Minerals Technologies Inc (MTX) 2011 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Q32011, Minerals Technologies Inc. earnings conference call. (Operator instructions).

Thank you. I would now like to turn the call over to Mr. Rick Honey, Vice President of Investor Relations and Corporate Communications. Please go ahead, sir.

Good morning. And welcome to our third 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 third quarter performance. He will be followed by Doug Dietrich, Senior Vice President and Chief Financial Officer, who will review our third quarter financial results.

Before we begin, I need to remind you that on page 8 of our 2010 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'll turn the call over to Joe Muscari. Joe?

Thanks, Rick. Good morning, everyone. We are $0.95 per share in the third quarter, a solid performance reflective of continued improvement over the last three quarters. We're back to early 2008 pre-recession profit levels albeit on a lower revenue base, and more importantly for the longer term, we saw good progress in our two growth initiatives of geographic expansion, and new product commercialization. We signed agreements to build two new satellite PCC plants, and two paper mills agreed to commercially adopt our Fulfill E325 technology. All in Asia.

In addition to these advancements, we began operation of a large satellite PCC facility here in the US, and launched new Talc products for use in paints and coatings. Much of the improvement in the quarter came from the paper PCC business, which had improved sales, and our refractories business also saw improved financial performance as a result of increased selling prices and operating performance. Our process minerals business, however, declined slightly, primarily due to the beginning of the seasonal downturn in construction. Cash flow from operations remained strong, generating $36 million in the quarter, and $93 million year to date.

We also repurchased a significant number of our shares, some $21 million dollar's worth, which completed our two-year $75 million repurchase authorization ahead of schedule. Earlier this year, the Board approved another two-year $75 million authorization that we began to utilize. The CPS chart illustrates, as I mentioned, that we are now performing in the range of earnings per share that we recorded in early 2008 before the recession despite lower sales volumes.

Return on capital remains solid at over 8% as we continue to put strong emphasis on working capital efficiency and capital spending geared towards higher return projects. In past calls, we have outlined clear pathways to achieving high levels of growth through geographic expansion and new product development. Both primarily in the paper PCC business. We have outlined for you the projected growth of paper production in Asia, as well as the increase in PCC use through greater penetration.

In essence increasing the filler rates of PCC and paper, which provides the paper makers with cost savings. We believe these two factors will generate $150 million in sales over the next five years. New products such as our Fulfill portfolio of technologies, and the new LaCam torpedo laser measurement device will provide between $150 and $250 million in that same time period. Market recovery is also expected to provide some further growth for us, although that may be a little slower than originally envisioned. We thought it would be worth taking a few minutes to review our progress with you.

In the third quarter and this month, we have made progress on seven projects that are integral to our growth. We signed agreements to build two new satellite plants, one in Thailand and the second in Bangladesh. These two PCC facilities will service paper mills owned by AA paper and Bashundhara paper respectively. These agreements mean we signed contracts for nine new satellite PCC plants and two expansions in the last two-plus years.

Right now we have three satellite PCC plants under construction in India which will bring our total there to five. And we began operation of a satellite in superior, Wisconsin, which will serve a paper mill owned by NewPage Corporation in nearby Duluth, Minnesota. In addition, paper makersare beginning to understand the value our new line of Fulfill products can provide. Most recently, for example, two paper mills in Asia signed commercial agreements this quarter to adopt this technology, and this week we announced an agreement with Nalco to distribute their FillerTEK technology, which we will distribute under the Fulfill D series.

Also during the quarter, we also launched a new line of low oil absorption talc products for such applications as architectural and industrial coatings. These products provide excellent scrub resistance and reology control in low volatile organic paint and coating formulation. India serves as an excellent reference point for why we believe the growth targets that we set for ourselves are tracking very well. In a previous call sometime ago, we explained why we believed PCC would grow in the Indian paper market, and looking at this chart, you can see in 2009, there were around 70,00 to 100,000 tons of PCC produced in India, used to fill the roughly 2.5 to 2.8 million tons of uncoated free sheet paper produced there. Around 3% to 4% penetration. We didn't have any satellite PCC plants in India at that time.

In 2012, however, we will have five satellite plants there increasing the amount of PCC in India to 235,000 tons or a 7% penetration. We project that the Indian paper market will continue to grow in line with that country's growth. By 2015, we estimate that PCC penetration will be between 9% and 11% with 430,000 tons of PCC used in the estimated 4.3 million tons of uncoated free sheet paper. Our market share at these levels, by the way, would be around 70%.

These growth rate targets that we're using are based upon, not only our recent experience in that growing country, but the fact that in the developed regions of North America and Europe, PCC penetration is between 18% and 20%, indicative of a significant growth potential for PCC that this country has. One critical factor to keep in mind regarding our success in India is that we were able to gain a very large share of that market because we made available our new Fulfill technologies to Indian paper makers. Technology that differentiates us in the market.

