Q1 2025 Minerals Technologies Inc Earnings Call
Good morning, and welcome to the minerals technologies first quarter 2025 earnings conference call all participants will be in listen only mode shoot.
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Speaker Change: I would now like to turn the conference over to Lydia couple over head of Investor Relations. Please go ahead.
Speaker Change: Thank you Gary and good morning, everyone and welcome to our first quarter 2025 earnings Conference call. Today's call will be led by Chairman and Chief Executive Officer, Doug Dietrich and Chief Financial Officer, Eric I'll, Doug following Doggedness prepared remarks, well open it up to questions.
Speaker Change: As a reminder of some of the statements made during this call may constitute forward looking statements within the meaning of the federal Securities laws. Please note the cautionary language about forward looking statements contained in our earnings release and on the slides.
Speaker Change: Our SEC filings disclosed certain risks and uncertainties, which may cause our actual results to differ materially from these forward looking statements. Please also 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 website now I'll turn.
Speaker Change: I'll, let the dog that thanks, Lydia good morning, everyone and thanks for joining today.
Lydia Couple: First a quick overview of what we'll be discussing on today's call and we have a lot to cover.
Lydia Couple: I'll begin by reviewing our first quarter results.
Lydia Couple: Give you some insight into what transpired with customers in markets throughout the quarter.
Lydia Couple: And then want to review items from the press release, we issued last week, including the chapter 11 case of our subsidiary BMI Holdco and the cost savings program we initiated.
Lydia Couple: I'll give you an update on what we're currently seeing in each of our businesses in major markets and I also want to share my view on how MTI is well positioned with our global footprint portfolio of value added products.
Lydia Couple: And deep innovation pipeline to continue to generate profitable long term growth. Despite the current market uncertainties.
Lydia Couple: Eric will then take you through the detailed financials and provide an outlook for the second quarter and then we'll open up for questions.
Eric: Let me start with our Q1 numbers.
Lydia Couple: You can see from this slide we had a challenging quarter.
Eric: Especially compared to the strong first quarter, we delivered last year.
Eric: As we indicated on our last earnings call. We had a very slow start in January but expected that our normal seasonal order volume would pick up as we moved through the quarter.
This did not happen.
Eric: After the first wave of tariff uncertainty that was introduced into the markets. The lower volumes. We saw in January continued into February.
Eric: Across both of our segments, we saw customer order volume reductions orders shift out of the first and into the second quarter.
Eric: And we were also notified of extended downtime at several of our customers' facilities.
Eric: We typically see our order books trend upward as we move from December and through the first quarter months due to the seasonality of some of our end markets.
Eric: To give you a sense of what happened this quarter or January run rate of sales dropped 7% from the fourth quarter average.
Eric: In February as rate, which is typically stronger than January also continued below the fourth quarter rate.
Eric: In conversations with our customers. It was confirmed that the volume reduction was due to three different but related items.
Eric: Inventory adjustments in anticipation of continued economic uncertainty.
Eric: A wait and see approach by customers, who are now subject to tariffs on their end products.
Eric: A reduction by many of our retail customers in their consumer demand outlook.
Eric: At the beginning of March our order patterns and volumes shifted and.
Eric: And we saw an uptick in volumes across most of the company.
Eric: The average daily rate of sales in March was 10% higher than in January and rose to a full quarter rate that was 5% above our initial guidance for the quarter.
Eric: This rapid change in order patterns gave us a sense that we had hit the low end of many of our customers' inventory levels.
Eric: Despite the improvement in volume of our volumes in March we took steps to position ourselves for potentially more challenging times ahead.
Eric: We identified $10 million in cost savings that we're currently acting upon.
Eric: Targeted at efficiency improvements at our facilities and general reductions in overhead and back office services.
Eric: We are not targeting reductions that aspects of the company that would affect our ability to achieve our growth objectives and strategy.
Eric: I feel that these are prudent moves to position the company to maintain our strong financial position and uncertain times, while at the same time preserving our ability to execute on our growth objectives.
Eric: I also wanted to take a moment to discuss the update we provided in last week's press release on the chapter 11 case of our subsidiary BMI Holdco.
Eric: As you saw in the release, we recorded a provision to establish a reserve of 250 $15 million for estimated costs to fund the trust to resolve all current and future talc related claims as.
Eric: As well as to continue to fund the chapter 11 case and related litigation costs.
Eric: So it was not yet reached a final resolution of all matters in the case, we remain confident that BMI old coast path to resolving these liabilities search internally and fairly through the chapter 11 process.
Eric: Further we believe this reserve is appropriate to cover the anticipated financial impact of talc related claims.
Eric: But it will provide added certainty to all stakeholders.
Eric: I cannot give any estimates of when the case will be concluded other than to say it is a structured process and that we were work we're looking to move forward, both prudently and expeditiously.
Eric: So in summary, this was a busy quarter for MTI and one that I would cautiously characterized as a bit of an anomaly.
Eric: Our market has changed rapidly and we reacted quickly by making the necessary adjustments.
Eric: Now, let me give you some deeper insights into the market dynamics in each of our product lines and what we're currently seeing in the second quarter.
Eric: First of all we need to acknowledge the uncertain conditions that are affecting all industries ours included.
Eric: The seasonal cycles that typically drive portions of our business at this time of year.
Eric: Or being disrupted as customers reconsider consumer behavior purchasing patterns and overall business confidence as a result of changing tariff structures.
Eric: So we are seeing a stronger second quarter and its apparent that there remains a significant amount of uncertainty in the markets and with our customers.
Eric: As such our forecast for the second quarter encompass a range of outcomes based on how our cause our customers continue to react to the changing economic landscape.
Eric: So let me give you a bit more detail on changes we saw in the first quarter and provide some context on how the current environment is affecting our individual business segments.
