Materion Corporation (NYSE:MTRN) today reported second quarter
2018 financial results.
- Net sales for the second quarter
2018 were $309.1 million, compared to $295.8 million for the second
quarter 2017.
- Second quarter 2018 value-added
sales were a record $189.9 million, up 8% from prior-year
value-added sales of $176.1 million.
- Second quarter 2018 net income was
$0.54 per share, diluted, compared to $0.36 per share in the prior
year.
- Adjusted earnings of $0.54 per share
were up 29% for second quarter 2018 compared to $0.42 per share,
diluted, in the second quarter 2017.
- The Company is raising its full-year
adjusted earnings guidance range to $2.00 to $2.15 per share,
diluted.
SECOND QUARTER 2018
RESULTS
Net sales for the second quarter 2018 were $309.1 million,
compared to $295.8 million for the prior year. Value-added sales of
$189.9 million were a record for any quarter, up 8% compared to
$176.1 million for the prior year. Focus on commercial execution
and new product sales, as well as strong end market demand, led to
the year-over-year improvement. New product sales were $30.7
million in the quarter, representing 16% of value-added sales.
Operating profit for the second quarter totaled $15.2 million
compared to $10.1 million in the prior year. Adjusted operating
profit improved 26% compared to $12.1 million in 2017 due to
performance improvements and leveraging sales growth.
Second quarter 2018 net income was $11.1 million compared to
$7.3 million in the prior year. On a per share basis, second
quarter 2018 net income of $0.54 per share, diluted, improved 29%
versus adjusted earnings of $0.42 in the second quarter 2017.
“This quarter represents a sales and profit milestone for us and
is the sixth consecutive quarter of both value-added sales and
earnings growth. We remain focused on executing our multi-pillar
strategy in the second half of 2018 and beyond to consistently
deliver profitable growth,” stated Jugal Vijayvargiya, President
and Chief Executive Officer. “Based on our solid first half
performance and disciplined execution of our strategy, we are
raising the full-year adjusted earnings guidance to $2.00 to $2.15
per share.”
For the first six months of 2018, net sales were $612.6 million,
compared to net sales of $536.5 million for the same period last
year. Value-added sales for the first six months of 2018 were
$371.2 million, an increase of 14%, versus $325.1 million for the
first six months of 2017. Excluding the Heraeus high-performance
target materials business (HTB), value-added sales have grown 10%
in 2018 compared to 2017, attributable to new product sales,
commercial execution, and improved end market demand.
Year-to-date net income was $21.7 million or $1.05 per share,
diluted, as compared to $10.4 million, or $0.51 per share, in the
comparable prior-year period. Excluding special items in both
periods, earnings for the first half of 2018 were $21.7 million, or
$1.05 per share, as compared to $14.5 million, or $0.71 per share,
for the same period in the prior year. Performance improvements
across the company combined with sales growth are contributing to
the nearly 50% earnings growth.
BUSINESS SEGMENT SECOND QUARTER 2018
RESULTS
Performance Alloys and
Composites
Net sales for Performance Alloys and Composites were $129.7
million for second quarter 2018 compared to $108.5 million in the
second quarter of 2017. Value-added sales were a record $110.1
million versus $92.7 million in the prior year. This significant
19% sales increase was primarily driven by new product sales,
improved product mix, and strengthening end market demand.
Operating profit for the second quarter of 2018 was $12.3
million, or 11% of value-added sales, compared to $5.5 million in
the second quarter of 2017. Operating profit nearly doubled
compared to the prior-year adjusted operating profit of $6.2
million leveraging sales growth and performance improvements.
Advanced Materials
Advanced Materials’ net sales for the second quarter of 2018
were $150.4 million, versus $157.1 million in the prior year.
Value-added sales were $57.3 million, versus $62.0 million in the
prior-year quarter, due primarily to lower demand in the consumer
electronics display market and facility relocation in Germany as
part of the previously announced HTB acquisition.
Operating profit was $5.6 million, compared to adjusted
operating profit of $9.0 million in the prior year with softening
demand in the display market, unfavorable product mix, and planned
relocation and integration expenses.
Precision Coatings
Precision Coatings’ net sales for the second quarter of 2018
were $29.0 million versus prior-year sales of $30.2 million.
