Minerals Technologies Inc. (NYSE:MTX) Q1 2024 Earnings Call Transcript

Minerals Technologies Inc. (NYSE:MTX) Q1 2024 Earnings Call Transcript April 26, 2024

Minerals Technologies Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and welcome to the First Quarter 2024 Minerals Technologies Earnings Call. As a reminder, today’s call is being recorded. At this time, I’d like to turn the call over to Ms. Lydia Kopylova, Head of Investor Relations for Minerals Technologies. Please go ahead, Ms. Kopylova.

Lydia Kopylova: Thank you, Marie. Good morning, everyone and welcome to our first quarter 2024 earnings conference call. Today’s call will be led by Chairman and Chief Executive Officer, Doug Dietrich; and Chief Financial Officer, Erik Aldag. Following Doug and Erik’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. 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 an appendix of this presentation, which are posted on our website. Now I’ll turn it over to Doug. Doug?

Doug Dietrich: Thanks, Lydia. Good morning, everyone. Thanks for joining today. Okay, let’s go over a quick outline for today’s call. I’ll begin today’s presentation by reviewing the highlights from our first quarter. And as you saw in our press release, we posted a record quarter for MTI, and I’ll share the actions that drove our strong results. I’ll then take a few minutes to give you some insight into the current dynamics of our main markets and also highlight a few growth initiatives that will come into play over the next few quarters. Erik will then take you through the detailed financials and provide an outlook for the second quarter, and then we’ll open up the meeting to questions. With that, let’s get started.

We’re off to a strong start this year with several factors and initiatives that combined to deliver a record quarter. The resegmentation of the company last year, which organized our product lines around our core technologies and similar end markets, and which also streamlined our internal organizational structure, is driving higher levels of performance. Our strategy to move into higher-growth, higher margin markets, is also delivering. Sales in the Consumer & Specialties segment continue to grow, and our highest-margin products across the company are growing the fastest. The margin expansion initiatives are ahead of our target pace, and we continue to leverage savings from the reorganization, strengthen pricing and capture input cost savings.

Each business is executing well operationally, focusing on safety, variable cost control and productivity improvements. Combined, these initiatives led to an all-time record quarterly operating income and first quarter records for earnings per share and cash flow. Overall, we’re pleased with the performance and the strong momentum we’ve built. Let me take you through some of the highlights. Sales were $535 million, and adjusting for the deconsolidation of Barretts Minerals, were relatively flat compared to last year and up slightly from the fourth quarter. We continue to drive growth across the Consumer & Specialties segment, with sales up 4% over last year on an underlying basis. Sales in the Engineered Solutions segment were lower compared to last year, primarily driven by pockets of weak market conditions in the Environmental & Infrastructure product line.

Within Consumer & Specialties, the Household & Personal Care product line remained on its steady growth track, and sales increased by 7%. This was driven by continued strong demand for private label cat litter and increases across the board for renewable fuel filtration, animal health feed additives, personal care and fabric care products. I’ll go into a bit more detail on what’s driving this in a moment. Underlying sales in the Specialty Additives product line increased by 2%, driven by a rebound in demand from North America paper and packaging customers and also from strong sales of ground calcium carbonate products in our Western U.S. market. Within the Engineered Solutions segment, High-Temperature Technologies product line sales were similar to last year, with stable steel and foundry market conditions in our major geographies.

We experienced a few foundry customer maintenance outages in North America in January, but volumes rebounded quickly throughout the quarter, and demand remained solid. We also saw continued growth of foundry volumes in Asia. In the Environmental & Infrastructure product line, sales were lower than last year due to an uncharacteristically slow seasonal period for commercial construction. We were also involved in a couple of very large environmental remediation projects last year, adding to the comparative sales decline. As I mentioned, each business put up a solid operating performance this quarter. We maintained strong pricing, actively secured lower input costs, and remained focused on safe and efficient operations. The savings realized from our internal reorganization last year also contributed to increased profitability.