Eric: Let's start with the consumer specialties business segment, which comprises our household and personal care and specialty additives product lines.
Eric: As we mentioned during our Q4 earnings call at the beginning of the year, we observed broad based customer order pattern shifts in this segment.
Eric: Automotive sealant customers that purchase our specialty PCC products paused orders as they waited for more clarity on tariffs.
Eric: Others like our fabric care customers shifted their orders into Q2, and Q3 to reduce inventory levels.
Eric: In both North America, and Europe, we saw order levels drop from several of our pet litter customers as they took a more conservative approach to their inventories.
Eric: And several of our paper and packaging customers took extended outages in both north and South America.
Eric: In early March we started to see a normalization of ordering patterns and revert a revision to higher order volumes.
Eric: This trend has continued and we're seeing more steady order patterns in cat litter and continued strong order volume in other product lines, including animal health and bleaching Earth for edible oils and renewable fuel purification.
Eric: Our automotive sealant customers resumed orders and we commissioned two new PCC satellites early in the year, which ramped up production.
Eric: Further out we have three additional ones under construction that will come online on schedule later this year, adding to our improved outlook.
Eric: In our engineered solutions segment, we saw the same overall slowdowns, we experienced in our consumer and specialty segment, but primarily in the high temperature technologies product line.
Eric: Softer steel market conditions in North America, compared to last year and continued slow steel market conditions in Europe persisted throughout the quarter.
Eric: The North American foundry market remained relatively stable from the fourth quarter.
Eric: China Foundry business had a strong quarter, some of which was due to higher levels of export production in advance of tariffs being implemented.
Eric: One bright spot this quarter is that we had a solid start to the year for our environmental lining systems and building products.
Eric: We are seeing a steady uptick in these projects after a prolonged downturn and have also secured some exciting wins for our floors are in the for Florida Urban P fast remediation space.
Eric: Looking forward, we see improved refractive order volumes, primarily due to restocking trend in the European and Middle East steel markets.
Eric: We also expect to see general stability in the North America foundry market.
Eric: Further stabilization in environmental and building materials applications and continued growth in our P fast remediation solution.
Eric: Yeah.
Eric: It's difficult at this point to give you a solid outlook for the remainder of the year given that significant a significant downturn in the U S. Economy is possibly ahead of us, but I also see several market fundamentals and the opportunities that could play out positively for us as well.
Eric: Given our leading positions in multiple markets and geographies around the world, we are well positioned to capture shifting volume from one region to another as the impact of the tariff picture becomes clearer.
Eric: Overall and despite the challenges that emerged during the quarter, we remain confident in and committed to the long term growth targets, we set for ourselves.
Eric: The components of our long term strategy, which include further penetration into our core markets sales growth of higher margin consumer oriented products and driving higher levels of innovation and new product development remain intact.
Eric: These strategies are targeted at secular and sustainable trends with value propositions that can become even more valuable in challenging economic times.
Eric: Products like products like new yield P. C C. Scantron laser systems high durability, refractories and engineered foundry blends are targeted at driving efficiency cost savings for our customers no matter the economic context.
Eric: Our water filtration technologies, which saw challenging issues like P fast remediation and our absorptive technologies, which aid in the production of consumer food oils renewable fuels and animal health address challenges that provide long term growth pathways unaffected by the current economic issues.
Eric: We will also continue to carefully consider where we should make operational and cost adjustments and we're prepared to act fast to implement further changes if needed and I believe we have the right team in place to do so across the organization.
Eric: We have a strong operating culture based on operational excellence principles, which enables us to adapt quickly and in times of change.
Eric: In summary, I feel we're well positioned to navigate any uncertainty ahead, we have an agile team a strong foundation and a robust long term strategy.
Eric: The strength of our balance sheet provides us with the security to navigate any near term challenge and the flexibility to take advantage of opportunities when they present themselves.
Eric: Now let me, let Eric take you through some more details of our financials as well as our second quarter outlook here.
Eric: Thanks, Doug and good morning, everyone I'll start by.
Eric: Providing an overview of our first quarter results.
Eric: Followed by some detail on the performance of our segments.
Eric: And I'll wrap up with our outlook for the second quarter.
Eric: Now, let's review our first quarter results.
Eric: The first quarter started unusually slow from a customer order perspective.
Eric: Doug noted the reasons in his remarks, including shifting order patterns and destocking by certain customers, which lasted longer than we expected.
Eric: Overall first quarter sales were $492 million.
Speaker Change: You can see in the year over year sales bridge on the top left that sales were 8% lower primarily driven by lower volumes and unfavorable mix. In addition to unfavorable foreign exchange.
Speaker Change: And in the sequential quarter bridge on the top right of this slide you can see that sales were 5% lower than the fourth quarter.
Speaker Change: You saw the most significant shifts in order patterns and consumer and specialty as.
Speaker Change: Which impacted sales across the segment.
Speaker Change: And in the engineered solutions segment, we saw a continuation of the softer demand conditions in some of our industrial end markets from the second half of last year.
Speaker Change: Moving to operating income you can see from the year over year bridge on the bottom left that the volume and mix impacts translated to a $12 million reduction in operating income from prior year.
Speaker Change: Higher selling prices of $5 million helped to offset $5 million in cost increases.
Speaker Change: Our operating costs increased temporarily in the quarter, primarily in the consumer and specialty segment as our operations adjusted production with the rapid shift we saw in customer order patterns.
Speaker Change: In the sequential operating income bridge on the bottom right you can see that we mostly offset the impact of higher costs, including higher input costs such as energy.
Speaker Change: With additional pricing.
Speaker Change: However, there was a portion of higher costs related to operational efficiency that we were not able to offset in the quarter.