Value-added sales of $23.4 million were up 4% compared to $22.6
million for the same period of 2017. Operating profit was $2.2
million versus $2.3 million in the prior year.
OUTLOOK
The Company delivered favorable second quarter 2018 financial
results for both top and bottom line, led by performance
improvements, increased new product sales, and favorable end market
demand. Based on these factors and current order entry levels, we
are raising full-year 2018 adjusted earnings guidance from $1.95 to
$2.10 per share, diluted, to $2.00 to $2.15 per share. The midpoint
of the revised guidance represents an approximate 21% increase from
the prior year.
ADJUSTED EARNINGS
GUIDANCE
It is not possible for the Company to identify the amount or
significance of future adjustments associated with potential
insurance and litigation claims, legacy environmental costs,
acquisition and integration costs, certain income tax items, or
other special items that the Company adjusts in the presentation of
adjusted earnings guidance. These items are dependent on future
events that are not reasonably estimable at this time. Accordingly,
the Company is unable to reconcile without unreasonable effort the
forecasted range of adjusted earnings guidance for the full year to
a comparable GAAP range. However, items excluded from the Company's
adjusted earnings guidance include the historical adjustments noted
in Attachments 4 and 5 to this press release.
CONFERENCE CALL
Materion Corporation will host an investor conference call with
analysts at 9:00 a.m. Eastern Time, July 26, 2018. 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 9, 2018 by dialing (877) 481-4010 or
(919) 882-2331; please reference replay ID number 23767. The call
will also be archived on the Company’s website.
FORWARD-LOOKING
STATEMENTS
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 2018;
- The global economy, including the
impact of tariffs as well as other governmental actions;
- 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, defense, telecommunications
infrastructure, energy, 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 identifying acquisition
candidates and in acquiring and integrating such businesses,
including our ability to effectively integrate the HTB
acquisition;
- The impact of the results of
acquisitions on our ability to fully achieve 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;
- Other financial and economic factors,
including the cost and availability of raw materials (both base and
precious metals), physical inventory valuations, metal financing
fees, tax rates, exchange rates, interest rates, pension costs and
required cash contributions and other employee benefit costs,
energy costs, regulatory compliance costs, the cost and
availability of insurance, credit availability, 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; and
- The risk factors as set forth in Item
1A of our Form 10-K for the year ended December 31, 2017.
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.
Attachment 1
Materion Corporation and Subsidiaries Consolidated
Statements of Income
(Unaudited)
Second Quarter Ended Six Months Ended June
29, June 30, June 29, June
30, (In thousands except per share amounts) 2018
2017 2018 2017 Net sales $ 309,085 $ 295,842 $
612,552 $ 536,511 Cost of sales 247,247 241,064 492,434 438,577
Gross margin 61,838 54,778 120,118 97,934 Selling, general, and
administrative expense 38,473 37,928 76,935 71,449 Research and
development expense 3,860 3,544 7,503 6,674 Other — net 4,313 3,204
7,237 6,022 Operating profit 15,192 10,102 28,443 13,789 Interest
expense — net 667 695 1,397 1,188 Other non-operating expense—net
437 368 879 635
Income before income taxes 14,088 9,039
26,167 11,966 Income tax expense 2,944 1,726 4,459 1,603
Net
income $ 11,144 $ 7,313 $ 21,708 $ 10,363
Basic earnings per
share: Net income per share of common stock $ 0.55 $ 0.37 $