These actions, combined with the strong sales mix, yielded an operating margin of 14.5% and a record $77 million of operating income, a 23% increase over last year. Earnings per share were $1.49, a 31% increase over last year. Cash flow was also strong this quarter at $56 million. This quarter is a good example of the power of our new organization, our focused strategy and the strength of our business model. For the past few years, we’ve built a balanced portfolio of leading consumer and industrial businesses that provide stable long-term growth. We’re expanding margins through the innovation of higher-value products through operational excellence and fixed cost leverage. We’ve strengthened cash flow, increased returns to shareholders and maintained balance sheet strength and flexibility.

Overall, I’m pleased with the start to the year and the positive track we are on. As we head into the second quarter, I want to take a few minutes to give you a bit of color on the current market conditions for each product line and also highlight a few new products that are advancing over the next several quarters. It should give you a sense of the positive combination of market conditions and new business opportunities that we see driving strong results for the second quarter and into the back half of the year. As a general backdrop, the second and third quarters are typically our strongest due to seasonal strength in the residential, commercial construction and environmental remediation markets. We’re also seeing improvement on top of this regular seasonality in a few of our markets compared to last year, which I’ll point out as I move through the product lines.

Let’s start with Household & Personal Care. Markets served by this product line continue to be robust. We are the leading provider of private label cat litter, and global demand remains solid. Market for our personal care products has moved past last year’s destocking phase, and we’re seeing improvements in our order book. Innovation, driven by close collaboration with our customers in each of these markets, is paying dividends. And demand for our newest products in animal health, renewable fuel filtration and fabric care is growing. On the growth initiative side for this product line, we have several new innovations for pet litter and fabric care – for the fabric care market that are moving through development, and that will result in new sales in the coming quarters.

These products, focused on cat wellness and hygiene for pet litter and aesthetic and softening particles for laundry detergent are being commercialized this year. Additionally, the trend toward natural ingredients across the consumer product spectrum continues, and our core technologies applied to our mineral reserves uniquely positions us to benefit from this trend. We’re collaborating with customers to develop solutions like mineral-based absorptive additives for animal feed and ingredients like our natural delivery system for retinol in personal care. In Specialty Additives, general market conditions are relatively solid. Global paper and packaging markets remain stable, and we’re seeing improved PCC demand in North America compared to last year.

The residential construction market in North America is entering its normal seasonally strong period, and we’ve also seen market conditions gradually improve over the past couple of quarters. A few additional growth drivers for this product line. We’re benefiting from 3 new paper and packaging satellites that were commissioned last year, and we have 5 more satellites scheduled to start up this year and into early next. As a reminder, of these 8 new satellites, 5 are for standard PCC, 1 is for our NewYield recycling technology, and 2 are large ground calcium carbonate plants for white packaging, 1 of which also incorporates our NewYield technology. We continue to have a solid pipeline of opportunities across our product and technology platform, many of them aimed at the packaging market and for further deployment of our sustainable filler solutions.

All in all, we have a positive outlook for this product line for Q2 and into the back half of the year. In High-Temperature Technologies, we continue to experience steady global market demand for our engineered blends. Automotive, heavy truck and industrial casting production in our main geographies of North America and Asia remains stable. And at this point, we see demand conditions remaining relatively strong. A few areas to point out here. I’ve mentioned that process automation and data analytics have been areas where we’ve focused our innovation to provide higher value for our customers’ manufacturing processes. Our MINSCAN units for electric arc furnaces are a result of this development. These units enable the automated measurement of furnace conditions and the subsequent application of our more durable and higher-performing refractory blends.

Over the past 18 months, we’ve secured 15 new long-term contracts for these units and the supply of refractory products. This year, we’re installing 8 of these units, which will drive sales growth for this product line throughout the year. Our Environmental & Infrastructure product line currently faces pockets of mixed market conditions but also some very exciting long-term opportunities. We’re entering the strong season for environmental remediation projects, and there are signs that the commercial construction market is beginning to turn, given an increase in inquiries we are seeing from customers. We remain cautious that the market is actually hitting an inflection point. But once it does, we expect to benefit relatively quickly because our subsurface waterproofing and vapor barrier products are used toward the beginning of many construction projects.

