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| | Senior Vice President & CFO |
| | 847.394.8730 |
AMCOL INTERNATIONAL (NYSE:ACO)
REPORTS FIRST QUARTER EARNINGS
ARLINGTON HEIGHTS, IL., APRIL 18, 2008—AMCOL International Corporation (NYSE:ACO) today reported 2008 first-quarter net income of $8.6 million or $0.28 per diluted share, compared with $10.8 million or $0.35 per diluted share in the same prior-year period.
Net sales rose 16.9% to $191.4 million for the quarter ended March 31, 2008, compared with $163.7 million for the 2007 period. Acquisitions and favorable foreign currency translation represented approximately $5.9 million and $4.3 million, respectively, of the first-quarter sales growth. Operating profit declined by 13.5% over the 2007 period to $12.7 million. Acquisitions added less than $0.1 million to current-period operating profit while foreign currency translation contributed $0.5 million.
This release should be read in conjunction with the attached unaudited condensed consolidated financial statements. Further discussion of items and events impacting earnings are included in the Statement of Operations Highlights.
“Sales were up across all segments in the first quarter, and Oilfield Services had operating profit growth of 24.7%,” says Larry Washow, AMCOL President and Chief Executive Officer. “At the same time, however, we experienced a number of issues that dampened our overall performance. Increased energy costs were a significant factor this quarter. Overhead was up due to costs from acquisitions, greater R&D expenditures and higher benefits cost.”
AMCOL Q1 2008 EARNINGS
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“Despite solid sales growth of 15.8% in the Minerals segment, quarter-over-quarter operating profits were down 17.0% from a year ago, primarily because of higher energy costs. Operating margins were flat compared to the fourth quarter of 2007, but we expect to see improvement in margins in the quarters ahead,” Washow continues.
“Sales in the Environmental segment were up 19.6% quarter-over-quarter but operating profit decreased slightly by 4.4%,” he says. “Weather, energy costs, overhead and product mix all played a role, but, again, our expectations for the balance of the year are positive.
In summary, Washow says, “We’re seeing the effects of a number of economic influences, but we are continuing to identify opportunities to improve costs. Given the strength of the energy sector, we expect continued strong performance in Oilfield Services, and the outlook is promising for other segments over the rest of the year, as well.”
STATEMENT OF OPERATIONS HIGHLIGHTS:
Net sales: The following table details the consolidated sales growth components over the 2007 first quarter:
| | | Base Business | | Acquisitions | | Foreign Exchange | | Total | |
| Minerals | | | 4.7 | % | | 2.8 | % | | 0.8 | % | | 8.3 | % |
| Environmental | | | 3.2 | % | | 0.8 | % | | 1.8 | % | | 5.8 | % |
| Oilfield Services | | | 1.3 | % | | - | | | - | | | 1.3 | % |
| Transportation | | | 1.5 | % | | - | | | - | | | 1.5 | % |
Total | | | 10.7 | % | | 3.6 | % | | 2.6 | % | | 16.9 | % |
% of Growth | | | 63.3 | % | | 21.3 | % | | 15.4 | % | | 100 | % |
Minerals: Approximately one-third of the base business growth was attributed to freight pass-through revenue. Higher shipments in the pet products division led to the increase in freight revenue and contributed to base business volume growth over the 2007 quarter. Base business sales were also aided by higher demand in the Asia-Pacific metalcasting market and certain specialty materials product lines. Pricing was increased in certain product lines and geographical markets; however, higher relative contribution of lower-priced products - mix - lowered sales compared with 2007.
Sales from acquisitions were principally contributed by the Turkish operations followed by a Mexican joint venture business. Foreign exchange benefit resulted from British Pound and Asia-Pacific currency translation.
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Environmental: A 19.6% improvement in sales was primarily generated from the Poland-based operations. Base business growth in building materials division shipments and installation services led to the increase. Additionally, higher shipments of lining technology product lines in the U.S. market contributed to the increase.
Oilfield Services: Demand for water treatment services in the Gulf of Mexico was the largest contributor to base business growth. Additional sales improvement came from emerging geographic markets.
Transportation: Traffic levels increased over the prior-year quarter due to higher demand from consumer products shippers.
Gross profit: Sales growth provided the increase in gross profit; however, gross margin was 24.2% which was a 240 basis point decline from the 2007 quarter.
Minerals: The decline from the prior-year first quarter was primarily attributed to rising energy, production and mining costs in the U.S. Additionally, gross margin was impacted by unfavorable product mix in Europe and higher freight revenues, which do not generate any profit.
Environmental: Within the Environmental segment, gross margin declined by 260 basis points due to sales of lower profit products and services relative to the prior-year quarter. In addition, rising production costs in the U.S.-based operations negatively impacted current-period gross margin.
Oilfield: Oilfield Services gross margin was comparable to the prior-year quarter.
Transportation: The transportation segment suffered a decline of 90 basis points. Under-recovered fuel surcharges were the principal reason for the negative gross margin comparison.
General, selling and administrative expenses (GS&A): The $4.8 million, or 16.8%, increase over the 2007 first quarter was principally caused by the Minerals, Environmental and Corporate segments. Acquired businesses added $1.0 million of GS&A to the current-year quarter.
Minerals: Acquired business expenses were $0.8 million. Base business GS&A grew due to higher research and development expenditures for the specialty materials division and personnel costs in the Asia-Pacific region.
Environmental: GS&A increased primarily due to higher compensation and sales commission expenses at the Poland-based operations.
Corporate: GS&A increased from higher health and welfare benefit expenses.
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Operating profit: The decline from the prior-year quarter was primarily caused by the combined effect of relatively low gross profit improvement and higher GS&A costs. Consequently, operating margin declined by 240 basis points.
