Minerals Technologies Q2 2025 Earnings Call Transcript

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Provided by Quartr
July 25, 2025

Key Takeaways

  • Positive Sentiment: Strong Q2 performance: EPS of $1.55 rose 36% sequentially, sales climbed 8% to $529 M, and operating margin improved 200 bps to 14.9%, driven by volume gains, pricing, and cost control.
  • Neutral Sentiment: Consumer & Specialty trends: Pet litter volumes remain soft, prompting promotional activity and facility retooling, while renewable fuel purification, animal health, and fabric care lines show healthy growth supported by capacity expansions.
  • Positive Sentiment: Engineered Solutions outlook: North American steel refractory demand is stable, Europe remains weak, but the segment secured its first MINSCAN LSC sale in Europe and sees strong pull for PFAS remediation and infrastructure drilling products.
  • Positive Sentiment: Growth initiatives: New capacity and plant expansions targeting sustainable aviation fuel, animal health, fabric care, and pet care are expected to drive $100 M of incremental revenue at above-average margins.
  • Positive Sentiment: Sustainability achievements: The company met 11 of 12 environmental goals a year early, cutting Scope 1 emissions 32%, Scope 2 emissions 36%, reducing water use by 50%, and slashing waste disposal by 44%.
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Earnings Conference Call
Minerals Technologies Q2 2025
00:00 / 00:00

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Operator

Good morning and welcome to the Minerals Technologies Second Quarter twenty twenty five Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Lydia Kopilova, Head of Investor Relations. Please go ahead.

Lydia Kopylova
Lydia Kopylova
VP - IR at Minerals Technologies

Thank you, Gary. Good morning, everyone, and welcome to our second quarter twenty twenty five earnings conference call. Today's call will be led by Chairman and Chief Executive Officer, Doug Dietrich and Chief Financial Officer, Eric Aldag. Following Doug and Eric's prepared remarks, we'll open it up to questions. As a reminder, some of the statements made during this call may constitute forward looking statements within the meaning of the federal securities laws.

Lydia Kopylova
Lydia Kopylova
VP - IR at Minerals Technologies

Please note the cautionary language about forward looking statements contained in our earnings release and on the slides. Our SEC filings disclose certain risks and uncertainties, which may cause our actual results to differ materially from these forward looking statements. Please also note that some of our comments today refer to non GAAP financial measures. A reconciliation to GAAP financial measures can be found in our earnings release and in appendix of this presentation, which are posted on our website. I will turn it over to call to Doug. Doug?

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

Thanks, Lydia. Good morning, everyone, and thanks for joining today. I'll start the call by giving you an overview of our second quarter, followed by a review of our current market conditions across our product lines as well as an update on our near term growth initiatives. Eric will then take you through the detailed financials and provide an outlook for the third quarter. I'm going to close our prepared remarks with a quick review of our seventeenth Annual Sustainability Report, which we just released earlier this week, before opening the call to questions.

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

Let me start with our Q2 numbers. This is a strong quarter for us both on a stand alone and historical basis with EPS coming in at 1.55 up 36% from Q1 and at a level only behind the second quarter of last year when market conditions were relatively stronger. Our ability to generate these results amid the recent global economic backdrop is an example of the strong operating culture of this company. As we shared on our last call, we started to see a significant uptick in sales at the end of the first quarter, and our sales rate expanded through the second quarter and resulted in $529,000,000 up 8% sequentially. Operating income came in at $79,000,000 up 25% sequentially, and operating margin was 14.9%, up 200 basis points from the first quarter and reverting to our natural level of 15%.

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

It's important to put this performance into context given the challenges presented by changing tariffs and the ongoing uncertainties they continue to put on our end markets. Our results are a testament to MTI's strong fundamentals, including our operational agility, prudent cost and expense control and our team's ability to take quick action and make necessary adjustments. I'd like to highlight that we delivered strong cash conversion this quarter, in line with our historical average of around 7% of sales, a level that we expect to continue. We also returned $22,000,000 to shareholders this quarter, reflecting our ongoing commitment to steer capital back to investors. Our balance sheet remains in excellent condition, giving us a strong foundation with the flexibility to pursue multiple avenues to drive growth in sales, earnings and cash flow.

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

Now let me talk a bit about what we're seeing with market conditions and give you some insight into projects that we have coming online to drive both growth and margin expansion. Let's start with the Consumer and Specialties business segment, which comprises our Household and Personal Care and Specialty Additives product lines. In Household and Personal Care, we're seeing mixed conditions across these consumer end markets. The North America cat litter market has been slower this year compared to recent years and these conditions have created more competitive dynamics. We are navigating this with increased promotional activity with our customers and are seeing momentum building in our order books as a result.

