Business context and reporting period
Minerals Technologies Inc. (MTI) filed this unaudited Form 10-Q for the three months ended March 29, 2020, compared with the three months ended March 31, 2019. MTI develops and sells specialty mineral and synthetic mineral products, systems, and services through Performance Materials, Specialty Minerals, Refractories, and Energy Services.
Financial performance and liquidity
Unless stated otherwise, amounts are in millions of dollars.
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Net sales | $417.5 | $437.7 |
| Income from operations | $57.7 | $62.0 |
| Operating margin | 13.8% | 14.2% |
| Net income attributable to MTI | $38.6 | $39.1 |
| Diluted EPS | $1.12 | $1.11 |
| Cash from operating activities | $30.3 | $30.8 |
- Product sales were $392.3 and service revenue was $25.2. Production margin was $106.8, or 25.6% of sales, versus $109.7, or 25.1%, in the prior year. Management attributed the improved percentage primarily to higher selling prices and cost control.
- Interest expense, net, was $9.3 versus $11.4; total non-operating deductions were $8.7 versus $12.8. The effective tax rate rose to 19.8% from 18.9%.
- Capital expenditures were $16.6. Cash and cash equivalents ended the quarter at $214.3, with short-term investments of $3.8. Cash declined $27.3 during the quarter, including a $12.0 unfavorable foreign-exchange effect. Financing cash use included $22.6 of treasury-share purchases and $1.7 of dividends.
- At March 29, 2020, total debt was approximately $927.6, including $100.9 of short-term debt, $1.8 of current maturities, and $824.9 of long-term debt. Cash plus short-term investments was $218.1. MTI reported more than $400 of available liquidity, including cash and revolving-credit availability. It had $100 of revolver borrowings and $9.4 of letters of credit outstanding, and was in covenant compliance.
- Current assets were $897.6 and current liabilities were $381.5. The quarterly dividend declared was $0.05 per common share.
Material changes versus the prior comparable period
- Sales fell 5%; management estimated COVID-19 reduced first-quarter sales by approximately $7, with foreign exchange reducing sales by approximately $6.
- Sales declined across Performance Materials (7%), Specialty Minerals (5%), and Refractories (7%); Energy Services sales increased 24%. Segment operating income was lower in the first three segments and higher in Energy Services.
- Operating income declined 7%, while net income attributable to MTI fell 1%; diluted EPS increased to $1.12 from $1.11, alongside lower weighted-average shares.
- Other comprehensive loss was $39.2, primarily reflecting $43.1 of foreign-currency translation loss. Comprehensive income attributable to MTI was $0.7 versus $41.0 in Q1 2019.
Outlook, risks, contingencies, and unusual items
- Management expected the pandemic and slowing activity in key end markets to negatively affect second-quarter results; it provided no specific earnings or sales guidance. The size and duration of the impact were described as highly uncertain and potentially material.
- Management noted risks to demand in metalcasting, paper, steel-related refractories, and oil and gas services. It said most facilities remained operational as essential businesses, although some locations were temporarily affected by government directives. Oil and gas price declines could further reduce customer spending.
- MTI reported $0.6 of first-quarter litigation expense related to the Novinda bankruptcy arbitration and $11.5 of cumulative litigation expense through March 29, 2020. The company had not recorded a loss-contingency liability because it could not reasonably estimate possible loss; an adverse outcome could materially affect results in the period recorded.
- At quarter-end, MTI reported 135 pending asbestos cases and three pending silica cases. Management did not expect these matters to materially affect financial position or results, noting indemnification arrangements for many claims. Environmental remediation accruals were approximately $0.4 each for the Canaan, Connecticut and Adams, Massachusetts sites; estimated wastewater-treatment upgrades at Adams were previously projected at $6–$8.
- The board’s $75 share-repurchase authorization covered a one-year period. By March 29, MTI had repurchased 851,258 shares for $42.6, at an average price of approximately $50 per share.
- MTI expected 2020 capital expenditures of $50–$60 and pension contributions of approximately $9. The filing states that adoption of the credit-loss accounting standard had no material impact. The independent accountant performed a review of interim information, not an audit.
Important facts for investors to verify
- Subsequent filings and disclosures on the COVID-19 impact on sales, operations, cash flows, and second-quarter performance.
- Liquidity and debt developments, including revolving-credit availability, covenant compliance, and the $182.1 of scheduled 2021 debt maturities and $658.0 scheduled for 2024.
- Progress and potential financial exposure from the Novinda arbitration and environmental matters.
- Whether segment demand, especially in paper, metalcasting, steel, and oil and gas, recovers or deteriorates, and whether planned capital spending and growth initiatives proceed.