Minerals Technologies Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended April 4, 2021; comparison is the three months ended March 29, 2020. The company develops and sells specialty mineral, mineral-based and synthetic mineral products, systems and services. It reported three segments: Performance Materials, Specialty Minerals and Refractories.
Financial performance
- Revenue: $452.6 million, up 8% year over year. Foreign exchange contributed approximately $9 million, or 2 percentage points, to growth. U.S. sales were approximately flat at $227.5 million; international sales rose 18% to $225.1 million.
- Profit: Operating income was $58.8 million, up 2%; operating margin declined to 13.0% from 13.8%. Net income attributable to MTI was $39.9 million, up 3%, and diluted EPS was $1.17 versus $1.12.
- Margins and expenses: Production margin fell to 24.7% from 25.6%, as cost of sales rose 10%, faster than revenue. Management cited seasonally higher energy and mining costs. Marketing and administrative expense increased 11%, partly reflecting temporarily higher corporate expenses.
- Segment results: Sales increased in each segment: Performance Materials $230.9 million (+9%), Specialty Minerals $147.8 million (+8%), and Refractories $73.9 million (+7%). Segment operating income was $29.8 million, $21.1 million and $12.0 million, respectively. Segment operating income totaled $62.9 million before $4.1 million of unallocated and other corporate expenses.
- Cash flow: Operating cash flow was $50.9 million, compared with $30.3 million. Capital expenditures were $17.7 million. Cash and cash equivalents increased $3.7 million to $371.4 million; short-term investments were $4.3 million.
- Debt and liquidity: Long-term debt was $933.6 million, plus $0.9 million of current maturities. The company reported more than $650 million of available liquidity, including cash and revolving-credit availability. Its $300 million revolving facility had no borrowings and $8.3 million of letters of credit outstanding; the company reported covenant compliance.
- Other metrics: Effective tax rate was 18.0%, down from 19.8%, primarily due to discrete quarterly items. Cash dividends declared were $0.05 per common share. The company repurchased 465,003 shares for $31.1 million under its buyback authorization as of April 4.
Changes versus the comparable period
- Revenue grew across all three reportable segments. Particularly strong product-line growth included Metalcasting (+32%) and Household, Personal Care & Specialty Products (+14%). Environmental Products sales fell 29% and Building Materials fell 18%, primarily due to COVID-related project delays.
- Operating income rose modestly, but operating and production margins declined. The prior-year quarter included $0.6 million of litigation expense related to Novinda Corp.’s bankruptcy; no such expense was reported in Q1 2021.
- In Q1 2021, the company combined Energy Services into Environmental Products within Performance Materials and reorganized segment reporting. Prior-year product-line figures were restated where presented.
- Other comprehensive loss was $21.5 million, including a $28.9 million foreign-currency translation loss; comprehensive income attributable to MTI was $18.9 million.
Outlook, commentary and risks
- Management described Q1 results as strong, citing improved demand in many end markets, margin-enhancement measures, new product commercialization and geographic expansion. It disclosed a new 50,000-ton PCC satellite contract in China.
- Management did not provide specific earnings or revenue guidance. It expected 2021 capital expenditures of $75 million to $85 million, principally for PCC plant construction and strategic growth opportunities.
- The company did not expect COVID-19 to negatively affect Q2 results, but said the pandemic’s future effects were uncertain and could be material depending on its duration, severity and responses. It also cited risks from customer demand and industry cyclicality, input and energy costs, foreign exchange and interest rates, debt and covenant obligations, regulation, litigation, raw-material availability and execution of growth initiatives.
- Other items: $3.0 million remained accrued for workforce-reduction obligations, expected to be paid by year-end 2021. Silica- and asbestos-related lawsuits were described as not expected to materially affect results or financial position, though some claim amounts and outcomes could not be assessed. The interim financial statements received an independent accountant’s review, not an audit.
Key facts for investors to verify
- Whether sales growth and demand improvement persist, particularly in international markets, while Environmental Products and Building Materials recover from project delays.
- Whether production and operating margins improve as seasonal costs and temporarily elevated corporate expenses change.
- Whether operating cash flow, planned $75–$85 million capital expenditures, share repurchases and dividend payments remain consistent with liquidity and debt-service needs.
- The timing and refinancing implications of the $548.0 million of scheduled 2024 debt maturities and the terms and covenant requirements of the credit facilities and 2028 notes.
- How COVID-19, foreign-exchange movements, interest rates, input costs and legal or regulatory matters affect subsequent results.