CETCO's Parent Company, Amcol, on its First Quarter Earnings

Excerpts From Amcol International 1Q Conference Call DOW JONES NEWSWIRES April 19, 2004 2:02 p.m. The following are edited excerpts of a transcript provided by CCBN StreetEvents of Amcol International Corp’s (ACO) first-quarter earnings conference call: Earlier Monday, the maker of specialty mineral products said its net income for the quarter rose to $5.1 million, or 16 cents a share, from $2.9 million, or 10 cents a share, a year ago. Sales for the period rose 28% to $102 million from $79.5 million last year. The company attributed one cent a share of its improved profits to stronger foreign currencies, particulary the Euro and British pound, and another one-cent a share to recent acquisitions. Participating on the call with analysts were President, Chief Executive, and Chief Operating Officer Lawrence Washow and Chief Financial Officer Gary Castagna. On Impact Of Weather CALLER: Having followed AMCOL for awhile, I sort of remember that, because of your mining operations, the company always used to have lower earnings in the first quarter due to weather-related items. Did we have any favorable weather conditions or were the gains that you’re reporting solely due to economic growth in North America and Southeast Asia? WASHOW: I think the first quarter certainly was – there had to be some benefit of good weather, good environment for the environmental products, I should say. Generally, that is really the swing part of the quarter, is the environmental segment. And the European business was strong. Weather over there apparently was fine. We certainly did not hear that as a problem, which sometimes we do. So I would describe the quarter – I think we did see some meaningful, real sales growth in the mineral side that was very sustainable. Environmental had a bit stronger, quite frankly, than we would’ve expected first quarter. But part of that based on acquisition, part of it based on favorable conditions. I would not use the percentage increase of the first quarter certainly in trying to predict the year. It was a very strong quarter. On Acquisitions CALLER: Can you provide us with looking at the three acquisitions you talked about? If those three companies performed at the same revenue base as they had last year, what will that add in terms of revenues to the Company for this year? WASHOW: The acquisition effect on revenues in the comparable quarters, Jay, was approximately about 20 percent of the sales growth was associated with the acquisitions. CALLER: Twenty percent. But what will those companies add? If they just before the way they did last year, what would they add in dollars to the revenues for this year? What were their aggregate revenues for last year? CASTAGNA: Fairly minimal Jay, because in a case, especially the environmental businesses, we really did not acquire through the ongoing businesses in a couple of those cases. They were really start-up tight businesses, technology type of acquisitions. And therefore, they frankly did not have much of a revenue base to them. So the acquisition, I should say, if you took the sales that they had contributed last year and try to extrapolate them out to this year, I don’t think is a very valid comparison. On Currency Adjustments CALLER: What was the overall effect on revenue of currency adjustments? CASTAGNA: We did not have a precise number at the point of we get ready for the meeting. But approximately 15 percent of the growth, the sales growth over the prior year, is attributable to currency. On Competition CALLER: You mentioned in the press release that you were – I think the verbiage is – you have the leading position in the domestic lining market. Who has the number two domestic market share? WASHOW: There’s really only one other producer out of Canada and ourselves in the U.S. market. The European market is far more competitive where there is a number of producers, although one less since we bought the Austrian company. GSE is the other competitor. They also do HDPE and a whole range of lining systems that install, as well as produce the Metro Mat type product. On Write-Offs CALLER: Gary, should we assume that there will be acquisition write-offs, either annunciated on subsequent quarters or when you complete your year-end accounting, and that the goodwill addition will be less than shown? CASTAGNA: I don’t believe so. I think that items like inventories, etc., we have brought in at, if you will, the historical carrying values. So we are not really expecting a significant change, in terms of the profitability swings, if you want to call it, associated with write-offs … That is saying – if anything, we may be reclassifying more of that goodwill to either purchasing assets or when we are looking at the fixed assets a little bit more closely and to ascribing value there. CALLER: Did you acquire much in the way of inventory that, when it’s sold, would go out at very low gross margins? CASTAGNA: No. They were pretty well brought onto our books said at their historical levels. So we’re not going to do that. On Share Options CALLER: With respect your share count, should we expect a further expansion of the fully diluted share count in subsequent quarters? CASTAGNA: I personally don’t believe a significant amount from here. As you know, with this Treasury stock method, it somewhat accentuates the numbers because we started a new year here and we kind of start with the different metrics in doing that calculation. So I don’t believe, at least at this point, that there should be significant variations from where we’re at right now. CALLER: When you did the sale of the Palmer Group and the liquidating distribution in 2000, there were something like 3 million shares under option that were created. WASHOW: There were five. CALLER: Alright, five. Have they substantially been converted in this 31 million share count? CASTAGNA: Yes. When we ended the year – I don’t know the precise number, but it is disclosed in our footnotes – I believe we have approximately 2.5 million options remaining outstanding. CALLER: And how many did you grant last year? WASHOW: 300,000. CASTAGNA: Historically, it has been about in the 300,000.