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

We continue to see positive long term growth dynamics across global pet litter markets. To support this growing demand, we've been retooling our facilities in North America and Europe with new process and packaging equipment. These upgrades are designed not only to produce higher quality products, but also to improve efficiency and reduce production costs. In addition, we are opening a new pet litter packaging facility in Asia late in the third quarter to support the demand growth we are seeing there. In our other consumer oriented products, we are seeing significant increased demand for renewable fuel purification, animal health solutions and Fabric Care.

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

This is being driven by regulation changes for more sustainable aviation fuel, the continued trend toward natural livestock feed additives and the growing demand for more sustainable laundry detergents. We have several capacity expansion projects underway for these product lines as well. In the Specialty Additives product line, market conditions remain mixed. The paper market in North America is relatively flat and Europe remains weak. However, we continue to penetrate the paper and packaging market in Asia with strong customer pool for our packaging solutions and sustainable products like NewYield.

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

Three new satellite facilities, two of which are for packaging applications and one packaging and one capacity expansion are set to come online within the next seven to eight months. And we continue to see a strong pipeline of additional opportunities across the Paper and Packaging market further down the road. In other areas, the automotive market has been relatively flat this year, while residential construction markets vary for us by region, with stronger demand on The U. S. West Coast and continued softness on the East Coast.

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

Meanwhile, our Food and Pharmaceutical markets remain robust. Now let me turn to our Engineered Solutions segment, which includes our High Temperature Technologies and Environmental and Infrastructure product lines. In High Temperature Technologies, we continue to see strong demand in North America for our automated MINSCAN systems and for our newest steel refractory formulations. The North America steel market remains relatively stable and at a production level that provides good volumes for us. In Europe, the steel market remains weak and we expect these conditions to continue for the remainder of the year.

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

A bright spot in Europe is that we've secured our first Minscan LSC sale there, opening a new market for our technology. We're pursuing the same strategy as we have in North America, helping our customers reduce costs and improve safety through high-tech automated refractory application and measuring systems. We expect to generate additional Minscan sales moving forward as other customers become comfortable with and adopt our new technology. The U. S.

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

Foundry market has generated solid demand for our greensand bonds through the first half from stable auto demand and despite the softer heavy truck and ag equipment markets. The China foundry market has remained resilient despite the introduction of increased tariffs. Our volumes of green sand bonds in China remain strong as foundry customers quickly adapt to the changing market conditions and seek the cost savings and productivity value that our products provide. On the Environmental Infrastructure side, the commercial construction and environmental lining markets have stabilized, but we have not yet seen the initiation of several planned large projects where we are specified. We expect commercial construction markets to remain relatively soft as long as interest rates remain higher.

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

However, we are seeing strong pull for our infrastructure drilling products, water remediation solutions, offshore energy services and PFAS remediation through FluoroZorf. As an overall market summary, we see similar market conditions to the second quarter continuing into the back half of the year. However, I would not characterize these conditions as robust by historical standards. But as I just mentioned, we are executing on several initiatives to support the strong near term demand we are seeing in multiple product lines. These initiatives include new capacity and plant expansions to support demand for sustainable aviation fuel, animal health, fabric care and pet care.

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

These specific projects will support $100,000,000 in revenue growth for products that will drive the margin profile of the company higher. This is just a subset of our growth initiatives. Other projects such as geographic expansion initiatives and new product introductions can be supported by our existing capacity. Now let me let Eric take you through some additional details of our financial results as well as the third quarter outlook. Eric?

Erik Aldag
Erik Aldag
CFO & SVP - Finance & Treasury at Minerals Technologies

Thanks, Doug, and good morning, everyone. I'll start by providing an overview of our second quarter results, followed by a review of the performance of our segments, and I'll wrap up with our outlook for the third quarter. Following my remarks, I'll turn the call back over to Doug to cover the highlights from our 2024 sustainability report. Now let's review our second quarter results. Overall, we delivered a strong performance in the second quarter.

Erik Aldag
Erik Aldag
CFO & SVP - Finance & Treasury at Minerals Technologies

Across our end markets, conditions played out mostly as we expected, with sales continuing to show improvement from the levels we saw in the first quarter. Sales of $529,000,000 were up 8% sequentially, driven by higher volumes in both segments. Customer order patterns continued to normalize through the quarter, not quite to prior year levels, but a significant improvement from what we experienced in the beginning of the year. You can see from the bridge on the top right that higher volume drove $30,000,000 of the $37,000,000 sequential improvement in sales, with the balance of the increase coming from favorable pricing and foreign exchange. Consumer and Specialty sales increased by $9,000,000 sequentially, and in engineered solutions, sales were up by $28,000,000 Operating income increased by $16,000,000 or 25 percent sequentially to $79,000,000 matching the second highest operating income quarter for the company.

