Minerals Technologies Inc. (NYSE:MTX) Q3 2023 Earnings Call Transcript October 27, 2023
Operator: Good day, everybody, and welcome to the Third Quarter 2023 Minerals Technologies Earnings Call. Today’s name is being recorded. At this time, I wish to flip the decision over to Lydia Kopylova, Head of Investor Relations for Minerals Technologies. Please go forward, Ms. Kopylova.
Lydia Kopylova: Thank you, Melinda. Good morning, everybody, and welcome to our third quarter 2023 earnings convention name. Today’s name will probably be led by Chairman and Chief Executive Officer, Doug Dietrich; and Chief Financial Officer, Erik Aldag. Following Doug and Erik’s ready remarks, we’ll open it as much as questions. As a reminder, among the statements made throughout this name could represent forward-looking statements inside the that means of the federal securities legal guidelines. Please observe the cautionary language about forward-looking statements contained in our earnings launch and on these slides. Our SEC filings disclose sure dangers and uncertainties which can trigger our precise outcomes to vary materially from these forward-looking statements.
Please additionally observe that a few of our feedback at present discuss with non-GAAP monetary measures. A reconciliation to GAAP monetary measures might be present in our earnings launch, and an appendix of this presentation that are posted on our web site. Now I’ll flip it over to Doug. Doug?
Doug Dietrich: Thanks, Lydia. Good morning, everybody. And thanks for becoming a member of at present. Let me begin off by supplying you with a fast define for at present’s name. First, we’ll take you thru the highlights of our third quarter. And as a part of this, I’ll present some commentary on the dividend enhance and share repurchase program we introduced final week. I additionally wish to offer you a fast update on Barrett’s Minerals. I do not wish to spend a little bit of time going a bit deeper into what drove this quarter’s sturdy efficiency and why I really feel it is a sign of how we have positioned ourselves for continued revenue enchancment. After that, we’ll give an update on common business situations and market traits. Erik will then evaluation the financials and supply an outlook for the fourth quarter.
And we’ll have loads of time to take your questions on the finish of our feedback. I’m certain you’ve got already reviewed our third quarter earnings press launch. So, let’s undergo among the predominant highlights. We had file gross sales for third quarter, delivered file working revenue for any quarter, considerably improved margins and elevated money move. These outcomes are reflective of how we have positioned ourselves strategically, and the way we’re executing from an working perspective. Our business segments are performing properly. Each proceed to face combined market situations by the quarter. But regardless of this MTI achieved file third quarter gross sales. Let me offer you among the highlights. Within the Consumer Specialty phase, the Household and Personal Care product line continues to indicate power with secure development throughout all geographies.
The predominant spotlight being pet care gross sales, which elevated 15% over final yr, and our animal well being merchandise development of 38% from final yr, because the pure feed additive market continues to develop. In the specialty components product line, paper markets in North America and Europe remained sluggish. Although Asian paper markets had been stronger, and volumes improved, resulting from our latest satellites within the area. We additionally noticed strong efficiency from our floor calcium carbonates merchandise in North America. In truth, our GCC facility positioned within the western U.S. had a really sturdy quarter ingesting manufacturing gross sales and revenue information. And the engineered resolution phase our excessive temperature applied sciences product line delivered particularly sturdy efficiency. North America metal and foundry markets remained secure.
And the China foundry market continues to enhance every quarter. This business hit on all cylinders, gaining market share, sustaining pricing, capturing enter cost financial savings, and delivering a powerful working efficiency at manufacturing amenities. And the environmental infrastructure product line. Wastewater therapy, environmental lighting techniques and drilling merchandise had a strong quarter. We proceed to see weak exercise within the industrial building waterproofing market. Next, EBIT margins expanded to 14.1% this quarter 170 foundation level enchancment over final yr. Both segments expanded margins considerably. We captured enter cost financial savings, improved productiveness and our operations. Held pricing and in lots of circumstances continued to enhance pricing and leverage our fastened cost base by self-discipline spending in progress with our $10 million expense discount program.
Strong gross sales and expanded margins yielded $77 million of working revenue, which is a file for any quarter for MTI. As we anticipated money flows bettering, money from operations elevated 30% sequentially, and year-to-date, it has greater than doubled over final yr to $138 million. The secure gross sales trajectory of our portfolio of businesses and the enlargement of revenue margins, we’re assured in stronger money move ranges going ahead. Our board shares this competence, which is illustrated by the rise final week in our quarterly dividend from $0.05 to $0.10 and the authorization of a brand new $75 million share repurchase program. Before I transfer on, I wish to offer you a quick update on the place we’re with Barrett’s Minerals. As we have mentioned on these calls, over the previous yr, circumstances filed towards BMI continued to extend, in addition to the cost to defend itself towards these claims.