Speaker Change: Altogether operating income was $63 million.
Speaker Change: Operating margin was 12, 9% of sales and was impacted by the temporary cost impacts in consumer specialties in the quarter.
Speaker Change: First quarter earnings per share excluding special items was $1 14.
Speaker Change: We recorded several special items in the quarter, including the $215 million provision for BMI Oleds go that Doug described earlier.
Speaker Change: We also recorded a $5 $5 million charge for severance related costs associated with our new cost savings program.
Speaker Change: This program will accelerate efficiencies, we've identified across the organization and we expect it to generate $10 million of annual savings at a full run rate by early 2026.
Speaker Change: Now, let's turn to a review of our segments, beginning with consumer and specialty.
Speaker Change: First quarter sales in the consumer and specialty segment were $268 million.
Speaker Change: Sales were adversely affected by changes in customer order patterns as customers cautiously manage their inventories amid shifting tariff policies and mixed economic signals.
Speaker Change: Including cautious views on consumer spending and sentiment.
Speaker Change: And the charts on the slide we are providing a sequential perspective for sales and operating income, including our outlook for the second quarter to give you a better sense of the current dynamics, we are seeing in our segments.
Speaker Change: Sales were 4% lower sequentially.
Speaker Change: The shifts we saw in order patterns impacted sales of cat litter and fabric care and the household and personal care product line.
Speaker Change: And in specialty additives, we saw order pattern changes for our specialty PCC products going into automotive sealants.
Speaker Change: We also experienced an unusually high level of customer maintenance downtime at several paper and packaging sites.
Speaker Change: Despite these impacts we continue to see some positive trends in both product lines.
Speaker Change: In household and personal care edible oil and renewable fuel purification remained on its growth track with sales up 6% from prior year.
Speaker Change: And in specialty additives, we continued to see sales growth for ground calcium carbonate up 6% as demand for our products serving the residential construction market has remained resilient in the southwest and northeast regions of the U S, which are the two main regions we supply.
Speaker Change: Operating income for the segment was $30 million.
Speaker Change: Lower volumes were the largest contributor to the reduction in operating income.
Speaker Change: Which impacted not only the top line, but also contributed to temporarily higher operating costs due to unfavorable productivity and fixed cost absorption.
Speaker Change: Overall for the segment, we expect sales to increase approximately 3% to 6% sequentially in the second quarter.
Speaker Change: We expect improvements in both product lines, driven by a return to more normalized order patterns as well as the transition into the seasonally higher period for residential construction.
We expect operating income to improve to between 35 and $38 million driven by higher sales as well as improved mix and overall productivity.
Speaker Change: Now, let's turn to a review of the engineered solutions segment.
Speaker Change: First quarter sales in the engineered solutions segment were $224 million.
Speaker Change: Again, we're providing a sequential perspective in the charts on the slide including our outlook for the second quarter.
Speaker Change: For high temperature technologies, we've seen mostly stable market conditions for foundry and steel customers in North America.
Speaker Change: It was still softer than last year due to lower demand for castings into the agricultural equipment market and the continuation of the softer steel market conditions from the fourth quarter.
Speaker Change: And demand from steel customers in the Europe region was significantly lower than last year, driven primarily by customer destocking activity.
Speaker Change: Meanwhile, in Asia Foundry volumes grew 9% from last year led by increases in China and India.
Speaker Change: It's likely that some demand was pulled forward in Asia ahead of tariffs and we've adjusted our forecast for the second quarter as a result.
Speaker Change: And environmental and infrastructure, we're seeing continued stability in large scale project activity for commercial construction.
Speaker Change: And our sales into that market are holding steady with last year.
Speaker Change: When highlight to note is that sales of our environmental lining up great applications were up 19% versus last year.
Speaker Change: Sales of floor is the orb were also up significantly driven by a large trial project for a promising municipal drinking water application.
Speaker Change: Which is both scalable and a potential recurring revenue stream.
Speaker Change: Offsetting this positivity was the timing of projects in offshore water filtration and services, including some project delays.
Speaker Change: This resulted in overall sales for the product line below prior year.
Speaker Change: We expect sales to rebound from these delays in the second quarter.
Speaker Change: Operating income for the segment was $34 million and operating margin 15, 4% of sales.
Speaker Change: Looking ahead to the second quarter, we're expecting sales to increase by approximately 10% to 15% sequentially.
Speaker Change: Yes.
Speaker Change: In our high temperature technologies product line, we see modest improvement in Europe as Destocking activities run their course.
Speaker Change: And we expect North American volume to remain similar to the first quarter.
Speaker Change: Okay.
Speaker Change: In Asia, we expect our growth trends to moderate temporarily with volume similar to last year as foundry customers adjust tariff impacts on their end market.
Speaker Change: We estimate that only a small portion of our foundry customers products are exported to the U S.
Speaker Change: However, we are expecting some disruption to production levels as customers adapt to the new dynamic.
Speaker Change: And in the environmental and infrastructure product line, we expect higher sales as we enter the seasonal peak periods for large scale project activities.
Speaker Change: Operating income for the segment is expected to increase to between 40% and $42 million driven primarily by higher sales levels.
Speaker Change: Now, let me turn to a summary of our balance sheet and cash flow highlights.
Speaker Change: Let me start by reminding you that our cash flow is always lowest in the first quarter and it builds through the year.
Speaker Change: Our cash flow. This first quarter was lower than usual due to an increase in working capital relative to prior period.
Speaker Change: The slower order volume in the first quarter contributed to slower inventory turnover overall.
Speaker Change: In addition, we're adding to some strategic inventory positions for key raw materials.
Speaker Change: Overall inventory contributed to $27 million or two thirds of the increase in working capital versus last year.
