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Materion Corporation Reports First Quarter 2015 Financial Results

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April 30, 2015 8:18 AM EDT

Confirms Outlook for 2015

MAYFIELD HEIGHTS, Ohio--(BUSINESS WIRE)-- Materion Corporation (NYSE: MTRN) today reported first quarter 2015 financial results.

  • First quarter 2015 GAAP earnings were $0.47 per share, diluted. This compares to $0.35 per share, diluted, earned in the first quarter of 2014.
  • Adjusted first quarter earnings were $0.41 per share, diluted, up 41%, compared to $0.29 per share, diluted, in the first quarter of 2014.
  • Net sales for the first quarter of 2015 were $290.0 million. Value-added sales were $162.6 million, up 12% compared to the prior year period.
  • Adjusted operating profit margin, as a percent of value-added sales, expanded year over year to 7.4%, a 110 basis point improvement.
  • All three business groups delivered top line growth and expanded profit margins in the first quarter of 2015 compared to the first quarter of 2014.
  • The Company confirms its previously announced 2015 adjusted earnings forecast range of $1.80 to $2.00 per share, diluted.

FIRST QUARTER 2015 RESULTS

Net sales for the first quarter were $290.0 million, compared to net sales of $258.9 million for the first quarter of 2014. Value-added sales grew 12% to $162.6 million compared to value-added sales of $144.9 million for the first quarter of 2014. The growth in value-added sales in the first quarter of 2015 compared to the same period of last year was due primarily to stronger demand from customers in the industrial components, medical, consumer electronics, automotive electronics and defense markets.

Adjusted operating profit for the first quarter of 2015, which excludes the net benefit of an insurance settlement related to the pebble plant, reached $12.1 million, a 33% increase over the prior-year first quarter adjusted operating profit. Adjusted operating profit margin, expressed as a percent of value-added sales, expanded by 110 basis points to 7.4% from the 2014 first quarter level. The margin improvement is a result of the higher sales volume and an improved product mix.

Net income for the first quarter of 2015 was $9.6 million, or $0.47 per share, diluted. This compares to net income of $7.3 million, or $0.35 per share, diluted, for the first quarter of the prior year. Adjusted earnings, which excludes the net insurance settlement benefit, for the first quarter of 2015 were $0.41 per share, diluted, up 41% compared to the first quarter of 2014 adjusted earnings of $0.29 per share, diluted.

CHAIRMAN’S COMMENTS

Richard J. Hipple, Chairman, President and Chief Executive Officer, stated, “We are off to a great start for 2015. This marks the fourth consecutive quarter of meaningful year-over-year earnings and value-added sales growth. The strength across the majority of our key end markets, combined with our ability to penetrate new markets and applications with our differentiated products, more than offset the significant decline in oil and gas and adverse impacts of the weakening euro. I am encouraged with the value-added sales growth and expanded profit margin each of our three business groups recorded in the quarter, along with our new product sales comprising 11% of our net sales. We remain committed to strategies that achieve strong organic value-added sales growth and margin expansion.”

ANALYST MEETING

On Wednesday, May 13, 2015, the Company is hosting an Investor Day for investment professionals at the Plaza Hotel in New York City, New York, from 9:00 a.m. to 12:00 p.m. During the event, Chairman, President and Chief Executive Officer, Richard Hipple, Vice President, Finance and Chief Financial Officer, Joseph Kelley, and each of the Company’s business unit Presidents will present an overview of the Company’s growth opportunities and long-range 2017 financial targets. Those interested in attending should contact Lynn Benz at (216) 383-6812.

BUSINESS SEGMENT REPORTING

Advanced Materials

Advanced Materials’ net sales for the first quarter of 2015 were $149.9 million, which compares to first quarter of 2014 net sales of $129.3 million. Value-added sales for the first quarter of 2015 were $51.7 million, up 24% compared to the first quarter 2014 value-added sales of $41.7 million. The improvement in the first quarter value-added sales compared to the same period last year was driven primarily by strength from customers in the consumer electronics, industrial components and the broader semiconductor market.

Operating profit for the first quarter of 2015 was $8.9 million, up $3.4 million, or 62%, compared to an adjusted operating profit of $5.5 million in the first quarter of 2014. Operating profit as a percent of value-added sales for the first quarter of 2015 was 17.2% compared to adjusted operating profit of 13.2% for the first quarter of 2014. The significant improvement in profit margins is a result of leveraging a double-digit volume growth and favorable product mix.

