Minerals Technologies Inc.

Good day, everyone, and welcome to the second quarter 2022 Minerals Technologies earnings call. Today's call is being recorded. At this time, I'd like to turn the call over to Eric Aldag, Head of Investor Relations for Minerals Technologies. Please go ahead, Mr. Aldag.

Thanks, Jennifer. Good morning, everyone, and welcome to our second quarter 2022 earnings conference call. Today's call will be led by Chairman and Chief Executive Officer Doug Dietrich and Chief Financial Officer Matt Garth. Following Doug and Matt's prepared remarks, we'll open it up to questions. I'd like to remind you that beginning on page 15 of our 2021 10-K, we list the various risk factors and conditions that may affect our future results. And I'll also point out the safe harbor disclaimer on this slide. Statements related to future performance by members of our team are subject to these limitations, cautionary remarks, and conditions. Now I'll turn the call over to Doug.

Thanks, Eric. Good morning, everyone, and thanks for joining the call today. We've got quite a bit to go over, so let's get started. I'll walk you through the highlights of our results and what contributed to this record quarter. Then Matt will give you details on our financial results and share our outlook for the third quarter. To conclude, I'll provide some highlights from our 14th Annual Corporate Responsibility and Sustainability Report, which was published Wednesday. Let's get started with a recap of the quarter. This was a remarkable quarter for MTI, with record sales of $557 million, record second quarter operating income of $74 million, and record earnings per share of $1.50. This performance is the result of our team's execution over the past several years on some key fronts, delivering on our strategic growth initiatives, driving continuous operating improvements, and disciplined capital deployments. To begin, MTI sales were up 22% versus the prior year and up 27% on a constant currency basis. Every product line grew and contributed to double-digit growth in all three of our segments. We saw growth in every region, in North and South America, in EMEA, and in Asia, despite lower sales in China due to the COVID situation there. This performance was the result of our broad-based approach over the past several years to grow the company both organically and inorganically. It's also the result of our pricing actions and value selling efforts to offset the significant inflation we've experienced over the past 12 months. Our operations performed well and our team coordinated seamlessly to overcome persistent challenges and meet market demands, address consumer needs, as well as identify and create efficiencies to drive profitability. Supply chain and labor challenges persisted. However, our teams navigated these issues and continued to demonstrate their agility in dealing with the evolving market landscape. We saw higher than expected inflationary cost pressures in the quarter of $43 million compared to last year, and our pricing actions accounted to $47 million. I'd like to note that we absorbed $4 million of this cost inflation without pricing adjustments because we couldn't begin to pass through this cost contractually until July 1st. Our culture of disciplined cost control and continuous process improvement was on full display this quarter, maintaining efficient overhead spending and integrating two acquisitions, driving our SG&A as a percentage of sales down 160 basis points. The result was operating income of $74 million, a record for the quarter, and despite the significant cost pressures, our margins ticked slightly higher. From an investment standpoint, we maintained our discipline and balance with capital deployment. We acquired concept PEP, returned $26 million to shareholders through share repurchases and dividends, and invested $21 million in capital expenditures to support our facilities and organic growth. All in all, we had a very productive quarter. We're executing well on numerous fronts, and we're well positioned to sustain our strong performance. Now I'll take you deeper into some of the underlying drivers of our record performance this quarter. As I alluded to earlier, our growth strategy is multifaceted. It consists of positioning ourselves in faster-growing markets and geographies, and accelerating the development of new products and technologies. It also includes the disciplined acquisition of companies that help accelerate these efforts, further balance our portfolio, and expand our technologies and capabilities. For the past several years, we've been executing on each of these fronts, and this second quarter is, in part, a representation of the results. This quarter, our sales increased 27% over last year a robust figure that was broad-based and driven by four areas. Seven percent revenue growth, base revenue growth, two percent from new product sales, eight percent from acquisitions, and the remainder from price increases implemented across our product lines. Let me take you through each of these components in more detail, starting with the base organic growth. Over the past several years, we've been positioning ourselves in faster-growing markets and geographies, expanded into consumer-oriented markets, which are characterized by favorable secular trends. These trends, such as growing pet ownership, consumer preference for over-the-counter functional cosmetics, and increased demand for high-purity edible oils, are driving higher levels of sustained revenue