First Quarter Financial
Highlights:
- Company re-affirms earnings targets
for fiscal 2019
- Consolidated sales of $374.2
million, up $4.7 million over last year
- GAAP EPS of $0.10; non-GAAP EPS of
$0.50
- Adjusted EBITDA of $46.5
million
- Cash flow from operations higher
than a year ago
Matthews International Corporation (NASDAQ GSM:MATW) today
announced financial results for its first quarter of fiscal
2019.
In discussing the Company’s results for the quarter, Joseph C.
Bartolacci, President and Chief Executive Officer, stated: “We
posted solid operating performance for the fiscal 2019 first
quarter. Seasonally, the first quarter is typically our slowest,
and the fiscal 2019 first quarter was consistent with that
expectation.
“For the current quarter, consolidated sales increased to $374.2
million, reflecting organic sales growth in our Memorialization and
Industrial Technologies segments. Acquisitions, primarily Star
Granite & Bronze, Compass Engineering and Frost Converting
Systems, also contributed to our sales increase.
“We were able to maintain adjusted EBITDA performance consistent
with last year at $46.5 million in spite of challenges in several
of our businesses. This was primarily as a result of acquisition
synergy realization and the continuous operating improvements of
our businesses. In addition, operating cash flow for the fiscal
2019 first quarter was higher than a year ago.
“On a GAAP basis, comparability of earnings per share was
impacted by significant income tax benefits discrete to the prior
period (primarily related to changes in U.S. tax legislation) and
an increase in the Company’s interest expense in connection with
our bond offering in December 2017. On a non-GAAP basis, adjusted
earnings per share were $0.50 for the fiscal 2019 first quarter,
compared to $0.64 per share a year ago. The decline was primarily
due to non-operating items, as consolidated adjusted EBITDA for the
quarter remained steady compared to the first quarter last
year."
First Quarter Fiscal 2019 Consolidated Results
(Unaudited)
($ in millions, except per share data)
Q1
FY2019 Q1 FY2018 Change %
Change Sales $ 374.2 $ 369.5 $ 4.7 1.3 % Net income
attributable to Matthews $ 3.1 $ 35.2 $ (32.1 ) (91.2 )% Diluted
EPS $ 0.10 $ 1.10 $ (1.0 ) (90.9 )% Non-GAAP adjusted net income $
15.9 $ 20.3 $ (4.4 ) (21.7 )% Non-GAAP adjusted EPS $ 0.50 $ 0.64 $
(0.1 ) (21.9 )% Adjusted EBITDA $ 46.5 $ 46.5 $ — — %
Note: See the attached tables for
additional important disclosures regarding Matthews’ use of
non-GAAP measures as well as reconciliations of non-GAAP measures
to corresponding GAAP measures. Organic sales represent changes in
sales excluding the impact of acquisitions, divestitures, and
changes in foreign currency exchange rates.
Consolidated sales for the quarter ended December 31, 2018
were $374.2 million, compared to $369.5 million a year ago,
representing an increase of $4.7 million, or 1.3%, over the first
quarter last year. The increase primarily reflected organic sales
growth in the Memorialization and Industrial Technologies segments,
and benefits from recent acquisitions. Changes in foreign currency
exchange rates had an unfavorable impact of $5.8 million on
consolidated sales compared to a year ago.
Net income attributable to the Company for the quarter ended
December 31, 2018 was $3.1 million, or $0.10 per share,
compared with $35.2 million, or $1.10 per share, a year ago. A
substantial portion of the decrease reflected the favorable impact
on last year’s earnings of U.S. Federal tax regulation changes and
other tax benefits discrete to fiscal 2018. In addition, the
current quarter included a loss on the sale of a controlling
interest in an investment (see below) and an increase in interest
expense primarily related to the Company’s bond offering in
December 2017.
On a non-GAAP adjusted basis, earnings for the fiscal 2019 first
quarter were $0.50 per share, compared with $0.64 per share for the
fiscal 2018 first quarter. The change was driven primarily by an
increase in the Company’s interest expense, higher income tax
expense, unrealized losses on certain retirement plan investments
and the unfavorable impact of changes in foreign currency exchange
rates.
