Minerals Technologies Inc (MTX) 2013 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Minerals Technologies second quarter 2013 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session.

(Operator instructions)

Thank you. I would now like to turn the call over to Rick Honey, Vice President of Investor Relations. You may begin.

Good morning. Welcome to our second quarter 2013 earnings conference call. Today, Chief Executive Officer, Bob Wetherbee will provide some insights into our second-quarter performance as well as his perspectives on his first few months as CEO. Bob will then turn the call over to Chief Financial Officer Doug Dietrich, who will give you a detailed report of our financial results for the quarter. Executive Chairman, Joe Muscari will provide some closing comment on the direction of the Company, and then we will open it up to questions for our management team.

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 will turn the call over to Bob Wetherbee. Bob?

Thanks, Rick, and good morning everyone.

Minerals Technologies posted record financial results for both the second quarter and first half of 2013. We saw increases in sales and operating income and recorded $0.63 per share from continuing operations for the quarter versus $0.57 a year ago. Underlying sales increased 4% over the second quarter of 2012, and operating income was up 7% over a year ago to $32.4 million. The primary drivers for this growth were the increased volume in the paper PCC business with the continued ramp-up of three new satellite plants in Asia, increased penetration of our FulFill technology at paper mills where we have existing commercial agreements, and the restart of production at our Alizay, France satellite facility, a plant that had been idle since the fourth quarter of 2011. We also saw an 8% increase in sales in our US specialty PCC product line, enabled by an expansion at our Adams, Massachusetts facility. In all, this resulted in a record operating income for the Specialty Minerals segment up $25.2 million. This is 15% of sales; the highest level of profitability in a decade.

In the Refractory segment, underlying sales increased 5%, primarily due to incremental sales from our operations in Bahrain. We were also faced with lower equipment sales and the loss of sales from two steel mill closures in the United States in the second quarter of 2012, both of which contributed to a 2% decline in operating income for the segment.

Looking forward, we see economic conditions that drive our steel and paper end markets remaining similar to what we experienced in the quarter. Our core strategies were developed in some of the most difficult economic conditions of our generation, and they've proven to be very successful. As conditions improve, we are well-positioned for additional profitable growth.

Looking at our earnings per share, you'll see that we have been at or above $0.50 per share eight consecutive quarters, starting in the third quarter of 2011, and we've now broken through the $0.60 level. We have been able to achieve these sustain levels despite several steel mill shutdowns in 2012 that I mentioned earlier, and two paper mill closures in 2011. We have done this through winning and building new PCC satellites, through new product introductions, productivity improvements, and continued overhead expense savings. $0.63 per share in Q2 is a record level of performance.

Our return on capital improved to 9.9% versus 9.7% a year ago, and we remain above our cost of capital. We are seeing organic growth by way of geographic expansion and new product innovation. Paper PCC volumes in Asia recorded a 7% increase from the three new satellite plants in India and Thailand that were not operational a year ago. These three facilities have an installed capacity to produce 150,000 tons of PCC a year. We are also expanding four satellite plants in North America that will add another 75,000 tons, and another 150,000 tons of annual capacity is scheduled to come on-stream in Asia by the end of next year.

We continue to pursue new satellite projects, particularly in Asia. We are currently finalizing contract negotiations for two satellites that we expect to announce shortly. Our FulFill technology continues to gain traction and is contributing to profits through increased use. Our Performance Minerals business, which consists of our processed minerals and specialty PCC product lines, posted the best performance in its history. We did this through higher pricing, market penetration, and an improvement in the building construction and automotive industries.

During the quarter, we also launched the VICRON FRP, a new calcium carbonate product for plastic reinforcement, that utilizes our expertise and fine particle technology for the polymers industry. VICRON FRP provides a value proposition that combines lower cost and improved mechanical properties.

In the specialty PCC product line, which goes into non-paper end products like food, pharmaceuticals, sealants, and adhesives, we saw an 8% sales increase in the United States that was a direct result of the expansion of our ultrafine PCC manufacturing capacity at our plant in Massachusetts. We are now working on phase 2 of this expansion, which when it comes online early next year, will increase our US capacity by a total of 35%. Performance Minerals also benefited from the fuel oil to natural gas conversion of our line kilns at Adams.

As I mentioned earlier, a bright note for our Refractories business was the contribution from the operation at the new steel mill owned by United Steel company in Bahrain, where we serve as the general contractor for all refractory maintenance, a different business model for the Refractory segment that we have discussed in previous calls.