We consider these claims to be meritless. And we have all the time stood by the protection of BMI merchandise. The actuality of the hovering authorized prices overwhelmed this small business. And in consequence, on October 2nd, BMI introduced that it filed for Chapter 11 safety. As a results of this, we recorded a one-time non-cash impairment cost of the BMI fastened property, in addition to the cost for the litigation prices related to the chapter course of. In the fourth quarter, we count on to completely take away this business from our monetary outcomes. We thought-about a number of choices and determined that utilizing the chapter course of was one of the best path to guard the business MTI and all stakeholders. Process will take time to completely resolve and BMI will proceed to function per ordinary all through, we’ll be sure you update you because it progresses.
We see this as a major step in shifting ahead and guaranteeing that our company vitality is squarely centered on reaching our five-year development and efficiency targets. Let’s take a couple of minutes to go a bit deeper into our quarter. Not to focus on the numbers as I simply did, however fairly for instance what’s behind them what’s driving them, and why we’re assured it will proceed. Performance this quarter is a product of a number of parts which might be coming collectively. Driven by our technique and supported by a powerful working mannequin. It begins with our prime line income profile made up of our resilient and secure portfolio of businesses. Our skill to deploy our core applied sciences, mixed with our ingrained tradition of operational excellence, and the benefit we gained by proudly owning distinctive long run world mineral reserves.
We’ve talked extensively about how we have now positioned ourselves in larger development consumer-oriented markets like pet care and different client specialties, whereas additionally establishing sturdy positions in larger development geographies. This quarter, the secure development from these areas offset the slowness we skilled in different finish markets, like North America, industrial building and European metal. The secure development markets give the corporate way more balanced than it has previously and their different markets recuperate, gross sales will speed up. This is the mix that yields meaningfully larger long-term development. We additionally outlined for you our margin enlargement targets. There are three predominant areas that we see driving margins larger going ahead. Improved value prices, enhance combine from the pure development in larger margin merchandise, and our skill and self-discipline to leverage this development on our fastened cost base.
All three of those parts contributed to the margin enlargement this quarter, and we see them persevering with to contribute to our margin enlargement going ahead. MTI’s long run development potential mixed with increasing margins results in elevated money move technology. Our steadiness sheet is in fine condition, with internet debt round our focused ranges. Combined with this stronger money technology, we now have ample monetary sources to fund capital expenditures, pursue M&A, in addition to help an elevated dividend and new share repurchase program. All of that is according to our balanced strategy to capital deployment, and particularly our dedication and historical past of returning money to shareholders. Let me wrap up this slide by stating that MTI has a robust business mannequin, one that mixes income stability, and development potential with working self-discipline, technological capabilities, vertical integration, and a powerful individuals centered tradition.
This quarter is a superb instance of how these parts got here collectively, and the way they’ll proceed to supply worth sooner or later. This is a powerful quarter for us, however it had extra potential. We’ve bought much more fuel within the tank, so to talk, and we’re properly on our option to assembly the monetary targets we laid out for you earlier this yr. Okay, earlier than I cross it on to Eric, let me take you thru of our markets and what we’re seeing. Overall, our market outlook stays much like what we shared final quarter, with the exception that we’re coming into some seasonal durations for a couple of of our markets. Let’s begin with the Consumer & Specialty phase. Overall, we’re seeing continued sturdy market situations throughout our family and private care markets.
There are a number of close to time period and long-term traits which might be driving this power, that carries coming into it seasonally sturdy interval in each North America and Europe over the subsequent two quarters. But extra broadly, we proceed to see optimistic demand traits for each non-public label cat litter within the U.S., in addition to premium choices in Europe, which is the place we’re positioned in every market. Further, we see continued demand development within the Asia pet litter market, and we’re properly positioned to seize this with our mining and manufacturing areas. We additionally count on different HPC markets together with edible oils, renewable diesel, animal well being and private care to additionally stay on their secure development path within the fourth quarter, and thru 2024. And specialty components our market outlook stays optimistic.