1.08 $ 0.52
Diluted earnings per share: Net income per share
of common stock $ 0.54 $ 0.36 $ 1.05 $ 0.51
Cash dividends per
share $ 0.105 $ 0.100 $ 0.205 $ 0.195
Weighted-average
number of shares of common stock outstanding: Basic 20,221
20,012 20,178 19,991 Diluted 20,593 20,347 20,583 20,348
Attachment 2
Materion Corporation and Subsidiaries Consolidated
Balance Sheets (Unaudited)
(Thousands)
June 29, 2018 December 31, 2017 Assets Current
assets Cash and cash equivalents $ 42,895 $ 41,844 Accounts
receivable 135,699 124,014 Inventories 209,204 220,352 Prepaid and
other current assets 19,617 24,733 Total current
assets 407,415 410,943 Long-term deferred income taxes 16,588
17,047 Property, plant, and equipment 894,306 891,789 Less
allowances for depreciation, depletion, and amortization (637,730 )
(636,211 ) Property, plant, and equipment—net 256,576 255,578
Intangible assets—net 7,899 9,847 Other assets 6,991 6,992 Goodwill
90,697 90,677
Total Assets $ 786,166 $
791,084
Liabilities and Shareholders’ Equity Current
liabilities Short-term debt $ 798 $ 777 Accounts payable 46,240
49,059 Salaries and wages 32,299 42,694 Other liabilities and
accrued items 27,182 28,044 Income taxes 2,994 1,084 Unearned
revenue 7,576 5,451 Total current liabilities 117,089
127,109 Other long-term liabilities 14,203 14,895 Capital lease
obligations 15,896 16,072 Retirement and post-employment benefits
80,944 93,225 Unearned income 34,734 36,905 Long-term income taxes
4,896 4,857 Long-term deferred income taxes 210 213 Long-term debt
2,453 2,827 Shareholders’ equity 515,741 494,981
Total Liabilities and Shareholders’ Equity $ 786,166
$ 791,084
Attachment 3
Materion Corporation and Subsidiaries Consolidated
Statements of Cash Flows
(Unaudited)
Six Months Ended (Thousands) June 29,
2018 June 30, 2017 Cash flows from operating
activities: Net income $ 21,708 $ 10,363 Adjustments to reconcile
net income to net cash provided from (used in) operating
activities: Depreciation, depletion, and amortization 18,349 20,725
Amortization of deferred financing costs in interest expense 514
440 Non-cash compensation expense 5,412 5,816 Deferred income tax
expense 429 658 Changes in assets and liabilities net of acquired
assets and liabilities: Decrease (increase) in accounts receivable
(12,060 ) (30,882 ) Decrease (increase) in inventories 10,428
(6,498 ) Decrease (increase) in prepaid and other current assets
4,928 (9,267 ) Increase (decrease) in accounts payable and accrued
expenses (14,189 ) 15,519 Increase (decrease) in unearned revenue
2,132 1,685 Increase (decrease) in interest and taxes payable 2,084
(1,115 ) Domestic pension plan contributions (13,000 ) (4,000 )
Other-net 2,569 (3,141 )
Net cash provided by operating
activities 29,304 303 Cash flows from investing activities:
Payments for purchase of property, plant, and equipment (17,153 )
(11,252 ) Payments for mine development (3,425 ) (509 ) Payments
for acquisition — (16,504 ) Proceeds from sale of property, plant,
and equipment 27 27
Net cash used in investing
activities (20,551 ) (28,238 ) Cash flows from financing
activities: Proceeds from issuance of short-term debt — 2,387
Proceeds from issuance of long-term debt — 45,000 Repayment of
long-term debt (383 ) (25,362 ) Principal payments under capital
lease obligations (425 ) (383 ) Cash dividends paid (4,137 ) (3,899
) Deferred financing costs — (300 ) Repurchase of common stock —
(1,086 ) Payments of withholding taxes for stock-based compensation
awards (2,765 ) (2,302 )
Net cash (used in) provided by
financing activities (7,710 ) 14,055 Effects of exchange rate
changes 8 913
Net change in cash and cash
equivalents 1,051 (12,967 )
Cash and cash equivalents at
beginning of period 41,844 31,464
Cash and
cash equivalents at end of period $ 42,895 $ 18,497
Attachment 4
Materion Corporation and Subsidiaries Reconciliation of
Non-GAAP Measure - Value-added Sales
(Unaudited)
