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We have reaffirmed our Neutral recommendation on pollution control company Calgon Carbon Corporation (CCC - Analyst Report) following its mixed fourth-quarter 2012 results, reported on Feb 21. Adjusted earnings topped the Zacks Consensus Estimate but sales missed.

Why Retained?
 
Calgon Carbon, which competes with MeadWestvaco Corporation (MWV - Analyst Report) among others, remains confident in its ability to balance the need for future investment with its responsibility to provide short-term returns. The company continues to believe ballast water treatment, reactivation services and mercury removal as its basis for sustainable growth. It remains actively focused on improving margins across all regions.
 
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 manufacture of its high quality products. The company has embarked on aggressive cost reduction initiatives to boost margins. Its cost improvement program, which includes consolidation of operations and headcount reductions, is expected to contribute toward margin expansion.
 
We, however, remain cautious about the economic challenges that it may face going forward. Moreover, unfavorable currency exchange movements may continue to weigh on the company’s revenues.
 
In addition, manufacturing costs associated with production at the Pearl River carbon manufacturing plant are expected to be a drag on the company’s gross margin in the first quarter of 2013. Calgon Carbon’s new president and CEO, Randall Dearth, has a challenging task of keeping costs under control, a problem the company faced in 2012. We remain on the sidelines considering these factors.
 
Calgon Carbon currently carries a short-term (1 to 3 months) Zacks Rank #3 (Hold). 
 
Other Stocks to Consider
 
Other companies in the pollution control industry worth considering are MFRI Inc. and Sharps Compliance Corp. (SMED - Snapshot Report) with both holding a Zacks Rank #2 (Buy).

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