On Sep 8, we issued an updated research report on Calgon Carbon Corporation (CCC). While the company should gain from its cost reduction actions, capacity expansion and contract wins, it remains exposed to weakness in its equipment business.
Calgon Carbon, which is one of the prominent pollution control companies along with CECO Environmental Corp. (CECE), saw higher sales and profit in the second quarter of 2014 (reported on Aug 8) as a decline in the equipment business was more than offset by gains across activated carbon and consumer units. However, both revenues and earnings for the quarter missed Zacks Consensus Estimates. The company sees strong earnings on its cost reduction initiatives.
Calgon Carbon, a Zacks Rank #3 (Hold) stock, remains confident in its ability to balance the need for future investment with its responsibility to provide short-term returns. The company’s strategic initiatives position it for significant growth in the long term.
Calgon Carbon continues to see ballast water treatment, reactivation services and mercury removal as its basis for sustainable growth. It is witnessing healthy demand for its ballast water treatment systems and reactivation services, manifested by solid order gains and contract wins.
Calgon Carbon’s reactivation facilities have remarkably supported its growth and have established its presence in several markets. The global demand for reactivation services is expected to climb as regulations for water quality strengthen around the world.
Calgon Carbon is also expanding carbon production capacity at its Pearl River and Big Sandy plants. It has also reduced its exposure to rising coal costs by identifying new sources of supply and a variety of coals that are effective in the manufacture of its high quality products. Moreover, the company has embarked on aggressive cost reduction initiatives to boost margins. It remains well placed to meet its annual cost improvement target of $40 million by 2016.
However, Calgon Carbon’s Equipment division continues to struggle with declining sales. Lower sales of ion exchange and traditional UV systems led to a double-digit decline in sales in this business in the second quarter. Costs associated with ongoing investments in the ballast water treatment systems is affecting profitability in the equipment business.
Calgon Carbon is also seeing weak demand for activated carbon in specific markets including respirator and environmental air markets.
Other Stocks to Consider
Other companies in the pollution control industry worth considering are Sharps Compliance Corp. (SMED) and Progressive Waste Solutions Ltd. (BIN) with both holding a Zacks Rank #2 (Buy).
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