Minerals Technologies Inc (MTX) 2007 Q1 法說會逐字稿

Good morning and welcome to our first-quarter 2007 earnings conference call. Today's call is being recorded.

At this time I would like to turn today's call over to Mr. Rick Honey, Vice President of Investor Relations. Please go ahead, sir.

Good morning, and welcome to our first-quarter 2007 earning conference call. Today we are introducing a new format for our calls. First, Joe Muscari, Chairman and Chief Executive Officer, will provide a brief overview of his first two months on the job, the key areas he has been focusing on, and some of the steps he has already taken; Then John Sorel, Senior Vice President and Chief Financial Officer, will review our first-quarter financial results. After the review of our financial performance, John Sorel, who is also responsible for SYNSIL products will present an update on the product line. Also with us today are MTI's business unit heads, Alain Bouruet-Aubertot, Senior Vice President and Managing director of MINTEQ International; Randy Harrison, Vice President and Managing Director of Performance Minerals; and Ken Massimine, Senior Vice President and Managing Director of Paper PCC.

This call also marks the first time that we are webcasting a slide presentation from the Company website, www.mineralstech.com, which can be found under investor information and then presentations and conference calls. If you are viewing the presentation on the website, please note that we have provided a PDF file for clearer viewing of the charts. Before we begin, I need to remind you that on page 7 of our 2006 10-K, we list the various factors and conditions that may affect future results. Statements related to future performance by members of our management are subject to these cautionary remarks and conditions. Now I will turn the call over to Joe Muscari. Joe?

Thanks, Rick. Good morning, everyone. As Rick mentioned, we've introduced a new format to the call which is designed primarily to streamline the process a bit, to allow for more focus on some key areas, and hopefully provide more time for Q&A. The objective here is to be more responsive to some of the input and suggestions that Rick has received from many of you, and your feedback going forward is -- will also be appreciated. I'd like to start things off by first giving you a brief overview of what I've been focusing on in the first 60 days as CEO, and sharing with you some of the action steps that I have begun to put into place.

I spend my time primarily engaged with the Company's customers and employees all over the world with the primary purpose being to assess the health of the Company from what I believe is its two most critical vantage points and value creating centers. I've also been engaged in a process of strategic assessment with the Company's leadership. The Company has, as you know, underperformed the market in terms of shareholder return over the past five years, and I view it as being critical to understand why. So that we can adjust our course going forward.

One of my first actions was to institute a global hiring freeze to reduce expenses. And I've also set targets to reduce capital spending. The freeze, the hiring freeze can be lifted on a situational need basis through the approval of the specific business unit or resource unit head and myself. And the freeze is one way to better control expenses, but it will also help us find ways to better leverage our resource throughout the company, regardless of function, business unit, or geography.

I've also instituted a new capital expenditure review and allocation process along with reduced spending targets for each business group. These actions are designed to drive more efficient and effective use of capital going forward, and over time help to improve our return on capital. Developing an improved foundation for continuous improvement is also a major area that I have begun to focus on with the Company's leadership. The near-term objective is to move the Company's culture in the direction of higher performance and speed, through the implementation of sustainable improvement processes such as total productive maintenance, TPM, and daily management control. Cornerstones of execution for manufacturing companies.

Safety performance has also been a point of focus for me since joining MTI. The Company has performed better than national averages for total recordable injuries and lost workday rates, but is significantly above benchmark levels, which is where we will be targeting. New reporting and review systems have already been put into place and benchmarking trips to visit higher safety performance companies are being planned for next month.

Speed to market in terms of the time it has taken the Company to commercialize new products is clearly an improvement opportunity area, and I've been spending time reviewing the underlying processes, value propositions, and target customers with both the Company's management team and select customers. Later in the program today, John Sorel will be briefing you on one of our major new products, SYNSIL. In future calls we will be providing more in depth updates on programs such as filler fiber and coatings. It appears that we have a good value proposition for our products and services. Our customer relationships and positions are solid and offer good platforms for continued growth. We also have knowledgeable and professional sales, marketing, and service teams working these customers. I've also been pleased with the level of enthusiasm, openness, dedication, and most importantly willingness to change that I have found in talking to and meeting with MTI's employees all over the world. Clearly this is also a strength of the Company and the most critical element of achieving improved performance. Let me stop at this point and turn things over to John, who will review with you the quarter.

