We are reaffirming our Neutral recommendation on
Calgon Carbon Corporation
). The company had a tepid third-quarter 2012 with both revenues
and adjusted earnings missing the Zacks Consensus Estimates. It
turned to a loss on a reported basis, hurt by a restructuring
charge associated with its cost-reduction program.
Revenues fell nearly 6% in the quarter as a healthy double-digit
growth in equipment sales were more than offset by a decline in
the core Activated Carbon and Service segment. The company saw
lower demand for activated carbon in the quarter.
Calgon Carbon remains confident in its ability to balance the
need for future investment with its responsibility to provide
short-term returns. The company continues to believe ballast
water treatment, reactivation services and mercury removal as its
basis for sustainable growth. It remains actively focused on
improving margins across all regions.
Calgon Carbon's strategic initiatives position it for significant
growth in the longer term. The company's reactivation facilities
have remarkably supported its growth and have established its
presence in several markets. The global demand for reactivation
services is expected to climb as regulations for water quality
strengthen around the world.
Calgon Carbon has also reduced its exposure to rising coal
costs by identifying new sources of supply and a variety of coals
that are effective in the manufacture of its high quality
products. The company has embarked on aggressive cost reduction
initiatives to boost margins. Its cost improvement program, which
includes consolidation of operations and headcount reductions, is
expected to contribute toward margin expansion in the fourth
CALGON CARBON (CCC): Free Stock Analysis
MEADWESTVACO CP (MWV): Free Stock Analysis
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While healthy sales gains and strategic initiatives will be
beneficial in the longer term, we are concerned about the
economic challenges that the company might face in the fourth
Calgon Carbon's new president and chief executive officer,
Randall Dearth, has a challenging task of keeping costs under
control, a problem the company faced in the first three quarters
of 2012. The company's gross margin contracted in the third
quarter as it had to contend with higher maintenance expenses in
its Pearl River plant in Mississippi.
Moreover, unfavorable currency exchange movements may continue to
weigh on the company's revenues. In addition, costs associated
with the cost reduction initiative as well as the early
retirement program are expected to be a drag on the company's
earnings in the fourth quarter.
Calgon Carbon, which competes with
) among others, currently retains a Zacks #4 Rank, which
translates into a short-term (1 to 3 months) Sell rating.