Materion Corporation (NYSE:MTRN) today reported fourth quarter
and full-year 2017 financial results and provided 2018 earnings
guidance.
- Net sales for the fourth quarter of
2017 were $308.7 million, compared to $234.3 million for the fourth
quarter of 2016.
- Fourth quarter 2017 value-added sales
grew 25% to a record $181.2 million, from prior-year value-added
sales of $145.1 million.
- Operating profit for the fourth quarter
2017 was $13.9 million compared to $3.6 million in the prior year.
Excluding non-recurring items, adjusted operating profit improved
89% to $13.6 million in the fourth quarter of 2017 from $7.2
million in the prior year.
- Fourth quarter 2017 net loss of ($0.41)
per share, diluted, due primarily to the impact of U.S. tax reform,
compared to earnings of $0.33 per share in the prior year.
- Fourth quarter 2017 adjusted earnings
were up 82% at $0.51 per share, diluted, from $0.28 per share in
the fourth quarter of 2016.
- The Company is providing full-year 2018
earnings guidance of $1.95 to $2.10 per share, diluted.
FOURTH QUARTER 2017
RESULTS
Net sales for fourth quarter 2017 were $308.7 million, compared
to $234.3 million for the prior year. Value-added sales grew 25% to
a record $181.2 million in the quarter, compared to $145.1 million
for the prior year. Growth in value-added sales was driven by a 17%
increase in the base business, plus the acquisition of Heraeus’
high-performance target materials business (HTB) which contributed
$11.6 million. Base business growth was driven by new product sales
and improved end market demand. New product sales reached a record
$31.0 million in the quarter, up 20% compared to the prior
year.
Operating profit for fourth quarter 2017 totaled $13.9 million
compared to $3.6 million in the prior year. Excluding non-recurring
items, fourth quarter adjusted operating profit improved 89% to
$13.6 million from $7.2 million in 2016.
Fourth quarter 2017 net loss was $8.2 million, or ($0.41) per
share, diluted, and was driven by $21.6 million of income tax
expense primarily related to U.S. tax reform, and compares to net
income of $6.8 million in the prior year. Adjusted earnings for the
fourth quarter of 2017, which exclude non-recurring charges related
primarily to new tax legislation, the gain on sale of the Fukaya,
Japan service center, and CEO transition costs, were $0.51 per
share, diluted, up over 80% compared to $0.28 per share in the
fourth quarter 2016.
FULL-YEAR 2017 RESULTS
For the full-year 2017, net sales were $1.1 billion compared to
$969.2 million for 2016. Value-added sales were a record $677.7
million, compared to $599.9 million for the prior year.
Year-over-year growth of 13% in value-added sales is attributable
to new product sales growth, strength in end markets and the HTB
acquisition.
Net income for 2017 was $11.5 million or $0.56 per share,
diluted, as compared to $25.7 million or $1.27 per share in the
prior year. Excluding special items, net income for 2017 was $35.2
million, or $1.72 per share, diluted, as compared to $26.6 million,
or $1.32 per share, for the prior year.
Jugal Vijayvargiya, President and Chief Executive Officer,
stated, “I am pleased with our strong finish to the year. Fourth
quarter results represent the fourth consecutive quarter of
year-over-year growth in both value-added sales and profits. We
have momentum going into 2018, and expect to consistently deliver
profitable growth as we execute on our growth strategy. As a
result, we are forecasting full-year 2018 adjusted earnings of
$1.95 to $2.10 per diluted share.”
BUSINESS SEGMENT FOURTH QUARTER 2017
RESULTS
Advanced Materials
Advanced Materials’ net sales for fourth quarter 2017 were
$161.2 million, versus $108.3 million in the prior year.
Value-added sales increased 42% to $58.3 million, versus $41.2
million in the prior year. HTB acquisition contributed $11.6
million of value-added sales, while the base business growth of 13%
was led by strength in the consumer electronics end market.