Our operational excellence, expense control, and new product development initiatives, the underpinnings of our ability to grow, continued on track. Although we did not sign any new commercial agreements for FulFill in the second quarter, we did see greater use of the technology among our existing 13 customers. This improved usage, a 30% increase over the first quarter of this year, is strong confirmation that the improved cost savings that provides paper makers is driving acceptance in the market. In addition to the greater usage with our existing FulFill customers, we are also seeing an increase in the number of paper mills running trials to validate the technology, and we expect these to move to commercial agreements. We are on track to achieve $2.5 million to $3 million in operating income from the FulFill technology in 2013.

Before I turn it over to Doug Dietrich, who will provide the financial details of the second quarter, I would like to share my thoughts about the Company and the quarter. When I joined Minerals Technologies in March, I could see that over the last six years, the Company had undergone a cultural transformation to become a highly efficient and high-performance organization. Our second-quarter results could not have made that point any clearer. We achieved a 12.6% operating margin as a percentage of sales, two years ahead of our 2015 goal. In the quarter, we grew sales, continued to introduce new projects and technologies, and overcame the challenge of ongoing softness in the steel industry. We did this the execution of our strategies and our sharp focus on improving efficiency and productivity.

The fact that we have a track record of achieving record-breaking financial results is indicative that our strategies of geographic expansion, new product innovation and operational excellence continue to deliver. We are on a high-performance path with a solid management team committed to safety, technology development, continuous improvement, expense control and top-line growth. We are becoming an even stronger operating company with market-leading positions in many of our businesses. My objective is to build upon that by continuing to grow our existing product lines and to seek opportunities through acquisitions that will add value for our shareholders. We are staying the course that has improved our financial performance and will continue to develop and capture opportunities for future profitable growth.

Now I'll turn it over to Doug Dietrich for a detailed review of our financial results.

Thanks. Bob. Good morning, everyone. Let's go through our consolidated and business segment results for the 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 second quarter of 2012 and sequentially to the first quarter of 2013.

As Bob mentioned, we achieved record quarterly earnings from continuing operations of $0.63 per share, which is an 11% increase from the $0.57 recorded last year. Our strong performance this quarter was led by the Specialty Minerals segment, which also achieved record quarterly profits. Paper PCC profits increased over 15% compared to last year, and the Performance Minerals business continues to operate on a very strong track. Our record earnings were achieved despite slightly lower profitability and the Refractory segment. We also benefited from a lower effective tax rate, due primarily to a one-time reversal of tax reserves associated with the completion of US tax audit. This added approximately $0.02 to our earnings per share.

As we indicated on the last call, we closed our merchant PCC facility in Walsum, Germany in the second quarter and re-classified the operation as discontinued. We recorded a loss from discontinued operations in the second quarter of $0.14 per share related to operating losses that were higher this quarter due to winding down of the facility and through a charge related to the facility closure costs. Normal quarterly operating losses at the Walsum facility have been between $0.01 to $0.02 per share. All prior periods have been restated to reflect this re-classification.

Our consolidated sales this quarter increased 2%, or about $5 million, from the prior year. Our underlying sales grew approximately 4% as foreign exchange had an unfavorable effect on sales. In each segment, underlying sales grew by 3% in Specialty Minerals and 5% in Refractories. Operating income of $32.4 million, an all-time high for Minimal Technologies, represented 12.6% of sales, compared with 12% last year. We continue to leverage our centralized shared service model and control our overhead expenses tightly which has helped drive a greater portion of these new sales to the bottom line. In addition, overall productivity improved more than 2% versus the second quarter of last year.

Our return on capital for the quarter increased to 9.9% on an annualized basis, compared to 9.7% in the second quarter of last year. We generated $34 million in cash from operations, of which $13 million was used for capital expenditures, and $10.7 million was used to repurchase shares.

Sequentially, consolidated sales increased 3%. Specialty Minerals increased 1%, and Refractory sales were 6% higher. Operating income increased 15% which was higher than anticipated on our last call. The Specialty Minerals segment operating profits increased 8%, due to a strong seasonal growth in Performance Minerals, partially offset by the anticipated lower profitability in paper PCC. The Refractory segment's operating profits improved 23% which was considerably more than we had expected.

Let me outline what contributed to the improvement in our operating margin over last year. As you can see, the growth was driven primarily by paper PCC and Performance Minerals. Paper PCC margin growth was due to price increases from the contractual path of our lime costs, productivity improvements, contributions from both new satellites and FulFill, and the restart of our satellite in Alizay, France. The improvement in Performance Minerals was due to volume growth in our North American specialty PCC product line, price increases, and a strong performance from our ground calcium carbonate business.

