Earnings Preview: Calgon Carbon

Calgon Carbon Corporation ((CCC - Analyst Report)) will release its results for the third quarter of 2011 before the market opens on November 2, 2011.

Calgon Carbon earned a profit of 20 cents per share in the second quarter of 2011 missing the Zacks Consensus Estimate by a penny.

In the upcoming quarter, the Zacks Consensus Estimate for Calgon Carbon is pegged at a profit of 22 cents per share, reflecting an annualized growth of 19.75%.

With respect to earnings surprises, the companymissed the Zacks Consensus Estimate in two out of four quarters and was in line with the Zacks Consensus estimate in the other two quarters -- an average surprise of negative 8.26%.

Second Quarter Review

Sales in the quarter increased 9.5% to $135.3 million missing the Zacks Consensus Estimate of $138 million. Currency translation had a positive impact of $6.6 million on sales for the second quarter due to the weak dollar. Calgon Carbon’s performance for the quarter was solid, as sales strengthened and mix improved as the quarter progressed.

Sales in Calgon Carbon's biggest segment, Activated Carbon and Service, surged 10.1% to $121.5 million in the reported quarter. The increase was primarily attributable to higher sales of activated carbon products and increased services in three of its market segments -- environmental water, environmental air and food markets.

Equipment segment sales jumped 5.0% to $11.7 million due to higher revenue from ballast water treatment systems. However, Consumer segment sales for the quarter were almost flat at $2.1 million versus the prior year quarter.

Cost of products sold increased 12.9% to $90.9 million in the reported quarter. Cost of products sold as a percentage of sales was 67.2% versus 65.2% in the year-ago quarter. Gross profit increased to $44.4 million in the quarter from $43.1 million in the prior-year quarter.

Gross margin was 32.8% in the quarter versus 34.8% for the second quarter of 2010. The decline was attributable to a $1.3 million charge related to the PreZerve product line, which has been discontinued.

Cash and cash equivalents were $13.9 million as of June 30, 2011 compared with $34.0 million at the end of December 31, 2010.

Magnitude of Estimate Revisions

The third quarter 2011 estimate remained flat at 22 cents per share in the last 7 days and last 30 days. The Zacks Consensus Estimate for the third quarter is 19.75%, higher than the year-ago profit of 18 cents per share.

Our Take

Calgon Carbon Corporation is a Pittsburgh, Pennsylvania-based pollution control company that manufactures products and provides services to decontaminate and deodorize liquids and gases. The company has three operating segments based on product line and associated services − Activated Carbon and Service, Equipment and Consumer.

The Equipment segment generally has a long project life cycle from bid solicitation to project completion, and often requires customers to make large capital commitments well in advance of project execution. In addition, this business is usually affected by the general health of the overall economy. As a result, sales and earnings from the Equipment segment could be volatile.

We believe that the second half of 2011 will be better than the first half due to the impact of the Phoenix reactivation, higher sales of FLUEPAC for the mercury removal market and granular activated carbon for municipal applications.

We currently maintain a Zacks #3 Rank (short-term Hold recommendation) on Calgon and a long-term Neutral recommendation.

Calgon competes with MeadWestvaco Corporation (MWV - Analyst Report) and ITT Water & Wastewater Herford GmbH.