Minerals Technologies Inc (MTX) 2010 Q4 法說會逐字稿

Good morning. My name is Lashonda, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q4 2010 Minerals Technologies earnings conference call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions)

Thank you. I would now like to turn today's conference call over to Mr. Rick Honey. You may begin your conference, sir.

Good morning. I'm Rick Honey, Vice President of Investor Relations. Welcome to our fourth quarter 2010 earnings conference call, which is being broadcast on the Company's website, www.mineralstech.com.

Joe Muscari, Chairman and Chief Executive Officer, will begin today's call by reviewing our record-breaking year, and will provide some perspective on that performance. He will be followed by Doug Dietrich, Senior Vice President and Chief Financial Officer, who will review our fourth quarter and full year results.

Before we begin, I need to remind you that on page 8 of our 2009 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 did have a record year. It was a year in which the Company strongly rebounded from the depths of the recession, despite still being in an economic environment in the US and Europe that was sluggish and not fully recovered.

Doug Dietrich will cover the fourth quarter in-depth with you, but I do want to mention that we did end the year in a relatively strong way, with operating income at $22.8 million, which was an increase of 32% over the prior year, although down some from the third quarter sequentially. Of particular note was the strong performance of our Specialty Minerals segment and performance minerals specifically, which continues to deliver solid performance within the segment.

In 2010, Minerals Technologies achieved, thanks to the hard work and full engagement of all its employees, its highest earnings in its 18-plus year history. Our operating income for 2010 was $99 million, or more than an 120% increase over 2009, and our earnings per share were $3.58. Of note was the fact that we also returned to the $1 billion level in sales.

The most significant improvements came from our Processed Minerals, specialty PCC, and Refractories businesses, which achieved striking turnarounds. Operating income in Processed Minerals was $11.6 million or 10.5% of sales in 2010, compared to a loss of $1.5 million in 2009.

Refractories segment delivered an operating income swing of $35 million. The improvement in Refractories was driven by higher sales volumes as the steel industry experienced some recovery in the US and Europe. The business improved its productivity by more than 10%, and the full benefits from our restructuring program in 2009 kicked in.

During the year, we continued to execute on our key strategies of growth through geographic expansion, new product development and M&A, and also drove our key initiatives targeted at operational excellence, safety, expense control, and innovation. As you can see on this slide, our 2010 earnings of $3.58 puts us back on the solid improvement track that we were on in 2008, which was the previous earnings high for the Company, and well above previous levels.

Return on capital presents a similar picture as we are on solid footing to achieve our greater than cost of capital target.

Besides strong operating performances 2010 was also a year in which the Company significantly advanced its growth strategies. In the last year, we ramped up production of a new PCC satellite in India, and we have been able to secure four new satellite contracts, three of which are in India, and two expansions, one in Brazil and one in Thailand. These will bring in 300,000 tonnes of new business over time.

Growth in our paper PCC business, particularly in Asia, has been a major point of focus for us, as you know. The 2010 successes are clear and tangible evidence of our future potential there, as our efforts over the previous several years are gaining solid traction. We continue to put major emphasis on Asia by adding additional technical and business development resources there. We also redeployed some North American and European resources to capture these growth opportunities.

Our new product pipeline also yielded some new successes and wins, as we announced in October that we were launching a new product platform we call Fulfill. The portfolio of new products, one of which, Fulfill E-325, was commercialized in Asia. This technology provides the paper maker with incremental filler levels of between 3 to 5 points of 15% to 25% PCC volume increase, which significantly reduces their cost for more expensive fiber.

Our filler fiber composite technology, which is part of the Fulfill portfolio, continues in trials with an Asian paper maker and remains in commercial discussion with a European customer.

In addition to the progress of our paper PCC products, we are also seeing good growth potential for our metallurgical wire products in Asia where during 2010 we developed a distribution agreement with a company in China where we are targeting $20 million in sales penetration for this product over the next three years.

To put our Asia focus into further perspective, this slide provides an overview of how much we believe we can grow there. We are targeting $150 million to $200 million in sales growth by 2015. And this would be about 2.5 to 3 times a current sales position of a little over $100 million. And where Asia today represents 10% of the Company's sales, we expect it to become closer to 20% of our sales. It should also be noted that we have been growing at a rate of 23% in Asia over the last five years.

As we have outlined for you in past calls, we believe this growth will be primarily in paper PCC and will be driven by two major growth factors in China and India. GDP growth, which will drive higher per capita paper consumption, as well as higher penetration of PCC usage in paper, which today is at relatively low levels when compared to the US and Europe.

I would like to take just a few minutes to further share with you some thoughts around our key company-wide transformation initiatives, which actually began in 2007, and which we continue to deploy and focus on. These initiatives, as shown on this slide, were targeted to rejuvenate our new product pipeline, enhance the effectiveness and efficiency of initially our manufacturing base, and then encompass all supporting resource units, to reduce the Company's overhead expenses and to create a safer workplace for our employees.

As we look at where we are today, we clearly have been able to reinvigorate new product development. Three years ago a new product pipeline had just a handful of new ideas and projects. Today we have 47 new ideas and projects in various stages of development company-wide, and as you are aware, a number have been moved to the commercialization stage. Our pipeline is healthy, and we continue to add to it.

