Executives
Marc Siegel - President
David Stein - COO
James Wang - CEO and Chairman
Richard Galterio - EVP of IR
Jenny Liu - VP of Finance
Analysts
David Wentworth - Wentworth Associates
Carl Doress - LLC
Amit Dayal - Rodman & Renshaw
John Ma - Roth Capital Partners
Ping Luo - Global Hunter Securities
MS Kumar - Mid Southwest
Lewis Fernando - Private Investor
James Stone - PSK Advisors
Jane Vanderson - Private Investor
China Direct, Inc. (CDS) Q3 2008 Earnings Call November 13, 2008 6:00 PM ET
Operator
Welcome to the third quarter 2008 Earnings Call for China Direct. For those of you who maybe new to the company, China Direct trades on the NASDAQ Global Market under the symbol CDS. China Direct is a US based company with operations in China and two core business segments; Magnesium Production and Distribution of Basic Materials.
The company also provides advisory services to china based companies to assist them in competing in global company. Headquartered in Deerfield Beach, Florida, China Direct employs over 2100 peoples and operates 10 subsidiaries throughout China.
China Direct provides a direct link between western investors and companies in the People’s Republic of China. For more information, on the company, please visit its website www.chinadirectinc.com.
Our call today is hosted by Mr. Marc Siegel, President and Mr. David Stein. Additionally Dr. James Wang, CEO and Chairman, Richard Galterio, Executive Vice President of Investor Relations and Ms. Jenny Liu, Vice President of Finance will also be available during the Q&A session that will follow management’s discussion of the second quarter.
At this time, I would like to refer to the Safe Harbor statement under the Private Securities Litigations Reform Act of 1995.
During this conference call management may discuss financial projections, information or expectations about the company’s products or market or otherwise make statements about the future, which statements are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made.
These risks and uncertainties are detailed in the company’s filings with the Securities and Exchange Commission.
At this time, I would like to introduce Marc Siegel, President of China Direct. Mr. Siegel you may begin your call.
Marc Siegel
Thank you, Stephanie and thank all of you for joining us for our third quarter 2008 conference call. I am pleased to report that China Direct achieved revenue of $63.4 million in the quarter as compared to $43.6 million in the third quarter of 2007.
The company also reported net income of approximately $5.9 million, which represent an increase of about 97% from the $3 million reported in the third quarter of 2007. Our company continues to move forward with our expansion efforts in China, as we position the company for the future in this challenging global environment.
As this third quarter is our ninth straight profitable quarter and our revenue and net income for the first nine months of 2008 has already past surpassed all of 2007. I am confident that China Direct is very well positioned to capitalize on the opportunities that the current environment in China will provide.
In addition to our strong financial results for the first nine months of 2008, our third quarter was highlighted by several events that continue to build China Direct for the future.
First, we established a new distribution arm with the addition of CDI Beijing, which will function as a distributable of basic materials including steel and lumber and could eventually act as an additional distribution arm for our Magnesium segment.
Second, Baotou Changxin started its production ramp and began generating revenue late in the quarter.
Third, we commenced a stock repurchase program coupled with a Reverse/ Forward stock split. As of today in the aggregate, we purchase approximately $430,000 worth of common stock. Additionally, we reduced the number of shareholders by approximately 4000. This will result in an annual cost savings of approximately $100,000 per year.
Fourth, we assisted China Armco Metals securing over $7 million to construct a steel recycling facility in China.
Lastly, we began discussions to consolidate holdings of three of our current portfolio companies within our Magnesium segment. We intend to consolidate our holdings in Chang Magnesium, Golden Magnesium and Baotou Changxin Magnesium which will form the nucleus of our pure magnesium operations.
Combined, we anticipate these three companies will produce, sell and distribute 72,000 metric tons of magnesium in 2009, and position China Direct as a leading global player in the pure magnesium marketplace.
As of September 30, 2008 we had working capital of $68 million, including $19.6 million of cash on hand. Stockholders' equity also increased approximately $26.8 million to $69.4 million. It is important to note that our balance sheet is virtually debt free.