As we have said many times, Asia is our primary area of focus for PCC growth because that market is growing between 5% and 7% a year. On the other hand, North American and European uncoated free sheet production is declining 1% to 2% a year. However, because we have developed new products and applications through our Fulfill portfolio of technologies that are targeted at increasing PCC filler levels in paper, and increasing PCC volumes, we believe these new technologies will allow us to grow in these two regional markets as well. These new products can provide the kind of cost savings that North American and European paper makers need to compete and improve their viability in the worldwide market for uncoated free sheet. We believe our PCC sales can grow up to 3% in North America, and up to 2% in Europe.

Looking at the high growth areas of paper making in China, India, and Southeast Asia, we see considerable growth both through new satellites and adoption of our new products. We are targeting growth in China at about 30%; in India, 50%; and 30% in Southeast Asia. In total, we estimate that our paper PCC revenue will grow 10% per year worldwide over the next five years. This slide -- it's the same one that we showed you during the last call, and it shows the progress we had made on our E-325 commercialization at the end of the second quarter. We had 19 paper mills out of 35 we are targeting that were actively engaged in the Fulfill program with two in commercialization and the rest in various stages of development.

Now let's look at where we stand today. We have 20 mills engaged, with four paper mills across the finish line or in commercialization and 13 have progressed. This program will continue to be along with gaining new satellite contracts, major focus points for Minerals Technologies. Not only do we benefit from the 20 to 30% increase in PCC production that each of these paper mills will require, but we also share in some of the paper maker savings through a technology fee. These four initiatives that we have talked to you about before, are the core elements to the transformation of culture that has occurred in the Company over the last four years. They are an integral part of our everyday focus, and are worth just taking a few moments to reflect upon with you. In addition to our technology initiatives and concentration on developing new products, our operational excellence, lean initiative is providing improved productivity and efficiency that is part of our continuous improvement effort.

In the first nine months of the year, we held over 530 Kaizen events designed to engage all of our employees in helping to improve our processes. And our employees continue to generate new ideas as part of a robust suggestion system. For the first nine months of 2011, alone, our employees generated around 4900 ideas of which almost 60% have been implemented. Expense control continues to allow us to do more with less, and we plan to continue to leverage this area for higher profitability as we increase our sales. MTI is also now operating at safety performance levels that are the best in the Company's history, and we remain committed to becoming world class. Our lost workday rate per 200,000 hours or 100 employee years worked is 0.65 year to date. Five years ago, our loss workday rate was above 2.6. And our total recordable rate is approaching world class levels at a little over 1.4 injuries per year for every 100 employees, which compares to a rate -- to a 3.8 rate five years ago.

Looking ahead, we will continue our aggressive M&A activities, our focus on operational efficiencies, and our stock buyback program. These efforts along with our growth initiatives are the key shareholder value-adding areas for us. And although we have yet to make an acquisition, our M&A team remains very active. We are targeting businesses in the mineral sector that have technology we can leverage through our expertise and fine particle technology and crystal engineering, and we're looking in global areas such as energy, environmental and consumer products that would be less cyclical than the end markets we now serve. Now I'll turn it over to Doug who will provide detail on our financial results for the quarter. Doug?

Thanks, Joe. Good morning, everyone. I would like to review with you our consolidated and business segment results for the third quarter. I'll highlight the key market and operational elements of our financial results for special items and each major product line, and comment on comparisons to both third quarter of last year, and sequentially to the second quarter of 2011. As Joe mentioned, we reported earnings per share of $0.95, which represents a 6% increase from the $0.90 per share excluding special items recorded in the third quarter of 2010. Our reported earnings were $0.87 per share as the Company recorded a non-cash special charge of $1.4 million or $0.08 per share related to the cumulative currency translation loss from the sale of our majority of the Company's refractory operation in Korea. Special items for both years are detailed in the reconciliation table in footnote 3 of the press release. Consolidated sales increased 5% or about $12.5 million from the prior year. Sales increased in both the specialty mineral and refractory segments with the most significant growth occurring in our refractory segment where sales grew 9%. Sales in specialty minerals grew 3% in the third quarter with paper PCC sales up 4%, specialty PCC up 6%, and processed mineral product sales down 2%. Operating income was $25.6 million, an increase of 2% from the prior year, and represented 9.8% of sales versus 10% in the prior year. Specialty minerals segment operating income declined 2% and refractory segment operating income increased 22%. Both segments faced higher raw material and energy costs which were offset by price increases, and we had continued productivity improvements in Performance Minerals.

