Minerals Technologies Inc (MTX) 2011 Q2 法說會逐字稿

Good morning, my name is Chanel and I will be your conference operator today. At this time I would like to welcome everyone to the Q2 2011 Minerals Technologies Inc. earnings conference call. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) I would now like to turn the call over to Mr. Rick Honey, Vice President of Investor Relations. Please go ahead Sir.

Good morning. Welcome to our second quarter 2011 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 providing some perspective on our 2nd-quarter performance. He will be followed by Doug Dietrich, Senior Vice President and Chief Financial Officer, who will review our 2nd-quarter financial results.

Before we begin, I need to remind you that on page 8 of our 2010 10K, 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. We had a solid 2nd quarter recording earnings per share of $0.90 which were in line with the expectations we communicated to you on the last call. We also saw a strong cash flow from Operations of $38 million for the quarter. The strongest performer in the 2nd quarter was our Performance Minerals Product Group which achieved record earnings and saw growth in the talc, ground calcium carbonate and specialty PCC product lines.

As expected, we did experience volume declines in our paper PCC business as a result of scheduled paper mill maintenance shutdowns. Our refractories business operating income decline due to higher raw material prices and fewer special projects in the non-steel sector. Our gross strategy which centers on geographic expansion and new products has shown progress and I will cover that with you in a minute.

Our productivity and efficiency continue to show improvement as our objectives for operational excellence deployment continue to be met and we drive lean principles into all of aspects of how the Company operates. Our return on capital continues to hold in the 8% range as we maintain a strong focus on working capital efficiencies and value-based decisions related to where and how we spend capital.

I would like to bring you up to date on the progress we have made on our growth strategy which we have been executing successfully. That strategy has 2 major elements. Geographic expansion, primarily our paper PCC business through further penetration of the fast-growing paper industry in Asia, and the acceptance and use of our new products throughout the world. Both elements of this strategy continue to show good progress. During the quarter we began operation of a new satellite PCC plant in India and we have 2 more under construction in that country.

This week we announced an agreement with ABC paper, also in India, for construction and operation of a 25,000 ton satellite. This will give us 5 new satellite facilities there when all are operational, which is expected to be within 12 months to 14 months. This rapid penetration of the Indian market has all taken place within the last 2 years and is due to the strong acceptance of our value proposition there which is built around providing those paper makers innovative value enhancing products that meet their future needs, both short and longer term.

On our new product front we just announced an agreement with Phoenix Pulp & Paper for the adoption of our Fulfill E-325 High-Filler technology that allows paper makers to produce higher filler level paper at lower cost. This new technology will be installed at a paper mill in Nam Phong, Thailand and is our second commercial acceptance for the product. The fulfilled program overall is gaining momentum.

In our last call I said we were targeting to have some 15 paper mill sites trialing or scheduled to trial the Fulfill E-325 technology by the end of the year. This slide gives you an overview of where we are from a marketing activity and engagement standpoint with paper mills worldwide in deploying Fulfill E-325. The heaviest concentration as you can see is in Asia which is depicted in red.

Looking at the chart from left to right, we have 7 paper mill customers with whom we are introducing the value proposition of Fulfil E-325 which, just as a reminder, is designed to reduce their costs by increasing the amount of PCC that replaces extensive pulp. 7 paper mills have agreed to trial the product on their paper machines and of those we have our equipment in place at 2. We are in the process of validating the technology at 1 paper maker and have validated Fulfill E-325 at 4 paper makers by improving their filler rates for PCC by at least 3 points. And we have 2 commercial agreements in place, one of which is delivering revenue with a 2nd to contribute to sales shortly. Our long-range target is to develop the product with 35 paper mills that will benefit the most from Fulfill E-325.

Each of these sites are different and require different degrees of tailoring and trial time to demonstrate product efficacy so it's still somewhat difficult to project timing and shape of the acceptance and penetration curve, other than to say it is on a positive track so far and meeting our expectations. As I said previously, we need to get through this year and these trials to give you a clearer picture and ourselves as well, a clearer picture of the trajectory to the 5-year $75 million target. I should also mention that our Fulfill [Filler Fiber] commercial discussion continue and we are making some progress there as well.

Our new product development efforts are also bearing fruit in our Minteq business as we just launched an innovative laser measuring device, the LaCam-Torpedo that has the unique ability to measure refractory lining and torpedo ladles at temperatures of over 1800F. Torpedo ladles are used to transport metal from glass furnaces to basic oxygen furnaces or other ladles and the LaCam unit pictured in this slide, which is on the blue platform in the foreground, is currently at the [Teason crop] Duisburg, Germany facility. The current practice for measuring refractory linings in torpedo ladles is to cool down the vessel for 3 days, take the measurement manually and then reheat the ladle for 2 days.