Performance Alloys and Composites

Net sales for Performance Alloys and Composites in the first quarter of 2015 were $103.3 million, a 6% increase over net sales of $97.2 million in the first quarter of 2014. Value-added sales were $85.6 million in the first quarter of 2015, up $5.6 million, or 7%, compared to $80.0 million in the first quarter of 2014. A strong 8% volume increase, primarily in the industrial components end market, offset the headwinds from a weakening euro and declines in the energy market and, more specifically, with oil and gas customers.

Operating profit for the first quarter of 2015 was $6.8 million, or 7.9% of value-added sales, which compares to $6.2 million, or 7.8% of value-added sales, for the first quarter of 2014. The operating profit margin expansion resulted primarily from leveraging the volume growth.

Other

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 first quarter of 2015 were $36.6 million, which compare to net sales of $33.9 million for the first quarter of 2014. Value-added sales for the first quarter of 2015 were $24.6 million, up $0.7 million, or 3%, compared to value-added sales of $23.9 million for the same period of 2014. The increase in value-added sales is due to stronger demand from customers in the medical, automotive electronics and defense markets, offset in part by weaker demand in consumer electronics.

Precision Coatings’ operating profit for the first quarter of 2015 was $1.7 million, or 6.9% of value-added sales, which compares to an adjusted operating profit of $1.5 million, or 6.3% of value-added sales, for the first quarter of 2014.

OUTLOOK

The success of our new product development efforts has broadened the Company’s market breadth and enhanced growth opportunities across the Company’s key markets. Despite the headwinds from the oil and gas market and the weakening euro, we continue to have momentum overall and are committed to growing both value-added sales and earnings in 2015. The Company is therefore confirming its previously announced 2015 adjusted earnings forecast range of $1.80 to $2.00 per share, diluted, 10-20% above 2014 adjusted earnings of $1.65 per share, diluted.

CONFERENCE CALL

Materion Corporation will host a conference call with analysts at 9:00 a.m. Eastern Time, April 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 May 15, 2015 by dialing (877) 660-6853 or (201) 612-7415; please reference Conference ID Number 13606106. 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 2015;
  • 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, including the beryllium pebble facility in Elmore, Ohio;
  • 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
(Unaudited)
 
First Quarter Ended
April 3, March 28,
(In thousands except per share amounts) 2015     2014
 
Net sales $ 290,024 $ 258,929
Cost of sales   237,669     213,467
Gross margin 52,355 45,462
Selling, general and administrative expense 36,941 31,259
Research and development expense 3,348 2,787
Other - net   (2,158 )   363
Operating profit 14,224 11,053
Interest expense - net   657     695
Income before income taxes 13,567 10,358
 
Income tax expense   3,938     3,027
 
Net income $ 9,629   $ 7,331
 
 
Basic earnings per share:
Net income per share of common stock $ 0.48 $ 0.36
 
Diluted earnings per share:
Net income per share of common stock $ 0.47 $ 0.35
 
 
Cash dividends per share $ 0.085 $ 0.080
 
 
Weighted average number of shares of common stock outstanding
Basic 20,144 20,604
Diluted 20,447 20,962
 
       
Materion Corporation Attachment 2
Consolidated Balance Sheets
(Unaudited)
 
April 3, Dec. 31,
(In thousands)     2015     2014
Assets
Current assets
Cash and cash equivalents $ 21,938 $ 13,150
Accounts receivable 117,126 112,780
Inventories 237,028 232,409
Prepaid expenses 17,161 14,953
Deferred income taxes   13,347     13,402  
Total current assets 406,600 386,694
 
Long-term deferred income taxes 17,494 17,722
 
Property, plant and equipment 813,806 800,671
Less allowances for depreciation,
depletion and amortization   (565,456 )   (553,083 )
Property, plant, and equipment - net 248,350 247,588
Intangible assets 17,109 18,559
Other assets 4,868 4,781
Goodwill   86,725     86,725  
Total Assets $ 781,146   $ 762,069  
 
 
Liabilities and Shareholders' Equity
Current liabilities
Short-term debt $ 667 $ 653
Accounts payable 38,054 36,239
Other liabilities and accrued items 41,171 59,151
Income taxes 4,222 3,144
Unearned revenue   10,389     4,879  
Total current liabilities 94,503 104,066
 
Other long-term liabilities 17,853 18,203
Retirement and post-employment benefits 99,701 103,891
Unearned income 49,469 51,796
Long-term income taxes 1,750 1,750
Deferred income taxes 2,166 617
Long-term debt 50,787 23,613
 