For the Company, total expenses including plant overhead costs represented 14.2% of sales in the third quarter, below last year's ratio of 15% and reflect our ongoing efforts to keep expenses tightly under control. Our sequential performance was above expectations as earnings per share were $0.05 higher than in the second quarter. Our consolidated sales decreased 2%, and operating income increased 2% from the second quarter levels. The increase in operating income was in the PCC product line due to improved volumes in North America over the previous quarter, which offset the expected seasonal volume reduction in process minerals. As expected, the refractory segment operating performance was about the same as the second quarter. Our return on capital for the quarter was 8.3% on an annualized basis. Looking to the balance sheet, we continue to have nearly $400 million in cash, and just under $1 million indebt. In the third quarter, we generated $36 million in cash flow from operations, of which $15 million was used for capital expenditures.

In summary, our third quarter results reflect continued strong financial performance. I showed this chart on our last call, and I'll repeat it today to give you some perspective on the increase in costs we're facing this year and how we've successfully managed to offset them. You'll see cost increases on 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 $8 million in the third quarter. PCC contract price concessions negotiated last year and energy cost increases were also detractors. We were able to offset these cost increases through continued expense reduction and operational cost savings, volume growth, and most significantly through price increases across all of our major product lines. These charts illustrate our sales per day for each quarter beginning in 2008.

We're showing here the consolidated numbers on the top left in each major product line. On a year-over-year us, consolidated sales in the third quarter were $262 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 mineral sales of $171 million increased $5 million or about 3% compared to the prior year. PCC sales were 4% higher than last year, due to foreign exchange and net price escalations that more an offset a 5% drop in volumes.

In processed minerals, sales decreased 3% to $28.5 million, primarily due to lower talc sales which were partially offset by an increase in GCC sales at our business in Lucerne Valley, California, as construction activity in the Southwest was up 10% over the prior year. Refractory segment sales increased 9% to $91 million primarily due to price increases in both refractory and metallurgical products, and the favorable impact on foreign exchange. These price increases reflect our ability to maintain and enhance the value of our products to our customers. Sequentially, consolidated sales were 2%, or $6 million lower than the second quarter. Sequential paper PCC sales increased 12%, specialty PCC sales decreased 4%, and processed mineral sales decreased 9%.

The decline in specialty PCC and process minerals was primarily through to a seasonal downturn in our end markets, as the second quarter is typically our highest seasonal volume period. Sequential refractory segment sales decreased 6% from the second quarter levels, but of this difference, 2% was due to the deconsolidation of the company's refractory operation in Korea, which was done to improve profitability. Looking to the fourth quarter, we expect volumes in paper PCC to decline as we continue to see softening in the Europe uncoated wood-free paper market and a projected decline in the North America uncoated wood-free paper market.

In processed minerals, we also expect to see a decline in volumes in the fourth quarter due to normal seasonal weakness. In the refractory segment, current sales per-day rates are running slightly below third quarter levels, and we remain cautious about refractory volume stability in the fourth quarter particularly in Europe where a number of mill outages have recently been announced. However, we do expect an increase in equipment sales in the fourth quarter.

This chart shows the financial results within the specialty minerals segment. In total, segment operating income decreased 2% from the prior year to $19.3 million, on a 3% increase in sales. This reduced profitability was the result of higher raw material and energy costs, lower sales in our talc business, and permanent paper machine shutdowns in the US, Europe, and South Africa. These factors were partially offset by price increases, higher GCC volumes at our Lucerne Valley, California, plant, and by an 8% improvement in productivity in our Performance Minerals business.

Overall segment operating income represented 11.3% of sales in the third quarter, compared to 11.9% in the prior year, excluding special items. The decline in operating margins was primarily due to higher raw material and energy costs. Sequentially, segment operating income for the third quarter increased 4% from the second quarter on the same level of sales.

The increase in profitability occurred in the paper PCC product line due to volume increases in North America and contractual price escalation, which more than offset the normal seasonal sales decline in processed minerals and specialty PCC. As you may have noted during the third quarter, NewPage Corporation filed for Chapter 11 bankruptcy. We operate satellite PCC facilities at three NewPage mills and conduct business at a total of five NewPage facilities. At present, we continue to supply PCC to these five facilities and expect NewPage two to successfully emerge from bankruptcy.

We continue to have concerns about the European uncoated wood-free paper market as sequential demand was down 7% in the third quarter and is projected to remain at these low levels in the fourth quarter. In North America, demand is also projected to be down about 4% in the fourth quarter. Current indications are that profits in our PCC product line will decrease from third quarter levels due to lower volumes and lime cost increases that we'll absorb in North America that cannot be recovered until the first quarter of 2012. In addition, we're expecting continued normal seasonal decline in construction activity that will reduce processed mineral volumes.

