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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.
Appreciate you joining today's call.
I'll go through our third quarter results at a high level, including our sales performance and how we manage through a variety of challenging dynamics.
I'll then take some time to describe the progress we're making with our growth initiatives and our team's solid execution on several fronts.
And then we'll open the call to questions.
Let me start with a recap of the quarter.
First and foremost, market demand has remained robust across all of our product lines and geographies.
We delivered strong results marked by another record quarter of earnings per share of $1.30.
Performance was achieved while managing through a challenging operating landscape with supply chain and inflationary pressures across our businesses.
Sales for the quarter were $473 million or 17% higher on an organic basis and up 22%, including sales from the recent Normerica acquisition.
We saw sales increases in every segment and across every geography.
For more perspective on our organic growth, the projects we've initiated and I've discussed with you over the past year contributed approximately 5% to our organic growth in the quarter.
Said another way, about 5% of our growth was delivered from new projects and technologies initiated over the past year, 12% from market growth and 5% from the acquisition of Normerica.
Strength of our operating capabilities is reflected in how we successfully managed through the external conditions we faced this quarter, which enabled us to generate $63 million of operating income, a 22% increase over last year.
Performance was achieved within the context of a myriad of external issues, including rising costs, truck, rail and shipping logistics challenges, difficulties finding talented people to support expanding production, significant energy cost increases that became more pronounced during the quarter and continued challenges presented from the COVID pandemic.
Despite these issues, we kept our inventory and supply positions for key raw materials and commodities in good shape.
We acted quickly to solidify our pricing leadership across our product portfolio and to address the inflationary cost pressures that accelerated over the past few months.
And we tightly controlled expenses and continued to drive productivity improvements.
Not to be forgotten, we navigated everything while also seamlessly integrating Normerica into our company.
Cash flow remains strong and, through the first nine months of the year, cash from operations is up 10% compared to 2020.
We completed our share repurchase authorization.
Last week, we initiated a new one-year $75 million program.
Strong cash flow and solid balance sheet gives us the flexibility to continue to allocate capital to shareholders, while also investing in attractive organic and inorganic growth opportunities.
Overall, we had a very strong quarter in terms of financial and operational performance.
Needless to say, there was a high level of activity this quarter.
And our execution speaks to the capabilities of our team who did a great job operating the company safely and efficiently while remaining focused on delivering for our customers.
Now let me take you through some of the year-to-date sales highlights, outline the contribution from our recent growth projects and describe the initiatives that will further advance our sales trajectory.
We've discussed with you the initiatives we've executed over the last year, which have been key contributors to our growth in 2021.
We've also advanced several new projects this quarter that will support further sales growth going forward.
Very encouraged with our continued progress on our growth strategy, which is focused on geographic expansion, new product development and acquisitions.
Demand trends are favorable across our markets.
But the sales growth demonstrated in our businesses has been further bolstered by our new projects aimed toward higher growth markets and also from investments we've made to strengthen our portfolio of value-added products.
Let me provide some perspective on what we've realized through the third quarter from these projects and then detail our new initiatives, new technologies and recent acquisitions that will accelerate growth.
I'll start with our household and personal care and specialty product line, where our broad portfolio of consumer-oriented businesses continues to perform very well, resulting in organic sales growth of 13% year-to-date and 20%, including the recent addition of Normerica.
This growth is a result of our leading positions in structurally growing and stable markets, but it's been enhanced through our investments in new products, capacity expansions and by extending the geographical reach of each of these businesses.
Our global Pet Care business is an example of this with its portfolio of premium products, new online sales channels and broad global presence, which has led to above-market growth rates.
We're also realizing significant sales increases in other consumer specialty applications such as edible oil purification and personal care.
These are businesses where we've made targeted investments to enhance our technology portfolio and expand our manufacturing capabilities to reach a broader customer base in Europe and Asia.
Our global Metalcasting business remains on its consistent growth track with sales up 30% year-to-date, driven by strong demand from both North America and Asia foundries, serving a diverse customer base in automotive, heavy truck and agriculture markets.
Specifically, penetration of our blended products continues to expand in Asia as sales increased 30% compared to last year with 29% growth in China alone.
While much of our growth is driven by our penetration in China, we continue to demonstrate our value proposition in other countries with attractive long-term growth fundamentals.
In India, which is the second largest gray and ductile iron casting market globally, sales of our blended products are up 50% over 2020.
Our PCC business has been delivering a strong performance this year.
