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spk07: Welcome to the first quarter 2024 Minerals Technologies Earnings Call. As a reminder, today's call is being recorded. At this time, I'd like to turn the call over to Ms. Lydia Kapulova, Head of Investor Relations for Minerals Technologies. Please go ahead, Ms. Kapulova.
spk00: Thank you, Maddie. Good morning, everyone, and welcome to our first quarter 2024 Earnings Conference Call. Today's call will be led by Chairman and Chief Executive Officer Doug Ditcher. and to Financial Officer Eric Alda. Following Doug and Eric's prepared remarks, we'll open it up to questions. As a reminder, some of the statements made during this call may constitute forward-looking statements within the meaning of the federal securities laws. Please note the cautionary language about forward-looking statements contained in our earnings release and on this slide. Our SEC filings disclose certain risks and uncertainties, which may cause our actual results to differ materially from these forward-looking statements. Let's also note that some of our comments today refer to non-GAAP financial measures. Reconciliation to GAAP financial measures can be found in our earnings release in an appendix of this presentation, which I posted on our website. Now I'll turn it over to Doug.
spk04: Thanks, Lydia. Good morning, everyone. Thanks for joining today. Okay, let's go over a quick outline for today's call. I'll begin today's presentation by reviewing the highlights from our first quarter. And as you saw in our press release, we posted a record quarter for MTI. and I'll share the actions that drove our strong results. I'll then take a few minutes to give you some insight into the current dynamics of our main markets and also highlight a few growth initiatives that will come into play over the next few quarters. Eric will then take you through the detailed financials and provide an outlook for the second quarter, and then we'll open up the meeting to questions. With that, let's get started. We're off to a strong start this year, with several factors and initiatives that combine to deliver a record quarter. The resegmentation of the company last year, which organized our product lines around our core technologies and similar end markets, and which also streamlined our internal organizational structure, is driving higher levels of performance. Our strategy to move into higher growth, higher margin markets is also delivering. Sales in the consumer and specialty segment continue to grow, and our highest margin products across the company are growing the fastest. Our margin expansion initiatives are ahead of our target pace and we continue to leverage savings from the reorganization, strengthen pricing, and capture input cost savings. Each business is executing well operationally, focusing on safety, variable cost control, and productivity improvements. Combined, These initiatives led to an all-time record quarterly operating income and first quarter records for earnings per share and cash flow. Overall, we're pleased with the performance and the strong momentum we've built. Let me take you through some of the highlights. Sales were $535 million and adjusting for the deconsolidation of Barrett's Minerals were relatively flat compared to last year and up slightly from the fourth quarter. We continue to drive growth across the consumer and specialty segment, with sales up 4% over last year on an underlying basis. Sales in the engineered solution segment were lower compared to last year, primarily driven by pockets of weak market conditions in the environmental and infrastructure product line. Within consumer and specialties, the household and personal care product line remained on its steady growth track and sales increased by 7%. This was driven by continued strong demand for private label cat litter and increases across the board for renewable fuel filtration, animal health feed additives, personal care, and fabric care products. We'll go into a bit more detail on what's driving this in a moment. Underlying sales in the specialty additives product line increased by 2%, driven by a rebound in demand from North America paper and packaging customers and also from strong sales of ground calcium carbonate products in our western U.S. market. Within the engineered solution segment, high temperature technologies product line sales were similar to last year with stable steel and foundry market conditions in our major geographies. We experienced a few foundry customer maintenance outages in North America in January, but volumes rebounded quickly throughout the quarter and demand remained solid. We also saw continued growth of foundry volumes in Asia. In the environmental and infrastructure product line, sales were lower than last year, due to an uncharacteristically slow seasonal period for commercial construction. We're also involved in a couple of very large environmental remediation projects last year, adding to the comparative sales decline. As I mentioned, each business put up a solid operating performance this quarter. They maintained strong pricing, actively secured lower input costs, and remained focused on safe and efficient operations. The savings realized from our internal reorganization last year also contributed to increased profitability. These actions, combined with a strong sales mix, yielded an operating margin of 14.5% and a record $77 million of operating income, a 23% increase over last year. Earnings per share were $1.49, a 31% increase over last year. Cash flow was also strong this quarter at $56 million. This quarter is a good example of the power of our new organization, our focus strategy, and the strength of our business model. For the past few years, we've built a balanced portfolio of leading consumer and industrial businesses that provide stable long-term growth. We're expanding margins through the innovation of higher value products, through operational excellence, and fixed cost leverage. We've strengthened cash flow, increased returns to shareholders, and maintained balance sheet strength and flexibility. Overall, I'm pleased with the start to the year and the positive track we're on. As we head into the second quarter, I want to take a few minutes to give you a bit of color on the current market conditions for each product line and also highlight a few new products that are advancing over the next several quarters. It should give you a sense of the positive combination of market conditions and new business opportunities that we see driving strong results for the second quarter and into the back half of the year. As a general backdrop, the second and third quarters are typically our strongest due to seasonal strength in the residential, commercial construction, and environmental remediation markets. We're also seeing improvement on top of this regular seasonality in a few of our markets compared to last year, which I'll point out as I move through the product lines.
spk12: Let's start with household and personal care. Markets served by this product line continue to be robust.
