Market Overview

Matthews International Reports Results for Fiscal 2018 Third Quarter

Share:
  • GAAP EPS of $0.77 for the current quarter; $2.44 fiscal 2018
    year-to-date
  • Non-GAAP EPS of $1.16 for the current quarter, up 10.5% over
    last year
  • Consolidated sales of $411.6 million, up 5.6% over last year
  • Company sets new quarterly record for adjusted EPS
  • Reaffirming non-GAAP EPS growth expectations for fiscal 2018

Matthews
International Corporation
(NASDAQ GSM: MATW) today announced
financial results for its fiscal third quarter and nine months ended
June 30, 2018.

In discussing the Company's results for the quarter, Joseph C.
Bartolacci, President and Chief Executive Officer, stated: "I am pleased
to report that our adjusted earnings per share of $1.16 for the fiscal
2018 third quarter were ahead of our internal expectations, reflecting
growth in excess of 10% over the same quarter last year on a comparable
basis. This performance is a reflection of continued strengthening in
our Industrial Technologies segment, improving conditions in several of
our brand markets, acquisition synergy realization in the
Memorialization group, the impact of recent acquisitions, and lower
income taxes.

"Our fiscal 2018 third quarter results established a new quarterly
record for non-GAAP earnings per share. In addition, our sales and
adjusted EBITDA set new third quarter records.

"On a consolidated basis, our operating cash flow continues to be
strong. As a result, during the fiscal 2018 third quarter, we reduced
our gross long-term debt by approximately $20 million."

THIRD QUARTER FISCAL 2018 CONSOLIDATED RESULTS (Unaudited)

($ in millions, except per share data)       Q3 FY2018     Q3 FY2017     Change     % Change
Sales $ 411.6 $ 389.6 $ 22.0 5.6 %
Net income attributable to Matthews $ 24.4 $ 29.5 $ (5.1 ) (17.3 )%
Diluted EPS $ 0.77 $ 0.91 $ (0.14 ) (15.4 )%
Non-GAAP adjusted net income $ 36.7 $ 34.2 $ 2.5 7.3 %
Non-GAAP adjusted EPS $ 1.16 $ 1.05 $ 0.11 10.5 %
Adjusted EBITDA $ 69.2 $ 65.6 $ 3.6 5.5 %

Note: See the attached tables for additional important
disclosures regarding Matthews' use of non-GAAP measures as well
as a reconciliation of net income to non-GAAP adjusted net income
and adjusted EBITDA.

 

Consolidated sales for the fiscal 2018 third quarter were $411.6
million, representing an increase of $22.0 million, or 5.6% over the
third quarter last year. The Company reported higher sales in each of
its three business segments. Sales growth in the principal product lines
for the Industrial Technologies segment, higher European sales in the
SGK Brand Solutions segment, an increase in cremation equipment sales in
North America, and acquisitions were the principal factors in the
increase in consolidated sales. In addition, changes in foreign currency
exchange rates had a favorable impact of $8.1 million on consolidated
sales compared to a year ago.

Net income attributable to the Company for the quarter ended June 30,
2018 was $24.4 million, or $0.77 per share, compared with $29.5 million,
or $0.91 per share, a year ago. Intangible amortization expense
increased approximately $2.0 million (pre-tax) for the current quarter
primarily related to the Company's recent acquisitions and the prior
year third quarter included loss recoveries, excluding related costs, of
$10.0 million (pre-tax).

On a non-GAAP adjusted basis, earnings for the fiscal 2018 third quarter
were $1.16 per share, compared with $1.05 per share for the fiscal 2017
third quarter, representing an increase of 10.5%, primarily reflecting
the impact of higher sales, acquisition synergy realization and lower
income taxes.

Adjusted EBITDA (net income before interest expense, income taxes,
depreciation and amortization, and other adjustments) for the fiscal
2018 third quarter was $69.2 million, compared to $65.6 million for the
same quarter a year ago.

