Minerals Technologies Inc (MTX) 2013 Q1 法說會逐字稿

Good afternoon. My name is Andrea and I will be your conference operator today. At this time I would like to welcome everyone to the Q1 2013 Minerals Technologies Incorporated earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session.

(Operator Instructions)

I would not like to now turn the call over to your host, Mr. Rick Honey. You may begin.

Good morning welcome to our first quarter 2013 earnings conference call.

For today's call we'll begin with Executive Chairman Joe Muscari who will provide some perspective on our first quarter 2013 performance. Joe will then take a few moments to discuss the transition that will take place this year as he hands over the leadership of the Company to our new President and CEO, Bob Wetherbee.

Joe will introduce Bob who will comment on his initial perspectives from his first two months of travels visiting MTI locations across the globe. Bob will then turn the call over to Doug Dietrich, our Chief Financial Officer, who will review the details of our first quarter financial results. Before we begin I need to remind you that on page 8 of our 2012 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. Our financial performance for the first quarter continue to be strong as we reported $0.53 per share in earnings versus $0.51 in the first quarter a year ago. The $0.53 per share is also a record first quarter for Minerals Technologies. Underlying organic growth was strong in the quarter as our Paper PCC business benefited from the continued ramp-up of our new facilities in India and Thailand.

In the fourth quarter of 2012 we began operation of the satellite PCC plant at a paper mill owned by Quantum Paper in India, as well as another satellite serving Double A paper in Thailand. And we just recently started operation of the satellite at Jaykay Paper in India. Our Paper PCC business in Asia overall saw an 8% increase in volume this quarter. As a result our Specialty Minerals segment, which consists of PCC and our Performance Minerals businesses, had a record-breaking first quarter with an operating income of $22.2 million.

Our FulFill technology also continues to gain momentum as we signed three commercial agreements during the quarter. Refractory segment however, had a difficult quarter as a result of continued weakness in the North American and European steel markets. A major factor in the decline was the closure by RG Steel of two steel mills in North America where we had significant positions. We also saw lower sales in our non-steel applications, as well as lower equipment sales which continues to be a drag on this segment.

Looking forward we remain concerned about the economic conditions in Europe as well as the softening worldwide steel industry. However, we do expect to stay on an improved earnings track. As our new satellite sustained their ramp-up traction, FulFill usage and new customer penetration continues, and our operating performance remains strong.

As you can see from this chart our earnings for the last six quarters are on a strong track of more than $0.50 per share. We've successfully managed to overcome the lost income from several steel mill shutdowns over the last year and the two paper mill closures in the fourth quarter of 2011. Through new satellite PCC volume, new product sales, productivity gains, and continued overhead expense savings. Our return on capital, which today is at 8.9% continues to improve. We are above our cost of capital and also above the first quarter of 2012 when our ROC was 8.7%.

Our key organic growth strategies of geographic expansion and new product development are beginning to pay off very nicely in terms of bottom-line impact as we effectively execute on both these fronts. The three additional satellite PCC plants operating during the quarter that I mentioned in my opening remarks were non-operational year ago. These three Asian facilities have an installed capacity to produce 150,000 tons of PCC a year. It should also be noted that we're expanding four satellite plants in North America that will add another 75,000 tons by the end of 2013.

In addition, we have another 150,000 tons of annual capacity that is scheduled to come on-stream in Asia next year from agreements we signed with paper makers there. We also continue to actively pursue new satellite projects, particularly in China where our backlog of prospective projects is quite strong despite the apparent lower growth rate of the China economy.

Our FulFill technology also continues to gain traction and is contributing to the bottom line. Since January we've announced three new commercial agreements. Two of these were with North American paper makers. One of which is actually quite large and global. Both wish to remain unnamed for competitive reasons. And the third was with see CMPC Celulose Riograndense, at a paper mill in Guaiba, Brazil.

In our Performance Minerals business, where we are very well positioned for economic recovery, we're beginning to see improvement in the building and construction industry which will have a positive effect on that business. More than 50% of our performance minerals go into building and construction. In addition, our Optibloc products, which we've discussed with you before, are continuing to show improved growth. These are new anti blocking products for use in high clarity film and bag applications to prevent the adhesion of two adjacent layers of film. A problem most associated with polyethylene and polypropylene films.