Thank you, and good morning, everyone. I will now provide you with an overview of our consolidated and segment financial highlights for the quarter and discuss the key market and operational elements of our performance. You will notice that we have expanded the financial tables included in our press release to provide both the year-on-year and a sequential reference point for our current performance.

Overall, MTI delivered net income of $10.8 million for the quarter, a decline of 16% from the $12.8 million earned in the prior year first quarter, which included a pretax insurance settlement of $1.8 million. Diluted earnings per share were $0.56, 13% below the $0.64 earned in the prior year. Excluding last year's insurance settlement gain of $0.05, EPS results were about 5% below the first quarter of 2006. Cash generated from operations remained strong at $29.3 million, although working capital increased nearly 6% from year-end levels. Capital expenditures are $14 million, while depreciation and amortization total about $22 million for the quarter. The return on capital on a trailing 12-month basis was 5.8% and will be a major focus area for MTI's management.

Turning to the income statement, I will now comment on the significant changes as compared with prior year. Net sales for the quarter were $273.5 million, an increase of $8.8 million or 3% compared with prior year. Foreign exchange had a favorable impact on sales of approximately $5.4 million or 2 percentage points of the growth. A second major element of sales growths also representing 2 percentage points was our recent Turkish acquisition and refractory segment which provided incremental sales of $5.7 million. In a moment I'll provide a more detailed product line analysis of sales.

MTI's cost of goods sold drew 4%, slightly above the rate of sales growth, which resulted in a 2% increase in total gross margin. We are pleased that during the first quarter we achieved some pricing improvement through the pass-through of raw material costs in the PCC business. However, these advances were mitigated by lower volumes in the process minerals and metallurgical product lines. Marketing and administrative expenses for the quarter declined $0.4 million or 1% due to our expense control program and lower provisions for bad debt.

MTI's income from operations increased 6% to $19.9 million from $18.8 million in the prior year, driven primarily by the growth in production margin. For the quarter, the operating ratio was 7.3% of sales, specialty minerals income from operations of $13.2 million increased 9% from $12.1 million in the prior year and was 7.2% of sales. The growth was primarily due to improved profitability in the paper PCC product line. Refractory segments operating income was $6.7 million, even with the prior year, and was 7.5% of sales. Gains in refractory product line were largely offset by decreased earnings from metallurgical products. Nonoperating deductions decreased $3.3 million compared to last year.

As mentioned earlier, the prior year included nonoperating income of $1.8 million, related to the settlement of an insurance claim. In addition, interest expense increased approximately $1 million due to additional borrowings related to the Turkish acquisition and the stock repurchase program. You will note that year over year average diluted shares outstanding decreased by about 800,000 shares. The effective tax rate increased to 32.5% in the first quarter of 2007 from 30.3% in the prior year due to a change in the mix of earnings and an increase in projected foreign dividends. Therefore, net income was down $2 million or 16% overall. As nonoperating deductions more than offset the operating income gain. Excluding the after-tax effect of the prior-year insurance gain, net income was down about $1 million or 8%.

As you look at the sales tables in the press release, you will note that the strong international sales growth versus decline in the United States. The Turkish acquisition and foreign currency increases raised the international portion of our businesses 5 percentage points in total to 44%. In this chart you see that the European proportion increased 5 percentage points in the specialty minerals segment and 10 percentage points in the refractory segment. The overall decline in the U.S. is due primarily to a weak construction industry, affecting our process minerals product line and lower consumption of metallurgical products in the refractory segment.

Sales in the specialty minerals segment for the quarter were $184 million or $2.9 million above prior year or a 2% growth. With foreign exchange accounting for essentially all of the net increase. Sales of paper PCC increased 5% or $6.7 million to $133.6 million from $126.9 million, in the same period last year with the favorable foreign currency effect being primarily attributable to this product line. In addition, increased sales from plant ramp-ups, primarily in China, and the pass-through of raw material cost increases more than offset the sales decline caused by general volume weakness throughout the North American paper industry and from PCC plant shutdowns.