The LaCam-Torpedo laser measurement system will save steel makers time and money as well as provide a higher degree of safety in the transport of hot iron. The LaCam-Torpedo has the potential to be installed at 150 steel mills worldwide and we are targeting 30% to 40% market penetration over the next 5 years, which could provide additional revenue potential to us of $35 million to $50 million plus. We are also planning to expand the use of this technology into other steel-making applications.

While we are on the subject of new products and innovation, I thought we would share this overview of our product development pipeline. I haven't shown it to you in a while and as you know I view it as a Company-health indicator for our future in terms of value-creation, so I thought we should take a minute with it. As you can see we continue to have a strong new-idea generation process as today we have over 70 ideas and projects in our various stages of development and over the last 2 years we have launched some 15 new products.

In addition to our technology initiatives, our operational excellence lean initiative also continues to track well. In the first half of the year, we held over 360 Kaizen events designed to engage all of our employees in helping to improve our processes. Productivity improvements were particularly strong in our Performance Minerals business as they are tracking at a 7% improvement rate over last year. We also continue to receive new ideas from our very active employee suggestion system and for the first 6 months of 2011, our employees generated around 3,800 ideas of which 64% have been implemented. Our initiatives to reduce expenses and control cost has resulted in significant savings to the Company over the last several years as you know, and we continue to track well on an overall spending basis. And MTI is also now operating at safety performance levels that are the best in the Company's history, and we remain committed to being world-class.

Our lost workday rate of 200,000 hours or 100 employee-years worked is 0.65 year to date. 4 years ago our lost workday rate was 2.2. Our total recordable rate is approaching world-class levels at a little over 1.2 injuries for every 100 employees, which compares to a 3.8 rate 4 years ago.

As we look ahead, operational excellence will continue to be a key ongoing area of focus for us and is very foundational to being a strong operating company. We also remain committed to maximizing shareholder value through achieving our granted growth potential, delivering on our M&A strategy and by continuing our share repurchase program.

In the 2nd quarter, for example, we repurchased $13.9 million in shares. We have around $21 million left on the $75 million stock repurchase authorization which began in February 2010. To date we have repurchased over 4.5% of our shares through this authorization. In addition, our Board of Directors has authorized the Company to repurchase up to $75 million of additional shares upon completion of the existing program.

Our M&A efforts continue to be active as we look for minerals-based companies with valuating technologies. This slide provides an overview of the areas we are targeting for acquisition where we believe they can add higher value for our shareholders as we look for companies that have a technology bent and where we can contribute our expertise in fine particle technology and crystal engineering. Our target profile screen is also characterized by less cyclical end-markets such as environmental, energy, consumer products and healthcare.

On our call in February we shared our 5-year growth target with you as seen on this slide. I believe we are tracking well although it is still early, but as evidenced by many of the things that I have discussed on the last 2 calls, and the new future business that we now have a clearer line of sight on. I thought it would be worth taking a minute to review and refresh these targets with you.

Over the next 5 years we expect new satellites and increased PCC use to contribute $150 million, primarily in Asia where the paper market continues to grow and where we have had considerable success in the last 18 months, particularly in India. We estimate that our new products, and all our product lines but mostly through paper PCC, will add an additional $150 million to $250 million over this 5-year timeframe.

We also expect that a recovery in the markets we serve to pre-recession levels will contribute another $100 million for a total of $400 million to $500 million over this period. We also clearly have the cash and balance sheet to support this growth. And as you've heard me say before, we will continue our balanced approach to using our cash by buying back shares, maintaining our ongoing acquisition initiative, and driving our growth strategy aggressively. Now let's turn it over to Doug.

Thanks Joe. Good morning everyone. I would like to review our consolidated and business segment results for the 2nd quarter. 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 the 2nd quarter of last year and sequentially to the 1st quarter of 2011.

As Joe mentioned we reported earnings of $0.90 per share which represents an 8% decrease from the $0.98 per share excluding special items recorded in the 2nd quarter of 2010. Special items of prior-year are detailed on a reconciliation table and footnotes through the press release.

Consolidated sales increased 5% or about $12.6 million from the prior year. Foreign exchange had a favorable effect of $9.8 million or 4%. Sales growth was achieved in both the SMI and refractory segment but the most significant growth occurring in our talc product line, where sales grew 11% and our refactory product line where sales grew 10%, and in specialty PCC where sales grew 9%.

