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Minerals Applied sciences (MTX -0.52%)
Q2 2022 Earnings Name
Jul 29, 2022, 11:00 a.m. ET
Contents:
- Ready Remarks
- Questions and Solutions
- Name Members
Ready Remarks:
Operator
Good day, everybody, and welcome to the second quarter 2022 Minerals Applied sciences earnings name. At the moment’s name is being recorded. Presently, I might like to show the decision over to Erik Aldag, head of investor relations for Minerals Applied sciences. Please go forward, Mr.
Aldag.
Erik Aldag — Head of Investor Relations for Minerals Applied sciences
Thanks, Jennifer. Good morning, everybody, and welcome to our second quarter 2022 earnings convention name. At the moment’s name shall be led by chairman and chief government officer, Doug Dietrich; and chief Monetary officer, Matt Garth. Following Doug and Matt’s ready remarks, we’ll open it as much as questions.
I might wish to remind you that starting on Web page 15 of our 2021 10-Okay, we listing the assorted threat elements and situations which will have an effect on our future outcomes. And I am going to additionally level out the secure harbor disclaimer on this slide. Statements associated to future efficiency by members of our workforce are topic to those limitations, cautionary remarks, and situations. Now I am going to flip the decision over to Doug.
Doug?
Doug Dietrich — Chairman and Chief Govt Officer
Thanks, Eric. Good morning, everybody, and thanks for becoming a member of the decision at the moment. We have fairly a bit to go over, so let’s get began. I am going to stroll you thru the highlights of our outcomes and what contributed to this file quarter.
Then Matt gives you particulars on our monetary outcomes and share our outlook for the third quarter. To conclude, I am going to present some highlights from our 14th Annual Company Duty and Sustainability Report, which was printed Wednesday. Let’s get began with a recap of the quarter. This was a outstanding quarter for MTI with file gross sales of $557 million, file second quarter working revenue of $74 million and file earnings per share of $1.50.
This efficiency is the results of our workforce’s execution over the previous a number of years on some key fronts; delivering on our strategic development initiatives, driving steady working enhancements, and disciplined capital deployments. To start, MTI gross sales had been up 22% versus the prior 12 months and up 27% on a continuing foreign money foundation. Each product line grew and contributed to double-digit development in all three of our segments. We noticed development in each area, in North and South America, in EMEA and in Asia regardless of decrease gross sales in China as a result of COVID state of affairs there.
This efficiency was the results of our broad-based method over the previous a number of years to develop the corporate each organically and inorganically. It is also the results of our pricing actions and worth promoting efforts to offset the numerous inflation we have skilled over the previous 12 months. Our operations carried out nicely, and our workforce coordinated seamlessly to beat persistent challenges and meet market calls for, tackle shopper wants in addition to establish and create efficiencies to drive profitability. Provide chain and labor challenges persevered.
Nonetheless, our groups navigated these points and continued to exhibit their agility in coping with the evolving market panorama. We noticed higher-than-expected inflationary price pressures within the quarter of $43 million in comparison with final 12 months, and our pricing actions accounted to $47 million. I might like to notice that we absorbed $4 million of this price inflation with out pricing changes as a result of we could not start to go by means of this price contractually till July 1. Our tradition of disciplined price management and steady course of enchancment was on full show this quarter, sustaining environment friendly overhead spending and integrating two acquisitions, driving our SG&A as a share of gross sales down 160 foundation factors.
The outcome was working revenue of $74 million, a file for the quarter. And regardless of the numerous price pressures, our margins ticked barely increased. From an funding standpoint, we maintained our self-discipline and steadiness with capital deployment. We acquired Idea Pet, returned $26 million to shareholders by means of share repurchases and dividends, and invested $21 million in capital expenditures to help our amenities and natural development.
All in all, we had a really productive quarter. We’re executing nicely on quite a few fronts, and we’re nicely positioned to maintain our sturdy efficiency. Now I am going to take you deeper into a few of the underlying drivers of our file efficiency this quarter. As I alluded to earlier, our development technique is multifaceted.
It consists of positioning ourselves in faster-growing markets and geographies and accelerating the event of latest merchandise and applied sciences. It additionally contains the disciplined acquisition of firms that assist speed up these efforts, additional steadiness our portfolio and broaden our applied sciences and capabilities. For the previous a number of years, we have been executing on every of those fronts, and the second quarter is partially a illustration of the outcomes. This quarter, our gross sales elevated 27% over final 12 months, a sturdy determine that was broad-based and pushed by 4 areas: 7% income development — base income development, 2% from new product gross sales, 8% from acquisitions and the rest from worth will increase carried out throughout our product strains.