Sales of ground calcium carbonate decreased in the quarter due to a continued decline in construction activity in the United States as housing starts declined to a 1.5 million rate versus a 2.0 million rate in the prior year. SYNSIL product sales for the quarter were only $1.4 million, down 39% from prior year, due primarily to the elimination of commercial production from the sampling facility in Woodville, Ohio. In addition we have accounted difficulties in ramping up volumes from the Chester, South Carolina, facility. Following the financial highlights, I will comment further on the current status of our SYNSIL commercialization efforts.

Refractory segment sales for the quarter increased 7% or $5.9 million to $89.5 million as compared with $83.6 million in the prior year. Within the segment, growth was due to a combination of the acquisition in Turkey and the favorable impact of foreign currency, excluding those two factors, sales decreased 3%. Volume growth of refractory products, systems, and services increased 10% in Europe, while steel production was up about 7%. In North America, our largest market, sales declined 3% while steel production declined 8%. However, the overall refractory segment performance was affected by 20% or $4.5 million decrease in metallurgical product sales due to a combination of lower raw material cost and, therefore, prices, and volume decreases particularly in North America.

As you can see from this trend analysis, our net sales have continued to increase. However we've been unable to leverage this top line growth to improve our operating margins and to achieve higher levels of return on capital. We expect our recent cost control initiatives and emphasis on return on capital will help us reverse this trend.

Turning to the balance sheet highlights, the working capital chart on the left reflects our operating working capital trends, measuring trade, accounts receivable, inventories, and trade accounts payable. Our days of sales outstanding have historically approximated 60 days, and our months on hand of inventory have been at about the current level of 1.9. This is another major focus area of the Company as we strive to improve our return on capital and leverage the systems we now have in place to better manage these elements. Our cash flow from operations has been very strong over the past year and continuing into the first quarter. We are also increasing our efforts to reduce our capital requirements and improve capital management. Our debt-to-capital ratio has been relatively low compared to our peers. The recent increase to 20% is primarily due to our stock repurchase program and the Turkish acquisition.

This chart provides a summary of the specialty minerals segment performance. Sales were up 7% while operating income was up 9%. Although market conditions were weak, performance was driven by higher PCC pricing and cost recovery that more than offset the effect of PCC plant shutdowns during the last year and the effect of low-process minerals production and startup costs for the SYNSIL plant in Texas. The financial performance graph reflects a general improvement in sales over the last nine quarters. Sales growth in this segment has not resulted in commensurate income growth over recent quarters due to the difficult plant startups in China, the cost of the European coating program efforts, SYNSIL commercialization delays, and the delayed pass-through of higher energy and raw material costs in all product lines.

The outlook is for a seasonally stronger performance in the second quarter as compared with the first quarter. Construction markets will remain soft, and we will continue to incur losses in the SYNSIL product line. But paper PCC should have a similar performance as the first quarter. Our Refractory segments sales are stronger than the market conditions in both North America and Europe would indicate. However, margins were affected by weakness in the metallurgical product line and additional costs related to new business activity in Asia. The refractory segment's financial performance trend over the past nine quarters has reflected a continued improvement in sales. The fluctuations on operating income are primarily caused by the steel industry volatility in the two primary markets we serve, North America and Europe, and a resulting effect on the mix of products and services we provide. The outlook is for an improvement in North American steel markets over the first quarter and continued strong demand worldwide. As a result, we expect financial performance to improve over the first quarter levels.

In summary, first-quarter EPS of $0.56 per share represents a relatively weak start to the year. With an ROC of only 5.8%, we are focusing on areas of immediate improvement in all of our operations to increase profitability and bring higher value to our shareholders. Going forward we expect two of our key markets, paper and especially construction, to remain weak into the second quarter. However, we anticipate that overall operating results will improve in the second quarter which is generally a strong operating period for our product lines. This concludes the financial overview, and I would now like to provide you with an update of the commercialization efforts in the SYNSIL program.

We are pleased that during the past quarter, the Cleburne, Texas facility came on line on schedule. Product and process improvements were built into this, our second commercial facility and we have seen improved results as we have converted our Texas customer base to the Cleburne product. And during the quarter we reduced operations at the Woodville, Ohio, sampling facility. We will reserve this capacity for future product and process development as it is not economical to continue to operate the facility for limited quantity commercial sales. We had supplied two regional customer was Woodville. One of these customers expanded his capacity and no longer requires SYNSIL for additional throughput. We have also notified the second customer that it is not economically feasible for us to continue to supply him SYNSIL from this facility.

