Graftech International, Ltd. (GTI) Q1 2012 Earnings Call April 26, 2012, 11:00 a.m. ET Executives Kelly Taylor, Investor Relations Craig S. Shular, Chairman, President & Chief Executive Officer Lindon G. Robertson, Vice President & Chief Financial Officer Analysts Luke Folta – Jefferies & Company, Inc. Ian A. Zaffino – Oppenheimer & Co. Inc. Michael Gambardella – JPMorgan Rob Pohly – Samlyn Capital Timothy Hayes – Davenport & Company Mark Parr – Keybanc Capital Markets Daniel Whalen – Auriga USA Sandy Harmon (Matthew) – IronGate Partners Charles Bradford – Bradford Research, Inc. Presentation Operator
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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. For your reference, a replay of the call will be available on our website.At this time, I’d 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’ll take you through our first quarter highlights and then open it up to questions. In Q1, sales were 241 million, down 21% versus a year ago. As previously guided, Grafite Electrode sales were lower, largely due to customer destocking initiatives, especially in Europe where the steel market has slowed considerably in response to recessionary conditions in the region. We believe the majority of the destocking initiatives were completed in Q1 and the balance of the destocking will be completed by mid-year. EBITDA came in at 40 million, in line with our targeted estimate. Net income was 18 million, or $0.12 per share. We had a couple one-time benefits in the quarter. One, higher Q4 electrode utilization rates that allowed for better fixed cost absorption, which flowed through our P&L in Q1 and provided about a $0.03 benefit. And then secondly, a non-reoccurring insurance reimbursement, which provided a $0.02 benefit. Net debt increased to 466 million, largely the result of planned increase in working capital and CapEx expenditures. Turning to the segment, Industrial Material sales were 193 million and Operating Income came in at 25 million. The previously-mentioned benefit resulting from higher Q4 operating rates was also a major driver of gross margin expansion in Q1, which will not be carried forward given our previously-reviewed plans to turn our Grafite Electrodes plants at approximately 70% operating rate for the balance of the year.
As an update to our Grafite Electrode book building process, we currently have approximately 80% of our 2012 targeted book completed. This is up from the 50% level we highlighted in our last conference call at the end of February.In our Engineering Solutions segment, sales came in at 48 million and operating income was a loss of 1 million. This was primarily due to the previously-discussed and expected weakness in the solar sector. Increases in SG&A and R&D to support future growth also weighed on operating income in the first quarter. We expect Engineer Solutions to return to a profit in Q2 as increased sales to the Advanced Consumer Electronics and Oil and Gas sectors compensate for the low solar sales. Turning to outlook. As highlighted in prior conference call, we continue to see a slow and very uneven recovery in the global economy. The European economies are struggling with massive debt and sever austerity programs while growth out of emerging economies, particularly China, is also slowing. The U.S. economy, while showing signs of recovery, is still a very fragile and uneven recovery. For the second quarter, we expect EBITDA to be in the range of 60 to 70 million. We continue to target a full-year EBITDA range of 250 to 290. We have reduced our capital expenditures for 2012 by approximately 10% in light of the continued uncertainty in the global economic environment. We now anticipate capital expenditures to be between 125 and $145 million. We expect our maintenance capital to approximate 80 to $90 million. The majority of the CapEx above maintenance will go to grow our Engineer Solutions business, execute on cedar quality improvements and finally, overall productivity improvements across our global production platform. That concludes our prepared remarks, Brooke, let’s open it up for Q&A. Question-and-Answer Session Operator (Operator instructions). Your first question comes from Luke Folta with Jefferies. Read the rest of this transcript for free on seekingalpha.com