Operating profit increased 44% to $7.9 million, compared to $5.5
million in the prior year.
Performance Alloys and
Composites
Net sales for Performance Alloys and Composites were $119.0
million compared to $95.5 million in the prior year. Value-added
sales were a record $101.0 million in the fourth quarter versus
$83.2 million in the prior year. The 21% year-over-year improvement
in value-added sales was primarily driven by new product sales
growth and end market demand, particularly in the consumer
electronics, defense, and commercial aerospace markets.
Operating profit for the fourth quarter of 2017 was $9.5 million
compared to $0.5 million in the prior year. Excluding the gain on
sale and related closure costs associated with exiting the Fukaya,
Japan service center, adjusted operating profit for the quarter was
$8.2 million, versus $3.1 million in the prior year. The
significant year-over-year profit increase of $5.1 million or 165%
was led by performance improvements across the business, new
product sales growth, and an improved product mix.
Precision Coatings
Precision Coatings’ net sales for the fourth quarter of 2017
were $28.5 million versus prior-year sales of $30.5 million.
Value-added sales were $22.9 million, a 3% increase compared to
$22.2 million for the same period of 2016. Operating profit
increased 28% to $2.3 million, or 10% of value-added sales in the
fourth quarter of 2017, versus $1.8 million in the prior year.
OUTLOOK
The Company delivered favorable full-year 2017 financial results
on both top and bottom line, led by performance improvements across
the business, record new product sales, and improved end market
demand. We expect this performance to continue and are providing
2018 full-year adjusted earnings guidance of $1.95 to $2.10 per
share, diluted, which represents a year-over-year increase of 13 to
22 percent.
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 non-routine costs 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, February 15, 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 March 1, 2018 by dialing (877) 481-4010 or (919)
882-2331; please reference replay ID number 23757. 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;
- 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.
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 Fourth Quarter Ended Year
Ended December 31, December 31,
December 31, December 31, (In thousands
except per share amounts) 2017 2016 2017
2016 Net sales $ 308,668 $ 234,330 $ 1,139,447 $ 969,236
Cost of sales 249,930 190,285 927,953 785,773
Gross margin 58,738 44,045 211,494 183,463 Selling, general,
and administrative expense 38,052 32,582 146,170 129,683 Research
and development expense 3,878 2,942 13,981 12,802 Other — net 2,941
4,877 12,764 13,874 Operating profit
13,867 3,644 38,579 27,104 Interest expense — net 462 372
2,183 1,789
Income before income taxes
13,405 3,272 36,396 25,315 Income tax expense (benefit) 21,637
(3,506 ) 24,945 (425 )
Net income (loss) $
(8,232 ) $ 6,778 $ 11,451 $ 25,740
Basic
earnings per share: Net income (loss) per share of common stock