Adjusted EBITDA (net income before interest expense, income
taxes, depreciation and amortization, and other adjustments) for
the fiscal 2019 first quarter was $46.5 million, which was
consistent with $46.5 million for the same quarter a year ago.
Adjusted EBITDA for the current quarter reflected the benefits of
higher sales, acquisition synergy realization and cost reduction
initiatives, which were offset by higher commodity and
transportation costs and the unfavorable impact of changes in
foreign currency exchange rates. See reconciliation of adjusted
EBITDA below.
Sales for the SGK Brand Solutions segment were $185.3 million
for the quarter ended December 31, 2018, compared to $191.8
million a year ago. Changes in foreign currency exchange rates had
an unfavorable impact of $4.7 million on the segment’s sales
compared with the same quarter last year. In addition, the decrease
resulted from lower sales in the U.S., reflecting a delay in timing
of client projects and a significant brand client electing to
transition their work internally, which was partially offset by
increased sales in Europe and the U.K., and the impact of the
acquisition of Frost Converting Systems (November 2018).
Memorialization segment sales for the fiscal 2019 first quarter
were $153.9 million, compared to $144.9 million a year ago,
representing an increase of $9.0 million, or 6.2%. The increase
reflected higher sales of memorial products, caskets and cremation
equipment in the U.S., and the benefit of the acquisition of Star
Granite and Bronze (February 2018).
Sales for the Industrial Technologies segment were $35.0 million
for the quarter ended December 31, 2018, compared to $32.8
million a year ago, representing an increase of $2.2 million, or
6.7%. The increase reflected a combination of organic sales growth
(higher sales of warehouse automation systems), and the benefit of
the acquisition of Compass Engineering (November 2017).
During the quarter, the Company sold a controlling interest in
its pet cremation business. However, due to the timing of the sale
relative to the recent investments in developing the business, the
Company was required to recognize a loss of $4.5 million on the
transaction. The Company fully expects to realize the value of its
remaining investment with the anticipated future growth of the
business.
The Company repurchased approximately 186,400 shares under its
repurchase program during the first quarter of fiscal 2019.
Outlook
Mr. Bartolacci further stated: “We are maintaining our earnings
outlook for the full fiscal year. Although each of our segments
experienced some customer project delays in the first quarter, we
still expect these projects to be completed during this fiscal
year. In addition, order rates for warehouse automation systems in
our Industrial Technologies segment and for engineered solutions in
our SGK Brand Solutions segment remain solid. We also expect that
recent new brand account wins will contribute to our results.
"We remain cautious, however, as commodity cost increases will
continue to offset some of these benefits. In addition, our
Industrial Technologies segment experienced a slowing during the
recent quarter in product identification order rates. We also
continue to expect a higher consolidated income tax rate in fiscal
2019 as tax benefits discrete to fiscal 2018 will not repeat.
"As a result, based on our current projections, we are
maintaining our targets to achieve growth in adjusted EBITDA in the
mid-to-high single digit percentage range over fiscal 2018 and
growth in non-GAAP earnings per share in the mid-single digit
percentage range over fiscal 2018. In addition, we continue to
expect to generate higher operating cash flow in fiscal 2019.”
Webcast
The Company will host a conference call and webcast on Friday,
February 1, 2019 at 9:00 a.m. Eastern Time to review its financial
and operating results, and discuss its corporate strategies and
outlook. A question-and-answer session will follow.
The conference call can be accessed by calling (201) 689-8471.
The audio webcast can be monitored at www.matw.com. A telephonic replay will be
available from 12:00 p.m. ET on the day of the call through Friday,
February 15, 2019. To listen to the archived call, dial (412)
317-6671 and enter the pass code 13686397. The webcast replay will
be available in the investor relations section of the Company’s
website at www.matw.com, where a
transcript will also be posted once available.
About Matthews International Corporation
Matthews International Corporation is a global provider of brand
solutions, memorialization products and industrial technologies.