Erik Aldag
Erik Aldag
CFO & SVP - Finance & Treasury at Minerals Technologies

And that was despite the current macro challenges weighing on some of our end markets. In the sequential operating income bridge, you can see that higher volume drove a $9,000,000 improvement to income, which is a typical incremental margin for us on $30,000,000 of volume. In addition to favorable pricing and foreign exchange, we also benefited from $4,000,000 of lower costs driven by improved productivity and the ramp up of our cost savings program. As a result, operating margin increased by 200 basis points to 14.9% of sales. It's worth noting that we incurred about $500,000 in incremental tariff costs in the second quarter, which our team has done a nice job mitigating through supply chain and commercial actions.

Erik Aldag
Erik Aldag
CFO & SVP - Finance & Treasury at Minerals Technologies

As Doug mentioned, we are working on several projects to expand capacity for high growth products and optimize our footprint for continued margin expansion. In the second quarter, we executed on some efficiency opportunities in Engineered Solutions by consolidating two facilities in The U. S, which will result in direct cost savings as well as productivity and efficiency improvements. In addition, we made adjustments to the layout of another facility in The U. S.

Erik Aldag
Erik Aldag
CFO & SVP - Finance & Treasury at Minerals Technologies

To accommodate future capacity expansion for Fluorozorb, our PFAS remediation technology. We recorded special charges in the quarter associated with these actions, which were mostly offset by a gain on the final installment for the sale of refractory manufacturing assets in China. Second quarter earnings per share, excluding these special items, was $1.55 up 36% sequentially. Now let's turn to a review of our segments, beginning with Consumer and Specialty. Second quarter sales in the Consumer and Specialty segment were $278,000,000 up 4% sequentially as customer order patterns stabilized throughout the quarter.

Erik Aldag
Erik Aldag
CFO & SVP - Finance & Treasury at Minerals Technologies

Sales in our Household and Personal Care product line were $127,000,000 up slightly from prior year and up 3% sequentially. As Doug mentioned, we've got a lot of exciting initiatives in Household and Personal Care. Some of these specialty applications, natural oil purification and animal health, are growing at double digit rates with incremental margins above the company average. The growth of these products will continue to drive the margin profile of the company higher. And we are supporting this growth with capital investment to ensure our facilities can keep up with demand.

Erik Aldag
Erik Aldag
CFO & SVP - Finance & Treasury at Minerals Technologies

In our Specialty Additives product line, sales of $150,000,000 were 5% below prior year, driven by softer demand conditions, primarily in paper production in North America and Europe. On a sequential basis, sales in the product line were up 4%, primarily driven by seasonally higher sales into residential construction applications. The team remains focused on driving operational efficiency while also supporting our growth opportunities. And this segment delivered a much stronger operating performance in the second quarter. Operating income was $37,000,000 up 24% sequentially, and operating margin increased by two twenty basis points to 13.4% of sales.

Erik Aldag
Erik Aldag
CFO & SVP - Finance & Treasury at Minerals Technologies

Margins were lower than last year due to volume leverage and some higher raw material and energy costs that we are working to pass through. We're also in the process of making significant upgrades to one of our cat litter facilities in The U. S. And this is resulting in temporarily higher freight costs as we've shifted production around our network to accommodate the work at this facility. Looking ahead to the third quarter, we expect sales in the Household and Personal Care product line to increase sequentially, driven by an improving demand outlook and the ramp up of our growth initiatives.

Erik Aldag
Erik Aldag
CFO & SVP - Finance & Treasury at Minerals Technologies

And in Specialty Additives, we expect a similar quarter sequentially. Now let's turn to the Engineered Solutions segment. Second quarter sales in the Engineered Solutions segment were $251,000,000 up 12% sequentially. In our High Temperature Technologies product line, sales were $178,000,000 3% below prior year but up 5% sequentially. Global sales to foundry customers were similar to prior year.

Erik Aldag
Erik Aldag
CFO & SVP - Finance & Treasury at Minerals Technologies

Demand in North America is holding relatively stable apart from some ongoing softness for castings going into the agricultural equipment and heavy truck markets. And in Asia, we continue to deliver year over year volume growth, including in China, despite lingering tariff uncertainties. Second quarter sales to steel customers were mixed. We saw a modest sequential improvement in sales to European steel customers after significant destocking in the first quarter. However, that market remains softer than last year.

Erik Aldag
Erik Aldag
CFO & SVP - Finance & Treasury at Minerals Technologies

Meanwhile, The U. S. Steel market has been solid, and our team is doing an excellent job executing on growth initiatives. Second quarter sales to steel customers in North America were higher than last year and up sequentially as well. In the Environmental and Infrastructure product line, second quarter sales were $73,000,000 1% higher than the prior year and 35% higher than the first quarter as we entered the seasonally stronger period for this product line.