spk04: We are the leading provider of private label cat litter the global demand remains solid. The market for our personal care products has moved past last year's destocking phase, and we're seeing improvements in our order book. Innovation, driven by close collaboration with our customers in each of these markets, is paying dividends, and demand for our newest products in animal health, renewable fuel filtration, and fabric care is growing. On the growth initiative side for this product line, We have several new innovations for pet litter and fabric care for the fabric care market that are moving through development and that will result in new sales in the coming quarters. These products focused on cat wellness and hygiene for pet litter and aesthetic and softening particles for laundry detergent are being commercialized this year. Additionally, the trend toward natural ingredients across the consumer product spectrum continues and our core technologies applied to our mineral reserves uniquely positions us to benefit from this trend. We're collaborating with customers to develop solutions like mineral-based absorptive additives for animal feed and ingredients like our natural delivery system for retinol in personal care. In specialty additives, general market conditions are relatively solid. Global paper and packaging markets remain stable, and we're seeing improved PCC demand in North America compared to last year. The residential construction market in North America is entering its normal seasonally strong period, but we've also seen market conditions gradually improve over the past couple of quarters. A few additional growth drivers for this product line. We're benefiting from three new paper and packaging satellites that were commissioned last year, and we have five more satellites scheduled to start up this year and into early next. As a reminder, of these eight new satellites, five are for standard PCC, one is for our new yield recycling technology, and two are large ground calcium carbonate plants for white packaging, one of which also incorporates our new yield technology. We continue to have a solid pipeline of opportunities across our product and technology platform, many of them aimed at the packaging market and for further deployment of our sustainable filler solutions. All in all, we have a positive outlook for this product line for Q2 and into the back half of the year. In high temperature technologies, we continue to experience steady global market demand for our engineered blends. Automotive, heavy truck, and industrial casting production in our main geographies of North America and Asia remain stable, and at this point, we see demand conditions remaining relatively strong. A few areas to point out here. I've mentioned that process automation, and data analytics have been areas where we've focused our innovation to provide higher value for our customers' manufacturing processes. Our MINSCAN units for electric guard furnaces are a result of this development. These units enable the automated measurement of furnace conditions and the subsequent application of our more durable and higher-performing refractory blends. Over the past 18 months, we've secured 15 new long-term contracts for these units and the supply of refractory products. This year, we're installing eight of these units, which will drive sales growth for this product line throughout the year. Our environmental and infrastructure product line currently faces pockets of mixed market conditions, but also some very exciting long-term opportunities. We're entering the strong season for environmental remediation projects, and there are signs that the commercial construction market is beginning to turn, given an increase in inquiries we are seeing from customers. We remain cautious that the market is actually hitting an inflection point, but once it does, we expect to benefit relatively quickly because our subsurface waterproofing and vapor barrier products are used toward the beginning of many construction projects. One area to highlight for this product line, of which I'm sure many of you are aware, is that the EPA recently announced a national standard to limit PFAS and related chemicals in drinking water.
spk12: This is a positive development
spk04: and it establishes a significant market for our Fluorazorb product. We've been trialing Fluorazorb for both drinking water and groundwater PFAS remediation for several years. Our solution is cost-effective and versatile in its deployment and explicitly targets PFAS and associated molecules. No doubt this is a crucial regulatory step, and we expect it to further stimulate interest in Fluorazorb. It will take time for the drinking water PFAS market to fully develop and move from this initial regulation to be in full compliance by 2029. Fluorazorb applicability extends beyond municipal drinking water and is equally effective for groundwater and wastewater remediation and sediment capping systems. We have plans to run more than 100 pilot trials throughout this year, mostly for municipal water, but also for several large groundwater remediation projects. We're confident that many of these pilot trials will convert into stable revenue-generating opportunities. Over the long term, we see the remediation of PFAS from water around the world as a significant growth opportunity for MTI. To sum up, we're seeing generally positive market conditions across the board as we head into the second quarter. Additionally, in each of our product lines, we have several initiatives developed through our innovation pipeline and aligned with macro market trends that will continue our momentum and drive both near-term and long-term growth. Lastly, I want to give a quick update on progress with Barrett's Minerals, Inc. As you may have seen, we entered into an agreement to sell BMI's assets, which was approved by the bankruptcy court a few weeks ago. We are currently working through closing the transaction, which is slated for early next week. Proceeds from the sale will be used to repay the dip financing that was put in place last year, as well as to fund the ongoing bankruptcy process. This is an important step in MTI's exit from the talc business and represents forward progress in BMI's Chapter 11 process. The sale not only delivers value and certainty for BMI's various stakeholders, but it also enables MTI to move forward with a clear focus on our core long-term strategic objectives. We'll continue to keep you informed of additional progress, which we're advancing as expeditiously as possible. I'll turn it over to Eric to review the financial details, segment highlights, and our outlook for the second quarter. Eric?