I believe the record financial gains the company has made over the past several quarters are the results of the consistent execution of a sound business strategy by our management team both here and in China. We are well positioned to identify and capitalize on opportunities as they arrive, and we believe the company will continue to maximize the opportunities ahead.
I will discuss an outline of our plan to approach the future, after David Stein gives you more detail on our third quarter and first nine months. David?
David Stein
Thank you, Marc. On a consolidated basis for the third quarter of 2008, as Marc mentioned, we generated total revenues of $63.4 million. For the full nine months of 2008, we generated total revenues of $221 million. These figures increased dramatically from our 2007 results where we posted revenues of $43.6 million for the third quarter and $112.8 million for the full nine months of 2007.
Our gross profit for the third quarter 2008 was approximately $10.6 million, versus $4.6 million in the prior year's third quarter. That is roughly a 131% increase.
Our total operating expenses for the third quarter of '08 increased to approximately $3.2 million, as compared to approximately $1 million in the third quarter of '07. These increases were attributable to increased staffing to support our current and future operations. The operating expenses within the third quarter of 2008 include approximately $1 million worth of non-cash items, such as depreciation and stock-based compensation.
On a consolidated basis for the third quarter of 2008, our net income was $5.9 million, as compared to $3 million in the same third quarter of 2007. For the full nine months, the net income was $18.2 million, as compared to $7.1 million in 2007. These figures were adjusted for a majority interest as well as for the discontinued operations.
On a GAAP basis which gives effect to the non-cash items I mentioned earlier. For the third quarter of 2008, we posted earnings of $0.25 per basic share on 23.5 million shares, as compared to $0.18 per basic share on 16.3 million shares in the third quarter of 2007.
Fully diluted GAAP earnings for the third quarter of 2008 were $0.23 per share on 25.7 million fully diluted shares outstanding. As a comparison for the third quarter of 2007, we posted earnings of $0.16 per share on 18.2 million fully diluted shares outstanding.
Fully diluted earnings per share for the first nine months of 2008 was $0.48 per share, compared with $0.44 per for the first nine months of 2007.
On a non-GAAP basis earnings per share, which again excludes the non-cash items mentioned earlier, earnings per share was $0.28 per basic share in the third quarter of 2008, on 23.5 million shares outstanding at September 30th 2008.
This compares to earnings of $0.21 per basic share on 16.3 million shares for the 2007 third quarter. The additional shares included in the fully diluted figures include options, which if exercised would bring in an additional $10.4 million to the company.
Now I will discuss our individual segments in a bit more detail. Looking at our Magnesium segment, during the third quarter of 2008 the revenues from our Magnesium segment was $45.7 million. This represents a 75% increase from the revenues of $26 million recorded in the third quarter of '07.
The net income for the segment during the third quarter was $1.9 million, as compared to $1 million in the same period of '07. These net income figures for all periods have been adjusted for our majority interest.
Again within the Magnesium segment, the revenues for the full nine months of 2008 reached $146 million. That is a 120% increase over the $63.9 million recorded in the first nine months of 2007. The net income for the segment for the full nine months of '08 was $8.6 million, as compared to $2.2 million for the full nine months of '07.
Once again, these net income figures have been adjusted for our majority interest. These improved results are due primarily to acquisitions and the expansion of our production capacity at Chang Magnesium, Golden Magnesium, and Pan Asia Magnesium. On a year-over-year basis as well, we witnessed pricing improvement in magnesium market during 2008, as compared to the same period in 2007.
For the nine months of 2008, our average selling price of magnesium was approximately $3,300 per metric ton. For the nine months of 2008, we produced, sold and distributed combined 43,000 metric tons of magnesium.
By comparison for the nine months of 2007, our average selling price of magnesium was roughly $2,000 per metric ton and for the nine month of 2007, we produced, sold and distributed a combined 31,000 metric tons of magnesium.
