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Text: Today's call will be led by chairman and chief executive officer, Doug Dietrich; and chief financial officer, Matt Garth.
And I'll also point out the safe harbor disclaimer on this slide.
Statements related to future performance by members of our team are subject to these limitations, cautionary remarks, and conditions.
I'll walk you through our results for the fourth quarter and the full year of 2021.
I'll also give you my insights on the year, focusing on our key financial and strategic highlights, as well as the various dynamics we faced and successfully managed through.
Matt will then discuss our financial results in more detail and outline our first-quarter outlook.
Following that, I'll finish up by describing how we see 2022 shaping up as a strong year for us, touching on our key priorities, growth initiatives, and market conditions.
Let me start by going through the takeaways for the fourth quarter, which concluded a very strong year for MTI.
Market demand continued to remain robust, and we delivered sales of $477 million, 10% higher than last year, and earnings per share of $1.25, an increase of 16%.
Despite the market conditions, this is, by far, the most difficult operating quarter of the year as we had to navigate through a variety of inflationary and logistics pressures, which became more pronounced late in the quarter.
Cash flows remained solid through the fourth quarter, capping off a strong year.
Operating cash flow was $69 million and free cash flow was $46 million, and we made progress to lower our debt levels by paying down $20 million of debt.
Let me share how the quarter played out from an operational perspective and the actions we put in place to address the rapidly changing conditions.
Heading into the fourth quarter, we anticipated that inflationary costs and logistics and supply chain challenges would persist, and we have positioned ourselves to recover these costs through implemented pricing actions.
While much of this transpired as expected, we experienced significant additional cost escalations, notably due to rapid energy price spike in Europe.
We also saw increase -- an increase in supply chain disruptions, mainly due to truck and rail availability for shipments.
This was exacerbated by COVID-related labor challenges, primarily in the last month of the quarter.
The combination of these dynamics led to higher plant operating costs and delayed shipments, resulting in about $5 million of reduced income in the quarter.
Despite these circumstances, our global team did a great job executing, adjusting operating schedules, securing freight logistics, and taking further pricing measures.
Our order books remain robust, and the actions we've taken should more than recover the additional cost pressures we faced, setting us up for a stronger first quarter.
On the growth and business development front, we had several highlights during the quarter.
The integration of Normerica is progressing well, and we executed on significant opportunities in the quarter to grow our Pet Care business further in 2022.
We also made a small acquisition of a specialty PCC assets in the Midwest U.S., which strengthens our logistics and manufacturing capabilities.
In addition, we signed two new satellite contracts in Asia, one for a PCC facility in India and another with a packaging customer in China.
All in all, it was a productive quarter from a growth perspective, and the operating and pricing adjustments we've already made position us well for a stronger start to 2022.
Before Matt gets into the financial details for the quarter, I'd like to review some highlights from 2021.
It was a strong year for MTI, as our business recovered from the 2020 COVID demand lows to deliver record results.
We accomplished this through a combination of operational execution and a focused commitment on advancing our key growth initiatives, which have meaningfully shifted our sales portfolio to be more balanced and stable.
To demonstrate this transition over the past few years, revenue from our consumer-oriented businesses has doubled and today, they comprise 30% of our total sales portfolio.
It is this portion of our portfolio that's positioned in higher growth noncyclical markets.
First and foremost, we delivered record annual sales and earnings per share for our company.
Sales increased 17% over last year to $1.9 billion.
Operating income was up 13% to $241 million, and our earnings per share grew 26% to $5.02.
Serving our customers and innovating to grow with them is what motivates our team.
We continue to accomplish this while navigating through complex and rapidly changing conditions during the year.
We operated in an environment with sharply rising input costs, which required frequent operational adjustments, strong supply chain management, and process improvements.
Our teams work closely and transparently with our customers to manage through these dynamics, and we were successful in implementing a broad array of strategic pricing actions across our portfolio to offset the $50 million in extra costs we had to absorb.
The past year required a significant amount of agility from our employees, and I'm proud how they engage to drive improvements, efficiently run our operations, and support our customers' evolving needs.
Generating strong cash flow, further strengthening our balance sheet, and maintaining flexibility with how we deploy our capital are priorities.
Our financial position gives us significant optionality to allocate capital to shareholders, while also investing in attractive growth opportunities.
We demonstrated this in 2021 by deploying $86 million to fund high-return organic projects, as well as to maintain and improve the performance and safety of our facilities.
We acquired Normerica and the Specialty PCC assets, while also returning $82 million to our shareholders through share repurchases and dividends.