Speaker Change: Our working capital was also temporarily impacted by the timing of receipts.
Simply because our quarter ended on March 30th and the last day of the month is typically a big day for receipt.
Speaker Change: We expect free cash flow to improve in the second quarter and through the second half of the year as these working capital impacts unwind.
Speaker Change: As usual, we expect the second half of the year to be much stronger than the first half of the year from a cash flow perspective.
Speaker Change: First quarter capital expenditures were $18 million, and we returned $15 million to shareholders in the quarter through share repurchases and dividends.
Speaker Change: Our balance sheet is very solid with nearly $700 million of liquidity and a net leverage ratio of one seven times EBITDA.
Speaker Change: I'll also point out that after refinancing our debt last year, we're in a very strong position from a debt maturity perspective.
With no significant maturities until 2028 and 2031.
Speaker Change: Now I'll summarize our outlook for the second quarter.
Speaker Change: As you can imagine its a bit challenging to provide guidance this quarter, given the significant uncertainty surrounding tariff policies and potential impact on our customers and end markets.
However, as you've heard we saw an uptick in sales in March and that has continued into April.
Speaker Change: Our sales guidance on this page is based on a couple of scenarios for the second quarter that could play out from here.
Speaker Change: First the low end of the range assumes our March sales run rate of approximately $520 million continues at the same level throughout the second quarter.
Speaker Change: Given the seasonal uptick we expect in construction markets dislocate assumes a more challenging macro backdrop offsets favorable seasonality.
Speaker Change: The high end of our range of $535 million assumes continued normalization of order patterns in May and June in addition to the seasonal improvement.
Speaker Change: This high end does not reflect a complete return to normal.
Speaker Change: It reflects continued improvement in May and June, but its still below what we would expect under stable market conditions.
Speaker Change: Yeah.
Speaker Change: At the midpoint of our sales range, we expect operating income of around $75 million and EPS of around $1 40.
Speaker Change: Where we land in the sales range will determine the upside or downside to our income guidance.
Speaker Change: In any case, we expect our margin to improve significantly in the second quarter, driven by improved volumes and operating costs.
Speaker Change: Overall, we're expecting a much stronger second quarter with sales, 5% to 10% higher than the first quarter and operating income around 20% higher sequentially.
Speaker Change: With that I'll turn the call over for questions.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question you May press Star then one on your telephone keypad.
Speaker Change: If you were using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: To withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: Okay.
Speaker Change: Our first question is from Daniel Moore with CJS Securities. Please go ahead.
Daniel Moore: Thank you good morning, Doug Good morning, Eric.
Speaker Change: For taking my questions.
Dan: Hi, Dan.
Speaker Change: You start with.
Speaker Change: Talc litigation.
Speaker Change: And then get into the business and the outlook.
Speaker Change: You know regarding the reserve just talk a little bit about the recent progress you've made in arbitration to the extent that you can and what gives you confidence.
Speaker Change: And then putting a number out at this stage around the expected costs or liabilities.
Speaker Change: Sure Yeah as you know.
Speaker Change: We've been in mediation for awhile.
Speaker Change: A lot of progress was made in the first quarter of this year and given with some of the progress that we've made plus last week and some of the hearings we've gotten to a point where we can.
Speaker Change: I think a good estimate of what we think the potential funding.
Speaker Change: Funding of the trust and also on the ongoing litigation costs for <unk>. So that's what that's based on.
Speaker Change: Progress this quarter and wanted to make sure that that was out there.
Speaker Change: Now, we feel that that give some kind of understanding and some clarity around where this process is headed it's not done yet Dan as I mentioned in my remarks, we still have not concluded this but we're confident that moving through the chapter 11 process will get us to a final resolution.
Speaker Change: Really helpful and is there any way to think about a range of sort of maybe cash impact as we think about 2025.
Speaker Change: Too early to estimate that right now.
Speaker Change: Understood.
Speaker Change: And maybe just talk about.
Speaker Change: It's an incredibly dynamic environment.
Speaker Change: Clearly, but your revised expectations or just thought process around organic top line growth. This year, you know given the slower expected start to the year in the macro and tariff impacts is there a range, we should think about or contemplate you know just given the increased uncertainty.
Speaker Change: Previously it was a mid single digit growth goal, but how.
Speaker Change: How do you kind of think about the confidence interval.
Speaker Change: Yes, it's really hard to give you a range of outcomes I mean, it's almost on the lines of what Eric gave you in terms of second quarter guidance. So there's kind of two scenarios right.
Speaker Change: We see through the second quarter, which we see as a much more positive than the first things slow down further into the third in the back half of the year based on that kind of macroeconomic issues, we end up in a recession.
Speaker Change: That's one scenario that I can't predict how deep that would be or what that would look like for ourselves, but I think our sales are relatively resilient through through slowdowns and you can look in the past and how that's worked out the other side of it would be that we hit the slowdown but things become clear obviously I'm reiterating all the things you probably know, but things become clearer I do see that there's a <unk>.
Speaker Change: Base demand picture out there that seems relatively stable what you saw in the first quarter was quite a bit of.
Order patterns shifting but as we've seen that.
Pick up in March we think that there is that base demand out there at least through the second where that inventory restocking happened and that happened in multiple geographies. So if that continues then I think we actually are on track for.
Speaker Change: Kind of maybe the low end of that range that I gave you in the first quarter low single digits. That's a guess right now Dan, but if theres a base demand and some uncertainty is clear and the order patterns continued straightened up.
I think the back half of the year could be relatively solid I mentioned in my remarks that there's some positive things that are out there are.
Speaker Change: Our product lines that are into water remediation.
Speaker Change: Let me go back in some of my comments.
Speaker Change: Regardless of where base sales and up the company is really well positioned through the products that we have in our pipeline into some of the secular trends we're into environmental water remediation we're into consumer products that continue to grow.