Sales in our paper PCC product line were flat even though there was a $5 million favorable effect in foreign exchange. That favorable effect was offset by lower volumes due to annual papermill maintenance outages of which there were more than in the prior year. There was also a shutdown at our Wickliffe, Kentucky plant for 2 weeks due to flooding from the Mississippi River.

Operating income was $25.1 million, a decrease of 9% from the $27.5 million recorded in the prior year. This income represented 9.4% of sales versus 10.8% in the prior year. The decrease occurred primarily in refractories and paper PCC. In the Specialty Minerals segment, paper PCC operating income was lower due to higher raw material cost, the aforementioned plant shutdowns and the price concessions associated with contract expansions that were negotiated last year.

I would like to point out that our Performance Minerals product group which includes talc, ground calcium carbonate and specialty PCC has a record performance in the 2nd quarter. This resulted from improved volumes, price increases, and a 7% boost in productivity. In the Refractories segment, operating income was also lower. This is due to higher raw material cost, which we only partially recovered through pricing.

We also have reduced Metallurgical Wire business in Asia and fewer special non-steel projects compared to last year. For the Company, total expenses including plant overhead costs represented 14.5% of sales in the 2nd quarter so slightly below last year's ratio of14.9% and it reflects our ongoing efforts to keep expenses tightening in control. Our sequential performance was in line with our expectations as earnings per share were $0.03 higher than in the 1st quarter. Our consolidated sales increased 2% by approximately $6 million and operating income increased 1% from the 1st quarter. The increase in operating income came from both the Performance Minerals product line and the Refractories segment. The increase more than offset the expected reduction in paper PCC product line due to papermill maintenance shutdown maintenance outages that I highlighted in the 1st quarter.

We also benefited from the seasonal volume improvement in the Process Minerals and specialty PCC product lines and from increased refactory product lines in our European operations. Return on capital for the quarter was 7.9% on an annualized basis.

Looking at the balance sheet, we have nearly $413 million in cash and just under $100 million in debt. In the 2nd quarter we generated $38 million in cash flow from operations, of which $14 million was used for capital expenditures. We repurchased $40 million under our stock repurchase program in the quarter and our cumulative purchases to date are $54 million, under the $75 million 2-year stock repurchase program. As Joe mentioned, our Board also authorized an additional $75 million stock repurchase program which will commence upon completion of the existing program. In summary, our 2nd quarter results reflect continued solid financial performance.

I shared this chart on our last call and I repeat it today. It gives you some perspective on the increasing cost we're facing this year and how we have successful managed to offset them. You will see cost increases in the left-hand side of the chart and the offsets on the right. On the far left, you can see magnesium oxide and lime had the largest impact on us of nearly $16 million in the 1st half. In addition, PCC contract price concessions negotiated last year along with energy cost increases were also significant. We were able to offset these increases through expense reduction, operational cost savings and volume growth, and most significantly through price increases, both contractual increases in paper PCC and price increases in the rest of our other major product lines.

These charts illustrate our sales per day for each quarter beginning in 2007. We are showing here the consolidated numbers and each major product line. On a year-over-year basis, consolidated sales in the second quarter this year were $268.4 million and reflect an increase of 5% from the prior year. Foreign exchange had a favorable impact on sales of 4% or approximately $10 million.

Specialty Minerals sales of $171.8 million, increased $3.6 million or about 2% compared to the prior year. Foreign exchange at a favorable effect of $5.5 million at 3%. PCC sales were 1% higher than last year due to foreign exchange and price escalations that more than offset a 5% drop in volumes and the contract price concessions in the last year.

In Process Minerals, sales increased 6% to $31.6 million, primarily due to an 11% increase in talc sales and a 14% increase in sales in our GCC business in Lucerne Valley, California. Refactory segment sales increased 10% to $96.6 million. This is primarily due to price increases and both refractory and metallurgical products, and the favorable impact of foreign exchange.

Sequentially consolidated sales were 2% or $6 million higher than the 1st quarter. On a per-day basis, sales increased 4% as the 2nd quarter had 2 fewer days in the 1st. On a per-day basis, paper PCC sales decreased 2%, specialty PCC sales increased 9% and process minerals sales increased 14%. The improvement in specialty PCC and process minerals was primarily due to a seasonal upturn in the construction market, and price increases and share gain in both talc and specialty PCC product lines.

