Company Spotlight: Calgon Carbon

Everything's Going Its Way

• The Good: Protected by tariffs.
• The Bad: Past 2 years have shown losses.
• The Beautiful: The past is over, profits are coming back.

December 17, 2007 - Calgon Carbon (CCC-NYSE) makes activated carbons and purification systems and offers purification, separation, and concentration services to the industrial process and environmental markets. The company provides activated, impregnated, and acid-washed carbons (about 130 million pounds annually) for use in applications such as food processing, wastewater treatment, and emissions control.

Calgon Carbon also sells equipment that uses activated carbon and ion exchange resins for the purification of products in the chemical, food, and pharmaceutical industries. The company's consumer products include charcoal and carbon cloth.

NYSE: CCC
$15.03 (as of 12/14/07 )
P/E n/a	PSR 0.78
ROE n/a	BETA 1.4
Debt/Eq. 0.1
Our "Five Benchmarks" tutorial explains these numbers

Earnings, as in positive earnings, have made all the difference.  The company is finally making money again after 2 years of reporting losses.  It was in the red for 2005 with a deficit of 17 cents a share, then went deeper into the red with a deficit of 23 cents in 2006.  This year, analysts are looking for a positive 25 cents a share, next year 45 cents.  They're projecting an average annual growth in earnings of 18.5% over the next 5 years.

The company has some help from the government.  There's a tariff on activated carbon from China to the U.S., a tariff that can be anywhere from 62% to 228% of the imported price of the product.  That started in the first quarter of this year.  Calgon is a leading producer of activated carbon and was a force in getting the tariff passed.  The company has a backlog for its activated carbon.  It's raised prices on the stuff for any customer not on a fixed price contract.  Most of those expire early next year.  Management has stated more price hikes are coming for many customers next year.  Furthermore a plant in Kentucky is going to start up again within a year to add capacity.

Costs have been cut lately.  Employees were fired, pension plans frozen.  Operating margins are improving.  Legal and consulting fees related to the passage of the tariffs and patent protection have largely been eliminated.  Net profit margin should show 3.5% this year and jump to 6% next year on its way to 9% within 5 years.

The government is helping Calgon in one other way: the Clean Air Mercury Rule which mandates a 70% reduction in emissions from coal-fired plants by 2010.  That may become the largest market for activated carbons.  The company is expanding product offerings and has entered a contract to supply a FLUEPAC to a large utility in Illinois starting in 2009.  There are several more utilities discussing possibilities with CC currently.

Calgon also has a water treatment business that is doing very well in Asia.  The company believes demand will continue to grow.  Foreign sales were 44% of revenues in 2006.  All revenues broke down as: Carbon and Services: 84%, Equipment: 12%, Consumer: 4%.

Some other numbers: Officers and directors own 12.3% of the stock.  There is no dividend currently but a small one was paid in 2003, 2004 and 2005.  Debt is 8% of capital.  Return on equity should be 7.5% this year and analysts project 12.5% next year.  Revenues are $340 million this year and expected to be $375 million next year.  Market cap is $525 million on 40.48 million shares outstanding.

As you can see, this is still a small company.  Production constraints would seem to be the only thing holding it back from really ramping.  It is opening the idle plant next year so capacity will increase.  But it also has protection from those tariffs.  If they are repealed, the competition from China would be intense.  However, a new market, the reduction in emissions, is opening what could create the largest demand for activated carbon.  As always, there's a lot of good and the spectre of some really bad here.  As long as those tariffs hold, this company is in a great position to make good profits for some time to come.

- Company Web site: www.calgoncarbon.com

- Ted Allrich

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