Revenue of $284.2 MillionEarnings Per
Share of $4.56Approves Dividend of $0.80 Per Share
Chase Corporation (NYSE American: CCF), a global specialty
chemicals company that is a leading manufacturer of protective
materials for high-reliability applications, today announced
financial results for both the fiscal year and quarter ended August
31, 2018. The Company also announced a cash dividend of $0.80 per
share to shareholders of record on November 23, 2018 and payable on
December 5, 2018.
HIGHLIGHTS – Fiscal
2018 vs. Fiscal 2017
GAAP Financials
- Revenue of $284.19 million, up $31.63
million, or 13%, from $252.56 million
- Operating income of $55.09 million,
down $3.04 million, or 5%, from $58.13 million
- Net income of $43.14 million, up $1.13
million, or 3%, from $42.01 million
- Earnings per diluted share (“EPS”) of
$4.56, up $0.12, or 3%, from $4.44
Non-GAAP Financial Measures *
- EBITDA of $75.76 million, down $0.23
million, or less than one percent, from $76.00 million
- Adjusted EBITDA of $75.25 million, up
$1.28 million, or 2%, from $73.97 million
- Adjusted diluted EPS of $4.44, up $0.34
or 8%, from $4.10
HIGHLIGHTS – Q4 2018
vs. Q4 2017
GAAP Financials
- Revenue of $77.48 million, up $8.48
million, or 12%, from $68.99 million
- Operating income of $13.81 million,
down $2.61 million, or 16%, from $16.43 million
- Net income of $11.16 million, down
$0.25 million, or 2%, from $11.41 million
- EPS of $1.18, down $0.03 or 2%, from
$1.21
Non-GAAP Financial Measures *
- EBITDA of $19.58 million, down $0.62
million, or 3%, from $20.20 million
- Adjusted EBITDA of $19.71 million, down
$0.53 million, or 3%, from $20.23 million
- Adjusted diluted EPS of $1.15 down
$0.03, or 3%, from $1.18
* Reconciliations of the non-GAAP financial measures to Chase’s
GAAP financial results are included at the end of this release. See
also “Use of Non-GAAP Financial Measures” below.
Adam P. Chase, President and Chief Executive Officer, commented,
“Year-over-year revenue increases were achieved across our
Industrial Materials and Construction Materials segments for both
the fourth quarter and year-to-date periods. These increases came
mostly from volume, but with some revenue gains coming on
price.
“Product cost and mix trends noted in last quarter’s press
release continued in the fourth quarter. Raw material costs further
increased in the quarter, straining margins in certain product
areas. We are experiencing a shift from relative stability to
instability because of commodity price inflation and trade
policy-driven supply chain disruptions. There is a lag period from
when we realize cost increases until we pass them along in the
marketplace. Rising material prices more severely impacted the
Industrial Materials segment’s margin in the second half of our
fiscal year, primarily due to petroleum-based inputs. While higher
costs did affect our Construction Materials segment, its margin
contraction has been less pronounced, and it has been more strongly
affected by a less favorable sales mix in the current year and
quarter.
“In a time of greater uncertainty, we will continue to pursue
both tactical business model changes to reduce variable cost and
further consolidation initiatives to reduce fixed cost. Beyond
working to address the immediate impacts of raw material costs and
tariffs, Chase remains focused on reducing future fixed costs in
manufacturing. The consolidation of the Pawtucket, RI plant into
our Lenoir, NC and Oxford, MA locations, noted in last quarter’s
release, was substantially completed in the fourth quarter. We
incurred certain one-time charges related to the plant closure that
reduced our fourth quarter operating income and operational
efficiency, but we expect to realize ongoing savings beginning
after the first quarter of fiscal 2019.
“Operationally, we were active in the fourth quarter with
continued acquisition integration activities. We rolled out our
company-wide ERP system in the acquired operations of Zappa
Stewart. Concurrently, rising healthcare costs and tight labor
markets have made it more difficult to hire qualified employees to
support our growth and consolidation efforts. These and material
cost pressures continue in the first quarter of fiscal 2019. We are
proud of the sustained hard work and dedication of our associates
in taking on these challenges.
“Over the past few years we completed some asset and business
divestitures that have helped to focus the organization on core and
related specialty chemical technologies. However, in the short
term, our Industrial Materials segment’s margin has been compressed
as we continue to engage in low-margin tolling work following the
divestiture of both our fiber optic cable components and our
structural composites businesses where one-time gains were
recognized in fiscal years 2018, 2017 and 2016.”
Industrial Materials:
For the Three Months Ended August 31, For the
Years Ended August 31, 2018 2017 2018
2017 Revenue $ 61,647 $ 53,248 $ 232,288 $ 202,956 Cost of
products and services sold 39,654 32,181
145,742 119,109 Gross Margin $ 21,993 $ 21,067 $ 86,546 $
83,847 Gross Margin % ** 36% 40% 37% 41%
**Adjusted to remove the impact of inventory step up (which was
adjusted downward in the fourth quarter as part of our purchase
price accounting) the GM% would be 35% and 38% for the quarter and
year ended August 31, 2018, respectively.
