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Text: Today's call will be led by 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.
We appreciate you joining today's call to discuss our first quarter 2021 results, and I hope you're all staying safe and healthy.
I'll take you through the sales and operating highlights of our strong start to the year and touch on current market trends.
I'll finish up the call today by outlining the progress we're making with a broad range of growth initiatives.
Last year, our teams throughout the world, worked hard to efficiently operate our facilities, to protect our employees, serve our customers, and simultaneously position us to capitalize on the recovery.
As a result of these actions and our continued focus on responding to this dynamic environment, we're well positioned to leverage the momentum from the end of the year to deliver a strong first quarter.
Before going through the quarter highlights, I wanted to share that we will be discussing our business results today in three operating segments rather than four.
I'll take you through this further when I speak about our growth highlights.
Our first quarter performance was highlighted by sales and operating growth in every segment.
Specifically, we drove solid geographic growth in our core product lines, increased volumes through capacity expansions and new PCC satellite start-ups, and improved sales from recently commercialized value-added products.
In addition, we continued with our proactive operational measures including pricing and productivity improvements and overhead cost control, all of which drove income and cash flow higher compared to last year.
Demand in many of our major end markets continued to trend upward.
Several of our markets recovered to pre-COVID levels.
These dynamics helped drive sales of $453 million, an increase of 5% sequentially and up 8% compared to last year.
Generated $59 million of operating income and earnings per share of $1.17, up 4% and a record first quarter earnings per share for our company.
In addition, cash from operations and free cash flow were up 68% and 142% respectively over last year.
As we discussed on our earnings call in February, we expected the demand conditions in our end markets would continue to strengthen through the first quarter and that's how conditions played out.
Consumer-oriented markets such as Pet Care, Fabric Care, and food and pharmaceutical remained robust through the first quarter, continuing our growth trajectory.
Automotive and residential construction markets remained strong.
Steel markets further improved from the fourth quarter with utilization rates reaching close to 80% in the US, and our paper end markets continue to rebound from a slow 2020.
Project oriented businesses including Environmental Products and Building Materials are recovering and indications point to continued improvement through the second quarter.
These mostly favorable end market conditions drove sales growth across the majority of our product lines.
Performance Materials, sales in our Household Personal Care and Specialty business increased 14% driven by our Global Pet Care platform, but also double-digit increases in other specialty applications that we've been investing in to enhance our technology and manufacturing capabilities, including Fabric Care, Personal Care and edible oil purification.
Metalcasting business performed well, as sales grew 32% driven by strong demand in both North America and Asia from foundries serving automotive, heavy truck, and agriculture markets.
In both regions, improved foundry conditions that we saw in the fourth quarter maintained that trajectory through the first.
Specifically, Metalcasting sales in Asia were up 52% over 2020 with much of this growth coming in China.
Penetration of our blended products has also accelerated in China, and sales increased 62% compared to last year.
In addition, we continue to extend our value proposition with customers beyond China.
Last quarter in India, which is this -- which is the second largest casting market globally, sales of our blended products were up 21% over 2020.
Within our Specialty Minerals segment, our Specialty PCC business had another strong quarter with sales up 17% over last year.
Our new capacity expansions are supporting increased customer demand for our food and pharmaceutical and high performance sealant products.
In addition, we benefited from exceptionally strong demand, higher than usual in a first quarter for our Ground Calcium Carbonate and Talc products that serve the automotive and residential construction markets.
Paper PCC sales increased 5% driven by improving end market conditions and the ramp up of new satellites.
In fact, the net of the mill closures over the past year, the new capacity additions that occurred in 2020, paper PCC volumes this quarter were slightly above the first quarter of 2019.
Finishing up our sales highlights, our refractory segment had a great quarter with sales increasing 7% over 2020 and margins remaining at 16.2%.
This was achieved despite lower laser equipment sales, commissioning of new orders continues to be difficult due to COVID travel restrictions.
We also had a solid operating quarter.
Our performance reflects our team's disciplined execution with managing costs, implementing pricing measures, and driving productivity improvements.
As a result, margins expanded across the majority of our businesses.
Strategically implemented price increases across our portfolio, these increases have fully offset the higher raw material, energy, and logistics costs we are beginning to see.
Our margins dipped slightly for the company as a whole this quarter, this was primarily due to higher corporate expenses.
We see margins above 14% in the second quarter, and have the potential to move higher toward the second half of the year with continued improvement across our businesses.
I will review our first quarter results, the performance of our segments, as well as our outlook for the second quarter.
Now let's begin by reviewing the first quarter results.
Overall sales in the first quarter were 5% higher sequentially and 8% higher than the prior year as the majority of our end markets remained strong and each of our segments grew sales versus the prior year, now that we combined the Energy Services segment into environmental products within the Performance Materials segment this quarter.
Operating income was $58.8 million or 1% higher than the prior year.
As Doug mentioned, operating margins improved across the majority of our businesses as shown in the margin bridge on the bottom right of this page.
However, a few discrete items impacted our overall margin in the quarter.
