. J you saw a lot of that happening through the system that we've built over the past three years with.
With these new businesses.
Speaker Change: Yes, Doug so David on just on <unk>.
Speaker Change: <unk> side of the house in particular.
Speaker Change: This.
Speaker Change: We announced this integration and this global brand Simo and to the customer facing side, it's a consistent approach to too.
Speaker Change: Two how we go about serving our customers' needs.
Speaker Change: Gives them access to the global footprint gives them access to our high quality reserves and gives them a consistent access to all the innovation and in the process of doing all of that especially on the manufacturing footprint. We have been moving around an awful lot of of volumes optimizing efficiency and and really just.
Speaker Change: Just optimizing that whole customer experience, taking cost out where we can and then also providing what I call incremental innovations where.
Speaker Change: Where we're able to improve the margin through the offering of new products. So so really a big part of that was that that margin improvement and then as we're looking forward. The exciting part to me on the revenue growth side is that we've got.
Speaker Change: Quite a few new projects and new products that are coming out over the next couple of months that that should allow us for even further expansion and further optimization of that manufacturing.
Speaker Change: Yeah.
Speaker Change: Okay, great well, thank you for all the color there.
I'd like to ask a second question here on the Fluoro Sorb. So Doug in your prepared remarks, you called out.
Speaker Change: A large new project.
For the northeast I believe could you just kind of point us in the right direction is that a beta test is that a full commercialization and then.
Speaker Change: Is that for drinking water groundwater remediation, maybe just some color on.
Speaker Change: That large new Lewis or project you called out thank you.
Speaker Change: Yeah, I'm going to give some color on it.
Speaker Change: Yeah, David I can give you a little bit of color on that so we do have a large scale drinking water program thats in the works.
Speaker Change: And that's in the northeast.
Speaker Change: It's full full scale drinking water floors or.
Speaker Change: And we anticipate that two to start up.
Speaker Change: In the coming coming months.
Speaker Change: So that's pretty exciting we have a lot of activity on Fluoro Sorb right now we as we've talked about we've met with the EPA. We've we have a kickoff meeting scheduled with them this month.
Speaker Change: We had 51 projects David are various sizes.
Speaker Change: Our portfolio included full scale implementation some larger scale piloting.
Speaker Change: Some cleanups Institute cleanups for soil remediation, but the Florida continues to get it get more and more attention. There's eight programs that we're working with the EPA on now.
Speaker Change: And we have four full scale drinking water systems, utilizing our fluids or and four more that we anticipate in the first half. So internationally, we continue to pursue it and of course, we continue to target the other opportunities outside of drinking water.
Speaker Change: For landfill and wastewater and soil and groundwater remediation.
David Silver: And David the reason I highlighted this one is it's a little bit newer for us.
David Silver: For the past year or two we've been working on drinking water and kind of vessels. So there's two different ways of removing impurities and and drink and utilities. One of them is vessel driven water pass through the vessel through our media take South, Florida, Theres gravity fed systems, which are much larger.
David Silver: The water will pass through it in big Big.
David Silver: Big large I mean, very large outdoor vessels. This will be one of those again, we're still working through some of the details, but it would be a new application of very high volume application of Florida, which I think gives them more traction in a different a different utility type of utility so.
David Silver: Just wanted to call that went out because it is a bit different from past ones we've been piloting.
Speaker Change: Alright, Thank you for the color I'll get back in the queue.
Thanks, David.
Speaker Change: Again, if you have a question. Please press Star then one.
Speaker Change: The next question is from Pete Osterlund with Truth Securities. Please go ahead.
Pete Osterlund: Hey, good morning, Thanks for taking the questions.
Pete Osterlund: So your first quarter guidance implies some margin pressure year over year I was just wondering if you could break out what the major drivers are there is it mostly driven by operating leverage revenue mix are you seeing any pressure from pricing versus raw materials. Just any additional color you can give there would be helpful.
Eric: Yeah, Hi, Peter This is Eric Thanks for the question so.
Eric: So yes for them from a margin perspective, we're looking at a pretty similar margin in the guidance going from Q4 to Q1.
Eric: You are right to point out that last Q1 in 2024, we had a pretty strong margin.