The SGK Brand Solutions segment is a leader in providing brand
development, deployment and delivery services that help build our
clients’ brands and consumers’ desire for them. The Memorialization
segment is a leading provider of memorialization products,
including memorials, caskets and cremation equipment, primarily to
cemetery and funeral home customers that help families move from
grief to remembrance. The Industrial Technologies segment designs,
manufactures and distributes marking, coding and industrial
automation technologies and solutions. The Company has
approximately 11,000 employees in more than 25 countries on six
continents that are committed to delivering the highest quality
products and services.
Forward-looking Information
Any forward-looking statements contained in this release are
included pursuant to the “safe harbor” provisions of the Private
Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks and uncertainties that
may cause the Company’s actual results in future periods to be
materially different from management’s expectations. Although the
Company believes that the expectations reflected in such
forward-looking statements are reasonable, no assurance can be
given that such expectations will prove correct. Factors that could
cause the Company's results to differ materially from the results
discussed in such forward-looking statements principally include
changes in domestic or international economic conditions, changes
in foreign currency exchange rates, changes in the cost of
materials used in the manufacture of the Company's products,
changes in mortality and cremation rates, changes in product demand
or pricing as a result of consolidation in the industries in which
the Company operates, changes in product demand or pricing as a
result of domestic or international competitive pressures, unknown
risks in connection with the Company's acquisitions, cybersecurity
concerns, effectiveness of the Company's internal controls,
compliance with domestic and foreign laws and regulations,
technological factors beyond the Company's control, and other
factors described in the Company’s Annual Report on Form 10-K and
other periodic filings with the U.S. Securities and Exchange
Commission.
CONDENSED CONSOLIDATED STATEMENTS OF
INCOME (Unaudited) (In thousands, except per share data)
Three Months Ended December 31, 2018
2017(1) % Change Sales $
374,177 $ 369,454 1.3 % Cost of
sales (247,766 ) (238,041 ) 4.1 %
Gross profit
126,411 131,413 (3.8 )% Gross margin
33.8 % 35.6 % Selling and administrative expenses (102,132 )
(105,383 ) (3.1 )% Amortization of intangible assets (8,113 )
(6,681 ) 21.4 %
Operating profit 16,166
19,349 (16.5 )% Operating margin 4.3 %
5.2 % Interest and other income (deductions), net (12,577 )
(9,418 ) 33.5 %
Income before income taxes 3,589
9,931 (63.9 )% Income taxes (605 ) 25,227
(102.4 )% Net income 2,984 35,158 (91.5 )% Non-controlling
interests 113 22 413.6 %
Net income attributable
to Matthews $ 3,097 $ 35,180
(91.2 )% Earnings per share --
diluted $ 0.10 $ 1.10
(90.9 )% Earnings per share --
non-GAAP(2) $ 0.50 $
0.64 (21.9 )% Dividends
declared per share $ 0.20 $
0.19 5.3 %
(1) Information for the three months ended
December 31, 2017 has been adjusted to reflect the adoption of ASU
No. 2017-07. The Company adopted this standard on October 1, 2018
applying the presentation requirements retrospectively resulting in
a reclassification of net benefit costs of $714, $226 and $485 from
cost of sales, selling expense and administrative expense,
respectively, to other income (deductions), net.
(2) See reconciliation of non-GAAP
financial information provided in tables at the end of this
release.
SEGMENT INFORMATION
(Unaudited) (In thousands) Three Months Ended
December 31, 2018 2017 Sales: SGK Brand
Solutions $ 185,300 $ 191,766 Memorialization 153,886 144,889
Industrial Technologies 34,991 32,799 $
374,177 $ 369,454
Adjusted
EBITDA:(1) SGK Brand Solutions $ 27,351 $ 30,852
Memorialization 30,321 28,443 Industrial Technologies 3,595 3,687
Corporate and Non-Operating (14,786 ) (16,486 ) Total
Adjusted EBITDA(2) $ 46,481 $ 46,496
(1) Beginning in fiscal 2019, the Company
changed its primary measure of segment profitability from operating
profit to adjusted EBITDA on a pre-corporate cost allocation basis.