In Refractories, margins deteriorated slightly due to the drop in volume from weak market conditions in North America and continued weak equipment sales. These were partially offset by volume growth in our Metallurgical Wire business and contributions from Refractory sales in Bahrain.

This chart highlights the mix conditions we continue to face in our main market segments and geographies. In North America, uncoated wood-free paper production was down 1% and in Europe it was flat. The construction market in the US, which includes both residential and commercial markets, improved over last year and was up 5% in the second quarter. In Europe, however, construction continues to be lower. North American Automotive Unit production was up 6% as production levels remain relatively high at 4.4 million units in the quarter. Lastly, you can see the continued soft steel market conditions. Production in North America and Europe, our two largest market, were lower than the second quarter of last year, by 6% and 5% respectively.

Let's go over the financial results within the Specialty Minerals segment. As I mentioned earlier, this segment had a record quarter, and you can see from the chart, we continue to build on the performance momentum we generated last year. The $25.2 million of operating income increased 11%, and we expanded our operating margins in the segment to 15% of sales, compared with 13.7% last year. Within the segment, paper PCC's underlying sales grew 3%, driven by higher sales in Europe, Latin America and Asia as growth was partially offset by slightly lower volumes in North America, due to several seasonal mil maintenance shutdowns.

In Performance Minerals, underlying sales also grew 3%, driven by growth in our US specialty PCC product line, and favorable product mix in our ground calcium carbonate business, where sales grew by 8% and 5% respectively. This growth was partially offset by weaker specialty PCC demand in Europe. Segment operating income growth was driven by a 16% increase in paper PCC and a 5% increase in Performance Minerals. The increase in paper PCC was primarily due to the contribution from our new satellite facilities in Asia, increase profits from FulFill, higher pricing, a 2% improvement in productivity, and the restart of the Alizay facility. The improvement in Performance Minerals was due to volume growth in North American specialty PCC, price increases, and a strong contribution from the ground calcium carbonate business. Sequentially, segment sales were 1% higher than the first quarter, driven by the seasonal volume improvements in the Performance Minerals business. Sales in processed minerals were 10% higher than the first quarter. Operating income for the segment increased 8%, which was in-line with our expectations.

Looking forward to the third quarter, we expect our paper PCC volumes to be up slightly, as a number of North American paper mills, which completed their normal annual maintenance outages in the second quarter, will return to normal operating rates. However, these higher volumes will be partially offset by lower volumes in Europe and Latin America as paper mills in these regions perform their annual summer maintenance outages. We'll also benefit from a full quarter of operations at our Alizay satellite. Current indications are that third quarter profits in our paper PCC product line will increase slightly from the second quarter.

In Performance Minerals, we expect profits to decrease from the second quarter as we enter a slower seasonal period for the business. Overall, we expect the third quarter operating income for the segment to be down slightly from the second quarter. Yet compared to the third quarter of last year, we expect sales to grow by 4%, and operating income to increase by 5%. Specialty Minerals segment operating margin increased to significantly this quarter to 15% from 13.7% last year. These margins on a comparable basis as both exclude the Walsum operation. As you can see from the chart, we absorbed higher lime costs in paper PCC as well as significantly higher electricity costs in Performance Minerals in the quarter. These costs were offset by contractual price -- paper PCC price increases and product price increases in our Performance Minerals business.

As Bob mentioned earlier, we completed a specialty PCC expansion in June at our Adams, Massachusetts facility to meet increase customer demand. This specialty PCC volume growth, along with favorable product mix in our GCC business, generated close to 0.5% of margin improvement. We continue to achieve productivity and other cost control improvements in the segment, which contributed 0.7% to the margin growth. Finally we are seeing solid performance from our new PCC satellites in Asia along with increased contribution from FulFill.

Now let's go through the results within the Refractory segment. Sales in the second quarter were 3% higher than last year. Underlying sales grew 5% as foreign exchange had an unfavorable impact from approximately $2 million. Underlying sales of Refractory products and systems grew 5%. Sales in our Europe Refractory business increased 20% due to incremental refractory volumes in Bahrain, share gain with customers in Germany and Russia, and also to increased volumes in the UK. These higher sales were partially offset by a 9% decline in North America refractory products due to the closure of RG Steel's mill last June, as well as to the temporary closure this quarter of US Steel's Lake Erie works, and the idling of a blast furnace, which affected steel production at the ArcelorMittal Indiana Harbor facility. Underlying Metallurgical Wire sales were higher by 5%, due to volume growth in North America, Europe and India.

