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AMCOL International Corporation Message Board

  • shortofaname_99 shortofaname_99 Apr 18, 2008 7:45 AM Flag

    Horrible results!

    Big miss on EPS. That's what happens when a co. grows through acquisitions. Also, cash flow has been consistently poor and is getting worse. I estimate the co. has true earnings power of $1.50 per year. At a 12x multiple, it's an $18 stock.

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    • Just a few thoughts about this quarters earnings and the outlook for Q2.

      First, a related excerpt from the Q4 2007 CC:
      Jay Harris – Goldsmith & Harris - So does that make your first quarter the most difficult quarter for you?

      Lawrence Washow - It typically is because of the weather impact on the environmental business and the cost impact on the minerals side when you’re doing all the mining and things in the winter so yeah the first quarter will, it’s historically it’s been our most challenging one.

      But at the end of the Q4 CC:
      Lawrence Washow - Okay, thank you for joining the call and look forward to a good result when we can talk about it in Q1. Thank you.


      Then from the Q1 2008 CC:
      Jay Harris - Goldsmith & Harris, asked the tough questions, that were only partly answered. In Amcol's defense, they kind of warned during the Q4 CC that Q1 was usually a tough quarter. Perhaps our analysts had the estimates out of line.

      Jay Harris - Goldsmith & Harris - The sun is shining in New York and the stock price is down $5.35, just an observation you guys don't give guidance, therefore you're not required to telegraph, where the numbers are going. But when you see street estimates north of a year ago and you're coming in significantly south of a year ago, why do you wait for the conference call to drop the bomb? Why don't you open the door earlier? The stock never should have gone to 34 or 35over the last week or so anyway?

      There are two issues that it seems to me, that you've to address, I don't know if you'll have enough time that we address them in enough detail on this conference call. One is, to what extent have you been able to get your arms around the issue of rapidly rising cost structure, which as [plagued] your margins and obviously this quarter on a disastrous basis.

      And why should we believe that your margins will recover in the Minerals division going forward when it is so far below the, I don't know, late 90s early 2000 decade structure that were had been in place. And if we're in an environment in which crude oil is going to continue to go up and therefore your freight surcharges and your input costs are going to continue to go up. Why should you be in a position to grow your company at an acceptable rate over the next few years? I mean, those are two separate issues I'd like to see you address them as best as possible?

      Larry Washow from the Q1 CC:
      It's very clear that the energy cost we can't predict, we have no idea, we sort of assume that towards the end of last year that things might have -- if not [peak tight] at least we will see marginal increases. And obviously, in Q1, the increases were dramatic, far greater than we had anticipated. And it's immediate impact on us when we're shipping internally with freight, surcharges. We're buying diesel, fuel. We're buying the material. We're buying gas to dry the clay. So the impact on the energy was far, far greater in Q1 than we had anticipated in terms of raising price.


      My comments:
      What now? It doesn't look like the energy costs are going to improve any time soon, so where does that leave us for Q2? The current analyst estimates are calling for revenues to grow 17% over last year, but earning only growing at 2% (to $1.92). A 15 PE is fairly generous for 2% growth, but with revenues growing much faster, they just need to get their costs in line or pass them on to customers. I am also somewhat surprised we have recovered in price this much.

      • 1 Reply to steve_382
      • Steve, good to hear from you again. I actually believe them about costs: they say they do have pricing power, but there is a lag in reacting to cost increases. Some of this was structural, contracts were for 6 months to a year, but now contracts allow for quicker price increases.

        On the other hand, despite their assurances of good demand, and good revenue increases, I worry about future revenue, not in 2nd qtr, but thereafter. Especially, since too much of revenue is in US. An index of architect's future commissions is at an all time low (based on sound bite on CNBC), so I expect non-residential construction in US to start doing badly. Also, see my previous post in this thread.

        The America's accounted for 68.3% of sales in 1st qtr (I don't know why they don't break out South America from North America).

        For 2007 37% of operating profit was earned by overseas businesses, but also there was international JV income, .27 in 2007 or 15% of total eps. So in 2007, international, mixing apples and oranges a bit, accounted for 15% + 37% of (85%) or about 46% of earnings. Excluding oil services, this number would be higher.

        PE's have come down in general, so ACO doesn't seem like a great buy to me at this point.

    • yep! aco is one of these sexy growth stocks that insiders use the stock as an ATM. fair value is sure a lot lower than where it is today, especially, in this market.

      regards

    • I expected problems because of the economy, although I am confused by increase in sales. For example, they have a new plant in Spain, but Spanish construction may be worse than US. Weakness in demand hurts pricing power. Even landfill needs are very sensitive to construction.

      Also, yesterday the American Foundry Society said it expected a 3.8% INCREASE in metalcasting volume in the US. Imports are slowing, but still increasing, so again I am confused given drop in auto and truck production.