Let me take you thru every of those elements in additional element, beginning with the bottom natural development. Over the previous a number of years, we have been positioning ourselves in faster-growing markets and geographies, expanded into consumer-oriented markets, that are characterised by favorable secular traits. These traits resembling rising pet possession, shopper desire for over-the-counter useful cosmetics and elevated demand for top purity edible oils are driving increased ranges of sustained income development. Demand for these merchandise can be extra resilient and can reduce the influence of cyclicality on our complete gross sales, balancing the economic aspect of our enterprise.
We have been benefiting from these macro traits and market positions. Our family and private care product line, which incorporates lots of our consumer-oriented merchandise, has grown at a 17% compound price over the previous 5 years. Together with acquisitions on this product line, it is grown organically at a 6% compound price, illustrating the soundness and development potential of those merchandise. As well as, we proceed to penetrate rising areas with our high-value merchandise.
Our gross sales of pre-blended greensand bond merchandise within the two largest foundry markets, China and India, have grown at 9% and 20% yearly over the previous 5 years. For a few years, we have been penetrating rising areas with our newest PCC know-how, and this month, we signed an settlement to assemble a 43,000 tonne PCC satellite tv for pc plant in India, which is able to characteristic our first deployment of MTI’s sustainable NewYield LO PCC know-how. This know-how is a mix of our conventional PCC applied sciences, whereas on the similar time, repurposing a paper mill waste stream, saving the client’s cash and assuaging a waste disposal problem. The acceleration of product growth and commercialization to fulfill new buyer calls for and the transition of our portfolio to extra sustainable options is having a noticeable influence on the highest line.
Gross sales of latest merchandise are on monitor to extend 38% over final 12 months. And as I discussed, our latest merchandise drove 2% of the general natural development that we noticed this quarter. Some examples of those new options are our newest edible oil purification merchandise, which grew 29% versus final 12 months. These merchandise create increased purity, longer shelf-life edible oils.
And we’re growing new merchandise focused on the quickly evolving marketplace for biodiesel. In pet care, we commercialized new perfume and dirt management formulations for patrons in our North American market, and launched new product choices tailor-made for Asian markets, the place gross sales grew 15% over final 12 months. Private care, our well being and sweetness options enterprise, has been supporting a number of new energetic skincare merchandise over the previous few years with our delayed launch retinal know-how. Our capabilities to help buyer formulations and supply them packaging options has pushed continued development on this product line, and gross sales this quarter grew 13% versus final 12 months.
We’re additionally benefiting from the final market urge for food for sustainable product and course of options. We have invested in R&D to broaden our portfolio of sustainable options. And because of this, nearly all of our new merchandise in growth, 65%, in actual fact, characteristic features that profit our prospects’ sustainability objectives. We’re additionally transferring into increased tech value-added options for our industrial prospects.
For instance, our refractories enterprise is providing the next tech resolution to enhance the security and productiveness of steelmaking. Our resolution makes use of laser-guided techniques to measure and accumulate information on metal furnaces, and automates the applying of the refractory materials. These techniques yield extra correct measurements of furnace put on and lining degradation than typical strategies, whereas additionally accumulating information to allow predictive upkeep by means of analytics. Not solely is that this useful info, however it retains furnaces working longer with out the necessity for remedial repairs, saving our prospects cash.
Most essential, it removes individuals from proximity to a excessive temperature surroundings. Our PCC enterprise can be growing new applied sciences to scale into the rising packaging market. Final 12 months, we signed a contract with Asia Image in China to deploy GCC know-how within the whiteboard packaging market. And we’ve new applied sciences presently in trial with our prospects that concentrate on further white and brown packaging purposes.
We additionally bolstered our development within the second quarter by 8% from acquisitions, together with Normerica, Idea Pet, and the Specialty PCC facility within the Midwest. These acquisitions accelerated our motion into rising markets and geographies. They’re progressing nicely. And thru them, we see avenues for extra development and worth creation.
Now we have an energetic pipeline of different M&A alternatives that may help our development targets, and importantly, we’ve the steadiness sheet power to execute on them. The power to regulate costs given the inflationary surroundings has been a key subject for a lot of firms recently, and as you may see, a good portion of our gross sales development this quarter got here from our pricing actions. We worth our merchandise on the worth they supply, and we’re uniquely positioned within the market by means of a mix of our applied sciences, our purposes experience and our world mineral reserves to supply provide stability and continued worth to our prospects. Now we have deep long-term relationships with our prospects and we interact and associate with them to make sure we ship the options they want.
In abstract, this quarter represents many features of the execution of our development technique, however it nonetheless does not present our firm’s full potential. We’re the next development, extra resilient firm with extra alternative forward. This, mixed with our demonstrated potential to navigate challenges offers us conviction that we’ll proceed on this sturdy trajectory. With that, I am going to hand it over to Matt to debate the monetary outcomes and our outlook for the third quarter.