Looking at our Basic Materials segment; our revenues within this segment for the full nine months of 2008, totaled $39.6 million, as compared to $42.4 million during the first nine months of '07.
During this third quarter, we experienced some disruption in this segment. As a result of the Beijing Olympics, there were government imposed restrictions limiting the shipment of chemicals.
We did launch CDI Beijing during the quarter, which began to contribute revenue later in the third quarter, following the conclusion of the Olympic Games. For the full nine months, the Consulting segment generated revenues of $14.5 million, as compared to $6.4 million for the first nine months of 2008. For the full nine months of 2008, revenues were approximately 126% from the first nine months of 2007.
Within the Consulting segment, our net income during the third quarter of '08 was $4.1 million, as compared to $1.8 million in the same period of '07. For the full nine months of '08, we generated net income of $9.4 million, as compared to $4.6 million for the first nine months of '07. Year-over-year, this represents a 104% increase within the segment.
Within our Form 10-Q filed this afternoon, we provide discussion and analysis of our resulted for the period. The information provided on this call, as well as more details provided within this Form 10-Q.
Now, I know later on we are going to have Q&A session towards end of this call. Anyone who desires for the clarity or has question related to the information within the 10-Q, please call me directly at 954-363-7333 after the call. Thank you.
At this time, I would like to turn the call back over to Marc for additional comments.
Marc Siegel
Thank you, David. Our results for the first nine months have shown strong growth compared to last year’s performance and we are pleased with the efforts that our entire team has made both here and in china.
The global environment has become increasingly challenging in a very short period of time especially in a number of areas affecting our customers in various industries. These include steel production in China and a global slowdown in the automobile industry.
As such we feel its important now to adjust our forecast taking these factors into consideration. We now see net income for the full year of 2008 ranging between $23 and $25 million and revenue ranging between $255 million and $270 million. As we begin to position the company for continued growth in 2009, the majority of our operations, personnel and assets are located in China.
Furthermore, as we continue to extend our operations in China, our Advisory Services division will continue to diminish, as a percentage of our overall combined operations. As a result, a significant majority of all of our resources are being dedicated to our going operations within china.
Looking ahead, our management and board of directors after careful considerations have devised a comprehensive action plan to enhance our Management Services division, which will support the continuing growth of operations in China, as we had resources to our best performing companies.
We are confident that these initiatives, China Direct will emerge as a much stronger company when the world financial markets settle down and the global economic recovery begins.
As of September 30th, 2008, we have $68 million of working capital as David mentioned and $19.6 million of cash. We feel the current economic climate in China coupled with the government.
Government’s recently announced $586 billion stimulus package creates an ideal opportunity to put this capital to work. We have developed an action plan, which we intend to implement over the next few months, which I will outline to you now.
For our Magnesium segment, we have begun discussions to consolidate holdings in three of our portfolio companies within this segment, Chang, Golden and Baotou Changxin Magnesium. These three entities will form our pure magnesium operations.
We will seek to position ourselves as the global producer and distributor of pure mag. Combined we anticipate that these three companies will produce, sell and distribute 72,000 metrics tons in 2009.
Furthermore, we plan to invest additional working capital to increase the capacity by 20% by the end of 2009. When consolidated China Direct may see commoditize these holdings, when market conditions are well.
As well within our Magnesium segment, we intend to create a new division Magnesium Alloy within our current portfolio companies, Pan Asia Magnesium and CDI Mag. We believe the stabilization of magnesium pricing will afford us an opportunity to position ourselves to capitalize in this sector of the industry. We are actively seeking additional acquisitions for this segment.
For our Basic Materials segment, we will continue to strengthen our Basic Materials segment. In the third quarter of 2008, we formed a new entity CDI Beijing. CDI Beijing is engaged in the distribution of basic resources, such as steel and lumber within China. This new venture will serve to increase our market presence in the Beijing region, and maximize the potential distribution synergies among our various portfolio companies.
Clean Technology. After careful consideration in September, management and the board of directors have decided to exit the Clean Technology segment. These operations have been discontinued in our results for the period ending September 30, 2008.
