Minerals Technologies (MTX) Q3 2026 Earnings Call Transcript

In high temperature technologies, we continue to see good traction for our MINSCAN 6 new installations this year and more coming online next. We have also secured new contracts for our calcium wire products at 2 Greenfield Steel Plants That Are Scheduled To Come Online Next Year. Volumes Of Foundry Greensand bonds Continue To Grow, Driven By Strong Automotive EV Production In Asia offsetting continued soft agricultural equipment and heavy truck markets in the U.S. Stronger environmental remediation markets, and solid drilling product sales have contributed to several quarters of growth in the environmental and infrastructure product line.

Overall, we are executing on the strategic product projects we laid out for this year and remain on track to hit our full year mid single digit revenue growth target. And we see this rate continuing through 2027. Our operating income in the third quarter was $72 million and earnings per share were $1.53 Our Engineered Solutions segment had another very strong quarter with 9% sales growth 9% operating income growth, and generating 17.6% operating margins. This segment's performance puts it on track for a record year.

Total operating income for the company was slightly below our guidance this quarter, driven by a challenging operating quarter in Consumer and Specialty, due to the significant increases in energy, transportation and raw material costs. However, our teams around the world continues to work closely with our customers to adjust prices. Previous rounds of price increases have taken hold, These latest price changes will take effect this quarter and carry over the next. We expect to fully recover segment margins which historically have been around 14%, as our pricing catches up with these inflationary costs. Doing so will drive full company margins back to the 15% level. Despite the inflationary challenges, we continue to generate strong cash flow.

Year to date, our cash from operations is $171 million up 32% compared to last year. Our balance sheet remains solid we improved our financial flexibility by extending debt maturities, and expanding our revolving credit facility. Lastly, we announced that we increased our regular quarterly dividend by 8% to $0.13 per share. This is the 4th year in a row that we have announced an increase, which reflects the continued confidence we have in our future cash generation. With that, I would like to hand the call over to Erik. Erik?

Erik C. Aldag:Thanks, Douglas, and good morning, everyone. I will start by providing an overview of our third quarter results followed by a detailed review of our segments and the summary of our fourth quarter outlook. Following my comments, I will turn the call back over to Douglas for a recap of our recent Investor Day and some closing remarks. Now let's review our results. Continue to see positive momentum with our growth initiatives in the third quarter with sales increasing by 4% versus the prior year to $555 million In the consumer and specialty segment, there were several encouraging developments in the quarter in the Household and Personal Care product line.

Saw higher sales of our new Fabric Care additives, higher sales of cat litter in North America, and our natural oil purification volumes continue to ramp up through the quarter. These higher sales were partially offset by softer than normal seasonal volumes for European cat litter. On the engineered solutions side, we had another strong quarter. With sales in high temperature technologies up $13 million versus prior year. As sales to steel customers remained on their growth track and our foundry business had a solid quarter. In the environmental and infrastructure product line, the positive sales momentum we saw through the first half of the year continued. With sales up $8 million versus prior year.

Bringing the total sales growth for the segment to 9% for the quarter. On a year to date basis, total sales are up 6% for the company, And as Douglas mentioned, we remain on track for full year growth in the mid single digit. In the Consumer and Specialty segment, the Household and Personal Care product line are up 4% year-to-date, driven by 6% growth in cat litter, 11% growth in natural oil purification. And in the specialty additives product line, changes in the paper and packaging market in North America and a soft residential construction market have impacted sales on a year over year basis.

Nonetheless, sales for the product line are higher by 2% driven primarily by the progress of our growth initiatives in Asia. Altogether for the segment, sales are up 3% year to date. And in the Engineered Solutions segment, the third quarter was largely a continuation of the strong growth performance we delivered in the first half. Sales in the High Temperature Technologies product line are up 7% year to date, in the Environmental and Infrastructure product line, sales are up 16% year to date. Totaling 10% growth for the segment so far this year.

Operating income for the quarter was $72 million As we moved through the third quarter, we faced additional cost increases primarily in the Consumer and Specialty segment driven by higher energy costs and rising diesel prices, contributed to increased transportation, mining, and raw material costs. We have pricing actions planned and in place to cover the inflationary cost increases we experienced in the third quarter. And our team remains focused on productivity and cost control at the plants. Meanwhile, in the Engineered Solutions segment, our pricing has been keeping pace with changes in cost throughout the year. Income for the segment was $4 million higher year over year in the third quarter and $14 million higher year to date.

Now let's turn to a review of our segments beginning with Consumer and Specialties. Third-quarter sales for the Consumer and Specialty segment were $278 million up 1% sequentially and slightly above prior year. In the Household and Personal Care product line, progress with some of our key growth initiatives gained additional momentum in the third quarter, driving product line sales higher by 6% sequentially and up 1% year-over-year to $131 million. Cat litter sales improved by 5% over the prior quarter as improved traction with some of our newest cat litter offerings contributed to higher sales in North America.

This growth was partially offset by temporarily lower cat litter sales in Europe, due to a more pronounced seasonal impact than normal and a large customer promotion that moved to the fourth quarter. Meanwhile, sales for edible oil and renewable fuel purification were up 21% sequentially, as volumes ramped through the quarter. And for added context, By the time we exited Q3, volumes were 33% above our Q2 run rate. This upward momentum is expected to continue through the fourth quarter. And lastly, we began to see sales for our innovative Fabric Care additives move higher in the third quarter. And we expect this to continue to build in the months ahead.