Matt?
Matt Garth — Chief Monetary Officer
Thanks, Doug. I am going to evaluation the second quarter outcomes, the efficiency of our segments and our outlook for the third quarter. Following my remarks, I am going to flip the decision again over to Doug to supply some highlights from our just lately launched sustainability report. And now let’s evaluation the second quarter outcomes.
Whole gross sales within the second quarter grew by 22% 12 months over 12 months to $557 million. And excluding $21 million of unfavorable international trade influence, gross sales development was 27% above the prior 12 months. Gross sales elevated by double digits throughout all three segments. And as Doug detailed, the will increase in gross sales had been balanced throughout contributions from our acquisitions, improved quantity and blend and better promoting costs.
Second quarter working revenue, excluding particular gadgets, improved by 15% in comparison with the prior 12 months to $73.5 million. The year-over-year working revenue bridge, on the decrease left aspect of the slide, exhibits that we continued to implement promoting worth actions to offset the influence of inflation. In complete, we delivered $46.6 million of promoting worth will increase in contrast with $43.1 million of inflationary price impacts. The inflation consisted of roughly 60% uncooked supplies, 30% vitality, and 10% logistics.
Contributions from our acquisitions, continued power in our refractory phase and better exercise in our project-oriented companies drove a positive quantity and blend influence of $9.6 million. Now shifting to the fitting aspect of the slide. The sequential gross sales bridge exhibits that gross sales improved by 7% and had been 8% increased when excluding the influence of international trade. The sequential working revenue bridge exhibits an enchancment of 8% pushed by stronger quantity and blend.
We skilled higher-than-expected inflation, primarily resulting from vitality and logistics prices, which resulted in a brief lag between worth and price on a sequential foundation. And we count on to completely make up this hole within the third quarter with pricing actions and contractual changes that started on July 1. Reported earnings per share had been $1.36. We incurred particular gadgets of $4.3 million after tax, consisting of acquisition-related transaction and integration prices, a noncash pension settlement cost and litigation prices.
Excluding particular gadgets, earnings per share for the corporate had been $1.50 within the second quarter, a file EPS efficiency amid a big inflationary surroundings that underscores the workforce’s agility and the earnings energy of the corporate. And now let’s evaluation the segments in additional element, starting with efficiency supplies. Second quarter gross sales for the efficiency supplies phase had been $300 million, a 26% improve in comparison with the prior 12 months and 10% increased sequentially. Gross sales in family, private care and specialty merchandise elevated by 37% 12 months over 12 months, pushed by our pet care acquisitions and continued sturdy efficiency from our portfolio of consumer-oriented merchandise.
Our material care, private care, and edible oil purification companies every delivered double-digit development versus final 12 months. Elevated challenge exercise helped to develop gross sales in environmental merchandise and constructing supplies by 36% and 6%, respectively, in comparison with final 12 months, and Metalcasting gross sales had been 10% increased than the prior 12 months and had been 11% increased sequentially. Our North America greensand bonds enterprise skilled sturdy demand within the second quarter, greater than offsetting decrease gross sales in China, the place we noticed diminished volumes amid native COVID restrictions. Section working revenue elevated by 12%, each sequentially and versus prior 12 months to $38.9 million and working margin improved by 20 foundation factors sequentially to 13% of gross sales.
As we look forward to the third quarter, we anticipate demand for family, private care and specialty merchandise to stay sturdy, albeit with typical seasonality in our pet care enterprise. In Metalcasting, we count on seasonal foundry outages in North America to be offset by recovering volumes in China. We see the same sturdy efficiency from our project-oriented companies because the sturdy order guide for environmental merchandise ought to offset slowing exercise ranges in Europe for our constructing supplies enterprise. As well as, we count on to proceed to regulate our promoting costs to offset the influence of inflationary prices.
Altogether, we see the same degree of working revenue sequentially for the phase. And now let’s transfer to specialty minerals. Specialty minerals gross sales had been $164 million within the second quarter, a rise of 15% 12 months over 12 months and 1% sequentially. International PCC gross sales elevated by 15% versus final 12 months, pushed by increased promoting costs in addition to quantity development in our specialty PCC enterprise.
Processed minerals gross sales elevated by 16% 12 months over 12 months and had been 5% increased sequentially on increased promoting costs in addition to continued sturdy demand within the development and shopper markets. Working revenue for the phase improved by 10% sequentially to $20.2 million, and working margin improved by 100 foundation factors because the impacts from our promoting worth actions offset the influence from inflationary price will increase. Recall that this phase has been probably the most impacted by vitality inflation, largely because of rising European vitality prices. This phase additionally has the most important proportion of worth lag, so we’ll see a restoration of those prices within the third quarter given contractual time and changes.