In October, we entered into an agreement to sell an 81% interest in CDI Clean Tech. We will retain a 19% stake. While we believe in a long-term viability of our recycling technology, we concluded that given the current environment it is in the best interest of our shareholders to focus our efforts and our capital expenditures at our better performing segments.
Clean Tech has been immaterial to our overall numbers so far in 2008. Our recycling operations conducted through CDI Metal Recycling will be realigned into our Basic Material segment.
Concerning Advisory Services; our consulting with the genesis of our company, in 2008 we have made efforts to market our services to larger companies with larger amounts of earnings. We intend to continue that effort in 2009.
However, Advisory Services continues to decline as the overall percentage of our operations both here and in China. We are taking additional steps now to strengthen our management team and manage more effectively our growth.
We have identified two strong candidates for the position of CFO and we expect to hire a Chief Financial Office in the very near future. Over the next six months, we will endeavor to expand our financial management systems.
Ms. Jenny Liu, our VP of Finance will travel to China to supervise this expansion. Frank Zhang, Vice General Manager of Chang Magnesium will assume the title of Executive Vice President of our Magnesium Segment.
In this capacity, Frank will be responsible for ensuring that our Magnesium segment meets operational objective for sales, profitability, efficiency, facility construction, quality, maintenance and safety. Mr. Zhang is a 10-year veteran of the mag industry within China.
Jingdong Chen, CEO of Lang Chemical, the principal component of our Basic Material segment will assume the title of Vice President as well. Mr. Chen will be our direct leader on to this segment, providing critical insight into the industry on a real-time basis. As such, Mr. Chen will be instrumental as we look to expand this segment.
That provides a summary of our action plans that we will implement over the coming month which we have provided to support our shift from a financial services entity to one with significant operations within China.
These actions will also add additional resources in China necessary to support our growing operations and enable us to continue our long-term success.
In closing, while we are pleased with our financial and operational performance in the third quarter and the first nine months of the year, we do understand the challenges we face ahead. We are confident that the strategy we have outlined, coupled with our strong balance sheet which is virtually debt-free, will allow us to continue to grow and thrive in a challenging worldwide economy.
We continue to see enormous opportunities for China in our near future. The current environment has left many potential targets in greater need of our services than ever before in our company's history.
We strongly believe that CDS will emerge as a major force in the Chinese and US markets in the future.
Let me now thank you all for joining the call. Stephanie, we can begin the formal Q&A.
Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from the line of [David Wentworth] with Wentworth Associates.
David Wentworth - Wentworth Associates
Yes. My question is you mentioned $2,000 per metric ton in 2008 for magnesium. What is your forecast for '09? Also I did not hear the forecast for profits for '09?
Marc Siegel
You are correct. We have not forecasted for '09 yet. We expect to wait another six to eight weeks to come out with our forecast for 2009.
David Wentworth - Wentworth Associates
About magnesium price, do you have any estimate there?
Marc Siegel
Our magnesium prices for the first nine months of the year averaged about $3,400 and we are expecting a range for the next twelve months, somewhere between $3,000 and $3,500 per metric ton.
David Wentworth - Wentworth Associates
Okay. Thank you.
Marc Siegel
Thank you.
Operator
Your next question comes from the line of [Carl Doress] with LLC.
Carl Doress - LLC
Hi. What is your current price of magnesium right now? It looks like it fell off (inaudible) once they hold the other metals?
Marc Siegel
It is about 2,800 and you are right it is, I think it peaked in April at 6,000 on a very small trade, but since then it declined about half.
Carl Doress - LLC
What makes you so optimistic in the current economic environment that we have that is let's go back to 1,000 to 3500?
Marc Siegel
Well that is a great question let me give you the answer. Historically, about 70% of our sales have gone through forward contracts and that is when at the beginning of the year, when mag prices were rising so dramatically, our sale price actually lag the market.
However, going forward for this quarter we have contracts that are much higher than their current stock price. We believe that, we are confident that our average will exceed the 3,000 bottom-end number I just gave you.
