Good Quarter for Calgon Carbon

Calgon Carbon Corporation (CCC - Analyst Report) earned 25 cents in the third quarter of 2009. Results beat the Zacks Consensus Estimate of 12 cents with an over fivefold increase from 4 cents reported in the same period of the previous year, following favorable pricing and demand for activated carbon sales.

The Pittsburgh-based manufacturer, which specializes in products that filter water and air, saw revenues climb 8.5% to $107.5 million in the quarter. Revenues in the Activated Carbon and Service segment increased 10.6% to $94.2 million on higher sales of activated carbon for potable water treatment in Asia and for the removal of mercury from coal-fired power plants. In May, Calgon Carbon had bagged a $25 million contract for mercury removal from coal-fired power plants in the Midwest. In the following month, the company announced a major contract with Hyundai Engineering and Construction Co. Ltd. to supply granular activated carbon to the YoungDeungPo plant in South Korea for drinking water treatment.

However, Equipment sales declined 9.5% to $10.6 million on lower demand for traditional carbon adsorption and odor control equipment. A 23.7% increase to $2.7 million in Consumer sales for the third quarter was due to higher demand for activated carbon cloth.

Gross margin remained flat year over year at 33.9% in the reported quarter. Cash and cash equivalent as of Sep 30, 2009, was $15.5 million compared with $16.7 million as of Dec 31, 2008. As of Sep 30, 2009, the company wiped off the remaining $9.5 million of both short-term debt and the current portion of long-term debt. We are concerned about Calgon’s immediate liquidity as much of the company’s cash is locked in inventories, which formed about 55% of its total current assets as of Sep 30, 2009.

Nonetheless, we are optimistic about Calgon’s focus on the growing demand for activated carbon used in potable water treatment in Asia and to remove mercury from the emissions of coal fired power plants. We believe this would drive growth meaningfully in 2010. We maintain our Neutral recommendation on the stock.

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