Calgon Carbon Corporation (CCC) reported a profit of 15 cents per share in the first quarter of 2011 compared with 17 cents in the year-ago quarter. Reported earnings missed the Zacks Consensus Estimate of 17 cents.
Sales in the quarter increased 20.8% to $124.4 million beating the the Zacks Consensus Estimate of $123 million. Calgon Carbon Japan’s (CCJ’s) sales contributed 83% of the increase in sales.
Sales in Calgon Carbon’s biggest segment, Activated Carbon and Service, surged 24.8% to $112.9 million in the reported quarter. The increase was primarily attributed to the higher sales of activated carbon products and increased services in four of its market segments comprising municipal, industrial process, respirator and environmental water treatment. The increase was however offset by lower demand in the food and environmental air treatment markets.
A change in mercury removal requirements in one Canadian province; the temporary shut down of certain customers’ coal-fired electric generating units for maintenance; and a customer’s decision to temporarily shift some production from coal-fired to hydroelectric generating facilities were some of the reasons for the decline in environmental air treatment sales.
Equipment segment sales plunged 10.3% to $9.1 million due to lower revenue from carbon absorption systems. This was partially offset by higher revenue from UV systems. However, Consumer segment sales for the quarter increased 2.8% to $2.4 million due to higher demand for activated carbon cloth products.
Expenses
Cost of products sold increased 26.1% to $83 million in the reported quarter. Cost of products sold as a percentage of sales was 66.7% versus 56.4% in the year-ago quarter. Gross profit decreased to $41.4 million in the quarter from $37.0 million in the prior-year quarter. Gross margin was 33.3% in the quarter versus 36.1% for the first quarter of 2010.
Lower margins from the sales of CCJ and revenue recognized on UV systems versus the company’s overall average led to the decline in gross margins. Lower sales of activated carbon products for mercury removal also contributed to the decline.
Selling, administrative and research expenses for the first quarter of 2011 increased 14.2% to $22.5 million, due to expenses incurred by CCJ that were not reported on a consolidated basis for the first quarter of 2010.
Financial Performance
Cash and cash equivalents were $28.3 million as of March 31, 2011 compared with $35.2 million at the end of December 31, 2010. Long-term debt as of March 31, 2011 was $24.2 million.
Outlook
The company expects the margins from CCJ to continue improving throughout 2011. In order to meet customer demand in 2011 the company expects to supplement activated carbon that it produces with lower-margin outsourced products. Calgon will continue to make progress implementing its pricing and reactivation strategies, as a result of which, Calgon anticipates that its Carbon and Service business will improve.
Zacks Recommendation
We currently maintain a Zacks #2 Rank (short-term Buy recommendation) on Calgon and a long-term Neutral recommendation.
Competitors
Calgon competes with MeadWestvaco Corporation (MWV) and ITT Water & Wastewater Herford GmbH.
CALGON CARBON (CCC): Free Stock Analysis Report
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