Operating income for the segment decreased $200,000 in the quarter to $8.5 million, despite the sales growth I just outlined. This decline was primarily due to the loss of profitable business in North America, lower equipment profitability, and compressed margins in Japan due to foreign exchange. Operating income was 9.6% of sales for the quarter. Sequentially, Refractory sales were 6% higher than the first quarter, and operating income increased 23%, which was considerably more than we had expected on the last call. This was primarily due to higher than expected Refractory sales in Bahrain, and to higher Metallurgical Wire sales. Looking to the third quarter, we expect our operating income for the full segment to remain at these second quarter levels. We currently do not see any near-term improvements in steel production levels in both North America and Europe, nor do we anticipate any change in our equipment sales level. However, compared to the third quarter of last year, we expect segment sales to grow by 2%, and operating income to increase 15%.

Here's the summary of the changes in the Refractory segment operating margin. You can see that the second quarter ratio of 9.6% compares to 10.1% last year. Improved Metallurgical Wire volumes contributed 0.3% to margin improvement, and productivity improvements and expense control added 0.5%, and the increased sales and profits in Europe Refractory products added another 0.7%. These improvements were more than offset by lower profits in North America, lower equipment sales and foreign exchange, which primarily had a negative impact on our margins in Japan.

These charts illustrate our working capital and cash flow trends. Total days of working capital remained at historically low level of 55 days as we continue to tightly manage our working capital. Our cash flow from operations was $34 million in the second quarter. Capital spending for the quarter was $13 million. As I mentioned, $10.7 million was used to repurchase shares. We expect capital spending to increase midway through the second half of this year as we begin construction of two new satellite facilities in China with Sun Paper and Jianghe Paper, and begin work on the four PCC satellite expansions here in the US.

Let me take a minute to review our results for the first half of 2013. Our first half earnings per share from continuing operations of $1.18 is a company record and represents an 8% increase from the $1.09 per share recorded in the first half of last year. This performance is also highlighted by a record first half profits in both the Specialty Minerals segment and the Performance Minerals business. Consolidated sales for the half were $507 million, which was slightly higher than last year. Foreign exchange had an unfavorable effect on sales of $5.7 million, or about 1%, and they're also two less days in the first half of this year compared to last, which affected sales by another 1%. Consequently, our underlying sales for the first half grew 2.5%. Gross margin increased 2%, driven by a 5% improvement in productivity. Expenses declined approximately 1% and represented 10.7% of sales.

Our operating income increased 4% and operating margins improved to 12% of sales, achieving the 2015 target we set for ourselves back in 2010. We continue to improve our return on capital, which for the half was 9.5%, on an annualized basis. We generated $60 million in cash from operations in the first half, of which close to $22 million was used to fund capital expenditures, and $20 million was used to repurchase shares. In total, this was the strongest first half performance in the Company's history and is a direct result of the execution of our key strategies of geographic expansion, particularly in Asia and new product innovation highlighted by the increased contribution from FulFill.

As I mentioned earlier, our second-quarter earnings of $0.63 per share were above our expectations primarily due to a strong performance in Specialty Minerals, and better than expected performance in Refractories. We also benefited from a lower tax rate. Looking to the third quarter, we expect profits in the Specialty Minerals segment to be slightly lower than the second quarter as an improvement in paper PCC will be offset by a normal seasonal drop in Performance Minerals. In Refractories, we expect our operating income for the full segment to be similar to the second quarter as steel market conditions remain weak, and we do not see any improvement in equipment sales.

I also want to note that we will not realize the one-time tax benefits in the third quarter that contributed $0.02 to earnings-per-share in the second quarter. For the full-year, we estimate that our effective tax rate will be approximately 28.5%. Overall, we expect the third quarter to continue on a strong track and deliver 4% sales growth and 10% EPS growth compared to last year for approximately $0.60 per share. Further, we expect to continue our track of revenue growth into the fourth quarter. As you can see, the growth we have been projecting to you over the past several quarters is beginning to show through.

Now I will turn it over to Joe Muscari for some closing comments. Joe?

Thanks, Doug. Good morning, everyone. I just want to take a few minutes to share a few additional thoughts with you, as Bob and I continue on the leadership transition path that we started on a few months ago. By the way the transition is going well and as planned, Bob has taken over the day-to-day operations of the company, as I focused more on the M&A front and major new customers, particularly in Asia. I expect to serve in an active management role as Executive Chairman, at least through the end of this year and possibly into the early part of 2014.