As we glance to different third quarter elements, we count on a average restoration in China that may offset seasonal upkeep outages in PCC. As well as, demand in specialty PCC and processed minerals is predicted to stay sturdy. In complete, we count on the same degree of working revenue sequentially. And now let’s proceed on to the refractory phase.
Refractory phase continued to carry out nicely within the second quarter. Gross sales had been $93 million, a rise of 25% 12 months over 12 months and 11% sequentially, pushed by increased volumes and promoting worth will increase. Working revenue was $16.2 million because the sequential profit from increased volumes was offset by vitality and uncooked material-related price will increase, most notably in Europe and Turkey. And working margin remained sturdy at 17.4% of gross sales.
As we glance to the third quarter, we see one other sturdy total efficiency for the phase. Nonetheless, we anticipate some moderation in metal market situations in Europe, and we count on uncooked materials and vitality inflation to proceed. Consequently, we count on working revenue shall be decrease sequentially by roughly $2 million. Now let’s check out our money stream and liquidity.
Second quarter money from operations was $33 million and free money stream totaled $12 million. Money stream was increased in comparison with the primary quarter. Nonetheless, it was decrease than final 12 months resulting from will increase in working capital. Within the first half of 2022, our working capital has elevated $92 million as a result of vital development we’re realizing in addition to the inflationary influence on our inventories and accounts receivable.
As we have mentioned beforehand, we even have some strategic stock positions, which we put in place this 12 months, and we count on to attract down these inventories by the tip of the 12 months. Our sturdy development and the persistence of the inflationary surroundings is leading to an extended working capital construct, which suggests a portion of our anticipated 2022 money stream will seemingly transfer into the subsequent calendar 12 months. Consequently, we now count on free money stream this 12 months to be within the vary of $100 million to $125 million. Importantly, our working capital effectivity measured in days of working capital has remained the identical as final 12 months, and the corporate’s money stream technology functionality stays sturdy.
Capital expenditures through the second quarter had been $21.2 million, and we repurchased a further $24 million of shares underneath our $75 million repurchase authorization, bringing this system up to now complete to $52.5 million. On the finish of the second quarter, complete liquidity was roughly $426 million and our web leverage ratio was 2.3 occasions EBITDA. We proceed to take care of a robust steadiness sheet, offering ourselves with the pliability to proceed to spend money on high-value development alternatives each organically and thru M&A. Now let me summarize our outlook for the third quarter.
On steadiness, we see comparable situations to the second quarter with order guide sturdy, consumer-oriented demand persevering with strong and better gross sales in China in comparison with the prior quarter. Nonetheless, we’re monitoring a number of dangers to this outlook. First, the China restoration might take longer than anticipated. Second, the inflationary surroundings might proceed at the next price than anticipated.
And third, common demand in Europe could also be impacted by increased prices for vitality and uncooked supplies. Total, and relying on how these elements play out, we count on working revenue within the third quarter to be $2 million to $3 million decrease sequentially and earnings per share within the vary of $1.40 to $1.45. We stay assured within the workforce’s potential to stay agile within the face of challenges, and we proceed to see full 12 months earnings per share within the vary of $5.60 to $5.70. I am going to now flip the decision again over to Doug to evaluation a few of the highlights from our 2021 sustainability report.
Doug?
Doug Dietrich — Chairman and Chief Govt Officer
Thanks, Matt. Earlier than we finish the decision at the moment, I might wish to take a second to focus on the publication of our 14th Annual Company Duty and Sustainability Report. This report supplies a complete overview of our wide-ranging ESG efforts for all stakeholders. Equally as essential, it describes who we’re as an organization, our values, and the way sustainability is embedded into our technique, our considering, our product growth, and our individuals.
One spotlight you may see within the report is that we have not solely met however exceeded 5 of the six 2025 environmental objectives we set for ourselves again in 2018. As a result of we have surpassed these preliminary objectives 4 years early, we have reset them to extra aggressive discount targets. I encourage you to learn the report to grasp our safety-first tradition, the acceleration of our sustainable product portfolio and our quite a few initiatives round worker engagement, variety inclusion in addition to neighborhood outreach. I am extraordinarily happy with all of our staff and their dedication to those efforts.
Their contributions and teamwork have pushed the progress we have made advancing these targets. Once more, I encourage you to evaluation the report, which is obtainable for obtain on our web site. Now let’s open the decision to questions.
Questions & Solutions:
Operator
[Operator instructions]. And we’ll hear first from Daniel Moore with CJS Securities.
Dan Moore — CJS Securities — Analyst
Thanks, Doug. Thanks, Matt, for taking the questions. Possibly begin with Metalcasting, drilling in slightly bit. Simply to distinction what you are seeing in Asia and China particularly when it comes to the tempo of restoration there versus North America.