This presentation is consistent with how the Company's chief
operating decision maker evaluates the results of operations and
makes strategic decisions about the business.
(2) See reconciliation of non-GAAP
financial information provided in tables at the end of this
release.
CONDENSED CONSOLIDATED BALANCE SHEET
INFORMATION (Unaudited) (In thousands)
December 31, 2018 September 30, 2018 ASSETS
Cash and cash equivalents $ 39,836 $ 41,572 Accounts
receivable, net 313,246 331,463 Inventories, net 188,319 180,451
Other current assets 73,145 62,937 Total current assets 614,546
616,423 Property, plant and equipment, net 246,021 252,775 Goodwill
931,457 948,894 Other intangible assets, net 439,799 443,910 Other
long-term assets 120,954 113,483
Total assets $ 2,352,777 $
2,375,485
LIABILITIES Long-term debt, current
maturities $ 46,110 $ 31,260 Other current liabilities 254,598
272,883 Total current liabilities 300,708 304,143 Long-term debt
936,897 929,342 Other long-term liabilities 271,157 273,286
Total liabilities 1,508,762 1,506,771
SHAREHOLDERS' EQUITY Total shareholders’ equity 844,015
868,714
Total liabilities and shareholders' equity $
2,352,777 $ 2,375,485
CONDENSED
CONSOLIDATED CASH FLOWS INFORMATION (Unaudited) (In
thousands) Three Months Ended December 31,
2018 2017 Cash flows from operating
activities: Net Income $ 2,984 $ 35,158 Adjustments to
reconcile net income to net cash provided by operating activities:
Depreciation and amortization 19,226 17,238 Changes in working
capital items (21,060 ) (9,999 ) Other operating activities 7,236
(34,760 )
Net cash provided by operating activities
8,386 7,637
Cash flows from
investing activities Capital expenditures (8,458 ) (11,647 )
Acquisitions, net of cash acquired (8,404 ) (85,964 ) Other
investing activities 1,244 (10,567 )
Net cash used in
investing activities (15,618 ) (108,178 )
Cash flows
from financing activities: Net proceeds from long-term debt
20,707 113,301 Purchases of treasury stock (7,751 ) (4,415 )
Dividends (6,414 ) (6,071 ) Other financing activities (724 ) —
Net cash provided by financing activities 5,818
102,815 Effect of exchange rate changes on
cash (322 ) 353
Net changes in cash and cash
equivalents $ (1,736 ) $ 2,627
Reconciliations of Non-GAAP Financial Measures
Included in this report are measures of financial performance
that are not defined by GAAP. The Company uses non-GAAP financial
measures to assist in comparing its performance on a consistent
basis for purposes of business decision-making by removing the
impact of certain items that management believes do not directly
reflect the Company’s core operations including acquisition costs,
ERP integration costs, strategic initiative and other charges
(which includes non-recurring charges related to operational
initiatives and exit activities), stock-based compensation and the
non-service portion of pension and postretirement expense.
Management believes that presenting non-GAAP financial measures is
useful to investors because it (i) provides investors with
meaningful supplemental information regarding financial performance
by excluding certain items that management believes do not directly
reflect the Company's core operations, (ii) permits investors to
view performance using the same tools that management uses to
budget, forecast, make operating and strategic decisions, and
evaluate historical performance, and (iii) otherwise provides
supplemental information that may be useful to investors in
evaluating the Company’s results. The Company believes that the
presentation of these non-GAAP financial measures, when considered
together with the corresponding GAAP financial measures and the
reconciliations to those measures, provided herein, provides
investors with an additional understanding of the factors and
trends affecting the Company’s business that could not be obtained
absent these disclosures.
ADJUSTED NET INCOME AND EPS RECONCILIATION
(Unaudited) (In thousands, except per share data)
Three Months Ended December 31, 2018
2017 Net income attributable to Matthews $
3,097 $ 35,180 Acquisition costs 1,504 1,429
ERP integration costs 1,611 1,550 Strategic initiatives and other
charges — 479 Loss on divestiture 3,304 — Non-service pension and
postretirement expense (1) 689 1,055 Intangible amortization
expense 6,004 4,944 Tax-related (2) (300 ) (24,356 )
Adjusted
net income $ 15,909 $ 20,281
Adjusted EPS $ 0.50 $
0.64
Note: Adjustments to net income for
non-GAAP reconciling items were calculated using an income tax rate
of 26.0% for the three months ended December 31, 2018 and 2017,
respectively.