Speaker Change: I think that those continue through whatever kind of economic.
Speaker Change: For non dip that we're in in the back half of the year I think those continue to play out to growth. The net net of that could be flat could be up slightly it's too hard to call right now Dan, but I think.
Speaker Change: The.
Speaker Change: <unk> of the company and the positions that we're in globally.
Speaker Change: Product lines that we're in and how we're moving them towards secular trends, they all hold out and they're going to hold for the long term and so I think we're well that's why I gave you the comments, where I think we're really positive about our growth trajectory. Despite whats kind of happened in the near term next couple of quarters.
Speaker Change: No. That's really helpful. Maybe just talk a little bit about the cadence of the cost savings you expect to achieve.
Speaker Change: For the next several months as we ramp to that 10 million by really 26 and.
Speaker Change: Is all of that earmarked for margin improvement or is there something that you might consider reinvesting.
Speaker Change: Yeah. Thanks, Dan This is Eric so that savings is going to start ramping up more meaningfully in the third quarter.
Speaker Change: And continued through the first quarter of next year, I would say that that's going to be.
Speaker Change: Accretive to margins I think just touching on margins for a minute, it's going to depend on how the demand picture plays out for the rest of the year.
Speaker Change: But I think I do want to point out that the company is still set up for that 15% kind of target margin and I think we can get there sort of one of two ways. This year, one is going to be obviously through volume I think the difference between what you are seeing us guide to in the second quarter of the midpoint of our guide is representing around 14, 3% margin there.
Speaker Change: Difference between that and the 15% target is mostly volume fixed cost leverage.
Speaker Change: And so we get that volume to come back we get to the 15%. If we don't see the volume coming back I think the cost savings program helps us get there.
Speaker Change: Yes.
Speaker Change: Really helpful. And then the last one just as it relates to the guide.
Speaker Change:
Speaker Change: And you mentioned the mid point, so just making sure I understand it correctly, you've got a range of $15 million range on the top line.
Speaker Change: And then the.
Speaker Change: The operating income and EPS as sort of a point. So are those is that kind of assume the mid point of the topline.
Speaker Change: How do we think about you know potential ranges around.
Speaker Change: I guess call it $1 40 of EPS is yeah.
Speaker Change: Revenue was at higher and just help me out yes, that's exactly right those.
Speaker Change: Point estimates on the income side or the midpoint of the sales range. Okay. Okay. That's helpful. All right. Thank you very much.
Mike Harrison: The next question is from Mike Harrison with Seaport Research partners. Please go ahead.
Mike Harrison: Hi, good morning.
Mike Harrison: Was hoping.
Mike Harrison: Maybe we could dig in a little bit further on.
Mike Harrison: The operating margin.
Mike Harrison: Understand.
Mike Harrison: In the first quarter of this year over year decline.
Mike Harrison: 150 basis points.
Mike Harrison: Was related primarily to the volume leverage maybe some elevated costs, but if you could give any additional color on that.
Mike Harrison: What you have going on with cost in the first quarter that would be helpful. But then you're also guiding to about a 150 basis point year over year decline for Q2.
Mike Harrison: So what I really would like to get at.
Mike Harrison: For the full year 2025 operating margin are we on track to be down 100 to 150 basis points.
Mike Harrison: Do you see two things.
Mike Harrison: <unk> right now or do you expect meaningful improvement in the second half to maybe get us somewhere closer to 15% for the full year.
Eric: Yeah. Thanks, Mike This is Eric.
Eric: I'll try and take your questions in sequence. So for the first quarter. Yes, we did have some cost issues I think if you look at our bridges.
Eric: The sales and operating income bridges that we gave.
Eric: <unk>.
Eric: Volume mix kind of combined impact equates to a decremental margin in the 30% range, which is what we would typically expect for the company. So I'm going to attribute a lot of that reduction too.
Eric: Volume, but I will say that on the cost side within that cost bucket. We were facing a few increases energy is one energy was in the $2 million to $3 million higher on a Q.
Eric: One over Q1 basis, that's looking a little better for the second quarter I'd say, it's still at this point slightly unfavorable versus last year, but the energy situation is looking a little bit better.
Eric: We're also watching transportation costs overall logistics costs were about a $1 million unfavorable in the first quarter.
Eric: We're seeing slightly higher costs for the second quarter for mainly for truck and rail.
Eric: The other piece just to point out.
Eric: Is around tariffs, it's a much smaller impact I think we put that sort of put the picture in front of folks last quarter that we have a relatively.
Eric:
Eric: Relatively small impact direct cost impact from tariffs, just because we're primarily sourcing and selling locally, but if I had to put a dollar number on it in the first quarter was about a 300000 dollar impact on tariffs second quarter, probably about $1 million, we have ways of mitigating that and will likely offset most of that but theres some timing elements.
Eric: Two.
Eric: Passing that through an alternate sourcing and things like that but that's another cost.
Eric: Element that we're watching.
Speaker Change: I would point out you mentioned that the year over year comparison, I would point out that last year's second quarter, the 15, 7% margin and we put up.
Speaker Change: <unk> had several high margin refractory equipment sales in it that we called out in the quarter.
Speaker Change: So that was a really strong result last year, but it makes for a difficult comp year over year I think.
Speaker Change: The main difference between what we're guiding to for the second quarter.
Speaker Change: And where we were last year was as the volume so as far as where we can end up for the full year.
Speaker Change: Sort of alluded to this on the for the previous question, but.
Speaker Change: Assuming.
Speaker Change: Markets are relatively stable.
Speaker Change: We can get to the 15% margin.
Speaker Change: Just from the volume leverage as we move through the year.
Speaker Change: I would point out that we have.