Shareholders' equity   464,917     458,133  
Total Liabilities and Shareholders' Equity $ 781,146   $ 762,069  
 
       
Materion Corporation Attachment 3
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
April 3, March 28,
(In thousands)     2015       2014
Cash flows from operating activities:
Net income $ 9,629 $ 7,331
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation, depletion and amortization 11,909 12,131
Amortization of deferred financing costs in interest expense 148 178
Changes in assets and liabilities net of acquired assets and liabilities:
Decrease (increase) in accounts receivable (5,467 ) (8,214 )
Decrease (increase) in inventory (5,925 ) (13,363 )
Decrease (increase) in prepaid and other current assets (2,480 ) 153
Decrease (increase) in deferred income taxes 340 17
Increase (decrease) in accounts payable and accrued expenses (18,494 ) (16,474 )
Increase (decrease) in unearned revenue 5,510 1,462
Increase (decrease) in interest and taxes payable 1,314 2,648
Increase (decrease) in long-term liabilities (1,520 ) (7,671 )
Other - net   969     (1,409 )
Net cash used in operating activities (4,067 ) (23,211 )
 
 
Cash flows from investing activities:
Payments for purchase of property, plant and equipment (7,196 ) (6,120 )
Payments for mine development (3,748 ) (80 )
Proceeds from sale of property, plant and equipment   -     3,009  
Net cash used in investing activities (10,944 ) (3,191 )
 
Cash flows from financing activities:
Proceeds from issuance (repayment) of short-term debt 13 4,119
Proceeds from issuance of long-term debt 41,103 30,086
Repayment of long-term debt (13,929 ) (8,246 )
Principal payments under capital lease obligations (230 ) (163 )
Cash dividends paid (1,708 ) (1,648 )
Repurchase of common stock (768 ) (1,466 )
Issuance of common stock under stock option plans - 65
Tax benefit from stock compensation realization   -     13  
Net cash provided from financing activities 24,481 22,760
Effects of exchange rate changes   (682 )   181  
Net change in cash and cash equivalents 8,788 (3,461 )
Cash and cash equivalents at beginning of period   13,150     22,774  
Cash and cash equivalents at end of period $ 21,938   $ 19,313  
 
               
Materion Corporation Attachment 4
Reconciliation of Non-GAAP Measure Value-added sales  
(Unaudited)
 
 
(In millions) First Quarter Ended Fourth Quarter

April 3, 2015

March 28, 2014

Dec. 31, 2014

Net Sales
PAC $ 103.3 $ 97.2 $ 112.3
AM 149.9 129.3 135.3
Other 36.8 32.4 40.8
PC 36.6 33.9 39.7
Corp   0.2   (1.5 )   1.1
Total $ 290.0 $ 258.9 $ 288.4
 
Less: Pass-through Metal Cost
PAC $ 17.7 $ 17.2 $ 18.4
AM 98.2 87.6 87.0
Other 11.5 9.2 16.0
PC 12.0 10.0 13.2
Corp   (0.5 )   (0.8 )   2.8
Total $ 127.4 $ 114.0 $ 121.4
 
Value-added Sales (non-GAAP)
PAC $ 85.6 $ 80.0 $ 93.9
AM 51.7 41.7 48.3
Other 25.3 23.2 24.8
PC 24.6 23.9 26.5
Corp   0.7   (0.7 )   (1.7 )
Total $ 162.6 $ 144.9 $ 167.0
 
% of VA % of VA % of VA
Gross Margin
PAC $ 23.1 27 % $ 22.7 28 % $ 26.8 29 %
AM 20.7 40 % 16.1 39 % 20.6 43 %
Other 8.6 - 6.7 - 8.5 -
PC 8.3 34 % 7.1 30 % 9.6 36 %
Corp   0.3 -   (0.4 ) -   (1.1 ) -
Total $ 52.4 32 % $ 45.5 31 % $ 55.8 33 %
 
% of VA % of VA % of VA
Operating Profit
PAC $ 6.8 8 % $ 6.2 8 % $ 9.9 11 %
AM 8.9 17 % 5.1 12 % 7.2 15 %
Other (1.5 ) - (0.2 ) - (3.2 ) -
PC 1.7 7 % 4.1 17 % 2.5 9 %
Corp   (3.2 ) -   (4.3 ) -   (5.7 ) -
Total $ 14.2 9 % $ 11.1 8 % $ 13.9 8 %
 