Erik Aldag
Erik Aldag
CFO & SVP - Finance & Treasury at Minerals Technologies

Demand conditions across the product line have stabilized, although overall project activity is still lower than historical levels. Segment overall delivered another strong operating performance. Operating income was $44,000,000 and operating margin improved by 200 basis points sequentially to 17.4% of sales, matching last year's record performance. Turning to the third quarter. We expect end market conditions to remain stable for the segment and overall sales to be similar sequentially.

Erik Aldag
Erik Aldag
CFO & SVP - Finance & Treasury at Minerals Technologies

Now let me turn to a summary of our balance sheet and cash flow highlights. We delivered a solid cash flow performance in the second quarter with free cash flow of $34,000,000 Looking ahead, we expect cash flow to continue to build through the second half. As we've mentioned, we're making several key investments across the company that support the progress we've made on our strategic growth initiatives. In the second quarter, CapEx was $29,000,000 as activity on several projects picked up. And for the full year, we're projecting capital of approximately $100,000,000 This figure includes the ramp up of several growth investments that Doug referred to in his remarks that will add $100,000,000 of annual revenue at above average margins.

Erik Aldag
Erik Aldag
CFO & SVP - Finance & Treasury at Minerals Technologies

These investments total about $50,000,000 of CapEx that we'll be executing on over the next twelve months. We're expecting to generate significant free cash flow in the second half. At this point, we expect full year free cash flow in the 6% of sales range, which factors in the slower start to the year, the higher level of investment and a very strong second half of cash flow generation. We also returned $22,000,000 to shareholders through dividends and share repurchases in the second quarter, and we've returned $73,000,000 to shareholders over the last four quarters, maintaining our balanced approach to capital deployment. Turning to the balance sheet.

Erik Aldag
Erik Aldag
CFO & SVP - Finance & Treasury at Minerals Technologies

Total liquidity at the end of the second quarter stood at nearly $700,000,000 which is $150,000,000 higher than the last year. And our net leverage ratio is 1.7 times EBITDA, below our target of two times EBITDA. The company's strong balance sheet and reliable cash flow generation provide the financial strength to navigate periods of uncertainty while also enabling significant flexibility to pursue growth and return cash to shareholders. Now I'll summarize our outlook for the third quarter. We're expecting a largely similar quarter sequentially for sales and income with a balance of potential upsides and some ongoing macro uncertainty.

Erik Aldag
Erik Aldag
CFO & SVP - Finance & Treasury at Minerals Technologies

Overall, we're expecting sales of between $525,000,000 and $535,000,000 In Consumer and Specialties, we're expecting higher sales from continued growth across the Household and Personal Care product line, including natural oil purification, personal care and animal health products, to name a few examples. And in Engineered Solutions, we see a similar level of sales sequentially as our stable market outlook is balanced by seasonal customer maintenance outages in high temperature technologies. Our operating income guidance of approximately $75,000,000 reflects the midpoint of our sales range and represents a balanced view with potential upsides as well as the potential for macro uncertainty around trade and tariffs to continue to impact our customers and end markets. And while our direct exposure to tariffs is relatively low, we are facing a higher tariff cost in the third quarter of $1,500,000 We're confident we'll be able to mitigate this tariff impact through our ongoing supply chain and commercial efforts. In summary, we feel confident that the second half will be stronger than the first half, and we are excited about the progress we are making on several key initiatives that will contribute to long term growth and continued margin expansion.

Erik Aldag
Erik Aldag
CFO & SVP - Finance & Treasury at Minerals Technologies

With that, I'll turn the call back over to Doug for some remarks on our annual sustainability report. Doug?

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

Thanks, Eric. I want to close the call with a quick overview of our sustainability report, which we just released earlier this week. This is the seventeenth year that we've published this report, and it reflects the tremendous amount of ongoing activity across our company to enhance what we do and how we do it in order to drive value for our customers, employees, communities and investors. Sustainability is not new to MTI. It's always been explicitly included in our values and how we run the company.

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

We're committed to being responsible stewards of the environment, good neighbors in the places in which we work and dependable, supportable supportive and inclusive colleagues who are laser focused on keeping each other safe. This isn't just talk. We put this commitment into action as you can see from the highlights in our report. Let me give you a few of them. Through 2024, we've achieved 11 out of 12 of the environmental goals we set for ourselves back in 2018, and we achieved them one year ahead of our 2025 target.

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

The progress we've made since 2018 is quite remarkable. We've reduced our overall Scope one emissions by 32%, Scope two emissions by 36 and reduced emission intensity for both Scope one and two on a per unit basis by over 50%. We've reduced our airborne pollutant emissions by 70%, cut our process water usage in half and reduced process waste disposal by 44%. Every year, we extract over 1,100,000 metric tons of waste CO2 from our customers and our own exhaust stacks and sequester those emissions used into consumer products. We operate at a world class safety level and consistently look for ways to make our work environment safer, though we will never be satisfied until we reach and maintain zero injuries as a company.