growth. Demand for these products is also more resilient, and will lessen the impact of cyclicality on our total sales, balancing the industrial side of our business. We've been benefiting from these macro trends and market positions. Our household and personal care product line, which includes many of our consumer-oriented products, has grown at a 17% compound rate over the past five years. Including acquisitions in this product line, it's grown organically at a 6% compound rate illustrating the stability and growth potential of these products. In addition, we continue to penetrate growing regions with our high-value products. Our sales of pre-blended green sand bond products in the two largest foundry markets, China and India, have grown at 9% and 20% annually over the past five years. For many years, we've been penetrating growing regions with our latest PCC technologies, And this month, we signed an agreement to construct a 43,000-ton PCC satellite plant in India, which will feature our first deployment of MTI's sustainable New Yield LO PCC technology. This technology is a combination of our traditional PCC technologies, while at the same time repurposing a paper mill waste stream, saving the customer's money, and alleviating a waste disposal challenge. The acceleration of product development and commercialization to meet new customer demands and the transition of our portfolio to more sustainable solutions is having a noticeable impact on the top line. Sales of new products are on track to increase 38% over last year and, as I mentioned, our newest products drove 2% of the overall organic growth that we saw this quarter. Some examples of these new solutions are our latest edible oil purification products, which grew 29% versus last year. These products create higher purity, longer shelf life edible oils, and we're developing new products targeted at the rapidly evolving market for biodiesel. In pet care, we commercialized new fragrance and dust control formulations for customers in our North American market and introduced new product offerings tailored for Asian markets, where sales grew 15% over last year. Personal Care, our health and beauty solutions business, has been supporting several new active skincare products over the past few years with our delayed release retinol technology. Our capabilities to support customer formulations and provide them packaging solutions has driven continued growth in this product line, and sales this quarter grew 13% versus last year. We're also benefiting from the general market appetite for sustainable product and process solutions. We've invested in R&D to expand our portfolio of sustainable solutions, and as a result, the majority of our new products in development, 65% in fact, feature aspects that benefit our customer sustainability goals. We're also moving into higher tech, value-added solutions for our industrial customers. For example, Our refractories business is offering a higher-tech solution to improve the safety and productivity of steelmaking. Our solution uses laser-guided systems to measure and collect data on steel furnaces and automates the application of the refractory material. These systems yield more accurate measurements of furnace wear and lining degradation than conventional methods, while also collecting data to enable predictive maintenance through analytics. Not only is this valuable information, but it keeps furnaces running longer without the need for remedial repairs, saving our customers money. Most important, it removes people from proximity to a high-temperature environment. Our PCC business is also developing new technologies to scale into the growing packaging market. Last year, we signed a contract with Asia Symbol in China to deploy GCC technology in the whiteboard packaging market. And we have new technologies currently in trial with our customers that target additional white and brown packaging applications. We also bolstered our growth in the second quarter by 8% from acquisitions, including Normerica, ConceptPet, and the specialty PCC facility in the Midwest. These acquisitions accelerated our movement into growing markets and geographies. They are progressing well, and through them, we see avenues for additional growth and value creation. We have an active pipeline of other M&A opportunities that will support our growth objectives. And importantly, we have the balance sheet strength to execute on them. The ability to adjust prices, given the inflationary environment, has been a key topic for many companies lately. And, as you can see, a significant portion of our sales growth this quarter came from our pricing actions. We price our products on the value they provide, and we are uniquely positioned in the marketplace. through a combination of our technologies, our applications expertise, and our global mineral reserves to provide supply stability and continued value to our customers. We have deep long-term relationships with our customers, and we engage and partner with them to ensure we deliver the solutions they need. In summary, this quarter represents many aspects of the execution of our growth strategy, but it still doesn't show our company's full potential. We are a higher growth, more resilient company with more opportunity ahead. This, combined with our demonstrated ability to navigate challenges, gives us conviction that we'll continue on this strong trajectory. With that, I'll hand it over to Matt to discuss the financial results in our outlook for the third quarter.