We are reaffirming our Neutral recommendation on
Calgon Carbon Corporation
) following our assessment of its first-quarter 2012 results. Its
revenues and earnings for the quarter beat the Zacks Consensus
Estimates. However, profit clipped nearly 9% year-over-year on
account of higher costs.
Revenues (up roughly 10%) were driven by improved demand for
activated carbon product and services. The company saw growth
across the board in the quarter with its equipment business leading
Equipment revenues shot up roughly 77%, riding on higher sales
from ballast water treatment systems and ion exchange equipment.
However, the company saw lower sales from carbon adsorption
equipment in the quarter.
Calgon Carbon continues to believe ballast water treatment,
reactivation services, disinfection by-products, and mercury
removal as its basis for sustainable growth. The company said that
it will actively focus on improving margins across all regions.
Calgon Carbon's strategic initiatives position it for
significant growth in the longer term. The company's last year's
acquisition of Calgon Carbon Japan KK ("CCJ") has strengthened its
position in the second largest carbon consuming market in the
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.
While healthy sales gains and strategic initiatives adopted by
the company are expected to usher in benefits in the longer term,
we remain concerned about the economic challenges that the company
might face this year.
Moreover, Calgon Carbon uses bituminous coal as the main raw
material in the activated carbon production process. The expiry of
coal supply contracts, between 2012 and 2015, may affect its
ability to meet customer demand.
The challenge also comes in the form of escalating costs. Calgon
Carbon's gross margin contracted in the first quarter as it had to
contend with higher plant maintenance expenses, unfavorable mix and
raw material inflation.
Calgon Carbon recently announced the retirement of John S.
Stanik, its chairman, president and chief executive officer (CEO).
The next person who would assume the helm will have a challenging
task of keeping the lid on costs.
Calgon Carbon, which competes with
) among others, currently retains a Zacks #3 Rank, which translates
into a short-term (1 to 3 months) Hold rating.
CALGON CARBON (CCC): Free Stock Analysis Report
MEADWESTVACO CP (MWV): Free Stock Analysis
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