Materion Corporation Reports Second Quarter 2015 Financial Results and Revises Outlook for 2015
By Business Wire News
By Business Wire News
MAYFIELD HEIGHTS, Ohio
Materion Corporation (NYSE:MTRN) today reported second quarter 2015 financial results.
- Second quarter 2015 GAAP earnings were $0.43 per share, diluted. This compares to second quarter 2014 GAAP earnings of $0.47 per share, diluted, and represents a 19% improvement over the second quarter 2014 adjusted earnings of $0.36 per share, diluted.
- Second quarter 2015 results reflect the fifth consecutive quarter of year-over-year value-added sales and adjusted operating profit growth.
- Net sales for the second quarter of 2015 were $276.9 million. Value-added sales were $162.4 million, up 4% compared to value-added sales in the prior-year period, excluding the negative impact of foreign exchange rates.
- Operating profit for the second quarter 2015 was $12.8 million, an increase of 20% over the $10.7 million of adjusted operating profit recorded in the prior-year second quarter.
- Based on increasingly more volatile markets and slowing economic conditions, especially in China, the Company is revising its previously announced annual 2015 adjusted earnings forecast range to $1.65 to $1.85 per share from $1.80 to $2.00 per share, diluted.
SECOND QUARTER 2015 RESULTS
Net sales for the second quarter were $276.9 million, compared to net sales of $288.0 million for the second quarter of 2014. Value-added sales grew 2% to $162.4 million compared to value-added sales of $159.6 million for the second quarter of 2014. Excluding the negative year-over-year impact from foreign exchange rates, value-added sales grew 4% over the second quarter of 2014.
The growth in value-added sales in the second quarter of 2015 compared to the same period of last year was due primarily to stronger demand from customers in the defense, industrial components, automotive electronics and telecommunications infrastructure markets. New product value-added sales grew 44% over the prior-year comparable period and represented 11% of total second quarter 2015 value-added sales.
Operating profit for the second quarter of 2015 was $12.8 million, a 20% increase over the prior-year second quarter adjusted operating profit of $10.7 million. Adjusted operating profit margin, expressed as a percent of value-added sales, expanded by 120 basis points to 7.9% from the 2014 second quarter level. The margin improvement is a result of leveraging the higher sales volume and an improved product mix.
Net income for the second quarter of 2015 was $8.9 million, or $0.43 per share, diluted. This compares to net income of $10.0 million, or $0.47 per share, diluted, for the second quarter of the prior year. Excluding the net insurance settlement benefit recorded in the second quarter of 2014, earnings were up 19% compared to the second quarter 2014 adjusted earnings of $0.36 per share, diluted.
For the first six months of 2015, net sales were $566.9 million compared to net sales of $546.9 million for the same period of last year. Value-added sales for the first six months of 2015 were $325.0 million, up 7% compared to $304.5 million for the same period last year. Excluding the negative impact of foreign exchange rates, first half 2015 value-added sales grew 9% over the first half of 2014. Year-to-date net income was $18.5 million as compared to $17.3 million in the comparable period of the prior year. Excluding special items in both periods, adjusted earnings grew 31% year over year, from $0.64 per share, diluted, in the first half of 2014, to $0.84 per share, diluted, in the first half of 2015.
Richard J. Hipple, Chairman, President and Chief Executive Officer, stated, “I am pleased with the quarter and our team’s ability to deliver the fifth consecutive quarter of meaningful year-over-year value-added sales and earnings growth. Our strategy of pursuing organic growth through new product introductions and solving our customers’ challenges with advanced materials is working. Despite our successes over the past several quarters, we are cautious about the current volatility in the global market, particularly the continued strength of the U.S. dollar, the greater than expected drop in oil and gas exploration, the recent slowdown in the telecommunications infrastructure 4G build out in China, and what the unknown impact may be of ongoing economic weakness in China. We are revising our annual earnings estimate to reflect these changing market and economic conditions. We remain committed to strategies to deliver greater than GDP organic value-added sales growth and margin expansion and remain confident in our long-term earnings growth outlook.”
BUSINESS SEGMENT REPORTING
Performance Alloys and Composites
Net sales for Performance Alloys and Composites in the second quarter of 2015 were $107.7 million compared to net sales of $109.6 million in the second quarter of 2014. Value-added sales were $91.5 million in the second quarter of 2015, up $1.6 million, or 2%, compared to $89.9 million in the second quarter of 2014. Excluding the impact of foreign exchange rates, value-added sales increased 5% in the second quarter of 2015 over the prior-year period. Stronger value-added sales in the defense and industrial components end markets offset the declines in the energy and medical end markets.