Our specialty PCC product line which goes into non paper-end products like food, pharmaceuticals, sealants and adhesives increased 15% in volume in North America. And we are expanding our production capacity at our Adams, Massachusetts facility to meet this increased demand. We're also in the process of converting another kiln at Adams, from fuel oil to natural gas, as a further cost savings measure.

A bright note for our Refractories business is the operation at the new steel mill owned by SULB in Bahrain where we serve as the general contractor for oil refractory maintenance. As we also have discussed in the past this is a new business model for us. SULB was actually a major contributor for higher refractory volumes in the quarter. Our initiatives in operations excellence, expense control, and new product development which provide the underpinnings for our growth continued on track.

We've shown you this chart since late 2010 when we launched FulFill. And as you can see we continue to make progress as the technology continues to be accepted by the paper industry. We now have 13 paper mills around the world under contract. Six in Asia, three in North America, three in Europe and one in South America. We're also very actively engaged with 22 other paper mills around the globe to validate and commercialize this innovative cost-savings technology.

On the M&A front there's nothing new that I can share with you other than to say we continue to be very active in this arena. It's an important part of our growth strategy. And as you know, our objective is to seek out performance minerals-type companies where we can leverage our expertise and find particle technology and crystal engineering, as well as move to end markets such as energy and environmental and consumer products which would help to reduce our cyclicality.

As you're all aware--well aware, that in March we announced that I would move to the position of Executive Chairman and that Bob Wetherbee would become President and Chief Executive Officer. The transition with Bob--the process of transitioning with Bob is actually going very well, both with myself and the team, and it's going as planned. During the coming months Bob and I will continue to work together closely to assure a smooth transition.

Bob will be taking over responsibility for the day-to-day operations for our three business units, and I'll be focusing more on the M&A front as well as customers related to our geographic-expansion strategy. I expect to serve in an active management role as Executive Chairman, at least through the end of this year and perhaps into the first part of 2014.

We've worked hard the past six years to shape the culture of MTI into that of a high-performing company and I'm confident that by handing the leadership over to Bob Wetherbee, MTI will continue on that high-performance track as well as achieve its longer-term growth objectives through continued new product innovation, geographic expansion and acquisitions. On a personal note, I've known Bob for many years and I have firsthand experience of his many talents and leadership abilities from the time when we worked together at Alcoa. I've asked Bob, who's been traveling around the globe visiting many of our facilities and spending time with our employees, to share some of his early impressions and thoughts about MTI with you.

I'll now turn it over to Bob. Bob?

Thanks, Joe. Hello, everyone.

I look forward to meeting many of you face-to-face over the next few months to outline how I plan to keep MTI on a high-performance track and meet our growth targets. What I can tell you after just two months on the job is that Minerals Technologies is a high performing, highly focused, values-driven company. We have strong market-leading positions in many of our businesses. Especially in Paper PCC where we are the largest supplier of precipitated calcium carbonate to the worldwide paper industry. Our Refractories business is a leader in monolithic refractory technology and application methods. The Performance Minerals business is a lean operation that's making strides in new technologies and gaining market share. I am committed to maintaining these leading positions.

With our strong management team and the execution of our growth strategies of geographic expansion and new product innovation we are well positioned to grow the Company. And with our strong cash position we will continue to aggressively seek opportunities for acquisitions, at the right price and in the right products and markets, that will fuel that growth and reduce the cyclicality of our product portfolio. I embrace and will continue to aggressively lead to the initiatives that have changed the MTI culture and improved our performance over the past six years.

I come from a culture where safety is paramount. It's a core value for me. I believe it's the leader's responsibility to ensure that our employees leave work each day in the same healthy condition as they arrived. The difference that our operational excellence lean initiative has made in improving productivity and efficiency is evident in our higher performance. We will maintain the processes and practices that are in place.

MTI was built on innovative technology. The Company originated the satellite concept of building PCC manufacturing facilities on site at paper mills and soon revolutionized the way paper was made in North America. Innovation in all of our businesses is part of the Company's DNA, and it's in my DNA. And I fully intend to nurture new ideas that will continue to contribute to future growth. I am fiscally conservative by nature and with a financial background I recognize the importance of stringent expense control to maintain a Company's financial health. We will continue on this path to continuously remove waste from our processes.