The other thing is helping us get the margins higher which would be that cost savings programs starting to ramp up in the third quarter. So the combination of volume plus the cost savings program could move us above the 15% margin on a run rate basis.
Speaker Change:
So we'll just we're going to have to see how it plays out from a demand perspective for the rest of the year.
Speaker Change: Yes understood.
Speaker Change: Good color there.
Speaker Change: Maybe just a follow up on that.
Speaker Change: Tariff impact.
Speaker Change: Think of magnesium oxide it as being a key raw material for refractories.
Speaker Change: Past it leaves a lot of that was coming from China as far as I can tell it's not on the list are excluded.
Speaker Change: Cereals or chemicals.
Speaker Change: To be excluded from the tariffs what are your expectations on how tariff policies could impact mgo and is that one of the materials that you guys are kind of stocking up inventories right now.
Speaker Change: Preparation for a potential impact.
Speaker Change: Sure.
Speaker Change: Yeah. So magnesium oxide is something that we do buy from a number of sources, we also buy and produce it ourselves in Europe.
Speaker Change: So, yes, but China is one of the locations, we do buy that from me.
Speaker Change: Right now the tariff, it's not excluded it to 20% tariff on magnesium oxide from China, which is part of.
Speaker Change: What we see as a full year kind of tariff impact but.
Speaker Change: We have been buying and buildup that is part of the piece that we've been building inventories.
Speaker Change: For a number of reasons one.
Speaker Change: Some of the tariff structures, but also because at this time of year, we see.
Speaker Change: You saw a lot of rain in the Midwest and Theres Some river closures, the Mississippi River, we move things through barge up the river and so we make sure that we are in good position.
Speaker Change: For any disruption that might occur, but this year, we bought a little bit more ahead of time here in Q1.
Speaker Change: Right now I think we have inventories that are well into the third and fourth quarter. So we're well protected from that and we also have a diverse magnesium oxide base that we can tap into so.
Speaker Change: Hopefully that answered both your questions.
Speaker Change: No thats helpful.
Speaker Change: And then over on the consumer side.
Speaker Change: This is.
Speaker Change: The fourth quarter in a row, where that household and personal care business is showing growth well below your expectation. If you guys hope to get the whole company up to a mid single digit type of growth rate HBC is what needs to be part of the key drivers.
Speaker Change: What needs to happen in order to get this business back on track and maybe help us understand a little bit better why we're seeing so much volatility.
Speaker Change: Our consumer driven business that we would expect to be more stable I mean part of the reason you guys.
Speaker Change: Work to expand this business is that you would expect to provide more of a resilient through the factor type.
Type of demand pattern and it doesn't seem like that's been the case for some reason.
Speaker Change: Yeah.
Mike Harrison: Yeah look I share your the optics of that over the past few quarters, Mike So I understand where you are.
Mike Harrison: I'm not going to go as far to say that Thats, something thats off track I'm not going to say that the thesis around our cat litter business and our positions and how we've built it and its potential is off track I think.
Mike Harrison: I agree with you on a quarter over quarter basis, we've been a little bit frustrated by some of the things that have happened with the branded products and discounting that happened last year in this quarter.
Mike Harrison: Got it.
Mike Harrison: I think that I'm, giving you an excuse it said you know a number of our customers order patterns shifted around but that's what happened I think we saw a bit of a mixed though this quarter. We saw we saw some real strong demand from large retailers in the U S and that was offset by shifting patterns by some specialty outlets.
Mike Harrison: Outlets and grocers in the U S.
Mike Harrison: I would say the biggest piece was probably the large retailers in Europe pulled back and managed inventories in the first quarter.
Mike Harrison: But then I'm going to tell you that our current order pattern going into the second quarter.
Mike Harrison: If it continues at this pace and there is some bulk could be some volatility is going to grow at about eight eight and 9% sequentially and that's going to put us at about 5% over last year.
Mike Harrison: So right on the mid single digits. So there has been some volatility in the pet litter market I will tell you that the growth rate of the category itself has been lowered this past year 'twenty four and into 25 than it was in the previous two I think the category is growing at about 1% and so there has been some shifting around between brand and private label, but I think.
Mike Harrison: The confidence we have in private label, especially in times of kind of challenging economics, I think that's going to show through and I think we're starting to see the order patterns. This quarter into the second to give you that kind of growth rate. So.
Mike Harrison: We will have to show that to you, but I don't find that there's a fundamental flaw with the category or our growth thesis around it for the long term.
Mike Harrison: Only one thing I'll add to that is also that we're expanding our business in Asia and that has growth rates are showing growth rates that are much higher than the average youre seeing in North America, which is a more mature market and I think as that comes online which is what we had shown in terms of our global footprint to Petcare. That's also going to be accretive and youre going to start to see that growth. So.
Mike Harrison: A couple of short term things that have moved around on us, but I don't think that that changes my outlook that says this is going to be great business. It is a great business for the company.
Speaker Change: Alright, thanks very much.
Speaker Change: The next question is from David Silver with C. L. King. Please go ahead.
David Silver: Yes, hi, thank you.
Speaker Change: Sorry.
Speaker Change:
Speaker Change: So I have.
Speaker Change: Fair warning I have kind of a wordy question to start out with but.
Speaker Change: Like to kind of come at the tariff situation, maybe from a slightly different angle I mean.
Speaker Change: The companies I speak to and I am pretty sure you would agree but.
Speaker Change: You know the direct impacts of the tariffs I think from your management team and everything are very well understood.
Speaker Change: But you know the the.
Speaker Change: Greatest uncertainty relates to customer reactions customer behavior is.
Speaker Change: As you pointed out in the first part of the quarter.
Speaker Change: You know looking at your your business and in particular, maybe your R&D or your collaborative activities.