So, This fall is often a seasonally slower interval for residential building. We count on gradual enchancment within the North American paper market. Looking into subsequent yr, we’ll see a lift in volumes from the tree paper and packaging satellite tv for pc ramp ups which might be taking place in Asia proper now. We even have a strong pipeline of recent packaging business alternatives. We proceed our development and transition as we proceed our development and transition into this market adjacency. As we take a look at the engineering options markets, we see extra combined situations. And excessive temperature applied sciences we now have a usually optimistic outlook for each the metal and foundry markets. We see continued secure situations for our foundry and metal merchandise in North America, and a continued gradual enchancment for the foundry market in China.
We’ve signed a number of long-term contracts for our laser and refractory utility gear that a lot of these come on-line subsequent yr, it should assist drive volumes and gross sales larger. Moving to environmental and infrastructure, we now have a combined and extra cautious view on these finish markets. The marketplace for our environmental lighting techniques in addition to main remediation initiatives are likely to sluggish and This fall and Q1. We additionally do not count on to see any enchancment within the industrial building waterproofing market, which has been sluggish all yr. The optimistic facet infrastructure drilling and environmental wastewater markets ought to stay strong all through the quarter. Looking additional out, our workforce has been making nice strides in gaining consideration for our flooring or know-how for PFAS remediation.
The business at present has over 200 energetic pilots and trials. And we not too long ago introduced our know-how and distinctive capabilities on the Gabelli PFAS symposium. This presentation is available on our web site in case you’re to study extra. In abstract and we see comparatively sturdy markets for us as we head into the tip of the yr. More so we constructed sturdy momentum throughout all product traces, which units us up for an additional sturdy yr in 2024. Now let me flip it over to Erik to evaluation our financials in additional element, Erik.
Erik Aldag: Thanks, Doug. And good morning, everybody. Let’s begin by reviewing our third quarter efficiency and in addition present our outlook for the fourth quarter. Following my remarks, we’ll flip the decision over for questions. Now let’s evaluation our third quarter outcomes. Let me begin by saying we had a powerful third quarter marked by information for adjusted working revenue and EBITDA, vital margin enchancment and better money move. Overall gross sales had been $548 million much like each the prior quarter and prior yr. You can see within the bridge on the highest proper that two of our product traces grew gross sales and two had been decrease, reflecting the combined market situations we’re experiencing this yr. This bridge is an efficient illustration of the profit that our larger development consumer-oriented merchandise are having on the general portfolio, offering stability and development when different markets aren’t as sturdy.
And we’re leveraging our gross sales into considerably larger earnings throughout each segments. Operating revenue excluding particular objects elevated 15% versus final yr and improved 9% sequentially to $77 million a file outcomes for MTI. And we stay on monitor to ship our focused margin enchancment. Operating margin improved to 14.1% of gross sales within the third quarter. This consequence was 170 foundation factors above final yr and a 130 foundation factors larger sequentially pushed by the mix of value cost restoration, productiveness enhancements and favorable combine from the expansion of upper margin specialty merchandise. Adjusted EBITDA was $102 million within the quarter and represented 18.6% of gross sales. It’s price noting that this was the primary time that the corporate has generated quarterly EBITDA above $100 million.
Our reported outcomes included two particular objects within the quarter. The largest of the 2 was a non-cash $72 million impairment of all of the fastened property inside Barrett’s Minerals Inc. The second particular merchandise was a $13 million cost for litigation prices, additionally associated to BMI and its submitting for chapter safety. EPS excluding particular objects was $1.49. To offer you some perspective, on the decrease left, we have included our third quarter EPS pattern over the past 5 years, which reveals a 9% compound annual development price since 2019. And our third quarter EPS even contains $0.10 of upper curiosity expense versus final yr. This EPS development traits may not be so obvious given the numerous dynamics at play over the past a number of years. Now we’ll evaluation the efficiency of our two segments, starting with Consumer & Specialty.
Sales within the Consumer & Specialty phase had been $291 million 2% above final yr and much like the second quarter. Sales within the family and private care product line had been 9% larger than final yr and three% larger sequentially. Growth in pet care stays sturdy with gross sales up 15%. And gross sales throughout the opposite specialty client markets on this product line had been 8% larger sequentially. Sales within the specialty additive product line had been 2% decrease than final yr. While North American paper manufacturing improved from the second quarter demand remained beneath prior yr ranges in each North America and Europe. Meanwhile, volumes in Asia improved year-over-year pushed partially as a result of ramp up of our new satellite tv for pc facility. In residential building markets, market situations stay combined with regular demand for our merchandise which might be utilized in reworking exercise, serving to to offset the impression of fewer new builds.