Sales were up 17% year-to-date as uncoated freesheet paper demand continues to improve in all regions.
We've also benefited from the ramp up of 200,000 tons of new capacity that we've brought online over the past year, which includes a 150,000-ton facility in China and another 50,000-ton satellite in India.
Production at our 40,000 ton expansion for a packaging application in Europe was also just commissioned in the third quarter.
For perspective, sales realized from these latest satellites were responsible for 5% of the 17% PCC growth so far this year.
Our fourth quarter PCC volumes are currently projected to be above where they were in 2019, more than absorbing the volume loss from our four paper machine shutdowns that occurred since then.
Moving forward, we have several other new satellite projects under construction that set this business up for continued sales growth next year.
In addition to the capacity I just mentioned, another 40,000 ton satellite in India will start up this quarter and we've begun building another 50,000 ton satellite in China, which should be operational in the first half of next year.
We've also just reached an agreement and expect to sign a contract over the next couple of weeks with a new customer in India for another 22,000 ton satellite.
It will be our ninth satellite in India after entering the market with our PCC technology 10 years ago.
In total, with the satellites just commissioned and ramping up, combined with these three new satellites, we see the 5% growth rate from new satellites continuing through next year.
Pipeline of new satellite projects remains robust.
We're expanding our addressable market opportunities with new products and technologies for the packaging market, which I'll describe in a moment.
I'll finish up the year-to-date growth highlights with our Refractory segment.
It's been a very impressive year for this segment with growth of 22%, marked by steel utilization rates noticeably improving over last year.
Growth also reflects this team's success in capturing new business.
Over the past six months, we've secured seven contracts worth $100 million over the next five years, two of which were signed during the third quarter.
We've been able to secure these new contracts in the electric arc furnace market through the deployment of our new portfolio of differentiated refractory products and high performance laser measurement solutions, which reduced costs and improved furnace safety for our customers.
I've discussed how we're investing in several new technologies and I want to share with you how they're beginning to pay off.
Specifically, a few areas where we've broadened our product offering to enter adjacent growing markets.
I'll highlight two significant areas.
First, our Paper PCC business has been developing new technologies, processes and products to accelerate our growth beyond high value filler for uncoated freesheet paper and into the adjacent packaging market.
We've made significant progress over the past two years deploying PCC into white top linerboard.
More recently, we've been developing new products for other packaging applications, including ground calcium carbonate for white carton board and alternate mineral products for brown packaging.
These are attractive and growing packaging markets and we're developing a more comprehensive product portfolio to reach this broader customer base.
Currently, we're working to finalize a long-term contract with a premier white carton board customer in China that would represent a significant step for us into this adjacent market.
We also recently concluded customer trials with our alternative mineral products for brown packaging here in the US.
With an expanding product portfolio and a pipeline of potential customers, we believe the packaging market represents a real avenue for new long-term growth.
Excuse me a second.
Another project in our technology pipeline that we're very encouraged with is FLUORO-SORB, which addresses PFAS contamination in groundwater.
In last call, I shared with you details about our first major commercialization for a large scale project at a North American Department of Defense location.
This project went well and its success has helped to advance our other opportunities.
In fact, we're currently working to secure several other large projects in the drinking water and soil stabilization markets.
As this sector continues to develop and regulatory bodies focus on implementing changes, we're well positioned to capture new opportunities with our patented technology.
To finish up the discussion on our growth for the future, I'll take you through how we've strengthened our business through recent acquisitions.
First, we completed the Normerica acquisition during the quarter and the integration is progressing well.
The team has been in place working on a variety of activities with our new colleagues to integrate all facets of the business and deploy our culture of safety and operational excellence.
Everyone has done a tremendous job making this a seamless transition.
We're still in the early stages, but the knowledge we've gained over the past three months has only further validated our thesis when we acquired Normerica.
We've identified significant opportunities in the North America cat litter market for our broader portfolio of private label products and we see a clear pathway to drive higher growth rates and profits in our Pet Care business.
In addition, yesterday we acquired the specialty PCC assets from Mississippi Lime Company.
This bolt-on transaction helps expand our manufacturing reach into the Midwest United States and gives us a strategic logistics footprint at a key point along the Mississippi River.
The strategy is to leverage our latest technologies such as rheology modifiers for sealant applications throughout our specialty PCC plant system in the US.
Let me leave you with a few takeaways.
We continue to build MTI into a stronger company on all fronts and take actions to balance our portfolio to generate higher more sustainable growth.