Our balance sheet remained strong, and we kept our net leverage ratio near our target level of two times EBITDA.
Now, let me take you through how we advanced a broad range of initiatives, which sets us up nicely for continued growth in 2022.
I'll start with our consumer-oriented products.
Most of these businesses are in our household, personal care, and specialty product line, and they performed very well with sales growth of 21%.
This growth is a result of our positions in the structurally growing and stable markets and has been bolstered by our investments in new technologies, capacity expansions, and through extending the geographical reach of these businesses.
Normerica acquisition is one of those investments as it further expanded our Pet Care business in North America.
We've also realized significant sales increases in other specialty applications, such as edible oil purification and personal care, which grew by 48% and 80%, respectively, last year.
The next part of our growth strategy that we delivered on during the year was expanding our core product lines in faster-growing geographies.
Our Metalcasting business continues to grow globally, leveraging our blended bond system value proposition with customers in large foundry markets.
Metalcasting sales were up 21% in Asia as we expanded our customer base and further penetrated into China with sales of our pre-blended products increasing by 20%.
We continue to demonstrate our value in other countries and specifically in India, where sales of our blended products were up nearly 40% in 2021.
Our PCC business continues to grow geographically with a 22% sales increase in Asia.
We benefited from 280,000 tons of new capacity that came online over the past year.
In addition, we signed two new satellite contracts in 2021, totaling around 70,000 tons, which will be commissioned by the end of this year.
And we're growing in our core markets.
Our Refractory segment is a great example of this as we've captured significant new business in the electric arc furnace market.
In 2021, we signed long-term contracts worth $100 million through the deployment of our new portfolio of differentiated refractory products and high-performance laser measurement solutions.
Another area where we've successfully driven new profitable growth opportunities is by tapping into attractive adjacent markets through our broadened product offering.
I'll highlight a couple of areas for you.
We signed a long-term agreement in December to deploy ground calcium carbonate technology for a new coated paperboard mill in China with a premier packaging customer.
And we're really excited about this one as it's MTI's first GCC satellite offering specifically tailored for packaging customers and represents a fundamental step in our ability to drive new growth opportunities in the white paperboard market.
In addition, we have several trials underway with other technologies in both the white and brown packaging space.
I've talked to you about our broad capabilities in water remediation and the traction we've made with FLUORO-SORB, our proprietary solution for remediating PFOS contamination in groundwater.
2021, we completed our first major commercialization for a large-scale project, and we generated interest in several other large drinking water and soil stabilization projects.
Our growth this past year in wastewater remediation was 15%, and we see this trajectory continuing in 2022.
New product development is an integral part of our growth strategy, and we've made significant strides to improve the speed of execution, increase the number of products commercialized and enhance the impact of our latest solutions.
Over the past five years, we've cut the time from development to market in half.
And during the same time frame, we've increased the sales generated from new products by more than 60%.
In addition, half of our new products are geared toward a sustainability solution for either MTI or our customers.
And lastly, we strengthened our company through the acquisition of Normerica, which met all of our M&A criteria.
The addition has made us one of the largest vertically integrated private label pet litter providers globally.
And as the commercial and operational integration progresses, we see a clear pathway to drive higher growth rates and profits in our Pet Care business.
All told, this is a really productive year for us on all fronts.
I'll come back to share my perspectives on the year ahead.
But to sum up, our growth achievements in the past year puts us in an advantageous position for a strong 2022.
I'll review our fourth-quarter results, the performance of our segments, as well as our outlook for the first quarter.
Now, let's review the fourth-quarter results.
Sales in the fourth quarter were 10% higher than the prior year and 1% higher sequentially.
Organic growth for the company was 4% versus the prior year, and the acquisition of Normerica contributed the remainder of the growth.
Operating income, excluding special items, was $54.7 million, and operating margin was 11.5%.
The year-over-year operating income bridge on the top right of this slide shows that we experienced $27.4 million of inflationary cost increases versus the prior year, which we offset with $18.6 million of pricing.
In addition, supply chain challenges, including trucking and labor availability, resulted in a delay of volumes from the fourth quarter, particularly in our Processed Minerals and SPCC product lines.
The sequential bridge on the bottom right shows how inflation continued to accelerate from the third quarter to the fourth quarter.
And heading into the quarter, we expected the pace of inflationary costs to moderate from the third quarter, and we expected to recapture some margin with our planned price increases.
As we move through the fourth quarter, inflationary costs accelerated to nearly $10 million, including higher energy costs in Europe and Turkey.
We were able to mitigate the unexpected increase with additional pricing in the quarter.