On a personal note these last few weeks I've traveled to numerous production and R&D facilities around the world where I met a dedicated, engaged and empowered workforce that is committed to taking Minerals Technologies to the next level. We have the talent and the resources to continue to grow and I feel privileged to be the one chosen to lead that effort. As I said earlier, I embrace the MTI vision for growth and operational excellence. And I look forward to meeting each of you in the coming months to discuss my leadership focus.

Thank you. Now I'll turn it over to Doug Dietrich who will take you through the details of the first quarter financial results.

Thanks, Bob. Good morning, everyone.

Now I'll take you through our Consolidated and Business segment results for the first quarter. I'll highlight the key market and operational elements of our financial results in each major product line. And comment on comparisons to both the first quarter of 2012 sequentially to the fourth quarter of 2012.

As Joe mentioned we achieved record first-quarter earnings of $0.53 per share versus the $0.51 reported last year. Our solid performance this quarter was led by the Specialty Minerals segment which also achieved record first-quarter profits. This performance was strong enough to more than offset the lower profitability we experienced in the Refractory segment. We also benefited from a positive swing in below-the-line items, primarily due to foreign exchange and favorable tax items which added $0.02 to our EPS. Our consolidated sales this quarter decreased 2% or about $6 million from the prior year. Foreign exchange had an unfavorable impact of approximately 1%, and two fewer days in the quarter this year accounted for another 2%.

Excluding these factors our underlying sales increased 1%. Underlying sales in the Specialty Minerals segment grew 3%, but declined 3% in refractories. Operating income of $27.1 million represented 10.8% of sales compared with 10.5% last year. This margin expansion is a result of strong contribution from our growing Asia PCC business, continued FulFill commercializations and pricing improvements. In addition, overall productivity improved more than 6% versus the first quarter of last year and we continue to keeping our expense levels tightly in control.

Return on capital for the quarter increased to 8.9% on an annualized basis. We generated $25 million in cash from operations, of which $9 million was used for capital expenditures and $9.5 million was used to repurchase shares. Cash and short-term investments ended the quarter at $470 million. Sequentially consolidated sales increased 3%, 5% on an underlying basis. Again, led by the Specialty Minerals segment. Operating income increased 5% which was higher than expected on our last call. Specialty Minerals segment profits increased 13% driven by a strong performance from Paper PCC. The Refractory segment, however, declined 8% which was more than expected as we continue to face challenging scale market conditions. In total the Company remains on a strong earnings performance track.

Let me give you a general outline of the improvement in our operating margin over last year. Margins have improved in both Paper PCC and Performance Minerals, both contracted in Minteq over last year. The increase in Paper PCC was due to higher profitability in Asia, price increases from the contractual pass-through of our lime costs, contribution from our FulFill program and productivity improvements. The improvement in Performance Minerals was due to growth in our North American specialty PCC product line, price improvement in talc, and strong contribution from our Lucerne Valley, California GCC business.

Refractories, the loss of business from the RG Steel bankruptcy in North America, continued weak equipment sales, and lower profits from our Japan operation contributed to the margin decline. These factors were partially offset by the profit contribution from our new SULB business in Bahrain which began operations in the third quarter of last year, and volume growth at our refractories facility in Rotterdam, England.

This chart highlights the mix conditions we are currently facing in our main market segments and geographies. In North America, uncoated wood-free paper production was down 5% due to the closure of a few paper machines. However, production has increased slightly in Europe. The construction market in the US, which includes both residential and commercial markets, continues to strengthen and was up 7% in the first quarter versus the prior year. In Europe, however, construction continues to be lower. North American automotive unit-production growth slowed recently after a number of strong quarters. But production levels remain relatively high at 4.1 million units this quarter. Lastly, you can see the challenging steel market conditions we continue to face. Production in North America was 6% lower than the first quarter of last year, and in the United States production was down 8%. In Europe, production was down 5%.

