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WIKI ANALYSIS
Company Overview
Calgon Carbon Corporation (NYSE: CCC) provides services, products, and solutions for purifying water, air, food, beverage, and industrial process streams in the United States and internationally. The company operates through three segments: Activated Carbon and Service, Equipment, and Consumer. [1]
Company History
When the United States entered World War II, gas masks were a neccessity for ground troops fighting across seas. Coconut shells were the raw material that were used to produce the granular activated carbon which is used as the filtering agent in the gas masks. Due to a large shortage of the crucial war material, the U.S. government asked Pittsburgh Coke and Chemical to develop a substitute from a native material. In 1942, a discovery was made that produced an activated product using bituminous coal. This product began the firm now known as Calgon Carbon Corporation.
The company now offers carbon technologies used in over 700 markets that include purifying air and drinking water to separating gas and removing mercury emissions from coal-powered electrical facilities.
For a complete timeline provided by the company, click here. [2]
Business and Financial Metrics
The table above shows many metrics for CCC from the last three years. Over the last three years CCC has had an increase in revenues, debt, and total stockholder's equity. CCC's operating income has declined over the last three years.
Contents |
CCC posted revenues of $482.3MM in FY10 which is an increase of $70.4MM from FY09. Their overall revenue is comparitively small to the major competitors in the industry as others have a revenue stream in the billions. Despite its growing revenue as well, the company underperformed compared to the industry average of 24.8%. The growth in revenue also does not appear to be reaching the company's bottom line as indicated by a decline in CCC's earnings per share. CCC does have promising new revenue streams with opportunities for growth in areas such as mercury removal, disinfection byproducts, UV disinfection and ballast water treatment. CCC's unusual growth in debt is due to its recent acquisition of former joint venture Calgon Carbon Japan KK (CCJ) and Mitsubishi Chemical Corporation. CCJ's currently employs 54 people and its sales reached $67.8MM. No damages from the earthquake to the facilities were detected and although there has been a slightly adverse impact on sales in March. The acquisition should prove profitable in the long run as CCC attempts to further its market share in Asian industries.
Financial Performance
Net operating cash flow has significantly decreased by 73% ($8 million) in the last year. The firms growth rate continues to be much smaller than the industry average.
CCC's debt-to-equity ratio is very low at 0.08 and is currently below the industry average. This implies that there has been successful management of debt levels. Along with a favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.23 that showcases CCC's ability to avoid short-term cash problems.
The graph above shows the inventory turnover, cash conversion cycle, and the collection ratio for CCC over the last five year. The collection ratio and cash conversion cycle have stayed constant over the last five years, where the inventory turnover has started off low, went up dramatically then fell again. This may be due to a cyclical demand in raw materials. In any case, a volatile inventory turnover such as this is not desirable.
The graph above shows the equity turnover, net profit margin, and ROE for CCC over the last five year. CCC has had a gradual increase and then fall for their net profit margin and ROE for the last five years. Their current net profit ratio of 9.50% is above the industry average despite a decreasing and less than desirable gross profit margin of 33%. Their equity turnover however has been on a steady decrease.
Business Segments and Product Portfolio
Markets
Clearly drinking water is CCC's largest market and revenue source. It continues to increase its market share as it only had 23% of the market in 2009. Wastewater was previously its biggest market share at 19% in 2009 until it dipped slightly this year. Air pollution has taken its place increasing from 15% to 2009 to 19% this year. An increase in the Air Pollution market is a positive sign as tighter restrictions on businesses world-wide will only enforce a strong and profitable opportunity for CCC. The demand for green products and issues such as world-wide water quality and scarcity coinciding with a rising world population are promising indicators for the markets to expand drastically in the future.
Supply Chain Management
Global executive managing multi-facility operations improve operating Income, reducing inventories, improving service levels, ensuring supplier quality and performance. Extensive international experience in sourcing, new product development, logistics, contract manufacturing, joint venturing, acquisition due diligence and integration. Recognized agent of change leading transformations to global Lean Manufacturing, expanding purchasing principles to indirect spend, changing traditional buyer / supplier relationships to mutual resource sharing partnerships and implementing ERP systems (Oracle/SAP). Proven cost reducing results utilizing VA/VE, kaizen, six sigma tools. Particularly skillful in selecting staff and developing people to their best abilities. Interested in helping companies in developing international sourcing, implementing practical and results orientated cost savings projects, evaluating staff and suppliers and working on specific sourcing problems. [4]
Products
| Products | ||||
|---|---|---|---|---|
| Carbon/Services | *Granular, Powder, Pellets | *Coal, Coconut, Wood-based | *Reactivation | *On-site Service |
| Equipment Technologies | *Carbon Adsorption | *Odor Control | *Ultraviolet and Ballast Water Treatment | *Ion Exchange |
| Consumer | *Carbon Cloth | *PreZerve |
The graph above shows the revenues that CCC accrues through the three categories of their business: Carbon Services, Equipment Technologies, and Consumer Products. Looking at the graph it is obvious that the main source of revenue for CCC is their Carbon Services segment. With Equipment Technologies and Consumer Products producing miniscule revenues compared to Carbon Services.