Our efforts in operational excellence and lean have yielded significant improvements in our manufacturing base. In 2010, more employees than ever before were involved in learning and improving ways to deliver our products to customers at lower costs and higher quality, as we conducted over 600 Kaizen events throughout the world. During a Kaizen event, employees intensely review a process and develop more efficient and safer ways to run and manage that process. Kaizen events can typically run from one day to five days in duration.

Standard work, a critical aspect of lean deployment, has also been put in place for all major manufacturing processes during the year and we had more than 130,000 hours, or around 60 hours per employee, engaged in this learning process. The net effect of this, very simply, a more productive company, where today we generate almost $450,000 per employee per year, from a base in 2007 when we were generating $370,000 per employee, an improvement of over 20%.

Through the efforts of everyone in the Company, we have been able to reduce expenses by more than $40 million since 2006, and in 2010 we increased our sales over 2009 by 10% while keeping expenses relatively flat.

Making MTI a very safe place to work has been a major objective for us since I have been with the Company, and although 2010 safety performance was not quite as strong as 2009, we still had relatively good performance, as it was the second best in its history as measured by injuries per 200,000 hours worked. In 2010, we had 55 locations with no recordable injuries, and over the last four years we have reduced our lost work day injury rate by 75%. This is a continuous improvement effort for everyone in the Company as we strive toward a zero injury environment.

In summary, 2010 was a year of not only a strong financial performance rebound, but one in which we continued with transforming the Company. Today we truly are a different Company. We are one that has become a strong operating company. We are better focused and more disciplined, with a very aligned and results-oriented leadership team. We are closer to our customers today and we are providing them with more value by improving our manufacturing efficiencies and quality, as well as by offering new and more value-added products.

From a shareholder value standpoint, we are well positioned for future growth through our key strategies of geographic expansion, new products, and acquisitions. We are also committed to continued effective use of our current strong cash position and projected strong future cash flow, through a balanced approach to maximizing shareholder value, which includes our share repurchase program in addition to funding future organic growth and acquisitions.

Now I'll turn it over to Doug Dietrich, who will provide detail into our fourth quarter financial results. Doug.

Thanks, Joe. Good morning, everyone. I would like to review with you our consolidated and business segment results for the fourth quarter and the full year. I'll highlight the key market and operational elements of our financial results before special items in each major product line, and comment on comparisons to both 2009 and the third quarter of 2010.

We reported earnings per share of $0.85, which represents a 37% increase from the $0.62 per share, excluding special items, recorded in the fourth quarter of 2009. For comparison purposes, you will note that there were no special items recorded in the current quarter. The special items recorded in the prior year are further detailed in a reconciliation table and footnote three of the press release.

Consolidated sales decreased 5%, or about $13 million from the prior year. Foreign exchange had an unfavorable impact on sales of 1%, or approximately $2.5 million.

The Company's fourth quarter 2010 results also reflect six fewer days in the quarter, as compared to the fourth quarter of 2009. This difference accounted for more than 6% of the decrease in revenue in all product lines. On an equal days basis, the underlying sales growth was approximately 2%.

Operating income was $22.8 million, an increase of 32% from the prior year. Operating income represented 9.4% of sales, considerable increase over the 6.8% achieved in the fourth quarter of 2009. This improvement in operating income was primarily the result of higher equipment sales and cost reduction efforts in our Refractories segment, and price increases, cost reduction, and productivity gains in Processed Minerals.

Our sequential performance was in line with our expectations with EPS at $0.85, 6% below the third quarter. Our consolidated sales decreased 3% or $6.5 million from the third quarter, and operating income decreased 9%. The decrease in operating income occurred primarily in the Processed Minerals product line due to the expected seasonal downturn in the construction markets, as well as lower automotive production in the United States. Return on capital for the quarter was 8.1% on an annualized basis.

Our balance sheet remains solid. We have $385 million in cash, and just under $100 million in debt. In the fourth quarter, we generated $34 million in cash flow from operations, of which $10 million was used for capital expenditures.

We repurchased $14.5 million under our stock repurchase program in the quarter. This is approximately the same amount that we repurchased over the second and third quarters combined. Our year to date annualized return on capital is 8.3% compared to 3.9% in 2009.

In summary, our fourth quarter results reflect continued strong financial performance. As we look at our EPS track, you can see our earnings have stabilized around $0.80 to $1 per share, despite sales being 12% to 15% below pre-recession levels.

As Joe mentioned, our improvements in productivity and cost control have contributed significantly to our strong financial performance. Selling, general, and administrative expenses have been reduced by approximately $20 million from 2006, and as a percent of sales have decreased from 12.9% to approximately 11%.

Our efforts in operational excellence and lean have yielded significant reductions in variable costs in the Performance Minerals business. In our Refractories business, productivity improvements in our steel mill service group have contributed to this business's turn around.

Since the first quarter of 2010 has six fewer days than the prior quarter, the following sales trend chart reflects the sales per day for each quarter to make comparisons to the prior year more meaningful. Consolidated sales in the fourth quarter were $243.4 million, and reflect a decrease of 5% from the prior year. Foreign exchange had an unfavorable impact of 1% of sales, or $2.5 million. On an equal days basis, sales increased 2%.

On a year over year basis, specialty minerals sales of $158.5 million decreased $11.7 million, or 7% compared to the prior year, of which, 6% was due to fewer days in the quarter. In addition, foreign exchange had an unfavorable impact on sales of 1%, or $1.7 million.