Overall, we expect that fourth quarter operating income for the specialty minerals segment to be down between 10% to 15% as traditionally the fourth quarter is the weakest in our end markets. Each call, I show these two charts to illustrate the current market trends in the uncoated free sheet segment in North America and Europe, our largest markets. As you can see, North American production levels have been relatively stable over the last two years, though they remain more than 20% below average pre-recession levels.

Looking forward, current projections are that the production will drop by 4% in the fourth quarter. In Europe, there was some recovery early last year, but the current trend continues downward. In the third quarter, data is forecast to come in 7% lower than the second quarter, and production is projected to remain at these low levels in the fourth quarter. This chart reflects the quarterly results for the refractory segment. Operating income increased 22% in the third quarter to $7.7 million from $6.3 million in the prior year on a 9% increase in sales.

The increase in operating income was mainly due to increased selling prices which offset higher magnesium oxide and other raw materials costs, a 3% improvement in productivity, the favorable effect of foreign exchange, and a reduction in operating expenses. Improved profitability occurred in both North America and Europe refractory products. Expense levels including plant fixed costs improved significantly in the third quarter, and were 15.3% of sales compared to 17.7% last year. The segment operating income ratio improved to 8.3% of sales compared with 7.6% in the prior year. Sequentially, segment operating income was about the same level as the second quarter despite a 6% reduction in sales.

Sales decline was mainly due to lower volumes of refractory products as several steel plants completed vessel relines in the second quarter, which lowered demand. The deconsolidation of our Korea operations also contributed to the sales and volume decline. Profitability improved slightly due to higher equipment sales and overhead expense reductions, and the resulting operating income ratio increased to 8.3% of sales from 8.1% in the second quarter. We remain concerned that steel production levels in North America and particularly in Europe will soften in the fourth quarter.

As I mentioned earlier, our current sales-per-day rates are slightly lower than the third quarter levels. We expect increased equipment sales which are typically higher in the fourth quarter to offset the refractory volume declines, but we remain cautious as the timing of some of these equipment sales could move into the first quarter of 2012. In addition, MGO prices have moderated recently, but given the length of our supply chain, in the fourth quarter we will be consuming the higher cost material purchased in the third. Consequently, we expected our fourth quarter operating income for the full segment to be similar to third quarter levels.

This chart illustrates North America and Europe's steel production over the past several years. As you can see in North America, steel production has remained relatively stable in 2011. Production in the third quarter was up 8% from last year, and increased 1% from the second quarter. In Europe, monthly steel production levels have been much more volatile. During the third quarter, steel production increased 6% over the prior year, but was down 9% from the second quarter.

These charts illustrate our working capital and cash flow trends. As you can see, our total working capital decreased by $4 million from second quarter levels to $162 million. Total days of working capital decreased by two days to 55 days. Our cash flow from operations was approximately $36 million in the third quarter. Capital investment for the quarter increased to $15 million, and we anticipate capital expenditures for the full year to be between $50 million and $60 million. This capital spending is primarily supporting our new PCC satellite construction projects. In the third quarter, with the purchase of $21 million of our shares, we completed the two-year stock repurchase program our Board of Directors approved in February 2010. Year-to-date, we have repurchased 750,000 shares for an annualized repurchase rate of 5.5%. We now have 17.7 million shares outstanding, and are beginning to buy back shares under the authorization the Board made for another two year $75 million program earlier this year.

As I mentioned earlier, our earnings performance of $0.95 per share this quarter was slightly above our expectations. Looking to the fourth quarter, our biggest area of concern are the changes and weakness we're seeing in the European paper market. As I mentioned in the second quarter, M-real Corporation announced plans to divest its Alizay paper mill in France by the end of September 2011. Over the past several months, they have been in discussions with a number of paper producers, however, none of these candidates seemed to have fulfilled M-real's conditions for sales. On October 18th, M-real announced plans to begin closure of this facility. We have not yet received any further information as to a definitive closure date. At present, negotiations on the sale of the mill continue. The net book value of our Company's assets at this facility is $6 million.

In addition, during the third quarter of 2011, UPM announced its intention to permanently reduce paper capacity at several locations in Europe by the end of 2011. The Company presently operates a PCC satellite facility at one of these locations at Milikowsky, Finland. Our annual revenues at this facility are approximately $18 million, and the net book value of the Company's assets at this facility is around $700,000. We will continue to accelerate the depreciation of these assets over the remainder of the year.

We expect our PCC product line volumes and profits to decline in the fourth quarter, due to the continued softening paper market in Europe and reduced demand projected for North America. We will also absorb higher lime costs in North America which cannot be passed through to customers until the first quarter due to contractual limitations. Volumes in our processed minerals product line are also expected to decrease as the fourth quarter is historically the low point in the year due to seasonal demand in our end markets. In our refractory segment, we expect similar profitability to the third quarter, as lower volumes will be offset by higher equipment sales. Overall, we expect the Company's fourth quarter profits to be similar to the fourth quarter of 2010, despite the recent weakness we are seeing in our European end markets.

