Thanks for coming. Up now we have Minerals Technologies. With us is Doug Dietrich, the CEO and Chairman. He's gonna have a presentation, but afterwards, there should be time for questions. So please feel free. With that, I'll turn it over to you, Doug.
Clicker's here.
Clicker's right there.
Thank you, Dan. Afternoon, thanks for joining this afternoon's presentation. Let me just quickly take you through an overview of the company, bit of the strategic objectives that we have, and some financial targets that we've laid out for the company over the next five years. First, just a quick forward-looking statement, so I'll talk about some cautionary remarks here. You can find them in our 10-Q, 10-K as well. Ask you to take a look at that. Okay, so who is Minerals Technologies? We are a global specialty minerals company. Around $2.1 billion in sales, 4,000 employees. We operate in 32 different countries, a very global company that is based on technology.
We have 12 research and development centers around the world that develop new applications, new technologies that apply to our minerals. We're pretty much an essential part of just about your everyday lives, and you can see some of those applications. From the time you wake up, your toothpaste, some of the additives in your toothpaste to all of the, the cast, and gray and ductile iron castings in your car to the cat that you may own. The cat litter, we're the largest private label cat litter provider. It's bentonite clay. To the tunnel you drive through, the bridge, infrastructure projects, large waterproofing projects, all of these things are technology or applications that we've created technologies for.
The thing about MTI, however, with our global footprint and these technologies that apply to your everyday life, is that we're also vertically integrated in the minerals reserves. And so we are the largest global bentonite, which is a very versatile clay, around the world, sodium bentonite provider in the world, calcium carbonate and other minerals. So we're vertically integrated, but we take those reserves, those deep reserves, and we apply our technologies and apply them to a number of different applications that I'm gonna take you through. We report in two main segments, both about 50% of the company in terms of revenue size. The first one being Consumer & Specialties.
These are all of the products that are either mined to what we call our Mine- to-M arket, so mineral to market, or they're a constituent part of something you consume. Like I said, they are in, they are your cat litter that's being consumed. It is in an anti-aging cream or a cosmetic product or Household & Personal Care, we call this. It could be your laundry detergent. We make surfactant granules that go into your laundry detergent. In the Specialty Additives, again, something you may consume. These are, these are additives for, for toothpaste or for other pharmaceuticals. They're the paints and coatings additives that allow, the, the color-specific, characteristics of that paint or a sealant in construction, or they're in your paper or the box that's delivered to you from Amazon.
On the other side is the Engineered Solutions. These are not products you actually consume. These are products that we create that help our customers make those products. So for example, in one product line, the High Temperature Technologies, we use a technology called Engineered Blends to create constituent or components, blended components that help steelmakers make steel or foundry make a cast part. Or environmental infrastructure. We're into lining systems for landfill lining or environmental remediation, wastewater cleanup, drilling products, or commercial waterproofing. Again, bentonite is used because of it's an active waterproofing agent, so we do a lot of sub-grade waterproofing. So on the engineering solutions side, we're helping our customers make things more efficiently, more cost-effectively. And in the Consumer & Specialties side, these are things you're actually consuming that we make.
So we take these four core technologies. I didn't run through them. The first one at the top, that's in our Specialty Additives. Those are Crystal Engineering, we have Functional Additives, we have Surface Modification, and we have Engineered Blends. And those four core technologies are lined with those four product lines I just showed you, but they're core to the company. They're deep in terms of how we apply them, and they apply to all of the minerals that we have, and they add some beneficial attributes to things like lightweighting and CO2 sequestration. Our limestone that we use or that we mine goes into calcium fortification, so non-dairy milk, or even yogurts and things like that, that may not be dairy, that need calcium fortification. We apply that.
We're actually the M on the M&M's. We're the white on the M&M's, so something like that. That's the applications that are in some of the Specialty Additives. But also in, in other attributes of strength and absorption, rheology modification, this is allowing something to come out like a, an automotive sealant through in a robotic application. It's comes out very quickly, but then it sets, and so it allows for the higher levels of productivity and also performance of that sealant application for both construction and automotive sealants. And a number of different-- Also into water and, and fluid filtration. I'll talk a little bit, some of our growth projects in terms of PFAS remediation and wastewater remediation as well. It's led to a number of leading market positions.