Let's go over the financial results within the Specialty Minerals segment. As I mentioned earlier, this segment had a very strong quarter and as you can see from the chart we maintained the performance momentum we generated last year. The $22.2 million of operating income is the first-quarter record and was 12% higher than last year. We continue to expand our operating margins in the segment, which increased to 13.2% of sales compared to 11.9% last year. Within the segment Paper PCC's underlying sales grew 3%, driven by Asia where volume grew 8%, and Latin America which was 6% higher. This volume growth was partially offset by slightly lower volumes in North America and Europe which were about 1% lower.

In Performance Minerals underlying sales grew 3% driven by specialty PCC and talc, each growing by 5%. Segment operating income growth, which was driven by a 16% increase in Paper PCC and a 4% increase in Performance Minerals. The increase in Paper PCC was primarily due to strong contribution from our new satellite facilities in Asia, FulFill, higher pricing, and a 9% improvement in productivity. Improvement in Performance Minerals was due to growth in our North American specialty PCC, price increases, and strong contribution from our Lucerne Valley GCC business, which is beginning to benefit from the improved construction market.

Sequentially, segment sales were 4% higher than the fourth quarter driven by the seasonal volume improvements in the Performance Minerals business. Operating income from the segment increased 13% which was more than we had anticipated on our last call, primarily due to strong performance in Asia Paper PCC and higher than expected volumes in Performance Minerals. Looking forward to the second quarter, we expect our Paper PCC volumes to be down sequentially, about 2%, as a number of paper mills in all regions performed their normal annual maintenance outages, which typically occur in the second quarter. This volume decline is consistent with prior years.

In Asia we commissioned our latest satellite PCC operation last week at Jaykay Paper in India, but will not see a significant volume from this new mill in the second quarter, as it's only beginning to ramp up. Current indications are that second quarter profits in our Paper PCC product line will decrease from the first quarter due to the lower volumes from the maintenance outages and the startup expenses at the Jaykay Paper PCC satellites. This sequential decrease is consistent with prior years.

In Performance Minerals we expect profits to increase from the first quarter, as the second quarter is typically the strongest seasonal period for this business. We also expect some profit contribution from our specialty PCC expansion which will come online at our Adams facility. Overall we expect the second quarter operating income for the segment to increase 10%.

Before I move on I'd like to mention two other items regarding our Paper PCC business in Europe. First, we plan to discontinue our operations at our merchant coating PCC facility at Walsum, Germany in the second quarter. If you recall, we recorded an impairment charge related to Walsum in 2007 in connection with the restructuring of our European coating PCC business. Since that time, the facility has continued to operate well below capacity levels. We anticipate the residual closure costs of this facility will result in a second quarter charge of up to $6 million. Going forward, all costs associated with Walsum will be separated from our continuing operation results.

Second, the latest indication we have is that our [Aloze] PCC satellite, which has been idled for about the past 18 months and serves the paper mill that was recently per purchased by Double A Paper, will most likely come back online late in the second quarter and will ramp up gradually over the remainder of the year. We are currently in discussions with Double A to finalize all necessary agreements.

This chart highlights the components of the 11% improvement in the Specialty Minerals operating margin over the last year. As I mentioned, segment operating margins increased to 13.2% from 11.9%. Margin was negatively impacted by higher energy costs from Performance Minerals, as well as higher lime costs and Paper PCC. These were offset by contractual price increases in Paper PCC and price increases in our talc product line. We continue to drive productivity improvements in each business which contributed almost 0.5% percentage point to the margin growth. In addition we're seeing strong performance from our new satellites in Asia along with contribution from our FulFill technology program.

Now let's go through the results within the Refractory segment. Sales in the first quarter were 6% lower compared to last year driven primarily by North America and Japan. Foreign exchange accounted for about one percentage point of this decline, and two fewer days in the quarter contributed another two percentage points. The decline in North America was primarily due to the closure of RG Steel's Sparrows Point and Warren Mills last June, as well as to lower sales in our non-steel application business. In Japan it was driven by lower refractory volumes and foreign exchange.

Equipment sales were also lower compared to last year as steel producers continued to restrict their capital spend. In Europe, despite the steel production declines of more than 5% that I related to you earlier, refractory sales increased by over 9% due to volume growth at SULB and Bahrain and to improve volumes at our refractory facility in England.