As you heard from Bob and Doug, Minerals Technologies continues to perform at a high level, setting new records for profitability. The Company's direction and thrust is to continue on that track, and as Bob indicated, to deliver on opportunities that will increase shareholder value. As we look forward, the challenges of an ever-changing global economy, as well as competing in the highly cyclical markets of steel, paper, construction and automotive, remain. What has changed, however, is the Company's ability to improve its leading market positions because we offer our customers product and services that provide significant cost savings as well as advantages that allow them to differentiate in their marketplaces. And because we are a strong operating company built on a lean foundation, we will continue to grow our product line through geographic expansion and technological differentiation. These have been, and will continue to be, the Company's pathways to creating value.

As we move through the transition, it is clear that the groundwork we have laid in the last six years, while I might add increasing our earnings almost 70%, will remain the foundation for future growth, both organically and through acquisitions. I am confident in Bob Wetherbee's ability to lead this Company and to maintain a high-performance track going forward. Now let's open it up for questions.

(Operator instructions) And your first question will come from Daniel Moore, CJS Securities.

Good morning, and thanks for taking my questions. Refractories as you mentioned showed surprising strength. Can you give us a sense of the contribution from the Bahrain operations?

Yes Dan, this is Doug. So we saw a little bit stronger sales than we had expected in the second quarter, so most of that growth, we had about $5 million worth of sales just in the quarter in Bahrain, so that was higher than normal. Operating income from that, probably around $750,000. So I think the higher sales was what really drove through the volume increases in Europe.

Perfect. And obviously in your prepared remarks, you see similar type results from operations as we look into Q3. What might give you a pause, any concerns around the core business in Refractories? Or is this level very comfortable, this level as sustainable, as we look at it in Q3 and the back half of the year?

Yes, I think in Q3 it is really probably a difference in mix. I don't think we're going to see the continued strong sales in Bahrain. And the thing -- to give your question, what gives me pause is probably the equipment sales. We continue, as you know, for almost the past year with the soft steel industry, where capital spending on their behlaf has been lower and that has affected our equipment sales. So those equipment sales coming through in the third quarter, but if it gives me pause, that's one area that has been soft for the past year.

And lastly, that goes to my question, just a little bit more detail on equipment sales in Q2 specifically. Did you see much of a pickup, and obviously the environment remains a little uncertain there?

Yes, Doug, we did not see much of a pickup in Q2 as I referenced in my remarks. It just continues to be soft on a year-over-year basis in terms of number of units. We do usually see a pick-up in the fourth quarter.

Typically for this business, we are working on selling units throughout the year and building them throughout the year, and most customers take deliveries in the fourth quarter. So, it is not that the second quarter is typically strong anyway, but they have been typical to the soft market. They have been week this quarter.

That's helpful. Congratulations on a solid quarter, and I'll jump back in queue.

Thank you.

Your next question is from Rosemarie Morbelli with Gabelli and company.

Good morning all.

Good morning.

And congratulations on the great quarter. Doug, you just said that on the steel area equipment -- customers take -- receive their equipment in the fourth quarter. Could you talk about your backlog? I know this is an area of concern, and when you look at that backlog, are there any cases of customers placing an order and then either delaying delivery or actually canceling it all together?

So, Rosemarie, I'm going to start and then I'm going to pass it over to Han to give you a little more color. The structure, as I mentioned, is kind of our equipment sales of a typical year. We'll have some equipment sales, some laser units, some deck techs, other types of equipment that are sold throughout the year. But typically, historically, our sales are increased in the fourth quarter as most of the units where the orders are placed through the year are finally sold commission-qualified in the fourth quarter.

I'll take you back to the second quarter or the fourth quarter of last year where we did not see those sales. If you go back to the call we highlighted, that with the downturn in the second half of the steel market last year, a lot of customers didn't take the equipment. They did not place the purchase orders. They did not come back, but they did not place the orders as they were constricting their capital spending. But we're seeing that continue this year, though we are hopeful in outlook, I'm going to let Han talk about the outlook of the fourth quarter this year in terms of the number of units that could potentially come through.

Thank you, Doug. So if you look in general to our sales, of course, and the equipment, it's heavily loaded, normally to the fourth quarter. It has primarily to do also with the outages that the customers taken in the Christmas period, and they're looking for a way, of course, to install the equipment. So we have to be ready to be able to install in the fourth quarter.