I won't go through them all, but, because of our deep reserves and because of the technologies, we have leading and number one positions around the world, in many of the markets we serve. So, a couple of major objectives and strategic objectives for the priorities for the company. And the first one is innovation. We, again, technology-forward company, innovation is at the center of everything we do around those four core technologies and their applications. We've been accelerating product development over the past five or six years. You can see some of the statistics. 15% of our total, our 2022 sales were generated from new products. 85% of the products, that we develop, we develop directly with our customers.
It's not just our idea, it's something that they're pulling from us, and so that leads to a higher level of sales. We had about a $200 million increase in sales from new products over the last 16 years. We set some objectives for ourselves to double the sales and cut the time to market in half, and we've achieved that, and we're gonna, we're gonna continue on that trend forward with innovation being the core of one of our core growth objectives. We're also built the company, as I mentioned, we have a pet litter business that started as a $75 million business. We looked at that. We're vertically integrated. We're supplying most of the major branded customers with their clay.
We had a private label, small private label business, looked at the market and said, "That's something that is high growth, higher margin," and so we acquired ourselves into it. It's now a $400 million business. It's the largest business we have in the company, and so we've built that over the past five years. Why did we do that? Historically, the company has been more industrial focused, more cyclical, lower growth. What we've done is we've through acquisition and some targeted investments in higher margin, consumer-oriented products, have built that Consumer & Specialties business, a lot, a large part of it, which has given the company a very stable through the cycle growth trajectory.
I'm gonna take you through some of those statistics in a moment, and what the financial metrics that we're targeting and that will lead us to over the next five years. But one thing I don't wanna miss is not only is it innovation and acquisitions and organic growth that's leading to this kind of new portfolio, that much higher performing portfolio, it's all based on kind of the culture of the company, which is operational excellence, our form of lean. We target 10% productivity improvements every year, and that seems crazy for many companies. How do you do that? But we're always finding opportunities to remove waste from anything we do, from a business process to a manufacturing process. It enables us to add sales without adding the commensurate overhead, and that's going to lead...
that has led and will continue to lead to a lot of margin improvement as we go forward. I'll highlight that in a moment. Here are some of those growth objectives that we outlined, and I encourage you to look at our Investor Day presentation that we did in May. We did that at the New York Stock Exchange, and we wanted to, we brought out this new segmentation of the company, wanted to highlight its potential in terms of growth and profit and cash flow generation, and then we set these five-year growth targets for us, or financial targets for ourselves. We see that Household & Personal Care, that new Pet Care business and the investments we've made in edible oil purification, in health and beauty, I mentioned some of those cosmetic applications.
We see that growing at almost 7%-10% per year compound over the next five years. That's how, that's how strong that business is globally for us and what we've built. Specialty Additives portion of that segment will grow at 3%-5%. Paper & Packaging, Specialty Additives and sealants and constructions and some pharmaceutical applications, and that gives that Consumer & Specialties half of the business a natural 5%-7% compound annual growth rate over the next five years. High Temperature Technologies, more industrial focused, a little bit more cyclical, but still very valuable, very profitable and high cash flow. We see that High Temperature Technologies, the metal-- the foundry and refractory steel portion of our business growing at 4%-6%, and the Environmental & Infrastructure growing at 3%-6%.
That puts the company at around 4%-7%. We think naturally in the low end of that range, very achievable at 4% compound over the next five years. There's some things I'm gonna highlight, though, in terms of some of the new products that we've developed and new markets that could put that growth rate at the higher end of that range. Things like our water remediation technologies, our growth in Asia and some of our Pet Care business. We our our edible oil and renewable fuel purification business, that is growing very rapidly. Should that grow a little bit faster than we're currently projecting, we could be at the high end of that range. So what are those targets that we set out for ourselves?
By 2027, we projected we'd grow at about a 5% compound annual growth on average. That would put us at about a $2.7 billion company. We have a lot of margin improvement. We're about 12% of sales in 2022, and we see that growing to 15% of sales by 2025. That's not a 2027 projection. We think that'll carry through 2027, but certainly we've targeted that by 2025. And those two, that combination of 5% growth and 300 basis points of EBIT growth, will lead to about 10% compound annual growth in earnings. We're targeting about $500 million of EBITDA from about $365 million today by 2027. But with that and with the portfolio that we've generated, it's not just a growth portfolio.