One area to highlight for this product line, of which I’m sure many of you are aware, is that the EPA recently announced a national standard to limit PFAS and related chemicals in drinking water. This is a positive development, and it establishes a significant market for our FLUORO-SORB product. We’ve been trialing FLUORO-SORB for both drinking water and groundwater PFAS remediation for several years. Our solution is cost-effective and versatile in its deployment and explicitly targets PFAS and associated molecules. No doubt, this is a crucial regulatory step, and we expect it to further stimulate interest in FLUORO-SORB. It will take time for the drinking water PFAS market to fully develop and move from this initial regulation to be in full compliance by 2029.

FLUORO-SORB applicability extends beyond municipal drinking water and is equally effective for groundwater and wastewater remediation and sediment capping systems. We have plans to run more than 100 pilot trials throughout this year, mostly for municipal water, but also for several large groundwater remediation projects. We’re confident that many of these pilot trials will convert into stable revenue-generating opportunities. Over the long term, we see the remediation of PFAS from water around the world as a significant growth opportunity for MTI. To sum up, we’re seeing generally positive market conditions across the board as we head into the second quarter. Additionally, each of our product line – in each of our product lines, we have several initiatives, developed through our innovation pipeline and aligned with macro market trends that will continue our momentum and drive both near-term and long-term growth.

Lastly, I want to give a quick update on progress with Barretts Minerals Inc. As you may have seen, we entered into an agreement to sell BMI’s assets, which was approved by the Bankruptcy Court a few weeks ago. We are currently working through closing the transaction, which is slated for early next week. Proceeds from the sale will be used to repay the DIP financing that was put in place last year, as well as to fund the ongoing bankruptcy process. This is an important step in MTI’s exit from the talc business and represents forward progress in BMI’s Chapter 11 process. The sale not only delivers value and certainty for BMI’s various stakeholders, but it also enables MTI to move forward with a clear focus on our core long-term strategic objectives.

We’ll continue to keep you informed of additional progress, which we’re advancing as expeditiously as possible. Now, I’ll turn it over to Erik to review the financial details, segment highlights and our outlook for the second quarter. Erik?

Erik Aldag: Thanks, Doug, and good morning, everyone. I’ll start by providing a summary of our first quarter results, followed by a review of our segments, and then I’ll wrap up with our outlook for the second quarter. Following my remarks, we’ll turn the call over for questions. Now, let’s review our first quarter results. We had a very strong start to the year with several record-setting performances in the first quarter. First quarter sales were $535 million, up slightly versus the prior year on an underlying basis. Underlying sales in the Consumer & Specialties segment grew 4%, driven by volume growth across the segment. In the Engineered Solutions segment, sales were lower than the prior year, driven entirely by slow conditions for Environmental & Infrastructure projects.

The year-over-year sales growth for this product line was especially challenged, given the relatively strong start we had last year, including a few large remediation projects at Superfund sites in the U.S. I’ll note here that as we lap the Q1 comparison period, we expect MTI’s overall year-over-year sales growth to revert to the mid-single-digit range on an underlying basis. First quarter operating income was $77 million, up 23% from a year ago, driven by a 290 basis point improvement in operating margin. As you can see in the operating income bridge on this slide, the income and margin growth in Q1 came from 3 areas. First, volume and mix drove $2 million of income improvement and 60 basis points of margin improvement, driven by strong sales of higher-margin products, which resulted in a favorable mix impact.

I should also highlight that the prior year income in this bridge includes income from BMI. So the volume/mix contribution from the underlying business was greater than the $2 million shown in this bridge. Second, our disciplined pricing is helping to ensure that our margins reflect the value we provide to customers. Pricing overall contributed to $5 million of income and 100 basis points of margin improvement versus last year. Third, we realized a cost improvement of $7 million versus last year, or 130 basis points of margin, as our operations teams continue to drive productivity and variable conversion cost improvements at our facilities, and as the restructuring program we announced last year has reached full run rate savings. In addition, as input costs such as energy and freight have stabilized over the last few quarters, we have favorability versus the prior year Q1 when we were working through significantly higher cost inventory.