Specialty Additives sales were $148 million down 2% sequentially and flat with the prior year. Our newest satellites in Asia contributed to strong sales growth in the region during the third quarter with Asia sales up 13% year over year. This solid growth in Asia was offset by a challenging comparison in the North America paper and packaging market. Driven by a mill closure, a paper machine conversion and customer downtime. Demand from residential construction customers also remained soft. And some of those customers have begun to communicate plans for extended shutdowns as we approach the end of the year. Operating Income for the segment was $25 million in the third quarter.

During the quarter, the segment faced rapidly rising energy and mining costs. Which resulted in an unfavorable price versus cost lag for the segment due to the timing of contractual pricing adjustments. In addition, the softer volumes in North America paper and packaging residential construction and European cat litter contributed to an unfavorable volume and mix impact on income in the quarter. As we look ahead to the fourth quarter, we expect segment sales to be similar sequentially as the continued ramp up of sales from our growth initiatives in Household and Personal Care will offset typical seasonal patterns in specialty additives.

We expect operating margin for the segment to be similar to the third quarter as pricing and productivity actions offset the impact of sequentially higher costs seasonally lower residential construction volumes. Now let's turn to a review of the engineered solutions segment. This segment has performed well all year. Driven by solid execution on growth initiatives, such as the ramp up of new business in the North American EAF steel market which is driving higher sales of refractory products, calcium wire and application equipment, as well as continued penetration and growth in the Asia foundry market.

We have also seen a nice uptick in activity this year in the environmental and infrastructure product line, after several years of end market softness. We are seeing higher sales across environmental products, building materials and infrastructure drilling products. And we are seeing continued growth for our FLUORO-SORB product, targeting PFAS remediation as we have converted 4 additional drinking water pilots into full scale commercial implementations so far this year. With 4 more scheduled over the next 2 quarters. This segment has achieved these record levels of performance despite continued softness in large foundry end markets like agricultural equipment, and heavy truck.

And the environmental and infrastructure end markets still have a long way to go return to their prior peak years. Which is all to say there is still much more potential in this segment. In the third quarter, this strong performance continued with total sales of $277 million up 1% sequentially and up 9% versus prior year. Sales in the high temperature Technologies product line were $192 million up 1% sequentially and up 7% versus the prior year driven by strong sales to steel and foundry customers globally. In the environmental and infrastructure product line, sales of $85 million in the quarter were up 1% sequentially and 11% above the prior year.

We continue to see stronger demand for drilling products and environmental project solutions and some large scale commercial construction projects contributed to increased demand for our building materials. Operating Income for the segment was $49 million in the third quarter, up 9% over the prior year, driven by continued volume growth price adjustments and solid operational execution. And operating margin was very strong at 17.6%. Looking ahead to the fourth quarter, we expect segment sales to decrease by approximately 10% sequentially driven primarily by the typical seasonal reduction in project activity in the environmental and infrastructure product line. Now let's turn to a review of our balance sheet and cash flow highlights.

Cash flow generation was strong in the third quarter with cash from operations totaling $76 million and free cash flow of $52 million Year-to-date, free cash flow of $97 million is up significantly over the prior year. We remain on track for full year free cash flow around 6% of sales. Capital expenditures totaled $24 million in the third quarter, and we expect to be in the $95 million to $100 million range for the full year. Earlier in October, we completed a private offering for $400 million of senior notes due in 2032. Funds were used to redeem all of our outstanding senior notes that were due in 2028. Extending the overall maturity of our senior notes obligation.

And we also extended the maturity of our revolving credit facility and expanded its capacity to $500 million. On the lower left, you can see that since the third quarter last year, we have increased liquidity by over $160 million to $868 million And we are showing our revolver availability on a pro forma basis to reflect the recent increase in capacity. Overall, the balance sheet remains solid. At the end of the third quarter, we net debt stood at $579 million, and our net leverage ratio decreased to 1.5x EBITDA. And as Douglas mentioned, the Board recently authorized an 8% increase in our regular quarterly dividend, marking MTI's fourth year in a row of dividend increases.

Now let's review a summary of our outlook for the fourth quarter. Fourth quarter sales for MTI are expected to be approximately $525 million with operating income between $60 million and $63 million and EPS between $1.15 and $1.20 it is worth highlighting that there are 6 fewer days in our fourth quarter this year compared to last year. On a days adjusted basis, this outlook represents high single digit sales growth over the prior year. At a similar level of operating income and EPS, relative to last year.

In our consumer and specialty segment, sales are expected to be similar sequentially as the continued acceleration of our growth initiatives in Household and Personal Care is partially offset with seasonally lower sales in specialty additives. And in the 10% lower sequentially driven primarily by the seasonal patterns in the environmental and infrastructure product line. The overall cost environments continue to be volatile. With energy and transportation costs remaining near their recent peak levels and the increases we saw through the third quarter will result in another sequential increase in cost in the fourth quarter. Particularly in the consumer and specialty segment.

