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Amcol International Corp. (ACO)

Q2 2008 Earnings Call

July 18, 2008 11:00 a.m.

Executives

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

Gary Castagna - Chief Accounting Officer and Treasurer

Donald W. Pearson - Chief Financial Officer and Vice President

Analysts

Al Kaschalk - Wedbush Morgan

Rich Wesolowski - Sidoti and Company

Todd Vencil - Davenport & Company LLC

Jay Harris - Goldsmith & Harris

Presentation

Operator

Good day and welcome to the AMCOL International’s second quarter 2008 earnings results conference call. Today’s call is being recorded. (Operator Instructions).

The speakers today will be Mr. Lawrence E. Washow, President and Chief Executive Officer. Mr. Gary Castagna, President of AMCOL Minerals; and Donald Pearson, President and Chief Financial Officer. At this time, I would like to turn to call over to Mr. Lawrence E. Washow. Please go ahead, sir.

Lawrence E. Washow

Thank you and welcome everybody. I thought I would make a quick note. Obviously, in the introductions you heard that Don has joined us. For those that might have missed that over the last quarter, Don Pearson has joined AMCOL as Chief Financial Officer, and Gary Castagna has taken on the role of Global President of AMCOL Minerals and I think two movesthat are really going to improve the organization a good deal. So, we will hear from both Don and Gary over the course of the call today.

Back to the numbers, by now I trust you have had a chance to look over the press release. A good solid quarter. Obviously, very pleased with the revenue growth across all of the reporting segments. Pretty solid in terms of the revenue. Profitability improvement was very good. Not as good in all areas as we would like, but we will talk about that as well.

Starting off with the minerals segment, we had revenue growth pretty much across all the product lines. Certainly international is doing well, Asia in particular. Just very strong as you can see from the breakdown, certainly the pet products, and some of the specialty areas like petroleum products, the business continues to be very strong. So, good demand and I think we are finally starting to begin to turn the corner on the margins. The sequential margin was up from the first quarter. And we expect that trend to continue. And to me, it is particularly encouraging in light of the fact that in the second quarter the energy costs again continued a pretty dramatic increase. So, we were able to overcome that and see some improvement. And as I said, that improvement will continue as we go throughout the rest of the year.

Environmental, good results all the way around. Europe continues to be a very strong contributor. And the US is doing well, particularly in the lining tech and building materials group. Again, we are looking at strong backlogs. Pretty busy just about anywhere you look around the world for the environmental activity. And we expect that to continue as well.

Of course, the star of the quarter, oil field services, just an excellent quarter all the way around. We completed an acquisition midway through the quarter. That hit the ground running and was a contributor, as you will note in the press release. But, the team is working extremely well tying these businesses together that we have acquired over the last couple of years and really creating a service organization that is getting a lot of good recognition in obviously a market that is very busy. So, we are very encouraged with oil fields and again, expect that to continue to perform very well.

Transportation is seeing the impact on margins of fuel pricing and trying to manage that and keep a relatively good business level. But, certainly the revenue side is strong. And in light of the overall slowdown in the US, we are pretty pleased with the performance there.

A quick note on overhead, I did mention it in the press release that certainly we have seen an increase there, primarily on the corporate side and with the IT spending. Benefits cost went up substantially this year. And we have increased our overhead spending projects that probably will not bear fruits, in terms of revenue here in the near term. But, we think in the years ahead it is going to be some interesting projects that we have underway.

That is a quick summary of the overall. Don, financially?

Donald Pearson-

Thanks, Larry. I will provide some further remarks and a statement of operations, financial position, and a cash flow. First of all, on the revenue side as Larry said, we have seen strong growth in all segments. What I would like to highlight here is the minerals area, where we have continued to see strong overall demand, particularly, in the Asian/Pacific area, in metal casting and specialty materials.

However, I’ll point out that in the US metal casting area, demand remains relatively buoyant. We are seeing, where we would see some fallout perhaps in the auto area ancillary markets and foundries for oil field and other areas are picking up.

Also importantly, is the freight pass through revenue. I believe everybody is aware that we are required to book our revenue pass through on freight into the revenue line. And as a percentage of our base business, that has been declining. In Q1 it is about a third of the base revenue growth, has declined to about a fourth. So, that is encouraging.

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