Whether or not you are seeing any indicators of softer demand in actual time? And your form of outlook past the subsequent quarter, on the whole? That may be actually useful. Thanks.
Doug Dietrich — Chairman and Chief Govt Officer
Positive. Numerous sturdy demand thus far in North America. Asia, clearly, gradual within the second quarter, however rebounding. Jonathan, you need to take us by means of what you are seeing in additional element?
Jon Hastings — Senior Vice President, Company Growth
Positive. Dan, on — Good morning, by the way in which. I am going to begin with North America after which get to the center of your query over in China. North America, as Doug stated, we have got actually sturdy demand.
We’re seeing a rebound in auto. We additionally know that inventories are very low throughout a lot of the segments. We see heavy truck, the trade of the municipal markets, all persevering with to execute extraordinarily nicely. And we see that persevering with into Q3 and This fall as nicely.
In order we discuss with our foundries, we do not see something on the horizon that actually ought to influence that. As we moved into the quarter in China, in fact, you noticed all of the COVID shutdowns, and that impacted demand. In the meantime, what we have been doing is we have been working with our buyer portfolio. We have been working with the preeminent foundries.
They’ve been testing new merchandise. And on the similar time, we have continued to broaden our market share. Now we have seen the beginning of a rebound, particularly prior to now couple of weeks, that took slightly bit longer than I used to be anticipating primarily based on the lifting of a few of the COVID outages. Nonetheless, as you’ve got seen, they’ve continued to roll by means of completely different elements of their financial system.
So we have seen it begin to rebound, and we count on over the course of the subsequent couple of months, we’ll see the ramp-up in demand. And positively, by the tip of the 12 months — I do know world estimates of auto manufacturing, for instance, proceed to be 6% 12 months on 12 months. And that is a mix of what we see in North America and likewise in Asia as nicely. So anyway.
So rebounding in China, very sturdy in North America. We noticed different Southeast Asia, Indian markets working very sturdy. So if we will see the rebound in demand, we’ll be in actually good stead versus 2021 and going into the long run. I hope that helps, Dan.
Dan Moore — CJS Securities — Analyst
Very a lot so. And possibly switching over to environmental merchandise and development applied sciences. Clearly, seen good restoration there. Demand has been constructing.
Any pause to that? Or are issues nonetheless selecting up properly regardless of a few of the form of inflationary and world macro dislocations? Thanks.
Doug Dietrich — Chairman and Chief Govt Officer
Sure. Dan, you’ve got hit it proper on the pinnacle. We have seen sturdy demand. Our order books for Q3, for instance, in environmental in North America are above 100%.
So full order books. That’s anticipated to proceed. We see that with municipal landfills. We see with some coal ash merchandise and mining initiatives.
We have the waterproofing for constructing, and infrastructure initiatives persevering with to roll as nicely. In Europe, due to the financial pressures, we’ve seen some initiatives beginning to slide. That could be the willingness to spend within the financial surroundings that they are in proper now. That has principally affected our constructing merchandise markets.
Nonetheless, if you happen to would go additional around the globe, Australia, for instance, very sturdy with constructing merchandise. So we have form of received a combination if you take a look at it in EP and BM. However total, the sturdy North America markets appear to be offsetting what we’re seeing elsewhere, particularly in Europe, and so forth. In order that’s form of the standing of the EP, BM proper now.
After all, we’re taking the time to spend money on our applied sciences. We’re working with the purchasers. Like I stated, the order guide is nice. So we have constructed a enterprise over the previous couple of years.
We have been making an attempt to put within the foundations of latest applied sciences and new manufacturing processes, and that appears to be shaping up actual nicely as demand continues.
Dan Moore — CJS Securities — Analyst
Wonderful. Final for me, and I am going to soar again. Simply on the whole, inflation, it has been outstanding and your potential to reply to it, it has been fairly outstanding. However is there any areas the place you are seeing it taper a bit and even indicators the place you could possibly see slightly little bit of favorability and all these pricing actions flip to possibly increased margins in a few quarters? Nonetheless early to inform, however any indicators of reduction? Thanks.
Doug Dietrich — Chairman and Chief Govt Officer
No inflation has continued. Matt outlined that a variety of the inflation we’re seeing is energy-related or a by-product of vitality, and we do not see that abating proper now. There are a few areas, however I am undecided that they are everlasting areas — that we purchase in China a few of the uncooked supplies there have plained over. Which will have been extra resulting from provide demand points by means of the second quarter.
So we’ll see how that continues within the third. However for proper now, we have seen continued will increase no less than by means of the third quarter. As we sat right here at first of the second quarter, we had an assumption for the second, and I believe our prices had been $10 million increased than that. We’re sitting right here at the moment with some lengthy positions on issues, some that we won’t get lengthy positions on.