Most of Calgon Carbon Corporations revenues comes form its activated carbon and services segment with almost 90% of revenues coming from this segment in the past three years. This graph also shows that Calgon Carbon Corp. has been very consistent and have been able to achieve continuos revenues over the last three years in each segment. It is a very positive graph in that they continue to make steady revenue in each segment of their business indeavors. [5]
An obvious question mark is, however, the large disparity in its customer products. According to the BCG matrix, this business unit may be considered a dog as it has proven a low market share as well as a low growth rate. The question is if continued experience can increase their market share to generate more serious cash or if the business unit will continue to be a cash trap.
Activated Carbon and Services
Consists of the sale of activated carbon which is used to remove organic compounds from liquids and gases by a process known as adsorption. The unwanted organic molecules in a liquid or gas are attracted and bounded to the surface of the activated carbon as the liquid or gas is passed through. The raw material used is bitumulous coal which is heated through a process called activation to develop the pore structure of the carbon. The services Calgon Carbon offer at customer facilities include carbon supply, equipment leasing, installation and demobilization, transportation, and spent carbon reactivation. Other services include feasibility testing, process design, performance monitoring, and major maintenance of Company-owned equipment. The central component of the Company’s service business is reactivation of spent carbon and re-supply. [5]
Equipment
Calgon Carbon has also developed systems and equipment for treating groundwater. In 1998, their scientists invented a UV disinfection process. The UV light alters the DNA of pathogens and renders them harmless to humans. The Hyde Guardian system is used by maritime vessels and is used to flush the ships ballast system. It is chemical free and has a low operating cost while being efficient. [5]
Consumer
The consumer segment consists of selling carbon cloth to medical, military and specialty markets. Carbon cloth was first developed to protect users from biological, nuclear, and chemical agents. But other applications include wound dressing, artifact conservation and respiratory masks. [5]
Porter's 5 Forces
Threat of New Entrants
Low: The industries that CCC operates in require a large amount of capitol as well as advanced technology. Many existing companies own patents on their current technology as there has already been many court battles between companies and competing technology. For a company to enter the market having developed new technology is time consuming, expensive and therefore unlikely. However, the fact that world enerygy consumption is increasing as is the demand for quality environmental control, companies may be enticed to go after some of the profits as the market expands in the future.
Rivalry Among Competitors
Medium/High: Companies are able to maintain a competitive advantage with innovation due to the large amount of technology that goes into the products and services. Obtaining that competitive advantage is key. Economies of scale can play a huge role in success as well as the market can also be price sensitive. Due to the fact that the cost of raw materials can sometimes be volatile, a company must plan ahead in order to remain efficient as extra expenses can only be made up by passing the burden to their customer. CCC is able to stay competitive even against its bigger rival by offering technology that is much more economically viable. For example, its technology based carbon reactivation product (GAC) that recycles waste to a usable product is much cheaper to businesses than virgin carbon. CCC's customers also enjoy a security of supply as CCC is the current market leader of carbon at 160MM lbs. CCC also offers a full service operations such as supply GAC, reactivate spent GAC, supply reactivated GAC and virgin GAC make-up.
Threat of Substitutes
Medium: The substitutes for activated carbon water purification are distillation and reverse osmosis. Distillation is the most effective method but it requires electricity to heat the water and is the slowest method of treating. Reverse osmosis is effective againest inorganic contaminents but still requires activated carbon to reduce organic materials. It requires water pressure and usually wastes more water than it treats. Using activated carbon requires no electricity or water pressure and therefore is the least expensive. Although inexpensive, it is not very effective againest inorganic compounds like salt.
Buyer Power
Medium: Both services and products are often entered through long-term contracts that are pricey to elminate and also supplies CCC with a predicatable earning stream. As well, with more and more pressure in both the United States and countries around the globe to emit less and less green house gasses and other pollutants, the demand for CCC products and services are only expected to grow. These government mandates help lower buyer power and ensure profits. However, in markets such as water purification there are many companies to compete with. Many of these companies are smaller so a company like CCC can maintain a competitive advantage with lower prices due to economies of scale.
Supplier Power
Medium: Calgon Carbon supply of bitumulous coal comes from mines in the Appalacian Mountains as well as other mines outside the United States. Coal is purchased through long term agreements. Coal is very abundent and is found on every continent in the world. The United States has the largest proven coal reserves. Coal producers are eager for a steady demand so the large quantity that CCC purchases allows them to control their supplier much easier. CCC's markets do not fluctuate as steel markets do. Other than coal, natural gas and pitch are also purchased through annual and multi-year contracts.