Carl Doress - LLC
Okay. Since I have not seen your financials all the numbers came at. Can you just very quickly just breakout what the unit per share or aggregate work in your different divisions just for the third quarter?
Marc Siegel
I am sorry, just repeat the question?
David Stein
He wants to know what our earnings work for each division in the third quarter.
Marc Siegel
Each work in different divisions?
David Stein
Yes.
Carl Doress - LLC
Well magnesium, basic, consulting, what did each earn on in the third quarter?
Jenny Liu
$70 million for magnesium, $88,000 for basic material, $9 million for consulting of total.
Carl Doress - LLC
I thought that you said magnesium earned $1.9 million in the third.
Jenny Liu
I am giving you the nine months figure.
Carl Doress - LLC
I want just the quarter figure.
Jenny Liu
Okay. Third quarter figures, $1.9 for magnesium, a loss of $46,000 for basic material and $4 million in consulting.
Marc Siegel
Carl, you could usually check that versus the shares outstanding and the fully diluted figure of EPS.
Carl Doress - LLC
I understand. So, it looks like consulting really held up the quarter and magnesium came down considerably?
James Wang
That is correct.
David Stein
One of the reasons that magnesium came down considerably is that we just started the production in Baotou at the end of the quarter. In that particular division, we lost $500,000 as startup cost.
If you recall during my discussion here, I mentioned that the Basic Materials was interrupted somewhat because of the Beijing Olympics, which we are interrupted somewhat in July and September because there was some government imposed restrictions on transport and chemicals.
Carl Doress - LLC
Okay.
Operator
Your next question comes from the line of Amit Dayal with Rodman & Renshaw.
Amit Dayal - Rodman & Renshaw
Good afternoon and thank you for taking my questions. The Advisory Services division you say will diminish and just a follow-up to the previous question I mean, what do you see the impact on margins going forward given that the business has been a very profitable business for you?
Marc Siegel
We do not intend to tell you that it is going to diminish as a business. What we intend to explain is that it will diminish as a percentage of our revenues and our overall earnings.
Amit Dayal - Rodman & Renshaw
Okay. I appreciate. Thanks for the clarity. So, you are not moving away from finding companies to [buy] consulting services today?
Marc Siegel
That is a great question. The answer is that we are not moving away from. We have changed our focus. We are looking for bigger companies in terms of revenues and earnings to be consulting clients of ours.
We are finding that there were many companies that are desperately in need of our services right now because as they have had difficulty either reporting their numbers or gaining access to any type of capital in China. We are seeing more and more candidates never before.
Amit Dayal - Rodman & Renshaw
Is the China Armco deal, an example of that and how much did it contribute to your revenues this quarter?
Marc Siegel
Yes. China Armco is an example of that and we feel very confident in the future of that company as well.
Amit Dayal - Rodman & Renshaw
Could you give me, how much revenues, you got from that deal this quarter? If it is not available, I can follow-up later? That is right.
Marc Siegel
About $2.9 million from Armco.
Amit Dayal - Rodman & Renshaw
Perfect. Thank you. Just one more question on the balance sheet and cash flow. The cash number seems to have come down a little bit to the $20 million level from the $26 million level than the previous quarter. Could you please provide some color on what happened over there?
Marc Siegel
David?
David Steins
Sure. Within the 10-Q and the discussion analysis, as I mentioned before, we discussed it little bit more in detail, but we have made a series of investments in the quarter such as Baotou Changxin, which is roughly about $7 million and as well we have made an additional investment in CDI Beijing, which started to contribute late in the third quarter. So what we have done is we have made investments in new foreign investment entities within China.
Amit Dayal - Rodman & Renshaw
Okay. From a cash flow perspective, we are still cash flow positive operationally. I have not completed my model yet. Well, I just want to get a sense from your side are we still cash flow positive and is that the expectation going forward?