Operating profit for the second quarter of 2015 was $9.3 million, up 48% over the prior-year operating profit of $6.3 million. Expressed as a percentage of value-added sales, operating profit margins expanded 320 basis points over the prior year to 10.2% in the second quarter of 2015. The margin expansion was driven by successes with our value-added growth strategy, improved product mix and our lean six-sigma program.
Advanced Materials’ net sales for the second quarter of 2015 were $131.4 million, which compares to second quarter of 2014 net sales of $145.0 million. Value-added sales for the second quarter of 2015 were $46.7 million, up 4% compared to the second quarter 2014 value-added sales of $45.0 million. The improvement in the second quarter value-added sales compared to the same period last year was driven primarily by strength from customers serving the energy markets, particularly the solar market, the medical and telecommunications infrastructure end markets.
Operating profit for the second quarter of 2015 was $7.4 million, up 4% over an adjusted operating profit of $7.1 million in the second quarter of 2014. Operating profit as a percent of value-added sales for the second quarter of 2015 was 15.8%, comparable to the prior-year period.
The Other segment includes the operating results of the Precision Coatings group and unallocated corporate costs.
Within the Other segment, Precision Coatings’ net sales for the second quarter of 2015 were $38.3 million, which compares to net sales of $34.1 million for the second quarter of 2014. Value-added sales for the second quarter of 2015 were $25.2 million, compared to value-added sales of $24.9 million for the same period of 2014. Stronger sales to customers serving the medical and defense markets was offset in part by weaker demand in the consumer electronics end market, particularly the projector display market.
Precision Coatings’ operating profit for the second quarter of 2015 was $0.6 million, or 2.4% of value-added sales, which is comparable to the second quarter of 2014 adjusted operating profit.
Despite the solid sales and earnings performance in the second quarter of 2015 and the solid five quarters of growth momentum we have delivered, global market and economic conditions are changing. China demand is clearly slowing, particularly in the telecommunications infrastructure 4G build out. Based on this change, coupled with the greater than previously expected drop-off in the oil and gas market and the continued strength of the U.S. dollar, the Company is revising its 2015 adjusted earnings forecast range to $1.65 to 1.85 per share. This represents a range that is flat to 12% above 2014 adjusted earnings of $1.65 per share, diluted.
Materion Corporation will host a conference call with analysts at 9:00 a.m. Eastern Time, July 30, 2015. The conference call will be available via webcast through the Company’s website at www.materion.com or through www.InvestorCalendar.com. By phone, please dial (877) 407-0778. Callers outside the U.S. can dial (201) 689-8565. A replay of the call will be available until August 14, 2015 by dialing (877) 660-6853 or (201) 612-7415; please reference Conference ID Number 13612965. The call will also be archived on the Company’s website.
Portions of the narrative set forth in this document that are not statements of historical or current facts are forward-looking statements, in particular, the outlook provided above. Our actual future performance may materially differ from that contemplated by the forward-looking statements as a result of a variety of factors.
These factors include, in addition to those mentioned elsewhere herein:
- Actual net sales, operating rates and margins for 2015;
- Our ability to strengthen our internal control over financial reporting and disclosure controls and procedures;
- The global economy;
- The impact of any U.S. Federal Government shutdowns and sequestrations;
- The condition of the markets which we serve, whether defined geographically or by segment, with the major market segments being: consumer electronics, industrial components, medical, automotive electronics, energy, telecommunications infrastructure, defense, commercial aerospace, and science;
- Changes in product mix and the financial condition of customers;
- Our success in developing and introducing new products and new product ramp-up rates;
- Our success in passing through the costs of raw materials to customers or otherwise mitigating fluctuating prices for those materials, including the impact of fluctuating prices on inventory values;
- Our success in integrating acquired businesses;
- The impact of the results of acquisitions on our ability to achieve fully the strategic and financial objectives related to these acquisitions;
- Our success in implementing our strategic plans and the timely and successful completion and start-up of any capital projects;
- The availability of adequate lines of credit and the associated interest rates;
- Other financial factors, including the cost and availability of raw materials (both base and precious metals), physical inventory valuations, metal financing fees, tax rates, exchange rates, pension costs and required cash contributions and other employee benefit costs, energy costs, regulatory compliance costs, the cost and availability of insurance, and the impact of the Company’s stock price on the cost of incentive compensation plans;
- The uncertainties related to the impact of war, terrorist activities and acts of God;
- Changes in government regulatory requirements and the enactment of new legislation that impacts our obligations and operations;
- The conclusion of pending litigation matters in accordance with our expectation that there will be no material adverse effects;
- The success of the realignment of our businesses; and
- The risk factors as set forth in Item 1A of our Form 10-K for the year ended December 31, 2014.