Refactory segment sales were $96.6 million, an increase of 11% from 1st quarter levels on a per-day basis. Within the segment, refractory product sales increased 11% to $75.3 million and metallurgical product sales also increased 11% to $21.3 million in the quarter.

Looking forward, we would expect volumes in the paper PCC to recover as we move through the majority of the papermill annual maintenance outages that occurred in the 2nd quarter. However, as I'll show you in a later slide, we're seeing some softening in Europe uncoated wood-free market. In process minerals we expect to see a decline in volumes in the 3rd quarter as the 2nd quarter is our highest seasonal volume period. In fact, sales per-day rates in process minerals in July are already running slightly lower than those seen in June.

In the refractories segment current sales per-day rates are running at similar levels to the 2nd quarter and steel industry utilization rates in the United States increased to about 75% in the 2nd quarter and have maintained this level early in the 3rd.

This chart shows the financial results within the Specialty Minerals segment. In total segment operating income in the 2nd quarter decreased 2% from the prior year to $18.6 million, on a 2% increase in sales. This reduced profitability was a result of pricing in paper PCC, higher raw material and energy costs, and papermill maintenance shutdowns which were more significant than the prior year.

As I mentioned earlier, our Performance Minerals product group achieved record profitability in the quarter despite the weak construction market. Productivity gains, overall cost reduction programs, and price and volume increases in talc and specialty PCC product lines led to this record performance. Overall, segment operating income represented 10.8% of sales in the 2nd quarter compared to 11.3% in the prior year excluding special items.

A decline in operating margins is primarily due to the PCC product line which offset the margin improvements in process minerals. Sequentially, our segment operating income for the 2nd quarter decreased 6% from the 1st quarter on a 1% decrease in sales. The decrease in profitability occurred in the paper PCC product line as a result of lower volumes from expected papermill maintenance shutdowns and higher raw material costs, which together more than offset the seasonal improvement in the process minerals and specialty PCC product lines.

Current indications are that profits in our PCC product line will increase from the 2nd-quarter levels due to a higher volumes as we move through the papermill maintenance shutdowns. But as noted, we are seeing indications that the paper market is softening in Europe which could offset this improvement.

I also want to point out that M-real Corporation announced in the 2nd quarter plans to divest its Alizay papermill in France by the end of September 2011. M-Real is trying to sell this facility but if they are unable to find a credible buyer they indicated plans to close the papermill which would affect the operation of our satellite PCC facility there.

On the growth front we continue to make progress with the construction of our new satellite facilities with our second operation in India commissioned in June. Our new satellite with NewPage in Superior, Wisconsin will be commissioned in late September and the satellite expansion Double A Paper in Thailand will come online in August. However we do not expect to generate significant volume or profits from these 3 facilities in the third quarter as they will be only ramping-up operations.

In process minerals, we expect operating income levels to be lower in the 3rd quarter due to lower sales volumes. Overall we expect that the 3rd quarter operating income for the specialty minerals segment will be at the same level as the 2nd quarter.

These 2 charts illustrate the current market trends in uncoded 3-sheets segments in North America and Europe which are our largest markets. As you can see, North American production levels are relatively stable in this economic environment though there are still more than 20% below average pre-recession levels and 2% below the 2nd quarter of 2010. In Europe there was some recovery early last year but the current trend continues to be downward. As I referenced earlier the 3rd-quarter forecast is to be 8% lower than the 2nd.

This chart illustrates the US residential housing start trend from 2005 and I show this chart because housing starts represent about 60% of the volume demand in the process minerals product line. Those housing starts in the quarter decreased about 5% percent from the prior year and they remain about the same level with the 1st quarter at an annualized rate of 573,000 units. Despite these depressed market conditions, the process minerals product line has performed extremely well, with volumes up 11% over the prior year.

This chart reflects the quarterly results for the refractories segment. Operating income decreased 19% in the 2nd quarter to $7.8 million from $9.6 million in the prior year on a 10% increase in sales. The decline in operating income was mainly due to higher magnesium oxide and other raw material costs which more than offset price increases. In addition, metallurgical product volumes in Asia were lower and we had a few non-steel special products compared to last year.

The segment operating income ratio was 8.1% of sales compared with 11% in the prior year. Sequentially, segment operating income increased 16% from the 1st quarter on an 8% increase in sales. So mainly due to increased volumes in refractory products in Europe and higher [fairtronic] equipment sales. Operating income ratio increased to 8.1% of sales from 7.5% in the 1st quarter.