That being said, we remain confident that the combination of price/cost recovery volume leverage, and the continued growth of higher margin new products will contribute to higher margins in 2027. And we have good line of sight that our mid single digit top line growth will continue next year. With that, I will turn the call back over to Douglas.

Douglas T. Dietrich:Thanks, Erik. Last month, we held an Investor Day at our R&D Labs in Bethlehem, Pennsylvania. Thank you to all who attended in person and online. We certainly enjoyed the opportunity to spend more time with you and give you a firsthand look at another 1 of our R&D facilities. At the event we reconfirmed our strategic growth and long term financial targets, which you can see here on the right. And highlighted what will drive MTI's near to mid term sales growth. We discussed how the company has had 4% compound annual revenue growth over the last 5 years, and how we are set up to continue to deliver an average of 5% through the cycle going forward.

We provided an overview of our growth strategy, and shared how we are applying our capabilities and technologies in higher value markets. We also outlined our path for margin expansion, which we see returning to an operating margin of 15% in the near term and the potential to move above 15% through our strategy execution. Erik covered MTI's strong cash flow profile and deep financial resources, which provide the company with the flexibility to fund our organic growth continue to return capital to shareholders and pursue M&A opportunities simultaneously.

The past 5 years, we have converted an average of 6% of our sales to free cash flow, and are maintaining our target of a 7% conversion rate along with a 12% return on invested capital target. Another objective of the Investor Day was to outline our new product pipeline. Which we currently estimate at $1.4 billion in revenue potential. To highlight part of what makes up this potential, we showcased 2 new innovations that are near commercialization and that will drive long term value creation. And I would like to provide a quick recap of those. In the next-- First, we shared details about a-- a new technology associated with the production of high purity calcium metal.

MTI produces calcium metal at our facility in Canaan, Connecticut and we have been doing so for over 40 years. Recently, our R&D teams have established the capability and process to manufacture it in high purity form. High purity calcium metal is required in the production of rare earth metals and a U. S.-based supply of this type of calcium metal is essential for the establishment of a domestic rare-earth supply chain. We see demand for high purity calcium increasing rapidly over the next 3 years. And are well positioned to be the domestic supply partner for this critical mineral. Critical market. We have high purity production in place and are in the process of expanding capacity.

Several companies are currently scaling heavy rare earth metallization in the U.S. And we have qualified our calcium metal in their production process. I will also add that our capability is very well understood by the US government's national security and critical minerals initiatives. We estimate that the high purity calcium metal will drive over $100 million in incremental revenue for MTI in the next 3 to 5 years. Second emerging opportunity we discussed at our Investor Day is derived from our crystal engineering technology specifically the technology that is the foundation for our proprietary NewYield product. Which repurposes waste streams for the paper and packaging industry. We recently developed ways to apply this underlying technology to other waste byproducts.

1 area that we are currently targeting is steel slag. A waste stream from the steelmaking process. Our solution repurposes the slag into commercially viable critical metals like magnesium and manganese, These metals, which are currently almost 100% imported to the U.S., are needed to support infrastructure development and the production of batteries, electric vehicles, and aerospace and defense technologies. We plan to pilot this technology with our partner over the next year and explore opportunities to apply it to recover critical minerals and materials from other untapped domestic byproducts. there is a broad pallet of waste streams to work from.

And the estimated addressable market for the steel slag opportunity alone could be greater than $250 million in the U.S. with similar opportunities in a variety of other sectors. Let me conclude by saying that innovation has always been a core tenet of MTI strategy. And it remains a key driver of long term value creation. We are excited about these new technologies but they are only 2 of the many new solutions moving through our innovation pipeline. We look forward to sharing how these 2 new projects evolve how our other products under development will continue to open up higher-growth, higher-value markets for us going forward. With that, let's open the call to questions.

Operator:We will now begin the question and answer session. If you are using a speakerphone, please pick up your handset. Our first question today is from Dan Moore with CJS Securities. Please go ahead.

Dan Moore:Thank you. Douglas and Erik, good morning. Thanks for taking the questions. Hi, Dan. I wanted to start with price/cost I just want to make sure I heard correctly. Starting with the assumption that inflationary pressures and raw material and transport and everything else start to level off, which is anybody's guess. But if they do, sounds like by sometime in Q1, you would expect you know, to sort of catch up so that we are back to a more normal kind of margin level in Q2? Is that did I hear that correctly?

Erik C. Aldag:Yes. Thanks for the question, Dan. This is Erik. So yes, think you have that right. What we are facing right now is another increase in costs in Q4 relative to Q3. We are looking at another roughly $5 million of cost increases sequentially just based on how a lot of these energy linked costs moved in the third quarter, and how it is flowing through into the fourth quarter. So, yeah, let's assume cost stabilize in the first quarter, You know, we have talked about how this price/cost lag is primarily in the consumer and specialties segment. A lot of it sits in the Household and Personal Care product line.

But for that segment, we have got this near term margin improvement opportunity of about 200 basis points from this price/cost catch up. And so assuming cost stabilize in the first quarter, that segment is well positioned to be at 12%+ in the second quarter of next year That puts the company at 14%+ in the second quarter of next year. Importantly, I am assuming here in engineered solutions, 17% right now. Assuming that holds for next year. So we have got 1 side of the business at 17% operating margins. We have got consumer and specialties with a near term kind of 200 basis points buff uplift as soon as costs stabilize.