It doesn't require that outsized CapEx to continue. We've got a lot of installed capacity to support the growth that's on this board. So it's not gonna require an enormous amount of CapEx. We're not steering a lot of capital to just supporting that growth. We think we can do that with our existing kind of average capital expenditures, which are about $90 million per year throughout, or about a 78%, you know, kind of, projected cash conversion. We've always had very strong cash flow as a company. Typically, 7% of sales is our free cash flow.
We see maintaining that as well, and we think the combination there, that would be about $990 million of free cash flow by 2027 and generating about 12%, moving from 9% -1 2% from a return on invested capital. So those are the targets we set out for ourselves. We're right on track to do that this year. We look to be at about 13.5% EBIT margins by the end of the year, and we're well on track to achieving that, 14% by next year and 15% by 2025. So cash flow. First, I'll take you through what our targets are for this year. We think this year, about $100 million-$125 million. We've had some inflation effects on our working capital and inventories.
That's starting to release now into cash flow in the back half of the year, probably getting stronger into next year. Our debt and leverage right there, maturities, our balance sheet's in good shape. Next maturity is out in 2027, and 2028. About a billion dollars in debt, about 2.4 x net leverage. I think we're steering our capital this year, back half of this year, more toward debt reduction to get down to our targeted 2 x leverage. But then after that, we take that free cash flow, $125 million-$150 million. Typically or historically, we've steered that about 50% to shareholders and through share repurchases, the other 50%, keeping that on the balance sheet for opportunistic acquisitions. But we can flex that back and forth.
We see the acquisitions, something that we've been targeting that we feel fits along the lines of the product lines I just told you, we could steer it there. If not, if that's something out, that's out of year, we'd steer more of that $150 million of free cash flow to share repurchases. Typically in the 50/50 range is our profile for capital deployment to shareholders. Quickly, investment takeaways. I said organic sales growing at 5%, compound margin improvement of 300 basis points by 2025. That puts us at a nice 10% CAGR in operating income with continued strong free cash flow generation, yielding a pretty strong, continued solid balance sheet, Dan. That's what I got.
All right, thanks. And if there's any questions, please just raise your hand, and we will definitely come over to you. But just so I can start, so I think a portion of your growth strategy is dependent upon just the growth in Asia. I was wondering if that's doable or if, I guess, the slower than expected Asian rebound that we're kind of seeing and might be taking longer than expected, if you can still achieve your goals with that kind of scenario?
Yeah, absolutely. Right, right now, just to give you a perspective, Asia is about 11% of our total sales, China being about 9% of total company sales. So it's not a, it's not a huge portion of our current sales. And, and the other thing is that our sales in China in particular, are driven less by overall demand and more by substitution, so it's penetration of products in the market. And I'll give you two major markets that we participate there. One is in our foundry business, the Metal casting. What we're doing is we're displacing existing... You have to use bentonite clay when you're making a cast product out of gray or ductile iron casting. Customers there generally make their own blends. They buy clay, they try to blend it, they blend it themselves. We'll come in with an Engineered Solution.
We'll actually create the blend. We'll take a look at what they're trying to make. We'll look at their foundry lines, their systems, their sand systems, et cetera, and we'll engineer a product for them. So it's taking them to a much more cost savings. It lowers their scrap rates, improves their productivity, but it's a higher price point for us, and so we're displacing an existing clay ton that's being used with a clay ton that's already pre-blended. So I'll give you an example. In Paper & Packaging, largely, our growth is now more into the packaging, but we're displacing lower quality pigments.
So improving the gloss, improving fill rates in packaging to displace fiber at the same strength, that's a big cost savings to that paper maker, and it's a higher quality pigment that we're supplying. So a lot of our growth, I'd say 70%, well, 60% of our growth in Asia is really dependent on penetration or displacement of lower quality products and then the growth rate. We've been growing at about 10% per year in China, in our foundry business. Even with the flat market, we're doing well. I think as China continues to rebound, it's slowly, this back half of the year and into next, we're gonna be fine. So I don't think that is going to have an impact on hitting our growth objectives, Dan.