The outlook for global in USA steel production is to remain stable at current levels. We expect the 3rd-quarter operating income for the full segment to be similar to the 2nd quarter as our current sales per-day rates are running at the same levels. However, raw material costs will continue to increase in the 3rd quarter as we consume the higher-priced magnesium oxide that we purchased in the 2nd quarter.

I also want to mention that in conjunction with our 2009 restructuring program to divest refractory operations in Asia or to find suitable partners, that earlier this month the Company sold a 50% ownership in its Korea operation. Due to the fact that this business will no longer be consolidated, we will record a non-cash special charge of $1.5 million or $0.08 per share related to the unwinding of the cumulative currency translation loss in this entity.

This chart illustrates US steel production over the past several years. As you can see, production increased in the 1st quarter from late 2010 levels but has remained relatively stable at this level through the 2nd quarter. Compared to last year, US steel production was 3% higher in the 2nd quarter of 2010. U.S and Europe steel capacity utilization rates increase this year to about 75% from 70% in 2010. Current forecasts for both the US and Europe are for steel rates to remain stable at these levels for the rest of the year. North American and European steel production rates remain about 15% below pre-recession levels however. This could give you a good indication of the potential profit improvement opportunity we have in the Refractories segment.

These charts illustrate our working capital and cash flow trends. As you can see, our total working capital decreased by $5 million from the 1st quarter levels to $166 million. Total days of working capital decreased by 3 days to 57 days and we continue to be able to sustain these levels. Our cash flow from operations is approximately $38 million in the 2nd quarter. Capital investments for the quarter increased to $14 million and we anticipate capital expenditures for the full year to be $50 million to $65 million. This is driven primarily by spending on new PCC satellite construction projects.

As I mentioned earlier, our earnings performance of $0.90 per share was with in line with our expectations. Looking to the 3rd quarter we expect PCC product line volumes to improve from the 2nd quarter as we move past the majority of the papermill maintenance shutdowns. However, as I mentioned earlier, we see some indications of a softening paper market in Europe which could offset this improvement. Volumes in our process minerals product line are expected to decrease as the 2nd quarter is historically the high point of the year due to the seasonal demand in the construction market.

In the Refractory segment we expect similar profitability as volumes are expected to remain at 2nd quarter levels. We continue to see higher raw material and energy costs across all our businesses and we work to mitigate these through price increases, productivity improvements and sourcing alternatives. And overall we expect the Company's 3rd-quarter profitability to be similar to the 2nd quarter. Now let's open up to questions. Operator?

Thank you. (Operator Instructions) Torin Eastburn, CJS securities.

The slide that you showed earlier that showed your material cost increases and also the price increases that you put through so far to try to recoup those shows that you are still operating at a lag and you said you are still seeing prices increase. Are you getting any closer to closing that gap or are prices still moving too fast for you to catch up.

No, Torin, this is Doug. There is a lag. We faced quite a bit of NGO specifically cost increases in the first quarter and we have managed to push through the majority of that, not all of it in pricing. We have seen NGO costs have slowed down their increase and obviously our ability to hold our pricing, we should be able to catch up on that in the second half. Lime, there is kind of a structural piece. We didn't see some lime increases in the first quarter. Third quarter of last year passed through in January in North America and we continue to pass through that lime in Europe here in the second half. There are some facilities however where we don't pass that lime cost through. So overall yes we do seem able to catch up somewhat but it is -- the costs increase do continue in the second quarter.

Okay. And I think last quarter you mentioned that the tsunami in Japan had affected I think it was 15% of your customers in refractories. Can you update what you're seeing with those customers?

Sure we indicated last call that about $600,000 to $700,000 for the full quarter impact. At the moment we have seen an additional -- well, we have seen $200,000 to $300,000 impact in the quarter from those customers, but at the moment Torin, I believe they are all back up and running. We don't see significant impact going forward from that, from those customers.

All right, and my other question, in refractories your quarterly earnings have been pretty volatile going back. It seems like a business that would be seasonal. Do you think given everything else being equal that that is the case you will see a slowdown in Q4?

Torin, this is Joe. It is possible in Q4. It -- in terms of the cycles that I've seen it has happened several times. It really depends on where the industry is and what part of the economic recovery cycle that it is in. Right now it is a little hard to call. What we are seeing is stability with perhaps some small signs of softening here and there. I think a key area to watch is automotive. Automotive continues to hold. I think that probably would be -- have the biggest impact on the fourth quarter right now.

All right, thank you.

Rosemarie Morbelli, Gabelli & Company.

