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Amcol International Corp. (ACO)

Q1 2009 Earnings Call

April 24, 2009 11:00 am ET

Executives

Larry Washow - President and CEO

Don Pearson - SVP and CFO

Analysts

Rich Wesolowski - Sidoti & Company

Al Kaschalk - Wedbush Morgan

Jay Harris - Goldsmith & Harris

Nat Kellogg - Next Generation

Robert Smith - Center for Performance Investing

Presentation

Operator

Good day and welcome to the AMCOL International first quarter 2009 earnings conference call. Today's call is being recorded. A replay of this call will be available starting at 12:30 p.m. Central Time today. You may access the replay by dialing 888-203-1112 and referencing passcode 9892174.

Speakers today will be Mr. Larry Washow, President and Chief Executive Officer, and Mr. Don Pearson, Chief Financial Officer.

At this time, I would like to turn the call over to Mr. Larry Washow. Please go ahead, sir.

Larry Washow

Thank you, and welcome everybody to Q1 2009. I guess by now you had a chance to look over the press release and the information. I would describe it as sort of a reasonable start to what undoubted will be a very interesting year.

As you note, the earnings for the quarter is $0.14 a share; sales were down 14% as well; and the revenue decline, certainly we talked about currency being a big factor, freight revenue also comes into play there. We'll talk about that a bit more, but obviously, the volume is down. Certainly, that's the biggest story we have in the mineral sector. Volume decline in minerals, the biggest sector for AMCOL in total.

If we look at metal casting which is the biggest segment of minerals, not a big surprise that the volume is down there. You have all read and keep track of I'm sure the activity in the automotive sector, which has been greatly in the news in last few weeks, the heavy equipment guys are as well and all those businesses are down. So, big impact on our volume.

The other factor that had a big impact on volume is oil drilling. And in this case, if you look at our minerals oil drilling business, the rig count is a pretty good proxy for what's going on.

From the earnings calls in the last few days from oil-related companies, you'll note that the rig counts are down more than half of what they were a year ago. Lots of forecasting of continued rigs decline really depends on what happens with the oil pricing, but the rig count definitely down and dropping. So that is an ongoing concern.

The good news in the mineral sector though is the margins. While the margins were down a little bit from Q4, hanging around that 20% mark on much lower volume, certainly I think is a pretty good performance to start the year. Part of that related to pricing that we've talked about over the last several quarters, but an element of that is cost as well.

We have been pretty aggressively trying to make sure that our operational capability size, staffing and cost sort of match up with the demand requirements. To that end, we have closed three of our smaller metal casting related blending plants, and we announced last week that we were idling one of our larger Western operations.

Our three major Western operations are more efficient and certainly capable of absorbing the volume that was going through the small operations. So, we expect that all of that will help us be sized drive for the business as we see it going forward.

The Environmental sector, Q1 is always a bit of a challenge. In a normal year, I think we'd probably be talking more about weather, because it was a very difficult January and February, particularly in Europe and parts of the U.S. So, many projects that were planned were slow to get going.

One element of the environmental business is definitely down, and that is, commercial construction. We see that decline globally and really don't expect that to turnaround anytime soon. When we talk about the segments, you will note in there that that's one of the biggest declines year-over-year across the company.

Our Lining Tech business declined as well, but that's a little bit less volatile. We think over the course of the year given the projects that are lined up and the expected activity particularly in Europe, but also the landfill business which is relatively stable, not completely but certainly a lot of the sales that are planned will be built. So we think over the course of the year, Lining Tech is actually going to be not great, but okay, but commercial construction, again, we don't look for that to come back anytime soon.

Oilfield Services would be a surprise I guess in terms of the performance this quarter. A couple of elements go into that. We acquired the coil tubing business mid-year 2008. So that was not included in Q1 2008. So that's our portion of the increase in revenue and profitability.

But the real story there is, sort of, the business mix and most of our business in Oilfield Services is offshore. Depending on the nature of the projects and the size of the business is there, that's good profitable business.

I think the gross margin in Q1 were unusually high for what I would expect over the course of the year. I think a more realistic proxy is probably in the low 30s, as oppose to the mid 30s as we saw in Q1.

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