However, a portion of the necessary price adjustments could not be passed through contractually until January 1.
In addition, logistics and labor availability challenges resulted in shipment delays, lower productivity at our facilities, and ultimately, higher per-unit production costs in the period.
These challenges, including the delayed sales volume and the unexpected spike in energy costs, resulted in approximately $5 million lower operating income than we originally expected for the quarter.
We've already made additional price adjustments in January, and our pricing is expected to exceed inflationary pressures, expanding margins in the first quarter.
We also expect to catch up on the operational challenges we faced in the fourth quarter.
Meanwhile, we continue to control overhead expenses with SG&A as a percentage of sales at 10.8%, 80 basis points below the prior year.
Earnings per share, excluding special items, was $1.25 and represented 16% growth versus the prior year.
Earnings per share benefited from foreign exchange gains, driven by the depreciation of the Turkish lira, as well as lower interest expense and a lower share base versus the prior year as we continue to pay down debt and repurchase shares in the quarter.
Full-year earnings per share was $5.02, a record for the company and represented 26% growth versus the prior year.
Now, let's review the segments in more detail, starting with Performance Materials.
Fourth-quarter sales for Performance Materials were $256.2 million, 17% higher than the prior year and 2% higher sequentially.
The acquisition of Normerica contributed 13% growth versus the prior year, and organic sales contributed an additional 4%.
Household, personal care, and specialty product sales were 24% above the prior year and 4% higher sequentially, driven by Normerica and continued strong demand for consumer-oriented products.
Despite strong end-market demand and a full order book, our global Pet Care sales came in lighter than we expected due to logistics challenges in North America and Europe.
Metalcasting sales were 9% higher than the prior year and 16% higher sequentially, driven by strong demand globally, continued penetration of green sand bond technologies in Asia, and the return of volumes from the third quarter seasonal foundry maintenance outages.
Environmental product sales grew 13% versus the prior year on improved demand for environmental mining systems, remediation, and wastewater treatment.
Building Materials sales grew 21% versus the prior year on higher levels of project activity.
Sales in both of these product lines were lower sequentially due to typical seasonality.
Operating income for the segment was $29.1 million and operating margin was 11.4% of sales.
Margin was temporarily impacted this quarter by approximately $3 million of logistics challenges and inflationary cost increases that could not be passed through contractually until January 1 of this year, primarily in Pet Care and our Metalcasting business in China.
The Normerica business has been navigating the same supply chain and inflationary cost challenges as the rest of our business, and we have deployed pricing and productivity actions to achieve accretion as planned in 2022.
Now looking to the first quarter, we see a significant rebound in margins for this segment, driven by pricing actions that went into effect on January 1 and continued strong demand across the product lines.
And overall, we expect the operating income for this segment to be approximately 20% higher sequentially.
And now, let's move to Specialty Minerals.
Specialty Minerals sales were $141.5 million in the fourth quarter, 2% higher than the prior year, and 4% lower sequentially.
PCC and Process Mineral sales were both 2% above the prior year.
This segment was the most impacted by the spike in energy in Europe, as well as logistics and labor challenges we saw in the fourth quarter.
Segment operating income was $14.5 million and represented 10.2% of sales.
In total, operating income was impacted by $4 million in the quarter, which came from approximately $2 million of unexpected energy inflation and additional $2 million due to the sales and productivity impact resulting from logistics and labor challenges, primarily in our Northeast U.S. plants.
Pricing adjustments were made in January to cover these inflationary costs, and low logistics challenges continued into January.
We do not foresee these challenges persisting through the quarter.
Now moving to the first quarter.
We expect higher PCC volumes sequentially on the ramp-up of our new satellite in India and the restart of the satellite in the U.S., and we expect continued strength in Specialty PCC and Processed Minerals.
We see margins rebounding to more normal levels based on the pricing we have implemented.
We should also see improved productivity in shipment volumes, depending on to the extent to which logistics and labor constraints ease.
Overall, for the segment, we expect first-quarter operating income to be 20% to 25% higher than the fourth quarter.
And now, let's move to the Refractory segment.
Refractory segment sales were $79.2 million in the fourth quarter, 7% higher than the prior year, and 4% higher sequentially on new business volumes and continued strong steel market conditions in North America and Europe.
Segment operating income remained strong at $12.4 million, 12% higher than the prior year, and operating margin was 15.7% of sales.
Turning to the first quarter.
We expect another strong operating performance from this segment with operating income up 20% on incremental volumes from new business.