Second Quarter Ended Six Months Ended
(Millions) June 29, 2018 June 30, 2017
June 29, 2018 June 30, 2017 Net Sales
Performance Alloys and Composites $
129.7 $ 108.5 $ 248.0 $ 201.1 Advanced Materials 150.4 157.1 303.9
271.8 Precision Coatings 29.0 30.2 60.7 63.6 Other — —
— — Total $ 309.1 $ 295.8 $ 612.6 $ 536.5
Less: Pass-through Metal Cost Performance Alloys and
Composites $ 19.6 $ 15.8 $ 37.6 $ 29.2 Advanced Materials 93.1 95.1
188.3 162.5 Precision Coatings 5.6 7.6 13.7 17.7 Other 0.9
1.2 1.8 2.0 Total $ 119.2 $ 119.7 $ 241.4 $
211.4
Value-added Sales (non-GAAP) Performance Alloys
and Composites $ 110.1 $ 92.7 $ 210.4 $ 171.9 Advanced Materials
57.3 62.0 115.6 109.3 Precision Coatings 23.4 22.6 47.0 45.9 Other
(0.9 ) (1.2 ) (1.8 ) (2.0 ) Total $ 189.9 $ 176.1 $ 371.2 $ 325.1
% of % of % of % of Gross
Margin VA VA VA VA Performance
Alloys and Composites $ 31.1 28% $ 22.8 25% $ 58.9 28% $ 39.1 23%
Advanced Materials 21.3 37% 23.3 38% 42.1 36% 41.7 38% Precision
Coatings 9.1 39% 8.9 39% 19.1 41% 17.2 37% Other 0.3 — (0.2
) — — — (0.1 ) — Total $ 61.8 33% $ 54.8 31% $ 120.1 32% $
97.9 30%
% of % of % of % of
Operating Profit VA VA VA VA
Performance Alloys and Composites $ 12.3 11% $ 5.5 6% $ 22.2 11% $
5.7 3% Advanced Materials 5.6 10% 8.7 14% 11.5 10% 15.1 14%
Precision Coatings 2.2 9% 2.3 10% 5.6 12% 4.5 10% Other (4.9 ) —
(6.4 ) — (10.8 ) — (11.5 ) — Total $ 15.2 8% $ 10.1 6% $ 28.5 8% $
13.8 4%
Second Quarter Ended Six
Months Ended (Millions) June 29, 2018
June 30, 2017 June 29, 2018 June 30,
2017 Special Items
Performance Alloys and Composites $ — $ 0.7 $ — $ 1.2 Advanced
Materials — 0.3 — 1.3 Precision Coatings — — — — Other — 1.0
0.7 3.8 Total $ — $ 2.0 $ 0.7 $ 6.3
% of % of % of % of
Operating Profit Excluding Special
Items
VA VA VA VA Performance Alloys and
Composites $ 12.3 11% $ 6.2 7% $ 22.2 11% $ 6.9 4% Advanced
Materials 5.6 10% 9.0 15% 11.5 10% 16.4 15% Precision Coatings 2.2
9% 2.3 10% 5.6 12% 4.5 10% Other (4.9 ) — (5.4 ) — (10.1 ) — (7.7 )
— Total $ 15.2 8% $ 12.1 7% $ 29.2 8% $ 20.1 6%
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
financial 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 these 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.
Attachment 5
Materion Corporation and Subsidiaries Reconciliation of
Non-GAAP Measures - Profitability
(Unaudited)
Second Quarter Ended Six Months Ended
(Millions except per share amounts) June 29, 2018
June 30, 2017 June 29, 2018 June 30,
2017 GAAP as Reported Net Sales $ 309.1 $ 295.8 $ 612.6
$ 536.5 Operating profit 15.2 10.1 28.5 13.8 Net income 11.1 7.3
21.7 10.4 EPS - Diluted $ 0.54 $ 0.36 $ 1.05 $ 0.51
Operating Profit Special Items Cost reductions $ — $ 0.7 $ —
$ 1.4 Legacy legal & environmental costs — — 0.7 0.2 CEO
transition — 0.9 — 2.6 Acquisition costs — 0.4 —
2.1
Total operating profit special items $ —
$ 2.0 $ 0.7 $ 6.3
Operating Profit
Special Items - net of tax $ — $ 1.3 $ 0.6 $ 4.1
Tax Special
Item $ — $ — $ (0.6 ) $ —
Non-GAAP Measures -
Adjusted Profitability Value-added (VA) sales $ 189.9 $ 176.1 $
371.2 $ 325.1 Operating profit 15.2 12.1 29.2 20.1 Operating profit
% of VA 8.0 % 6.9 % 7.9 % 6.2 % Net income 11.1 8.6 21.7 14.5 EPS -
Diluted $ 0.54 $ 0.42 $ 1.05 $ 0.71
In addition to presenting financial statements prepared in
accordance with U.S. generally accepted accounting principles
(GAAP), this earnings release contains financial measures,
including operating profit, segment operating profit, net income,
and earnings per share, on a non-GAAP basis. As detailed in the
above reconciliation and Attachment 4, we have adjusted the results
for certain special items such as CEO transition costs, cost
reduction initiatives (i.e., asset impairment charges and
severance), legacy legal and environmental costs, merger and
acquisition costs, and certain income tax items from the applicable
GAAP financial 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.