Good morning all. Could you give us a little more flavor as to why the GCC was so strong in California with volume up 14%?

Sure. I'm going to ask Doug Mayger to give us an overview of that. Doug is the V. President of Performance Minerals. Doug?

Hi Rosemarie. So what we've seen in California is some construction is coming back. Also some of the catastrophes, weather-related issues have caused some of that business to come back.

I see. So it is mostly -- is it mostly remodeling, repairs, as opposed to new construction?

It is a little bit of everything so some remodeling. We had quite a bit in roofing with some of the weather-related issues and then certainly there was some construction activity also.

And regarding the construction activity while you don't see any change on the housing start, what do you see on the commercial side?

Similar. Similar type activity. It is quite flat.

But no longer going down?

Holding steady for now.

Okay. And then if you didn't mind also and then I will go back on queue. Talking about the volume growth of 11% in process minerals. I mean I know you talked about talc but can you give us a little more on where they go or where they went in the quarter?

Yes. So on the talc side, certainly we saw growth in the automotive areas. Also in the areas of pitch control and certainly pitch control is for the removal of contaminants in the paper pulp areas. And so those were probably the 2 primary areas where we saw the growth on the top side.

I'd add, Rosemarie, the pitch control has been a very focused area for Doug and his team the last several years where they have been able to increase market share very effectively.

Okay thanks I will get back in queue.

Jeff Zekauskas, JPMorgan.

Good morning. This is Silke Kueck for Jeff. A couple of questions. When I look at the slide where you lay out your E Fulfill Series and the customer relationships that you have, just like a recap. The chart says that you are already ran 7 trials and also 7 customers. 2 have converted into commercial contracts and you are planning to run -- and you have agreements to run 5 more trials. And then there's like 7 customers you are talking to. Is that right?

Yes. Well, we are talking to more than 7. We are actually right now engaged with 19. Engaged means we are, even on the furthest left-hand side of that slide, engagement means that we are beginning to do or we are doing site surveys for equipment. Okay. And the customers that you generally work with, are those standard-size customers meaning those would be normally 1 million or 2 million unit PCC plants? Yes. They cover the full gamut of where we have satellites which are all sizes, but I am going to ask D.J. Monagle to give a little further review of what he and his team have actually been doing. D.J.

Silke, I think we laid out or tried to lay out the process that we go through for these 19 engagements so at the earliest level, where you saw some 6 or 7, it is a review of the value and we have got engineers that are going in and designing the specific equipment and getting the material in line for a trial. Then we get agreement to try and then we install equipment then we run the trials, and ideally we'd get a commercial agreement.

When you look at that density when we showed 19 active engagements, we are all over the map in terms of what their PCC consumption is. It is being primarily driven right now by the value to the customer, which in turn gives us a rate of penetration that we are trying to deliver. But I would say, as Joe's pointed out, we have got this 5-year target of some $75 million of growth for this technology. You are looking at something that is actively engaged in the third plus of that.

How many commercial contractors do you think you will have at the end of 2012? Or what is your target?

Our target continues to be in the neighborhood of 15. Contracts and trialing but revenue generation we would hope that towards the end of this year, we are well on our way for validation and we are converting -- my goal, Silke, is to convert these 19 active engagement into business between -- over the next 12 to 14 months.

Okay. Secondly when I look at the 5-year outlook and I look at the revenues from new products which are to be $150 million to $250 million so there is $75 million to $125 million from Fulfill, and then there is like $35 million to $50 million from the [LaCom] laser and refractories. And what is the other $50 million to $75 million? What are those products?

Some of those are our products that are in our pipeline today that have not been launched but they would be products that are -- for instance, in the PCC technology area, that could be further product enhancements or could be a process modifications or different approaches to paper makers to help them as we have talked about on previous calls. Saving energy or approach different aspects of their process to help them from a total cost standpoint. So with the number of different areas that we are focused in working on, we also have some new product areas in refractories that are going to make up part of those new sales. But those would be in that chart that I showed of the stage gate process and the ideas, some 70 ideas, it will be those projects that are in the later stages.

Okay. Lastly, of these 55 or so satellite plants that you have, how many came up for contract renegotiations last year?

D.J., I will let you address that please.

Sure, Silke, on any given year we usually have between 5 and 10 in the process which is about where we were. So last year -- we recently closed 4 contracts and then this year we are in the signature phase of another 5 contracts. And I would say over the next 6 months there is another 2 or 3 contracts that are being discussed.

So do you expect ongoing price pressure then in the next year from contracts being renegotiated today or are you more successful in keeping price more flatter?