 
Special Items
PAC $ - $ - $ -
AM 0.4 -
Other (2.1 ) (2.4 )
PC (2.6 )
Corp   -   (2.1 )   -   0.2   -  
Total $ (2.1 ) $ (2.0 ) $ -
 
 
Operating Profit Excluding Special Items % of VA % of VA % of VA
PAC $ 6.8 7.9 % $ 6.2 7.8 % $ 9.9 10.5 %
AM 8.9 17.2 % 5.5 13.2 % 7.2 14.9 %
Other (3.6 ) (2.6 ) (3.2 )
PC 1.7 6.9 % - 1.5 6.3 % 2.5 9.4 %
Corp   (5.3 )   (4.1 )   (5.7 )
Total $ 12.1 7.4 % $ 9.1 6.3 % $ 13.9 8.3 %
 
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
(Unaudited)
     
 
 
First Quarter Ended Fourth Quarter Ended
(In millions except per share amounts) April 3, 2015 March 28, 2014 Dec. 31, 2014
 
GAAP as Reported
Net sales $ 290.0 $ 258.9 $ 288.4
Gross margin 52.4 45.5 55.8
Operating profit 14.2 11.1 13.9
Net income 9.6 7.3 12.0
EPS - Diluted $ 0.47 $ 0.35 $ 0.58
 
Facility closure and reorganization costs (benefits)
Cost of goods sold $ - $ 0.2 $ -
Selling, general and administrative - 0.4 -
Other-net   -     (2.6 )   -  
Recovery from insurance and other litigation, net of expenses
Selling, general and administrative $ 1.7 $ - $ -
Other-net   (3.8 )   -     -  
Total special items $ (2.1 ) $ (2.0 ) $ -  
 
Special items - net of tax $ (1.5 ) $ (1.3 ) -
 
Tax Special Item $ 0.2 $ - $ (1.8 )
 
 
Non-GAAP Measures - Adjusted Profitability
Value-added (VA) sales $ 162.6 $ 144.9 $ 167.0
Gross margin 52.4 45.7 55.8
Gross margin % of VA 32.2 % 31.5 % 33.4 %
Operating profit 12.1 9.1 13.9
Operating profit % of VA 7.4 % 6.3 % 8.3 %
Net income 8.3 6.0 10.2
EPS - Diluted $ 0.41 $ 0.29 $ 0.50
 
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 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
(Unaudited)
 
(In millions)
 
First Quarter Ended
April 3, 2015 March 28, 2014 % Change
 
Materion Corporation
 
Consumer Electronics $ 44.4 $ 41.9 6 %
Industrial Components 25.2 19.3 31 %
Medical 17.6 14.2 24 %
Automotive Electronics 15.0 13.6 10 %
Energy 12.4 12.2 2 %
Defense 9.6 8.4 14 %
Telecom Infrastructure 9.2 8.2 12 %
Other   29.2   27.1 8 %
Total $ 162.6 $ 144.9 12 %
 
 
Performance Alloy & Composites
 
Consumer Electronics $ 15.9 $ 15.0 6 %
Industrial Components 18.1 13.9 30 %
Medical 1.8 1.8 0 %
Automotive Electronics 13.9 13.3 5 %
Energy 8.3 9.1 -9 %
Defense 4.9 5.0 -2 %
Telecom Infrastructure 6.6 5.9 12 %
Other   16.1   16.0 1 %
Total $ 85.6 $ 80.0 7 %
 
Advanced Materials
 
Consumer Electronics $ 23.4 $ 20.1 16 %
Industrial Components 6.4 4.4 45 %
Medical 2.6 1.8 44 %
Automotive Electronics - - 0 %
Energy 4.1 3.1 32 %
Defense 2.0 1.3 54 %
Telecom Infrastructure 2.7 2.3 17 %
Other   10.5   8.7 21 %
Total $ 51.7 $ 41.7 24 %
 
 
Other/Precision Coatings Group
 
Consumer Electronics $ 5.1 $ 6.8 -25 %
Industrial Components 0.7 1.0 -30 %
Medical 13.2 10.6 25 %
Automotive Electronics 1.1 0.3 267 %
Energy - - -
Defense 2.7 2.1 29 %
Telecom Infrastructure - - -
Other   2.5   2.4 4 %
Total $ 25.3 $ 23.2 9 %
 

Materion Corporation
Investors:
Michael C. Hasychak, 216-383-6823
[email protected]
or
Media:
Patrick S. Carpenter, 216-383-6835
[email protected]
http://www.materion.com
Mayfield Hts-g

Source: Materion Corporation


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