Minerals Technologies Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended July 4, 2021; comparisons are to periods ended June 28, 2020. MTI develops and sells specialty mineral, mineral-based and synthetic mineral products and services. In Q1 2021, it combined Energy Services into Environmental Products and now reports Performance Materials, Specialty Minerals and Refractories.
Financial performance
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Net sales | $455.6M | $357.2M | $908.2M | $774.7M |
| Operating income | $63.7M | $27.2M | $122.5M | $84.9M |
| Operating margin | 14.0% | 7.6% | 13.5% | 11.0% |
| Net income attributable to MTI | $41.9M | $14.4M | $81.8M | $53.0M |
| Diluted EPS | $1.23 | $0.42 | $2.41 | $1.55 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $118.0M | $94.1M |
Q2 sales increased 28%; foreign exchange contributed approximately $15M, or 4 percentage points. First-half sales rose 17%, including approximately $24M of favorable foreign exchange. Q2 production margin improved to 25.3% from 24.9%; first-half production margin eased to 25.0% from 25.3%, as higher volumes were offset by energy and mining costs. First-half capital spending was $39.8M, making operating cash flow less capital spending approximately $78.2M, versus $62.5M in the prior-year period.
All three segments grew in Q2: Performance Materials sales were $238.4M (+24%) and operating income $34.7M; Specialty Minerals sales were $142.7M (+30%) and operating income $20.0M; Refractories sales were $74.5M (+33%) and operating income $11.7M. Higher volumes supported profitability. Metalcasting and metallurgical products were particularly strong. For the first half, segment sales increased 16%, 18% and 19%, respectively.
Liquidity, debt and capital allocation
At July 4, 2021, cash and cash equivalents were $403.6M and short-term investments $5.3M. Current assets were $1,085.5M and current liabilities $293.9M. Long-term debt, net of discount and financing costs, was $934.4M; current maturities were $0.9M and short-term debt $0.5M. The company reported more than $700M of available liquidity, including cash and revolving-facility availability. No revolver loans were outstanding; $8.9M of letters of credit were outstanding. MTI said it was in compliance with debt covenants.
First-half cash uses included $39.8M of capital expenditures, $36.9M of treasury-stock purchases and $3.4M of dividends. The board’s $75M repurchase authorization had $26.9M remaining at quarter-end. Management expected 2021 capital expenditures of $80M–$85M. The company’s $400M senior notes bear 5.0% interest and mature in 2028; the main floating-rate term loan matures in 2024.
Outlook, commentary and risks
- Management described Q2 as strong, citing improving demand across end markets, margin actions, new-product commercialization and geographic expansion. It did not provide specific sales or earnings guidance.
- Management did not expect COVID-19 to negatively affect Q3, but said the pandemic’s course and potential financial effects remained uncertain and could be material.
- On July 26, 2021, the notes report completion of the approximately $185M Normerica acquisition, financed with cash and credit facilities. The MD&A gives July 23 as the completion date. Normerica generated $140M of 2020 revenue, according to the filing.
- Risks include economic and end-market cyclicality, input and shipping-cost inflation, customer and supplier effects of COVID-19, execution of growth initiatives, debt service and covenant compliance, raw-material availability, foreign exchange and interest-rate movements, and legal, environmental and regulatory matters.
- Silica- and asbestos-related lawsuits are pending; management said any liability and defense costs were not expected to materially affect financial position or results. Remaining restructuring obligations were $2.8M, expected to be paid by year-end 2021. The quarter included a $2.2M non-cash pension settlement charge.
Most important facts to verify
- Confirm the Normerica acquisition closing date, which differs between the note and MD&A, and assess its impact on debt, liquidity and subsequent results.
- Track whether volume growth and pricing continue to offset higher energy, mining and other input costs, particularly given the first-half production-margin decline.
- Review the 2024 term-loan maturity and refinancing needs, interest-rate exposure, and ongoing covenant compliance.
- Monitor COVID-19 and project-related demand, especially the first-half declines in Environmental Products and Building Materials.
- Check subsequent filings for updates to litigation, acquisition integration, capital spending and the share-repurchase program.