Mr. Chase continued, “Sales totals for our Industrial Materials
segment increased over the prior year mainly on volume, especially
when including the effects of our December 2017 acquisition of
Zappa Stewart. Consistent with earlier this year, our pulling and
detection and electronic and industrial coatings product lines
continued to lead the positive sales trend, with volume playing a
part in both of their increases, and price favorably affecting
electronic and industrial coatings’ results. Our cable materials
product line revenue, affected by both volume and price, fared
favorably against the prior year fourth quarter, but with
year-to-date results falling short.”
Construction Materials:
For the Three Months Ended August 31,
For the Years Ended August 31,
2018 2017 2018
2017 Revenue $ 15,831 $ 15,746 $ 51,900 $ 49,604 Cost of
products and services sold 8,344 8,197 29,394
26,927 Gross Margin $ 7,487 $ 7,549 $ 22,506 $ 22,677 Gross
Margin % 47% 48% 43% 46%
“Our Construction Materials segment’s strong top-line results
continued in the fourth quarter,” noted Mr. Chase. “Our coating and
lining systems saw the largest growth for the quarter over the
prior year, on both volume and price, but came up just short of
last year on a year-to-date basis. Pipeline products, which include
both domestic and U.K.-produced products, far outpaced the prior
year on the year-to-date basis but could not match prior year
revenue in the fourth quarter. Bridge and highway products capped
off another impressive year, growing over the prior year on a
whole-year basis and making sales into marquee infrastructure
projects such as the new Tappan Zee (“Governor Mario Cuomo”) Bridge
in New York and the Norris Bridge in Virginia.”
Other matters affecting financial
results:
Kenneth J. Feroldi, Treasurer and Chief Financial Officer,
added, “U.S. tax reform continued to benefit our Company’s bottom
line and overall profitability as we recognized an effective tax
rate of 20.1% in the quarter; this compared to 30.8% in the prior
year fourth quarter.
“We made further preliminary and conditional entries related to
the adoption of the Tax Act in the fourth quarter, without any
significant net changes to those recorded in the second and third
quarters. We continue to anticipate that in fiscal 2019 and beyond,
aside from any discrete items, our all-in rate will be
approximately 25%, depending on state income tax impact as states
adjust to the impact of the new Federal rate.
“Our continued application of ASU 2016-09 in the quarter
resulted in a $0.94 million discrete benefit related to stock
compensation, representing the kind of period-to-period volatility
this standard can cause.
“Tax reform enabled us to repatriate over $10 million during
fiscal 2018, with no additional tax effects, allowing us to pay
down debt on our revolver, consistent with our stated cash
management strategy, as we continue to evaluate potential
acquisition targets. This practice will continue in future periods
depending on our global cash needs, with another paydown of $10
million already made in Q1 of fiscal 2019.
“Foreign currency effects were not significant in the fourth
quarter of either the current or prior year. The Company ended the
year-to-date period with a small gain recorded in Other income
(expense), slightly below the gain recognized in the prior
year.
“A material weakness in the Company’s internal control over
financial reporting was identified in the fourth quarter, relating
to the valuation of certain assets acquired in the Zappa Stewart
acquisition. This identified control issue resulted in the
adjustment of certain amounts including goodwill, inventory
step-up, customer relationship intangibles and related amortization
expense and income taxes. This adjustment had no material effect on
Net income and EPS, and no restatement of previously issued
financials is anticipated. The Company intends to file a Form
12b-25 which will extend the normal filing deadline of our Annual
Report on Form 10-K, so we can, in part, finalize documentation
concerning this material weakness.
“Our announced dividend of $0.80 per share, which will be paid
this coming December, is relatively consistent with that
distributed for the prior year as a percentage of Net income
achieved. We continue to recognize the importance of the annual
dividend, while also considering the Company’s cash needs and debt
structure to facilitate its sustainable growth strategies.”
Mr. Chase also commented, “Our balance sheet remains strong. As
of August 31, 2018, the Company’s cash on hand was $34.83 million
and our $150 million revolving credit facility had $125 million of
unused availability. Chase will continue to leverage this strength
in fiscal 2019 to pursue our strategic goals and invest in
value-enhancing organic and inorganic growth opportunities along
with operational consolidation and rationalization.”
The following table summarizes the Company’s financial results
for the three months and years ended August 31, 2018 and 2017.