Jenny Liu
From cash flow perspective discussed we are investing this was the expense, we will use for property and planned equipment. Our cash flow during the nine months we spend $11 million to expand our facility in China. During this quarter, the cash flow is positive for the quarter generated by our operating activities.
Amit Dayal - Rodman & Renshaw
All right. I will go through my model as well and then follow up if I have any questions. Thank you for taking my questions. I will get back to you.
Marc Siegel
Thanks, Amit.
Operator
Your next question comes from the line of John Ma with Roth Capital Partners.
John Ma - Roth Capital Partners
Good afternoon, gentlemen.
Marc Siegel
Hi, John.
John Ma - Roth Capital Partners
Hi, Marc. I have a few questions for you. Number one, on your magnesium operation, you talked about consolidation a couple of times. How do we understand the consolidation, I mean how would your future financial system will look, would they put as a separate entity or would they be spin off, can you elaborate it more?
Marc Siegel
We plan on creating a wholly-owned subsidiary of China Direct to house all magnesium facilities and then what we would do is with that new company by the minority interest we do not control now into that segment. So, we would actually reduce our overall percentage of that company from a 100% to whatever we give away to our entities in China. Net, net, net we will have probably a 15% to 18% gain in earnings from that consolidation.
John Ma - Roth Capital Partners
Okay. Now any status, only Baotou Changxin magnesium acquisition, I know it is been delayed for few months, so any time line when would that complete?
James Wang
Yes, our plan is to not invest in the next three to six months. The leading fourth data is the assets. When we form the joint venture, we decided to invest certain amount of the cash and China Direct also contributed a certain amount of assets.
After our auditing, we fund our data as our China partner is going to have enough assets to contribute to this transaction. So our China partner like I tried to move any more assets and display joint venture then we will make a decision where that we want to do the investment. Right now, I do not see in the next three to six months.
John Ma - Roth Capital Partners
Okay. You talked about closed the CDI Wanda operations, how much write-downs we would expect?
James Wang
Actually we bought a $1000, $2000 million. This is what we invested at. So, that is we have that cash that has been carried. So we will not generate any loss on these discontinued operations.
John Ma - Roth Capital Partners
Okay. So both Changxin and Yantai operation is out of picture, right?
James Wang
Correct. The (inaudible) is we leave in this state, we able to built this business into $100 million to $200 million in the next two, three years and we also believe in the much more money, maybe $5 million to $10 million to test the technology and do the business. So we just feel it fits our business model. We want to put our Magnesium segment and Basic Material segment after these two segments into $300 million business.
John Ma - Roth Capital Partners
Can you talk about any changes you made to your aluminum, zinc, these all the Basic Materials operations?
James Wang
Yes. Zinc right now we have finished the construction, but we have not entered into the production because of the zinc cost is too low right now. Therefore waiting for the production, we will probably lose some money and so we are just waiting for probably after passing the New Year. For aluminum products exactly we should enter production some times next month and we generated some revenue earnings in December 2008.
Operator
Your next question comes from the line of Ping Luo with Global Hunter Securities.
Ping Luo - Global Hunter Securities
Thank you for taking my question. Marc just mentioned you have a forward contract which is priced $3,500. I want to know how many tons are in those contacts After you deliver this contracts then the following (inaudible) well probably at lower current price so that is why I am asking this question.
Marc Siegel
Okay, good question, Ping. I think you misunderstood my comment.
Ping Luo - Global Hunter Securities
Okay.
Marc Siegel
Our forward contracts are for 5,000 tons in the fourth quarter, our average price in our forward contracts roughly $3,800 for that 5,000 tons. But, the stock price today is $2,800, so we are believing that our blended towards the fourth quarter, it will be north of $3,000.
Ping Luo - Global Hunter Securities
So would you comment, and I know it is hard to predict the math, would you comment on how the price will be trending next year, average price in 2007 was around 2,000, actually in 2006 and I think that…
Marc Siegel
Basically if you look at the company because we do not want to sign any contracts unless (inaudible) for any long time because the costs of to produce magnesium and probably they have got $2,500 to $3,000 per ton. So, anything less than $3,000 ton will probably not enter right now, if we are talking for future contracts. So we are looking for next year probably between $3,000 per ton to $3,500 per ton.