Sales mix has evolved over the past few years with 30% of our revenue now coming from stable and growing consumer-oriented markets.
Projects I described to you demonstrate how we're leveraging our newest technologies to drive growth in our current markets and enter attractive adjacent markets.
We also underscore how we continue to drive penetration of our core product lines in growing geographies.
Our recent acquisitions further supplement this momentum and, all taken together, we have meaningfully shifted our sales trajectory going forward.
Specifically for next year, we see our sales growth moving north of 10% and this sales trajectory, along with our strong operating capabilities, provides a powerful combination for significant long-term value generation.
I'll review our third quarter results, the performance of our segments as well as our outlook for the fourth quarter.
And now, let's review the third quarter results.
Sales in the third quarter were 22% higher than the prior year and 4% higher sequentially.
Organic growth for the company was 17% versus the prior year and the acquisition of Normerica contributed the remainder of the growth in the quarter.
Operating income excluding special items was $63.2 million, up 23% versus the prior year and was relatively flat versus the second quarter.
Operating margin was 13.4%.
It's worth noting that excluding Normerica, operating margin was 13.8% for the quarter.
As we have stated previously, the Normerica acquisition will become income-accretive beginning in the fourth quarter as integration activities progress.
The year-over-year operating income bridge on the top right of this slide shows volume and mix contributed $14.9 million, driven by our strategic growth initiatives and the broad-based volume growth we've seen across our end markets.
You can also see the significant inflationary cost we experienced, $18.4 million in the third quarter alone, driven by energy, freight and raw materials such as lime and packaging.
To give you some perspective, we saw energy pricing go up by anywhere from 50% to 400% depending on the location and power source with the most dramatic increases in the UK and Europe.
We offset $10.7 million of these inflationary costs with continued price increases, including contractual pass-through mechanisms in paper PCC and negotiated price actions in the rest of the business.
The sequential bridge on the bottom right shows how inflation accelerated from the second quarter to the third quarter by $10 million, more than half the total year-over-year impact.
However, this bridge also shows how quickly we acted to implement pricing, offsetting nearly 70% of the sequential increase.
In fact, we've implemented a variety of pricing mechanisms in several of our businesses to recoup the higher costs that we had to absorb in the third quarter due to the rapid nature of the increases, particularly on energy.
The price adjustments we are making in the fourth quarter will help us to fully catch up on the cost we have absorbed by the first quarter of 2022.
Meanwhile, we continue to control overhead expenses with SG&A as a percent of sales at 10.6%, 150 basis points below the prior year and 70 basis points lower sequentially.
Earnings per share, excluding special items, was $1.30, the second consecutive record quarter for the company and represented 41% growth versus the prior year.
And now, let's review the segments in more detail starting with Performance Materials.
Third quarter sales for Performance Materials were $250.4 million, 23% higher than the prior year and 5% higher sequentially.
The acquisition of Normerica contributed 10% growth versus the prior year and organic sales contributed an additional 13%.
Household, Personal Care and Specialty Products sales were 30% above the prior year, driven by Normerica and continued strong demand for consumer-oriented products.
Sales were 19% higher sequentially, primarily driven by the acquisition.
Metalcasting sales were 10% higher than the prior year, driven by stronger demand globally and continued penetration of green sand bond technologies in Asia.
The impact of lower automotive production has been limited on our sales as foundry customer demand has remained strong across a broad set of other industrial markets.
Sales were 9% lower sequentially, primarily due to typical seasonal foundry maintenance outages.
Environmental Products sales grew 32% versus the prior year on improved demand for environmental lining systems, remediation and wastewater treatment.
Building Materials sales grew 18% versus the prior year and 3% sequentially on higher levels of project activity.
Operating income for the segment was $32.6 million and operating margin was 13% of sales.
Margin was temporarily impacted by unfavorable product mix, the timing of pricing actions relative to cost increases as well as the incremental sales from Normerica.
Operating margin, excluding Normerica, was 13.9%.
We are in the early stages of the integration process with Normerica and I'm pleased to report that the back office and financial process integration is progressing well.
Now looking to the fourth quarter, we see continued strong demand for Household and Personal Care and we expect Metalcasting volumes to improve sequentially as foundry demand remained strong in both North America and Asia.
In addition, acceleration of input costs that we saw in the third quarter is resulting in a lack of inflation versus pricing that we expect to continue in the fourth quarter.
As I mentioned, we have pricing actions in place to catch up on these increases in the first quarter of 2022.
