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» GrafTech International Ltd. Q1 2010 Earnings Call Transcript
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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 Relations section.At this time, I’d like to turn the call over to Craig. Craig Shular Thank you, Kelly, and good morning to everyone, and thank you for joining GrafTech’s conference call today. Today, we’ll talk you through our second quarter highlights and then open it up to questions. Net sales were $255 million in the second quarter, a 62% improvement over the prior year. Gross profit improved 64% to $75 million or 29.3% of sales. Operating income more than doubled the $46 million, excluding $7 million in expenses associated with the announced acquisitions of Seadrift and C/G. Excluding acquisition expenses and currency gains, net income was $37 million or $0.31 per share, more than triple the net income in Q2 last year on the same basis. In our Industrial Materials segment, sales increased to $209 million, a 61% increase over Q2 last year, as a result of higher graphite electrode sales volume, offset slightly by unfavorable currency movement, and a lower year-over-year average graphite electrode selling price. Excluding the impact of acquisition related expenses, operating income for this segment was $41 million or nearly 20% of sales. We experienced improved electrode sales volumes as a result of increased steel end market demand. Partially offsetting the favorable impact of higher volumes in the quarter were increased raw material cost, namely needle coke. In our Engineered Solutions segment, sales were $46 million in the second quarter, an increase of $18 million as compared to Q2 ’09. Operating income was $5 million. As discussed in the first quarter call, our Engineered Solutions business began to recover in the second quarter with sales improving 65% year-over-year, driven by strong demand in solar, gas, and oil drilling, and electronics.
In June, we received a $1.2 million grant from the Department of Energy to support our research and development in the area of solar power. We continue to utilize our core competencies in graphite material science to commercialize products for rapidly growing industries such as solar.Turning to our acquisitions, as discussed in April, we’re very pleased to announced our acquisitions of both Seadrift and C/G. We are in the process to responding to the previously announced second request for additional information concerning the acquisitions from an Antitrust Division of the US Department of Justice. Completion of the acquisition is subject to compliance with applicable DoJ clearance procedures as well as other customary closing conditions. We expect both acquisitions to close in 2010. These acquisitions are components of our company’s growth strategy and will allow us to better serve our global steel customers. The acquisition of Seadrift secures a large portion of our key raw material needle coke, which strategically positions GrafTech to participate in the broader graphite electrode value chain. On completion of the Seadrift acquisition, we are confident that our collective teams of scientists and engineers working together will propel the Seadrift operation into one of the most efficient and highest quality needle coke production facilities in the world. The eventual joining together of C/G and GrafTech will provide our respective customers with several benefits, especially in the areas of quality, service and innovation. The combination of our technologies, process know-how, and production capabilities will allow us to achieve several cost, quality, and lead time improvements. We are looking forward to welcoming the excellent Seadrift and C/G team members to the team GrafTech. Turning to outlook. Based on International Monetary Fund Projections and other economic reports, the global economies began to recover in the first half of this year, modestly in advanced economies and to a stronger degree in emerging economies.
As previously discussed, the third quarter for us which has historically been a weaker quarter is expected to be lower than the second quarter, as graphite electrode sales volumes declined in response to weaker demand associated with the normal European holiday season.Read the rest of this transcript for free on seekingalpha.com