That is why it's heavily loaded into the fourth quarter. We haven't seen really customers postponing so far, but we see still a lot of capital restrictions and the capital approvals of the customers are very slow at the moment. So that continues to be the current situation.

Okay.

Rosemarie, I'll add one thing to that. You look at the restriction of capital spend over the past 18 months, and we do see that that's going to come back eventually. We also have some new products out there, as we mentioned, with the laser torpedo, We continued to market and sell that. Some other new products that the business is working on. So we do see some growth in equipment sales in the future, which as I mentioned, the third quarter, we are not seeing it happen in the near-term.

Okay, thanks, and then on the specialty minerals, that 15% operating margin which is a great level, but is it sustainable? Is it because usually the second quarter is seasonally stronger, so it is not going to be at that level over the next couple of quarters, but then more importantly, what about next year? Is anything that you see happening that would prevent you from having that 15% margin?

Good morning, Rosemarie, this is Bob Wetherbee, and thanks for joining the call. We are well-positioned for future growth. We're executing our strategies, we're seeing success, and when you get underneath of that, paper PCC business continues to grow with new satellites expansions. FulFill is gaining traction in the marketplace. We see the increased validation around trials coming through, and you see our expansions in ultrafine specialty PCC coming to the marketplace.

On top of that, we have the development pipeline that's very robust at the moment. We do see that we have built a foundation for growth and expect continued results. Doug, any flavor you'd like to add to that?

Yes Rosemarie, I do think they're sustainable. I think, as Bob mentioned, the underpinnings of those margins with higher margin products, productivity improvements, our new satellites and growth and leveraging our shared service model to support that growth without having to add the cost, so I do think all of the underpinning of our margin expansion that we've been talking about are coming through. So, yes, I do see that that's sustainable and not necessarily just a reflection of the seasonality of the second quarter.

Okay, and then lastly if I may, I was wondering if Joe could give us a feel for what he sees out there in terms of M&A, whether we are getting closer to a third leg, and is there any thoughts of repurchasing more shares with the lack of acquisitions?

Sure, Rosemarie. One, we continue to be -- you've heard me say this before, but it's simply a fact. We are very active, our M&A team, at any one point in time, and that's true today, is involved in three to five different projects. So the activity level of areas that we are either looking at, or in discussion at, is still at a very high level today.

We are going to continue to take a very balanced approach to the use of that cash as you heard me say before, which basically means that if we see that certain acquisitions may not be developing as fast or with that we can bring them to fruition within reasonable time frames, then we have the opportunity to accelerate buybacks, which is something that we have done from time-to-time, and we are going to continue to look at share repurchasing as another aspect of delivering shareholder value and making good use of the cash.

And Joe, your definition of a reasonable time frame? Is that a year, two years?

Of course, I used the word reasonable. I had a feeling you were going to ask me what reasonable is. (laughter) Well, you have to sort of be in the moment and assess how much longer a deal may take to complete and the probability of it taking to complete. But I think the thing to keep an eye on is that we have not really been materially adding to the cash position, which is reflective of some acceleration, while at the same time it is still a large amount of cash, which means that we still have a perspective that we can put that to good use within the coming year or so.

Okay, thank you.

Your next question is from Steve Schwartz with First Analysis.

Good morning, everyone.

Good morning, Steve.

On the sold ramp in Bahrain, so this is going to anniversary in the third quarter, and Doug, I think when you were answering one of Dan's questions, you commented that you thought that maybe the third quarter year-over-year growth might slow. So I'm just wondering, as this goes into the second and third year of the agreement, do you expect that essentially the revenue from that will be flat year-over-year from here on out?

Let me go back to Dan's comments -- my answer to Dan's question. That mill continues to ramp up, and so as they go through their ramp-up, they could be consuming more, they do consume more Refractory products in these early days. So it's taken them some time to get that plant that started late in the third quarter, and they're still going.

So I think the higher sales in the second quarter reflective of that kind of higher consumption as that mill gets up to full capacity and full running rate, we think we're going to get back to the normal, and we had about, I think we said, $10 million to $12 million per year. And so, we're going to get back to that kind of run rate.

So, there's nothing significant in terms of slow. I think it's just more getting back to the normal run rate when that mill gets ramped up. So, on a year-over-year basis, I think you're going to still see in the third quarter, probably some sales growth, because we were ramping it up just in the beginning of the third quarter. So there will still be some incremental growth there, but that will normalize as we get to the fourth quarter.