spk01: Thanks, Doug, and good morning, everyone. I'll start by providing a summary of our first quarter results, followed by a review of our segments, and then I'll wrap up with our outlook for the second quarter. Following my remarks, we'll turn the call over for questions. Now let's review our first quarter results. We had a very strong start to the year with several record-setting performances in the first quarter. First quarter sales were $535 million, up slightly versus the prior year on an underlying basis. Underlying sales in the consumer and specialty segment grew 4%, driven by volume growth across the segment. In the engineered solutions segment, sales were lower than the prior year, driven entirely by slow conditions for environmental and infrastructure projects. The year-over-year sales growth for this product line was especially challenged given the relatively strong start we had last year, including a few large remediation projects at Superfund sites in the U.S. I'll note here that as we lap the Q1 comparison period, we expect MTI's overall year-over-year sales growth to revert to the mid-single-digit range on an underlying basis. First quarter operating income was $77 million, up 23% from a year ago, driven by a 290 basis point improvement in operating margin. As you can see in the operating income bridge on this slide, the income and margin growth in Q1 came from three areas. First, volume and mix drove $2 million of income improvement and 60 basis points of margin improvement, driven by strong sales of higher margin products, which resulted in a favorable mix impact. I should also highlight that the prior year income in this bridge includes income from BMI, so the volume mixed contribution from the underlying business was greater than the $2 million shown in this bridge. Second, our disciplined pricing is helping to ensure that our margins reflect the value we provide to customers. Pricing overall contributed to $5 million of income and 100 basis points of margin improvement versus last year. Third, we realized the cost improvement of $7 million versus last year, or 130 basis points of margin, as our operations teams continue to drive productivity and variable conversion cost improvements at our facilities. And as the restructuring program we announced last year has reached full run rate savings. In addition, as input costs such as energy and freight have stabilized over the last few quarters, we have favorability versus the prior year Q1, when we were working through significantly higher cost inventory. All of the above contributed to a gross margin of 25.4%, 330 basis points above last year, and EBITDA margin of 18.8%, 310 basis points above last year. In short, we are executing on the margin improvement strategy we outlined in our investor day last year, and there is plenty of opportunity for further margin improvement particularly as we leverage incremental volume across our fixed cost base, as we continue to innovate and commercialize new products, and as we continue to grow the highest margin products in the portfolio. Earnings per share was $1.49, excluding special items, up 31% from prior year, and represented a record level for the first quarter. Cash flow was also strong, with cash from operations of $56 million up 66% versus last year, and also representing a record level for our first quarter. Now let's review the segments, beginning with consumer and specialty. First quarter sales were $297 million, up 4% on an underlying basis from prior year. Sales in our household and personal care product line were up 7%, driven by higher volumes across end markets. Demand for cat litter products remained strong, growing in the mid-single digits, and growth across the rest of this product line was around 10%. In specialty additives, underlying sales were up 2%. We're seeing growth from our three new paper and packaging satellites in Asia. And in Europe, we were encouraged to see volumes improve sequentially and year over year, which helped offset the sales impact from formula-driven price changes. Meanwhile, demand for our residential construction applications has remained resilient. Operating income was $42 million in the first quarter, and operating margin improved by 330 basis points to 14.1% of sales. Improved volume and mix, disciplined pricing, favorable input costs, and a 6% productivity improvement drove a 30% year-over-year increase in operating income for this segment. Looking ahead to the second quarter, we expect demand for household and personal care products to remain solid, with continued year-over-year growth. In specialty additives, we expect higher sales sequentially in the seasonally stronger period for residential construction, and we'll continue to see sales increases driven by our newest satellites ramping up in Asia, which will mostly offset typical second quarter customer maintenance outages in North America. Altogether, we expect another strong quarter with operating income up approximately 5% sequentially and up 30% year over year. Now let's review the Engineered Solutions segment. First quarter sales in the Engineered Solutions segment were $238 million, 5% lower than last year. Sales in our high-temperature technologies product line were 1% lower, as some of our foundry customers in North America took temporary maintenance outages early in the first quarter. Meanwhile, we saw continued improvement in foundry volume across Asia. In the environmental and infrastructure product line, sales were lower by 14% driven by softness in commercial construction and environmental lining projects. As I mentioned, we also had a few large remediation projects in the prior Q1 that are affecting the comparison. Despite the lower sales, segment operating income improved 9% to $38 million in the first quarter. And operating margin improved by 200 basis points to 16.2% of sales. The margin improvement was driven by favorable product mix, disciplined pricing, cost control, and a solid operating performance that resulted in 11% productivity improvement versus last year. Looking ahead to the second quarter, We expect market conditions in steel and foundry to remain stable, with a sequential improvement in Asia foundry due to the Lunar New Year holiday in the first quarter. We are also expecting higher sales to steel customers, driven by installations of our newest MINSCAN technologies at several EAF mills in the U.S. In environmental and infrastructure, we'll see a sequential increase in sales as we enter the seasonally stronger period for environmental and commercial construction projects. As Doug mentioned, we are seeing improvements in bid activity, but it is too early to say whether this market has hit an inflection point. Overall, we expect another strong performance from this segment in the second quarter, with operating income up approximately 10% sequentially and up 10% year-over-year. Now let's turn to our balance sheet and cash flow highlights. We delivered record cash flow for our first quarter, generating $56 million of cash from operations and $39 million of free cash flow. CapEx totaled $17 million in the first quarter. Our full year outlook for free cash flow remains unchanged in the $140 to $160 million range. We continued our balanced approach to capital deployments in the first quarter, using our free cash flow to pay down $13 million in debt and returning $18 million to shareholders, including $15 million of share repurchases and $3 million of dividends. So far, we've completed $29 million of the $75 million share repurchase program, and we are on track to complete the program by the end of the authorization in October. The balance sheet remains very strong. Total liquidity at the end of the first quarter was $536 million, and our net leverage ratio was 1.8 times EBITDA.
spk12: Now I'll summarize our outlook for the second quarter. We expect a strong performance for MTI in the second quarter.
spk01: In consumer and specialties, we expect demand for consumer-oriented products to remain strong, and we are entering a seasonally stronger period for residential construction. We will also benefit from the continued ramp up of our new paper and packaging satellites. In engineered solutions, we expect sequential and year-over-year growth from high-temperature technologies. We also expect a seasonal uptick in environmental and infrastructure activity, with sales for this product line returning to a similar level to last year. In total for MCI for the second quarter, we expect year-over-year underlying sales growth between 3% and 5%, operating income between $80 and $85 million, and earnings per share between $1.55 and $1.65, representing another strong quarter for the company.
spk12: Now I'll turn the call over for questions.
spk07: Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We will pause for just a moment to allow everyone an opportunity to signal for questions. We will take our first question from Daniel Moore with CJS Securities.
spk12: Thank you, Doug and Eric.
