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GrafTech International's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Turning to the segments. Industrial Material sales were $260 million and operating income came in at $42 million, a $10 million increase over Q2 a year ago. The increase in operating income was largely due to higher year-over-year realized pricing of graphite electrodes and needle coke partially offset by lower volumes. Also adding to operating income that quarter was the carryover benefit of lower cost from inventory related to high Q4 2011 production rates and lower cost raw materials purchased last year.

It is important to note that the lower cost inventory has largely been utilized and we anticipate that the impact of 2012 raw material increases and higher fixed-cost absorption will be more fully reflected in the second half of the year.

In our Engineered Solutions segment, sales came in at $53 million and operating income was $5 million or 9% of sales. As expected our Engineered Solutions segment has returned to profitability this quarter as we continue to see solid demand in our advanced consumer electronics product line. We expect this segment will continue to grow in the second of the year and are targeting a double-digit operating income margin percentage in the fourth quarter of this year.

Turning to outlook. Based on IMF projections, the estimate for global GDP growth has been reduced to 3.5% for this year representing the second downward revision to growth estimates this year by the IMF. The IMF highlights in its July report that the global economic recovery has weakened considerably and continues to face significant downside risk. The European economies continue to struggle with massive debt and severe austerity programs, while growth out of emerging economies particularly China, Brazil and India has continued to slow.

Uncertainty in the global economies has impacted steel customer sentiment and production rates. Major markets such as the EU are down more than 5%. Since our Q1 earnings release, we've seen economic conditions in virtually every region we serve deteriorate further.

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