I see. And then regarding Alizay, I thought I saw some comments from Double A, where they suggested that mill would ramp through this year. So I'm just wondering, it obviously was a notable contributor to the second quarter. Did you -- because it is starting up, did you see a huge surge in volume in the second quarter, or will the third and fourth get better for you?

So, we saw some volume increase. I think it will continue to ramp-up. We got to a normal running rate, DJ, probably late in July. So we had about a $500,000 of revenue contribution from it just in the quarter as it ramped up through -- I'm sorry, through June. That facility will just run. I think it got to its run rate at the end of June. So, we'll see a full quarter of that rate coming forward.

Okay, all right, that sounds good. And then just my last question on the Met Wire sales. How is that those are bucking the macro trends in steel, and you're seeing growth there?

That's a great question, Steve. I appreciate you bringing it up. It is actually good example of our new product innovation and the robust portfolio of product coming to the marketplace. We are also joined this morning by Han Schut, who runs the Refractory business. Han, can you add a little color as to what is going on in the Metallurgical Wire business?

Yes, sure, thank you. Steve, as you look at wire and our strategies there, first it's always been new product development, so we're developing new injection systems, and those are new products which gives us the entry to new market segments. So that is a way for us to grow.

And then secondly, geographically, we are also focusing on new markets. So specifically, if you look to India, that has been, for us, a very important growth market that we have been able to penetrate, and we are also starting to make traction in both Turkey and Russia.

Very good. Okay, thanks for taking the questions.

I think you have a follow-up question from the line of Daniel Moore.

Thank you once again. Any potential lingering impact on the P&L from Walsum in Q3, or is that entirely behind?

No, that's entirely behind, and that's been all prior financial results, sales and income have been restated to discontinued ops.

And lastly, we touched too much on GCC. Nice pickup in Q2 after several quarters of declines. Is that sustainable, and what is the outlook for the remainder of the year?

Yes, I think first off, the Performance Minerals business is seasonal, and a lot of our GCC products goes into the construction industry. You will see that the second quarter is typically the highest point as it ramps up through late in the first quarter into the second quarter, and then as the construction industry starts to tail off.

So, I think from a year-over-year basis, yes, we are going to continue to contribute with the growth in construction. And that's regional. We operate on the East Coast and the West Coast, but as you seem to the third quarter, that will probably tail off in terms of growth, just due to the seasonal nature of the business.

Got it, thank you.

You also have a follow-up question from the line of Rosemarie Morbelli.

Thanks for taking my question. I was wondering if you could give us some idea of the progress you are making in TiO2 Extenders, now that TiO2 seems to be stabilized in terms of price. Do you see less of an interest from your customers?

Thanks, Rosemarie, this is Bob. TiO2 Extenders are still a product in our product portfolio, and we still see it as an avenue for growth. Certainly has been a lot of news in the press about where TiO2 is going, and we have Doug Mayger with us who is responsible for the Performance Minerals business, and he can shed some light on that.

Hi, Rosemarie. Yes, we continue to do trials with customers. We have commercial customers, although small, but we do see that as a little bit into the future as TiO2 prices perhaps increase into the future as construction becomes more robust, paint industries will be challenged with perhaps higher TiO2 prices. And at that point, we do see that we would be in a good position to leverage our extenders in the Albacell T10 and the Albacor T10, and we do continue to make, even today, inroads with other customers.

Okay. So you haven't -- how big of a business is it today? Is it still very tiny, right?

It is tiny, yes it is.

And same question on the talc, which also goes into construction if my memory serves me right, as well as into plastics.

Actually you are right, Rosemarie. We're very excited about where the talc business is going in terms of plastics. You heard us announce, or you saw announce, last week an opportunity called Vicron FRP, and that product is going into the polymer plastic reinforcement industry. And so, we see some new product there.

I think when you look at talc, the other concern we have for that is that we do supply the Class A truck market, and where exactly that market has been is certainly down from the historical peaks. So we see the top products going into a variety of different markets, but upside growth for us with polymers and concerns about Class A trucks.

The other opportunity for us clearly in the talc business is geographic expansion. We certainly talked about that as a key part of our strategy, and we have a lot of energy going into where do we play, or how do we play, in China and in the balance of Asia, specifically to follow our global customers around the world as they continue to grow.

So Doug do have anything you would like to add to the perspective?

So, pretty good opportunities around construction for us, market share, opportunities, and as Bob said, we continue to make good progress in all product lines and in talc. And the opportunities to leverage that technology over into Asia and take advantage of a good opportunities in Asia would be our desire.

I think that you are looking for possibly a source of good talc somewhere in the world. Are there any possibilities in Asia?