On a sales per day basis, PCC sales were down 2%, primarily due to satellite shutdowns at Plymouth, North Carolina, and Franklin, Virginia, that occurred in early 2010.

In Processed Minerals, sales increased 1% to $24.2 million, and on a per day basis Processed Minerals sales increased 7%.

Refractories segment sales declined 1% to $84.8 million compared to the prior year. Foreign exchange had an unfavorable impact on sales of 1%, or approximately $800,000. On a per day basis, Refractories sales increased 5%.

Sequentially, consolidated sales were 3%, or $6.4 million below the $249.8 million recorded in the third quarter. Specialty minerals sales decreased 5% in the fourth quarter to $158.6 million, with volumes down 5.5%.

On a sales per day basis, PCC sales were flat, as several paper mills in Finland and France took extended downtime on their machines over the holiday season.

Sales in Processed Minerals product line decreased 17% due to the normal seasonal downturn in the construction markets. In addition, North American car and truck production dropped 3% compared to the third quarter levels.

Refractories segment sales were $84.8 million, an increase of 1% from third quarter levels. Within the segment, refractory product sales increased 4% to $68.3 million. This was primarily due to higher equipment sales, which more than offset a 5.5% volume decline in refractory monolithic products. In North America, several major steel customers completed vessel relines, which lowered the consumption of monolithic refractory products in the quarter.

Metallurgical product sales decreased 10%, or $16.5 million in the quarter. Volumes in our metallurgical wire business were down 13% due to lower sales in Asia and North America, particularly in the alloy wire products.

Looking forward, we expect paper PCC volumes to be stable in the first quarter, as we are not seeing any significant increase in demand in the uncoated wood-free sector, our primary market. Current sales per day rate for PCC products, however, is running slightly below fourth quarter levels.

In Processed Minerals, we expect to see some seasonal improvement in the first quarter, and current sales per day rates are slightly above fourth quarter levels.

In the Refractories segment, global steel industry utilization rates have been tracking downward from the second quarter of 2010, from about 82% in the second quarter to just under 75% in the fourth quarter. Steel production in the United States, our largest market, peaked at 73.5% in the second quarter of 2010, and declined to 68.5% in the fourth quarter. These US rates have since increased to 72% for the first four weeks of 2011, and as such, we expect refractory product sales to improve slightly from fourth quarter levels. Equipment sales, however, will be lower in the first quarter, which will offset this growth.

This next chart reflects the financial results within the Specialty Minerals segment. In total, segment operating income for the fourth quarter increased 15% from the prior year to $17.3 million, despite a 7% decline in sales.

This increase in profitability was generated by Processed Minerals, where operating income increased to $2.4 million from breakeven levels in the prior year as a result of 5% improvement in productivity derived from our operational excellence initiatives, overall cost reduction programs and price increases in our talc product line. Processed Minerals achieved a 10% operating ratio in the fourth quarter, and overall productivity increased nearly 7% over 2009.

Total PCC product line operating income decreased 1% to $14.9 million in the fourth quarter of 2010, on an 8% sales decline. Operating income increased to 11.1% of sales for the fourth quarter compared with 10.3% of sales in the fourth quarter of 2009. Overall segment operating income represented 10.9% of sales in the fourth quarter, compared to 8.9% in the prior year, excluding special items.

Sequentially, segment operating income for the fourth quarter decreased 12% from the third quarter on a 5% decrease in sales. This decrease in profitability was primarily driven by Processed Minerals due to the normal seasonal downturn related to the construction industry. Total PCC product line operating income was 11.1% of sales in the fourth quarter, compared to 11.5% in the third quarter. This decrease was primarily due to higher lime costs.

Processed Minerals' 9.9% operating ratio in the fourth quarter compares for 13.3% in the third quarter. Current indications are that paper production and the uncoated wood-free markets in the US and western Europe will remain stable in the first quarter. Although paper PCC will contractually recover the increased raw material costs in North America from the fourth quarter, this will be more than offset by price concessions related to six contract renewals completed in 2010 in North America and Europe. Those contracts were extended for an average of 10 years each.

We see profits in PCC products to be slightly down from fourth quarter levels. In Processed Minerals, we expect to see some seasonal improvement in the first quarter from the fourth quarter. Therefore, we expect that our operating income for the full segment will be approximately the same as the fourth quarter levels.

Next chart reflects the quarterly results for the Refractories segment. Operating income doubled in the fourth quarter to $6.6 million. This increase in profitability was achieved through cost reduction initiatives and higher equipment sales.

In North America and Europe, our largest markets, total steel production was above the fourth quarter of 2009. It should be noted that the current North American steel production rate remains 21% below pre-recession levels, and the European steel production rate remains about 17% below pre-recession levels.

The segment operating income ratio was 7.8% of sales in the fourth quarter, as compared to 3.8% in the prior year. Sequentially, this segment's operating income increased 5% from the third quarter. As we indicated in the third quarter call, we expect sales volumes to be down 10% and operating income to be down slightly. Sales volumes in refractory products were down 5%, and metallurgical wire volumes were down 13%. But as expected, higher equipment sales, which normally occur in the fourth quarter, more than offset this decline.