Operating income for the segment decreased $2.2 million in the quarter to $6.9 million. Again this decline was due to RG Steel mill closures, lower equipment sales, and the lower profits this quarter in our Japanese business. This resulted in the segment operating income ratio of 8.3% of sales for the quarter. Sequentially, refractory sales were at the same level as the fourth quarter and operating income decreased 8%. Which was a little more than we had expected on our last call. We anticipated profits to be lower from our non-steel applications however, volumes in Japan were weaker than expected.

Looking forward to the second quarter, steel production levels in both North America and Europe remain weak and we still do not see any significant improvement in our equipment sales. As a result we expect that our second quarter operating income for the full segment to be similar to the first quarter.

Here's a summary of the changes in the refractory segment operating income margin. You can see that the first quarter ratio of 8.3% is well below the 10.2% achieved last year. Refractory volume declined in North America and Japan, significantly lower equipment sales, and lower profits in our non-steel product lines negatively impacted margins by 2.2 percentage points. These factors were only partially offset by improved productivity levels, and cost and expense control programs.

These charts illustrate our working capital and cash flow trends. Total days of working capital decreased to 55 days. This decrease was driven by improvement in all businesses and in all components of working capital. Our cash flow from operations was $25 million in the first quarter. And as I mentioned capital spending was $9 million. We do expect capital spending to increase throughout the year as we begin construction of two new satellite facilities in China with Sun paper and JiangHe Paper, and also begin the expansion of four PCC satellites here in the US and two in Brazil.

As I mentioned earlier, our first quarter earnings of $0.53 per share was above our expectations primarily due to a record performance in our specialty minerals segment. Looking to the second quarter we expect profits to increase in the specialty minerals segment, driven by the seasonal improvement in Performance Minerals. In Refractories however, we expect second quarter profits to be similar to the first quarter, as we do not currently see any upward movement in steel production levels in both North America and Europe. Nor do we see any improvement in equipment sales. In addition, we will not see the same below-the-line benefit from taxes and foreign exchange in the second quarter. Overall, we expect around 7% to10% sequential earnings growth for the full Company.

Now let's go to questions.

(Operator Instructions)

Daniel Rossetti, Sidoti & Company.

The improvements you made in the operating margin in PCC-- sorry in the Specialty Minerals segment, is that from -- does FulFill have a lot to do with that or is it just increased productivity? Is FulFill actively contributing to improve margins in that segment?

Yes, it is, Dan. I put up on the chart that both the Asia PCC satellites and FulFill are contributing to that margin growth. I think it was a total of about 0.6% in total.

I'm sorry missed that, then. All right. That's the only clarification I had.

Rosemarie Morbelli, Gabelli and Company.

If you did not recognize the name you will recognize the accent.

Good morning, Rosemarie.

Joe, it looks as though you are now going to focus in M&A. Does that -- could that translate into transaction before year end?

Well, I have been focusing on M&A. Just for the record. But what it would allow me to do is to spend even more time in the M&A area working with folks like John Hastings, the head of our M&A group. And it does not necessarily--one does not necessarily follow the other. And as much as I'd like to give you more insight, I think a way to look at it or think about it is it does allow us to increase the intensity of our efforts as well as increase some of the breadth. But I would say more on the intensity side. And as I've related in the past, at any given point in time we have a number of things going in a period of time. Going in a sense of in discussions with other companies, and this period is no exception.

Okay. And I was wondering if you could give us some details on the price increases that you had in several of the areas. And particularly in the new contracts. It sounded as if you had price increases on the new contracts.

Rosemary, this is Doug. There were two components to price increases. One of them was PCC. Those were largely the contractual price increases as we absorbed lime costs increases in the fourth quarter. We passed them through in the first quarter. We've benefited from some stability in our--some of the raw materials and energy, so our lime cost increases weren't as severe this year over last. We benefited from some good pricing there. The other component is in Performance Minerals and I highlighted we had some pricing improvement in our talc product line.

And in talc, I suppose that it because it is linked to construction the price increase is due to the stronger demand and better competitive environment? Or are you offering that industry some different products?

Well, we are. There's obviously due to the quality of our product and the value we bring to the customers who managed to increase some pricing. But also some of the Optibloc product that Joe had mentioned, those are pretty high price point type products. High value as well. So we've seen an increase in some of those.