For the Three Months Ended August 31, For the
Years Ended August 31, All figures in thousands, except per
share figures 2018 2017 2018 2017
Revenue $ 77,478 $ 68,994 $ 284,188 $ 252,560
Costs and Expenses Cost of products and services sold 47,998
40,378 175,136 146,036 Selling, general and administrative expenses
14,395 12,169 52,297 47,736 Acquisition-related costs — — 393 584
Exit costs related to idle facility 1,272 20
1,272 70 Operating income 13,813
16,427 55,090 58,134 Interest expense (298 ) (128 ) (1,172 ) (839 )
Gain on sale of real estate — — — 860 Gain on sale of license — —
1,085 — Gain on sale of businesses — — 1,480 2,013 Other income
(expense) 459 188 482
724 Income before income taxes 13,974 16,487 56,965
60,892 Income taxes 2,811 5,074
13,822 18,878 Net income $ 11,163 $
11,413 $ 43,143 $ 42,014 Net income per
diluted share $ 1.18 $ 1.21 $ 4.56 $ 4.44
Weighted average diluted shares outstanding 9,377
9,362 9,366 9,357
Reconciliation of net income to EBITDA and adjusted EBITDA Net
income $ 11,163 $ 11,413 $ 43,143 $ 42,014 Interest expense 298 128
1,172 839 Income taxes 2,811 5,074 13,822 18,878 Depreciation
expense 1,947 1,271 5,817 5,130 Amortization expense 3,357
2,311 11,807 9,127
EBITDA $ 19,576 $ 20,197 $ 75,761 $ 75,988 Cost of sale of
inventory step-up (460 ) — 1,070 190 Acquisition-related costs — —
393 584 Gain on sale of license — — (1,085 ) — Gain on sale of
businesses — — (1,480 ) (2,013 ) Exit costs related to idle
facility (cash expense) 590 20 590 70 Pension settlement costs — 14
— 14 Gain on sale of real estate — —
— (860 ) Adjusted EBITDA $ 19,706 $
20,231 $ 75,249 $ 73,973 Reconciliation of net
income to adjusted net income Net income $ 11,163 $ 11,413 $ 43,143
$ 42,014 Transitional impact of the Tax Cuts and Jobs Act, net 84 —
681 — Excess tax benefit related to ASU No. 2016-09 (944 ) (262 )
(1,921 ) (1,917 ) Cost of sale of inventory step-up (460 ) — 1,070
190 Acquisition-related costs — — 393 584 Gain on sale of license —
— (1,085 ) — Gain on sale of businesses — — (1,480 ) (2,013 ) Exit
costs related to idle facility (cash and depreciation expense)
1,272 20 1,272 70 Pension settlement costs — 14 — 14 Gain on sale
of real estate — — — (860 ) Income taxes *** (209 )
(12 ) (44 ) 705 Adjusted net income $ 10,906
$ 11,173 $ 42,029 $ 38,787 Adjusted net
income per diluted share (Adjusted diluted EPS) $ 1.15 $
1.18 $ 4.44 $ 4.10
***For the three months and year ended August 31, 2018,
represents the aggregate tax effect assuming a 25.7% tax rate for
the items impacting pre-tax income, which is our effective U.S.
statutory Federal tax rate for fiscal year 2018 following the
enactment of the Tax Cuts and Jobs Act in December 2017. For the
three months and year ended August 31, 2017, represents the
aggregate tax effect assuming a 35% tax rate for the items
impacting pre-tax income, our then-effective U.S. statutory Federal
tax rate.
Chase Corporation, a global specialty chemicals company that was
founded in 1946, is a leading manufacturer of protective materials
for high-reliability applications throughout the world.
Use of Non-GAAP Financial Measures
The Company has used non-GAAP financial measures in this press
release. Adjusted net income, Adjusted diluted EPS, EBITDA and
Adjusted EBITDA are non-GAAP financial measures. The Company
believes that Adjusted net income, Adjusted diluted EPS, EBITDA and
Adjusted EBITDA are useful performance measures as they are used by
its executive management team to measure operating performance, to
allocate resources to enhance the financial performance of its
business, to evaluate the effectiveness of its business strategies
and to communicate with its board of directors and investors
concerning its financial performance. The Company believes Adjusted
net income, Adjusted diluted EPS, EBITDA and Adjusted EBITDA are
commonly used by financial analysts and others in the industries in
which the Company operates, and thus provide useful information to
investors. Non-GAAP financial measures should be considered in
addition to, and not as an alternative to, the Company’s reported
results prepared in accordance with GAAP.
Cautionary Note Concerning Forward-Looking Statements
Certain statements in this press release are forward-looking.
These may be identified by the use of forward-looking words or
phrases such as “believe”; “expect”; “anticipate”; “should”;
“planned”; “estimated” and “potential”, among others. These
forward-looking statements are based on Chase Corporation’s current
expectations. The Private Securities Litigation Reform Act of 1995
provides a “safe harbor” for such forward-looking statements. To
comply with the terms of the safe harbor, the Company cautions
investors that any forward-looking statements made by the Company
are not guarantees of future performance and that a variety of
factors could cause the Company's actual results and experience to
differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements.
The risks and uncertainties which may affect the operations,
performance, development and results of the Company's business
include, but are not limited to, the following: uncertainties
relating to economic conditions; uncertainties relating to customer
plans and commitments; the pricing and availability of equipment,
materials and inventories; technological developments; performance
issues with suppliers and subcontractors; economic growth; delays
in testing of new products; the Company’s ability to successfully
integrate acquired operations; the effectiveness of cost-reduction
plans; rapid technology changes; and the highly competitive
environment in which the Company operates. Readers are cautioned
not to place undue reliance on these forward-looking statements,
which speak only as of the date the statement was made.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20181113006207/en/
Paula MyersShareholder & Investor Relations DepartmentPhone:
(781) 332-0700E-mail: investorrelations@chasecorp.comWebsite:
www.chasecorp.com
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