Eric: I would point to mix on that I mean, some of them. Some of the markets that are softer for us this year versus last year of some pretty high margin market for us I'm thinking the high temperature technologies markets in particular.
Eric: So theres a little bit of a mix impact going on there I will say energy rates are a little higher than they were last year and we're working.
Eric: To pass those through.
Eric: We could have somewhat of a timing impact in terms of when we're passing through those energy higher energy costs to our customers.
Eric: But generally the margins are staying consistent with what we had in Q4 and we expect those to build through the year as I mentioned earlier Q4, and Q1 are typically the softest from a margin perspective, just due to seasonality and then they strengthen as we go through the year.
Speaker Change: Very helpful. Thank you, Eric and just as a follow up are there any additional details you can give us on the sale of refractory assets during the quarter. Just what was the reason for exiting that business and are there any other asset sales across the portfolio that you are contemplating along similar lines.
Eric: Yeah, there's nothing.
Eric: Really to highlight this as you know we've always had a very small refractory footprint in China, our main markets have been.
Eric: North America Europe.
Eric: Southeast Asia, India, primarily Turkey.
Eric: So.
Eric: We've always had a very small footprint there are the Chinese government was looking to develop this land we were one of the first.
Eric: 20, some years ago in this industrial park is.
Eric: Is that park has grown.
Eric: The local government there wanted to develop our piece of property, which.
Eric: Pretty valuable to them, which was not an issue for us we were able to move that and absorbed that production elsewhere.
Eric: <unk> facility in Japan that was able to absorb some of that production. So and we also are equipment sales come from and to China from Germany. So it's not a it wasn't a big deal from a manufacturing standpoint, and we thought it was a good thing to do and so exited that facility and sold it to the government so nothing more than that.
Eric: Very helpful. Thank you.
Eric: Yeah.
Speaker Change: The next question is a follow up from David Silver with C. L. King. Please go ahead.
Eric: Okay.
Speaker Change: David Your line is open on our end.
Speaker Change: Okay, sorry, I hit the mute button, sorry about that.
Speaker Change: So there was one topic I wanted to ask you about not really mentioned in your prepared remarks or I believe in the.
Speaker Change: A press release, but it does relate to the talc litigation.
Speaker Change: So you have you did a dedicated I think $30 million to sustaining the ongoing negotiations towards settlement.
Speaker Change: And.
Speaker Change: This doesn't relate directly to you, but I guess.
Speaker Change: The folks involved with the.
Speaker Change: Larger talc litigation with J&J and Zimmer is I guess there was some movement. There there was a shareholder vote that was successful.
Speaker Change: Could you just give us maybe your latest thoughts on progress towards a settlement.
Speaker Change: Weather.
Speaker Change: The movement I guess with the litigation with J&J and embarrass you know bodes one way or the other for either the timing or the magnitude of an eventual settlement. Thank you.
Speaker Change: Sure.
Speaker Change: So not a lot to report on that front, but there we have been progressing in mediation I would say that.
Speaker Change: We've been progressing at pace you know these things tend to be relatively slow, but we're moving we've had mediation sessions in December and through January and so I'd say, it's constructive and it continues.
Speaker Change: I can't give you an indication right now that that's leading toward a solution sooner rather than later, but I'd say, it's constructive and that's still positive that where we're moving into mediation direction.
Speaker Change: Relative to others.
Speaker Change: Separate from that.
Speaker Change: We're focusing on our own.
Speaker Change: Solution to this to find a fair and final solution for the company and for all involved and so we're focused on that.
If theres one thing and maybe it does do is it.
Speaker Change: It creates less distraction outside of other.
Speaker Change: Mediations and enables us to maybe move quick more quickly but.
Speaker Change: That's my supposition I would say that they don't have any influence on ours and we're dealing with ours.
Speaker Change: On our own so.
Speaker Change: Nothing much to add to that other than it's still constructive and it is progressing.
Speaker Change: Okay, Great and then last one for me I did want to touch base with D. J just to get a sense of expected new PCC.
Speaker Change: Startups in 2025, and then maybe just some comments on the new project funnel that you see thank you.
David: Thanks for the question David.
Doug: As Doug mentioned we.
Doug: We signed three contracts, we've got coming on line in 2025.