First, our Environmental Products and Building Materials businesses have yet to experience a meaningful recovery due to ongoing project delays and COVID related restrictions.
Lower contribution from these businesses had an unfavorable impact on our margin of approximately 80 basis points in the quarter.
Second, while our underlying corporate expenses were stable, we experienced higher than usual mark-to-market adjustments related to the change in stock price during the quarter.
This is a normal adjustment we make every quarter, and we are calling it out today because of the size of the variance, which was approximately $3.5 million year-over-year.
Adjusting for these impacts, the rest of MTI grew operating margin by 60 basis points over the prior year.
Continued pricing actions more than offset inflationary cost pressures on raw materials, energy, and logistics.
In addition, we continue to drive productivity with a 6% year-over-year improvement in the number of hours worked per ton.
Going forward, we expect operating margin to expand as our project oriented businesses recover and corporate expenses return to a more normal level.
Earnings per share of $1.17 was a record for our first quarter, and was 4% above prior year and 8% above the fourth quarter, excluding special items.
Our effective tax rate for the quarter was 18% and we expect our full year effective tax rate to be approximately 20%.
Now let's review the segments in more detail starting with Performance Materials.
First quarter sales for Performance Materials were $230.9 million, 5% higher sequentially and 9% higher than the prior year.
Metalcasting sales increased 6% sequentially and 32% versus the prior year as foundry demand remained strong in both North America and China.
Household, Personal Care, and Specialty product sales increased 7% sequentially and 14% versus the prior year on double-digit growth across several consumer-oriented product lines.
Building material sales grew 11% sequentially and were 18% lower than the prior year as project activity started to increase late in the first quarter.
Meanwhile, environmental products moved through a challenging quarter with sales down 4% sequentially and 29% versus the prior year.
Operating income for the segment was $29.8 million, 9% higher than the prior year.
Operating margin was 12.9% of sales, at the same level as the prior year.
Just as a note, these results include the consolidation of energy services into the segment.
Operating margin was impacted sequentially by seasonally higher energy and mining costs.
I'd like to take a moment to provide some insight on the strength of the margins in this business.
Excluding Environmental Products and Building Materials, which had a weaker quarter than last year, operating margins for the rest of this segment were above 15% in the quarter.
As our project oriented businesses recover, we expect overall segment margins to improve accordingly.
And looking to the second quarter, we expect continued strength in household and personal care with some leveling off from a strong start to the year.
Meanwhile, the Environmental Products and Building Materials product lines are seeing signs of recovery as more of the types of projects that we serve are getting under way.
Now overall for the segment, we expect a strong second quarter with sales at similar levels to the first quarter.
We also expect operating margin to improve on a sequential basis, primarily due to incremental contribution from our project oriented businesses, continued pricing actions, and continued productivity.
Now let's move to Specialty Minerals.
Specialty Mineral sales were $147.8 million in the first quarter, 6% higher sequentially and 8% higher than the prior year.
Paper PCC sales were 8% higher sequentially and 5% higher than the prior year, as paper mill operating rates continue to improve and all regions grew sales sequentially.
In addition, ramp ups continued for our three new Paper PCC satellite plants in China, India and the United States.
Specialty PCC sales increased 4% sequentially and 17% versus the prior year as automotive, construction, and consumer demand remains strong.
Process Mineral sales increased 5% sequentially and 10% versus the prior year on strength in residential construction and automotive markets.
Segment operating income was $21.1 million, 4% higher than the prior year.
Operating margin was 14.3% of sales, and was temporarily impacted by seasonally higher energy costs.
Looking ahead to the second quarter, we expect continued strength in specialty PCC and processed minerals.
Second quarter is typically a seasonally stronger quarter for these product lines as construction activity ramps up.
However, the seasonal dynamics may play out differently this year given the strong start we saw in the first quarter.
We expect Paper PCC demand to remain steady, and our new satellites will continue to ramp up.
We expect a temporary impact on volumes as North American paper makers take their typically scheduled maintenance outages in the second quarter.
Now overall for the segment, we expect second quarter sales to be similar sequentially, and we expect higher margin on more favorable operating conditions and continued pricing actions.
Now let's turn to the Refractories segment.
Refractory segment sales were $73.9 million in the first quarter, at same level as the fourth quarter, and 7% higher than the prior year, as continued improvement in steel mill utilization rates was offset by fewer laser measurement equipment sales compared to the fourth quarter.
Segment operating income was $12 million and represented 16.2% of sales compared to 15% in the fourth quarter and 16.2% in the prior year.
Mill utilization rates improved to 78% in North America and 72% in Europe in the first quarter, up from 75% and 70% respectively in the fourth quarter.
And looking ahead, we expect the second quarter to be similar from a market perspective.
Note that there are several customer furnace relines scheduled for the second quarter, and these relines [Phonetic] result in temporarily lower demand for refractory products.
In addition while our laser equipment sales are typically weighted to the second half of the year, we're also facing delays on laser equipment installations and servicing during the ongoing COVID restrictions.
And overall for the segment, we expect sales to be relatively flat on a sequential basis and operating margins to remain strong.
