Sales are strong at GrafTech International but profits temporarily down as expected

GrafTech International Thursday reported strong second quarter sales but slimmer profits compared with the same period a year ago.

GrafTech, with headquarters in Parma, is a global manufacturer of graphite rods for electric arc furnace steel making. The company also makes engineered graphite components for fuel cells and increasingly for heat removal in advanced electronic devices.

GrafTech reported $320.2 million in sales during the three months that ended June 30.

That's a 26 percent increase over the $254.8 million in sales during the second quarter of 2010.

But net income for the quarter was $28.6 million, or 20 cents per share, which included an accounting hit of $9 million associated with GrafTech's purchase and integration of three smaller companies, including a competitor and a supplier of raw materials.

In the second quarter of 2010, GrafTech's net profits were $40.7million, or 34 cents per share.

The company spent $17 million in cash on operations during the second quarter of this year -- $10 million more than the same time last year -- to expand its sales force and integrate the three companies it previously purchased.

For the first six months of the year, GrafTech's sales were more than $626 million, up by a third over the first six months of 2010. Net income was $55.8 million, down about 26 percent from $75.7 million in the first half of 2010.

GrafTech Chief Executive Officer Craig Shular told financial analysts during a public teleconference that the newly acquired companies will increase revenues substantially. He said the company will report that in the coming months.

"The full benefit of these acquisitions will be more than apparent in the fourth quarter of the year," he said.

Shular said demand for graphite rods from steel makers was up, but the average selling price of the electrodes was about 7 percent lower because of intense competition. The rods carry extremely high voltage into a furnace and are consumed in the process.

"It can be hand-to-hand combat. This is a very competitive industry, and the competitors run from Russia, China, Japan, Germany and the United States," he said in response to a question about why electrode selling prices had fallen.

"You have to have great service. You have to have a global platform that can take care of the customers, and you have to have a spectacular product," he added.

At the same time product prices have fallen, needle coke, the raw material used to make graphite, is a derivative of crude oil -- and global oil prices have increased, about $100 per barrel here and $118 in Europe.

Graftech has just announced a 15 percent price increase for its electrodes, on top of an earlier 15 percent increase, in an effort to keep ahead of the increasing cost of needle coke, electricity, and in some parts of the world, natural gas, Shular said.

He said he expected those price increases to stick because steel making around the world could break production records by the end of the year.

On the advanced engineering side of the company, sales of graphite components for advanced electronics, fuel cells and other high-tech products including solar arrays grew to $50 million during the quarter, a new high, and profit margins for these products were up, he said, and are expected to continue to increase.

Still, the immediate future for the industrial side of the company is anything but crystal clear.

For the rest of year, global economic growth is now estimated at 4.3 percent, slightly down from earlier projections, and there is less certainty about that growth, Shular said.

"The weaker than anticipated activity in advanced economies and continued global financial volatility has resulted in a less positive customer sentiment through the summer months."

Source: John Funk, The Plain Dealer