Speaker Change: Activities with key customers.
Speaker Change: I mean would you say that you know maybe since the beginning of the year or since April 2nd I mean has there been a shift.
Speaker Change: In their attitudes towards working on kind of the next generation new product developments or application. So.
Speaker Change: D. J's team is pitching for the next satellite plant.
Speaker Change: I don't know in Asia are.
Speaker Change: Are they still taking the meetings or if bretts team is doing the same with.
Speaker Change: You know the laser measurement equipment plus the refractories.
Speaker Change: These types of longer term contracts.
Speaker Change: Are your development activities in those areas still moving forward at the same pace or customers stepping aside are you stretching out your timelines just maybe a thought on you know the.
Speaker Change: The effect of the tariffs on your longer term medium to longer term development activities. Thank you.
David Silver: Yeah, Hi, David.
David Silver: No I don't think that that's the case at all I think that the tariffs are not having any impact on that I think the.
David Silver: One area I do see and I mentioned in my remarks that tariffs to have an impact as just in general demand and where that production. The uncertainty that it's created in terms of where customers are going to make things or how much demand there will be four where theyre, making them today.
David Silver: One thing I will tell you that I think the company and our global footprint has positioned to pick that up wherever it goes alright, we've seen that before with tariffs and steel in 2018.
David Silver: Were increased.
David Silver: <unk> production came to the United States.
David Silver: And we were right there to pick that up and be able to deliver our refractory products. So as a matter of fact, a couple of new facilities were built from 2018 until now there is another one that you've been scheduled here in the United States.
David Silver: And we're confident that we're going to get that business. So.
David Silver: And we've also seen that in the foundry, where if something has moved from China to here or here to China, we've been able to pick that up because it's our.
David Silver:
David Silver: It's our technology.
David Silver: Conversations with customers have not changed you mentioned looking at paper and packaging satellite and the newest technologies around new yield or a packaging.
David Silver: Still ongoing still interested.
David Silver: Our our Scantron laser measurement systems still on track still interested and the reasons for that are because they save our customers' money theyre more efficient they are safer ways theyre higher tech ways to make their products.
David Silver: It is through our collaboration with them and I think and we're seeing that that's probably going to be even more in demand now than it was before so those I don't think that's going to stop anything or change anything.
David Silver: In terms of those types of high value products that we deliver to customers at least we haven't seen it yet and we don't expect it to.
David Silver: The other area would be areas of kind of longer term growth that we're targeting in environmental and water remediation and things that are tied to kind of a long steady growth pattern.
David Silver: <unk> growth trajectories like edible oil renewable fuels animal health.
David Silver: These are going to transcend kind of economic activity economic ups and downs, because I believe that they are kind of fundamental shifts in what our customers want.
David Silver: And we're providing those those products so like I said.
David Silver: Think with our portfolio of products currently out there.
David Silver: <unk> did at these kind of secular growth trends and at cost savings and value added applications for our customers I think they're going to continue to go.
David Silver: As they have in the past and we've got a pipeline of hundreds.
David Silver: Hundreds of new products behind that that are targeted at similar things in so long term I don't see that this short term.
David Silver: Issues that we're looking at are going to affect the companys long term growth prospects.
David Silver: Okay.
David Silver: Okay. Thanks, Thank you for that I appreciate all the color.
David Silver: Question about the PFS. Okay. So you know I did.
David Silver: I notice in your slide deck, you did call out the <unk>.
David Silver: New larger I'm drinking water project, but maybe just a couple of things, but firstly it is about.
David Silver: We are anniversarying its the anniversary I guess of the E. P. A.
David Silver: Our decision to set particular limits on PFS content in drinking water.
David Silver: And I know that there's a three or a year or more timeline you know for the average customer to make a decision on that.
David Silver: Or yet to make a decision on a treatment plan.
David Silver: It has been a while I think since the company up.
David Silver: Dated like that figure I think it was about 200.
David Silver: The plants are sampling or beta projects in that that type of inner.
David Silver: Interaction so firstly I mean in the year since I'm the EPA did set the content limits.
David Silver:
David Silver: Has the number of pilot plants in beta tests and whatnot, you know meaningfully increase.
David Silver: And then secondly, if you could maybe just update us on the a significant contract win with the northeast I believe drinking water facility.
David Silver: Sure David.
David Silver: Yes, the pipeline continues to be very strong.
Speaker Change: And not only in North America, but also in Europe.
David Silver: As we are seeing opportunities for P fast remediation.
Speaker Change: On that continent. So.
Speaker Change: The pipeline continues to be strong I believe we're running into 100 different trials, we've commercialized in.
Speaker Change: Five or six drinking water facilities.
Speaker Change: So the pipeline continues to be there the demand and the interest in it you are right.
Speaker Change: The EPA standards don't go in until 2029, and so we always knew that this would build as.
Speaker Change: Customers, both drinking water customers and also in remediation. They continue to trial different technologies are as being one of them and ours being one of the most cost effective and technologically effective so yes.
Brett Drake: Yes. The pipeline is strong we're still doing a lot of trials and let me, let Brett our Drake is take you through kind of some of the current current activity sure Hi, David.
Brett Drake: David as Doug said, yeah, our fluids, our product really continues to generate a high level of interest from the state local and federal levels.
Speaker Change: This quarter, we had about 15, new projects bearing in size and scope.
Speaker Change: As Eric mentioned in the remarks, we had a large project in.
Speaker Change: In the northeast.
Speaker Change: These these projects really vary in size and scope. So they go from small to mid sized drinking water wastewater in situ remediation projects and they represented over 200% increase from the last last year first quarter. So it's we're pretty excited.
Speaker Change: Cited about it.