For the first quarter, we expect volumes in refractory and metallurgical wire product lines to increase slightly as steel production has shown some recent signs of increasing in North America and Europe. However, equipment sales in the first quarter are typically about 50% of fourth quarter levels. In addition, we continue to see pressure on higher raw material costs out of Asia. We expect profitability in this segment to be similar to fourth quarter levels as the higher sales volumes in refractory products and metallurgical wire will be offset by higher raw material costs and lower equipment sales.

This slide provides a view toward the current situation in the US steel industry, our largest market. After a fairly steady increase in production from the end of 2009 through June 2010, the industry experienced a slow but steady downturn through the third quarter. Steel mills we service took furnace outages in the fourth quarter and lowered production levels, causing US production to drop from 71% in the third quarter to 68.5% in the fourth quarter.

Late in the fourth quarter, output stabilized and has begun to increase over the last several weeks. For the first four weeks of January, steel capacity utilization in the US has averaged 72.5%.

The working capital chart here reflects our operating working capital trends as defined by trade accounts receivable, inventories, and trade accounts payable. As you can see, our total working capital was flat versus the third quarter at $164 million. Total days of working capital were 59 days, and the Company has been able to sustain these low levels since the fourth quarter of 2009.

Our cash flow from operations was approximately $34 million in the fourth quarter. Capital investment for the quarter remained at a relatively low level of $10 million.

For the full year, we recorded sales of $1 billion, a 10% increase over the prior year, and operating income, excluding special charges, increased 121% to $99.1 million. Earnings increased 131% to $3.58 per share, the highest level in the Company's history.

The Specialty Minerals segment sales were up 6% to $665 million. Operating income increased 39% to $75.2 million in 2010. Sales volumes in the PCC product line increased 3%, while volumes in Processed Minerals were 10% higher. Processed Minerals operating income increased $13 million on a $17 million increase in sales, and PCC products operating income increased $8 million on a $20 million increase in sales.

The dramatic turnaround in the Processed Minerals product line was driven by improved market conditions, a 7% improvement in productivity related to our operational excellence initiatives, and significant growth in our talc business. Operating income in Processed Minerals was $11.6 million or 10.5% of sales in 2010, versus a loss of $1.5 million in 2009.

PCC operating income increased 14% to $63.6 million in 2010, from $55.8 million last year. This increase was driven by volume increases, a 5% improvement in productivity, and cost savings from our operational excellence initiatives.

The Refractories segment sales increased 21% to $337.4 million in 2010. Sales in the refractory product line increased 17% to $264.5 million on an 18.5% increase in volumes. Sales in metallurgical products increased 36% to $72.9 million in 2010, on a 16.5% increase in volumes.

Operating income turned around from a loss of almost $7 million in 2009 to a profit of $28.3 million in 2010, which represents 8.4% of sales. This dramatic turnaround in the Refractories segment was driven by higher steel utilization rates, productivity increases of more than 10% from our operational excellence initiatives, and the full year benefits from our restructuring program in 2009.

Cash flow from operations was $142 million versus $161 million in 2009. Cash flow was higher in 2009 due to considerable decrease in working capital in that year. As you saw on a previous slide, the Company is operating at a historically low working capital level of 59 days. Capital expenditures were $34.5 million in 2010, versus $26.6 million in 2009. Return on capital was 8.3% in 2010, versus 3.9% in 2009.

The Company repurchased 529,620 shares in 2010 at an average price of $56.63, which represents approximately $30 million of the $75 million two-year share repurchase program. As I mentioned earlier, our fourth quarter earnings performance of $0.85 per share was in line with our expectations.

Looking to the first quarter, we are seeing some stability in our end markets. Volumes in our paper PCC product line are expected to remain stable, and we will benefit from raw material cost passthroughs.

However, this will be more than offset by price recessions from six contract renewals in 2010 to secure our base business for the future. We also have four new satellite facilities coming online in late 2011 and early 2012.

Volumes in our Processed Minerals product line are expected to increase due to the seasonal uptick from the fourth quarter. In our Refractories segment, we expect some increases in volume and refractory monolithic products and metallurgical products, but these increases will be largely offset by lower equipment sales and higher MgO costs. Overall, we expect first quarter profitability to be around the same level as the fourth quarter.

Now I'll turn it back to Joe.

Thanks, Doug. In discussions with a number of our shareholders and those of you who cover us, it's become clear that we need to provide a better perspective of our strategic growth targets, and where we believe we can take the Company.

Over the last year, we've shared various aspects of what we believe that growth potential will be, and how it can be achieved. Now that the global economic recovery is more stable and somewhat clearer, as well as the fact that the company is better positioned from a performance standpoint, I would like to share what we are targeting for ourselves over the next five years.

Earlier, I described what we see for Asia, $150 million to $200 million of growth potential over five years that will be driven by increased paper consumption with resulting increased PCC consumption, as well as, as I mentioned, increased PCC usage through greater penetration as Asian paper makers work to meet their increasing customer quality requirements. And the key for us is that increased PCC usage can help them do that.

The challenge for MTI to capture this potential will be to build on our recent successes in India, continue to promote PCC usage in China through significant missionary and business development work there, as well as Southeast Asia, and to sell our new products, such as Fulfill E-325 and filler fiber. In addition, we will need to offer other products and solutions specific to the Asian paper makers' requirements, some of which we have under current development.

