Calgon Seals Scottsdale Contract

Calgon Carbon Corporation ( CCC - Analyst Report ) has landed a contract with the city of Scottsdale, Arizona, to offer its reactivation services for granular activated carbon (GAC) used as drinking water treatment. The value of the ten-year contract will be based on the amount of reactivated carbon spent annually, which is expected to be around 6 million pounds.

Scottsdale uses GAC to remove organic compounds from the water, which reduces the formation of potentially harmful byproducts. This is in compliance with the U.S. Environmental Protection Agency’s (EPA) Stage 2 Disinfectants and Disinfection Byproducts rule which defines the maximum levels at which disinfection byproducts are allowed to be present in drinking water. The city, which has been using reactivated GAC for many years, expects to realize meaningful savings from the Calgon Carbon contract.

The Scottsdale contract represents the second ten-year reactivation services contract for Calgon Carbon in Arizona in 2012. The company, in March, inked a contract with the city of Phoenix. Calgon Carbon is setting up a reactivation facility in Gila Bend, Arizona, to support the requirements of these cities. The facility, which is expected to come on line in 2013, will have a reactivation capacity of roughly 25 million pounds a year.

Calgon Carbon’s strategic initiatives position it for significant growth in the longer term. The company’s reactivation facilities have remarkably supported its growth and have established its presence in several markets. The global demand for reactivation services is expected to climb as regulations for water quality strengthen around the world.

Calgon Carbon has also reduced its exposure to rising coal costs by identifying new sources of supply and a variety of coals that are effective in the manufacturing of its high quality products.

While healthy sales gains and strategic initiatives adopted by the company are expected to usher in benefits in the longer term, we remain concerned about the economic challenges that the company might face this year.

Calgon Carbon, which competes with MeadWestvaco Corporation ( MWV - Analyst Report ) among others, currently retains a Zacks #2 Rank, which translates into a short-term (1 to 3 months) Buy rating. We have a long-term Neutral recommendation on the stock.