$ (0.41 ) $ 0.34 $ 0.57 $ 1.29
Diluted earnings per share:
Net income (loss) per share of common stock $ (0.41 ) $ 0.33 $ 0.56
$ 1.27
Cash dividends per share $ 0.100 $ 0.095 $ 0.395 $
0.375
Weighted-average number of shares of common stock
outstanding: Basic 20,086 19,944 20,027 19,983 Diluted 20,086
20,287 20,415 20,213
Attachment 2
Materion Corporation and Subsidiaries Consolidated
Balance Sheets (Thousands) December 31,
2017 December 31, 2016 Assets Current assets Cash
and cash equivalents $ 41,844 $ 31,464 Accounts receivable 124,014
100,817 Inventories 220,352 200,865 Prepaid and other current
assets 24,733 12,138 Total current assets 410,943
345,284 Long-term deferred income taxes 17,047 39,409 Property,
plant, and equipment 891,789 861,267 Less allowances for
depreciation, depletion, and amortization (636,211 ) (608,636 )
Property, plant, and equipment—net 255,578 252,631 Intangible
assets 9,847 11,074 Other assets 6,992 5,950 Goodwill 90,677
86,950
Total Assets $ 791,084 $ 741,298
Liabilities and Shareholders’ Equity Current liabilities
Short-term debt $ 777 $ 733 Accounts payable 49,059 32,533 Salaries
and wages 42,694 29,885 Other liabilities and accrued items 28,044
21,340 Income taxes 1,084 4,781 Unearned revenue 5,451 1,105
Total current liabilities 127,109 90,377 Other long-term
liabilities 30,967 17,979 Retirement and post-employment benefits
93,225 91,505 Unearned income 36,905 41,369 Long-term income taxes
4,857 2,100 Deferred income taxes 213 274 Long-term debt 2,827
3,605 Shareholders’ equity 494,981 494,089
Total
Liabilities and Shareholders’ Equity $ 791,084 $ 741,298
Attachment 3
Materion Corporation and Subsidiaries Consolidated
Statements of Cash Flows (Thousands) 2017
2016 Cash flows from operating activities: Net income $
11,451 $ 25,740 Adjustments to reconcile net income to net cash
provided from operating activities: Depreciation, depletion, and
amortization 42,751 45,651 Amortization of deferred financing costs
in interest expense 919 666 Stock-based compensation expense
(non-cash) 4,957 3,174 (Gain) loss on sale of property, plant, and
equipment (1,150 ) (648 ) Deferred tax expense (benefit) 20,256
(9,010 ) Changes in assets and liabilities net of acquired assets
and liabilities: Decrease (increase) in accounts receivable (18,484
) (4,096 ) Decrease (increase) in inventory (9,462 ) 10,791
Decrease (increase) in prepaid and other current assets (11,606 )
658 Increase (decrease) in accounts payable and accrued expenses
34,433 2,758 Increase (decrease) in unearned revenue 4,336 (2,590 )
Increase (decrease) in interest and taxes payable (514 ) 2,511
Increase (decrease) in long-term liabilities (4,264 ) (684 )
Other-net (5,828 ) (6,741 )
Net cash provided from operating
activities 67,795 68,180 Cash flows from investing activities:
Payments for purchase of property, plant, and equipment (27,516 )
(27,177 ) Payments for mine development (1,560 ) (9,861 ) Payments
for acquisition (16,504 ) (1,750 ) Proceeds from sale of property,
plant, and equipment 2,222 1,433
Net cash (used