As we also described on our previous call, our new Fulfill product platform is expected to yield over $200 million in revenue in five years, with Series E contributing $75 million, Series V another $50 million, and Fulfill series for filler fiber around $100 million. We also have other products in our development pipeline that have the potential to yield $100 million in revenue over time.

As we look at our current base of businesses, we believe that our Refractories and Performance Minerals businesses will return to pre-recession levels, which would add another $100 million in revenue to our current sales level. As we look forward, we are also estimating further decline in US and Europe paper consumption being more than offset in these markets by increased PCC penetration of our new products.

Our strategic objective, then, for the Company's organic growth is seen in this chart. We believe increased sales in the rage of $1.4 billion to $1.5 billion are achievable, and represents around an 8% per year top line growth objective. In addition, we believe that we can improve our operating margins by 20%, as well as bring our return on capital to 12% in this time frame.

We do not anticipate that this growth will be linear, as both the rate of new product introduction, such as Fulfill Series E and V, will be shallow and slow in the early years due to the need for trialing periods at each paper site, which we are now embarked upon. Increasing PCC penetration in China also requires significant development work, which we are currently heavily engaged in.

Successes and experience in both of these areas over the next 12 to 18 months will give us a much better sense of how fast we can actually penetrate, which will determine the shape of that growth curve.

Please keep in mind, that what we are describing here is what we are basically shooting at in the way of organic growth. We continue to also be committed to growth through acquisition, and the objective of broadening our minerals-based positions in markets that are less cyclical, such as environmental, energy and consumer products.

We believe that the main drivers to achieving these growth and performance goals, as I mentioned previously, will be market acceptance of our new paper PCC products and the rate at which we can further penetrate Asia. The Refractories and Performance Minerals businesses provide us an opportunity to grow nearer-term to pre-recession levels as the economies of the US and Europe continue to recover.

I hope this is useful to you and provides greater clarity in how we plan to grow, what our strategic opportunities and targets are, and how we plan to improve our financial performance in order to increase shareholder value over the coming years.

As we look nearer-term at 2011, we see the year as one that we expect to be, in many respects, a pivotal one for MTI. Pivotal because we face both challenge and opportunities.

Our businesses will continue to face many challenges within an economic context of relatively stable, if not necessarily strong, markets in the US and Europe, where economic recovery is expected to continue at a slow pace. We do believe there will be some opportunities for us to improve moderately, such as in Refractories, if steel continues to improve, and in our Performance Minerals business. Keeping in mind though, as Doug mentioned, our paper PCC business is facing some significant price decreases to enable contract renewals as the US and Europe paper makers are expected to be under continued pressure from a structural demand standpoint.

However, 2011 is a year where the Company can fully operate form a stable base and truly bring together its key initiatives, new products, and growth opportunities. With a rejuvenated new product pipeline in our arsenal and our growing strength and presence and Asia, combined with strong operating leadership, employee engagement, and continued customer focus going for us, I expect us to be in a strong upward track in 2012. The specifics of how fast we can grow and what the shape of the curve or line will be to hit those longer-term targets will become clearer and more evident as we move through this year and into next.

I believe this will be an exciting year for us, and we will keep you posted on our progress. Now let's go to questions.

(Operator Instructions) Your first question comes from the line of Rosemarie Morbelli, with Ingalls & Snyder.

Good morning, all, and congratulations on a great end to a very good year.

Thank you, Rosemarie.

You sound, however, very subdued as to the 2011 prospects, Joe, and it sounds to me as though you are looking for more of a rebound past, I mean at least starting in 2012. Is 2011 more of a consolidation type of year?

And based on all of your comments, it sounds as though revenues won't be up that much and margins won't be improving that much. Did I get it right?

Well, we do see upside potential. But we believe it will be moderate. Our view is driven more by the markets and the rate of recovery. So, it isn't so much consolidation for us.

For us, I think we have really brought together many of the different initiatives, as I've mentioned, that we have been working on for a number of years. So we're, -- I would say the better way to put it, we are well positioned. If the economic growth is better than what the prognosticators are presenting today, then we will do better.

But within a context of slow recovery, we are going to, I think, make the most of what the markets offer, which has been quite a bit so far. So, I touched on the areas where there are current signs that, for instance, steel seems to be moving up. If that continues to move up, then I think we will benefit from that.

The other thing to keep in perspective, the new satellites, which are considerable, will for the most part, most of those will be coming on in 2012. And these are again, these have come out of the efforts that we have been bringing to the Asian market and other parts of the world for the last several years.

So again, we are actually very positive from the standpoint of the things we have going for us, but a little further economic recovery can go a long way for us.

I was also wondering about -- in the quarter when you said that if you eliminate these fewer six days, your sales growth underlying was up 2%, which is really not a lot.

Right. And again, within that, you had some price reductions in PCC that had an impact on that. You had in the fourth quarter, you had a steel downturn that actually pulled us down as that turned down.

Now we are beginning to see that, if you recall, steel had gotten up to roughly 75% utilization in North America around mid-year, and it had moved down to about 67%, 68% by the time of the fourth quarter. So, you had that going on in the fourth quarter, as well.

And now, we are beginning to see that move up. I think Doug mentioned steel is moving above the 70% level over the first three or four weeks of this year.

If I may ask one last question, since in that vein, so you are counting on the economy to move along with it, and on your customers doing the same. How about hitting new markets and new customers? Is that at all possible, or do you feel that your share currently is such that you can't expect that much from that particular end?