And, yeah, you could see us at. as in. as. at a level at 14% in the second quarter of next year, And then as we move into the second half, with the volume leverage that we are getting from continued 5% growth, with the growth of these higher margin products like bleaching earth, in the household and personal care. Product line, we should be getting back to that 14.5%, 15% run rate in the second half of next year.

Douglas T. Dietrich:Dan, let me just add a little bit, maybe give you some more kind of dynamics on the pricing and how it works. You know, we have been very active throughout the year as we have seen these cost increases come in working with customers on a daily basis to make sure that we are following the contract and moving things through. DJ, you want to give us some color on kind of some of those discussions and how we have been doing some work on actually compressing this timeline. From our current 90 days into something much shorter as we go forward.

D. J. Monagle:Sure, Douglas. So, Dan, as both Douglas and Erik had mentioned during this, it is been of an extraordinary time with increases, especially as it relates to fuel and all of the commitments that we make on delivered pricing. So over the last several months, we have been increasing the prices and trying to catch up on that lag. But more importantly, over these last couple of months, we are working hard to restructure the contract. So that we have got more dynamic pricing models, and where we are able to reduce that lag. So, starting next year, we are getting commitments now that start reducing that lag.

And so we are comfortable that we can work through this in a more profitable footing

Douglas T. Dietrich:I would for those who have been with the company for a while, I would bring you back to the time where we had some significant structural lags in the paper PCC contracts. And this is a little bit different, but our approach is very similar to that, as we are able to demonstrate kind of long term value, long-term partner even with these retail partners, we are able to over time reduce these lags yet still come up with an economic equation that is mutually beneficial to both parties. Hope that helps, Dan.

Dan Moore:No. No doubt. And, DJ, thanks for the color. And, Douglas, appreciate it. I was going to ask anyway, but you got out ahead of me on the 2 new opportunities or 2 of the new opportunities that you described or detailed at the Investor Day. High purity calcium metal as well as recapture from steel slag Can you maybe talk to the relative cadence or ramp that you expect of these opportunities over the next 1, 2, 3 years? And just remind us how much CapEx is involved? And just a little bit more color on how why and how you are kind of uniquely positioned to take advantage or capture these opportunities from a competitive perspective?

Douglas T. Dietrich:Yeah, sure. Let me start it off. I will give you kind of where they are in kind of staging. And then I am going to pass it off to Brett and DJ to give you more color on how these things are rolling out. First, would say the high purity calcium metal is probably a nearer term. It is something that, we are producing in quantities today, small quantities today, and that we are scaling up, as we speak.

That scale up probably early first half, mid first half of next year will give us the capacity to continue to follow the rare earth metallization ramp and the demand that we see ahead of us albeit small, and it will ramp slower as these customers continue to build their processes. Say that we have already qualified the high purity calcium metal in their process, so it is more a matter of kind of the forward looking, that forward curve of that rare-earth metallization kind of production process. I would say that steel slag and the general technology is not just steel slag, but we are looking at other waste streams.

So this is a capability and the technology that we have that we are applying currently you know, because we actually do sit a lot of steel mills. We know this material well. And have partnered with 1 to explore how this will work with, steel slag. But there are other waste streams that, you know, are in development. We will talk about them right now, but there are other pretty valuable waste streams out there or there is waste streams that have some valuable constituent parts that we have the capability of separating effectively. Now how that works and how that develops, we are going to be exploring that opportunity a little bit more over the next year.

I think we would be in a position to probably pilot the steel slag opportunity, you know, probably mid next year. And that will take some time to build and ramp and test and then we can explore. And in the meantime, we are going to be exploring some other waste streams as So I do not know, Brett or D.J., if I left you anything to talk about, But why do not you give. Brett, why do not you go ahead with the high purity calcium and give a little more detail on what you think the timing and maybe the capital could be as we ramp that over the next 3 years.

Brett Argirakis:Yeah. Sure. Hi, Dan. Thanks for the question. Let me just give you a little bit of a recap of the project. So as you know, the US government's really promoting, bringing heavy rare earth into The US, you know, of course, for aerospace defense, electric vehicles, medical technology, and several things. And in order to domestically manufacture the heavy rare earths, they need a high purity domestic calcium source. And that is used for the metallization project. Process. So as you know that our refractories group has a plant in Canaan, Connecticut that has been producing calcium metal for decades. it is well established and it is perfectly suited for this process.

So, our R&D and ops teams have successfully developed this purification process and we are working really closely with the rare earth manufacturers to ensure that we could ramp up and meet the 2027 demand. And then we will we will. We are building a scalable model so that as these rare earths expand, we expand with them. So that capital is will clearly grow as we need to grow with the market. So our calcium has. As Doug mentioned, has been successfully tested in rare earth elements such as dysprosium and yttrium already. So that is really positive, that puts us in a really good position.

Douglas T. Dietrich:So we are saying right now the rare-earth market, it is. Well, let's say this. The rare earth market is fluid. So we are not sure how fast it is going to ramp up. But as we stated at the Investor Day and today, we expect really to generate a $100 million over the next 3 to 5 years. Ken, I will only add on the capital with that. We do not see that this is any, you know, significant outsized capital that would not be already contained probably in our $100 million per year. Right?