Sales for the SGK Brand Solutions segment were $203.0 million for the
quarter ended June 30, 2018, compared to $200.6 million a year ago,
representing an increase of $2.4 million, or 1.2%. The segment reported
higher sales in Europe, including sales for the surfaces and engineered
solutions businesses. Sales in the U.K. and Asia markets were also
higher for the quarter. In addition, recent acquisitions contributed to
the sales growth for the segment. The segment's sales in North America
were lower than a year ago as the prior year third quarter included the
benefit of a significant merchandising display project. Changes in
foreign currency exchange rates had a favorable impact of $6.9 million
on the segment's sales compared with the same quarter last year.

Memorialization segment sales for the fiscal 2018 third quarter were
$162.0 million, compared to $155.8 million a year ago, representing an
increase of $6.2 million, or 3.9%. Higher sales principally resulted
from an increase in sales of cremation equipment in North America and
the acquisition of Star Granite & Bronze. Memorial and casket sales
volumes for the fiscal 2018 third quarter were lower than a year ago,
consistent with an estimated decline in U.S. casketed deaths.

Sales for the Industrial Technologies segment were $46.7 million for the
quarter ended June 30, 2018, compared to $33.2 million a year ago,
representing an increase of $13.5 million, or 40.6%. The increase
reflected higher sales of marking products, OEM solutions and
fulfillment systems, and the benefit of the recent acquisition of
Compass Engineering.

NINE MONTHS FISCAL 2018 CONSOLIDATED RESULTS (Unaudited)

($ in millions, except per share data)       YTD FY2018     YTD FY2017     Change     % Change
Sales $ 1,195.1 $ 1,119.5 $ 75.6 6.8 %
Net income attributable to Matthews $ 77.8 $ 54.7 $ 23.1 42.2 %
Diluted EPS $ 2.44 $ 1.68 $ 0.76 45.2 %
Non-GAAP adjusted net income $ 86.6 $ 82.8 $ 3.8 4.6 %
Non-GAAP adjusted EPS $ 2.72 $ 2.55 $ 0.17 6.7 %
Adjusted EBITDA $ 178.2 $ 174.6 $ 3.6 2.1 %

Note: See the attached tables for additional important
disclosures regarding Matthews' use of non-GAAP measures as well
as a reconciliation of net income to non-GAAP adjusted net income
and adjusted EBITDA.

 

Consolidated sales for the nine months ended June 30, 2018 were $1.2
billion, an increase of $75.6 million, or 6.8% over the prior year. The
Company reported higher sales in each of its three business segments.
Sales growth in all of the principal product lines for the Industrial
Technologies segment, higher international sales in the SGK Brand
Solutions segment, an increase in cremation equipment sales, and
acquisitions were the principal factors in the increase in consolidated
sales. In addition, changes in foreign currency exchange rates had a
favorable impact of $30.3 million on consolidated sales compared to a
year ago.

Net income attributable to the Company for the nine months ended June
30, 2018 was $77.8 million, or $2.44 per share, compared to $54.7
million, or $1.68 per share, a year ago. The increase primarily
reflected the impact of higher sales, acquisition synergy realization,
and lower acquisition integration costs. In addition, the U.S. Tax Cuts
and Jobs Act contributed to a significant reduction in the Company's
income tax expense for fiscal 2018, primarily related to a favorable
adjustment in deferred income taxes offset partially by an estimated
repatriation tax.

On a non-GAAP adjusted basis, earnings for the first nine months of
fiscal 2018 were $2.72 per share, compared with $2.55 per share last
year, primarily reflecting the impact of higher sales, acquisition
synergy realization, and lower income taxes. Adjusted EBITDA (net income
before interest expense, income taxes, depreciation and amortization,
and other adjustments) for the nine months ended June 30, 2018 was
$178.2 million, compared to $174.6 million last year.

Sales for the SGK Brand Solutions segment were $601.8 million for the
nine months ended June 30, 2018, compared to $566.5 million a year ago,
representing an increase of $35.3 million, or 6.2%. The segment reported
higher sales in its Europe, U.K. and Asia Pacific markets. In addition,
recent acquisitions contributed to current year sales growth. Sales of
merchandising displays were lower as last year included the benefit of a
significant project. Changes in currency rates had a favorable impact of
$25.4 million on the segment's sales compared to a year ago.