It could be even increased than that. However some areas which may plain over — however to your level, once they do and as we catch up, as Matt talked about in specialty minerals on our pricing, which is contractual, that may plain over and we’ll compensate for that pricing and people margins will broaden. The value we go into proper now has our margins, focused margins and recapture that margins. However as this bubble of price retains coming in, it is a delay to go that by means of.
And when that plains over, these focused margins will come again. We even have extra to go together with a few of our acquisitions. Now we have margin that — and I form of alluded to this in my feedback, that we’re nonetheless integrating. Now we have some price catch-up — or some worth catch-up by means of some prices that we have seen over this 12 months.
I believe we talked about it final quarter, the place form of these synergies from Normerica are 1 / 4 or so delayed as a result of we have been catching up on worth there. That is largely completed, and we see that worth dropping by means of within the again half of the 12 months as nicely. So I believe you are going to begin to see the margins broaden. Once more, like I stated, if we proceed to tackle $10 million each quarter and have to attend to go it by means of, that is going to be that quarter delay.
However you may see that occur, Dan.
Dan Moore — CJS Securities — Analyst
Obtained it. Thanks. I am going to soar again [Inaudible].
Doug Dietrich — Chairman and Chief Govt Officer
Thanks, Dan.
Operator
And our subsequent query comes from Mike Harrison with Seaport Analysis Companions.
Mike Harrison — Seaport Analysis Companions — Analyst
Hello. Good morning. Congratulations on a pleasant quarter. And I recognize this breakout that you simply offered of the bottom volumes and the pricing and acquisitions and all of that.
I believe it does an amazing job as an instance what you guys are doing. I needed to ask about — extra particularly in regards to the family and pet care enterprise. The 37% development that you simply noticed there, I am assuming that the overwhelming majority of that was from acquisitions. However are you able to assist break that down between natural quantity, worth and acquisition? I additionally assume there was some FX in there as nicely.
So any particulars on that HPC enterprise.
Doug Dietrich — Chairman and Chief Govt Officer
Sure. I believe nearly all of that — two-thirds of that development was acquisitions. Once more, you are seeing nonetheless Normerica that we did not have within the second quarter of final 12 months, after which we have added the Idea Pet acquisition in. So two-thirds of that’s the acquisitions, however — and sure, there was some destructive international trade in that enterprise as a part of it’s — the Idea Pet and Sivomatic are in Europe.
That stated, I attempted to allude to a longer-term form of trajectory of this enterprise within the family and private care. And like I stated, even with the acquisitions we have performed over the previous three years, it is grown compound at 17%. However if you happen to strip that out — and I did not modify my numbers for international trade — it is grown at 6%. However that is 6% by means of a few completely different cycles, proper? It is averaging the 6%.
And we expect that, that — with our new positions and development in Asia that, that 6% goes to go north. So on a base price, we expect by means of a cycle development price of excessive single digits — mid- to excessive single digits on this enterprise. And we expect there’s different alternatives that we will bolt-on some positions to speed up that. However I attempted to offer you a taste for our technique to maneuver into rising markets with secular traits, favorable secular traits like pet possession, extra secure development.
Rising pet possession in Asia, transferring into that route. Our development there was 15% this 12 months — this quarter. So these are the elements of our technique that we have been executing on that may proceed to ship that form of secure development by means of the cycle going ahead. I do know you did not ask about it, however I will soar into bleaching earth and specialty merchandise and family — or our well being and sweetness techniques.
It is the identical thesis. It has been transferring into these markets which have increased secure development charges, increased demand ranges resulting from secular shopper desire. And we have been positioning ourselves there. And I believe that is — like I stated, this quarter did not simply occur.
We have manufactured this sort of development price that you simply’re seeing, and we needed to interrupt that out for you. So anyway. Somewhat greater than you requested for, however I needed to take the time to put that out for you.
Mike Harrison — Seaport Analysis Companions — Analyst
No. And that is all truthful as a result of I believe it is simple to consider that phase as being pet care, however there’s a variety of different thrilling purposes for Bentonite glaze in there that you simply guys are increasing. So I recognize that. I hoped that you could possibly give us some sense — in Europe, there’s a variety of discuss and concern about vitality rationing.
As you consider a few of your key amenities in Europe, whether or not it is manufacturing amenities, mines, PCC satellites, are you able to stroll by means of your publicity to pure fuel or to nations which can be depending on pure fuel for electrical energy? And possibly speak about what sort of contingency plans you are contemplating if that state of affairs will get worse as we head towards the winter in Europe?