All of the above contributed to a gross margin of 25.4%, 330 basis points above last year, and EBITDA margin of 18.8%, 310 basis points above last year. In short, we are executing on the margin improvement strategy we outlined in our Investor Day last year, and there is plenty of opportunity for further margin improvement, particularly as we leverage incremental volume across our fixed cost base, as we continue to innovate and commercialize new products, and as we continue to grow the highest-margin products in the portfolio. Earnings per share was $1.49 excluding special items, up 31% from prior year and represented a record level for the first quarter. Cash flow was also strong with cash from operations of $56 million up 66% versus last year and also representing a record level for our first quarter.

Now, let’s review the segments, beginning with Consumer & Specialties. First quarter sales were $297 million, up 4% on an underlying basis from prior year. Sales in our Household & Personal Care product line were up 7%, driven by higher volumes across end markets. Demand for cat litter products remained strong, growing in the mid-single digits, and growth across the rest of this product line was around 10%. In Specialty Additives, underlying sales were up 2%. We’re seeing growth from our 3 new paper and packaging satellites in Asia. And in Europe, we were encouraged to see volumes improve sequentially and year-over-year, which helped offset the sales impact from formula-driven price changes. Meanwhile, demand for our residential construction applications has remained resilient.

Operating income was $42 million in the first quarter and operating margin improved by 330 basis points to 14.1% of sales. Improved volume and mix, disciplined pricing, favorable input costs, and a 6% productivity improvement drove a 30% year-over-year increase in operating income for this segment. Looking ahead to the second quarter, we expect demand for Household & Personal Care products to remain solid with continued year-over-year growth. In Specialty Additives, we expect higher sales sequentially in the seasonally stronger period for residential construction, and we’ll continue to see sales increases driven by our newest satellites ramping up in Asia, which will mostly offset typical second quarter customer maintenance outages in North America.

Altogether, we expect another strong quarter, with operating income up approximately 5% sequentially and up 30% year-over-year. Now, let’s review the Engineered Solutions segment. First quarter sales in the Engineered Solutions segment were $238 million, 5% lower than last year. Sales in our High-Temperature Technologies product line were 1% lower, as some of our foundry customers in North America took temporary maintenance outages early in the first quarter. Meanwhile, we saw continued improvement in foundry volume across Asia. In the Environmental & Infrastructure product line, sales were lower by 14%, driven by softness in commercial construction and environmental lining projects. As I mentioned, we also had a few large remediation projects in the prior Q1 that are affecting the comparison.

Despite the lower sales, segment operating income improved 9% to $38 million in the first quarter and operating margin improved by 200 basis points to 16.2% of sales. The margin improvement was driven by favorable product mix, disciplined pricing, cost control, and a solid operating performance that resulted in 11% productivity improvement versus last year. Looking ahead to the second quarter, we expect market conditions in steel and foundry to remain stable with a sequential improvement in Asia foundry due to the Lunar New Year holiday in the first quarter. We are also expecting higher sales to steel customers, driven by installations of our newest MINSCAN technologies at several EAF mills in the U.S. In Environmental & Infrastructure, we’ll see a sequential increase in sales as we enter the seasonally stronger period for environmental and commercial construction projects.

As Doug mentioned, we are seeing improvements in bid activity, but it is too early to say whether this market has hit an inflection point. Overall, we expect another strong performance from this segment in the second quarter with operating income up approximately 10% sequentially and up 10% year-over-year. Now, let’s turn to our balance sheet and cash flow highlights. We delivered record cash flow for a first quarter, generating $56 million of cash from operations and $39 million of free cash flow. CapEx totaled $17 million in the first quarter. Our full year outlook for free cash flow remains unchanged in the $140 million to $160 million range. We continued our balanced approach to capital deployments in the first quarter, using our free cash flow to pay down $13 million in debt and returning $18 million to shareholders, including $15 million of share repurchases and $3 million of dividends.