Operator
Your next question comes from the line of MS Kumar with Mid Southwest.
MS Kumar - Mid Southwest
Hi, I had a question about your guidance. Is that GAAP or non-GAAP guidance?
Marc Siegel
In terms of…
MS Kumar - Mid Southwest
Your $23 million to $25 million in net income?
Marc Siegel
$23 million is GAAP.
MS Kumar - Mid Southwest
It is of GAAP for guidance.
Marc Siegel
Yes, sir.
MS Kumar - Mid Southwest
That is about $0.20 to $0.23 something like that for the fourth quarter?
Marc Siegel
We have actually reduced our amount of shares. We are just under 23.5 million shares, so roughly what you figure that is for the quarter.
David Stein
Well, for this quarter…
Marc Siegel
Three into nine months.
David Stein
For this quarter on GAAP basis on a basic share we earned $0.25. For the fourth quarter we have not given out any quarterly guidance.
MS Kumar - Mid Southwest
Yes. I am just looking at the yearly 23 or 25 as you have given out there, just taking back to consideration.
David Stein
That is $23 million to $25 million for the year, now we are thinking somewhere between $0.20 and $0.24
MS Kumar - Mid Southwest
Okay. So, how is the demand going forward for magnesium going to be? I mean, is it going to be pretty consistent or you are going to see some dips because of slowdown within the global economy?
Marc Siegel
No. It is very difficult to say. We have seen a dip in October. We do not know what November is going to do yet. Right now everybody is little nervous. The more indications that we have from our biggest end users, there is more and more diecast parts, more and more automobile parts apprehendly for magnesium than ever before.
We believe that, that trend will continue. I do not know, what the worldwide car sales or worldwide electronic sales or worldwide aluminium sales are going to be over the next 12 months. We are certainly economic dependent. So, we believe that the macro perspective on magnesium is a growth industry.
Operator
Okay. Your next question comes from the line of Lewis Fernando, a Private Investor.
Lewis Fernando - Private Investor
You seem to have one of the best teams I have ever seen in the business. I am surprised that none of the questionnaires before congratulate you. I want to congratulate you on a great quarter you had also on earnings and revenue growth.
I think that you are probably making benefit of your buyback program, which should be strongly in effect now that the stock is such so low in price. I feel that one of the things that you will be probably looking at in a negative way is the cash dividend.
I think if you put a cash dividend effect, you would get more out of it than what you will pay as a dividend and the price of the stock, whereby you can make acquisition with a higher priced stock than you cannot at the price that is now. Am I right or do you think there is something wrong in my thinking?
David Stein
I think it is a great suggestion Lewis. We really appreciate your complement and we will take it under advisement. I wanted you to know in this economy it is been incumbent upon us to using our cash to the best of our ability. So, but we will consider your proposal.
Lewis Fernando - Private Investor
Yes because I think that at this price which seems to be ridiculous for the amount of money you are making and the PE ratio and especially the company that is growing as rapidly as you are that you should be able to buy the stock and be able to within a short period be able to use the stock as making acquisitions at a higher price.
Then you will find out that is probably much cheaper for the amount of money that you spent in dividend and I think you deserve increase in salary annually?
Marc Siegel
Thank you, Lewis. Thank you very much. We appreciate that.
Lewis Fernando - Private Investor
Well, anyway, I thought, I will throw it out there because I think it is very important.
Marc Siegel
Okay. Thank you.
Jenny Liu
Thank you
Operator
Your next question comes from the line of James Stone with PSK Advisors.
James Stone - PSK Advisors
Good afternoon gentlemen. I wonder if you can give us a little bit more flavor of precisely what happened in the quarter to cause the sequential decline in revenue. It looks like it was a significant decline in magnesium, was that in the production or was that just in the price?