As you will have noted from my comments regarding the first quarter sales results, we have continued to encounter difficulties ramping-up our commercial sales volumes. After being capacity constrained in 2005, we ran numerous trials of glass makers in 2006 and we learned from these trials that there is considerable variation in the value proposition of SYNSIL from customer to customer and from furnace to furnace. Therefore, further commercialization will require more extensive development program with each potential customer than we had anticipated. As planned the base customer for the Chester facility has spent considerable time evaluating alternative materials this year and will continue to do so through the second quarter. While using this time to better prepare for trials scheduled for the second half and plan to move forward more cautiously and methodically during this next demonstration period.

Through this process we have developed a strong base of knowledge of glass melt mechanisms relating to both furnace operations and composite mineral interactions which will support our efforts in developing a strong value proposition for both the glassmaker and MTI. Our program at Cleburne, Texas, is advancing according to plan, and we expect that product improvements we have made there will benefit us in preparing for our trials at Chester. In this presentation, we have tried to share as much information as possible and respond to the questions you have raised regarding the SYNSIL program, while respecting the confidentiality agreements we have in place with our customers and potential customers. The SYNSIL program remains a strategically important one for MTI. Product efficacy has been demonstrated in many trials at the commercial scale, since the construction of Chester and we have important trials scheduled from Chester for the remainder of this year. I will turn the call back to Joe for his closing comments. Joe?

Thanks, John. Before opening it up to questions, I'd like to just share a few additional thoughts with you. As we look at the Company's recent performance in terms of profitability and return on capital, the challenge to the Company is very clear. We need to change the direction of both. I believe this has become clear not only to the top leadership and management of the Company but to all employees in the Company.

How to actually do this -- do that is what as discussed earlier, I and the top leadership have been focused on during my first 60 days. We've been working through a very intensive strategic analysis process of self-assessment to better understand where we have been and why, where we are today as a company and where we want to go. We have identified major specific improvement areas such as expense control and capital spending where we can have an impact in the short term and we already have. Other areas such as continuous improvement systems and processes and product development process improvements are longer term initiatives which the Company needs to begin to implement with a greater sense of urgency now. And I believe it is beginning to do so.

On the key strategic questions of Company direction, structure, business portfolio and technologies, we are still in the midst of this strategic review and assessment process which will take a little longer to complete. The output of this process will be changes and adjustments to both our direction and strategies, and they'll be designed to achieve higher levels of profitable growth than in the past and returns on capital greater than our cost of capital as quickly as possible. As we progress, we plan to further communicate these changes to you. After almost 60 days, I still feel very good about the Company.

It has strong market and customer positions. A solid D&A of product innovation, and more importantly a core of hard-working, dedicated, and what I would characterize as value-based employees. Over the next 60 days, I plan to continue to spend time with customers and employees. I'll be going to Asia in early June to visit with customers there and visit some of our facilities. I also plan to meet with MTI's major shareholders and hopefully many of you over the coming months, as well. There's a lot to be done and many challenges, but I am optimistic about being able to achieve improved returns for our shareholders. I'd like to now open it up to questions.

Thank you. (OPERATOR INSTRUCTIONS) We'll go first to Jeff Zekauskas with JPMorgan.

Good morning. Joe, you began your presentation by saying that one of your priorities was to understand why the Company had underperformed in its financial returns in the past. Can you give us an idea of the conclusions that you arrived at or the answer to that question?

Yes. I can give you -- actually it's not complete but I can give you some aspects of some of the underlying reasons. And we'll start with capital. Underperforming on the return on capital. As we've examined a number of the investments that have been made in the Company over the years, there have been issues around risk assessment before we make investments. There have been issues that relate to estimates and forecasts, estimates of savings that could be achieved or of market directions.

What we found in going through the process, it isn't one thing, it is a number of things on the investment side of the equation that speak to what I would call process improvements that we could put in place in terms of how we assess risk, where we make investments, the allocation process that I touched on in my opening comments is really a process where we've -- we've looked at the areas where we -- where we've had success, where we have been getting good returns on investment, and we're going to begin to shift our capital investments to those areas, where perhaps in the past we have not done that as well as we should have. But to me these are development areas. I wish I could give you one, here's the one thing we're going to do. But it's a series of things together that are going to be designed to better assess risk, get more return for what we do in terms of actual performance from the projects that we invest in and invest in better areas.