What about the TiO2 extenders? You didn't mention any of that. Could you talk about the demand and the pricing? Or because TiO2 is more stable at the moment, there is somewhat of a slowdown in the growth in there?

Rosemary, yes, we have seen -- we are still active with a number of companies where we're running trials. And we're actually selling to one particular company. Actually two now, Doug tells me. So the activity continues but with a price reductions and TiO2, the degree of pull that we experienced a year ago has slowed down, without a doubt. But we're still active in it. We have a good product and we expect to see continued sales growth there albeit at let's say a slower rate than we were thinking last year.

Okay. And then if I could in Germany, did you have some kind of a hit to operating income from the operation you are discontinuing?

No, Rosemarie. So that's been part of our continuing operations since 2007. We did--you probably remember we did take an impairment on that facility back then as we restructured away from the merchant model in Europe. That facility is a merchant PCC coating facility. And as we shifted more to the satellite model in coating as you can see Sun paper our new facility in China is a satellite coating PCC, that business has continued to run at lower volumes. So we are looking at right now is a good time to close that facility given where we are with it and that's going to be done this quarter. And so really it's going to be moved to discontinued ops and we'll have some closure costs associated with it. Does that answer your question?

Yes it does. And one last question, on the PCC new contracts any change in terms of what you are able to get?

In terms of price --

When you're satellites--the contract for the satellite the multi years expire, you are renewing those contracts at similar prices? Or do you have to take them down? Or because of the value you are offering in FulFill potential, you can actually renew those contracts at a higher price?

Rosemarie, this is DJ. What we're experiencing right now is we've got about our normal number of renewals that are going on. And that's between 6 and 10 every year. We've been -- we are continuing along at that rate and we're getting, I would say, favorable renewals based on a couple of elements. One of them being FulFill. And then as we're going forward with these new PCC contracts, Doug had mentioned the two that we're building right now and we're pursuing many. Especially in China and in Asia. As we're pursuing these new contract, we're finding that FulFill is a key strategic lever for us to get those contracts. And so we remain optimistic that they'll be at similar pricing levels to what we've been experiencing in the past.

Okay. Thanks. Joe, I look forward to talking with you at [TC] at the end of the year. And I just would like to welcome Bob and I hope that we can meet sometime shortly.

Thank you. Me too.

Daniel Moore, CJN Security.

First, a quick clarification on your comments for Q2 in Specialty Minerals, you expect operating to come up 10%. Was that year-over-year or sequentially?

That's sequentially.

Sequential? Perfect. Appreciate it. And in the not to recent past you've talked about growing FulFill -- the impact it would have they're doubling its impact on operating profit from $1.4 million to closer to $3 million in 2013. Given the three new contracts in Q1, is that still a reasonable goal? Is there upside? And given that the various stages of business development, what type of growth do you expect to see in '14?

Yes. We had indicated on the last call that we expected 2013 to have op income from FulFill in the range of $2.5 million to $3 million. In the first quarter we were tracking at around $450,000 of op income. So we're at a rate in the first quarter of 1.8. And in terms of what we're looking at last quarter, we're right on track. I'd say the potential is higher, but it's a little early to call that as we get through the second quarter we're going to be in obviously a better position to do it, but we are definitely seeing a firming up and stability around FulFill.

I don't know if you recall the last call, I discussed the fact that we will be accepted, we're running trials and we'll start to run, and then a grade of paper changes and we have to make modifications, we sometimes cost they come off a machine so it's not a linear process in the sense of once you're on you just keep going. That we have to typically get through the different types of paper maker is going to be using on that machine or other machines on a site. What we're seeing now is we've been on machines for a period of time. We are beginning to see more stability. And so that should also lead to more sustainable earnings over time as well.

Great. And one quick follow-up, perhaps an update on the product development pipeline. I think you launched 34 new products in '12. You may have given this previously. I apologize but what's the split between Specialty Minerals and Refractories and how much incremental revenue do you expect from those products in '13 and '14?

We typically have not split that out in terms of what we have where. And it's something actually off the top of my head. I couldn't even give you a percentage approximation. But that's something on a future call we can probably do to give you a sense. By and large, I'd say if you look at the revenue split and the percent of new products driven by the different businesses it would be PCC plus in terms of potential future revenue. The higher growth new development will be is primarily or a large majority of it is driven by the PCC business. I'd say Performance Minerals would be number two, and Refractories third.