in) investing activities (43,358 ) (37,355 ) Cash flows from
financing activities: Repayment of short-term debt — (8,305 )
Proceeds from issuance of long-term debt 55,000 10,000 Repayment of
long-term debt (55,797 ) (10,694 ) Principal payments under capital
lease obligations (843 ) (736 ) Cash dividends paid (7,913 ) (7,496
) Deferred financing costs (300 ) (1,000 ) Repurchase of common
stock (1,086 ) (3,798 ) Payments of withholding taxes for
stock-based compensation awards (4,506 ) (1,089 )
Net cash (used
in) financing activities (15,445 ) (23,118 ) Effects of
exchange rate changes 1,388 (479 )
Net change in cash and
cash equivalents 10,380 7,228
Cash and cash equivalents at
beginning of period 31,464 24,236
Cash and
cash equivalents at end of period $ 41,844 $ 31,464
Attachment 4
Materion Corporation and Subsidiaries Reconciliation of
Non-GAAP Measure - Value-added Sales Fourth Quarter
Ended Year Ended (Millions) December 31,
2017 December 31, 2016 December 31, 2017
December 31, 2016 Net Sales Performance Alloys
and Composites $ 119.0 $ 95.5 $ 429.5 $ 387.5 Advanced Materials
161.2 108.3 590.8 437.2 Precision Coatings 28.5 30.5 119.2 144.5
Other — — — — Total $ 308.7 $
234.3 $ 1,139.5 $ 969.2
Less: Pass-through Metal Cost
Performance Alloys and Composites $ 18.0 $ 12.3 $ 66.0 $ 55.5
Advanced Materials 102.9 67.1 362.8 260.9 Precision Coatings 5.6
8.3 28.5 46.8 Other 1.0 1.5 4.5 6.1
Total $ 127.5 $ 89.2 $ 461.8 $ 369.3
Value-added Sales
(non-GAAP) Performance Alloys and Composites $ 101.0 $ 83.2 $
363.5 $ 332.0 Advanced Materials 58.3 41.2 228.0 176.3 Precision
Coatings 22.9 22.2 90.7 97.7 Other (1.0 ) (1.5 ) (4.5 ) (6.1 )
Total $ 181.2 $ 145.1 $ 677.7 $ 599.9
% of %
of % of % of Gross Margin VA
VA VA VA Performance Alloys and Composites $
27.0 27% $ 19.0 23% $ 89.7 25% $ 73.6 22% Advanced Materials 22.4
38% 16.7 41% 88.5 39% 71.6 41% Precision Coatings 9.1 40% 7.6 34%
33.7 37% 37.8 39% Other 0.2 — 0.8 — (0.4 ) — 0.5
— Total $ 58.7 32% $ 44.1 30% $ 211.5 31% $ 183.5 31%
% of % of % of % of Operating
Profit VA VA VA VA Performance
Alloys and Composites $ 9.5 9% $ 0.5 1% $ 22.0 6% $ 6.6 2% Advanced
Materials 7.9 14% 5.5 13% 32.8 14% 26.3 15% Precision Coatings 2.3
10% 1.8 8% 8.4 9% 11.6 12% Other (5.8 )
—
(4.2 ) — (24.6 ) — (17.4 ) — Total $ 13.9 8% $ 3.6 2% $ 38.6 6% $
27.1 5%
Fourth Quarter Ended
Year Ended (Millions) December 31, 2017
December 31, 2016 December 31, 2017
December 31, 2016 Special Items
Performance Alloys and Composites $ (1.3 ) $ 2.6 $ 0.1 $ 2.6
Advanced Materials — — 1.3 — Precision Coatings — — 0.4 — Other 1.0
1.0 5.6 5.3 Total $ (0.3 ) $ 3.6 $ 7.4
$ 7.9
% of % of % of % of
Operating Profit Excluding Special Items VA VA
VA VA Performance Alloys and Composites $ 8.2 8% $
3.1 4% $ 22.1 6% $ 9.2 3% Advanced Materials 7.9 14% 5.5 13% 34.1
15% 26.3 15% Precision Coatings 2.3 10% 1.8 8% 8.8 10% 11.6 12%
Other (4.8 ) — (3.2 ) — (19.0 ) — (12.1 ) — Total $ 13.6 8% $ 7.2
5% $ 46.0 7% $ 35.0 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 Fourth Quarter
Ended Year Ended (Millions except per share