We continue to maintain our focus on our growth strategy, and executing on our key initiatives; innovations, operational excellence, expense control, and safety. Now let's go to questions.

(Operator Instructions). Your first question comes from the line of Rosemarie Morbelli with Gabelli & Company.

Good morning, and congratulations on a good quarter.

Good morning. Thank you, Rosemarie.

Could you give us a feel for the contribution next year from all of the new announcements that you have made? We have a number for the next, you know, five years out, but if you could help us with looking at 2012, that would be great.

Yeah, we do have -- we the give you a rough idea. Doug, do you have that number handy in terms of what we're looking at for next year?

Yeah, Rosemarie, total satellite -- the contribution next year, we're looking at about $32 million of revenue from the satellite and expansions from the new expansions announced. That's about 225,000 tons at full capacity.

Okay. And I am assuming that a similar amount will come -- than usual will come down to the bottom line, plus the technology fee on the Fulfill E-325?

Yes, we will be seeing benefits of the 325. It's early. It's a little too early for us to actually share or give you a perspective of what that will tribute either from an additional tons sold or from a fee standpoint. The fee is something that we are not disclosing, Rosemarie, but we need to have some more commercializations. Each one of these is a project by themselves, and as you know, we're customizing to each paper mill to the grades of paper being made on specific machines, and so each one takes a different period of time, even the commercial -- even the ones we have commercialized have a gestation period like we'll be going through for the two most recent ones, so it's a little early for us to give you a sense of what that will be. I would say by year end, beginning of next year on our call we'll be able to give you a much better sense of that, but, you know, we are tracking pretty much along the lines that we shared with you about -- oh, this is now about a year ago when we announced the first commercialization, and then as we got into the early part of 2011, we said we would be on a shallow growth curve that would take us through 2011 into some part of 2012, and I would say we are tracking very well to that.

Thank you. Could you -- well, I have two more questions. Could you give us a better feel as to what the Nalco deal is?

What their particular technology does to Fulfill, and is that something that you plan right off of the bat or is this something new that you have discovered? And then secondly, on the refractory side, if you could give us -- you told us about the steel industry, but if you could give us a better feel for the trends in the different markets served by the steel industry and your refractory business?

I'll start with the Nalco question first, and when we first announced the Fulfill platform, we had series E and series V. Series V is basically composed of other chemical company's products, that we had envisioned when we developed the entire platform that we would be working with, and basically helping them help the paper makers, and establishing agreements with them, and so the Nalco announcement is a basic expansion of that -- or an outcome of our working with Nalco over the past several years. I'm going to let D.J. expand on that a little bit. D.J., if you would?

Sure, Joe. Rosemarie, what we did is, as Joe suggested when we announced the Fulfill portfolio, we were talking towards two chemical elements and then the game changer which is Fulfill F or our filler fiber. The Fulfill E, we launched. We knew we would have something else in the portfolio. These things that there's several different chemical approaches. Chemical additives, organically based chemical additives that now go -- helped us with what we're seeing in the market is an opportunity to boost filler levels by 5% to 8%, depending on the application, but it has a different cost profile than our Fulfill E.

So what I -- my words some months ago went something like this -- we see Fulfill E being worth $75 million in revenue, Fulfill V being something around $50 million, and that's kind of a total market value, but I believe what we suggested was we weren't sure exactly which technology would all shake out. So this is just supplementing our portfolio. We may, in fact, add more because we're committed to being the global expert in this application field in the industry, but we envisioned this addition to the portfolio all along.

So without Nalco contribution, you could not get your Fulfill V to do whatever you expected them to do?

That is correct, although I will have to admit that we are working with several chemical suppliers, and Nalco seemed to be the most promising to fit that space.

Okay. Thank you. And on the markets?

Yes, I would describe -- steel in North America has been very stable and steady. Recently, as recent as last week, we saw a bit of a drop-off, and there is some concern about softening in the North American market. Some concern about possible shutdowns in December, maintenance shutdowns that could be in part driven by some weaknesses in the market, but it's -- right now that's a little hard to read. One week does not make a near term trend, so we'll just have to follow that closely. Europe has been softening. I think Europe is reflective of the European conditions of some of the macroeconomic trends that they have been on.

The uncertainty of the European market, dealing with the financial crisis there has, we believe, contributed to some of the market uncertainty and some of the softness that we see there. With the current -- let's say arrangements and plans to deal with the European financial issues, perhaps we'll see some more stability coming there, but that remains to be seen. Asia continues to be relatively strong. GDP in China, which is the driver, seems to be holding up. Up over 9%, closer to 10%. And that continues to be the significant engine that is driving the global trend, which is still very positive.