As we look at the income side of the equation, here again the opportunity areas -- and I'll use the term opportunity areas, but it comes from an examination of looking at companies, productivity track, looking at our cost savings track, looking at how we've grown and the support systems we've put into support that growth, all of those areas when you think about continuous improvement systems and processes designed to help a company sustain higher productivity levels or put infrastructures in place that are designed to be more efficient are going to be the areas that we'll be focusing on.

So it's, again, not one thing but a series of things that relate to, in one case we have had rapid growth over this time period. And it's a company that, what, in the '90's was $300 million, we're sitting over $1 billion today. So it's had rapid growth, and it's put in systems perhaps not always in the way that gets us to where a company of this size needs to be at this point in time, but were necessary -- perhaps sometimes the only options open to capture the revenue growth that was available to the different businesses at that point in time. So the opportunity areas clearly on the income side right now are -- in the nearer term are going to be around cost and waste elimination, longer term the -- the opportunity areas revolve around getting better at leveraging positions we have. And we have many strong positions both in North America and Europe, some in Asia. And it's a question of how can we utilize those positions to grow more profitably and as we do grow, provide the support systems that are more efficient to basically enable more of the revenue that we capture to go to the bottom line.

I guess what I'm struck by in your remarks is the general philosophy that you have. And at the same time, is it too early for you to put concrete targets in place? That is, you've not talked about what the capital expenditure level for the year should be or what it should be going forward or what SYNSIL's utilization rate should be. Is that because all of these issues are being meditated on, or do you have those concrete targets yet and in the course of the call you'll divulge them?

Yes. I'm -- we're really -- right now we're doing two thing simultaneously. One, we're focused in the near term with a sense urgency for improvement and change in the areas that -- that I would consider to be within reach. And people in management of the Company are going after those things. There are longer term initiatives that we haven't fully developed yet that speak to structure, that speak to rates of growth that are achievable. And in some cases, terms of the approach we're taking to this it's defining what's possible. And I -- at this point I'd prefer not to even limit our own organization in terms of thinking through the kinds of things that can be achieved over two, three, four-year periods. So I'm not ready, the Company is not ready to say, well, here's exactly where we're going to be, and -- in 2010, but as we further progress this analysis, strategic review and strategic planning, we will be sharing more of that, and we will be sharing a public of where we believe we can take the Company.

Just lastly, what's your capital budget for the year?

Well, our target and I'm happy to share that with you, we'll be targeting for $75 million or less. Now I'm always hesitant to give out a target like that because that's going to be subject to -- there may be opportunities and issues that could change that as we work our way through the year. But that's how I see it right now.

Thank you very much.

(OPERATOR INSTRUCTIONS) We'll go next to Mike Harrison with First Analysis.

Hi, this is Allan Cohen with Mike. I'll ask the first question. Following up on the last one, when you look at the value proposition to customers in PCC and then compare that with your pricing to them, what's your assessment of that delta? Clearly in SYNSIL you're still struggling with that issue. I would share the work we've done indicates you provide a lot of value relative to your pricing.

I'd say, and I've visited now with a number of PCC customers, paper customers. What I see as a very good value proposition with the customers, and I think there's still room for growth as we're seeing in that particular segment. As we look at the new product areas, filler fiber and coatings which is not new, but they're where we continue to test some of the value propositions. But particularly filler fiber is still early. And there are other parameters that go into determining the total proposition which includes capital investment, capital investment both by ourselves and by our customers. And that's part of the equation that we're working on.

When you look at the pull return on capital and it will be approximate if you start divvying up misjudgment of opportunity perhaps or the excessive capital and perhaps not asking customers to pay enough, can you provide an ordinal ranking and or other contributors you think are of material import?

