Mixed Bag from Calgon Carbon

Zacks

Calgon Carbon Corporation’s (CCC) second-quarter 2012 earnings of 19 cents a share trailed the Zacks Consensus Estimate as well as the year-ago earnings by a penny. The Pennsylvania-based pollution control company reported a 3.5% year-over-year decline in profit to $10.9 million as higher costs more than offset top-line growth. 

Revenues

Revenues climbed 9.7% year over year to $148.4 million, and beat the Zacks Consensus Estimate of $147 million. Currency translation had a negative impact of $3.1 million on sales, stemming from a stronger dollar.

Revenues from the Activated Carbon and Service segment rose 4% to $126.4 million, aided by increased demand for activated carbon products and services in the potable water market and higher prices of activated carbon products for the metals recovery market.

Equipment revenues zoomed 70.3% to $19.9 million, riding on higher sales from ballast water treatment systems and ion exchange equipment. Consumer sales crept up 3.2% to $2.2 million in the quarter.

Margins and Expenses

Gross margin fell to 31% in the quarter from 32.8% a year ago, impacted by higher plant maintenance expenses and higher coal costs. Moreover, the company incurred a charge of $1.3 million related to the discontinuation of a product line in its Consumer segment.

Cost of products sold increased 12.8% year over year to $102.5 million in the quarter. Selling, administrative and research (SG&A) expenses rose 2.6% to $23.1 million. The company attributed the increase to testing of new activated carbon products.

Financials

Calgon Carbon ended the quarter with cash and cash equivalents of $16.6 million, compared with $13.6 million as of December 31, 2011. Total long-term debt stood at $0.3 million as of June 30, 2012, compared with $1.1 million as of December 31, 2011.

Outlook and Recommendation

The company is witnessing certain challenges like global economic slowdown, rising raw material and maintenance costs, and delays in implementation of environmental regulations. These have created a tough business environment. As such, Calgon Carbon has designed a program to save costs in excess of $10 million on an annual basis.

Healthy sales gains and strategic initiatives adopted by the company will bring benefits in the longer term. We, however, remain concerned about the economic challenges that the company might face in the remainder of 2012. Moreover, escalating costs remains a headwind.

We currently have a long-term Neutral recommendation on Calgon Carbon. The company, which competes with MeadWestvaco Corporation (MWV), retains a Zacks #2 Rank, which translates into a short-term Buy rating.

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