Materion Corporation is headquartered in Mayfield Heights, Ohio. The Company, through its wholly owned subsidiaries, supplies highly engineered advanced enabling materials to global markets. Products include precious and non-precious specialty metals, inorganic chemicals and powders, specialty coatings, specialty engineered beryllium alloys, beryllium and beryllium composites, and engineered clad and plated metal systems.
|Materion Corporation||Attachment 1|
|Consolidated Statements of Income|
|Second Quarter Ended||Six Months Ended|
|July 3,||June 27,||July 3,||June 27,|
|(In thousands except per share amounts)||2015||2014||2015||2014|
|Cost of sales||225,528||238,164||463,197||451,631|
|Selling, general and administrative expense||34,884||34,685||71,825||65,945|
|Research and development expense||3,586||3,443||6,934||6,230|
|Other – net||36||(2,895||)||(2,122||)||(2,533||)|
|Interest expense – net||650||672||1,307||1,367|
|Income before income taxes||12,171||13,896||25,738||24,254|
|Income tax expense||3,293||3,922||7,231||6,949|
|Basic earnings per share:|
|Net income per share of common stock||$||0.44||$||0.48||$||0.92||$||0.84|
|Diluted earnings per share:|
|Net income per share of common stock||$||0.43||$||0.47||$||0.90||$||0.82|
|Cash dividends per share||$||0.090||$||0.085||$||0.175||$||0.165|
|Weighted average number of shares of common stock outstanding|
|Materion Corporation||Attachment 2|
|Consolidated Balance Sheets|
|July 3,||Dec. 31,|
|Cash and cash equivalents||$||20,629||$||13,150|
|Deferred income taxes||13,806||13,402|
|Total current assets||399,837||386,694|
|Long-term deferred income taxes||17,722||17,722|
|Property, plant and equipment||811,645||800,671|
Less allowances for depreciation, depletion and amortization
|Property, plant, and equipment – net||254,276||247,588|
|Liabilities and Shareholders’ Equity|
|Other liabilities and accrued items||48,687||59,151|
|Total current liabilities||94,094||104,066|
|Other long-term liabilities||18,060||18,203|
|Retirement and post-employment benefits||100,782||103,891|
|Long-term income taxes||1,750||1,750|
|Deferred income taxes||3,377||617|
|Total Liabilities and Shareholders’ Equity||$||779,262||$||762,069|
|Materion Corporation||Attachment 3|
|Consolidated Statements of Cash Flows|
|Six Months Ended|
|July 3,||June 27,|
|Cash flows from operating activities:|
Adjustments to reconcile net income to net cash provided from operating activities:
|Depreciation, depletion and amortization||20,117||22,093|
|Amortization of deferred financing costs in interest expense||331||356|
|Stock-based compensation expense (non-cash)||2,655||3,027|
|Changes in assets and liabilities net of acquired assets and liabilities:|
|Decrease (increase) in accounts receivable||(4,622||)||(8,680||)|
|Decrease (increase) in inventory||2,150||(16,559||)|
|Decrease (increase) in prepaid and other current assets||(4,037||)||(2,658||)|
|Decrease (increase) in deferred income taxes||2,177||58|
|Increase (decrease) in accounts payable and accrued expenses||(16,882||)||(8,965||)|
|Increase (decrease) in unearned revenue||(283||)||1,637|
|Increase (decrease) in interest and taxes payable||3,240||5,432|
|Increase (decrease) in long-term liabilities||(1,801||)||(11,419||)|
|Other – net|
|Net cash provided from (used in) operating activities|
|Cash flows from investing activities:|
|Payments for purchase of property, plant and equipment|
|Payments for mine development||(10,100||)||(337||)|
|Proceeds from sale of property, plant and equipment||18||3,009|
|Other investments – net||–||(2||)|
|Net cash (used in) investing activities|
|Cash flows from financing activities:|
|Proceeds from issuance (repayment) of short-term debt||2,346||(4,886||)|
|Proceeds from issuance of long-term debt||51,000||33,170|
|Repayment of long-term debt||(33,110||)||(15,492||)|
|Principal payments under capital lease obligations||(404||)||(328||)|
|Cash dividends paid||(3,523||)||(3,405||)|
|Repurchase of common stock||(2,748||)||(2,672||)|
|Issuance of common stock under stock option plans||–||360|
|Tax benefit from stock compensation realization||–||109|
|Net cash provided from financing activities||13,561||6,856|
|Effects of exchange rate changes||(479||)||105|