Yes, I'd say the latter. I haven't seen the not asking customers not to pay enough really be part of the -- a significant part -- I don't see that as a significant part of the equation for the -- the lower return on the incremental capital investment. It has been more -- perhaps market changes have been a part of it, overspending on capital projects. Timing of when moneys are spent is another factor. And so it tends to -- it has tended to be more of those as well as risk assessment in terms of -- of good, having good clarity around what the potential risks might be, downsides and then have countermeasures in place to actually deal with some of those. As we've gone back and -- I have actually recently this week, walked the entire Board through the process to help understand, as I indicated earlier the understanding where we have been is very important so that we can take those learnings and get a lot better faster going forward. So I think we've identified those areas, and I think the organization is -- is not only sensitized to what we need to be doing differently, but we're putting the processes in place to ensure that we -- we will be different going forward. Now, that doesn't mean risk free, but it means a better assessment of the risk and perhaps not doing some things that we otherwise may have done in the past.

Thanks. Mike has one question.

Hi, this is Mike Harrison. Switching gears little bit, if I look at overall PCC sales at about 3% year over year ex-currency in the quarter, can you give me some sense of how that compares to your forecast for organic growth for the full year in PCC.

Let me ask Ken Massimine to speak to that, please.

Mike, again, I really would not like to comment overall in terms of what the year is going to look like. But, overall we do feel that we have seen some reasonable volume growth, and our expectations are as we continue to go forward over the course of the year that we don't see anything at this point that's going to markedly change that.

Okay. And then just kind of a housekeeping question on the tax rate. Is 31% still a good number for the full year, or I saw you came in at about 32.5% this quarter.

Right. In the 32.5%, it is our forecast for the full year at this time. And as a driving force there was some change of mix and earnings, and an increase in the dividends we'd like to repatriate from around the world.

And I was also just wondering if you could update us a little bit on the progress on the filler fiber composite and what weather that might become commercial -- and when that might become commercially available.

Mike, I'll handle that for you. Let me provide you with a brief update. The program is still moving forward. As a matter of fact, Joe and I recently visited one particular customer, and that will actually be signing an agreement to begin future trial work with that customer in the third quarter. So it was going very well with that particular customer. With another one, a little bit slower than we would like. We have some trials, and they're currently in the process of assessing how best they want to move forward from here. We're also broadening out to other customers, especially those that can better use the pulp, whether they are purchasing pulp or in terms of whether they're even in a position to sell the pulp.

And lastly we're actually commissioning, in the process of commissioning a portable skid for the development of additional trial activities. I would say overall the program, obviously I would like to move it faster. But it is moving forward. And we're pleased with that. At this point do not feel that we will have a commercial venture in place this year. There's still a lot more development to do. But we're moving forward, and we're progressing nicely.

All right. Thank you very much.

Moving on, we'll hear from Rosemarie Morbelli from Ingalls and Snyder.

Good morning, all. Just following-up on some of your comments, Joe, regarding the fact that you are going to work towards going to market faster, and which brings us to the latest comments from Ken regarding the fiber composite and the difficulty in getting new trials and getting customers to move faster. All of your three businesses are dealing with industries which are mature, have been established for a long time, are used to doing the same things over and over again. You bring your new products to one plant, the -- it works, they like it. Now you have to go through the exact same exercise with another plant, and that plant manager has to be convinced that, yes, it is going to work for his facility, as well. So with this kind of a marketplace, how can you really grow faster, I mean, get your new products to be introduced in the marketplace faster than in the past.

Rosemarie, that's a very good question. There are -- and I don't have a simple answer for you. That needs to be come at from two different vantage points. The first is -- is having as we go out with new products, having -- being on a really good foundation, a solid foundation that we're focused with that particular product on clear customer needs. That there would be enough pull to warrant the research work that would have been done and to get us to a point to where a customer would be willing to begin to commercialize or at least get into trials with us. So -- and that is an improvement area. And it's not that the Company has necessarily not -- has done that badly, but it can be improved. It can be improved through the use of different approaches, better stage gating processes on the development side, more intimate linkages with customers. The use of -- in characterizing products behaviors, the use of things like failure mode and effect analysis.

So as I -- as we've looked at it, we have our -- what I call the development side and the interface side that -- that can be improved in a way that helps with speed in terms of being able to penetrate faster. On the customer side, being -- I call it the strategic selection of customers to work with becomes very important, as well, because picking customers who perhaps are not the best positioned to make -- bring something to fruition or see the trials through can very often delay a program because you could be halfway through with a customer and there could be issues and you end up going back to ground zero and have to go start at another customer. So the -- the whole strategy of which customers to work with becomes very important.