Doug Dietrich — Chairman and Chief Govt Officer
Sure, definitely a difficult state of affairs that would unfold in Europe. Let me simply form of point out our gross sales out there. Europe is about 23% — 25% of our complete gross sales as an organization. I am going to break down; a 3rd of that — rather less than a 3rd, like 27% of that’s paper.
About the identical quantity — possibly a 3rd is pet care. A 3rd refractories, and I do know that is 100%, however there’s different issues like animal well being in there. However the three majority — the three large ones are paper, pet care, and refractories. Our paper enterprise, I’d say — our vitality is offered by the host mill.
So we will flex and function as that host mill does. So massive paper mills, in the event that they take prolonged outages resulting from curtailments, we will associate with that. So that is the one space that we do not essentially management, however it can cycle with these crops in the event that they do this. Our pet care enterprise, we do have some vitality consumption, largely in Turkey and within the Netherlands.
We’ll most likely — we’ll have the ability to marketing campaign that enterprise by means of vitality cycles if we have to, the identical with our development applied sciences enterprise and the identical with our refractories enterprise. A number of our consumption of vitality sits in two areas. It is in Poland and in Turkey. And proper now, these have been comparatively secure from a provide standpoint — not from a worth standpoint, I’ll let you know that.
However from a provide standpoint they’ve been. But when we do have curtailments, we’ll have the ability to navigate by means of form of campaigning these crops to regulate to these downtimes. In order that’s how we’re taking a look at it proper now. The piece of paper is one which we’re not going to have the ability to management.
It will likely be depending on what the host mill does.
Mike Harrison — Seaport Analysis Companions — Analyst
All proper. After which the final query I had is simply on the litigation price particular merchandise. It says in your press launch, that is associated to a variety of circumstances in search of damages for exposures associated to your talc merchandise and operations. What’s the variety of circumstances? And might you characterize slightly bit higher what sort of exposures and how much damages these plaintiffs are in search of? And I suppose is there one thing that you’ve got already recorded as a reserve legal responsibility? Or I suppose how ought to we take into consideration the potential legal responsibility right here?
Doug Dietrich — Chairman and Chief Govt Officer
Sure. So let me take you thru with the cost, was associated — cost is said to 2 issues. One, as you talked about, some increased litigation prices related to the elevated variety of circumstances that we’re seeing. However it’s additionally resulting from form of a onetime price of getting ready for a possible trial, but additionally setting us up for a extra environment friendly solution to take care of the circumstances from an info standpoint.
So we did some issues to set ourselves up for with the ability to take care of the case load. Somewhat little bit of historical past. We have all the time had a small variety of talc circumstances within the firm over the previous decade. We have by no means had any settlements or verdicts in opposition to us or funds.
And so most of them have been meritless — they’ve been meritless claims. And I believe what’s taking place now’s with what is going on on with the talc trade with Johnson & Johnson and others. We have by no means equipped Johnson & Johnson. We’re not a part of that.
Nonetheless, I believe talc firms have — it has been a lightweight has been shined on them, and so we’re seeing an elevated variety of circumstances. These are all — our talc enterprise is comparatively small. It is a $50 million enterprise. It is remoted in a sub referred to as Barretts Minerals.
However we will count on some ongoing litigation. Proper now, we take a look at all of them as meritless. We do not see any legal responsibility related to them as we sit at the moment. However we’re going to have some elevated prices as we take care of them, and that is a perform of being on an inventory of being a talc producer.
Numerous circumstances proper now. Now we have about 420. However that is — that compares to what others have seen, over 33,000 circumstances. So a really small quantity.
We do not see the legal responsibility as we sit at the moment as something significant or financially materials to the corporate.
Mike Harrison — Seaport Analysis Companions — Analyst
All proper. Thanks very a lot.
Doug Dietrich — Chairman and Chief Govt Officer
Sure.
Operator
[Operator instructions]. And we’ll hear subsequent from Steve Ferazani with Sidoti.
Steve Ferazani — Sidoti and Firm — Analyst
Good morning, everybody. Thanks for taking my questions. I did need to ask slightly bit about working capital and money conversion and simply — so clearly, inventories are rising. That is greenback — increased greenback worth, inflation pressures and quantity is rising.
So that you’re constructing that up. However I am making an attempt to consider when — you are anticipating a drawdown on stock as provide chain points ease. You are anticipating a stronger money conversion to the again half of the 12 months.
Matt Garth — Chief Monetary Officer
Sure, Steve, I believe you bought the stock part proper. And the drivers round that: increased volumes requiring the next degree of stock to feed these volumes. Additionally, the inflationary elements that we have been speaking about and a few of the prices have been going into stock, clearly. Second part of that’s the sturdy pricing that we have been speaking about and the upper quantity additionally driving the accounts receivable {dollars} up.