Actually, we have in some of our business segments, particularly in the Performance Minerals or processed minerals business. We actually gained share. And roughly around 25% of the volume growth or the sales growth year on year came from share gain.

So, we have been making inroads and we have been improving share. And that is probably the best example, and those would be our talc product lines, our specialty PCC product lines, and some of our GCC.

Okay. Thanks a lot.

Your next question comes from the line of Jeff Zekauskas, with JP Morgan.

Good morning, this is Silke Kueck for Jeff. How are you?

Good, Silke, how are you?

I'm doing okay. I just wanted to go -- one more time I would like your PCC expectations for 2011. That is, my recollection is that there is at least 100,000 tonnes of PCC being brought onstream in the first half of the year. There's a Thailand expansion, which is 20,000 tonnes; there is the NewPage plant built in Wisconsin, that is 70,000 tonnes. There is the first India plant of 15,000 tonnes.

I thought all of those would have come in during the first and the second quarter. And that really would mean that PCC sales at a minimum on those expansions should grow 3% -- r or volumes should.

If I can -- well go ahead and why don't you finish your question.

So, that is something -- one question, that is sort of like the rate of volume growth you expect, and really are the price concessions so large that it should offset all of this volume growth? Presumably, there should also be some growth from the Fulfill technologies that you expect.

Right. Actually, for instance the NewPage start up is in the second half. It is not in the first half. So, any new volume we have coming on is going to be in the second half of the year.

Some will actually be in the fourth quarter, and the bulk of the new satellites will be coming on in 2012. But I'm going to let D.J. Monagle elaborate a little further and get you inside of that. And I think Fulfill is an area that, for us, could yield some additional revenue.

So, Silke, I think your read on the situation in terms of the key drivers is right. Your timing just might be a little bit off. Joe mentioned the North American satellite in Duluth, that is a second half commissioning. You will have the Tha Toom expansion come on, probably in late second quarter. India is coming on in that second quarter, but that will be slow. And then the other two India plants that we just announced are fourth quarter start ups. So, the impact that you'll see really won't be until 2012.

When we shift to Fulfill, I would imagine, and right now all indications are that first quarter and second quarter we'll be seeing heavy trial activity, which would have some level of PCC sales growing with that, but the sustainable sales we would see more coming in that third and fourth quarter.

If I can ask one or two follow-ups. How many Fulfill customers are there? How many are commercializing it, and how many trial customers are there?

I think the public announcement was that there is an undisclosed customer in Asia and it's also been trialed in the region. Could you just talk about how many commercial customers do you have and how many customers are trialing it?

Certainly, that's a very fair question. So since we -- the marketing strategy behind this was that it would be important for us to have that commercial customer available to basically endorse the technological approach. That customer continues to be our only full-time commercial application.

There are two other customers that are in active trials. We have promoted at 25 locations since we last spoke, and those 25 locations have delivered four or five commitments to trial in the coming months.

So, that's how I kind of dimension it. It is a combination of promoting where we think we can get the greatest impact, agreeing to the trial, and then moving into that trial phase. Does that help?

That is very helpful. And my last question is, what is your capital expenditure budget for 2011?

Silke, this is Doug. We are estimating about $60 million to $75 million next year. This year, sorry.

This year. So that's much more than you need to build all the plants that you've slated, right? To build every single plant that you're announced and the expansions, Thailand, at NewPage, Ballarpur, the two India plants, maybe you need like $40 million to $50 million, so it is the expectation that you are building -- that you'll sign more contracts next year, as against this year?

Exactly. I think there is a couple of things that are in development that could hit this year that would drive that number a little bit higher than your numbers.

Okay. That's helpful. Thanks, I'll get back into queue.

Your next question comes from the line of Torin Eastburn, with CJS Securities.

Good afternoon.

Hi Torin.

I guess, first, I was hoping you could talk about input costs, how they are affecting both your price and your margin in your two segments? And then also if you are seeing increasing pulp costs making customers more interested and more receptive in your PCC products.

Sure, Torin, this is Doug. We are seeing some increase in our input costs, and the majority of those are lime and magnesium oxide. Lime costs, however, for North America we can recapture in this current quarter, and I mentioned that in my speech.

MgO costs have been increasing from early 2010, and they continue to increase. I think we've seen another 4% or 5% increase, 3% increase, I'm sorry, from fourth quarter to this quarter.

In our ability to, in the Refractories segment to keep margins is really to drive that pricing higher. That's been a tough challenge. We are seeing higher MgO costs. We continue to strive to recapture that in pricing.

Okay. And on the JK announcement, I think it says in there that it's a joint venture. Was that your choice? Was that their choice? What is the strategy behind that?

Part of our strategy in Asia has been to do joint ventures. We found it very helpful from a total management and integration standpoint. And we typically will offer a paper maker a choice, and we'll go anywhere from -- if they would like a position, those positions can range from 10%. We have had them as high as 50%, but typically, they run to the 10% to 20% range.

It provides a good model for partnership and integration. So, it's something we've done more of Asia and we are very comfortable doing it, so there's nothing unusual in this particular one.

Okay, and is 10% to 20% about the range for this deal?

Yes, they can go 25%, sometimes 30%. But typically -- we've found it is very helpful to have their interests as part of the longer term game plan for the site.