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

We support our customers in achieving their sustainability goals with 66% of our new products, which we define as products developed over the last five years, having a sustainable profile. These products range from natural solutions to emissions and waste reduction products that support pollution prevention, filtration and energy savings. You'll also see several examples of how we engage within our communities by supporting education, installing systems to bring clean waters to areas in need and working alongside our neighbors in a variety of local initiatives. This is only a sample of what you'll see in this year's report, and I encourage you to take a deep dive into it. I'm extremely proud of what we've achieved thus far, but there's so much more to do for us and for our industry.

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

We intend to outline this next chapter when we publish our new long term goals in next year's report. With that, let me turn the call over to questions.

Operator

We will now begin the question and answer session. Our first question today comes from Mike Harrison with Seaport Research Partners. Please go ahead.

Mike Harrison
MD & Senior Chemicals Analyst at Seaport Research Partners

Hi, good morning. Congrats on a nice quarter.

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

Hi, Mike.

Mike Harrison
MD & Senior Chemicals Analyst at Seaport Research Partners

I was hoping that we could talk a little bit and start out here with the Household and Personal Care segment. There was some improvement sequentially, but we're still not back to the kinds of growth rates we'd like to see there. I know you mentioned that kind of the underlying pet care market is still not fantastic. But can you give us maybe some additional color on what you're seeing in that HPC product line in terms of volume trends and when you might expect to get back to stronger growth rates?

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

Sure Mike. Let me start off and then I'll hand it over to D. J. To give you a little bit more detail. Look, think the product line several of the products as we mentioned in this are doing quite well.

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

We've got some of the smaller products like our aviation, natural oil, purification, animal health, personal care. These are growing at kind of double digit and high double digit kind of rates. So they're doing very well. They're smaller piece of the profile. As I mentioned, we're investing in them.

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

And I think as they grow they're going to be continued to drive the growth profile of this product line much higher. They are also the higher margin products in the company, some of our newest technologies. And, they as I mentioned will drive the margin profile of the company higher as they grow. PetCare is the largest product in that product line. And yes, this year it's been a bit of a slower year for the market in total.

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

And I think you'll see that across any of the producers with that commentary. And I think that's driven some higher competitive activity, some discounting that's been going on that we've been working our way through. So with that, what I'll I've answered the other products. DJ, why don't you take us through the pet care and give us a little idea of the dynamics going on there?

D.J. Monagle
D.J. Monagle
Group President - Consumer & Specialties at Minerals Technologies

Yes, sure. Glad to. Thanks for the question, Mike. So let's kind of peel back the onion a little bit on what we're seeing in the pet care market. A little surprised to see the sequential drop that we saw in the quarter.

D.J. Monagle
D.J. Monagle
Group President - Consumer & Specialties at Minerals Technologies

It's not uncommon for the second quarter to be a little bit lighter than the first, but we saw a 2% drop in that market and it particularly hit the private label sector. Doug was mentioning some discounts and just to give you a flavor of the discounts that we're seeing done by the major brands. In a normal year, you're seeing 15% to 20% of those major brands sell on deal. This year, they're still up in the 20% to 30%. We're starting to see some mitigation on that.

D.J. Monagle
D.J. Monagle
Group President - Consumer & Specialties at Minerals Technologies

So we're expecting the shift to private label to start improving a little bit, but the market has still been down. Against that down, we've kind of held our own, not bragging about it, but just that gives you some perspective on that. So let's talk about then what's going on in that context. On the Pet side, we enable our private label partners to execute their strategy. And what we're doing lately with them is quite a bit of brand refresh and promotions.

D.J. Monagle
D.J. Monagle
Group President - Consumer & Specialties at Minerals Technologies

So that brand refresh can be as simple as new placements and increased volumes that our partners want to put and display differently in the shelves. But they also could be as complicated as product refreshes, which could just be a label change, but could also be a reinvigoration of the whole product line that would include some things like new products, which would be in our case, it's what we're promoting is some lightweight litter products and some other things that have to do with the kind of a under the clean hygiene theme. So those promotions are ongoing now. We expect to see some better growth in that pet care market going forward. And then, I guess, top of that, as Doug was mentioning, the capital investments that we're doing.

D.J. Monagle
D.J. Monagle
Group President - Consumer & Specialties at Minerals Technologies

Towards the beginning of the fourth quarter, a little bit in the third quarter, you're going to start seeing an increase in China as we bring that new facility online for us. So that's the backdrop for pet care that we've got going on. The other element that Eric had mentioned, we did a major rework, a major optimization of our footprint in The U. S. And we also made some refinements to our Netherlands facility.