Marketing Strategies
Product
Information in section above.
Promotion & Place
Calgon Carbon does not directly advertise but they hold free technical seminars on the products that they offer. These are meant to educate government officials about the products that they offer, in the hopes of securing sales. They hold about 10 of these a year, with one in each major reagion of the United States.
The stops on this year's tour include:
Birmingham, AL – Thursday, May 5
Toledo, OH – Thursday, May 12
Denver, CO – Thursday, June 23
Las Vegas, NV – Tuesday, August 30
Vancouver, BC – Wednesday, August 31
Raleigh, NC – Thursday, September 15
St. Louis, MO – Tuesday, October 11
Ottawa, ON – Thursday, November 3
Dallas, TX – Thursday, December 15
Price
There has been a growing demand for their products, as well as market acceptance of price increases that they implemented earlier this year. In October, the Department of Commerce imposed preliminary tariffs on steam-activated carbon imports from China. As a result, CCC instituted price increases on activated carbon products worldwide. Net sales less the cost of products sold as a percentage of net sales for the third quarter of 2006 was 26.1%, versus 25.5% for the third quarter of 2005. The increase was due to higher pricing and volume on certain carbon and service products. This was partially offset by higher product costs, particularly on outsourced products.
SWOT Analysis
Strengths
CCC currently enjoys an economies of scale to its smaller competitors allowing for cheaper prices. Because of the sheer mass of raw materials that they purchase, they are able to purchase these materials at a cheaper price and pass these savings on to the consumer. As well, since CCC is one of the most experienced companies in the market, they enjoy the benefit of having cutting edge technology and an advance research program that allows them to be the first to the market with new technologies to capitalize on future trends. CCC's major markets such as drinking water, wastewater and air pollution enjoy other driving strengths as well. Saftey concerns keep much of CCC's products and services in demand as well as tighter and tighter government regulations on pollutants. Water scarcity also helps drive their market as clean water becomes more and more in demand.
Weaknesses
The most obvious weaknesses for CCC are some of their financial metrics. Compared with their competitors they are not even close in revenue, growth, EPS, and many other metrics. This could be due to the fact that they are a much smaller company, having a substantially smaller amount of employees. Also, a reason can be their small amount of market share, which could be a major reason for their inferiority to its competitors.
Opportunities
An opportunity CCC faces is with its water purifcation market. Standard water treatment causes disinfection byproducts (DBPs). DBPs form when disinfectants used to treat drinking water reat with naturally occuring materials in the water such as decomposing plant material. Health risks that are caused from DBPs include various forms of cancer, spontaneous abortion, birth defects and growth delay. Government mandates are requiring businesses to comply with new standards so that DBPs effect less citizens.
| DBP Compliance Schedule | ||
|---|---|---|
| Type | Population Served by Water Treatment Facility | Date of Compliance |
| Schedule 1 | ≥ 100,000 | January 2013 |
| Schedule 2 | 50,000-99,000 | July 2013 |
| Schedule 3 | 10,000-49,999 | July 2014 |
| Schedule 4 | < 10,000 | July 2015 |
CCC has alternative options to comply with these restrictions such as purifying water systems with Chloramines or Chlorine Dioxide. CCC's GAC technology is a proven solution to prevent or eliminate DBPs. The market size for growth is estimated at 100+MM lbs per year after 2015. CCC is already the market leader in DBP elimination as they currently have $35MM in contracts already. Also, a finalized strategic plan for Hyde Marine’s ballast water treatment systems, designed to take full advantage of potentially enormous market opportunities. Since its acquisition, Hyde Marine has obtained orders for 80 systems, including a contract valued at $19.8 million for ten systems to be installed in five new ships being built in South Korea.
Threats
The main threats facing CCC are those of which coming directly from its main competitors. This is an innovative market driven industry so competitors who invest heavily in R&D may produce new technology that CCC cannot compete with financially or technologically. As well, the threat of mid-sized companies merging with other mid-sized companies or its largest competitors buying out other small companies to increase their market share and increase profitability poses a threat as the industry becomes more and more competitive. Other factors that could affect future performance are higher energy and raw material costs, costs of imports and tariffs, capital and environmental requirements, changes in foriegn currency rates, borrowing restrictions, validity of patents and intellectual property rights.
Industry and Competition
Calgon Carbon Corporation, along with its various competitors, compete in the Pollution & Treatment Controls industry.