spk08: Thanks for the color. Appreciate taking questions. Start with consumer and specialties. Obviously, on this call and the last several calls, you've laid out a lot of the new formulations and emerging opportunities from you know, edible oils, animal feed, alternative milks, retinol, et cetera. You know, how do we think about, I guess, where are you seeing the most pull or the most, you know, penetration near term, and how do we think about sizing those opportunities and a follow-up on the PFAS, you know, emerging opportunity as well, if you don't mind?
spk04: Sure, maybe I'll kick it off, and then I'll hand it to DJ Monaco to give you some more color. You know, we're seeing growth across that product line, In consumer and specialty, let's talk mostly about the household and personal care product line. Our pet care business continued to grow at 4% this past quarter. We're seeing that continue quarter over quarter. We're seeing our specialty business grew 10%, I believe, this quarter. That came from animal health, growth, renewable fuels, fabric care. It's been really across the board, Dan. And I think that's the pace that we outlined in our investor day, that this household and personal care business should grow in that 7% to 10% range, kind of compound year over year. So it's acting and doing what we thought it would do. We're also, I wanted to highlight a couple of trends that we're following and we're participating in, like natural additives. And our innovation pipeline is in tune with that. I think not only are the markets growing, but we have innovations behind it with new products that will continue to feed that type of growth rate. I don't know, DJ, if you want to give us more, any particular things in pet care or fabric care?
spk03: Yeah. So, Dan, it's tough to zero in on any one thing because it has been across the board. There are several exciting things going on that Doug had kind of mentioned and alluded to during the future statements. Sticking with the household and personal care side, I I think that the strategy of that pet litter business is starting to pay off. They've gotten well aligned with their private label customers in particular. Working with them and as they understand their brand strategies, that private label strategy, they enhance and bring forward some innovations that help with pet ownership. Those are things as simple as packaging, but then expand further and improve performance of the pet litter, which goes anything for, you know, lower dusting, more aesthetically pleasing, and then their recent additions are things that will help cat owners train their cats better and get them more associated with the litter box. You go to household personal and the consumer specialties group, we are doing very well with the pull that's coming from renewable fuels. We see our relationship with key customers strengthening, especially in Europe, and the macro trend supporting that growth is very strong. And then in a little different shift, we go to the specialty additives business. Doug pointed out the great progress that we're seeing with the new satellites, and now this is working on our crystal engineering competency, but these new satellites and new products are are kicking in, and we've got several more that will be coming on throughout the year. And the pipeline for that remains very robust. And then applying that same core competency of crystal engineering, we do see further growth coming from advanced sealants in the construction and automotive industry. Some pull also from the food industry. You alluded to the non-dairy milks. That continues to be an area of interest for us. and we can add to that whole category. And there are also some new markets that we're starting to get exposed to as people explore alternatives and as we branch out further in stretching that core competency. So I know I gave you a lot, but it really is across the board, but also perfectly in line with what we had laid out in the Investor Day. Does that help, Dan?
spk08: Very helpful. Yeah, it certainly does. And appreciate the color, Doug, on PFAS and certainly happy to see the EPA decision. You know, any more color you can provide in terms of how you think about the scope of the opportunity, not in 24, 25, but, you know, five years and beyond? And then any update as far as, you know, kind of potential EPA approval for Flores Orb as a key player in that market?
spk04: I tell you what, why don't we do two things. Why don't I pass it to Brett Argyrakis to give you kind of what we're working on, what's happening here in the near term, what's going on with regulation, and maybe I'll talk a little bit about the longer term after that.
spk05: Brett, you want to go? Yeah, sure. Thanks, Ed. Thanks, Dan. Look, let me just recap the regulation quickly, and then I'll give you some update on our activity. First of all, the new regulation, as you know, was passed last week. it'll be in full effect in five years from the promulgation date. So that'll bring us the regulation to end at April of 2029. That allows for any capital to be put in place in time to meet the regulations on a parts per trillion basis. Although this regulation is for drinking water, we do expect additional regulations to come out over the next few years that really can provide us even more opportunities throughout our verticals. So let me give you a little update on the activity. We have had a lot of activity already to date before the regulation came out. The regulations have accelerated discussions both on a federal and state agency level for evaluations of alternative options from the current options. We have been and continue to collaborate closely with the EPA, local agencies and municipalities as well for the use of our Fluorazorb to remove PFAS in drinking water. But our ultimate goal really is to prove Fluorazorb is one of the best available technologies for eliminating the PFAS. These agencies are all fully aware of our products and our activity. Um, we, we will continue to work very closely with them. Um, and, and so right now our floors or technology is currently treating drinking water in three full scale implementations in the Northeast. We have one additional full scale implementation coming on this month. Uh, and, and as Doug Doug mentioned in his, uh, in his speech, uh, we are piloting several trials now. and expect to implement probably over 100 pilot trials this year, mainly on municipal water. The majority of those are going to be in North America, but we do have a few of those in Europe. Out of drinking water, we do continue to pursue and implement global in-situ remediation projects to control PFAS at the source. Some examples might be like pump-and-treat applications for groundwater sites, reactive core mats for stormwater conveyance and sediment capping, as well as other soil stabilization projects. Really, based on the test results and feedback we're getting, we're really confident in the Floor Resort, feel good about it, that the benefits will generate additional revenue and continued interest moving forward. But just to be a little cautious, it's going to take some time to test and prove our product to support the new regulation, but we do expect to continue to generate activity moving forward over the next few years.