D.J. Monagle
D.J. Monagle
Group President - Consumer & Specialties at Minerals Technologies

These changes will allow us to improve the productivity better enabling us to meet some promotions, but it also expands our capability to meet some requests we've got for customers in different channels on new grades, new products. So we're pretty enthused about that. That's the pet care story. And I guess I just want I guess, pile on to the other side of the equation in that household and personal care line. Big investment coming online early in 2026 to meet continue to meet the demands of this fast growing bleaching earth product that is helping purify the plant based fuels and plant based oils that include sustainable aviation.

D.J. Monagle
D.J. Monagle
Group President - Consumer & Specialties at Minerals Technologies

Sustainable aviation is the primary pull that we're seeing from there. We also have got some really good projects going on, especially in the Fabric Care line, where we're introducing some new products to help with the macro trends of better washing in a cold water environment with those folks. So overall, we feel really good about that part of the product line within the segment. Still think Pet Care is on track to be a $500,000,000 plus business, feeling really good about the specialties growth trajectory, especially as embodied by Bleaching Earth, Animal Health, Fabric Care and the Personal Care products. Hope that helps.

Mike Harrison
MD & Senior Chemicals Analyst at Seaport Research Partners

Very helpful. Thanks for all that additional color. I wanted to switch over to Engineered Solutions. The operating income, you guys had kind of given a range there in terms of guidance for the second quarter, and it looks like you came in pretty nicely ahead of those expectations. So can you talk about some of the key drivers of that better operating income performance in Q2?

Mike Harrison
MD & Senior Chemicals Analyst at Seaport Research Partners

And I guess just looking at your overall guidance, it seems like even though you expect a similar quarter in Q3, the op income guide is a little bit lower. So is that an engineered solutions step back that we should be expecting in operating income?

Erik Aldag
Erik Aldag
CFO & SVP - Finance & Treasury at Minerals Technologies

Yes, Mike. This is Eric. Thanks for the question. So yes, I think from an engineered solutions perspective, they performed very well in the second quarter. Productivities were very strong.

Erik Aldag
Erik Aldag
CFO & SVP - Finance & Treasury at Minerals Technologies

The supply chain teams, in particular, have done a really nice job managing input costs for us. We mentioned that tariffs aren't a huge direct impact for us, but the supply chain team in Engineered Solutions, in particular, has done a really nice job mitigating that impact for us. So margins, probably a little bit better than we guided to for the second quarter in that segment. I think in terms of what we're looking at for the third quarter guidance, as I mentioned, we have upside to that number. I think what you're hearing from us is there is still a lot of uncertainty out there in terms of what's going on with macro end markets and potential impacts on our customers.

Erik Aldag
Erik Aldag
CFO & SVP - Finance & Treasury at Minerals Technologies

But I would say you know, if things continue to play out and and continue to be relatively stable, we can do a similar level of margin performance in the third quarter. We are facing some slightly higher tariff costs in the third quarter, but we are we are confident that we're going to be able to mitigate that. That's what I would give you in terms of the color for the third quarter.

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

Yes, Mike, the only thing I would add is, look, this product line, this segment is performing really well. I think they're doing, as Eric mentioned, all the things they've got this is where the tariffs sit mostly in the company and they are having to navigate that and they have a heavier load in the third quarter which we're confident we'll do. So there's some uncertainty there. But this is these margins are not they've been moving this direction for a while now and it is part of the strategy. It's these it's our higher tech greensand bond solutions.

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

It's growing the business in underserved regions. These Minscan units which then come with kind of contracts for refractories. But then also there are new refractory formulations that we're using that have good performance which help us with a higher margin capture. So there's a number of different things that are going on. And yes, the steel market in Europe is pretty weak right now.

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

We got this tariff load. So I think we're being a little bit middle of the road here. But yes, I think there's some upside and I think even further margin expansion in this business long term.

Mike Harrison
MD & Senior Chemicals Analyst at Seaport Research Partners

All right. Sounds good. Last question for me. The balance sheet is in pretty good shape. It was 2021 when you guys last did a more sizable acquisition.

Mike Harrison
MD & Senior Chemicals Analyst at Seaport Research Partners

I was hoping you could talk about your capacity and your appetite for a larger or more transformative deal, given that there are some potential targets out there, including some targets that you may have looked at in the past.

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

Well, M and A has always been a piece of the growth strategy for the company. We've executed fairly regularly on acquisitions over the past five years. Think we've done four of them. The balance sheet is in good shape. Liquidity position is in good shape.

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

I think we have a nice portfolio of things that we're looking at Mike. I think they are there's some larger things that we would consider. And I think there's also some bolt ons that give us faster penetration in regions or they bolt on to some of these higher margin products, in the consumer space. So, I think there's a number of things that we would consider. I think, we look at these things obviously very carefully.