Joe, just some clarification. In North America and Europe, we know that construction is not going anywhere, so is the softness due to the softer older markets or is there another area?

Rosemarie, some of this is seasonal downturn that works its way back to steel, and actually, the North American automobile market is still pretty strong, so, I'm just reflecting what we're sort of all seeing and hearing and reading, there is just a bit of uncertainty in the marketplace right now, a little bit of price weakness, some concern about December, but the overall view we have had is stability. It has been very stable and constant for us.

Thank you.

Your next question comes from the line of Jeff Zekauskas with JPMorgan.

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

Good, Silke, how are you?

Good. Couple of questions. I guess I will start with Fulfill. The four customers that you have in Asia now, are these new customers or are these older customers?

These are --We are under confidentiality agreement with the ones that have asked us not to publicly disclose who they are. So I have to be a little bit careful around new or old customers. But they are our customers, and they cover the spectrum of what you are asking in terms of old and relatively new, and they are also reflective, I think, of what we were describing on the last call that we are seeing the Asia customers are -- have a bias to or are moving towards the application of Fulfill earlier than some others, willing to try more or earlier, so that's what is being reflected in these two recent ones.

So then it's what you said, it's both? It's existing customers who may be upgrading to Fulfill and therefore taking incrementally higher volumes, and it also includes new customers who are new to PCC altogether?

Well, it's -- there isn't a customer who isn't -- that we're not supplying basic PCC to who we're introducing Fulfill to. The Fulfill is only going to customers that we already have. Some of them may be more recent customers, some may be older customers, but they are existing base customers.

Okay. Okay. And when will the customers begin to actually take volumes? Is it something that will happen -- that is already happening, or is that something that will begin in a year?

We have -- yeah, we have some that are running right now. We have others that we're gearing up to run. Some are extended trials, but the ones that have signed the commercial agreements, and each one is a little different. As they begin to use the product and we begin to produce more PCC of the satellite facilities that are on-site, and we also will be beginning to collect technology fees, but it's very, very early to see much of an impact in the fourth quarter.

Yes. So the commercial -- of the four commercial customers, the sales really will begin next year?

I think -- yeah, in terms of materially seeing the impact of it, it will be next year. D.J.,do you agree with that?

I do agree with that, Joe. Silke, so when we introduced that portfolio and the E-325 in particular, we had suggested that our priority would go to our existing satellite network, because that's where we could get to the greatest -- have the greatest impact in the shortest amount of time. We continue to have emphasis on the satellite network, so those 20-some engagements that we showed on the slide are all at existing satellites, and then we'll be adding more to that group of trials as we move on.

There could be some expansion beyond our satellite network, but that's where our emphasis is, and then Joe's projection as we said all along, it does take a little while to get this going. These two announcements, for instance, were on a couple of their machines, but it is going to take us a while to get through all of their machines and all of their grades, and multiply that by the 20 we have on the list. It takes some time but we're still bullish on the ultimate capture and impact it can have for the Company.

Okay. The Nalco filler technologies that will be introduced as part of Fulfill V, is that for North America only, or can you distribute this globally?

We can distribute it globally. It concentrates on PCC applications. That application may have some broader reach into other pigments as well, but it concentrates on PCC applications.

There are some regions of the world where it's -- you need to think of it as a global distributorship, I would say would be the best way for me to describe it, and also you need to think that the impact in terms of volumes is probably higher than the E series, but it is not necessarily going to be more widely accepted because of what I was indicating earlier. There is a different cost-performance benefit with the Nalco system.

Yes. Okay. And just to clarify like all of the trials you are currently running are on the E technology? Correct?

The slide that you saw was all E technology. We have not run as SMI, we have not run trials with the FillerTEK technology. We have been exposed to those trials, and we've supported Nalco in deploying some of those trials, but now we'll be adding to the trial efforts with this V technology.

These are trials that have been run by -- their trials have been run by Nalco?

Yes, absolutely there have been trials, which was part of our -- I'll go back to the earlier answer I had to Rosemarie. There are several chemical systems out there. We've been paying close attention to all of them. Again, as the world expert in this field, we feel we have got an awful lot to contribute in the development and deployment of this technology. The Nalco one right now seems to offer both our customers and minerals technologies a good return for deploying that technology. So that's why it is the lead candidate for us in that space of chemicals. Did that make sense?

Yes. Thanks. Two more questions. So the slide that describes the performance of the specialty mineral segment. It says that PCC volumes were down 5%. Is that year-over-year?

Yeah, that's a year-over-year figure.