spk04: Dan, I'll just add in the long term, as I mentioned in my remarks, I think this is a big growth opportunity for the company for that product. Brett just mentioned municipal water is one area. And that'll develop over the next four or five years. And we've got a great position and a great product to be able to participate in that market. But longer term, as we get into broader cleanup, as I mentioned, our product is equally as effective there. And we've been doing some cleanup projects. We think that could be even a bigger market for sure than the municipal water market. But now, and so providing us long-term sales, this is something that's going to, you know, we're going to benefit from for a long time. But right now, I just want to keep us focused. We're working on making sure that this is best-in-class technology. We're working through those hurdles. We're trialing it, like I said, 100 trials. We're working closely with agencies. So we're in a good spot. But yes, this is a big near-term opportunity and a nice long-term opportunity for the company.
spk08: Perfect. Last one for me. I'll jump out. You know, you already hit your 14% margin target this quarter. You know, implication is to do a little bit better than that in Q2. And you mentioned Q2 and Q3 typically seasonally stronger periods. So it sounds like you expect that typical seasonality to hold this year. And so, you know, I'm not asking you to update it, but that kind of 14% exit rate looks conservative at this point. Is your eye still just getting to that 15% and if we get there quicker, you know, great? Or how do we kind of think about where we go from here?
spk01: Yeah, thanks, Dan. This is Eric. So you're right. 14.5% in the first quarter is a great place to start. Right now we're assuming we can maintain that level at least going forward this year. And we do, as you said, typically expect a lift in the second and third quarters. So it should be above 14.5%, all else equal. So we're feeling pretty good about the margin trajectory. We're watching energy rates. We'll be managing things tightly if we do see an uptick over the summer in terms of energy rates. But that sequential volume improvement over the middle two quarters should go a long way to helping out the margins as we go through the year. So I guess you mentioned 15%. If we were going to do 15% in a year, 14.5% in the first quarter is not a bad place to start. So I guess, you know, it's early in the year, but as long as we see no major changes in macro or input costs, yeah, we can do 15% this year. It would help if we got some help from the commercial construction markets, for sure. But we're feeling pretty good about the margin trajectory right now.
spk12: Very helpful. I appreciate the color. Congrats on the performance, and I'll invite you with any follow-ups.
spk06: Thanks.
spk07: We will take our next question from Mike Harrison with Seaport Research Partners.
spk02: Hi, good morning. Congrats on the strong start to the year. I was hoping that maybe we could dig in a little bit. I'm kind of curious. You just commented a little bit on the margin performance, and it sounds like you believe a lot of that is sustainable for the rest of the year. But I wanted to dig in a little bit. In both segments, you called out some productivity improvements. I believe you said 6%. year-over-year productivity gain in the consumer segment and 11% in the engineered solution segment. Can you maybe help us understand kind of what's baked into that improving productivity number? Those are kind of specific numbers, and I'm just curious kind of what metrics are you using, and can you maybe help us understand how you expect those productivity gains to evolve in both segments in the next several quarters.
spk04: Thanks, Mike. Thanks for the question. Maybe I'll start and pass it over to Eric. Productivity is something we measure every month. We set productivity targets. It's a key indicator of efficiencies and it's part of our operational excellence. It's a metric that we watch through our OE processes. We're constantly looking at removing waste from operating processes, from business processes, you name it, we measure it from a productivity standpoint. Kaizen events that are working with teams to redraw processes, remove waste, lock in new standards. This is something that's just inherent in the company and part of our culture. This year, I think it was 6% and 11% in the two segments. Eric, is that where it was?
spk01: That's right, yeah. And that's, Mike, that's measured on a tons per hour worked basis. So that's the metric that we're looking at.
spk04: Going forward, Eric, want to give them a forecast?
spk01: Yeah, we expect continued. I mean, part of the, we did exceed the guidance that we gave in the first quarter, Mike. A big part of that was the strong operational performance that we had. Our teams are working really well to improve productivities, improve variable conversion costs per tons. At the facilities, this is something, like Doug said, we measure and track and manage very closely at the operational level. So we're expecting those productivity improvements to continue through the year. That's something that's embedded into the margin profile of the company. So I hope that helps.
spk02: Yeah, very helpful. And then I guess maybe just to kind of follow up on that, you have in your slides here a cost number, and it looks like that cost contributed, you know, 130 basis points of year-over-year improvement. I'm assuming that part of that cost improvement is in these productivity numbers and metrics that you're talking about. But part of it's also related to just input costs, and it sounds like some of your input costs were favorable year on year. So maybe just give us a little bit more detail on what you're seeing in terms of input costs and energy costs as we're looking out into Q2 and Q3.
spk01: Yeah, sure, Mike. So, yes, that $7 million of improvement in the cost bucket versus last year, that includes the very strong operating performance that includes the productivities we're seeing you know particularly around the pet care business we're seeing a lot of improvements there and a lot of cost savings versus last year it also includes the 10 million dollar cost savings program uh that we've achieved full run rate in uh in the first quarter so call it two and a half million um of savings there from the restructuring program and yes we have favorable freight and energy primarily versus last year, that's really a year-over-year comparison. If you think about last Q1, we were still working through some significantly higher cost inventory levels. So energy and freight, that played a role in the year-over-year favorability, but that's really been embedded in the margin heading into the quarter. If you think about it on a sequential basis, We didn't have a huge change in input costs sequentially Q4 to Q1, maybe a million dollars favorability from an energy perspective. So that sequential margin improvement we saw was mostly driven by that improved volume and mix in the consumer and specialty side, the pricing and the productivity in the variable conversion cost performance.
spk02: All right, that's very helpful. And then I wanted to dig in from the last question here on the high temperature technologies business. It sounds like you're seeing relatively strong demand trends, you know, even though the underlying sales number was down a little bit year on year. But maybe just give it a little bit more detail on what you're seeing in terms of market drivers. and some of the actions that you guys are taking to benefit from new customer wins and kind of new product-related growth. Thank you.