There are opportunities in Asia, and all talc is not created equal. But I will tell you that even here in the US, there are opportunities, and we continue to have a very good mine in Montana that we continue to do our exploration on to find additional reserves out there.

Okay, and then lastly, the pricing on the contract renewals regarding PCC? Is the price staying the same? Is it coming down? What do you see?

Rosemary, it is DJ. On balance, as we've been renewing, we've been keeping on about the same.

We've been able to do that with, as we are going forward, we've gotten some good leverage from our new products, and we have been having a concentrated effort at refreshing the product line within our existing customers. So on balance, I would say it is about the same. Our best success probably, to give you an indicator, is in Brazil where most of our contracts are locked up through 2020 without any significant price erosion. So that is just an indicator for you.

Okay thank you, and congratulations again.

Thanks Rosemary.

You're next question is from Steve Schwartz.

Thanks for taking the follow-ups. Is there any more potential savings from the fuel oil to natural gas conversions on your kilns?

Yes, we've mentioned on the past calls, that we have four kilns in Adams, currently use two of them. That second one was just converted late in the second quarter to natural gas. We converted one last year, and you've seen the savings from that one flow-through as part of our margin growth. Converted the second one to the extent that we can continue to expand specialty PCC like we have done and continue to grow that market. We are self-sufficient in lime. And then we could convert a third kiln with use of that lime, and so we can see some continued savings. But right now, you're going to see a little bit more savings come in the third quarter from the second one we converted just recently.

Yes, I think on that first kiln you said on prior calls that you saved as much as $2.5 million a year. Is that still an appropriate number?

That is. You know, again, it fluctuates with the price of natural gas, and so the amount of savings is based on -- and gas is up a little bit, but that's a good number, Steve. The second kiln is a little bit smaller than that one. It's not the different sizes, so the savings will be less, probably about half on that kiln.

Okay, I see, and then Doug, in your prepared remarks, and I apologize for missing some of this, I heard you say $0.60, and I think that you were referring to the near-term quarters. Did you say that was, in fact, a floor or a target? Or, can you clarify that for me?

Well, Steve, I don't think I give you the floor, or I gave you an approximate $0.60. I think I was trying to highlight that we see the second -- we see the third quarter continuing to be strong, and if you look at it versus last year with sales up 4%, we think earnings per share up approximately 10%, again, we're not going to have the tax benefit, the $0.02 tax benefit that we got this quarter, so you have to discount that. So I see a strong quarter in the third quarter, and I said approximately $0.60.

Approximately. Okay, well good thing for both of us that we got that clarified. (laughter) Thank you.

You do have a follow-up question from the line of Rosemarie Morbelli.

Just a little more clarification on the clarification. When we are looking at that 10% increase, are we looking at adjusted numbers in 2012 to reflect Germany? And if that is the case, what is the number we are looking at in 2012? Because while early last year, you reported $0.55 in the second. It was actually the comparison was against the $0.57, which is an adjusted number.

Right, if you look at the charts I showed today Rosemarie, everything has been restated. So, if you look at a restated chart today, last quarter was $0.54, or last third quarter last was $0.54 we stated. So, I've taken that out, so I'm looking at a 10%, or around $0.60, from the last third quarter. And that is without Walsum. That's taking out Walsum and everything from both last year and this year.

Okay, thanks. Sorry, I apologize. I did not have a chance to look at the chart.

I am glad we can clarify it.

Rosemarie, this is Joe. If I could maybe add a little bit to that from a prospective in my new role, but also of the board. But if you reflect a little bit on the comments that were made during this call, they really speak to -- the Company is at a different place today from where it's been.

And it is different in a sense, and it is not something that was a leapfrog. It was something that's been deliberately built in a consistent way over time, and our ability to now, I think, grow in a more consistent manner, to continue to deliver good high-performance, the integration, the further engagement of our employees, in terms of their suggestions and what we convert, in terms of ideas that are converted to things that we act on.

So the Company is at a new place and the Board has an expectation that the Company is going to continue to deliver at a higher level, and so you heard Bob talk about we've broken through, or the $0.60 level, and there is an expectation of ourselves and of the Board that there's going to continue to be a high-performance level. So, I think that the way, maybe, to think about this quarter in terms of the things that came together that are sustainable going forward.

Thank you, Joe. That is very helpful.

Any further questions, Victoria?

There are no further questions at this time.

Well, that will conclude our call for today, and thank you for your interest in Minerals Technologies.

Thank you for your participation in today's call. This concludes today's conference. You may now disconnect.