An example I'll give you right now without revealing a particular customer is in China on the refractory side we're working with one of the, I'll say leading steel companies, and we're working very hard with that particular company because it is a company that if we're successful, other companies will follow. And that becomes another aspect of the strategy to work with the leaders to break the resistance down in those other plants of other companies. But also within the plants of the companies that are considered leaders in a particular industry or region because the -- the leaders are the ones who will actually spread the best practices the fastest. And so again, how we do these things and how we think them through become very important and how work on both sides of that is, again, part of when I talk about speed, that's what I mean.

That is helpful. It doesn't sound as though it is going to happen overnight.

No, no. And again, as you say, we're in industries that do not make decisions quickly. But as -- if we look at steel as an example, you now have with the consolidation that's occurred, you have some industry leaders who are very focused on continuing to reduce costs rapidly, to improve their positions. And are much more willing to drive best practices and standardization around the world. And those are conditions that did not exist as well as they do today. Five years ago. So on the one hand, we're dealing with a very basic industry, but the industry itself has sort of been reshaping and brings some opportunities to us. It's a question of how well we can take advantage of those.

And if we bring that example to a SYNSIL, do you feel that you are dealing with all of the -- at least a couple of the large glass company, but let's assume that you are and they are taking products in one particular facility. Why is it that they are not actually, you know, in one quick swoop -- or at least a lot faster than they seem to be doing, looking at the results, introducing the SYNSIL in their other manufacturing plants because they know how it works?

Yes. And I think part -- part of that without getting too specific for confidentiality reasons is -- has to do with SYNSIL's state of where it is, it is still in development, as John indicated in his presentation. We are still developing the product with these customers, and the challenge here is that the different customers that we're working with have different chemistries and processes in their furnaces. And so that requires the development, it makes the development work much more difficult because you're moving into characterizations that as you increase the quantities of the material you're using, you're moving into new areas. They then become areas of further development. So this is very -- still very much a -- a product in development with two customers who have two different -- I mean, when I say different I don't mean totally different, but there are enough differences in their processes that you -- that we need to be developing in a more customized way today.

This is very helpful because I was under the impression that Synsil was out there ready to go. And so based on this new vision, so to speak, for lack of a better word, of what is happening there, then the anticipation that SYNSIL could actually be profitable in 2008 will most likely not occur. This is not long enough a time frame to have the product develop and tweaked so it works most of the time. And have enough volume going out the door.

That is absolutely right.

Okay. Thank you very much.

Moving next to Mike Judd with Greenwich Consultants.

Good morning. A question about -- I guess I'm trying to focus in here on where you're going to actually make change. I know there's a focus on return on capital. If you look at your SG&A and R&D as a percentage of sales, your numbers, your percentage there is not out of line at all with the industry. So it doesn't look like that's really an area where there's a need to do much. It really appears just to be in the gross margin. And so I -- I guess there's -- there's a couple of issues that I'm thinking through here. One is that, people historically have viewed or view Minerals Technologies as a growth company. So I guess having a lower gross margin compared to some other specialty chemical companies, that that's really okay if you have higher turns and you can generate more profit from higher turns so to speak. But it sounds like you're basically putting the brakes on a little bit how we should be viewing the growth opportunities over the near to medium term. So it seems like the levers that you have to work with to this year and next year, boost the profitability of the Company come either through increasing prices or reducing raw material costs.

First of all, if you have any comments on that. And then I guess just secondly getting back to a question that was asked earlier, my understanding in watching your video that you have on your website was that you are going to be setting out specific targets for your employees. And I'm just wondering, -- I think it would be helpful for us, if perhaps maybe not this conference call but by the time we have the next one if you could lay out to us some targets that you hope to achieve in the near term whether it be return on capital or whatever it is that you want to basically set out as a target. Thank you.

Thanks, Mike. Let me come at your first question from a couple of different perspectives. My experience and background, as you mentioned, SG&A being average, I think it's probably a correct assessment depending on who you compare us to. The approach I've taken is to -- in this self-assessment process, the strategic review, is to look at what the best level, who the best companies are, who are the top quartile companies. And set our sights on for companies our size or a little bit bigger, what's possible. And when you -- when you peel back from average, you get a different view of what we may be able to do. And without getting into specifics at this stage, but it is an opportunity area that we're beginning to look at, and we're at the very early stages of it. So I wanted to just come back and give you just a little insight in to how we're approaching actually all parts of the Company, and as we look outside for benchmarks, it will be us looking at where we are versus the average, but also looking at -- for different processes, different businesses, who are some of the best and how are they doing it.