So from the growth capital as we stage this over the 3 years, think we can well adapt or well absorb that into kind of our routine growth capital that we have out late for the company. If that would be different, it would probably only be in a $5 to $10 million kind of range above that number. So it is nothing outsized at this point. that is very helpful. We will jump back with any follow ups. DJ, you want to take us through the steel slag?

D. J. Monagle:Sure. Glad to. So Dan, if you heard Brett saying he can purify things now and then we can kind of grow with the market, The steel slag project is a little different. We will be putting out a pilot plant, and as Jim Wright our specialty additives leader had highlighted during investor day, That pilot plant will be able to generate some revenue. So we will make a decision on a pilot plant probably early next year and get that deployed. I guess the--what we are weighing is what Douglas was alluding to earlier.

We are really confident about pursuit of that $150 million opportunity that converts these mountains of steel slag, of which there is 3 million of steel slag made every year. We are comfortable we can convert that mountain into 4 value streams. That include going into cement, calcium carbonate products, and iron oxide. So there is a whole host of value streams. Including in that is the capture of rare minerals and metals. And I mix them both because we have some flexibility to provide these metals in the mineral form or in the metal form. So it is a very flexible process that is all born from our crystal engineering that we had expanded into NewYield.

I guess the part that we are exploring is where do we best deploy that pilot scale facility to explore the broad range of recycle streams, recycle opportunities. But what they all have in common is inorganic materials that we can refine precipitate, shape, and design for very specific markets. And that is what is unique about this process. We are the only ones that can do it for basically every aspect of that waste stream. Capital of that is a little bit more TBD in terms of full scale. I think the pilot plant is something in the probably a $10 to $15 million range or thereabouts.

But then, depending on how that works and how we scale it, we will determine the capital for a full-scale or what the size of a full-scale plant should be at that point.

Douglas T. Dietrich:Okay. We have next. it is great. Thank you. Yes. Thanks.

Operator:The next question is from Mike Harrison with Seaport Research Partners. Please go ahead.

Michael Harrison:Hi, good morning. Hi, Mike. Was hoping that we could dig in a little bit on the Household and Personal Care business and the sales there up 1%. Year over year. You mentioned that you were seeing some headwinds in Europe But just hoping that you could maybe address kind of higher level demand trends as you see things over the coming quarters. Just in terms of some of the new business wins and contract impact, pet care? How you see the competitive environment with private label pet care? And then, I guess, the contribution from NewYield bleaching earth's capacity, maybe some of the other consumer related opportunities that you guys are working on?

Douglas T. Dietrich:Okay. And DJ, you wanna take that?

D. J. Monagle:Absolutely. Thanks for the question, Mike. So let's talk about just the general market trends in pet care that we are seeing. In both North America and Europe. We are seeing call it, low single digit sort of growth. That seems to be bifurcated, Mike, a little bit. Brick and mortar is a little bit lower. ECommerce seems to be a little bit higher, growing in both of those things. And we are finding that our customers, our private label customers those ones that are successful at putting an e commerce component in have been growing. At or above market rates, and those that have less successful ecommerce have been stale or a little bit slow.

This particular thing that Erik was talking about in Europe that caught me a little bit off guard was just some delays that they had in some major customer promotions. I do not think that is an overall macro driver. That just seemed to be something that is sliding out of the third and into the fourth. But overall, we remain positive about that market in general and our ability to meet the needs of private label and also work with branded partners as well. As they pursue especially in geographic growth.

On the other parts, I would bring you back to our bigger strategy of kind of growing into higher value markets, and that is where the bleaching earth and the Fabric Care come in. Bleaching earth got off to a bit of a slow start, but that facility has come up, is pretty close to being, at capacity, and we look to expand and debottleneck even further, that market in general is growing GDP plus with sustainable aviation fuel growing substantially in that.

And both the consumer pull, I would say the consumer sentiment or public sentiment possibly is a better way to put it, and the regulatory environment are lining up to have sustainable aviation fuel grow closer to the double digit sort of growth number, and we are working as hard as we can to make-- to keep up with that demand because that is where our product from Turkey in particular excels. We just the product works very well in that market. The fabric care market as well, so we are. This is it.

Particularly addressing the dry detergent We put an investment there along with our other investments that we had announced late last year, early this year, where we were helping a specific partner with a new launch in dry fabric care market. That launch was a little slow, but it seems to be on track now. and we are going to see-- We got to see a little bit of growth in the third quarter. We will see more substantial growth in the fourth quarter. it is on pace, just to give you a dimension on that, Mike. that is a $20 million growth opportunity for us.

And we will just see if there is some upside to that depending on how successful our partner is in the market.

Michael Harrison:Alright. Very helpful. Thank you. And then wanted to understand just within refractories and some of the strength that you are seeing in steel, we are hearing that some of that is maybe related to data centers and some of the related infrastructure there. I was just hoping that you could talk about the trends you are seeing from steel customers in North America and Europe and how they are talking about the drivers of their business?

Douglas T. Dietrich:Go ahead, Brett.

