GrafTech International Management Discusses Q 2010 Results - Earnings Call Transcript

GrafTech International Management Discusses Q 2010 Results - Earnings Call Transcript
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GrafTech International, Ltd. (

GTI

)

Q3 2010 Earnings Call

October 28, 2010 11:00 a.m. ET

Executives

Kelly Taylor – Manager, IR

Craig Schular – CEO

Mark Widmar – CFO

Analysts

Ian Zacin – Oppenheimer

Brian Bitner – Oppenheimer

Luke Folta – Longbow Research

Zahid Siddique – Gabelli

Azad Abetti [ph] - GLG

Presentation

Operator

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Previous Statements by GTI
» GrafTech International Ltd. Q2 2010 Earnings Call Transcript
» GrafTech International Ltd. Q1 2010 Earnings Call Transcript
» GrafTech International Ltd. Q4 2009 Earnings Call Transcript
» GrafTech International Q3 2009 Earnings Call Transcript

My name is Ashley and I will be your conference operator for today. At this time I would like to welcome everyone to the GrafTech Third Quarter Earnings Call. (Operator Instructions)

I would now like to turn today’s conference over to Kelly Taylor. Ms. Taylor you may begin your conference.

Kelly Taylor

Thank you Ashley. Good morning and welcome to GrafTech International’s third quarter 2010 conference call. On the call today is GrafTech Chief Executive Officer, Craig Schular and our Chief Financial Officer, Mark Widmar.

We issued our earnings release this morning. If you did not receive a copy please contact Marie Nor at (216) 676-2160 and she will be happy to fax or email a copy to you.

As a reminder, some of the matter discussed during this call may include forward looking statements as defined in the Private Securities Litigation Reform Act of 1995. Please note the cautionary language about our forward-looking statements contained in our press release. That same language applies to this call.

At this time, I’d like to turn the call over to Craig.

Craig Schular

Thank you Kelly. Good morning, everyone, and thank you for joining GrafTech’s conference call.

Today we’ll take you through our third quarter highlights and then open it up to questions.

Net sales were 255 million in the third quarter, a 55% improvement over the prior year. Gross profit improved 61% to 75 million or 29.4% of sales.

Operating income increased almost 90% to 47 million excluding 6 million in customary transaction expenses associated with the acquisitions of Seadrift and C/G. Excluding acquisition costs and the effect of intercompany loans, net income was 40 million or $0.33 per share, 2 ½ times greater than Q3 last year on the same basis.

Our third quarter results came in stronger than anticipated as electrode and refractory sales held up well in the quarter and our tax rate came in lower than expected. The lower tax rate benefited Q3 results by approximately $0.03 a share and the timing of shipments in our refractory business benefited the quarter by approximately $0.02 a share. We do not expect this $0.05 benefit to repeat in Q4.

Turning to our industrial materials segment, sales increased to 208 million in the third quarter, a 52% increase over Q3 last year. Excluding the impact of acquisition-related expenses, operating income for this segment was 40 million, a 17 million improvement year over year as a result of higher graph and electrode sales volume, offset in part by lower average graph and electrode selling prices and increased raw material costs.

In our Engineered Solution segment sales were 47 million in the third quarter, a 67% increase. Operating income grew to 6 million. Operating income margin in the quarter more than tripled to 13.3%. As anticipated, our Engineered Solution business began to recover in the third quarter enabled by solid demand in solar, oil and gas drilling, and electronics.

Now turning to our previously announced acquisitions, we have completed all work associated with the announced customary second request for additional information from the anti-trust division of the U.S. Department of Justice concerning the Seadrift and C/G acquisition. The work has gone very well. Feedback from the Department of Justice has been excellent and we expect to receive clearance and close before yearend. These acquisitions are components of our company growth strategy and will allow us to better serve our global steel customers. We are looking forward to welcoming the excellent Seadrift and C/G team members to team GrafTech.

Turning to outlook, based on IMF projections and other economic reports, global economies continue to recover, to varying degrees however, downside risk remain high. The global economic recovery continues to be fragile and slow.

According to the World Steel Association and other industry sources, global steel operates have fallen steadily since the second quarter of this year and are not anticipated to improve significantly in the near term. As a result, electric arch furnace steel operating rates are expected to ease in the fourth quarter.

Given the slowdown in Q4, we expect graph and electrode sales to be flat to down as compared with the third quarter. Our expectation is that operating income in the fourth quarter will decline slightly as compared to the third quarter.

In conclusion, excluding the impact of acquisitions and related costs, we are targeting full year operating income to be in the range of 175 million to 180 million and we reiterate our targeted operating and cash flow guidance of 100 to 110 million.

That concludes our prepared remarks and Ashley, can we open it up for Q&A please.

Operator

(Operator Instructions) Your first question comes from Ian Zacin from Oppenheimer.

Brian Bitner

- Oppenheimer

Hi, thank you guys, it’s actually Brian in for Ian.

Craig Schular

Hi Brian, how’s it going?

Brian Bitner

- Oppenheimer

Nice quarter.

Craig Schular

Thank you, sir.

Brian Bitner

- Oppenheimer

I guess the question would be, as we get to this time of year, is there any updates you can gives us on the 2011 book building, any type of pricing outlook? What are you hearing from your customers there?

Craig Schular

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