This ends up being a site-specific question, Silke, because we analyze the dynamics around the specific customers, especially the competitive environment around the specific customer. I look at those that we are engaged in right now. The really big hits we took in Europe for securing some long-term customers, I don't see any of that magnitude coming up right away but we have got a couple. And there is a price pressure on all of them but we have had some instances where we are able to maintain our price based on the environment. So I know that is not a great read but it's the best I can give you with a jeopardizing some of the discussions.

Okay. That's helpful. Thanks very much, I will get back in the queue.

Your next question comes from Daniel Rizzo, Sidoti & Company.

You indicated with the slide that you're looking at a lot of different markets in terms of doing acquisitions. I just need -- do you have any specific targets in those markets or areas that you have interest in? Is there something specifically you are looking at?

Oh, yes. There are specific companies in each of those areas that we are looking at or we are actively in discussions with. So those are really areas that we have been focusing on over the last several years. And then with each of those areas, there are target companies where we could be anywhere from the evaluation stage to preliminary discussions, so there are specific targets behind those.

Okay. And then you indicated there was a plant closing, a paper mill closing that's obviously going to lead to a PCC plant closing as well. Do you guys -- by contract, do you get paid on that at all? Or is it just something that's the risk of doing business this way?

Typically, our typical contracts have liquidated damages clauses so depending on how old the facility is, how long we have been there, there could be different amounts to those that would be part of a settlement if the facility closes.

Thanks, guys.

Your next question comes from Steve Schwartz, First Analysis.

I guess the first question just regards to automotive. You saw a nice boost there. North American automotive production was down sequentially in the second quarter and it was only up like 3% year-over-year, I think primarily because of Japan. So how was it that you guys are apparently gaining share in that business and can you just give me some color on exactly how the talc is being used there?

We have been gaining share. I'm going to let Doug Mayger address this but we have had a very very strong team in place that are actively engaged in providing some differentiation in our products and again, these are things that come out of our product development pipeline. Some are small enhancements, some are actually new products, and we typically don't publish a lot of these.

But these come from working very closely with individual customers that provide a degree of customization to them to enhance their values. So that has been going on now for about 2 to 3 years in a very intense way. And what we're seeing now is the culmination both in the talc business and in our specialty PCC business have a lot of those efforts. Doug, do you want to add something to that?

Yes. Steve, so some of the growth certainly is here in the US but there is a large portion that goes over to Asia to the automotive industry. Areas like catalytic converters for example that require low calcium talc, we have a process in Montana that helps us to produce a low calcium talc. It's designed for thermal expansion -- and to control the thermal expansion in catalytic converters. That has been quite good for us. On the other areas is automotive sealants and paints. Also quite nice and also global for that business.

Okay, so if North American auto was up in the second quarter just 3% in year-over-year and we get back into mid-teens growth rates year-over-year for third quarter, fourth quarter, would you guys ride that wave of improvement or do you think you are already in where you're in?

No, we would expect to ride that wave.

Okay, that is fantastic. And then just as my follow-up question, regarding the Punjab announcement. Is that a JV arrangement?

The Punjab announcement is not a joint venture agreement. As we look at India now as Joe had mentioned that is 5 operations now that we will have in place. We have got a mix. 3 of them are JVs, 2 of them are not.

Okay, so how much capital do you expect will be contributed to building that satellite?

We typically don't -- it's in a range but a typical satellite of that size is in the 5 to 10.

Okay, that is helpful. And then, if you could just help us frame up what your incremental profit is as you add these. And this is actually more -- I'm sorry, I should frame this more in light of the Fulfill program. I think traditionally your contracts were structured around a steady cash flow basis. So as volume went up pricing adjusted inversely and as volume went down pricing adjusted again inversely. So as you add on additional volume with customers through Fulfill, how is that additional volume of PCC sold accounted for in the context of your existing contract?

Steve, it is a good question. There are going to be -- there are 2 pieces to it. 1 piece will come off of the base contract we have at that particular site with the satellite. So it will be as per the formula that is in place. The second part to it will be a technology fee that will be priced separately from the additional pricing we have for the PCC.

Okay and so the technology fee, it has a volume base to it? Is that correct?

Well, I really -- again since we are very early at this for competitive reasons, I would rather not disclose the details of how we are pricing it or how we are tying it to because we are very early. There are aspects of our pricing strategy we are still working through, but it is intended to provide a revenue stream and a profit stream, if you will, that is somewhat separate from the base stream that you get from increasing the sales of a PCC.