Once more, our effectivity could be very, very constant during the last a number of quarters, precisely the place they had been right here within the second quarter to the place they had been final 12 months. So I be ok with that. The money conversion part of that, although, like I stated, actually simply will get pushed out slightly bit. We do have a standard seasonal construct in working capital that occurs within the first half.
Second half of the 12 months, we do see some launch of that as we’ve some seasonality in these as project-oriented companies come off. And so there’s sometimes a working capital launch on the third and fourth quarters. This 12 months, any 12 months actually, we come into it anticipating about $150 million. That working capital that we have absorbed, simply pushing out a little bit of that when it comes to timing.
In order you see inflationary elements begin to plain over, as we talked about earlier, that is going to launch a few of that working capital. The strategic inventories we talked about; we ought to be releasing these as we transfer additional by means of the 12 months. After which additionally from the sturdy development that you simply’re seeing on the highest line that’s driving that AR aspect, as you see a few of that moderation happen versus a year-over-year consistency, that may even launch a few of that stock. In order that’s why we’re saying pushed out to the subsequent calendar 12 months.
And in order that signifies that form of $30-plus million of free money stream that we might count on right here this 12 months, all issues being equal, we might count on that subsequent 12 months.
Doug Dietrich — Chairman and Chief Govt Officer
Steve, if I can add. I believe — if you happen to look again within the historical past of our money stream form of cycle and technology — I believe you’ve got seen this a few occasions earlier than, the place the cycle is slightly bit off from the earnings. In 2018, we had a — it form of went by means of a high-growth interval, and money stream that 12 months was $120 million. The next 12 months, that launched to $180 million.
And I believe if you noticed by means of the 2020 downturn, we launched fairly a bit of money, as much as virtually $175 million. So we undergo these intervals. We do not assume there’s something modified for the money conversion price of the corporate, money functionality of the corporate. Like Matt stated, that money — once more, with inflation plaining over, that money goes to set us up for most likely a bigger than common 2023.
Steve Ferazani — Sidoti and Firm — Analyst
Is sensible. So once I take into consideration that — and clearly, money in your steadiness sheet continues to be fairly vital. And then you definately count on to construct subsequent 12 months. Does that — does the timing of that have an effect on your capital allocation priorities and the way you consider spends within the completely different buckets?
Doug Dietrich — Chairman and Chief Govt Officer
No, it does not. I imply, we take a look at — I am going to provide you with one piece the place we do take a look at it, however it’s not due to the money conversion. Now we have confidence within the money technology of the corporate. Proper now, we’re underneath a $75 million share repurchase program.
I consider we’ve about $22 million, $23 million left. Possible, we’ll end that program. As we take a look at capital expenditures, of the $80 million, $35 million of that on common yearly goes into upkeep capital, sustaining our amenities, and so forth., security, we’ll proceed with that. The piece that we all the time take a look at is our development — is our capex that goes into development.
And as we glance forward, we might modify a few of these assumptions. Lots of them are primarily based on markets and development. And what we will do with it and the way shortly we will replenish that enlargement or — for example. And sure, we all the time check out that, however a few of that deployment may change going ahead.
However the balanced method when it comes to — the share repurchases, we’ll end that, to mergers and acquisitions if we see them develop into actionable. Now we have a pleasant portfolio of alternatives. After which into investing in ourselves. We’ll proceed that.
And we see that money conversion of the corporate secure and with the ability to help all three.
Steve Ferazani — Sidoti and Firm — Analyst
Nice. Thanks a lot, everybody.
Matt Garth — Chief Monetary Officer
Thanks, Steve. Thanks for becoming a member of at the moment.
Operator
[Operator instructions]. And there aren’t any additional questions right now. I might like to show the decision again to Mr. Dietrich for any further or closing remarks.
Doug Dietrich — Chairman and Chief Govt Officer
Thanks, Jennifer. I recognize that. Hear, due to everybody for becoming a member of at the moment. Once more, I encourage you to take a look at our web site and try our sustainability report.
It truly is a complete — a view of all that we do as an organization and a testomony to our worker base and all that they are doing to assist with our sustainability efforts. So please test it out. Glad to reply any questions you could have after you evaluation it. Thanks rather a lot.
Recognize the time at the moment.
Operator
[Operator signoff]
Period: 0 minutes
Name individuals:
Erik Aldag — Head of Investor Relations for Minerals Applied sciences
Doug Dietrich — Chairman and Chief Govt Officer
Matt Garth — Chief Monetary Officer
Dan Moore — CJS Securities — Analyst
Jon Hastings — Senior Vice President, Company Growth
Mike Harrison — Seaport Analysis Companions — Analyst
Steve Ferazani — Sidoti and Firm — Analyst