amounts) December 31, 2017 December 31,
2016 December 31, 2017 December 31, 2016
GAAP as Reported Net Sales $ 308.7 $ 234.3 $ 1,139.5 $ 969.2
Operating profit 13.9 3.6 38.6 27.1 Net income (loss) (8.2 ) 6.8
11.5 25.7 EPS - Diluted $ (0.41 ) $ 0.33 $ 0.56 $ 1.27
Operating Profit Special Items Cost reductions $ (1.3 ) $
2.6 $ 0.7 $ 2.6 Legacy legal & environmental costs 0.3 — 0.5
1.4 CEO transition 0.7 — 4.1 — Acquisition costs — 1.0
2.1 3.9
Total operating profit special
items $ (0.3 ) $ 3.6 $ 7.4 $ 7.9
Operating Profit Special Items - net of tax $ (0.2 ) $ 2.3 $
4.8 $ 5.1
Tax Special Item $ 18.9 $ (3.3 ) $ 18.9 $ (4.2 )
Non-GAAP Measures - Adjusted Profitability
Value-added (VA) sales $ 181.2 $ 145.1 $ 677.7 $ 599.9 Operating
profit 13.6 7.2 46.0 35.0 Operating profit % of VA 7.5 % 5.0 % 6.8
% 5.8 % Net income 10.5 5.8 35.2 26.6 EPS - Diluted $ 0.51 $ 0.28 $
1.72 $ 1.32
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 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 Fourth Quarter Ended Year
Ended December 31, December 31,
December 31, December 31, (Millions)
2017 2016 % Change 2017 2016
% Change Materion Corporation Consumer Electronics $
54.1 $ 43.8 23.5 % $ 204.7 $ 177.5 15.3 % Industrial Components
25.3 22.9 10.5 % 99.8 85.9 16.2 % Defense 19.6 14.8 32.4 % 59.5
56.1 6.1 % Energy 14.8 7.2 105.6 % 49.7 31.7 56.8 % Medical 13.5
13.9 (2.9 )% 58.5 68.2 (14.2 )% Automotive Electronics 12.6 11.8
6.8 % 51.8 49.6 4.4 % Telecom Infrastructure 8.2 8.5 (3.5 )% 31.3
33.4 (6.3 )% Other 33.1 22.2 49.1 % 122.4 97.5
25.5 % Total $ 181.2 $ 145.1 24.9 % $ 677.7 $ 599.9 13.0 %
Performance Alloy and Composites Consumer Electronics $ 20.4
$ 17.8 14.6 % $ 75.4 $ 68.2 10.6 % Industrial Components 19.1 18.4
3.8 % 76.0 68.5 10.9 % Defense 12.2 9.9 23.2 % 32.6 36.2 (9.9 )%
Energy 5.9 4.5 31.1 % 20.8 19.7 5.6 % Medical 1.6 1.7 (5.9 )% 6.8
7.5 (9.3 )% Automotive Electronics 12.4 11.3 9.7 % 50.4 47.9 5.2 %
Telecom Infrastructure 6.6 6.8 (2.9 )% 24.2 25.5 (5.1 )% Other 22.8
12.8 78.1 % 77.3 58.5 32.1 % Total $
101.0 $ 83.2 21.4 % $ 363.5 $ 332.0 9.5 %
Advanced Materials
Consumer Electronics $ 28.1 $ 21.0 33.8 % $ 110.9 $ 89.9 23.4 %
Industrial Components 4.5 3.3 36.4 % 17.4 13.4 29.9 % Defense 3.5
1.6 118.8 % 11.3 6.5 73.8 % Energy 8.9 2.7 229.6 % 28.9 12.0 140.8
% Medical 2.4 2.7 (11.1 )% 10.8 11.4 (5.3 )% Automotive Electronics
— — — % — — — % Telecom Infrastructure 1.6 1.6 — % 7.1 7.9 (10.1 )%
Other 9.3 8.3 12.0 % 41.6 35.2 18.2 %
Total $ 58.3 $ 41.2 41.5 % $ 228.0 $ 176.3 29.3 %
Precision
Coatings Consumer Electronics $ 5.6 $ 5.0 12.0 % $ 18.4 $ 19.5
(5.6 )% Industrial Components 1.7 1.2 41.7 % 6.5 4.0 62.5 % Defense
3.9 3.3 18.2 % 15.6 13.5 15.6 % Energy — — — % — — — % Medical 9.5
9.5 — % 40.8 49.2 (17.1 )% Automotive Electronics 0.2 0.5 (60.0 )%
1.4 1.7 (17.6 )% Telecom Infrastructure — — — % — —
— % Other 2.0 2.7 (25.9 )% 8.0 9.8
(18.4 )% Total $ 22.9 $ 22.2 3.2 % $ 90.7 $ 97.7 (7.2 )%
Eliminations $ (1.0 ) $ (1.5 ) $ (4.5 ) $ (6.1 )
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.comMayfield Hts-g
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