Absolutely. And I guess last question, I'm sorry if you addressed this earlier and I missed this. Any update on filler fiber?

Yes, I'm going to ask D.J. to give us an update on that if he would, please.

Yes, Torin. We didn't update it, but let me provide some color around that. Break it up into two areas.

On the technical side, we continued running trials in Asia. In particular, those trials were concentrating on stability of the product in use, and predictability of the product. They've, for the most part, been quite successful. We also tried combining the filler fiber, which we have in the portfolio, with other parts of that portfolio, and that seems to hold some promise.

Our continued challenge to be -- is to get on the machines and run long time. So commercially, we made very little progress. Continued dialog.

What we are trying to find -- the proper place with appropriate risk/reward for the shareholders. We just haven't been able to break through, and most of those conversations are going on in Europe. But we have expanded those conversations to others.

Okay. Thank you.

(Operator Instructions) Your next question comes from the line of Steve Schwartz, with First Analysis.

Good morning, everyone.

Hi, Steve.

Can you share with us what your assumption is for the western hemisphere and paper PCC and the volume reductions that we might expect on an annual basis?

Yes, we have -- I touched on that in my remarks. The underlying track that North America paper has been on is roughly around negative 2% a year growth. And that is what we have used in our forward planning models.

There are some question marks around that relative to the industry today and structural changes, that is why I also touched on the term structural. But that's the underlying assumption there.

Europe, we have also -- Europe has actually been more on the positive side, but has trended down. So near-term, it is down something like 4%. But on average, over the long-term, we are using a similar assumption. That they'll get on a track of about 2% decline over time.

But again, that is just based on the best input we can get from industry experts, our own view, and looking at longer-term trends.

Sure, I completely understand. And then the 300,000 tonnes additional, would that all be on a run rate in 2012?

No. No. It would not. It was intended to give a perspective of -- the majority of it would be in 2012. So, we are looking north of 200,000 tonnes. But by 2015, for sure, we'd be at the max levels of those facilities that are going in, which is around 300,000 tonnes.

Okay and you're running about 900 or 950 a quarter right now? Is that a safe assumption?

Yes.

Yes? Can you talk a little bit about the price concessions? And just share with us an inside view of what's driving that. Is there an irrational competitor in PCC out there? Is it alternative products? What is driving that?

Well, I'm going to ask D.J. Monagle to give you more insight into that. But to give you sort of a historical perspective of what we've seen, this is not a new pattern, by the way. It's been there for quite some time. And the level of concessions that we make tend to be, in part, related to the degree of competition that is around a particular site.

And you are also dealing with, as we've talked about in the past, issues where certain paper makers are looking for help for their long-term viability, where we have made price concessions from time to time to help the paper maker. But primarily, these would be driven by the competitive set that would be sitting around a particular site.

But let me ask D. J. to comment and give you a little more granularity around that.

Yes, thanks, Joe. So, Steve, when we approach these contract renewals there is a couple of screens we go through. The first one is, is this particular location a viable location for the future? And then if it is, it probably means that there is a pretty active competitive environment.

Then you start looking at the region that it's in, and the region often defines what we are competing against. Is it just GCC, or is it also a PCC alternative? And sometimes those two things kind of go hand in hand. Meaning, for instance, these last couple discussions were in northern Europe where there is an awful lot of excess GCC capacity. So the threat of substitution is real.

On top of that, you used the word irrational competitor. I would not go there. I would say there is an aggressive competitor. Their PCC offering, the prices that they offer today are substantially different than the prices that we had in those contracts over time.

So, it's all of those things together go into the consideration for these concessions and again, Europe is probably the most -- this year was the most active.

Okay, does it work against you if you are in a JV with your customer where they can see what your profit margin is, and so forth?

No, we have not had that experience yet. We are pretty transparent with them, just by the nature of the JV, regarding expectations going in. Our obligation then is to improve the value we deliver to that customer over time.

And in this case I think that it actually helps us. You have the ability to speed up the acceptance process of your different ideas and over time, contribute higher levels of value. So, we have not found it yet to be something that is an impediment to us. Arguably, it helps us be well positioned for the future.

But again, the onus is on us to deliver higher levels of value over time. And to just reinforce what this Fulfill package means to us, we will be deploying Fulfill E Series in all of these announcements that you have seen. Except for Duluth, it does not have an application in that grade of paper. But all the others, Fulfill is front and center in our offering, and agreed on that our shareholders will be benefited from deploying that new technology, as will that paper operation.

Okay. Then if I could ask just one last question. This is on your 2015 targets, Joe. The bridge for revenue, that 7%, 8.5%. You have given us numbers in other ways, but I'm wondering if you could just break that number down, the percentage, in terms of organic volume growth, share gains, the contribution from new products, and whether or not there is any pricing in there?

Okay. Yes, let me start with the latter. There would be pricing in there, but the pricing would come from the higher value-added products that we have been talking about, and assumes that we are targeting higher levels of penetration for those new products over that time frame.

So, let's take the case of $75 million for Series E. We expect the margin on the Series E products to be higher than the base products. So, there is margin built in, a higher margin level, because it is delivering a higher value.

But if I take you back to the key pieces for the growth, the centerpiece is going to revolve around Asia and the Asia growth. And I think the key parameters to keep in mind would be that today China uses about, in its uncoated free sheet use -- has about a 7% fill level of PCC. Compare that to North America, which is in the 18% range.