Adjusted working revenue for the phase’s elevated 23% year-over-year to $38 million. And working margin was larger by 230 foundation factors, primarily pushed by value cost restoration. Looking to the fourth quarter, we count on continued power from family and private care, pushed by sturdy pet care gross sales and continued gradual enchancment in different specialty client merchandise. In specialty components we count on typical seasonality and building, partially offset by continued enchancment in paper manufacturing in North America, and extra quantity from our new satellites in Asia. In whole, we count on working revenue for the phase’s to be round $33 million within the fourth quarter. Note that this steerage displays the deconsolidation of BMI, which suggests BMI’s income and revenue will probably be excluded from MTI’s outcomes going ahead starting within the fourth quarter.
Now let’s flip to the Engineered Solutions phase. Third quarter gross sales within the Engineered Solutions phase had been $257 million much like the prior yr. In excessive temperature know-how gross sales had been 1% larger than final yr. As demand for metal and foundry merchandise in North America stays sturdy. And we proceed to develop foundry volumes in China. And environmental and infrastructure gross sales had been 2% decrease than the prior yr as industrial building exercise stays sluggish. Sales for drilling, wastewater and remediation functions proceed to develop, together with the completion of one other PFAS remediation undertaking utilizing our ground take up know-how, this one at a U.S. Department of Defense location. Third quarter working revenue for the phase was $41 million 12% above final yr.
Price cost restoration and strong execution drove working margin enlargement within the quarter, which was 15.8% of gross sales and enchancment have 160 foundation factors. Looking forward to the fourth quarter for prime temperature applied sciences, we count on continued sturdy demand in North America. And we count on situations in Europe to stay related sequentially. In Asia, we anticipate the expansion pattern and China foundry volumes will proceed. In addition, we count on to see a profit from larger laser measurement gear gross sales. And lastly within the environmental and infrastructure product line, gross sales will probably be lowered sequentially as we enter the seasonally sluggish interval for environmental and building initiatives. In whole for the phase. We count on working revenue will probably be roughly $35 million within the fourth quarter.
Our steerage contains some restricted in impression from the UAW strike, and we’re persevering with to observe the state of affairs. Now let’s flip to our steadiness sheet and money move highlights. Cash move accelerated within the third quarter as we anticipated, bringing year-to-date money from operations to $138 million greater than double the identical interval final yr. Capital expenditures had been $25 million within the quarter, bringing the year-to-date whole to $71 million. And year-to-date free money move was $67 million. For the complete yr, we proceed to count on free money move between $100 million and $125 million. Our steadiness sheet stays very sturdy. Total liquidity on the finish of the third quarter was $458 million and internet leverage improved to 2.2 instances EBITDA. With leverage approaching our goal of two instances EBITDA and money move persevering with to enhance, we’re properly positioned to keep up our balanced strategy to capital allocation, which incorporates returning capital to shareholders by our dividends and repurchase program.
Now I’ll summarize our outlook for the fourth quarter. Overall, for MTI we count on one other strong efficiency within the fourth quarter. In the Consumer & Specialty segments, we count on continued sturdy demand from the family and private care product line, and in pet care specifically. And specialty components, larger gross sales into the paper and packaging market. Driven by our new satellites, and gradual enchancment in North America manufacturing charges will probably be offset by seasonally decrease building exercise, in addition to the deconsolidation of BMI from MTI’s outcomes. In the Engineered Solutions phase, we count on continued power and excessive temperature applied sciences pushed by larger laser measurement gear gross sales and rising Asia foundry volumes.
Meanwhile, environmental and infrastructure will expertise typical seasonality. As we at present sit with the fourth quarter working revenue between $65 million and $70 million, and earnings per share between $1.20 and $1.30. This steerage represents a continuation of the corporate’s earnings development trajectory. And regardless of the combined markets we have skilled this yr, this steerage equates the complete yr working revenue development of roughly 10% and full yr EPS development of 5% to 7%. In addition, we count on the fourth quarter to be our strongest money move quarter of the yr. And in order highlighted earlier, the important thing parts of MTI’s business mannequin had been on full show this quarter. And this highly effective mixture of development skill, margin enchancment, and money move technology will proceed to drive our efficiency going ahead.
With that, I’ll flip the decision over for questions.
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