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AMCOL International (ACO)

Q1 2013 Earnings Call

April 26, 2013 11:00 am ET

Executives

Ryan F. McKendrick - Chief Executive Officer, President, Director and Member of Executive Committee

Donald W. Pearson - Chief Financial Officer, Chief Accounting Officer, Senior Vice President and Treasurer

Analysts

Richard Wesolowski - Sidoti & Company, LLC

Albert Leo Kaschalk - Wedbush Securities Inc., Research Division

L. Todd Vencil - Sterne Agee & Leach Inc., Research Division

Andrew Nelson

Presentation

Operator

Good morning, ladies and gentlemen, welcome to the AMCOL International First Quarter Earnings Results Conference Call. I would now like to turn the call over to Mr. Ryan McKendrick, President and CEO. Please go ahead.

Ryan F. McKendrick

Thank you, Wayne, and good morning, everyone, and welcome to AMCOL International's First Quarter 2013 Earnings Conference Call. We're going to start out today with Don Pearson, our Chief Financial Officer, to provide an overview on the financials -- he'll be providing an overview on operations and then taking questions.

So Don, if you'd like to start us off?

Donald W. Pearson

Thanks, Ryan, and good morning, everybody. The first thing I wanted to mention is that we have completed our restatement in all of our SEC filings within the last several weeks, so we're very happy to have that done.

The first thing I want to talk about in the quarter is just walk you through the restructuring costs and the restatement costs. In the press release, we highlight the $2.2 million of restructuring costs that are sitting in SG&A in addition to the $1 million of the cost of the restatement. So we talked about $3.2 million in SG&A. There is an additional $0.5 million in cost of goods sold. So the total special items was $3.7 million, and that was $0.10, $0.02 was from the restatement -- or yes, the cost of the restatement and $0.08 was from the restructuring. I will point out that the countries that we have the restructuring in have very low effective tax rates. So the tax rate that was used on those numbers for the restructuring was about 5%.

Looking at the P&L. In summary, sales were up about just under 1%. Gross margin declined 80 basis points from the prior year. I will point out that the restructuring had a 20 basis point impact on that in the current year. All of the special items had a 150 basis point impact in the current year's quarter. So the 6.9% operating margin x items is 8.4%.

Effective tax rate of 27.5% is about in line what we'd expect for the year. I continue to look at about a 28% effective tax rate for the year.

Debt is in the range that we would have expected. It was up a little bit from December, principally due to the funding of our investment in Novinda.

We look at our working capital metrics. And given the seasonality of the business, particularly in Q1, we're comfortable with the performance on working capital. I will, again, highlight the fact that we do have incentives pushed pretty deep into the organization on the working capital management.

On the cash flow statement, you do see the investment in joint ventures and affiliates. That $5 million, again, as a reminder, was our investment in Novinda, the mercury removal company that we now have a minority interest position in.

That is the -- my summary of comments, Ryan.

Ryan F. McKendrick

Okay. Thank you, Don. So as Don described, there was were some -- there was some noise in the quarter with restructuring and restatement expense amounting to about $0.10 per share impact on earnings. From an operating perspective, there was some very strong performances in a couple of problem areas. We were pleased with our energy services segment, which posted record sales for the quarter and with the continuing good performance by our metalcasting product line, both in the U.S. and in Asia.

On the downside, for the quarter, lower sales for drilling fluids and pet products as well as paper products, which we have exited, accounted for $0.07 per share negative impact versus prior year.

As we have mentioned in previous calls, AMCOL is continuing to invest in development of new technologies in line with customer's requirements. We're pleased to report that our lining technologies group has received commitments on a significant amount of new business based upon the superior performance of proprietary technology that's been under development for several years. We expect sales revenue in excess of $25 million derived from this technology scheduled to shift over the next 12 months. We're also making headway with mercury sorbent technology for the power industry and with a number of products in the agricultural market sector.

So we'll move onto a quick summary of the segments, starting out first with Performance Materials. Metalcasting sales globally were up about 1% with improved gross margin. The margin improvement was due mostly to product mix and some lower raw material costs for some components going into our blended products. Market conditions are good. Auto sales in the U.S. in March continued at the strongest pace since 2007. And at the recent CastExpo trade show, most of our major foundry customers expressed positive outlook for casting demand. In Asia, as we had anticipated, we're continuing to see an upward trend for volume in China with margin improvement being driven by continued shift to higher-value blended products. Demand in Thailand and South Korea is also steady.

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