Brett Argirakis:Yes, Mike. Yes, thanks. Let me just give you a little overview of both North America and Europe, the demand in The US is strong. it is. It remains strong. We are seeing service center inventories they remain at low levels. Lead times are increasing. The steel pricing is up. So it has remained strong. there is, you know, when you look for that data center true data we were looking at it, and it is about 2% of the steel production in The US right now. So a couple-- it really.

A couple of million tons a year on an annual basis So it is contributing. there is no doubt it is contributing to the strength of The US steel market. But in general, the steel industry is strong. The automotive is stable. You know, the construction is holding. So we are. We feel pretty good about North American market. The European steel market now this-- they put in some. The CBAM import measures. there is some that is starting to help. it is still a little sluggish, of course, it is not up to where we would like to see it. But still pricing has started to hold. it is pretty steady.

Of course, the Iran conflict continues to create some supply and export issues. In the Middle East market. Particularly with our Turkey business and our Saudi business. So, all in all, it is the steel market, we feel pretty good about We think next year, it is going to-- it will continue in the right direction. And if we can see an uptick in the European business, we should have another good year.

Douglas T. Dietrich:Yes. The only thing I would add, Mike, is that I think, you know, as Brett said, we are seeing some you know, improvement, in the European steel market and particularly in Germany. With a relatively stable market, even though some of that certainly is buoyed by some data center builds, But even at that stable level, the performance of the high temperature technologies business has been much more around growth and penetration in these businesses in the EAF markets with the MINSCAN and our new bank and bottle materials that are really taking, we think, some share.

But not only that, but also at higher price point and higher value to both parties, to both our customer and to us. So what you are seeing in that margin expansion and what you are seeing in these growth numbers is really being done in more of a flat steel market in North America. And so I think that just speaks to the innovation that speaks to the team's performance and in partnership with our customers being able to sell these new solutions to them. So just wanted to highlight that. All right. Thanks for that.

Michael Harrison:And then just wanted to talk a little bit about Environmental and Infrastructure and the sales growth that you are seeing there? it is kind of up, like, midteens year to date. Understand that the comps are getting a little bit tougher. But I just want to understand how does the backlog look? And maybe I think there is probably some pent up demand when you look at commercial construction. Maybe some of the drilling and environmental application So how should we be thinking about growth into next year? Is that something that kind of levels out and stabilizes? Or could we still see a double-digit type growth number in 2027?

Douglas T. Dietrich:Well, I think as Erik mentioned, you know, we are coming off of couple of years of rather slow markets, for these this product line, especially in the environmental and the mining lining systems and tailing ponds. Also commercial construction. So we have seen about 4 quarters now in a row, 4 or 5 quarters in a row that have seen increases and that is really due to activity kind of across the board. I think we will see continued growth into next year Mike. I am gonna be hesitant to say that we are gonna see, you know, 11%, 12%, 15%, you know, kind of percent growth.

But there is a couple elements in there, and that is really the reason I am hesitant is where are we with interest rates and some of the big construction projects. Right? I think they are gonna continue to be elevated next year. it is not to say that they will not-- there is not some pent up demand. I think that is what we are seeing today. So we will see some of that, but a real outbreak of kind of more construction activity will probably need to see some improved interest rate environment. That said though, we are seeing a lot of improvements in the environmental markets and lining systems. And also in our drilling products.

We had about a 20% growth this quarter over last year in drilling products. And so Brett, what is behind those 2 things? And I think that is what is gonna carry through into 2020. Yeah. Go ahead.

Brett Argirakis:Yeah. Let me add to that. As Doug said, you know, since pre COVID years, we have not really reached that point. So there is really a lot of room for us to improve. Let me give you a little bit of details on, where we are year to date. Year to date, really, you know, we are showing a 15% growth over plus, and that is really focusing on our key growth initiatives. So the environmental products revenue is up about 18%, and that is really focusing on our geosynthetic liners for groundwater leachate systems in the mining sector in both The US and in Europe and Africa.

Our drilling products, as Douglas mentioned, revenue is up over 20% increased work in the oil and gas, fiber optics, and other infrastructure projects in North America and Europe. And then the building materials business. You know, we successfully completed 2 really large projects for waterproofing and both California and New York. We anticipate to see more of that as the interest rates come down. So hopefully next year as we see those improved economy, we are gonna see more capital going into construction. So that should be good. And then And then really lastly, our energy services business we have improved our service activity across the globe and process equipment. For our offshore business by nearly 10%.

So the whole product line is really doing much better. So we feel good about it. And we-- we think with a little bit of an improvement in the in the market conditions next year, we can-- we could maintain another pretty good year.

Michael Harrison:All right. Thanks for the color. Thanks, Mike.

Operator:The next question is from Peter Osterland with Truist Securities. Please go ahead.

Peter Osterland:Hey, good morning. Thanks for taking the questions. So I just wanted to start by following up on the HTTC discussion. So you have talked about the potential for that business to be kind of a high single digit grower. Just wanted to ask first just what level of growth are you assuming for HTTC that is embedded in your 4Q guidance? And maybe within that segment, you called out some of the areas within the consumer specialties portfolio where you are seeing some strength. Is there anything in that broader portfolio that is currently underperforming what you would expect longer term?

