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AMCOL International Corp. (ACO)

Q3 2008 Earnings Call

October 17, 2008 11:00 am ET

Executives

Lawrence Washow - Chief Executive Officer, President, Chief Operating Officer

Donald Pearson - Chief Financial Officer and Vice President

Analysts

Al Kaschalk - Wedbush Morgan

Rich Wesolowski - Sidoti & Co.

Jay Harris - Goldsmith & Harris

Todd Vencil - Davenport

Andrew Nelson - Nelson Associates

Presentation

Operator

Good day and welcome to the AMCOL International third quarter 2008 earnings results conference call. (Operator Instructions)

Speakers today will be Larry Washow, President and Chief Executive Officer and Don Pearson, Vice President and Chief Financial Officer. At this time I would like to turn the call over to Larry Washow.

Larry Washow

Lots of information presented in the press release. So I will hit a couple of the highlights on the business side and Don will come back around with some of the key points on financials and we’ll open it up for questions.

As you’ve seen the numbers by now, a very good revenue growth, about 24% quarter-over-quarter, which we are enthused about. Certainly that’s were all the potential success starts, so continued revenue growth is a very positive impact and I think the key for us is to deliver the margins that that revenue should provide and we did see a little bit of the benefit of that, but certainly not what we expect to see in the quarters ahead.

To the factors on the bottom line earnings in the quarter, one of them that we mentioned, the benefit we had last year of the sale of some land at one of our operations was $0.06 a share and the negative this quarter was the impact of the hurricanes on the weather on our oilfield service business.

Let’s talk about Oilfield a little bit. Certainly in Q2 of this year that was a very strong performer, excellent margins and nice growth. We’re looking at Q3 and service off some growth year-over-year, but if you look at the sequential quarters, pretty modest growth especially in light of the fact that we did an acquisition mid quarter, last quarter and we would expect to see a greater benefit from that, but the hurricanes really took much of the Gulf of Mexico out of operations for several weeks in September, actually towards the end of August and on in to September and most of the real profitable business is in the offshore area in the Gulf itself.

We certainly kept busy on land with some work and that’s good. The international side was okay, but obviously no where near enough volume to offset the loss of the activity in the Gulf itself. So it’s difficult to say exactly the impact of that. We estimate about $0.03 a share, probably that’s conservative. It could be a bit more than that, but certainly that had an impact and even today the Gulf is not fully back on track; it’s slowly coming back.

One of the benefits that we actually do see from the business side as the Gulf comes back into operation is there’s lot’s of work on the pipelines to make sure they are sealed, cleaned that if they’ve been broken, repaired and a lot of that ends up being good business for us. So looking ahead, there is a benefit with the hurricanes and looking back certainly it was a negative impact for us last quarter.

Minerals segment, again pretty nicely growth there. We are looking at a good sales growth and continued, slow, steady margin improvement and we’ve talked about that the last few quarters and we gained another 60 basis point improvements in the sequential quarters on the gross margins and a long way to go for sure, but we’re certainly starting to see some of the benefit of the pricing come through and obviously everybody’s watching the oil and the energy prices comedown. That should certainly be a benefit for us, showing up even greater in Q4 as well. So that front will definitely continue.

Second, environmental sales growth 13%, a bit lower rate of growth in Q3 than the rest of the year and kind of a function of the basic product portfolio in the mix around the world normalizing the operating profit that is taking out the benefit of last year, good growth in operating profits this year as well. We did see a slight drop in the gross margin again as we’ve talked in the past, mostly related to the installation business, which is not quite as profitable as our products themselves.

So with that it’s a kind of business overview, I will let Don hit some of the key points in financials.

Donald Pearson

One point I want to make on our minerals group as Larry mentioned regarding the energy costs, Q3 still had the burden of higher energy cost particularly on the diesel side. So going forward, we are putting a program in place to address energy costs including diesel, natural gas and electricity. The hedging programs and some forward purchases, but the intent is to get a better handle on and control these costs and avoid these surprises.

Moving on the GS&A as Larry mentioned, we had a $2.4 million gain of our land last year. If you exclude that, GS&A increased 18% which given our growth in revenues is not bad. What I do want to point out is the rate of increase is declined when compared with the prior quarter. Last year GS&A as a percentage of sales was 15% compared to 14.3% this year.

Read the rest of this transcript for free on seekingalpha.com