spk04: Yeah, I'll start, Mike, in the high-tech technologies product line. Yeah, sales were relatively flat. I think, as Eric mentioned, the decline over last year was a couple of outages that we saw in North America that didn't happen last year, maintenance outages that were extended. But volumes and demand picked up through the quarter, and we see that being relatively stable going forward. Major end markets, automotive, heavy truck, industrial, and some good volume growth in Asia we see continuing. So stable markets, we've got a good feel for it, at least as we sit today, and it looks like through the back half of the year, unless macro trends change. But right now we're feeling good about that product line. Brett, you want to take kind of new products, what's going on, what's driving some of the future growth that I mentioned?
spk05: Yes, for the high-temperature technologies, really, when you take a look at it, the refractories business is really, really strong right now. If you look at the foundry business first, foundry business, North America, pretty stable, as Doug said. There was some slowdowns in North America. Asia is still kind of flat, but it's They're doing okay. We don't see any major drop-offs yet. The steel business from the refractory side has been pretty solid, about 77% utilization rates now. That's a little bit higher than the first quarter was, but it's very stable. We anticipate maybe some Q2 spring outages, which is fairly normal for some maintenance outages, so there might be a slight drop slight dip, but we're not seeing anything major. From the European side, it's still very soft. So the steel industry there is soft. There's a couple of steel plants, one in the UK, one in Eastern Europe, that are ramping down and probably closing permanently. But in Europe, we are seeing green steel, as we saw in the United States, the move from integrated steelmaking to non-integrated or BLF to electric arc furnace. And that's starting to transition. In North America, as you saw in the presentation, we have acquired 15 new automated MINSCAN units. And we're going to do eight of those that are planned for this year. Those units, really, it's about the automation and optimization of these units. It was really driving from that transition from BOS to EAS. And we were well positioned to make that move with our steel customers. This approach really ties in the laser. It ties in so you can laser the furnace. It's automated with PLC controls, so it automatically applies product to the low spots of the furnace. And really, most importantly, it's pulling employees off the shop floor and away from molten steel. So this has been really a great accomplishment by the team, and it works through our key customers. So in parallel, what we did is that technology, while we were developing the equipment, was developing high-grade products. For instance, I'll give you an example. We normally, what we call gunning or applying our refractory products over brick that has been worn away by the molten steel. We normally did that in the upper portion of an electric furnace. We've developed products that now go deeper into the furnace, into what we call the banks and the bottoms of the furnace. This is technology that we haven't really participated much in. And now our technology is tied into these five-year contracts that include that refractory. And that portion of the refractory is two times more, consumes two times more than the refractory that we are currently utilizing. So this is really exciting for the business, and that is a growth market. We anticipate having, as we said, 15 units through 25. In fact, we have our employees from Europe coming over next week, and they're going to be visiting so that we can promote this even further into the European business. But I will mention we do have two units already in Turkey. We have some units in Europe, but with this green steel technology change, We plan to drive this even further like we did in North America.
spk12: Does that help, Mike? All right, very good.
spk02: A lot going on.
spk12: Yes, appreciate the detail there. Thanks very much. Thanks, Mike.
spk07: We will take our next question. Yes, we will take our next question from David Silver with CL King.
spk09: Yeah, hi. Good morning. Thanks a lot.
spk08: Hi, David.
spk09: Hey. So I have a couple of questions. I hope the first one is not too confusing, but I'm just curious. trying to scratch my head and get, I'm scratching my head and just trying to get my arms around the price versus volume, I guess, drivers this quarter. So, you know, revenues under, on an underlying basis were basically flat. And you did talk about volume strength in H and PC or home and personal care and a couple of other areas. And I'm, But again, to get back to kind of a flattish revenue profile year over year, is really all of the volume softness pretty much on the environmental and infrastructure side? Or are there some other pockets or areas where improved price kind of made up for maybe some some decline in the units sold. Just trying to get a finer sense of which parts of the business were growing volume or units-wise versus which ones maybe were not and, you know, how price played a bigger role, let's say, in the revenue performance. Thank you.
spk01: Sure. Thanks, Dave. This is Eric. So yes, the volume decline was all in the environmental and infrastructure product line, as we mentioned, soft commercial construction conditions and those larger projects that we had last year. The high temperature was relatively flat. The high temperature technologies product line was relatively flat. I mean, we pointed to some customer maintenance outages early in the quarter this year. from the foundry perspective, but overall volume is relatively flat. And then in the other product lines, we saw volume growth. So that's what you're seeing. Kind of the net-net of all that ended up being relatively flat volume growth, but mainly driven by that environmental and infrastructure product line.
spk11: Okay.
spk09: Thank you for that. I was hoping to hone in a little bit on the specialty additives side, and in particular, the five new satellites that are scheduled to be brought online this year. And I guess I was hoping DJ might be able to characterize them. In other words, I have to kind of check my press releases, but I'm just wondering how many of the five would you categorize as kind of the legacy, you know, PCC for, you know, copy or paper or that type of grade of paper. And I see there are two new yield opportunities. Maybe, you know, if you could just discuss how those came about. And then I'm assuming, you know, there are some new satellites coming for packaging? Is that the white box or the pizza box type of packaging, or is that maybe making some inroads onto the brown paper side? So just an overview of what newer projects are going to be coming online this year.