Overall, we expect operating income for this segment to be slightly lower sequentially as higher operating costs will temporarily offset continued strength across our end markets.
Also some uncertainty with respect to power outages in China, which could also temporarily impact our volumes in the fourth quarter.
And now, let's move to Specialty Minerals.
Specialty Minerals sales were $146.9 million in the third quarter, 17% higher than the prior year and 3% higher sequentially.
SPCC sales grew 17% versus the prior year and 3% sequentially on recovering Paper PCC demand, the continued ramp up of three new satellite plants and higher SPCC demand from automotive, construction and consumer end markets.
Process Minerals sales grew 18% versus the prior year and 2% sequentially on continued strength in residential construction and consumer end markets.
Process Minerals sales, as I just spoke about, did grow 18% and segment operating income was $18.4 million and operating margin was 12.5% of sales.
Ordering was temporarily impacted by the timing of contractual and negotiated price increases relative to cost increases.
This segment has seen the most acute impact from energy and raw material cost increases with inflationary cost increases of $9 million, partially offset by $5 million pricing in the third quarter alone.
We have implemented price adjustments to cover these cost increases and we should be caught up in the first quarter.
And as we have demonstrated, we will continue to adjust pricing as necessary to keep pace with additional cost increases.
Now moving to the fourth quarter, we expect modestly higher PCC volume sequentially as the ramp up of our new satellite in India will be partially offset by the paper machine shutdown in Jackson, Alabama.
We see continued strength in Specialty PCC and Processed Minerals in what is typically a seasonally weaker period for our residential construction end markets.
In addition, we will have a timing lag as our price adjustments catch up to the cost increases we have absorbed.
We see margins rebounding to more normal levels as pricing actions take hold.
And overall for the segment, we expect fourth quarter operating income to be similar to the third quarter.
And now let's turn to the review of the Refractory segment.
Refractory segment sales were $75.9 million in the third quarter, 28% higher than the prior year and 2% higher sequentially as demand remained strong for refractory and metallurgical products.
We also had modestly higher laser measurement equipment sales in the quarter.
However, we continue to experience delays in being able to perform on-site installations and maintenance in this product line.
Segment operating income was $13.2 million, a quarterly record and 81% higher than the prior year and 13% higher sequentially.
Operating margin was strong at 17.4% of sales and was also a record performance.
Looking to the fourth quarter, we expect another strong performance from this segment.
However, we expect slightly lower sales and operating income to be down approximately $2 million.
Now let's take a look at our cash flow and liquidity highlights.
Cash flow from operations was $163.1 million year-to-date compared to $148.4 million in the prior year, up 10%.
Capital expenditures were $63 million year-to-date versus $45.8 million in the prior year as we continue to invest in high return projects.
The company used a portion of free cash flow to repurchase $63 million of shares year-to-date and the share repurchase authorization from the prior year was completed in October.
The Board of Directors authorized a new $75 million one-year share repurchase program on October 20, 2021.
As of the end of the third quarter, total liquidity was over $500 million and our net leverage ratio was 2.2 times EBITDA.
Our balance sheet is in a very strong position which provides us with the flexibility we need to continue to invest in high-value high-return growth opportunities.
We expect strong cash flow generation to continue in the fourth quarter with free cash flow in the $150 million range for the full year.
Now let me summarize our outlook for the fourth quarter.
Overall, we see robust end market demand across our segments with typical construction end market seasonality.
We expect demand for our growing portfolio of consumer-oriented products to remain strong.
Inflationary cost pressures have persisted into the fourth quarter and we have pricing actions in place to mitigate these increases in the quarter and fully catch-up by the first quarter of 2022.
While it's still early in the integration process for Normerica, it's progressing well and we will begin to realize accretion from this acquisition in the fourth quarter.
And overall for the company, we expect another strong performance with operating income around $60 million.
As we have demonstrated throughout the year, we have navigated uncertainty and a number of obstacles to deliver our strong financial performance and we expect to continue to execute well as we close out 2021.
We have solid growth momentum across our segments.
And with the growth initiatives outlined earlier in the call, we are set up well for a strong 2022.
With that, let's turn to Q&A.

user
minerals technologies q3 earnings per share $1.30 excluding items.
compname reports third quarter 2021 earnings of $1.22 per share, or $1.30 per share excluding special items, a record quarter for the company.
q3 earnings per share $1.30 excluding items.
q3 sales rose 22 percent to $473 million.

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