It is helpful to know that, Joe, at least, so thank you for that color.

Rosemarie Morbelli, Gabelli & Company

Following up on the situation with the paper mill in France, if they cannot sell that paper mill and you have to dismantle the satellite, what could be -- what would be the impact on both revenues and profits?

Sure Rosemary this is Doug. It is about a 60,000 ton facility, annual sales impact would be around $9 million to $10 million margin -- current margins about $0.5 million. It would also require us to take an impairment charge of about $6.5 million of that facility.

Right, okay. If you -- you said it depends on the age of the equipment. Is it new enough that you could actually install it somewhere else, as in India for example?

Rosemarie, this is D.J. Sections of that we would look to apply in India or China or other locations. That is part of our routine is to look at that equipment and it is not the age that matters, it's the functionality that matters and that plant has been well-maintained through the years.

Okay and then Joe if I may. You updated us on the M&A. If my memory serves me right, in the previous call and it could've been last quarter, you mentioned that you usually were willing to pay 6 to 7 times EBITDA. Is that still a valid multiple in the space you are looking at or has the multiple changed?

I don't know if I mentioned the 7 but -- Rosemarie, but--.

That is what I wrote.

Well, it is in that range today. I think I said that what we are seeing in the marketplace is that the deals are going in that range. Some are going higher, but yes, so that is the arena that we are in.

Okay and you haven't seen the multiple go up with everyone wanting to buy something nowadays.

Well, let me -- if I could I will give you a reference point. The recent purchase of the Rio-Tinto Luzenac business went for I think 6.5 in that range. But what we are seeing is on some of the things that I mentioned we have targeted or maybe in discussions on, private equity is even more prominent today and cheap money or low-interest money and the availability of money is putting upward pressure on -- at least that is what we are seeing, putting upward pressure on valuations right now.

Okay. And lastly, the size range of those acquisitions you are looking at. Are we talking about $10 million to $50 million? Are there some larger than that? And would you do a transformational acquisition?

We typically are looking in the $50 million to $200 million range. We are open to doing something larger if it absolutely makes sense and some of the things that we have looked at could be trans -- considered to be transformational. Again, I think we have discussed before, we tend to be somewhat conservative so when we talk about transformational, it would need to be something that really is going to make sense to our shareholder base, and make sense to the Company in terms of what we were to put together if we were to actually come up with something like that. But we have looked at some from time to time.

And actually I do have one more question if I may. You are expecting the third-quarter results to be more or less a similar to those of the second quarter. Do you have any feel for what to expect in the fourth quarter?

Actually right now it is a little difficult to see. There is just a lot of noise as you all know in terms of what is happening in the US. Some signs here and there of softening. If things are stable I think we are on a very very -- if things stay stable from an economic standpoint, I would say we are on a good solid track. But it is very hard to actually see into the fourth quarter. Our PCC businesses obviously is -- gives us a little more visibility. We will experience the normal cyclicality that we see in our Performance Minerals business that typically because of weather seasonality will tend to bring that down somewhat. Probably the area for, I would say the additional potential for us is going to be in refractories business. If steel holds up and we're able to get ahead of some of the material cost increases. There are some decent upside there for us.

Okay, thanks. Good luck.

Jeff Zekauskas, JPMorgan.

Hi. I have a question on the share repurchase. So the -- do you plan to complete the $75 million, the current authorization by the end of this year and then start a new one next year?

Rosemarie, without -- excuse me, Silke. Without getting into specifics, I think probably the best thing to do is to look at our rate of repurchasing that we have had which is actually that rate has gone up over the last two 2 to 3 quarters, that we will most likely be through this year and as we indicated in the call the Board has already authorized us for another $75 million. So that will just continue on I would guess some -- at some point this year.

Is it something that you plan to do indefinitely in the absence of acquisitions? To repurchase shares?

I would -- basically what I've shared before. We try to take a balanced approach and if again on the acquisition side, if things are not going as fast as perhaps we might like them to go, then we are open and we have at times and we are willing to throttle the share repurchase rate up. But it is a question of maintaining balance between capital for organic growth, maintaining a strong balance sheet for the acquisition side as well, and then continuing with our share repurchase program, which as I said can be throttled up or down depending on the needs of the other 2 areas.

Okay. Thank you very much.

You're welcome.

At this time there are no further questions. I will hand the call back over to you for closing remarks.

That concludes today's call. Thank you very much for your interest in Minerals Technologies. Thank you.

Thank you for joining us today earnings call. You may now disconnect.