In terms of opportunities, I -- clearly price and raw material cost reduction are always -- are constantly on the table for us. And being pursued wherever possible. The further opportunity area for margin improvement -- and this is not, again, short term. I touched on this earlier. We're still a manufacturing company and logistics and supply chain management are a part of that. But when you put those together and I look at where we are with regard to operational excellence in the Company. We have a good deal of variability, meaning we have some locations that are very good, we have some others that are not so good. When I say not so good, there are not necessarily strong processes and systems in place to drive continuous improvement.

And as we go forwards we will be developing an approach in the Company that allows us to systematically begin to take waste out of the Company. And that is not a thing you do overnight because it will require a culture change in the Company. It will require in some cases process changes, changes in people and different responsibilities. But it is building fundamental processes and systems in our locations and in our business support systems that are driven toward continuously reducing cost. Now -- and I want to come back to one other point about the focus on SG&A. I mentioned -- and you're -- mentioned about perhaps that could hurt us on near term growth or medium-term growth. I've purposely left open the ability to hire people and support those growth areas on an exception basis. And to this date, I have not turned down or refused one request that deals with anything that involves current revenue or future revenue potential for the Company. And so I'm very sensitive to that area. We need to maintain the growth that we can achieve and continue to go after that, but we need to do it smartly. And yet we also need to, if you, again, look at the slope of the line on the expense side, we need to really begin to change the slope of the line. So that going forward, as we look -- as we go two and three years out that we have a support structure of the Company that is more in line, that allows more of the profitability from that area that is being eaten in that area to fall to the bottom line.

Okay. Then the question about how are we going to be able to measure your success over time in relation to this? It would be helpful if you could perhaps communicate -- again, maybe not this conference call but it would be great if you could, what specific targets that you have -- you have certainly given us a lot more information than perhaps we've had in the past. And that's very helpful. I think that's a great step in the right direction. But ultimately we'd kind of like to know so that we can have some view of the future but also hold somewhat accountable.

No, I agree totally and what I tried to say earlier -- let me come at it again from perhaps a different angle. The challenge we have and the challenge I see is as a company we do need to set good targets that are longer term focused. In other words, we need more clarity, better clarity on our direction, where we're going to be in two and three years, and at the same time that we're doing that, we need to be driving the improvement areas that we can achieve in the near term with a sense of urgency. So we're, at this point in time we're trying to go about both of those. And as we can share more, we will. And it's a question of having enough insight that we can go out and talk about where we want to go and also do it in a way where we're not perhaps giving away anything from a competitive standpoint.

So that's -- I think historically that has been a reason why the Company sometimes has been reluctant to do more or share more. I'll be inclined to share more on the longer term of what we're trying to achieve, and then perhaps share some metrics as we better develop them inside the Company and share that with the external world. At this point in time, I can't give you specifics because we're still working on them. Still putting them together.

That's fine. Would it be incorrect to basically characterize things, at least currently that you're still doing a lot of due diligence. You haven't completely figured out what needs to be done. You're moving forward in some areas, but that patience is going to be required here?

Exactly. That's a great way to put it.

Okay. Thanks a lot for the help.

We have time for one more question, operator.

Okay, that will come from Dan Rizzo from Sidoti and company.

Hi, guys. Just a quick question because I know we've been going for a while here. The stock repurchase plan, is that going to continue? Is that something we're still going forward with?

Yes. We still have -- Dan, we still have $26 million left in that, that will continue. And as we move down the road, we'll -- once we move through that we'll reassess what we are.

And the dividend, you think that's going to be maintained at the level or is that something that you would consider raising?

Again, I am looking at, we're looking at all aspect of the Company, but at this point in time, I don't anticipate any near-term changes.

Okay, thank you.

You're welcome.

That's -- that completes the call. Thank you very much for your interest in Minerals Technologies.

That conclude today's teleconference. Thank you for joining us.