Great. I appreciate it. Bob, look forward to working with you and I look forward to seeing you at a conference this summer.

Great. Thank you.

Steve Schwartz, First Analysis.

Let me extend a welcome to Bob as well here. I guess first question, Joe, you mentioned in your prepared remarks a pipeline in China. Were you referring to Refractories or was that just for the Paper PCC?

It is primarily Paper PCC. And in terms of new satellites and FulFill. As you recall we've talked in terms of we have in this pipeline of new potential projects from 12 to 15 applications for satellites that we're active in. And that's as we look out over the next year and half to two years. So that's one of the key areas that I'll be spending more time with DJ and with the Asia team with some of the major Asian paper makers there. And that's both for new satellites as well as the FulFill product. Having said that, we also are looking at a talc position in China as well as specialty PCC in China. So I'll be working with Doug Mayger and his team around those as well.

Okay. So quite a bit going on. Okay. And then from a raw material inflation standpoint what does the outlook look like there? So, you obviously got some very good pricing in the first quarter. What about Refractories? And NGL?

Steve, we've seen actually some stability in those magnesium oxide area. So we don't see, at least going forward, a lot of cost pressure there. Where we are seeing some raw material increases, and maybe you have as well, is seeing that natural gas electricities. So, really the energy arena and is primarily in the Performance Minerals business. Highlighted we have some impact in that first quarter over last year. So largely stable raw materials except for energy.

Okay. And that actually roles into my next question about the conversion to natural gas at the Adams kiln. I think the last one you did saved you about $1 million a year. Is that correct?

It was a little higher than that, it was probably about $2.5 million a year.

$2.5 million? Okay. So lastly, some nuts and bolts on the discontinued ops for Walsum. As we back that out of our models for continuing ops, is there any meaningful revenue or op income that we need to factor into our numbers?

So the revenue is largely out, but that mill is operating at very low capacities right now. And largely the volume decline you've seen in Europe this quarter over last is primarily due to Walsum. There will probably be some benefit from the operating income and we're currently going through those costs and the timing of those costs as they get pulled out, so there will be some benefit in operating income.

And it will start in the second quarter that you reported as discontinued ops?

Correct.

Okay. Very good. Thank you.

Jeff Zekauskas, JPMorgan.

This is Silke Kueck for Jeff. How are you? Welcome, Bob.

Thank you very much.

Post the closure of the Walsum plant in Germany how much coatings or PCC exposure is there and in which region? If you can put it in perspective of what's PCC and what's coatings grade PCC?

That mill -- the merchant mill that services just Europe and it's all coating PCC. Probably revenue on annual basis is about $4 million -- $6 million I think it is, let me get that for you. $6 million in annualized basis.

I think in terms of coating per se in the different regions to your question or further to your question, Silke. Most of our other sites are satellite sites and if you recall, we withdrew the merchant model, primarily from Europe and other places, and basically adopted a strategy that says if we do coatings such as we're going to be doing at a new facility in China it will be using the satellite model.

How many coatings plants do you have today? Excluding Walsum?

It's DJ. Let me quick give you that number. It would be about 10 when we're done with -- when Walsum is out of that number in that ballpark.

Okay. That's helpful.

Silke just to highlight that, Walsum as we said in 2007 Walsum just didn't fit our strategic profile being that merchant facility. So when we put in Sun paper, which is a 100,000-ton facility, that would be an add to the coatings side so we still see a place for coating in our portfolio but it's got to fit with the satellite model where we know we bring other value to that customer. So that's Walsum just wasn't the strategic fit.

Yes. I understand.

Silke, I just have the number for you, this is Doug, Walsum revenue last year was about $8 million. And dropped to basically nothing in the first.

Okay. Thank you for clarifying. On the Refractories side, are there other -- is there more restructuring coming given that the industry is going through another round of contraction work? Or is it right sized to where it should be?

We don't anticipate anything significant at least as we look out through this year, Silke. It's possible but it would be nothing of the magnitude of the restructuring we did post 2008 and 2009 when we had the significant drop in revenue. Europe is being affected the most right now and I think we're at a pretty good position with regard to where our facilities are now. So as I said right now we don't anticipate any further restructuring there. We could see some adjustments and some smaller changes adjustments in Asia, potentially in Europe as well, but I don't see them as being large. Doug, do you? Or in [Han]?