|Net change in cash and cash equivalents||7,479||(4,712||)|
|Cash and cash equivalents at beginning of period||13,150||22,774|
|Cash and cash equivalents at end of period||$||20,629||$||18,062|
|Materion Corporation||Attachment 4|
|Reconciliation of Non-GAAP Measure Value-added sales|
|(In millions)||Second Quarter Ended||Six Months Ended|
July 3, 2015
June 27, 2014
July 3, 2015
June 27, 2014
|Less: Pass-through Metal Cost|
|Value-added Sales (non-GAAP)|
|% of VA||% of VA||% of VA||% of VA|
|% of VA||% of VA||% of VA||% of VA|
|Operating Profit Excluding Special Items||% of VA||% of VA||% of VA||% of VA|
|The cost of gold, silver, platinum, palladium and copper is passed through to customers and therefore the trends and comparisons of net sales are affected by movements in the market price of these metals. Internally, management also reviews net sales on a value-added basis. Value-added sales is a non-GAAP measure that deducts the value of the pass-through metals sold from net sales. Value-added sales allows management to assess the impact of differences in net sales between periods or segments and analyze the resulting margins and profitability without the distortion of the movements in pass-through metal prices. The dollar amount of gross margin and operating profit is not affected by the value-added sales calculation. The Company sells other metals and materials that are not considered direct pass throughs and their costs are not deducted from net sales to calculate value-added sales.|
|The Company’s pricing policy is to pass the cost of these metals on to customers in order to mitigate the impact of price volatility on the Company’s results from operations. Value-added information is being presented since changes in metal prices may not directly impact profitability. It is the Company’s intent to allow users of the financial statements to review sales with and without the impact of the pass-through metals.|
|Materion Corporation||Attachment 5|
|Reconciliation of Non-GAAP Measure – Profitability|
|Second Quarter Ended||Six Months Ended|
|(In millions except per share amounts)||July 3, 2015||June 27, 2014||July 3, 2015||June 27, 2014|
|GAAP as Reported|
|EPS – Diluted||$||0.43||$||0.47||$||0.90||$||0.82|
|Facility closure and reorganization costs (benefits)|
|Cost of goods sold||$||–||$||–||$||–||$||0.2|
|Selling, general and administrative||–||–||–||0.5|
|Recovery from insurance and other litigation, net of expenses|
|Selling, general and administrative||$||–||$||2.9||$||1.7||$||2.9|
|Total special items||$||–||$||(3.8||)||$||(2.1||)||$||(5.8||)|
|Special items – net of tax||$||–||$||(2.5||)||$||(1.5||)||$||(3.8||)|
|Tax Special Item||$||–||$||–||$||0.2||$||–|
|Non-GAAP Measures – Adjusted Profitability|
|Value-added (VA) sales||$||162.4||$||159.6||$||325.0||$||304.5|
|Gross margin % of VA||31.6||%||31.2||%||31.9||%||31.4||%|
|Operating profit % of VA||7.9||%||6.7||%||7.7||%||6.5||%|
|EPS – Diluted||$||0.43||$||0.36||$||0.84|
|In addition to presenting financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP), this earnings release contains financial measures, including gross margin, operating profit, net income and earnings per share, on a non-GAAP basis. As detailed in the above reconciliation, we have adjusted out the cost (benefit) impact of facility closure and reorganization costs, the net recovery from insurance and other litigation claims, and certain income tax items from the applicable GAAP measure. Internally, management reviews the results of operations without the impact of these costs in order to assess the profitability from ongoing activities. We are providing this information because we believe it will assist investors in analyzing our financial results and, when viewed in conjunction with the GAAP results, provide a more comprehensive understanding of the factors and trends affecting our operations.|
|Materion Corporation||Attachment 6|
|Value-added Sales by Market|
|Second Quarter Ended||Six Months Ended|
|July 3, 2015||June 27, 2014||% Change||July 3, 2015||June 27, 2014||% Change|
|Performance Alloy & Composites|
|Other/Precision Coatings Group|
Michael C. Hasychak, 216-383-6823
Patrick S. Carpenter, 216-383-6835