Doug: All of those are in Asia, I expect another couple of signings.
Doug: One in Europe, one in Asia.
Doug: And heavy emphasis on packaging heavy emphasis on new yield when I look at the overall pipeline. It's reasonable for you to think we've got a couple of dozen.
Doug: Projects that are under review under discussion.
Doug:
Doug: Quite a few of them are related to packaging and.
Doug: And there's some overlap with this comment but quite a few of those are also a new yield as a platform for other items. So.
Doug: I would say, we'll definitely see these the effect of these new startups coming on second half of the year. There is still a little bit of a ramp up that's going on.
Doug: And the satellites that we started this year that's a three four.
Doug: And then Youll see there was one conversion that we did to new yield.
Doug: In.
In the Americas.
Doug: So thats not so much a change on revenue and volume, but it's part of the.
Doug: Profit enhancement and margin enhancement that we've got going on in that segment.
Doug: So overall good good progress good trajectory.
Doug: The continued teams our packaging in these new platforms that are.
Doug: Mostly directed at being a more sustainable.
Doug: Pigment to the paper industry.
Doug: Great I appreciate that thank you.
Speaker Change: The next question is from Mike Harrison with Seaport Research partners. Please go ahead.
Mike Harrison: Hi, good morning.
Mike Harrison: Was hoping that I could just get some clarification on the sales outlook the 3% to 5% that you were looking for is that an organic number or does that.
Mike Harrison: Include the expected FX headwind.
Mike Harrison: That's an organic number I'm not making a projection on on foreign exchange right now that says we see foreign exchange today.
Mike Harrison: If that would I guess, if there's further strengthening of the U S. Dollar that could put some pressure on that but I think that if you think about that as an organic based volume growth number and thats what were seeing.
Mike Harrison: In our businesses and it's really.
Mike Harrison: It's driven on the high side by the consumer and specialty segment as I mentioned, we're seeing probably around 4% to 8% growth there.
Mike Harrison: On the engineered solutions side I'm going to give you one to three probably Thats. Just one is just on the conservative side given some of the markets building construction, depending on how steel and metal casting goes but I do think that it could trend up higher than that in engineered solutions. If what we're seeing if you start to see an inflection in consumer and specialties.
Mike Harrison: And.
Mike Harrison: And if and if the steel and foundry market stays strong and if not strengthen it could go higher.
Mike Harrison: So we have a pretty positive outlook.
Mike Harrison: Mike.
Mike Harrison: And I think.
The average of those two numbers that I'm, giving you is that three to five but I see factors that can drive it higher than that and I see a headwind.
Mike Harrison: Use that term, but foreign exchange that could push it down so.
Mike Harrison: Just trying to give you as much as I can and then kind of an uncertain quarter right now, but that's what it looks like today.
Mike Harrison: Understood Yes.
Mike Harrison: What we're trying to get to is some sense of what EPS could look like for the full year, obviously, you're starting.
Mike Harrison: With a slower quarter in Q1.
Mike Harrison: But it sounds like what you're saying is maybe kind of low single digit.
Mike Harrison: Yeah.
Mike Harrison: Top line growth net of FX headwind.
And.
Mike Harrison: Maybe not much margin improvement, so maybe kind of a low single digit.
Mike Harrison: Type of earnings growth is that kind of what the what's the best projection would be for now.
Mike Harrison: There's a lot of ins and outs to the EPS side of that Mike, but I will tell you. This it really depends on where that revenue comes from right. There are some very high margin regions and product lines I would tell you in some north American markets.
Mike Harrison: If we see that bleaching earth traction in some of our newer higher growth higher margin products.
Mike Harrison: You might see that sales growth, but it could come at a much higher margin. So I think what Eric gave earlier as we're trying to stay a little bit.
Mike Harrison: Conservative on that margin growth and holding at 15% given our given the kind of the outlook that we have.
Speaker Change: And some of the foreign exchange, but no doubt if we get onto the 5% type range with some of the product lines that I've mentioned in refractories and some of these higher growth projects that margin could trend north of 15 and it could for a few of the quarters like our second and third.
Speaker Change: As I, usually our highest volume markets that would change that.