Memorialization segment sales for the first nine months of fiscal 2018
were $475.6 million, compared to $463.6 million a year ago, representing
an increase of $12.0 million. The increase primarily reflected higher
cremation equipment sales and the acquisition of Star Granite & Bronze.
Memorial and casket sales volumes for the current year were lower than a
year ago reflecting an estimated decline in U.S. casketed deaths.
Changes in foreign currency exchange rates had a favorable impact of
$3.1 million on the segment's sales compared to last year.

Sales for the Industrial Technologies segment were $117.8 million for
the nine months ended June 30, 2018, compared to $89.5 million a year
ago, representing an increase of $28.3 million, or 31.7%. The increase
reflected higher sales of marking products, OEM solutions and
fulfillment systems, and the benefit of recent acquisitions. Changes in
foreign currency exchange rates had a favorable impact of approximately
$1.7 million on the segment's sales compared to a year ago.

OUTLOOK

Mr. Bartolacci further stated: "We remain on target to achieve our
fiscal 2018 objectives. Order rates for fulfillment systems in our
Industrial Technologies segment and for engineered solutions in our SGK
Brand Solutions segment remain strong. In addition, recent new brand
account wins have started to contribute to our results. As a result,
based on our year-to-date results and projections for the fiscal 2018
fourth quarter, we are re-affirming our target for fiscal 2018 and
expect to achieve growth in non-GAAP earnings per share of at least 10%
over fiscal 2017."

WEBCAST

The Company will host a conference call and webcast Friday, July 27,
2018 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, August 10, 2018. To listen to the archived
call, dial (412) 317-6671 and enter the pass code 13680880. 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 economic conditions, competitive
environment, death rate, foreign currency exchange rates, 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 June 30, Nine Months Ended June 30,
2018   2017 % Change 2018  

2017 (1)

% Change
Sales $ 411,621 $ 389,630 6 % $ 1,195,136 $ 1,119,544 7 %
Cost of sales   (259,720 )   (245,536 ) 6 %   (762,570 )   (709,761 ) 7 %
Gross profit 151,901 144,094 5 % 432,566 409,783 6 %
Gross margin 36.9 % 37.0 % 36.2 % 36.6 %
 
Selling and administrative expenses (105,672 ) (100,944 ) 5 % (323,692 ) (310,167 ) 4 %
Amortization of intangible assets   (8,334 )   (6,364 ) 31 %   (23,264 )   (16,939 ) 37 %
Operating profit   37,895     36,786   3 %   85,610     82,677   4 %
Operating margin 9.2 % 9.4 % 7.2 % 7.4 %
 
Interest and other income (deductions), net   (9,238 )   1,378   (770 )%   (26,738 )   (10,975 ) 144 %
Income before income taxes 28,657 38,164 (25 )% 58,872 71,702 (18 )%
Income taxes   (4,312 )   (8,856 ) (51 )%   18,703     (17,318 ) (208 )%
Net income 24,345 29,308 (17 )% 77,575 54,384 43 %
Non-controlling interests   69     177   (61 )%   201     343   (41 )%
Net income attributable to Matthews $ 24,414   $ 29,485   (17 )% $ 77,776   $ 54,727   42 %
 
Earnings per share -- diluted $ 0.77   $ 0.91   (15 )% $ 2.44   $ 1.68   45 %
 
Earnings per share -- non-GAAP (2) $ 1.16   $ 1.05   10 % $ 2.72   $ 2.55   7 %
 
Dividends declared per share $ 0.19   $ 0.17   12 % $ 0.57   $ 0.51   12 %
 
(1) Information for the nine months ended June 30, 2017 has been
adjusted to reflect the adoption of ASU No. 2016-09. The Company
early adopted this ASU in the fourth quarter of fiscal 2017, which
resulted in a reduction to income tax expense of $1,234, and a
corresponding favorable impact on diluted earnings per share, both
of which have been retroactively included in the first quarter
results for fiscal 2017. There was no impact for the three month
period ended June 30, 2017.
(2) See reconciliation of non-GAAP financial information provided
in tables at the end of this release
 