Now let's take a look at our cash flow and liquidity highlights.
First quarter cash from operations was $51 million versus $30 million in the prior year, and free cash flow was $33 million versus $14 million in the prior year.
We deployed $18 million of capital during the quarter to grow the business, develop our mines, and improve our operations.
We used a portion of free cash flow to repurchase $20 million of shares in the first quarter, and we have repurchased $37 million so far under our current $75 million program.
The company is in a solid financial position with over $650 million of liquidity and a net leverage ratio of 1.8 times EBITDA.
Our balance sheet strength provides us with significant flexibility for how we deploy capital to the most attractive opportunities.
Now let me summarize our outlook for the second quarter.
In Performance Materials, we expect continued strength across the segment with the recovery of our project oriented businesses, which will improve segment margins.
Specialty Minerals, we expect similar market conditions and typical North American paper mill maintenance outages.
Our new PCC satellites will continue to ramp up, including a new packaging satellite in Europe starting at the end of the first quarter -- second quarter, and our margin should also benefit from improved operating conditions and pricing.
In refractories, we expect market conditions to remain strong with temporarily lower refractory products volume due to the timing of scheduled customer furnace relines [Phonetic].
And overall for the company, we expect second quarter sales to be similar to the first quarter.
We see continued strength and recovery across our end markets and in particular our project oriented business should start to see meaningful increases in activity.
The only area of uncertainty is the potential impact of semiconductor shortages that may temporarily impact automotive and steel market end demand.
Now from an operating margin perspective, we expect to return to above 14% of sales as we continue to implement pricing actions, proactively manage inflationary cost increases, and drive productivity improvements.
We also expect another quarter of strong free cash flow.
In summary, we have the elements in place to deliver another strong performance in the second quarter.
With that, I'll pass it back over to Doug to discuss the progress on our growth strategy.
Before opening the call to Q&A, let's take a few minutes to highlight the progress we continue to make with our strategic growth initiatives.
As I touched on earlier, our portfolio of consumer products which represents approximately 25% of our total sales, remains a key part of our growth strategy, and we delivered double-digit sales increases in these core business.
We continue to see opportunities to organically grow them.
Geographic expansion of our core product lines is one of our growth strategies and Asia is a key region for that growth.
The first quarter sales in Asia increased 33% with all of our major countries contributing.
It was driven by broad base of businesses, new PCC capacity coming online at our sites in China and India, continued penetration of our green sand bond products, and an expanding customer base in Fabric Care, Pet Care, and edible oil purification.
Specific highlight in the quarter was our PCC growth where we signed a contract with buying paper for a 50,000 ton satellite in China, which should be operational in the second quarter of 2022.
200,000 tons of new production capacity that came online at the end of last year in China and India will further contribute to volume growth this year as they fully ramp up.
We're also on track to commission two additional satellites this year totaling over 70,000 tons, one for our packaging application in Europe and another for a standard PCC plant in India.
For the past several years, we've invested in developing new technologies for treating industrial waste water and other environmental water challenges.
Our FLUORO-SORB product that addresses PFAS contamination is one example of these newer technologies.
As I mentioned earlier, we realigned energy services into environmental products.
With this combination, we will accelerate the deployment of these technologies, as we bring together the technical knowledge and capabilities in our current Environmental Products business with the high flow rate processing expertise that we've built in Energy Services.
This new structure will improve collaboration and better align complementary technologies and capabilities to further drive growth.
New product development is an integral part of our growth strategy and we've taken significant steps to improve the speed of execution, increase the number of products commercialized, and enhance the impact of our latest solutions.
[Indecipherable] mention our new product pipeline, our total portfolio comprises over 300 products from early stage development to commercialization, representing around $800 million of revenue at full potential.
This is an increase of about 30% compared to where we were two years ago.
We continue to expand sales of our latest specialty PCC products which are supported by our capacity expansions.
Specific to the first quarter, we launched several new bentonite based formulations for construction drilling applications.
Acquisitions are also an important part of how we intend to grow and move MTI to a higher return, more balanced portfolio.
Continue to see a strong pipeline of minerals based opportunities that align with our strategic initiatives, and we have the balance sheet strength and flexibility to pursue them.
As always we'll maintain our disciplined approach to M&A.
To summarize our call today, the COVID pandemic has challenged our normal ways of working, and higher virus rates continue to affect several of our regions.
Our culture of connectivity and collaboration has enabled us to differentiate MTI with our customers, maintain our strong safety and operating culture.
We'll continue to build on these strengths during 2021.
Even though a few of our end markets are only now beginning to improve, we had a solid first quarter with strong momentum across the majority of our businesses.
With favorable demand trends in our markets, our new technology launches, capacity additions, and continued strong operating performance, we have the elements in place to go from one of our most challenging years to one of our strongest.
With that, let's open up the call to questions.

user
compname posts q1 earnings per share of $1.17.
compname reports first quarter 2021 earnings of $1.17 per share.
q1 sales rose 8 percent to $452.6 million.
q1 earnings per share $1.17.

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