spk03: Hi, David. Let me try and address those as best I can for you. First one, just to look at it from that packaging segment, One of the new opportunities that has already contributed growth is for packaging in China. That's on a white box, and it is where we brought some innovation into the ground calcium carbonate space. So that's already in those numbers. One of the new ones to which Doug referred earlier was it's a GCC – and a new yield combination. So that'll also be in the specialty papers and packaging papers and some printing and writing grades in that one. So those are the two on packaging. One of the items that just came on is standard PCC, kind of the legacy PCC with some updates and tweaks to it. It is in a printing and writing application currently, but it is located with someone who also makes a board and we're hoping we can grow with that customer. So that was a strategically placed standard PCC contract on a paper machine that is printing and writing grades, but the customer makes packaging and we're growing our relationship with them. The other opportunities we have was a small standard PCC plant in India, a standard PCC printing and writing grades. And then the other new yield opportunity that we had was in Brazil. Now this particular one is retrofitting an existing satellite into a printing and writing grade and taking advantage of and working with the customer of a waste stream that they were landfilling and being able to convert that into a useful pigment. So I guess the additional color that I would provide is that this new yield technology that applies our crystal engineering technologies, we are seeing increased interest in that. We are seeing increased interest in both the printing and writing space and in the packaging space. It basically presents itself as a customer is throwing away waste that comes from the pulping operation. And so what we're able to do is share savings with them and make good paper or packaging products. So that's an opportunistic technology that has a growing interest, giving the need for a growing circular economy. Does that provide the color you were looking for, David?
spk09: Yeah, and then maybe just a brief comment on the new project funnel. And if you were doing a pie chart, I mean, what percentage of the new project funnel as you see it is comprised of, I'll just call it the non-traditional satellite plant opportunities. In other words, white paper packaging, brown paper, New Yield, just not the printing and writing papers that would dominate the legacy satellite projects.
spk03: So if I were divided up into packaging versus paper, I'm probably 60-40 printing and writing grades and 40% packaging. But in that printing and writing grades, there's still a fair amount of pull for some of the newer products like New Yield. There are some other ones that we are chatting with the customers about. So the pipeline, I would say, is if you want to look at it on a technology basis, it's probably, oh, 40 to 50% legacy traditional products and 50% newer innovative products.
spk04: That's a big change. That's a big change from where it was before. I would say if you asked us that question three years ago, David, that would probably be 90-10. Definitely. 90-10 traditional legacy PCC. So moving that toward 60-40, but even 50-50, if you look at the technology, the new technology deployment is a big shift. And so that's been part of the strategy. You know, legacy PCC plants, good business, high cash flow, great returns. But supplanting and meeting customer needs with new technologies like new yield with new yield combined with GCC, these are new things. And we're meeting those customer needs, as DJ said, for more sustainable products and packaging and cost savings associated with waste streams. And so that's what's driving that. you know, the shift of our opportunity portfolio to kind of 50-50. And that's where we see the opportunities drive and grow.
spk09: Okay. Thank you for that. That's a great color. And then one more for me. I'm going to go back to the Fluorosorb opportunity. And it has been covered here in some detail, I understand. But My understanding is when the EPA was finalizing the regulations for drinking water and setting the limits for PFAS content, there was a bit of a tug-of-war between the four parts per trillion level that they settled on and maybe a higher level that would have been easier, I guess, for the drinking, the water plant operators to meet maybe on a smaller budget. Just, you know, how would you say the fluorosorb opportunity, you know, either grows or shrinks depending on, you know, the limit that is set? In other words, I guess the EPA settled on the four parts per trillion, but I think they also set a goal, you know, even more stringent to potentially zero and some cases but you know how how would you say the thinking of the potential customers shifts you know toward Flura Sorb or some of the other alternatives as the tolerances for PFAS content you know become tighter and tighter yeah I think so the four parts per trillion
spk04: try to get this right, is really kind of the lowest detectable, you know, it's a non-detect limit. This is kind of being able to detect below four parts per trillion is almost very difficult. So I think this is kind of a, it borders on basically non-detect. What I will say then is that through our trials and through, you know, of how the work we're doing with our Fluorazor products By itself, our Florisorb is able to get to four parts per trillion or a non-detect.
spk12: On its own.
spk04: It's very effective the way it's designed to be able to deliver results to that level. So we're confident that with this regulation that municipal water, you know, and they're all different. There's different utilities. There's different configurations and capital. We're working through all of that right now. But, you know, on a new installation or a new, you know, physical remediation facility, plant at a municipal water, Florazor would be able to take it down to four parts per trillion. So that we may be used in conjunction with other media. We may be retrofitting into existing equipment. There's a whole lot of things that are going on, but we're a very effective product. And I think that will play into the limits that are set. Ultimately, I think if they are on, you know, groundwater and wastewater cleanup, it's applicable in that market as well. So again, early days, but we've got a good product. But we want to continue to test We want to continue to work with agencies. We want to continue to work in states. We want to work with municipal water to ensure that this product is going to meet those needs. But right now, after the past couple of years of trialing, it looks like a really good product.
spk11: Okay, great. Thank you very much. I'll get back in queue.
spk12: Thanks, David.
spk07: Again, if you would like to ask a question, it is star 1. We will take our next question from Kyle May with Sidoti and Company.
spk10: Hi, good morning, everyone.
spk07: Hi, Kyle.
spk10: A couple of quick ones for me to hopefully round things out. Looking at capital expenditures, they were lower this quarter compared to the last few quarters. Just wondering if we should think about this as a new lower run rate or if this quarter was more of an anomaly?
spk01: Yeah, thanks, Kyle. This is Eric. So, yes, CapEx was a little lower than the run rate, mostly a timing, mostly a function of timing. We're still expecting between $90 and $100 million of capital expenditures for the full year. So you'll see that ramp up a bit in the coming quarters.