Erik C. Aldag:Yes, let me take the guidance question, Peter. This is Erik. So fourth quarter, as I mentioned, we have got fewer days, which is a little bit a different situation for the fourth quarter versus last year. But despite that, we are looking at, probably mid to high single digit growth household and personal care. If you adjust for the days, you are looking at probably close to double digit growth. Yeah.

Douglas T. Dietrich:I think the under if you are going to ask Peter where we see some underperformance, I think in the fourth quarter, this is more of the high season for pet care. And the other areas in there were the bleaching earth and the fabric care, which I think probably underperformed a little bit in the third quarter because we had anticipated that ramp being early in the third, that is moved to late in the third. But now as we have mentioned, we exited the quarter in bleaching earth at 33% growth over the second quarter, but that was kind of a last part of the quarter kind of rate. And so that is carrying into the fourth.

So I see, you know, the slowness or the, I guess, the underperformance or the delay, not the other performance that we saw in Fabric Care and bleaching earth. that is over. And we see in the fourth quarter, that is starting to ramp nicely. And that is where Erik's giving you that kind of high single digit, perhaps double digit growth going into Q4.

Peter Osterland:Brett, very helpful. And then also wanted to ask on the Specialty Additives business. I guess, based on what you are seeing now between the trend of closures impacting paper and packaging market and then your comments around customers in the construction market potentially looking at extended shutdowns Do you expect the Specialty Additives business will still be able to grow as you look into 2027?

Douglas T. Dietrich:Yes, I do. Well, I think, you know, our large portion of that. A significant portion of that business is in the residential construction was which is at flows. If we start to see some increase in home building activity, if we see some do it yourself improvements, we think that will that will rebound. But on top of that, I think we are gonna lap the, you know, the North America closures that we have and we have 2 new satellites coming online. We have 1 ramping and 2 new satellites coming online in Asia.

D.J., you want to you wanna give some color on the timing of that, but we think that brings specialty additives business to probably some growth, probably low single digit growth. But if the residential market, reverts, we think that could be more significant next year.

D. J. Monagle:Yeah. Peter, I would say that, you know, just to further embellish what that component of the specialty additives business that is around our minds, that is the most affected by the construction business Erik highlighted on the pulp and paper side, the growth that we are getting out of Asia. So that will continue. There are some 4 satellites, 5 satellites that have been contributing to that. They do not incrementally grow over next year. But we also have 2 new opportunities coming online Right now, it looks like it the end of the first quarter, early in the second quarter, packaging related opportunities.

Plus, we are we are further advanced in if I look at that pipeline, the pipeline is pretty robust in other opportunities that may not hit us in 27. but we will still be in business development mode where we are probably signing some new satellite contract deals. And as we have been emphasizing before, spans the traditional application of PCC and printing and writing grades. Still a lot of pull on the packaging side. And then we are even getting some both Asia satellites and domestic interest in expansions in The US with the paper industry.

So the short term outlook should still be that is growing at a lower rate than the household and personal care business, but the pipeline is still pretty good for longer term growth.

Peter Osterland:All right. Very helpful. Thanks a lot. Thanks, Peter.

Operator:The next question is from David Silver with Freedom Capital Markets. Please go ahead. Mr. Silver, your line is open on our end, perhaps it is muted on yours.

David Silver:I got speaking into mute out of the way. Okay. You know, I did just wanted to go back on I guess, your recounting of the progress on commercialization of the PFAS opportunity. So just to review, you have successfully commercialized 4 year-to-date, I guess, through September. And you are anticipating 4 more in the fourth quarter. And if I recall, I mean, that is just a little bit below, I think, the total of 10 that you were anticipating. So, just from your perspective, I mean, how would you rate you know, the book of commercializations that are on tap for I do not know, the balance of this year, maybe first half of next year.

And have there been any unusual problems encountered in let's say, moving from a standalone, you know, pilot plant situation to something that needs to be fully integrated into you know, an existing system, you know, each 1 probably a little different? Thank you.

Brett Argirakis:Hi, David, it is Brett. I can hopefully answer that question for you. As we have talked about, the global PFAS treatment market is still in its early stages and we believe there is really a significant long term opportunity. FLUORO-SORB, as you know, is the newer technology, and it requires a really rigorous qualification process. That said, we do continue to see commercial adoption with 10 full scale municipal drinking water installations And as you mentioned, we have another 10 that are scheduled for next year. And 8 additional systems that have been specified and we are awaiting award for those. So the pipeline is growing.

We expect project activity to continue to build as the utilities move through these you know, several piloting design and specification programs. So it. it is just. it is taking a while. We feel good about it. We are also encouraged by the other activity outside drinking water, which is, you know, we are seeing demand on military bases remediation and also in the international market. So that. Those opportunities go even beyond, drinking water opportunities. So we are promoting those as we are waiting for these regulations to take effect for the drinking water. So we are encouraged by the military and remediation opportunities, and we continue to promote those.

We are advancing drinking water and in situ remediation pilots across the EU. We are in The UK and now and also in Japan. We have initiated a reactive core mat with FLUORO-SORB in Sweden in the third quarter. And we have an additional expansion in the fourth and the first quarter already set up. So, we have and in addition to that, we have initiated some soil remediation projects in Belgium. So we feel really good about the global acceptance it is just taking us some time, and I think as the regulations start to get closer, we will see that start to pick up.

