GrafTech International CEO Discusses Q1 2011 Results - Earnings Call Transcript

GrafTech International Ltd. ( GTI)

Q1 2011 Earnings Call

April 27, 2011 11:00 am ET


Kelly Taylor – Director, Investor Relations

Craig S. Shular – Chairman, President & Chief Executive Officer


Luke Folta – Longbow Research

Ian Zaffino – Oppenheimer

Charles Murphy – Sidoti & Company

Eric Glover – Canaccord

Charles Bradford – Bradford Research

Mark Parr – KeyBanc

Zahid Siddique – Gabelli

Dan Whalen – Capstone Investment

Tim Hayes – Davenport & Company

Martin Pollack – NWQ Investment



Good morning, my name Tia, and I will be the conference operator today. At time I would like to welcome everyone to the GrafTech First Quarter 2011 Earnings Conference Call. All lines have been placed on mute to prevent any background noise.

Thank you. At this time I would like to turn the conference over to Ms. Kelly Taylor, Investor Relations Manager. Please go ahead Ma’am.

Kelly Taylor

Thank you, Tia. Good morning and welcome to GrafTech International’s first quarter 2011 conference call.

On the call today is GrafTech’s Chief Executive Officer and Acting Chief Financial Officer, Craig Shular.

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 in the Investor Relation section.

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

Craig S. Shular

Thank you, Kelly. Good morning to everyone and thank you for joining on our call today. Today we’ll take you through our first quarter highlights and then open it up to questions.

In Q1, sales improved to $306 million driven by improved demand in both our business segments as well as sales growth of $65 million as a result of the acquisitions of Seadrift Coke and St. Marys.

EBITDA was $70 million, excluding acquisition accounting and related items, an increase of more than 27% year-over-year. Q1 2011 EBITDA compared to Q4 2010 reported, which was $42 million is up 35%.

Net income was $27 million or $0.19 per share. Excluding the impact of purchase price accounting, net income was $37 million, an increase of 19% year-over-year. Operating cash flow was a use of $1 million as we increased working capital to support our growing sales.

Net debt was $321 million at the end of Q1. Our borrowings during the quarter were used primarily to fund planned CapEx to support growth and the recent acquisitions of Micron Research.

The integration of Seadrift and St. Marys continues to proceed very well. In the first quarter, these businesses contributed $18 million of EBITDA. Excluding the elimination of inter-company profit and inventory on sales of needle coke their EBITDA was $28 million. We are tracking well against our targeted synergies and EBITDA contribution of $90 million in 2011.

Regarding the quarter’s overhead expense, Q1 2011 was $35 million up $10 million from a year ago. Seven of the $10 million is SG&A at Seadrift and St. Marys, which of course was not in our Q1 2010 numbers. $2 million is applicable to support growth and $1 million is an increase in R&D again to propel growth. For total company this year, we expect to deliver record sales and our second best year in EBITDA performance, consistent with our guidance.

In our industrial material segment, sales increased nearly 45% to $263 million in the first quarter. Sales in the quarter increased primarily as a result of higher graphite electrode sales volume and third-party needle coke sales.

Operating income for this segment was $47 million excluding $13 million of acquisition accounting and related items. The year-over-year improvement was driven primarily by higher electrode and needle coke sales volumes offset in part by lower electrode selling prices and higher raw material costs.

After consideration of purchase price accounting and related adjustments, our first quarter results represent the Industrial Materials segment’s highest operating income in over two years. If we compare Q1 2011 versus Q4 2010, clean Industrial Materials’ operating income this year of $47 million, it is up 42% over Q4’s reported operating income of $33 million.

Graphite electrode Q1 operating rates came in at 71% for the quarter versus 75% in Q4. First quarter operating rates were lower due to softer operating rates in January and a bit into February. We exited the quarter however with electrode operating rates over 80%. We expect this rate will continue to increase over the course of the year, exiting the fourth quarter with electrode operating rates over 90%.

In our Engineered Solutions segment, sales were $43 million in the quarter, an increase of $9 million as compared to Q1 2010. Segment operating income was $3 million or 8% of sales, an improvement of nearly three basis points year-over-year. The increase was primarily the result of higher sales volume across multiple product lines including solar and electronics, offset in part by an unfavorable product mix.

On the tax front, we benefited from a lower rate in the first quarter up 18% as a result of favorable jurisdictional profitability. We do not believe this lower rate is applicable to our full year and therefore reiterate our full year tax guidance of 22% to 24%

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