So far, we’ve completed $29 million of the $75 million share repurchase program and we are on track to complete the program by the end of the authorization in October. The balance sheet remains very strong. Total liquidity at the end of the first quarter was $536 million, and our net leverage ratio was 1.8x EBITDA. Now, I’ll summarize our outlook for the second quarter. We expect a strong performance for MTI in the second quarter. In Consumer & Specialties, we expect demand for consumer-oriented products to remain strong, and we are entering a seasonally stronger period for residential construction. We will also benefit from the continued ramp-up of our new paper and packaging satellites. In Engineered Solutions, we expect sequential and year-over-year growth from High-Temperature Technologies.

We also expect a seasonal uptick in Environmental & Infrastructure activity, with sales for this product line returning to a similar level to last year. In total for MTI for the second quarter, we expect year-over-year underlying sales growth between 3% and 5%, operating income between $80 million and $85 million, and earnings per share between $1.55 and $1.65, representing another strong quarter for the company. Now, I’ll turn the call over for questions.

See also 40 Perfumes Celebrities Actually Wear (but aren’t paid to) and 20 Biggest Oil Producing Countries in Asia.

Q&A Session

Operator: Thank you. [Operator Instructions] We will take our first question from Daniel Moore with CJS Securities.

Daniel Moore: Thank you, Doug and Erik, thanks for the color. Appreciate taking the questions.

Doug Dietrich: Hi, Daniel.

Daniel Moore: Start with Consumer & Specialties. Obviously, on this call and the last several calls, you’ve laid out a lot of the new formulations and emerging opportunities from edible oils, animal feed, alternative milks, retinol, etcetera. How do we think about – I guess, where are you seeing the most pull or the most penetration near-term? And how do we think about sizing those opportunities? And a follow-up on the PFAS emerging opportunity as well, if you don’t mind.

Doug Dietrich: Sure. Maybe I’ll kick it off, and then I’ll hand it to D.J. Monagle to give some more color. We’re seeing growth across that product line. In Consumer & Specialties, let’s talk mostly about the Household & Personal Care product line. Our pet care business continued to grow, I think, 4% this past quarter. We’re seeing that continue quarter-over-quarter. We’re seeing – our specialties business grew 10%, I believe, this quarter. And that came from animal health growth, renewable fuels, fabric care. So it’s been really across the board, Dan. And I think that’s the pace that we outlined in our Investor Day that this Household & Personal Care business should grow in that 7% to 10% range kind of compound year-over-year.

So it’s acting and doing what we thought it would do. We’re also – I wanted to highlight a couple of trends that we’re following and we’re participating in like natural additives, and our innovation pipeline is in tune with that. So I think not only are the markets growing, but we have innovations behind it with new products that will continue to feed that type of growth rate. I don’t know, D.J., if you want to give some more – any particular things in pet care or fabric care?

D.J. Monagle: Yes. So Dan, it’s tough to zero in on any one thing because it has been across the board. There are several exciting things going on that Doug had kind of mentioned and alluded to during the future statements. Sticking with the Household & Personal Care side, I think that the strategy of that pet litter business is starting to pay off. They’ve gotten well aligned with their private label customers, in particular, working with them, and as they understand their brand strategies, that private label strategy, they enhance and bring forward some innovations that help with pet ownership. And so, those are things as simple as packaging, but then expand further and improve performance of the pet litter, which goes anything for lower dusting, more aesthetically pleasing.

And then, the recent additions are things that will help cat owners train their cats better and get them more associated with the litter box. You go to household, personal and the consumer specialties group, we are doing very well with the pull that’s coming from renewable fuels. We see our relationship with key customers strengthening, especially in Europe. And the macro trend supporting that growth is very strong. And then, in a little different shift, if we go to the Specialty Additives business, Doug pointed out the great progress that we’re seeing with the new satellites. And now, this is working on our crystal engineering competency. But these new satellites and new products are kicking in, and we’ve got several more that will be coming on throughout the year.