And so, what we've assumed, what we are targeting is that China, over time will take that 7% and grow it to 10% to 14%. At that higher level, 14%, that would make available 1.9 million of additional tonnes of PCC.

India has a similar track, but it is a smaller base. India today has a penetration rate of PCC of about 4%. That 4% is targeted to go somewhere to between 7% to 11% penetration. That would deliver at the high end 400,000 tonnes of new PCC which, when you look at the max potential available, would be about 2.3 million tonnes in five years.

What we've assumed in here is that we are going to capture half of that maximum. If it turns out that the rate is running less than the maximum, we believe we can probably have an even higher capture rate that will be in the 60% to 70% area. So that is a very key piece, because that piece alone for just India and China would deliver somewhere north of $100 million. It would be $100 million to $130 million.

Then, you have in addition to that, you have other parts of Asia that could bring in another $30 million, such as Thailand. There is more happening there.

We have wire in China, which is estimated to be around $20.3 million. We believe if we can get on that track, that wire can be in the $35 million to $40 million range.

Then you look at the rest of the world and look at the other products that we have available, and you are looking at then adding that to a recovery improvement base of another $100 million. So you start to put those together and you get a good sense that $400 million to $500 million is a very realistic target for us. Does that make sense to you?

It does, yes. And it does, it sounds like the majority then -- so maybe 1.5% or 2% from pricing and the majority of the remainder comes from true organic growth, not necessarily (multiple speakers).

Yes. This is really intended to be pretty much organic growth with some -- some of that organic growth brings with it a higher priced product. But it is not just higher priced, it is a higher margin product. And that goes into capturing or getting to that 12% or 20% improvement from an operating income margin standpoint.

Okay great. Thank you, Joe and D.J.

Quite welcome.

(Operator Instructions) You have a follow-up question from the line of Rosemarie Morbelli, with Ingalls & Snyder.

If I may, Joe, in your use of cash, and you definitely have quite a bit there, you are looking at reinvesting in the business. You are looking at acquisitions. You are buying small amounts of shares.

You didn't mention dividend increase. Is that something you are considering?

We do every year, and we have discussions with our Board around alternatives and certainly increasing dividend levels is something that we do consider. Where we are right now, we believe the stock buyback program that we have, combined with the organic growth -- the organic growth is considerable in terms of what we have here, in terms of usage of the cash. And the acquisition potential that we have in front of us as well, which we haven't talked much about today, but that is something, as I indicated, is very much still in our focus.

But also as I use the word balance a lot in trying to take a balanced approach to how we use the cash. That also suggests that as we see, and as we have recently done, good opportunities to buy back stock. We do that, and we accelerate from time to time.

At the moment, you really have no net debt to speak of, actually. You are in a positive situation. What would be, if you were to find, not necessarily a large acquisition, but a bunch of little ones eating at some of your cash, and you want to keep some of it for investing internally. What kind of leverage would you be comfortable with?

Well, obviously, we have excellent borrowing capacity. And we could move easily for, let's say periods of time of debt to capital of 40% to 45%. Over time, move it back down to 30% to 35%. I think for a cyclical type company like we are, being in that 30% range makes sense over the longer term.

Okay. And then if I may, on another subject? You have talked about you're giving price concessions, and then you have the investments in the new products that you are pushing out the door. And I am assuming that at the moment, on all of those trials, you are not making any money.

Is all of this going to affect your -- and you have also higher costs coming through, particularly on the refractory, and difficulties in passing it through. Should we anticipate the growth margin to decline next year in 2011 versus 2010?

No. I wouldn't project -- I think some of the things you touched on are absolutely spot on, but I wouldn't anticipate a gross margin decline. We clearly -- one of the things we've done is we have maintained a very strong emphasis on the proper resourcing, the right resourcing for both our R&D, for new products as well as business development. And those we are going to continue to add.

They will add to our expenses. We are expecting our trialing costs to be up next year as much as D.J., what, $1 million?

Yes.

But we also have developed, I think, a much better internal culture and discipline around spending. I think as a company, we are making better value decisions.

We spent, in some areas, more money in 2010, yet we ended the year net spending $1 million less. But we spent our money in the right places, and we are going to continue to bring that, what I call positive pressure to make sure that, where we have lines of sight to increase value, increase revenue, we are going to spend the money to do that. At the same time, we are going to continue to look at process improvement ways to reduce spending.

Okay. During the recession, and your restructuring and so on, are there some expenses that you eliminated, that need to come back? And therefore if SG&A may go up a little bit as a percentage of revenues? Particularly since we are not expecting top revenue growth in 2011?

We have gone about this in a way that -- and I think 2010, the last half, gives you a pretty good sense of this -- to where these reductions were intended to be permanent. It also, as you look at this target we have of op income of 12%, part of the way we believe we can achieve that target is through capturing more revenue at the same expense levels, or lower expense growth, going forward.

So we are very well positioned to leverage new sales. We've got an organization that has capacity to grow, with minimum additions, particularly in the overhead area.

Okay great. Thank you.

There are no further questions at this time.

That will conclude our call for today. Thank you very much for your interest in Minerals Technologies.

Great, thank you.

This concludes today's conference call. You may now disconnect.