Attachment 6
Materion Corporation and Subsidiaries Value-added sales
by Market
(Unaudited)
Second Quarter Ended Six Months Ended June
29, June 30, June 29, June
30, (Millions) 2018 2017 % Change
2018 2017 % Change Materion Corporation
Consumer Electronics $ 57.3 $ 54.2 5.7 % $ 110.9 $ 100.3 10.6 %
Industrial Components 28.9 28.1 2.8 % 61.0 51.7 18.0 % Defense 21.4
12.0 78.3 % 33.7 23.9 41.0 % Energy 16.3 13.1 24.4 % 33.7 22.0 53.2
% Automotive Electronics 14.7 13.3 10.5 % 29.5 25.8 14.3 % Medical
13.4 15.0 (10.7 )% 28.9 31.1 (7.1
)%
Telecom Infrastructure 11.0 8.7 26.4 % 19.7 15.4 27.9 % Other 26.9
31.7 (15.1 )% 53.8 54.9 (2.0 )% Total $
189.9 $ 176.1 7.8 % $ 371.2 $ 325.1 14.2 %
Performance Alloy and
Composites Consumer Electronics $ 21.1 $ 18.2 15.9 % $ 41.1 $
34.7 18.4 % Industrial Components 22.9 21.0 9.0 % 48.7 38.6 26.2 %
Defense 14.9 6.6 125.8 % 21.5 14.0 53.6 % Energy 8.6 4.6 87.0 %
15.0 9.6 56.3 % Automotive Electronics 14.3 13.0 10.0 % 28.9 25.1
15.1 % Medical 1.8 1.8 — % 3.4 3.8 (10.5 )% Telecom Infrastructure
9.5 6.6 43.9 % 16.6 11.7 41.9 % Other 17.0 20.9 (18.7
)% 35.2 34.4 2.3 % Total $ 110.1 $ 92.7 18.8 % $
210.4 $ 171.9 22.4 %
Advanced Materials Consumer Electronics
$ 31.2 $ 32.0 (2.5 )% $ 60.5 $ 58.1 4.1 % Industrial Components 3.1
3.7 (16.2 )% 6.9 6.8 1.5 % Defense 1.6 1.7 (5.9 )% 3.0 2.9 3.4 %
Energy 7.7 8.5 (9.4 )% 18.7 12.4 50.8 % Automotive Electronics — —
— % — — — % Medical 2.7 3.2 (15.6 )% 5.6 5.6 — % Telecom
Infrastructure 1.5 2.2 (31.8 )% 3.0 3.8 (21.1 )% Other 9.5
10.7 (11.2 )% 17.9 19.7 (9.1 )% Total $ 57.3 $
62.0 (7.6 )% $ 115.6 $ 109.3 5.8 %
Precision Coatings
Consumer Electronics $ 5.0 $ 4.0 25.0 % $ 9.3 $ 7.5 24.0 %
Industrial Components 2.9 3.5 (17.1 )% 5.4 6.4 (15.6 )% Defense 4.9
3.8 28.9 % 9.2 7.1 29.6 % Energy — — — % — — — % Automotive
Electronics 0.5 0.3 66.7 % 0.7 0.7 — % Medical 9.0 10.0 (10.0 )%
20.0 21.7 (7.8 )% Telecom Infrastructure — — — % 0.1 — — % Other
1.1 1.0 10.0 % 2.3 2.5 (8.0 )% Total $
23.4 $ 22.6 3.5 % $ 47.0 $ 45.9 2.4 %
Eliminations $
(0.9 ) $ (1.2 ) $ (1.8 ) $ (2.0 )
Prior year numbers have been restated to conform to the current
year presentation.
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Materion CorporationInvestor
Contact:Stephen F. Shamrock, 216-383-4010stephen.shamrock@materion.comhttps://materion.comorMedia
Contact:John G. McCloskey, 216-383-6835john.mccloskey@materion.comMayfield Hts-g
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