spk12: Okay, great.
spk10: And then also in the environmental and infrastructure segment, you noted Part of the year-over-year change was the two large remediation projects that were completed last year. Just curious if you could give us an update on your outlook for the opportunity set there.
spk04: Yeah, those were large remediation projects last year, big ones, the Gowanus Canal, I think, and Lake George, where we were providing some product for that water remediation and those water bodies. Also, you know, big superfund sites. And, you know, so we will participate in big projects like that. These are ongoing projects, so as the next phase comes around, we're likely to participate, continue to participate in them. So a bit of chunky revenue when you get these big product lines. Those are the two last year. You know, the outlook, it was a weaker first quarter. Right now we're hitting the seasonal period for environmental remediation, both from just wastewater remediation but also lining systems. We have a pretty solid outlook. I think we said we're going to revert probably back to that normal kind of growth rate to the second and third in this business. The other part, as I mentioned, of this product line is that commercial construction. I think just reiterating that right now we're seeing some increase in activity in terms of inquiries, but whether they turn into actual projects later this year into next is a little bit undetermined, but at least there's some increased activity we haven't seen over the past three, four quarters. Our outlook for the product line is positive. A little bit of caution given the residential construction, but for the environmental side of it, we got relatively positive two quarters ahead of us.
spk10: Okay, that's great. And last one, I know we've talked a lot about the EPA, but I was hoping if you could maybe just kind of quickly remind us maybe how much of your five-year outlook includes the floor is or opportunity and then, you know, with the actual regulations now somewhat in place, you know, do you think there's potential upside to what you've already baked into your five-year outlook?
spk04: Yeah. So we, we put in, I think we had 30 to $40 million of, of revenue in the five-year outlook at 2027. You know, that was a year ago when we, you know, before the regulation was put out. I think we're probably still in that range. It could be on the high end of that range. I think there might be upside. I think, Kyle, what I'll give you is municipal water customers are going to, by 2027, to have something tested in place two more years after that. So we're looking out at 2029. I think it will ramp up. It'll go slower. Then it'll start to ramp up. So I think the opportunity is bigger than that. But I think over the time period in our five-year plans, that's what we looked at. you know, if it goes faster and these trials work and our work with EPA accelerates, I think there could be some upside. But right now, I think we're kind of going to stick to and we'll give you updates as we get through some of these trials this year in that range that we gave you at our investor day last year.
spk12: Got it. Okay, that's great. Thank you very much. Okay, thanks, Kyle.
spk07: We will take our next question from David Silver with CL King.
spk09: Okay, hi, thank you. I just had one follow-up. Doug, I was hoping just, you have touched on your business in China at various points during this call, but I was just wondering if you might be able to kind of take a step back or give us a broader perspective. You know, maybe two things, but just the overall relationship with the Chinese authorities. I mean, there's a lot of back and forth on all on a bunch of different, you know, vectors, I guess, or whatever hard for us to judge from a distance. And then secondly, maybe just the comment on your view of how the recovery or the rebound in overall Chinese economic activity as it relates to maybe your industrial businesses would be very helpful. Thank you.
spk04: Yeah, I'll start with the first question, David. We have good relationships in China. A lot of our business is done in partnership with our customers and joint ventures. These are large employers in the regions, large paper mills. We've been there a long time, 24, 25 years we've participated in doing business in China. We're good stewards in our mining operations. From an environmental standpoint, we've recently been awarded, we've gotten some awards and recognition up in our plant in inner Mongolia. You know, I think, you know, we approach China like we approach anywhere else in the world, being good stewards of what we do there, environmentally conscious. And I think that flows through into the relationships we have with the local communities, governments, customers, et cetera. So our relationships are strong. And, you know, I think that that helps us through working through new business opportunities and that partnership, having that longstanding relationship and standing in the country. What we're seeing right now is pretty stable. Last first quarter was a challenging year, at least in the industrial side of the business. Coming through, it seems like a long time ago, but coming through some of the COVID shutdowns through the first quarter. But we saw a stable ramping up, at least in our business. both from a general foundry conditions in terms of demand, but also as we continue to penetrate into the market. There's a lot of room for us to continue to penetrate our green sand bonds into China and also India and into Asia. So we continue to progress there. And that's what's feeding a lot of the growth. And so we saw this steady growth and movement throughout the quarters, and we're still seeing that steady growth and improvement. Eric mentioned we saw volume growth in China in particular, but Asia in general in the first quarter, we're going to see that continual general growth. So from our standpoint on the industrial side, it's not booming, but it's also pretty stable, and we can do a lot of work with that. We're working with customers to save money. We're putting in new blending systems to help with the scrap rates. We're participating in a pretty strong – industrial market right now with, you know, a large portion of our sales go into, you know, kind of compressor housings and big castings that go into refrigeration, and that's doing really well right now. So, you know, we've got a really good stable outlook for China right now, and as DJ mentioned, we won't go into it again, but, you know, we've got five satellites, you know, three of which are ramping up in the region, and so we've got some good growth ahead of us on the paper and packaging side. So, Right now, it doesn't look terrible to us. It looks pretty stable, and it looks like some stable growth for us ahead through the rest of the year. Long answer, but I want to make sure you got a feel for how we look at China and Asia in general.
spk09: Very helpful. Much appreciated. That's it for me. Thank you.
spk12: Thanks, David.
spk07: At this time, we do not have any further questions. I'd like to turn the call back to Mr. Dietrich for any closing remarks.
spk04: Thank you, Maddie. Appreciate everyone joining today. Hope you have a good weekend and we look forward to talking to you in another three months. Take care.
spk07: This concludes today's call. Thank you for your participation. You may now disconnect.
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