Speaker Change: That would change that EPS I'll talk a little bit so 5% growth rate with an extra half turn on the on the margin depending on what happens below the line with foreign exchange and you know how we translate things I think it's probably back into that.
Speaker Change: Our compound annual growth of earnings has been 8% and I think you can see that 8% again keeping on that track.
Speaker Change: All right very helpful. And then Eric you had mentioned in response to an earlier question that maybe energy costs are a little bit little bit elevated it may take some time to pass those through but certainly the winter has been a little more ferocious than in.
Speaker Change: Past couple of years.
Speaker Change: Any comments or.
Speaker Change: Onto vacation I guess, you could provide on what you've seen in Q4 in terms of not just energy cost inflation, but maybe mining costs.
Speaker Change: Impacted by the colder weather what did you see in Q4, and what would be your expectation for Q1.
Speaker Change: Relative to last year.
Speaker Change: Yeah. Thanks, Mike.
Speaker Change: So I wouldn't I wouldn't call it out as a major impact in terms of energy and in the fourth quarter.
Speaker Change: We saw I think if you look at the bridge, we actually saw a favorable costs overall year over year, a lot of that is driven by the productivity.
Speaker Change: Particularly.
Speaker Change: In the western mines in the U S. We had a really strong quarter from a mining perspective in our clay inventories are in great shape.
Speaker Change: From an energy perspective, it's a little higher than last year in the cold weather in the U S has resulted in a little bit of volatility in natural gas prices.
Speaker Change: But we're not talking anything cigna anything really significant to the company and nothing that we can't pass through or mitigate.
Speaker Change: Alright, and then on the.
Speaker Change: The engineered solutions business the margin.
Speaker Change: Improving quarter on quarter from the third quarter, that's a little bit unusual usually seasonally that come down.
Speaker Change: In terms of margin performance so.
Speaker Change: You talk a little bit about the drivers there is that.
Speaker Change: The environmental and infrastructure business, turning positive and showing some good operating leverage.
Speaker Change: Is there something going on within high temperature technologies that helped the margin performance sequentially.
Speaker Change: Yeah definitely helped.
Speaker Change: The environmental and infrastructure.
Speaker Change: Improvement those are that business in general has high incremental margins high contribution margins. So when we get a couple of large projects.
Speaker Change: And some higher activity in that business that helps the margins significantly.
Speaker Change: I would just point to the productivity is again, we had a really solid quarter in that business from a productivity perspective.
Speaker Change: The fourth quarter I would just the only thing that other piece of color I would add there is the fourth quarter is typically stronger from an equipment sales perspective, and the high temperature business and that was again the case. This year, so that helps to offset some of the.
Speaker Change: Seasonality that you would typically expect in the margins Q3 to Q4.
Speaker Change: All right last one for me is just on the specialty additives business. You mentioned that there is some pricing headwinds there due to the contractual pass through of lower raw material costs.
Speaker Change: Can you give us a sense.
Speaker Change: <unk> the price decline.
Speaker Change: In 2024 and in the fourth quarter in specialty additives.
Speaker Change: Yes, so I called out.
Speaker Change: The volume increase in specialty additives for the full year was around 3% overall.
Speaker Change: Revenue was up about around 1%.
Speaker Change: So that that gap between the volume and the.
Speaker Change: Revenue increased.
Speaker Change: Flex the pass through pricing.
Mike Harrison: Alright, very helpful. Thanks, very much and Mike Youre not.
Mike Harrison: And not to reiterate you're familiar we price those on a margin basis on a cash margin basis. So if some of the raw materials dropped the price will drop but the margin and the cash generated off of that ton remained flat. That's the way those contracts work. So you do see those fluctuations from time to time.
Mike Harrison: High inflationary periods on the way up and then as it deflates on the way down you'll see that impact the top line, but margins cash flow always remain the same that's how the contracts are structured.
Mike Harrison: Sounds good thank you.
Mike Harrison: Yeah.
Mike Harrison: This concludes our question and answer session I would like to turn the conference back over to Doug Dietrich for any closing remarks.
Doug Dietrich: Just wanted to say thank you very much for joining the call today I. Appreciate your listening I appreciate the questions from everyone and we'll talk to you again in three months. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Doug Dietrich: Yeah.
Doug Dietrich: [music].