Speaker Change: And as Doug just mentioned, we have six full scale drinking water systems utilizing our fluoro sorb.
Speaker Change: For additional were coming on a full scale drinking water systems by the end of the year. So so the activity is is really starting to move in the right direction internationally as well our fluids our opportunities continued to gain traction, especially in Europe in several countries. So we're.
Speaker Change: We're focusing not only on the drinking water, but focusing on on the other other areas landfill leachate wastewater treatment soil groundwater, so it's pretty pretty a pretty fun time for us to grow. This let me give you a little bit of.
Speaker Change: Uh huh.
Speaker Change: <unk> about the project in the northeast.
Speaker Change: The drinking water project that Eric mentioned, it's a large.
Speaker Change: Municipal.
Speaker Change: Large scale municipality.
Speaker Change: That's going to be commissioned installed and commissioned this month.
Speaker Change: Its really unique because.
Speaker Change: It's really large scale. If you if you can picture a large scale swimming pool, but their reactors, it's not it's not.
Speaker Change: Vessels built before resorb, it's large reactors.
Speaker Change: And that project is going to remove not only <unk>, but other contaminants.
Speaker Change: The drinking water.
Speaker Change: These reactors are also standalone systems, where theyre not using other other systems like Jack and ion exchange within it. So we're really excited about the project and the size and scale and the scope because this represents about 110th of the.
Speaker Change: The scope of this project. So we're we're hoping and very confident that that the success of this project is going to expand and we will we will be moving forward and it will help us to move or floors or problem.
Speaker Change: <unk> forward.
Speaker Change: Thank you for that very exciting development.
Speaker Change: Last one from me, but maybe this is a question tilted towards D. J.
Speaker Change: No more China focused but.
Speaker Change: Since.
Speaker Change: Early April you know.
Speaker Change: I am wondering if.
Speaker Change: You have detected any I don't know loss of competitiveness or any kind of change in the competitive environment for your you know PCC in your foundry activities in Asia in general, but I guess in China in particular.
Speaker Change: Other words is there a.
Speaker Change: Blemish or is there a preference to do business with a company that isn't in America is U S. Based in the current environment in other words are they giving more business, maybe to your PCC competitors or or someone from another.
Speaker Change: Based in another country.
David Silver: No David we haven't seen that at all as a matter of fact.
Speaker Change: We've also been in negotiations and have won another contract in China.
David Silver: Just recently and so.
David Silver: And we're also seeing that in the foundry market, our customers very much value the blends and the technology that we bring them in the foundry and we've seen some increased interest in demand.
David Silver: To convert to a blended system because of.
David Silver: The savings and the productivity that it brings.
David Silver: In terms of PCC.
David Silver: We are the leader in technology around the world, we have a broad based.
David Silver: Plot.
David Silver: Platform to offer them over the life of our partnership.
David Silver: So it's not just the PCC in the Crystal and how we can adapt that its new yield at savings. It's how they make their paper it's efficiencies. It's breakage, it's all sorts of different things that we bring them over the lifespan, it's high filler technologies.
David Silver: I think thats that transcends.
David Silver: When you are a company, China or other words that transcends, where it's from there weren't the highest value they want the best and most reliable and that's what we're seeing and I don't expect that to change.
Speaker Change: Okay, great. Thank you very much I appreciate it.
David Silver: Thanks, David.
Speaker Change: The next question comes from Pete <unk> with <unk> Securities. Please go ahead.
Speaker Change: Hey, good morning, Thanks for taking the questions.
Speaker Change: So based on the customer conversations in order patterns, you've seen in March and April have there been any signs that any of the sequential demand pickup you are expecting for the second quarter is partially related to pre buying ahead of tariffs being implemented and I guess, if so could you try to size that and talk about where its concentrated within the portfolio.
Speaker Change: Okay.
Eric: Yeah, Hi, Peter This is Eric Thanks for the question.
Speaker Change: So we did see some pre buying.
Speaker Change: In the first quarter in Asia in the foundry business.
Speaker Change: Not a huge amount I think probably a $1 million of revenue overall, we felt was pulled forward.
Speaker Change: Into March.
Speaker Change: Some tariffs going in there that would have affected some customers.
Speaker Change: But on the other side, we had instances of customers holding off.
Speaker Change: Related to tariffs, we pointed to some of the the customers serving the automotive end market sort of tier two tier three suppliers to the automotive market being really cautious around the levels of inventories that they're holding.
Speaker Change: And so we had we had both sides of the equation, we had some customers pulling ahead some customers holding off.
Speaker Change: So we have as I mentioned moderated in the second quarter forecast for the.
Speaker Change: Asia Foundry business I think I pointed to the fact that that business grew 9% in the first quarter, we're expecting that to be closer to flat for the second quarter year over year.
Speaker Change: But that's how I would summarize kind of the pull forward effect.
Speaker Change: Okay. Thanks, and then I apologize if I missed it but last quarter you gave a range for expected free cash flow for the full year do you have an update you can share on your expectations there either in terms of a range or a conversion ratio.
Speaker Change: Yeah, So we're still expecting a strong year for free cash flow.
Speaker Change: It did start slow as I mentioned with the working capital build in the first quarter, but we still expect to generate around 7% of our sales are down.
Speaker Change: Down to free cash flow the cash flow conversion Cape.
Speaker Change: Capability of the company remains solid no question there.
Speaker Change: We have line of sight to probably around $150 million of free cash flow this year.
So still feeling good about the cash flow generation of the company.
Speaker Change: Great. Thank you very much.
Speaker Change: Thanks Peter.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Doug Dietrich for any closing remarks.
Speaker Change: Thank you for joining today's call. We appreciate the questions Hope we got all of them in today and we look forward to give you an update on our second quarter and about three months. Thank you very much.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Yeah.