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

We model them, with the appropriate level of risk and concern and we make sure that we know exactly what we're going to do with it if we were to get it. And so, we take a very measured approach to it. But I think the balance sheet is in good shape if something were to become actionable. That's what I can give you.

Mike Harrison
MD & Senior Chemicals Analyst at Seaport Research Partners

All right. Thanks very much.

Operator

The next question is from Dan Moore with CJS Securities. Please go ahead.

Will Gildea
Equity Research Associate at CJS Securities

Hey, this is Will on for Dan. Can you add some more color to the schedule for new PCC satellites including new yield coming online in the second half and into 2026?

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

Sure. We'll outline that for you. DJ, do you want to give some details? I mentioned Will was we have three new satellites and one expansion coming online in the next seven to eight months. Two of those satellites are for packaging in Asia.

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

One of them is kind of what we call our base PCC for paper and then another expansion and D. J. Can give you more details on what they are and where they are.

D.J. Monagle
D.J. Monagle
Group President - Consumer & Specialties at Minerals Technologies

Yes. Well, so just as a baseline for you, we're going to be we started a plant earlier this year that's in the neighborhood of 60,000 tons. We're still seeing that to ramp up a little bit. That's not quite at full capacity yet. In the third quarter, we'll be seeing two more satellites come on.

D.J. Monagle
D.J. Monagle
Group President - Consumer & Specialties at Minerals Technologies

One of them is the expansion to which Doug was referring. That's in India. And that will come online pretty quickly. The other one is a new yield facility in China. So that will be coming on and we'll start seeing the impact of that towards the second half of this year.

D.J. Monagle
D.J. Monagle
Group President - Consumer & Specialties at Minerals Technologies

As we go into next year, we've got another packaging facility that will actually have a combination of products. One is NewYield, but the other one is our satellite GCC. It's a new to MTI technology that we've been getting a lot of market pull for. So that will be coming on towards the end of the first quarter as well as another site that we've got in China that will be coming on in and that would be a printing and writing site that will be coming on in China towards the end of that first quarter. So and that one is it's about 60,000 ton sort of ballpark.

Will Gildea
Equity Research Associate at CJS Securities

Thank you. That's super helpful. And then looking at Refractories, could you add some more color to the outlook for steel production for the remainder of the year? And then secondly, where are we in terms of penetration of scan systems in The U. S. And Europe?

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

Sure. Brett Arjakos, you want to take that one?

Brett Argirakis
Brett Argirakis
Group President - Engineered Solutions at Minerals Technologies

Sure, sure, Doug. Thanks, Will. The U. S. Steel penetration, the second quarter actually saw capacity utilization rates reached the highest level since Q3 of twenty twenty four.

Brett Argirakis
Brett Argirakis
Group President - Engineered Solutions at Minerals Technologies

So it's in that high 70%, 78 range. Steel prices seem to be stable flat rolls over $900 a ton. So pretty stable market right now in North America. The service centers inventory has come down to around fifty five days. That's a pretty that usually when you get into the mid-50s that seems like it keeps a pretty consistent steel production.

Brett Argirakis
Brett Argirakis
Group President - Engineered Solutions at Minerals Technologies

So, overall U. S. Is doing really well that it's benefiting our refractory business. From the European side, of course, Doug mentioned, the European market is still remains really, really low. Their efforts converting to green steel technology has slowed.

Brett Argirakis
Brett Argirakis
Group President - Engineered Solutions at Minerals Technologies

That means going from integrated steel or basic oxygen furnace to electric furnace that slowed just because of the market. And the Turkey and Middle East market which we as part of we work as part of our European group has also slowed. So from a market standpoint, pretty really good market for us in North America and much suppressed market in Europe. So overall, it's pretty it's stable for our business. As far as the MINSCANs go, as Doug also mentioned, these MINSCANs provide us with a really custom application for our customers.

Brett Argirakis
Brett Argirakis
Group President - Engineered Solutions at Minerals Technologies

It improves safety and it improves the efficiencies of their operation and allows their furnaces to run longer by extending the refractory life. In 2025 for this year, we signed eight agreements. We installed one in the first half. The remaining will be in the second half possibly into the first quarter, but our target is to get the rest of them tied in this year. Over the past few years, we've had 17 MINS scans or scan trolls, which include the laser and the camera installed to date.

Brett Argirakis
Brett Argirakis
Group President - Engineered Solutions at Minerals Technologies

Two of those were in Turkey and the remaining were in North America. And we're happy to say that we signed our first agreement in Austria that will go in sometime in the first quarter of next year. So we're excited about that moving that technology to Europe. So, there is still a very sufficient runway to add more of these units. There's plenty of electric furnaces out there both in North America and Europe.