Yeah. So Europe volumes were down 8%, so were they down in the US, South Africa, and significantly in Asia?

I think it was a bit of a mix. The majority of it was down in Europe. Sequentially, North America was up. We did see some permanent shutdowns in North American mills, as I mentioned in the speech. So it was primarily Europe, partially North America due to shutdowns, and we had a South Africa mill as well.

And volumes in Asia were up?

Volumes in Asia were down a bit, I believe, over prior year. They were down over prior year.

Okay. And I guess my last question is what is left in terms of expense reduction opportunities? It seems there is still all sorts of volume pressures, but there is some better pricing, and the operating profit performance in the last two quarters has been better than expected. So what else are you focusing on in terms of expense control? What is left to do?

Yeah, there are two points of focus for us around expense control. One is the -- what I call the continuous improvement aspect of continuing to look at through process analysis, applying the principals of OE, our employee suggestion system, the use of Kaizen in some of the processes that are in areas such as shared services, finance, even legal. We're applying the concepts of EO and lean that are going to provide on a continuous basis opportunities for savings and doing more with less. The second point of focus revolves around Oracle and the deployment of Oracle in Europe.

As you recall, we recently completed installation of Oracle systems? Europe, and we're still at the early stages of capturing some of the savings from that, which we have been doing during 2011. And we're also moving to upgrading Oracle into what is called the R-12 version, and so we'll have through better improved information systems, opportunities to further capture savings and again, as I said, to be able to do more with less; but it also is about being able to reach up and bring in more business into the Company with existing systems without having to add significantly.

Yes. So Oracle is somewhat like an SAP system?

Exactly. It's an ERP system. We have had Oracle in North America for sometime. Last year, we deployed it in Europe. There were savings from that and some additional savings to come, and we still have opportunity in Asia as we further develop and grow Asia to deploy it there as well.

That's helpful. I'll get back into queue. Thanks very much.

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

Good morning, I just have two quick ones. In PCC, how many tons did you ship in the quarter?

PCC tons -- total PCC tons in the quarter were about 860,000.

Okay. And I know you repurchased some shares during the quarter. Since the end of the September quarter, have you continued buying back shares?

We have begun the repurchase on our second $75 million share authorization. We mentioned that in the speech, Torin. Yes, we have commenced purchasing.

Okay. My only other question -- can you provide any update on the acquisition environment in general, given everything that has gone on in the markets and the economy in the last couple of months?

I guess I would describe it as somewhat fluid. On the last call, we talked about a relatively high multiples, some of that in the course of the last two or three months we have seen them. A bit of easing around that, and as money supply and interest rates have changed a bit, particularly money availability to smaller companies -- but it continues to be an active environment, and we continue to not only look, but, you know, be involved in different areas. And that will continue to be a point of, as I mentioned in earlier remarks, a point of focus for us. So it's, I would say, it's an active healthy environment right now on a relative basis.

Okay. Thank you.

Your next question comes from the line of Daniel Rizzo with Sidoti & Company.

Hi, guys. Forgive me if this has already been answered, but how long are the Fulfill contracts? Are they the same relative length as the other PCC contracts?

There is a commercial agreement that defines the terms. But the duration is for as good as the technology is the best in class technology, so there is -- there's no -- they would expire with PCC contracts, but it's not to say that there's guaranteed use for that entire period.

Okay. But if there's new technology that you developed that's better, would they automatically accept that or does that have to be trialed again?

You know, so I have got some good news and some bad news. It has been -- it is taking us longer to deploy this technology. So we are bullish on that ultimate market capture that we have been talking about, but it has been taking us longer to get there. We introduced new technology with Nalco that supplements that portfolio, but to the extent that another competing technology is, the ability to just jump into that spot is difficult. So it's not an easy turn off one switch, turn on another switch.

There is a lot of progression that goes through the grades. So there is some risk of change in any system. So what I would say is our commitment is that we're the ones who are in the best position to monitor progress of technology throughout. And right now, we envision an E and a V and an S in our portfolio. And we're quite open and, in fact, are exploring other alternatives so we are the ones introducing any technology that would displace the E.

Okay. Thank you, and one other quick question. CapEx is elevated this year because of the expansions in Asia. I would imagine that would continue into next year to correct along the same levels?

Yes, exactly.

Okay. Thank you very much.

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

Good day, everyone.

Hey, Steve, how are you?

Congratulations, Joe, to you and your team on all of these new business developments. I know they don't come easy.

Thank you. I appreciate that.

I guess the first question is just around the fourth quarter, in 2010, that quarter had six fewer days, so do you expect there will be a difference there when you report the 4th this year, and what effect do you expect that to have?

