Calgon Meets Expectations - Analyst Blog

Calgon Carbon Corporation (CCC) reported a profit of $10 million or 18 cents per share in the third quarter of 2010 compared with 25 cents in the year-ago quarter. Reported earnings were in line with the Zacks Consensus Estimate.

Revenues

Sales in the quarter increased 15.7% to $124.4 million. The increase was attributable to three acquisitions completed by the company in the first half of 2010.

Sales in Calgon Carbon's biggest segment, Activated Carbon and Service, surged 16.7% to $110 million in the reported quarter. The increase was primarily attributed to a higher demand for activated carbon products in environmental air treatment, industrial process, respirator, and food markets. However, the increased sales were offset by a lower demand for activated carbon products in the potable water market.

Equipment segment sales shot up 14.7% to $12.1 million driven by higher revenue from traditional carbon adsorption equipment. However, Consumer segment sales for the quarter declined 16.4% to $2.3 million due to lower demand for PreZerve products and carbon cloth.

Expenses

Cost of products sold increased 16% to $82.4 million in the reported quarter. Cost of products sold as a percentage of sales was 66.3% versus 66.1% in the year-ago quarter. Gross profit increased to $41.9 million in the quarter from $36.4 million in the prior-year quarter.

Gross margin as a percentage of net sales rose to 33.7% from 33.9% in the year-ago quarter. Although results for the reported quarter included Calgon Carbon Japan's product sales, gross margin for the third quarters of 2009 and 2010 remained almost the same. Calgon anticipates the integration costs for Calgon Carbon Japan and its lower product margins to continue to have a negative effect on the company's margins for several quarters until the strategic value of the acquisition is realized.

Selling, administrative and research expenses for the third quarter of 2010 increased 23.9% to $21.8 million. The increase in expenses included $3.1 million of on-going expenses related to acquisitions completed in the first quarter of 2010, higher employee related costs, and increased research and development activities.

Financial Performance

Cash and cash equivalents were $43.1 million as of September 30, 2010, compared with $38.0 million at the end of December 31, 2010.

Zacks Recommendation

Currently, Calgon has a Zacks #3 Rank (Hold) for the short term (1 to 3 months), and a Neutral recommendation for the long term (6 months and higher).