Calgon Carbon Stays Neutral - Analyst Blog

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We retain our Neutral recommendation on Calgon Carbon Corporation ( CCC ) following its mixed fourth-quarter 2011 results.  It is expected that solid sales gains and strategic initiatives adopted by the company will bring benefits in the longer term. We, however, remain concerned about the economic challenges that the company might face in 2012.

The company released its fourth quarter and full-year 2011 results in February 2012. Its earnings for the quarter missed the Zacks Consensus Estimate while revenues were slightly ahead of the forecast. Sales growth (of 15.5%) was attributed to higher sales from Calgon Carbon Japan ("CCJ") and higher prices for its activated carbon and services in the U.S. and Europe. In these two regions, Calgon witnessed an increase in sales in its wastewater, food, and environmental air markets, which were, however, offset by a decline in sales in the respirator and potable water markets.

Calgon Carbon's strategic initiatives position it for significant growth in the longer term. In 2011, the company completed the acquisition of CCJ. The acquisition has strengthened its position as the second largest carbon consuming market in the world.


Moreover, Calgon Carbon completed the $25 million expansion of its reactivation facility in Feluy, Belgium. Besides, the construction of a $15 million reactivation service center in Suzhou, China, has also concluded. Also, the construction of a new reactivation facility in the southwestern United States is underway.

 

These reactivation facilities will provide Calgon Carbon the status of having the best service and reactivation geographical profile in the industry. Endowed with this high status, the company expects the global demand for reactivation services to climb, as regulations for water quality strengthen around the world.

The company has also reduced its exposure to escalating coal costs by identifying new sources of supply and a variety of coals that are effective in the manufacture of its high quality products.

However, the company's current pension plans (as of December 3, 2011), are under-funded by $32 million. Calgon Carbon uses bituminous coal as the main raw material in the activated carbon production process. It has various annual and multi-year contracts in place for the supply of coal that will expire at various intervals from 2012 to 2015. Interruptions in coal supply may have an adverse effect on its ability to meet customer demand.

The company also faces stiff competition from MeadWestvaco Corporation ( MWV ). Calgon Carbon currently retains a Zacks #4 Rank, which translates into a short-term (1 to 3 months) Sell rating.


 
CALGON CARBON ( CCC ): Free Stock Analysis Report
 
MEADWESTVACO CP ( MWV ): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: CCC , MWV

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