We did see a slight moderation in steel utilization rates in North America in the fourth quarter from the mid-80% range to the low 80s.
However, the demand fundamentals for this segment remains strong.
Now let's take a look at our cash flow and liquidity highlights.
Full-year cash flow from operations was $232.4 million.
Capital expenditures were $86 million as we invested in high-return growth and productivity projects, as well as sustaining our operations.
Free cash flow was $146.4 million.
The company used a portion of free cash flow to repurchase $75 million of shares, completing the prior-year share repurchase authorization and beginning the new $75 million 1-year share repurchase program that the board of directors authorized in October.
As of the end of the fourth quarter, total liquidity was over $500 million, and our net leverage ratio was 2.1 times EBITDA.
Our balance sheet remains in a very strong position, which provides us with the flexibility we need to continue to invest in high-value, high-return growth opportunities, both organically and inorganically.
Looking ahead, we expect another strong year of cash flow generation with cash from operations increasing commensurately with higher income.
Our capital spend will be in the range of $85 million to $95 million for 2022.
We have a solid pipeline of high-return organic growth opportunities, and we plan to deploy capital spend toward these opportunities, as well as sustaining and improving our operations.
And overall, we expect free cash flow increasing to the $150 million to $160 million range for the full year.
So now, let me summarize our outlook for the first quarter.
Overall, we see continued strong demand across our end markets and our order books reflect this.
In the fourth quarter, we saw unusually high spikes in energy costs and increased challenges around logistics and labor availability.
Our latest view for the first quarter is that the inflationary pressures and logistics challenges will continue.
However, we have pricing actions and operational adjustments in place today to more than offset the known increases and significantly expand margins in the first quarter.
Overall, for the company, we expect a strong performance in the first quarter, with operating income in the range of $63 million to $65 million, 15% to 20% higher than the fourth quarter, and with earnings per share around $1.25.
As we look ahead, this is going to be another dynamic year with many of the same inflationary and logistics pressures continuing.
But with the momentum across our businesses and the growth projects underway and our strong operating performance, 2022 is shaping up to be another record year for MTI.
Overall, I'm very excited about where we are as a company and where we're going.
We've transformed MTI into a higher-growth, higher-margin, and higher-value company.
We have more opportunities in front of us beyond what I've shared with you today that will further enhance this trajectory.
We're well-positioned to leverage our balanced portfolio, and we have a breadth of attractive projects across our businesses that will drive our sales and earnings momentum this year.
We focused on accelerating our geographic penetration in our core product lines and building our growth opportunities in adjacent markets.
In addition, we'll further strengthen our R&D pipeline with a focus on increasing the percentage of revenue from new products, as well as introducing solutions, which help us penetrate attractive markets.
With our solid financial footing, we have the resources to execute on all of our growth initiatives.
Our strong balance sheet and cash flow generation give us the flexibility to deploy capital to shareholders, while at the same time, accelerating our growth trajectory through acquisitions, similar to what we achieved this past year.
We have a targeted list of inorganic opportunities that will continue to transform our company with a focus on profitable growth.
Underpinning everything we do is our culture of continuous improvement.
Operational excellence is embedded in our company with our employees at its center.
It's our employees and their high level of engagement around problem-solving through kaizen events, utilizing standard work practices, and implementing suggestions to improve daily processes, which enables us to adapt to changing environments.
It's this ingrained culture that is the foundation of MTI's unique operating capabilities.
Sustainability is the core value at MTI.
And over the past several years, we've made significant progress to embed our ESG priority deeper into our company, our operating mindset, and our growth strategies.
In 2022, we'll be focused on promoting our safety culture of zero injuries, achieving -- or exceeding our six environmental reduction targets, increasing our product portfolio geared toward sustainable solutions, and making MTI a more diverse and inclusive place to work.
We look forward to sharing more about these initiatives as we publish our 14th sustainability report in July.
To sum it all up, we have a winning formula, an engaged team, and a leading portfolio of businesses.
With sales growth of 10% to 15% expected this year, combined with our distinct operational capabilities, we have all the elements in place to deliver a very strong performance in 2022.
I'll leave you with the final takeaway.
Over the past two years, we've demonstrated two key attributes of our company.
2020 is financial resilience during very challenging conditions.
In this past year, it's significant growth potential.
It's our more balanced portfolio, which has enabled this performance and which will continue to deliver higher levels of profitable growth going forward.

user
compname reports fourth quarter 2021 earnings of $1.23 per share, or $1.25 per share, excluding special items.
q4 earnings per share $1.25 excluding items.
q4 revenue $477 million.

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