Brett Argirakis
Brett Argirakis
Group President - Engineered Solutions at Minerals Technologies

So we're not going to give up. We're going to continue to pursue them both North America, Europe and Japan as well. So I hope that helps.

Will Gildea
Equity Research Associate at CJS Securities

Thank you.

Operator

The next question is from Pete Osterland with SunTrust. Please go ahead.

Pete Osterland
Pete Osterland
Equity Research Analyst at Truist Securities

Hey, good morning. Thanks for taking the questions. First, just wanted to ask one on the pet care business. Just given the increased competitive activity you've referenced, are you having to lower prices there in order to increase momentum in your order book? And is that a potential source of margin pressure in C and S in the second half until you see a more meaningful pickup for demand?

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

Yes. Think there's promotional activity is generally a pricing issue. It's either similar prices, higher sizes or more weight, two for ones those types of things. What we're doing is working with as D. J.

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

Mentioned, we're working with our customer. They own the brand and so it's their decision as to how they want to put it on the shelf and price it. But we're helping them with those packaging solutions, the labeling. And yes, we could help them with some pricing actions a little bit in this quarter to help with that promotional activity. What that does is that make sure that we maintain and help them maintain that value proposition and that value gap between the branded product and the private label and ensure that there is that value seen on the shelf and that tends to pull more of their product I.

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

E. Our product off the shelf. So yes, we're working on all of those. And there has been some pricing that's been through that. But as D.

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

J. Mentioned, we expect that some of this promotional activity in the marketplace in general to go back to more normal levels. We make sure that we keep our private label kind of value proposition. But I think longer term we see that private label is going to continue to grow. It's not just in North America and in Europe but also in Asia.

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

We see positive fundamentals for the pet litter market in general globally. We're investing in that growth, as we mentioned with investing in our expanding a facility in a new facility actually in Asia. That's going to double the size of our business, in Asia. And I think that's just the beginning because that is a much higher growth rate area. And so as we start there, you're going to see that adding to the growth rate of the business, long term.

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

So hopefully that helps you with both short term kind of actions and long term dynamics, Peter.

Pete Osterland
Pete Osterland
Equity Research Analyst at Truist Securities

Yes. That's very helpful. Thanks. And then, I wanted to ask one on talc as well. I guess is there anything you can share on the timeframe for a final resolution or any meaningful upcoming dates to be aware of?

Pete Osterland
Pete Osterland
Equity Research Analyst at Truist Securities

And just kind of as a follow on question to that, is there a time frame within which it needs to be resolved in order for the reserve that you've established to be sufficient?

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

Well, first, I can't give you a solid answer on the timing. These are it's quite dynamic, and it's determined by a number of different items in terms of the courts and court dates. Regarding the reserve, it's sufficient. It is a sufficient reserve and it's we find it sufficient. There's no time stamp on that.

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

We find that that is the liability that we see for resolving this. Look, I think, what I can give you in terms of over the past ninety days that's happened, a couple of significant items. The hearing in the May, about May 14, where the bankruptcy court referred had a hearing and referred a key factual question in the case to a federal district court. And that was to determine whether BMI, Old Co, talc contained asbestos. That's a relative positive development for us because we've always maintained that BMI Old Co has always maintained that Vitalik was safe and free of asbestos.

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

And so there is a forum by which that can be determined. At the same time, we're still BMI is waiting for that kind of next steps in that hearing. And while we wait, we're waiting on that clarity. We're still working and hope that a consensual plan can be developed. We're working through we've always been open to a plan and we feel that the reserve is sufficient to that end.

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

But there's two steps here. One, through the district court and showing that our talc has been BMI's talc has been free of asbestos and then also working on developing a consensual plan. So, that's going to take some time. We're open to both avenues, but I can't give you a time frame when that will be concluded.

Pete Osterland
Pete Osterland
Equity Research Analyst at Truist Securities

That's very helpful. Thanks a lot Doug.

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

Yes.

Operator

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

Douglas Dietrich
Douglas Dietrich
Chairman & CEO at Minerals Technologies

Well, everyone, I really appreciate you joining the call today. Again, thank you for the questions. Hopefully, it was informative and we look forward to talking to you after the third quarter in October. All right. Take care till then.

Operator

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

Executives
    • Lydia Kopylova
      Lydia Kopylova
      VP - IR
    • Douglas Dietrich
      Douglas Dietrich
      Chairman & CEO
    • Erik Aldag
      Erik Aldag
      CFO & SVP - Finance & Treasury
    • D.J. Monagle
      D.J. Monagle
      Group President - Consumer & Specialties
    • Brett Argirakis
      Brett Argirakis
      Group President - Engineered Solutions
Analysts
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