(1) The non-GAAP adjustment to pension and
postretirement expense represents the add-back of the non-service
related components of these costs. Non-service related components
include interest cost, expected return on plan assets and
amortization of actuarial gains and losses. The service cost and
prior service cost components of pension and postretirement expense
are considered to be a better reflection of the ongoing
service-related costs of providing these benefits. The other
components of GAAP pension and postretirement expense are primarily
influenced by general market conditions impacting investment
returns and interest (discount) rates. Please note that GAAP
pension and postretirement expense or the adjustment above are not
necessarily indicative of the current or future cash flow
requirements related to these employee benefit plans.
(2) The tax-related adjustments in fiscal
2018 consisted of income tax regulation changes which included an
estimated favorable tax benefit of approximately $37,800 for the
reduction in the Company’s net deferred tax liability principally
reflecting the lower U.S. Federal tax rate, offset partially by an
estimated repatriation transition tax charge and other charges of
approximately $13,500, for the three month period ended December
31, 2017.
ADJUSTED EBITDA RECONCILIATION
(Unaudited) (In thousands) Three Months Ended
December 31, 2018 2017 Net income
$ 2,984 $ 35,158 Income tax provision
(benefit) 605 (25,227 )
Income before income taxes
3,589 9,931 Net loss attributable to noncontrolling
interests 113 22 Interest expense 10,301 7,801 Depreciation and
amortization * 19,226 17,238 Acquisition costs (1)** 2,032 1,931
ERP integration costs (2)** 2,177 2,027 Strategic initiatives and
other charges (3)** — 647 Loss on divestiture (4) 4,465 —
Stock-based compensation 3,647 5,474 Non-service pension and
postretirement expense (5) 931 1,425
Total
Adjusted EBITDA $ 46,481 $
46,496 Adjusted EBITDA margin 12.4 % 12.6 %
(1) Includes certain non-recurring costs
associated with recent acquisition activities.
(2) Represents costs associated with
global ERP system integration efforts.
(3) Includes certain non-recurring costs
associated with productivity and cost-reduction initiatives
intended to result in improved operating performance, profitability
and working capital levels.
(4) Represents a loss on the sale of a
controlling interest in a Memorialization business.
(5) Non-service pension and postretirement
expense includes interest cost, expected return on plan assets and
amortization of actuarial gains and losses. These benefit cost
components are excluded from adjusted EBITDA since they are
primarily influenced by external market conditions that impact
investment returns and interest (discount) rates. The service cost
and prior service cost components of pension and postretirement
expense are included in the calculation of adjusted EBITDA, since
they are considered to be a better reflection of the ongoing
service-related costs of providing these benefits. Please note that
GAAP pension and postretirement expense or the adjustment above are
not necessarily indicative of the current or future cash flow
requirements related to these employee benefit plans.
* Depreciation and amortization was
$11,442 and $11,005 for the SGK Brand Solutions segment, $5,019 and
$4,142 for the Memorialization segment, $1,526 and $1,126 for the
Industrial Solutions segment, and $1,239 and $965 for Corporate and
Non-Operating, for the three months ended December 31, 2018 and
2017, respectively.
** Acquisition costs, ERP integration
costs, and strategic initiatives and other charges were $601 and
$1,650 for the SGK Brand Solutions segment, $4,465 and $288 for the
Memorialization segment, and $3,608 and $2,577 for Corporate and
Non-Operating, for the three months ended December 31, 2018 and
2017, respectively. Acquisition costs, ERP integration costs, and
strategic initiatives and other charges were $90 for the Industrial
Solutions segment for the three months ended December 31, 2017.
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Matthews International CorporationSteven F. Nicola(412)
442-8200Chief Financial Officer
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