 

RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES

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-related items, adjustments related to intangible assets,
litigation items, and strategic initiative and other charges, which
includes non-recurring charges related to operational initiatives and
exit activities. Management believes that presenting non-GAAP financial
measures (such as EBITDA, Adjusted EBITDA, Adjusted EBITDA margin,
Adjusted net income and Adjusted EPS) is useful to investors because it
(i) provides investors with meaningful supplemental information
regarding financial performance by excluding certain items, (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. These non-GAAP
financial measures are supplemental to the Company's GAAP disclosures
and should not be considered an alternative to the GAAP financial
information.

 
ADJUSTED NET INCOME AND EPS RECONCILIATION (Unaudited)
(In thousands, except per share data)
             
Three Months Ended June 30, Nine Months Ended June 30,
2018 2017 2018

2017 (1)

Net income attributable to Matthews $ 24,414 $ 29,485 $ 77,776 $ 54,727
Acquisition-related items 4,609 5,127 13,064 17,972
Pension and postretirement expense (2) 1,055 1,525 3,164 4,574
Intangible amortization expense 6,167 4,423 17,215 11,773
Strategic initiatives and other charges 478 2,118
Loss recoveries, net of costs (6,504 ) (6,504 )
Tax-related (3)     150     (26,738 )   285  
Adjusted net income $ 36,723 $ 34,206   $ 86,599   $ 82,827  
Adjusted EPS $ 1.16 $ 1.05   $ 2.72   $ 2.55  
 
Note: Adjustments to net income for non-GAAP reconciling items
were calculated using an income tax rate of 26.0% and 22.7%, for the
three months ended June 30, 2018 and 2017, respectively, and 26.0%
and 20.1% for the nine months ended June 30, 2018 and 2017,
respectively.
(1) Information for the nine months ended June 30, 2017 has been
adjusted to reflect the adoption of ASU No. 2016-09. The Company
early adopted this ASU in the fourth quarter of fiscal 2017, which
resulted in a reduction to income tax expense of $1,234, and a
corresponding favorable impact on diluted earnings per share, both
of which have been retroactively included in the first quarter
results for fiscal 2017. There was no impact for the three month
period ended June 30, 2017.
(2) 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.
(3) 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 $11,100, for the nine month period ended June 30, 2018.
 
 
ADJUSTED EBITDA RECONCILIATION (Unaudited)
(In thousands)
             
Three Months Ended June 30, Nine Months Ended June 30,
2018 2017 2018

2017 (1)

Net income attributable to Matthews $ 24,414 $ 29,485 $ 77,776 $ 54,727
Interest expense 9,719 6,988 26,782 19,750
Income taxes (2) 4,312 8,856 (18,703 ) 17,318
Depreciation and amortization   20,066     18,516     57,052     50,810  
EBITDA 58,511 63,845 142,907 142,605
Acquisition-related items 6,229 6,097 17,587 22,897
Strategic initiatives and other charges 647 2,862
Loss recoveries, net of costs (9,358 ) (9,358 )
Stock-based compensation 2,399 2,837 10,531 11,854
Pension and postretirement expense (3)   1,426     2,194     4,276     6,582  
Adjusted EBITDA $ 69,212   $ 65,615   $ 178,163   $ 174,580  
Adjusted EBITDA margin 16.8 % 16.8 % 14.9 % 15.6 %
 
(1) Information for the nine months ended June 30, 2017 has been
adjusted to reflect the adoption of ASU No. 2016-09. The Company
early adopted this ASU in the fourth quarter of fiscal 2017, which
resulted in a reduction to income tax expense of $1,234, and a
corresponding favorable impact on diluted earnings per share, both
of which have been retroactively included in the first quarter
results for fiscal 2017. There was no impact for the three month
period ended June 30, 2017.
(2) The income tax regulation changes identified in the adjusted
net income/earnings per share reconciliation are included in this
line and therefore not separately identified in the calculation of
adjusted EBITDA.
(3) 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.

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