I agree with Jim. That's what we're looking at.

Okay. And lastly you've done a wonderful job in signing on like 13 commercial customers for FulFill and in these various satellite plants coming on in Thailand and in India and in China. And also the underlying business is going through a period of contraction and so as you look out a few years. Is it still possible to reach the growth targets that you set out a while ago as you hope to achieve maybe sales in the range of $1.4, $1.5 billion by 2015. Given the industry conditions it just seems that's a hardest target to achieve.

Yes. As I indicated when we discussed this previously, one or two calls ago, that as we look at the revenue targets, what we were anticipating to come from economic recovery we're going to be short. And we had just from pure economic recovery we had $100 million in that number. Also as you look at Refractories has actually had a setback from where we were tracking before. So we lost ground on the Refractories business as we set that target. So revenue associated in there with economic recovery is -- will fall short.

As we look to Asia growth, Asia growth in terms of the geographic expansion strategy and what we had anticipated or what we were targeting is actually right on track. That is tracking very well. The FulFill is a little shallower than what we were targeting, but the potential for FulFill is actually -- still has the potential. If you recall we were targeting about $125 million in revenue but it really is revenue in the equivalent op income. So you're looking at an op income target of in the $10 million to $12 million range in 12 to 15, actually, if you look at the 10% op income margin. So that's tracking well.

Question marks right now are around some of our -- let's say larger technology projects that we had built as part of those targets which is filler fiber. We still have filler fiber. The probability of that actually getting into that timeframe is lower, but post 2015 that's still there, we're still active with the FulFill [ap]. In terms of the other targets, margin we're tracking to that 12% margin. I'd say we're right on--we're a little under this year, but relative to that target, we're there. ROC, we're also tracking very well from an ROC standpoint, particularly as you think about the cash that is in the denominator of the way we calculate it. We use, as you recall, the Bloomberg method so cash is in our denominator. So we're tracking above that target right now when you look at the underlying return of the current business.

Thank you for clarifying. I really appreciate it. I'll get back in the queue.

And there are no further questions at this time, sir.

Are there any further questions?

(Operator Instructions)

Jeff Zekauskas, JPMorgan.

Maybe I'll waste like your last five minutes. (laughter) Did you purchase any shares in the quarter?

We did, Silke. We purchased $9.5 million worth of them. I'm sorry -- 228,000 shares.

Year-to-date we're about 11.5.

This year that is.

Yes. This year.

Okay. And how much is left under your program?

About $35 million is left on the program.

Okay. So we're probably done by the summer?

(laughter) no comment. (laughter).

Okay.

The authorization -- just to give you details. We have $35 million remaining in the authorization runs through the beginning of October.

Okay.

Current authorization.

That sounds good. That's really all I have. Thank you very much.

Thank you.

Steve Schwartz, First Analysis.

Thanks for taking a follow up. This one just on the refractory equipment. Isn't the first quarter typically a seasonally weak, so to speak, quarter for equipment? And is it only normally like $1 million or $2 million in revenue?

It is, Steve. It's a seasonally weak but I think what highlights this year is that it's weaker than last first quarter is what I was trying to mention. Usually the fourth quarter is the strongest? And if you remember last quarter we didn't see the sales in equipment. Usually those orders will come in throughout the year and we'll build them throughout the year and commission the majority of them in the fourth quarter. That didn't happen and we're still seeing that same level of low equipment orders through the first quarter this year.

Would you describe 1Q '12 as a tough comp for equipment, then? Or was it more of a standard quarter that you are up against?

I think last quarter -- it's probably a decent comp. There's nothing significant in the first quarter.

For that impact to operating income that you showed on the one slide, it almost makes it looks like equipment sales were in the $100,000s instead of $1 million or $2 million.

Correct.

Okay. All right. Well, that's helpful. Thank you.

(Operator Instructions)

There are no further questions at this time.

I'd like to thank everyone for your interest in Minerals Technologies. And that concludes today's call. Thank you.

Thank you.

Thank you, ladies and gentlemen. This concludes today's conference call. You may now disconnect.