David Stein
It is a combination of two. Our sale price declined by about 4% in the quarter, our overall manufacturing and distribution declined by about 7% which created an 18% decline for the quarter in magnesium.
In terms of Basic Materials and Lang Chemical, the Olympics shipping chemicals throughout the eastern part of China was very difficult during the month of August and September and we have seen some normalcy come back to then since then.
James Stone - PSK Advisors
Then in the consulting division which is what we have about a third decline.
David Stein
I believe the consulting division was up quarter-over-quarter.
James Stone - PSK Advisors
Okay. Then maybe I have a mistake here. I have 6.7 for June quarter and 4.5 for the September.
David Stein
Yes, 6.7 for the second quarter and 5.5 for the third quarter.
James Stone - PSK Advisors
5.5, okay. Still a relatively significant decline and I wonder if you can give us some flavor on that?
David Stein
The small decline of profit margins was actually up based on that. Generally speaking, when you deal with the Consulting segment you are looking at transaction and transaction-oriented business, so where the transaction is closed is where we booked the revenues and often times, we will have a backlog of transactions that will happen all within three months which may give a higher performance for that figure of three months. It is more indicative of our performance if you look over a 12 month period than you compare apples-to-apple.
James Stone - PSK Advisors
Roughly how many people are involved in the consulting effort?
Marc Siegel
In our US operation, there are 23 people. We have a lot of overlap between our operations in China and our consulting operations. Some of our legal, our accounting and our business development people overlap into both company's staff. It is hard to say.
Operator
Your next question comes from the line of Jane Vanderson, a Private Investor.
Jane Vanderson - Private Investor
Hello, good afternoon gentlemen and lady and well done again. I have a quick question and it is been partially answered. Where exactly due you sold your magnesium, into what industries and which are the biggest users, so we get a sense of if it is really growth or not growth and where do you see the growth?
Marc Siegel
Our industries that we sell to?
Jane Vanderson - Private Investor
Yes.
Marc Siegel
Are aluminum, building construction, aerospace, automobile, commercial transportation, consumer electronics, industrial.
Jane Vanderson - Private Investor
The biggest ones of those…?
Marc Siegel
Well, we gave them in order and priorities.
Jane Vanderson - Private Investor
Okay. So it is aluminum, building…
Marc Siegel
Aerospace, automotive…
Jane Vanderson - Private Investor
Okay. So you do not depend on things like automotive, which of course is slowing down, but aluminum and building in China are still increasing. I presume in aerospace, electronics, so those are growth industries then?
Marc Siegel
Yes, sir and in the automobile sector most of it is parts. So if there was not new car sales, its certainly going to be some replacement cars that need to be brought.
Jane Vanderson - Private Investor
Okay. Do you still anticipate of doing more stock buybacks or like a previous caller suggested maybe you can give small dividend, cash dividend?
Marc Siegel
Our buyback is still in place. We do not comment on when and how we are going to buy and we are taken a dividend and we are under consideration.
Jane Vanderson - Private Investor
Okay, great. Thank you.
Marc Siegel
Thank you, Jane.
Operator
Your next question comes from the line of Amit Dayal with Rodman & Renshaw.
Amit Dayal - Rodman & Renshaw
Follow-up on the capacity that you are building up for 2009 what is the level of utilization currently? What do you expect it to be in 2009 when you are up to that 72,000 available capacity level?
Marc Siegel
In 2008, thus far we are at about 80% capacity in terms of our utilization. In 2009, we do not have an estimate yet for our next year.
Amit Dayal - Rodman & Renshaw
Great. Thank you so much.
Marc Siegel
Thank you.
Operator
At this time, we have reached the allotted time for questions. Gentlemen, do you have any closing remarks.
Marc Siegel
We would just like to thank everybody that is taken the time to be on this call this afternoon. Let's see you guys at year end. If you have any questions, you could always reach us at 954-363-7333. Thanks again.
Operator
Thank you for attending today's conference call. Again, if you should have any additional questions, you may contact management at 954-363-7333. Thank you. You may now disconnect.
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