So with the kind of transformation you've made over the past few years, kind of going to more, I guess, consumer focused, particularly with the cat litter business, I was. So destocking has been a big buzzword for almost everybody within materials, but I was wondering if that's what you saw in that, in the consumer business, or was it less so, just given... I don't know, but maybe it was because coming in COVID, maybe there was some buildup. I don't know. Just, have you seen destocking?
We did see two areas of destocking. One was in the North America paper business.
Mm-hmm.
Last year, very robust market and operating rates in North American paper machines were very high. They're in the upper 90s. Customers couldn't get enough paper, so they started to import. I think a lot of that came in in the back half of the year. Demand started to shift. There's the big stock that has come out. First half of the year, we saw that destocking. We expected some rebound of paper operating rates and demand in North America in the third quarter. So that was what we had forecasted for this quarter. The other area was in our health and b eauty systems. A lot of consumer shelf cosmetic type skincare creams, et cetera. You've seen that probably from other companies.
Mm-hmm.
It's been a very challenging year in terms of stocks. A very robust year last year. Those stocks have come down through this year. Our forecast was that order patterns start to pick up late in the third and be a little bit more robust in the fourth. So moving through a lot of that destocking that we saw early in the year.
Okay, and so again, given you, you're taking share, you have the cat litter business, which should do well. But if there is another step down in the U.S. into a, I guess, a deeper recession or a recession moment, the step down from where we are now, could you still hit your— Is it still feasible to hit the low end of your, your 2025 tar— or sorry, your five-year targets?
Yeah, I think so. A lot of the areas that would be hit there would probably be in, you know, the automotive, the steel, the Engineered Solution side of the business. But even there, we've only targeted a compound growth rate of about 3% over the next five years, right?
Mm
... on that side of the business. The other side of the business is a little bit, I don't wanna call it recession-proof, but, you know, the largest product line we have is cat litter. Cat litter grew tremendously through COVID. You know, it grew at nine or... So these are, these are more consumer staple type products, and, and, and even in paper, it's not necessarily a function of cyclicality in the market. It, it's, it's more of a stable demand. Yeah, stable demand, relatively flat. But, but I think the majority of that consumer business, and that's why we've, we've targeted it growing at almost 6% to 5% to 7% , and I think that's gonna hold up really well in a cycle. Depends on when that cycle happens.
If it happens in 2027, Dan, I think it's gonna be a challenge to hit our targets, but I don't think that- I think these take into through the cycle type growth rates, that 4% low end of the range, so I think we should be good.
And three, 300 basis points within two years of EBIT margin expansion.
Mm-hmm.
And that's. Is that simply just coming from you guys doing the kind of blocking and tackling with taking costs out that you've been doing all along, or is there, is there input costs that you expect to remain low, or how should we think about-
Yeah
... achieving that?
Three things. 150 basis points of that 300 basis points is really just price-cost catch-up, right? So, we're starting to see that dynamic. I think in our second quarter results, we had the largest gap in terms of positive price to cost to catch up on where we were, have been over the past six quarters. So 150 basis points, that would get us to about 13.5% margin by the end of the year, and we're well on track to hitting that, and that's gonna, that'll be achieved. The other 100 basis points is those higher margin consumer businesses are gonna continue to grow over the next five years as a portion of the portfolio.
We do have some cost takeout and some efficiencies, but we have the installed capacity in many of those businesses that we don't have to add the fixed, we don't have to add the cost, and so we have full contribution coming our way from that growth. So there's gonna be some continued synergy and cost takeout, but as a mix shift, those higher margin products are gonna yield over the next five years about 100 basis points. That gets us to 14.5. The last 50 basis points is probably coming from blocking and tackling, and it's coming from just general leverage of that growth, that 5% kinda average growth over our fixed cost base. We operate on a shared, global shared service. We operate on single instance Oracle.
We do not need to add the commensurate 10% overhead for those sales dollars. We can probably do that for half, and so you're gonna see some, you're gonna see some leveraging with... It was hard to leverage that growth when we were growing 1% and 2% per year for the past 10 years. We're growing at 5% per year. We're gonna see some leverage on that fixed cost base, and as a percentage of sales, you're gonna see our SG&A going down, just naturally from keeping it flat.
Okay, one of the things that caught my eye too was your CO2 sequestration.
We have a question, sorry.
Oh, we have a question.
Yeah.
Sorry.