We are also in a process with the EU and Germany to go through a year long a year long qualification and that has kicked off. That is similar to an EPA regular. You know, an EPA acceptance. And so once we have that, we think that is gonna be a nice catalyst in Europe as well. Okay.

David Silver:Brett. Thank you for all the color. I am going to maybe ask Erik to just go back and discussed the lag between in full cost recovery and some detail, which I appreciate. But if I compare, you know, the cost effects, I guess, in operating income for the Consumer and Specialty segment, I guess, over the past year, it is at 15 million And the corresponding figure for engineered solutions is at 4 million And just at a high level, is that all fuel related? And if so, I mean, is that something to do regionally? Or something in the Western U.S.?

In other words, I do recall, Mike, there was a train, you know, train availability or cost issue. So just on the cost side, I mean, much of that is like pure you know, we have got higher oil and diesel costs and how much of it might be due to just some local particular issue either with you know, transportation options or you know, other kind of things that you are. You need to work with?

Erik C. Aldag:Yeah. Thanks, David. So, yeah, it is not really anything idiosyncratic like that. It is. The majority of it is energy linked cost. And I would say the biggest 1 is transportation, trucking. And that is why a lot of it is sitting within that household and personal care business. We truck a lot of products around the country in The US and also around Europe. And so when energy prices are higher, when diesel prices are higher, we get hit with fuel surcharges. And that is been the largest impact I would say, by far.

Second to that is probably European natural gas We have got plants in Europe that use natural gas, and that is an impact as well. And then third is probably the I would say, derivatives raw materials like packaging, and that is also impacting the household and personal care business because of the packaging that they use for the products. So it is it is it has largely been driven by global increases in energy, and the largest impact for us has been in transportation.

Douglas T. Dietrich:Okay. Idiosyncratic. I gotta put that in my thesaurus here. Okay. And then just last question.

David Silver:Also related to consumer Specialty, I just wanted to follow-up on that 21% sequential growth in edible oil and renewable fuel purification sales increase? And just briefly, would I be correct in assuming that it is largely renewable fuel purification driven. And if so, would that bump that 21% sequential pickup Would that be a new customer pipeline filling kind of effect? Or is that I do not know, due to just broad based increase demand. So just characterizing that bump up 21% sequentially on the edible oil and renewable fuel purification side? Thank you.

D. J. Monagle:Yes. David, it is DJ. The best way to think about it is, I will take it back to those investments we made in growth. And the fact that, that mineral performs extremely well in sustainable aviation fuel. So we brought that new growth online earlier this year. It took a little bit of time, to get qualified. And you may recall I was saying that we are a little behind in the third-quarter qualifications, and we had some shipping logistics to work through. But we have, for the most part, been qualified in those new locations. And it is it is the first time we have been able to qualify because of that new process that came online.

In Turkey for us. And so it is reasonable for you to think that is further penetration into this sustainable aviation fuel market that is growing at pretty high rates and we will sustain that level of growth that I am already looking at debottlenecking and expanding further.

Douglas T. Dietrich:Yeah. So there is some significant sustainable aviation fuel refineries that have been developed and growing around the world. Largely in Europe, and in Southeast Asia. This expansion has given us the ability to be able to reach those new refineries. So similar customers in many cases, but being able to qualify with that refinery, in Asia, and, you know, that is a little bit of time to get it ramped up and like DJ said, but now that is fully ramped, what you are seeing is that volume that we anticipated from delivering to those refineries.

David Silver:Alright. So again, just to beat it-- beat it 1 more time, but that bump in the third quarter is not just the single customer pipeline, Phil, it is more like you are on a ski lift now and you are moving steadily up as qualifications and everything just open up your available market for that product. Is that fair to say?

D. J. Monagle:That is fair to say, but I will just peel that back 1 more time. Ski reference aside. I would say that it was more than 1 customer. 1 of those customers was substantial, the largest biofuel refinery in the world. And we are ramping up both within these new customers that we have penetrated into. We will-- we are-- we are going to be sold out soon, David. And so I am already looking at debottlenecking and growing further. So I am-- you will see this rate continue, and then I will. I have got to figure out a way to get more. there is great demand for the market.

Douglas T. Dietrich:Yeah. We are on that ski lift. David. We made it through the ski lift line. But we are on about, you know, 7 or 8 different ski lift lines. Right? And so. And they are all in different stages. And, yeah, well, I think it is great analogy. Sorry, DJ. I like it. But we are gonna make it through those lines and qualify, and we are gonna get on that list as well. But we do see the long term growth rate of sustainable aviation fuel. And we are gonna keep pace with that growth. And we have got a great product to do it with then.

David Silver:Okay. Brett. Thanks for the extra color there. I appreciate it. Thanks very much. Thank you.

Operator:This concludes our question and answer session. I would like to turn the conference back over to Douglas T. Dietrich for any closing remarks.

Douglas T. Dietrich:Thank you, everyone, for joining today. We hope it was informative and again thank you to those who joined either in person or virtually to our Investor Day. We hope you enjoyed that, found it informative, we will talk to you again next quarter. Thank you.

Operator:The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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Minerals Technologies (MTX) Q3 2026 Earnings Call Transcript was originally published by The Motley Fool