GrafTech International Ltd. (

GTI

)

Q2 2011 Earnings Call

July 28, 2011 11:00 AM ET

Executives

Kelly Taylor – Director, IR and Corporate Communications

Craig Shular – Chairman and CEO

Analysts

Luke Folta – Jefferies

Ian Zaffino – Oppenheimer

Michael Gambardella – JPMorgan

Tim Hayes – Davenport & Company

Mark Parr – KeyBanc

Chitra Sundaram – Cardinal Capital

Eric Glover – Canaccord

Presentation

Operator

Compare to:
Previous Statements by GTI
» GrafTech International CEO Discusses Q1 2011 Results - Earnings Call Transcript
» GrafTech International CEO Discusses Q4 2010 Results - Earnings Call Transcript
» GrafTech International Management Discusses Q 2010 Results - Earnings Call Transcript
» GrafTech International Ltd. Q2 2010 Earnings Call Transcript

Good morning, my name Tia, and I will be the conference operator today. At this time, I would like to welcome everyone to the GrafTech second quarter 2011 earnings conference call. All lines have been placed on mute to prevent any background noise.

After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions)

Thank you, I would now like to turn the call over to your host Ms. Kelly Taylor. Ma’am, you may begin.

Kelly Taylor

Thank you, Tia. Good morning and welcome to GrafTech International’s second quarter 2011 conference call. On the call today is GrafTech’s Chief Executive Officer, Craig Shular and our Chief Financial Officer, Lindon Robertson.

We issued our earnings release this morning. If you do 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 matters 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.

Also to the extent that we discuss any non-GAAP financial measures, you will find reconciliations in our press release, which is posted on our website at www.graftech.com in the Investor Relation section.

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

Craig Shular

Thank you, Kelly. Good morning everyone and thank you for joining GrafTech’s call today. Today we will take you to our second quarter highlights and then open it to questions. Let me start by welcoming our new CFO Lindon Robertson to our team.

Lindon joined from IBM where he has had over 25 years of experience in Finance and International Business. During his time at IBM Lindon held multiple senior financial leadership positions which included international assignments in China and Japan totaling 10 years. Lindon bring us extensive financial and business growth skills, we are all delighted to have him on our senior leadership team.

In Q2 sales improved to $320 million up over 25% from the same quarter last year driven by improved demand in both of our business segments. EBITDA was $67 million excluding previously reviewed acquisition accounting and related items and an increase of more than 35% year-over-year.

Net income was $29 million or $0.20 per share, as expected net income declined year-over-year as we recognized charges related to purchase price accounting and a delay in profit recognition associated with intercompany sales of needle coke.

Operating cash flow was a use of $17 million as we increased working capital to support our growing sales. Net debt was $375 million at the end of Q2, our borrowings during the quarter were used to primarily fund CapEx to support growth and higher working capital requirements.

The integration of Seadrift and St. Marys has progressed very nicely and is expected to be largely completed by the end of the third quarter. Year-to-date these businesses have contributed approximately $40 million of EBITDA before purchase price accounting adjustments.

We are tracking well against our targeted synergies and the full year targeted EBITDA contribution of $90 million. Our balance sheet remains very well positioned and will allow us to grow and seize opportunities as these economies continue to recover over the next several quarters.

Turning to segment performance in our industrial material segments sales increased nearly 30% to $270 million in the second quarter versus the same period a year ago. Sales in the quarter increased primarily as a result of higher graphite electrode sales volume and third party needle coke sales.

Operating income for the segment was $39 million excluding $7 million of acquisition accounting and related items. Graphite electrode Q2 operating rates came in at approximately 80% for the quarter versus 71% in Q1. We are currently operating at approximately 85% utilization.

We expect that this rate will continue to increase over the course of the year exceeding the fourth quarter with electrode operating rates over 90%. Due to raw material increases and supply demand factors we have announced price increases to our customers in our graphite electrode and needle coke businesses.

In June, we announced new pricing for normal premium grade needle coke of $2650 per metric ton. In early July we announced new graphite electrode prices for standard sized melted electrodes of $6900 per metric ton.

While we do not expect the material impacted 2011 results from these price increases as the majority of our 2011 businesses is booked. It better though positions us for 2010 to manage margins of mid increasing cost structure. In our engineer solution segment, we had record quarterly sales of $50 million.

Segment operating income was $7 million or nearly 15% of sales an improvement of 3-4 percentage points year-over-year. This business segment has continued to gain attraction and is now at a $200 million annual run rate.

On the tax front, we benefitted from a lower rate of 19% in the second quarter as a result of favorable jurisdictional profitability. We do not believe that this lower rate is applicable to our full year and therefore reiterate our full year tax rate guidance of 22% to 24%.

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