Brush Engineered Materials Inc. ( BW)

Q3 2010 Earnings Call

October 28, 2010 11:00 am ET

Executives

Michael Hasychak - VP, Treasurer & Secretary

John Grampa - SVP, Finance & CFO

Dick Hipple - Chairman, President & CEO

Analysts

Avinash Kant - D. A. Davidson

Charles Murphy - Sidoti & Company

Rob Young - William Smith & Company

Phil Gibbs - KeyBanc Capital Markets

Brad Evans - Heartland Communications

Mark Parr - KeyBanc Capital Markets

Ray Rund - Shaker Investments

Presentation

Operator

Greetings, and welcome to the Brush Engineered Materials Inc. Third Quarter 2010 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Michael Hasychak, Vice President, Treasurer and Secretary. Thank you. Mr. Hasychak, you may now begin.

Michael Hasychak

Good morning. This is Mike Hasychak. With me today is Dick Hipple, President, Chairman and CEO; John Grampa, Senior Vice President, Finance and Chief Financial Officer; and Jim Marrotte, Vice President and Corporate Controller.

Our format for today’s conference call is as follows. John Grampa will comment on the third quarter 2010 results and the outlook and Dick Hipple will give a market update. Thereafter, we will open up the teleconference call for questions.

A recorded playback of this call will be available until November 12th by dialing area code 877; the number is 660-6853, account number 286, and conference ID number 358635. The call will also be archived on the company’s website, beminc.com. To access this replay, click on Events and Presentations on the Investor page.

Any forward-looking statements made in this announcement including those in the outlook section and during the question-and-answer portion are based on current expectations. The company’s actual future performance may materially differ from that contemplated by the forward-looking statements as a result of a variety of factors. These factors are listed in the earnings press release issued this morning.

And now, I’ll turn it over to John Grampa for comments.

John Grampa

Thank you, Mike. Good morning, everyone. Thank you for taking the time to join us today. Today’s agenda is the same as that of our past calls. I will briefly review several of the key financial points of the quarter and then comment on the outlook. Following my comments, Dick Hipple will review the state of our key market. And then following Dick’s market update, we’ll open the call for questions.

As in the most recent quarterly call, I believe that given the economic conditions that existed in the prior year, it is important in certain areas to compare the current quarter sequentially to the previous quarters, as opposed to the prior year. Where relevant, I will do that.

For those who have not had a chance to review the press release in any detail, I’ll begin with a brief summary of the key points in the release. Then I’ll cover the factors affecting the reported sales growth, isolating real or organic growth from the effect of passing through metal price increases and the effect of both Barr Associates acquisition that closed in the fourth quarter of 2009 and the Academy Corporation acquisition that closed early in the first quarter of 2010. I will also review sales by markets, comparing sequentially to the second quarter highlighting the key changes, and there were several.

Then I’ll review how the growth of the metal price inflation and the acquisitions affected reported margins for the company in total. In addition, I’ll review the Advanced Materials segment margins and in particular the effect the precious metal mix, precious metal price increases and the added precious metal volumes from the Academy acquisition have had on reported margins for this segment. Then I’ll review our cash flow and balance sheet and comment on the impact of the acquisitions on earnings to-date in 2010. And finally, I’ll review the outlook for the balance of the year as well as for 2011 as we see it unfolding at this time.

Let’s begin with a brief summary of the press release. Today, we reported significantly stronger than expected results for the quarter, raised our outlook for the year and provided some initial insight to the outlook for 2011.

Overall, we continue to be pleased with the progress in our markets and our reported performance. The results for the third quarter, like those of the first and second quarters of the year, clearly demonstrates the benefit of the structural improvement that the company has been making over time. These include creating a broader, faster growing, more diversified market base along with shift in mix within segments and markets towards faster growing, higher value materials, supplemented with cost reductions and pricing improvement.

All of this has been leading to faster growth and expanding margins, resulting in more sustainable higher sales and profit levels. Sales for the third quarter were up approximately $135 million or 71% to the $325 million level, just shy of the company record that was established in the second quarter of the year. This brings sales to-date in 2010 to $946 million, an increase of almost 90% when compared to the first nine months of the prior year.

The reported earnings per share for the quarter was much improved, compared to the prior year, at stronger than expected at $0.65 a share, which compares sequentially to an earnings per share of $0.67 in the second quarter and $0.33 in the first quarter of this year. This brings the EPS for the first nine months of the year to $1.65, which includes, as you may recall, about $0.12 a share of charges taken in the first quarter of the year.

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