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USA - AMCOL International Management Discusses Q4 2013 Results - Earnings Call Transcript

With respect to metalcastings, we see steady performance for our domestic metalcasting products through the next quarter, through the year. For Q4, the positive results were coupled with growth in the mid-teens in Asia resulting in high single-digit growth globally for the product line in the quarter. The gross margin for metalcasting also improved across the board. Our key customers for metalcasting products primarily supplying castings for the auto industry are anticipating steady demand in the U.S., with demand increasing in China as we look forward in 2014.

Moving on to chromite, our chromite business generated sales of $12.8 million in the fourth quarter. About half of which was included in the metalcasting product line for typical steel foundry end-use. The other half was included in our basic minerals product line, primarily for refractory and other end-use applications. Our chromite sand for use in foundries accounted for about 9.3% of metalcasting sales in the quarter. So overall, sales for chromite were up 5.8% versus Q4 last year with growth -- with gross margin exceeding 20%, which is slightly ahead of the prior year quarter. Pricing for foundry grade chromite appears to have stabilized, and our efforts to build sales volume in a broader range of end-use applications is bearing fruit.

Moving on to our basic minerals product line. The product line generated $6.2 million in revenue growth for the quarter. Bentonite sold for end users such as Iron Ore Pelletizing and also certain non-foundry grades of chromite are included in this product line and sales for these products increased in comparison to the prior year. Drilling fluids also sales -- drilling fluids sales also increased versus the prior year.

Moving on to the Specialty Materials product line. Our Fabric Care products are the major component included in this product line. The Fabric Care team delivered $11.2 million in sales for the quarter, which was a 23% top line growth with nice improvement in gross margin as well. Our products are supported by a strong technical team, and they continue to gain acceptance with major customers.

Specialty Materials also includes our Bio-Ag products, where we're gaining sales momentum supported by data from multiple crop validation studies being conducted by a number of universities and government agencies. The sales for this product line in the quarter was $4.7 million, which is a 55% increase versus prior year Q4 as Bio-Ag area continues to be an important growth opportunity for AMCOL.

The last product line within the Performance Materials area is pet products. As we discussed on our last quarter's call, we expected continued good performance from our pet products group both from new customers for fully packaged products, as well as from increased volume from existing customers. In Q4, the pet products team delivered a 35% increase in sales with gross margin also improving.

So moving on to the construction technologies segment. For the quarter, the construction technologies team delivered sales of $56.5 million, representing growth of 12.8% versus prior year Q4, with operating profit improving significantly as results of the restructuring and operational streamlining accomplished during the early part of 2013. The increased sales, along with the SG&A reductions has generated $3.73 million in operating profit, which was 163% increase in operating profit for the quarter versus last year.

There are 3 main product lines in this segment: building materials, lining technologies and drilling. With respect to building materials, our global sales were up 2.7% in the quarter. Growth in the U.S. and Asian markets continue to be offset by decline in Europe. In Europe, we're still seeing building activity was pretty slow, but we are seeing some signs of increased activity there. Several large projects were delayed in late 2013, and we expect a strong start as these projects get underway.

Moving on to lining technologies. The management team for lining tech delivered a 26.5% increase in sales for lining technologies products versus prior year Q4. That's despite the fact that a number of projects scheduled to start in late Q4 have been pushed to early 2014 due to the weather-related delays that Don mentioned.

Standard end-use applications in the landfill market remain relatively flat, but large mining and industrial projects are continuing to support the growth. Remediation products are also included in this product line and the outlook for these products is good. We have secured a large remediation project in the U.S. with revenue opportunity of approximately $13 million scheduled for the first half of 2014. Excluding a couple of these large projects, our growth expectations for this product line remained conservative in the mid to upper single-digit range.

In drilling products, which is the third grouping within the segment, the drilling products team delivered 25.6% sales growth globally for Q4. The end use for our products includes horizontal drilling for placement of utilities and pipelines, which are -- is becoming more active. A number of tunneling projects are getting underway as well, which support a promising outlook for this product line.

So although we experienced significant improvement in operating performance, results for the quarter did not meet our expectations as business was impacted by weather-related project delays in late November and December. The total of 18 different individual projects we expected to start in late Q4 were impacted by these weather delays. These projects amounted to approximately $4 million in revenue or approximately $1.4 million in operating profit that got pushed into 2014. So as we enter 2014, our growth expectations for this segment are in the low- to mid-teens range with gross margin targeted above the 30% mark that the team achieved in 2013. SG&A should increase by about 6% from the current Q4 run rate but will be $1 million to $2 million lower than full year 2013, which includes restructuring cost for 2013, I think it was $3.1 million. The restructuring initiative we've started in early 2013 throughout the segment is having the expected positive impact on the business.

So our last the last segment we'll talk about is our Energy Services segment. Sales for the quarter were up 1.5%, but operating profit of $5.7 million was $2.5 million below last year's Q4. Gross margin was 26.3%, which is a nice rebound from Q3 this year as our cost-reduction initiatives took effect along with the focused sales effort in certain areas.

The quarter started with a very strong performance in October, generating over $4 million in operating profit just that 1 month. Performance in November was on target but December is when the full impact of the weather-related delays that affected a lot of oilfield service companies was experienced and we incurred an operating loss for the month as a result.

With respect to the weather delays, a total of 17 projects scheduled for December with total revenue of $4.7 million were postponed due to the severe weather. Operating profit from these delays is estimated at about $1.4 million. And as of earlier this week, 10 of those 17 projects on our delayed list are either underway or completed with the balance to be started in late January or February.

As Don mentioned, the bid has also incurred a onetime bad debt reserve expense of $1.6 million, which impacted the results during the quarter. So for the quarter, again, for energy services, the coil tubing and well testing in the U.S. accounted for 40% of the segment's sales revenue. The combined revenue for these 2 domestic service lines was 19% below prior year. We're now starting to see additional demand for our land-based services especially coil tubing. This is partly driven by our new eelReel technology related to coil tubing.

Our pricing in both of our primary land-based service areas, which are coil tubing and well testing has stabilized over the last few months. Our filtration business globally generated $25.5 million in net sales for the quarter, up 11.8% versus the prior year Q4 with significant increases in gross margin and operating margin. And we're experiencing increased demand for filtration business offshore in the Gulf of Mexico where our primary service offering is related to produce water, well completions and well simulation flowbacks. Our expectation as we enter 2014 for this segment remains for sales growth in the mid to high single-digit range and with gross margin in the mid-20s, 25% plus for the energy services segment.

So that's a quick summary of the business results and operations.

Source: seekingalpha.com

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