And the pipeline for that remains very robust. And then applying that same core competency of crystal engineering, we do see further growth coming from advanced sealants in the construction and automotives industry. Some pull also from the food industry. You alluded to the non-dairy milks. That continues to be an area of interest for us, and we can add to that whole category. And there are also some new markets that we’re starting to get exposed to as people explore alternatives and as we branch out further and stretching that core competency. So, I know I gave you a lot, but it really is across the board, but also perfectly in-line with what we had laid out in the Investor Day.

Doug Dietrich: Does that help, Dan?

Daniel Moore: Very helpful. Yes, it certainly does. And appreciate the color, Doug, on PFAS, and certainly happy to see the EPA decision. Any more color you can provide in terms of how you think about the scope of the opportunity, not in ‘24, ‘25, but 5 years and beyond? And then, any update as far as kind of potential EPA approval for FLUORO-SORB as a key player in that market?

Doug Dietrich: I’ll tell you what, why don’t we do two things. One, I’ll pass it to Brett Argirakis to give you kind of what we’re working on, what’s happening here in the near-term, what’s going on with regulation. And maybe I’ll talk a little bit about the longer-term after that. Brett, you want to go?

Brett Argirakis: Yes, sure. Thanks, Doug. Thanks, Dan. Look, let me just recap the regulation quickly, and then I’ll give you some update on our activity. First of all, the new regulation, as you know, was passed last week. It’ll be in full effect in 5 years from the promulgation date. So that will bring us the regulation to end at April of 2029. That allows for capital – any capital to be put in place in time to meet the regulations on a parts per trillion basis. Although this regulation is for drinking water, we do expect additional regulations to come out over the next few years that really can provide us even more opportunities throughout our verticals. So let me give you a little update on the activity. We have had a lot of activity already to date before the regulation came out.

They have – the regulations have accelerated discussions, both on a federal and state agency level, for evaluations to – of alternative options from the current options. We have been and continue to collaborate closely with the EPA, local agencies and municipalities as well for the use of our FLUORO-SORB to remove PFAS in drinking water. But our ultimate goal really is to prove FLUORO-SORB is one of the best available technologies for eliminating the PFAS. These agencies are all fully aware of our products and our activity. We will continue to work very closely with them. And so, right now, our FLUORO-SORB technology is currently treating drinking water in three full-scale implementations in the Northeast. We have one additional full-scale implementation coming on this month.

And as Doug mentioned in his speech, we are piloting several trials now and expect to implement probably over 100 pilot trials this year, mainly on municipal water. The majority of those are going to be in North America, but we do have a few of those in Europe. But outside of drinking water, we do continue to pursue and implement global in-situ remediation projects to control PFAS at the source. Some examples might be like pump and treat applications for groundwater sites, reactive core mats for stormwater conveyance and sediment capping, as well as other soil stabilization projects. Really, based on the test results and feedback we’re getting, we’re really confident in the FLUORO-SORB, feel good about it that the benefits will generate additional revenue and continued interest moving forward.

But just to be a little cautious, it’s going to take some time to test and prove our product to support the new regulation. But we do expect to continue to generate activity moving forward over the next few years.

Doug Dietrich: Dan, I’ll just add the long-term. As I mentioned in my remarks, I think this is a big growth opportunity for the company for that product. Brett just mentioned, municipal water is one area, and that will develop over the next 4 or 5 years, and we’ve got a great position and a great product to be able to participate in that market. But longer-term, as we get into broader cleanup, as I mentioned, our product is equally as effective there. And we’ve been doing some cleanup projects. We think that could be even a bigger market for sure than the municipal water market. But now – and so, providing us long-term sales. This is something that’s going to – we’re going to benefit from for a long time. But right now, I just want to keep us focused.

We’re working on making sure that this is best-in-class technology. We’re working through those hurdles. We’re trialing it. Like I said, 100 trials. We’re working closely with agencies. So we’re in a good spot. But yes, this is a big near-term opportunity and a nice long-term opportunity for the company.

