Minerals Technologies Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended October 3, 2021; comparisons are with periods ended September 27, 2020. MTI develops and sells specialty minerals, mineral-based and synthetic products, and related systems and services. Its reportable segments are Performance Materials, Specialty Minerals, and Refractories. Amounts below are in millions of dollars except per-share data.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $473.2 | $388.3 | $1,381.4 | $1,163.0 |
| Income from operations | $60.6 | $48.5 | $183.1 | $133.4 |
| Operating margin | 12.8% | 12.5% | 13.3% | 11.5% |
| Net income attributable to MTI | $41.4 | $28.3 | $123.2 | $81.3 |
| Diluted EPS | $1.22 | $0.83 | $3.63 | $2.38 |
- Q3 sales rose 22%; management attributed growth to improved volumes across all segments, $20 million of Normerica sales, and approximately $6 million of favorable foreign exchange. Nine-month sales grew 19%, including approximately $31 million of favorable foreign exchange.
- Q3 production margin fell to 23.9% from 25.3%; for nine months it was 24.6% versus 25.3%. MTI cited higher energy and other manufacturing costs. Operating margin nonetheless improved, supported by higher volumes and lower relative marketing and administrative expenses.
- Q3 sales and operating income increased in each segment. Performance Materials sales were $250.4 million (+23%) and operating income $32.0 million; Specialty Minerals sales were $146.9 million (+17%) and operating income $17.3 million; Refractories sales were $75.9 million (+28%) and operating income $13.2 million.
- Nine-month operating cash flow was $163.1 million, versus $148.4 million. Capital expenditures were $63.0 million, implying operating cash flow less capital expenditures of approximately $100.1 million. Acquisition cash spending was $186.9 million; investing cash flow was negative $244.7 million. Cash declined $57.8 million to $309.9 million.
Balance sheet and liquidity
- At October 3, 2021, cash and short-term investments totaled $311.3 million. Current assets were $1,029.8 million and current liabilities $423.3 million.
- Debt comprised $100.5 million of short-term debt, $0.8 million of current long-term maturities, and $935.3 million of long-term debt. The company drew $100 million on its revolving facility to help fund Normerica. Management reported more than $500 million of available liquidity and compliance with debt covenants.
- The $935.3 million long-term debt balance included a $538.3 million variable-rate term loan due 2024 and $394.4 million of 5.0% senior notes due 2028. A $150 million interest-rate swap partly hedges floating-rate exposure; management stated the effective fixed rate on the hedged notional debt was 2.5%.
Material changes, outlook, and risks
- MTI acquired Normerica Inc., a premium pet-care products supplier, on July 26 for net consideration of $186.9 million. The acquisition contributed $20 million of Q3 sales; its preliminary allocation included $106 million of goodwill and $67 million of intangible assets.
- In November 2021, after quarter-end, MTI also acquired Specialty PCC assets in the U.S. Midwest. The filing provides no purchase price for that transaction.
- MTI gave no specific earnings or revenue forecast. It expected no negative COVID-19 impact in Q4, while cautioning that pandemic effects remained uncertain. It cited growth initiatives spanning pet care, environmental products, paper, construction, and refractories. Planned 2021 capital expenditures were $80–$85 million.
- Management identified energy, raw-material and shipping cost increases, customer-industry cyclicality, pandemic developments, execution of growth initiatives, debt service and covenant compliance, foreign exchange and interest rates, and legal, environmental, regulatory, and supply risks as factors that could affect results. A 1% interest-rate change, including derivatives, was estimated to change annual interest expense by $1.3 million.
- Q3 included $1.5 million of acquisition expenses and $1.1 million of restructuring and other costs. Nine-month 2020 comparison included $10.4 million of Novinda-related litigation expense and $8.0 million of restructuring costs. The Jackson, Alabama Paper PCC site closure led to a $0.7 million non-cash write-down and $0.4 million of severance and related costs in Q3 2021.
- MTI reported silica- and asbestos-related lawsuits, but said it could not estimate claimed amounts and did not expect the matters to materially affect financial position or results. The company completed a prior $75 million repurchase authorization and announced a new authorization of up to $75 million on October 20, 2021.
Key investor verification points
- Track whether pricing and productivity offset ongoing energy, manufacturing, and other input-cost pressures that reduced production margins.
- Assess Normerica’s integration, contribution to earnings and cash generation, and final purchase-price allocation; review the cost and expected contribution of the subsequent Specialty PCC acquisition.
- Monitor debt and liquidity after the acquisition borrowing, the 2024 term-loan maturity, and compliance with the revolving-facility leverage covenant.
- Compare future capital spending and working-capital needs with operating cash flow, particularly as inventory rose to $282.1 million from $248.2 million at year-end 2020.
- Evaluate the durability of demand recovery across customer end markets and the stated risks from COVID-19, costs, supply availability, and foreign exchange.
The interim financial statements were reviewed by KPMG, not audited; KPMG reported that it was not aware of material modifications needed for conformity with U.S. GAAP.