Problem similar in days, Steve, to the prior year. I think we're projecting in terms of the fourth quarter, it says look, it is typically a seasonally weak period to most of our end markets. Added to that, some of the pressure we're seeing in Europe in both steal and paper. So we're giving you that as a reference point that says, again, we're going to be looking at something like last year.

So you had very strong FARO tron sales last year. I think it gave you an extra $2 million or $3 million. So is there a risk that you are not going to meet that same level of sales? Because you did comment on a couple of orders coming through.

Yeah, we typically do see higher sales in the fourth quarter, Steve. So that will be similar to last year. Again, there are a number of contracts fees require that our customer qualifies the unit. As we put it into service, sometimes those qualifications could take longer than expected, which is why I mentioned that we could see some of these move out into the first quarter of next year.

And then just to circle back on the Nalco deal, you provided a lot of color on that, and I think D.J., you even touched on the fact that you were working with potentially four different chemical suppliers when you first rolled the program out. Does this distribution deal now make it exclusive to Nalco, or do you still have the opportunity to work with those other three?

We have the opportunity to work with others. There's nothing that excludes us from working with others. But I would like to publicly state our commitment right now is to make this Nalco technology work where we can, and where it's in the best interests of our customers. Right now, we're comfortable that the portfolio that we represented to you is something that the market is going to embrace. We may need to supplement that further, and whether it's with the other three chemical suppliers or someone else, we are still open for others that we can work with. So we didn't box ourselves in to anything other than commitment.

Okay. That's good to hear. And then there's -- there's also been this, I guess parallel threat from the chemical suppliers in that they could go after these opportunities, exclusive of MTX. Does this agreement at all mitigate that with Nalco? Are they now more committed to working with you?

They are committed to working with us on this particular technology. It does mitigate that threat somewhat, because we believe this technology has the best efficacy, the best performance that we can see out there. But let's put that threat in perspective. Any technology that improves filler levels, and increases the value of PCC on the marketplace is good for minerals technologies. We have just been able to work with some technologies to make that better for use. So it's us having control of the application, and the pricing over these technologies is important, but even the threats have upside for us.

Steve, I would add to that, an additional perspective, that -- given that these -- the objective at least for what we're talking about here, is to increase the amount of PCC that's used to save money. We typically will need to be a part of that equation regardless of who was offering the chemical. At some point or in some form. It could be through particle modification, through other changes that are made, so it really does for many of the opportunities that a chemical maker may have, it behooves them to be working with us, because we can really help move that up and make it work, if it's workable, as opposed to going it alone because at some point in time it has to interface with the PCC.

Sure. Sure. And one last one on the Performance Minerals business, for the outlook, you mentioned that it will follow normal seasonality. Let's just move that aside, assuming you face that every year, so on a year-over-year basis in that business, what do you expect compared to last year? We have got auto, I think is still strong. Construction, I think commercial is getting better. Is that, in fact, what you guys are seeing?

Yeah, Steve, we are seeing that. Year-over-year volumes in processed minerals are up 5%. We think that strength will continue through the fourth quarter. However, if you look at it relative to the third quarter, we expect a seasonal volume decline. So on a relative basis year-over-year, we have managed to grow our volumes, especially in PCC and talc. But again, those markets typically fall off, especially construction in the fourth.

Steve, I would add also -- reinforce what Doug is saying. But Performance Minerals has been a very strong performer for us this year. Where we've had the talc business has been very strong. Our special PCC business -- some aspects of GCC. You heard us mention the West Coast roofing market, but also the business has been beginning -- to begun to bring to market some new products. It has been able to gain some share, and we do expect the business to come out of 2011, and go into 2012 very strongly, based on the performance of this year.

Okay. Good to hear. Okay. Thanks for taking the questions, guys.

Your next question comes from the line of Rosemarie Morbelli with Gabelli & Company.

One quick question. I wanted to make sure I understood properly. When you talked about operating income in the fourth quarter being similar to last year, am I translating this properly, looking at the $22.7 million-- let's call it $23 million in operating income last year, and $0.85 per share, so you would be looking at a flat quarter year-over-year, compared to the stronger Q3 that we just saw?

We're trying to give you, Rosemarie, some perspective of the third quarter. Relative to last year, we think that this quarter is going to be somewhat typical of what we saw last year. We have some market detractors as I mentioned in Europe in both potentially steel and paper markets that will -- might create some volume decline, and then we have some offsets. As I just mentioned with Steve, we have some stronger year-over-year performance in the process minerals category. So when I say similar, we think the net-net of that we'll be looking into a similar up-and-coming earnings to last year.

Okay. Great. I just wanted to make sure I had not missed anything. That's what I thought. Thanks a lot.

Thank you. If there are no further questions, that will conclude today's call. Thank you very much in your interest in Minerals Technologies.

Thank you.

Thank you. This concludes today's call. You may now disconnect.