Daniel Moore: Perfect. Last one for me. I’ll jump out. You already hit your 14% EBIT margin target this quarter. Implication is to do a little bit better than that in Q2. And you mentioned Q2 and Q3, typically seasonally stronger periods. So it sounds like you expect that typical seasonality to hold this year. And if so, I’m not asking you to update it, but that kind of 14% exit rate looks conservative at this point. Is your eye still just getting to that 15%? And if we get there quicker, great. Or how do we kind of think about where we go from here?

Erik Aldag: Yes. Thanks, Dan. This is Erik. So you’re right, 14.5% in the first quarter is a great place to start. Right now, we’re assuming we can maintain that level at least going forward this year. And we do, as you said, typically expect a lift in the second and third quarters, so it should be above 14.5%, all else equal. So we’re feeling pretty good about the margin trajectory. We’re watching energy rates. We’ll be managing things tightly if we do see an uptick over the summer in terms of energy rates, but that sequential volume improvement over the middle two quarters should go a long way to helping out the margins as we go through the year. So I guess, you mentioned 15%. If we were going to do 15% in a year, 14.5% in the first quarter is not a bad place to start.

So I guess, it’s early in the year, but as long as we see no major changes in macro or input costs, yes, we can do 15% this year. It would help if we got some help from the commercial construction markets, for sure, but we’re feeling pretty good about the margin trajectory right now.

Daniel Moore: Very helpful. Appreciate the color. Congrats on the strong performance. And I will turn it back to queue with any follow-ups. Thanks.

Doug Dietrich: Thanks, Dan.

Operator: We will take our next question from Mike Harrison with Seaport Research Partners.

Mike Harrison: Hi, good morning. Congrats on the strong start to the year. I was hoping that maybe we could dig in a little bit – I’m kind of curious, you just commented a little bit on the margin performance, and it sounds like you believe a lot of that is sustainable for the rest of the year. But I wanted to dig in a little bit on – in both segments, you called out some productivity improvements. I believe you said 6% year-over-year productivity gain in the Consumer segment and 11% in the Engineered Solutions segment. Can you maybe help us understand kind of what’s baked into that improving productivity number? That’s kind of – those are kind of specific numbers. And I’m just curious kind of what metrics are you using? And can you maybe help us understand how you expect those productivity gains to evolve in both segments in the next several quarters?

Doug Dietrich: Yes. Thanks, Mike. Thanks for the question. Maybe I’ll start and pass it over to Erik. Productivity is something we measure every month. We set productivity targets, where – it’s a key indicator of efficiencies, and it’s part of our operational excellence. It’s a metric that we watch through our OE processes. We’re constantly looking at removing waste from operating processes, from business processes, you name it. We measure it from a productivity standpoint. And so, we – Kaizen events that are working with teams to redraw processes, remove waste, lock in new standards. We’re moving – this is something that’s just inherent in the company and part of our culture. So, this year, I think it was 6% and 11% in the two segments. Erik, is that where it was?

Erik Aldag: That’s right, yes. And that’s – Mike, that’s measured on a tons per hour worked basis. So that’s the metric that we’re looking at.

Doug Dietrich: And going forward, Erik? Do you want to give him a forecast what’s baked in?

Erik Aldag: Yes. We expect continued – I mean, part of the – we did exceed the guidance that we gave in the first quarter, Mike. A big part of that was the strong operational performance that we had. Our teams are working really well to improve productivities, improve variable conversion cost per tons. At the facilities, this is something like Doug said, we measure and track and manage very closely at the operational level. So we’re expecting those productivity improvements to continue through the year. That’s something that’s embedded into the margin profile of the company. So, hope that helps.

Mike Harrison: Yes, very helpful. And then, I guess, maybe just to kind of follow-up on that, you have in your slides here, a cost number, and it looks like that cost contributed 130 basis points of year-over-year improvement. I’m assuming that part of that cost improvement is in these productivity numbers and metrics that you’re talking about. But part of it’s also related to just input costs. And it sounds like some of your input costs were favorable year-on-year. So maybe just give us a little bit more detail on what you’re seeing in terms of input costs and energy costs as we’re looking out into Q2 and Q3.