Sorry, yeah, just to follow up on that, the 2027 target for operating margin is the same as 2025, effectively 15%. Is there an investment cycle there? Sounds like the mix is good. Are you just keeping your targets where you can-
Yeah, we're probably hedging-
visibly see them today?
... hedging our bets a little bit. I mean, look, I, you know, the Engineered Solutions side of the business is already at 15%, could go higher. I think that's also a little bit more cyclical portion of it, and so it could cycle between 14.5%-15% as we keep it there. Really, the margin improvement, that we're targeting, that 300 basis points, is largely coming from that Consumer & Specialties side. So it's all that pet litter, it's leverage in the pet litter, it's the growth of those higher margin products over the next five years as they get to become a bigger part of the portfolio.
So most of what we're counting on in the 15%, and even in the near term target, is coming from the Consumer & Specialties and maintaining the Engineered Solutions, which may cycle a little bit more than the other side. That said, look, we're gonna—we hit our 15% target by 2025. Yeah, I think there's room to go further. I'm just not—I don't, I don't have a line of sight of that to 2027 right now, so we haven't—I guess we're giving you that target as a, as we're gonna hold it. But we'll revise it as we get through 2025.
All right, thanks, Chris. So what I was kind of alluding to was, what caught my eye was, CO2 sequestration. It seems like a pretty exciting opportunity. I was wondering how the IRA is playing into that and how you see that opportunity growing, I don't know, over the next five years. How should we think of it as a step change, or is it gonna grow? I mean, how should we think about the sales growth there?
Well, you know, part of our Crystal Engineering technology is CO2. We've been doing this all the time. I'm trying to think. In our sustainability report, how many million tons of CO2 that we sequester on behalf of paper producers. We actually take the CO2 that comes out of their boiler system or their lime kiln, and that is what we use to constitute CO2 back into limestone or a crystal that goes into the paper. Now, the net-net of that is that CO2 was emitted somewhere else, but I think what you're seeing is a lot of the technologies today is somebody, you know, creating CO2 in a controlled fashion to then be able to sequester it somewhere else, and we're able to do that. And so we're looking and we're working with our lime producers.
We're working with new technologies that are out there. We're keeping our eyes open. We have the capability, and we're keeping our eyes open to other small startups to partner with, partner with. We're doing some of that work today, but we think our inherent capability to create crystals and create minerals out of at least inorganic substances from CO2 sequestration. The key is not just to make something that's amorphous and dump it in the ground. The idea is to make something that becomes a functional use. It's a net zero. It's just net costly to take CO2 out.
If you can find something that when you capture that CO2, you make the substrate functional, which is exactly what we do, we know exactly how to actually control that reaction and/or how that crystal would be used in a, in some sort of product, that is what we're really good at. And so we're starting to look at using our capability of Crystal Engineering to be able to enhance the value of CO2 sequestration, is what I can give you right now.
So-
How I can describe it.
So one last question, because we have about a minute left, unless there's something from the audience. So you're in the middle of transforming yourself into more of a consumer-focused company, but I was wondering if part of the next step would be potentially divesting or spinning off anything that was kind of more of a legacy MTX in some of the heavier industry stuff, or if that's being considered at all in terms of kind of like pruning the portfolio of certain product lines?
Yeah, I guess I'd say the strategy wasn't just to become more consumer-focused and then get rid of industrial. I think it was to further develop and invest in inherent businesses that happen to be consumer, you know, like this Pet Care business, like our edible oil purification and renewable fuel purification systems. We've, we've had these technologies. They were just very small, and so we've invested in them to make them bigger, to improve the growth profile and the profitability. These businesses that we have, even some of the legacy, are high, very valuable, high cash flow businesses. And so we've not only been able to develop a portfolio that is higher growth, higher margin, but we've preserved that cash flow capability of the company, and I think that was really what we, what we did.
Now, that said, there are pieces and parts, and we look at the portfolio, you know, all the time and say, "You know, is this something that really fits? Is it something that's going to contribute to that growth rate or that margin?" We've done that work. I think there are, you know, there's opportunities for us to do some pruning and then reinvestment to even higher margins or more growth. But I won't say that it just happens to be the legacy stuff and only keep the new. I think there's some other pieces and parts that we'd consider jettisoning.
All right. Thank you very much, everyone. Thanks for listening in, and thank you, guys.
Thank you. Appreciate it .