The table below portrays various factors that are important not only to CCC, but their competitors like MeadWestvaco Corporation, Donaldson Company Inc., Pall Corporation and the industry that they compete in. [6]
| MeadWestvaco Corporation | Calgon Carbon Corporation | Donaldson Company Inc. | Pall Corporation | Industry Averages | |
|---|---|---|---|---|---|
| Market Cap | 5.44 Billion | 993.77 Million | 4.65 Billion | 6.77 Billion | 27.97 Million |
| Employees | 17,500 | 1200 | 12,300 | 10,400 | 129 |
| Quarterly Revenue Growth | 18.7% | 4.7% | 23.3% | 15.1% | 12.2% |
| Revenue | 5.69 Billion | 482.34 Million | 2.09 Billion | 2.55 Billion | 24.3 Million |
| Gross Margin | 22.06% | 34.30% | 35.72% | 50.79% | 37.72% |
| Net Income | 262 Million | 34.85 Million | 198.34 Million | 271.72 Million | N/A |
| EPS | 0.62 | 0.61 | 2.51 | 2.30 | N/A |
In looking at the table above, it is easy to see that Calgon Carbon Corporation is inferior to all of its competitors. The competitors outperform CCC in multiple categories, of which include: market cap, revenue, net income, quarterly growth, employees, and EPS. On a higher note CCC has an advantage over MeadWestvaco in the area of gross margin. Compared to the industry averages, CCC is doing reasonably well. CCC has a higher market cap, revenue, and employees. However, they are still lagging behind in quarterly growth and gross margin. The conclusion that CCC is a small and inferior to its competitors is evident in the table above.
Competittors
Donaldson Company, Inc. The company is a vertically integrated filtration company engaged in the production and marketing of products to improve air quality and performance efficiency. The products they offer are used in the commercial and industry sector. This includes engines, exhuasts, hydralics, pipeplanes and in the aerospace industry.They play a key role in the alternative energy and pharmaceutical industries by providing self cleaning, temperature balancing air systems in rotating devices involved in energy production.
MeadWestvaco Corporation: MeadWestvaco Corporation is a manufacturer of speacialty chemicals, speciality papers, and consumer and office products. Its specialty chemicals segment manufactures, markets, and distributes specialty chemicals derived from sawdust and other byproducts of the papermaking process. Its products include activated carbon used in emission control systems for automobiles and trucks, as well as for water and food purification applications, and performance chemicals used in printing inks, asphalt paving, adhesives, and lubricants for the agricultural, paper, and petroleum industries.
Pall Corporation Pall Corp. manufactures and markets filtration, purification, and separation products and integrated systems solutions worldwide. It consists of two segments, Life Science and Industrial. The Life Science segment provides medical products that enhance safety for use of blood products in the medical field. This segment also provides water filtration and purification systems. The filtration is used in the beverage and food market. The industrial segment provides filtration and purification in the aerospace, semiconductor, and contamination control solutions of chemicals, gas and water.
Key Personnel and Compensation [7]
John S. Stanik: (57) Chairman, President and CEO, Fiscal year compensation of $1,429,850.
C. H. S. (Kees) Majoor: (61) Executive Vice President, Europe and Asia, prior thereto, he was Senior Vice President—Europe of the Company. Fiscal year compensation of $678,032.
Robert P. O'Brien: (60) Executive Vice President, Americas, prior thereto, he was Senior Vice President of the Company responsible for Global Business Development and the Ultraviolet Light Technology Business Unit. Fiscal year compensation of $647,516.
Gail A. Gerono: (59) Vice President, Investor Relations, Communications and Human Resources, prior experience not available. Fiscal year compensation of $N/A.
Stevan R. Schott: (48) Vice President, Chief Financial Officer, prior thereto, Mr. Schott was Vice President of Finance of DQE, Inc. Fiscal year compensation of $308,055.
Richard D. Rose: (49) Senior Vice President, General Counsel and Secretary, prior thereto, Mr. Rose was a shareholder with the law firm of Buchanan Ingersoll & Rooney PC, a firm which does some legal work for the Company. Fiscal year compensation of $484,588.
James A. Sullivan: (47) Vice President, Americas Operations, prior thereto, he was the General Manager of the UV Technologies division of the Company. Fiscal year compensation of $386,535.
Noteworthy News [1]
March 31, 2011: Acquisition of Calgon Carbon Japan KK (CCJ), the former joint venture between Calgon Carbon Corporation (Calgon Carbon) and Mitsubishi Chemical Corporation (MCC). Calgon Carbon Corporation increased their ownership in the venture from 49% to 80% through redemption of Mitsubishi Chemical Corporation shares. The final 20% was acquired without additional cash through negotiations on certain claims.
April 26, 2011: Calgon Carbon Announces 2011 Municipal Drinking Water Seminar Schedule.
April 8, 2011: Six Clean Energy Stocks Being Snapped Up by Insiders.
April 4, 2011: CALGON CARBON CORPORATION Files SEC form 8-K, Entry into a Material Definitive Agreement, Financial Statements and Ex.
References
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