Interest expense: Net interest expense increased by approximately $0.5 million over the prior-year quarter due to higher average debt levels.
Income taxes: The effective tax rate for the first quarter of 2008 was 27.0% compared with 26.3% for the same period in 2007. Lower tax credits were recorded in the current-year quarter. No research and experimentation credit was recorded since legislation allowing this credit lapsed at the end of 2007.
Income from affiliates and joint ventures: Lower profits from our India-based investments accounted for the $0.3 million decline from the prior-year quarter. Delay of large bauxite shipments caused the reduction in earnings.
Share count: Weighted average common and common equivalent shares outstanding were 30.9 million and 31.0 million for the quarters ended March 31, 2008 and 2007, respectively.
FINANCIAL POSITION AND CASH FLOW HIGHLIGHTS:
Funded long-term debt increased to $188.1 million at March 31, 2008 compared to $164.2 million at December 31, 2007. The increase was primarily due to funding higher working capital levels and capital expenditures incurred in the first quarter. Total long-term debt represented 35.5% of capitalization at March 31, 2008, compared with 31.8% at December 31, 2007. Cash and cash equivalents were $33.2 million at March 31, 2008 compared with $25.3 million at December 31, 2007.
As mentioned in our Form 10-K for 2007, during the first quarter, we completed a sale-leaseback transaction pursuant to which we sold land to a third-party and agreed to lease a new corporate headquarters facility on the site. The building is currently under construction and we expect to occupy the building by the end of 2008. Pursuant to the transaction, the owner will fund anticipated construction costs related to the building, including reimbursing us for expenditures we incurred prior to the transaction. We will account for the building expenditures as a construction in progress asset during the construction period with an offsetting amount recorded as long-term financing debt. In the quarter during which we take occupancy of the building, we will record a sale of the land and building equal to the total construction costs and land value.
Working capital increased to $233.1 million at March 31, 2008 from $202.5 million at December 31, 2007. The current ratio was 3.5-to-1 and 3.0-to-1 at March 31, 2008, and December 31, 2007, respectively.
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Cash flow generated from operating activities was $4.3 million year-to-date as of March 31, 2008 compared to $6.3 million in the prior-year period. The decrease in net income and changes in working capital caused the decline in operating cash flows compared with the prior-year quarter.
Excluding the corporate building, capital expenditures were the primary investing activity in the 2008 period amounting to $12.9 million compared with $10.9 million in the prior-year period. Expenditures related to Minerals and Oilfield Services segment projects accounted for the increase over the prior-year period.
Approximately $2.0 million has been expended on share repurchases as of March 31, 2008. Eighty-thousand shares were repurchased in the first quarter of 2008 at an average price of $25.45 per share. Dividends declared year-to-date through March 31, 2008, increased by 14.6% over the prior-year period to $4.8 million.
This release contains certain forward-looking statements regarding AMCOL’s expected performance for future periods and actual results for such periods might materially differ. Such forward-looking statements are subject to uncertainties, which include, but are not limited to, actual growth in AMCOL’s various markets, utilization of AMCOL’s plants, currency exchange rates, currency devaluation, delays in development, production and marketing of new products, integration of acquired businesses, and other factors detailed from time to time in AMCOL’s annual report and other reports filed with the Securities and Exchange Commission. AMCOL undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in AMCOL’s expectations.
AMCOL International, headquartered in Arlington Heights, IL, produces and markets a wide range of specialty mineral products used for industrial, environmental and consumer-related applications. AMCOL is the parent of American Colloid Co., CETCO (Colloid Environmental Technologies Company), CETCO Oilfield Services Company and the transportation operations, Ameri-co Carriers, Inc. and Ameri-co Logistics, Inc. AMCOL’s common stock is traded on the New York Stock Exchange under the symbol ACO. AMCOL’s web address is www.amcol.com. AMCOL’s first quarter conference call will be available live today at 11 a.m. EDT on the AMCOL website.
Financial tables follow.
AMCOL INTERNATIONAL CORPORATION |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
(unaudited) |
(In thousands, except per share data) |
| | | Three Months Ended | |
| | | March 31, | |
| | | 2008 | | 2007 | |
| | | | | | |
| Net sales | | $ | 191,409 | | $ | 163,728 | |
| Cost of sales | | | 145,059 | | | 120,229 | |
| Gross profit | | | 46,350 | | | 43,499 | |
| | | | | | | | |
| General, selling and administrative expenses | | | 33,638 | | | 28,805 | |
| Operating profit | | | 12,712 | | | 14,694 | |
| Other income (expense): | | | | | | | |
| Interest expense, net | | | (2,401 | ) | | (1,942 | ) |
| Other, net | | | (235 | ) | | (167 | ) |
| | | | (2,636 | ) | | (2,109 | ) |
| | | | | | | | |
| Income before income taxes and income from affiliates and joint ventures | | | 10,076 | | | 12,585 | |
| Income tax expense | | | 2,717 | | | 3,311 | |
| Income before income from affiliates and joint ventures | | | 7,359 | | | 9,274 | |
| | | | | | | | |
| Income from affiliates and joint ventures | | | 1,262 | | | 1,566 | |
| Net income | | $ | 8,621 | | $ | 10,840 | |
| | | | | | | | |
| Weighted average common shares outstanding | | | 30,260 | | | 30,153 | |
| | | | | | | | |
| Weighted average common and common equivalent shares outstanding | | | 30,889 | | | 31,017 | |
| | | | | | | | |
| Basic earnings per share | | $ | 0.28 | | $ | 0.36 | |
| | | | | | | | |
| Diluted earnings per share | | $ | 0.28 | | $ | 0.35 | |
| | | | | | | | |
| Dividends declared per share | | $ | 0.16 | | $ | 0.14 | |
