Market Overview

Rogers Corporation Reports Second Quarter 2018 Results

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Second quarter 2018, versus second quarter 2017:

  • Net sales of $214.7 million, up 6.6%
  • Gross margin of 35.7%, down 430 basis points
  • Net income of $17.3 million, down 17.1%
  • Earnings of $0.93 per diluted share; adjusted earnings of $1.19 per
    diluted share

Rogers
Corporation
(NYSE:ROG) today announced financial results for the
2018 second quarter.

The Company reported 2018 second quarter net sales of $214.7 million,
which was within the Company's previously announced guidance of $210 to
$220 million, and an increase of 6.6% compared to 2017 second quarter
net sales of $201.4 million. Currency exchange rates favorably impacted
2018 second quarter net sales by $8.4 million due to strengthening in
the Euro and Renminbi.

Earnings for the 2018 second quarter were $0.93 per diluted share,
compared to $1.13 per diluted share in the second quarter of 2017.
Earnings per diluted share were below the Company's guidance of $1.10 to
$1.25. On an adjusted basis, earnings were $1.19 per diluted share,
compared to adjusted earnings of $1.33 per diluted share in the second
quarter of 2017. Adjusted earnings were below the Company's guidance of
$1.25 to $1.40 per diluted share.

Second quarter 2018 net income was $17.3 million, compared to $20.9
million in the second quarter of 2017. Adjusted EBITDA was $40.7 million
for the second quarter of 2018, compared to $46.5 million reported in
the second quarter of 2017.

Gross margin was 35.7% in the second quarter of 2018, compared to 40.0%
in the second quarter of 2017. Operating margin was 11.7% in the second
quarter of 2018, compared to 16.0% in the second quarter of 2017.
Adjusted operating margin was 14.8% in the second quarter of 2018,
compared to 18.8% in the second quarter of 2017.

"Rogers achieved revenue growth across much of the business; however,
margins were below our expectations in the quarter primarily due to
additional costs for capacity and activities to reduce cost structure,"
stated Bruce D. Hoechner, Rogers' President and CEO. "We are turning the
corner on near-term operating challenges. We are executing well on our
strategy, as demonstrated by our recent synergistic acquisition of
Griswold, and our ongoing substantial investments in capacity and
multi-site readiness, in preparation for the significant growth
opportunities in 5G wireless, advanced driver assistance systems, and
electric and hybrid electric vehicles. Rogers is well positioned to
achieve the performance targets outlined in our 2020 vision."

Business segment discussion

Advanced Connectivity Solutions (ACS)
Advanced
Connectivity Solutions reported 2018 second quarter net sales of $76.4
million, a 2.7% increase compared to 2017 second quarter net sales of
$74.3 million. The increase in 2018 second quarter net sales was largely
driven by aerospace and defense and automotive advanced driver
assistance systems (ADAS) revenues, partially offset by lower demand in
portable electronics and wireless 4G LTE applications. Second quarter
2018 net sales were favorably impacted by $1.9 million due to
fluctuations in currency exchange rates.

Elastomeric Material Solutions (EMS)
Elastomeric
Material Solutions reported 2018 second quarter net sales of $79.2
million, a 2.1% increase compared to 2017 second quarter net sales of
$77.6 million. EMS net sales increased on portable electronics,
consumer, automotive and mass transit revenues, partially offset by
lower general industrial and other applications. Fluctuations in
currency exchange rates favorably impacted net sales by $2.0 million in
the 2018 second quarter.

Power Electronics Solutions (PES)
Power
Electronics Solutions reported 2018 second quarter net sales of $53.6
million, a 22.2% increase compared to 2017 second quarter net sales of
$43.9 million. 2018 second quarter net sales increased due to broad
based demand across markets, including particular strength in electric
and hybrid electric vehicles, renewable energy, mass transit and
variable frequency drives. Second quarter 2018 net sales were favorably
impacted by $4.3 million due to fluctuations in currency exchange rates.

Other
Other reported 2018
second quarter net sales of $5.4 million, a decrease of 2.8% compared to
the second quarter of 2017 sales of $5.6 million.

Balance sheet and other highlights

Cash position
Rogers ended the
second quarter of 2018 with cash and cash equivalents of $174.7 million,
a decrease of $6.5 million from $181.2 million at December 31, 2017. The
primary drivers of the lower cash balance were capital spending of $20.2
million, tax payments related to vested equity awards of $6.4 million,
and share repurchases of $3.0 million, partially offset by $22.8 million
of net cash provided by operating activities.

Cash flow
Net cash provided
from operating activities of $22.8 million in the first half of 2018, a
decrease compared to 2017. The decrease in net cash provided by
operating activities was primarily driven by the use of working capital
and lower net income. Capital spending was $20.2 million in the first
half of 2018, an increase compared to $9.7 million in 2017.

Effective tax rate
Rogers'
effective income tax rate was 32.6% for the second quarter of 2018,
compared to 33.9% for the second quarter of 2017. The decrease was
primarily due to a lower U.S. effective tax rate, as a result of U.S.
tax reform and geographic profit mix, partially offset by an increase in
current year accruals for uncertain tax positions.

Financial outlook
Rogers guides
its 2018 third quarter net sales to a range of $220 to $230 million.
Rogers guides its 2018 third quarter earnings to a range of $0.97 to
$1.12 per diluted share, excluding the impact of purchase accounting
related to the acquisition of Griswold. Adjusted earnings are guided to
a range of $1.25 to $1.40 per diluted share.

Rogers guides 2018 full year capital spending to be in the range of $50
to $60 million.

Rogers guides the 2018 full year effective tax rate to be 25-27%, with a
third quarter effective tax rate of 30-31%.

About Rogers Corporation
Rogers
Corporation (NYSE:ROG) is a global leader in engineered materials to
power, protect, and connect our world. With more than 180 years of
materials science experience, Rogers delivers high-performance solutions
that enable clean energy, internet connectivity, and safety and
protection applications, as well as other technologies where reliability
is critical. Rogers delivers Power Electronics Solutions for
energy-efficient motor drives, e-Mobility and renewable energy;
Elastomeric Material Solutions for sealing, vibration management and
impact protection in mobile devices, transportation interiors,
industrial equipment and performance apparel; and Advanced Connectivity
Solutions for wireless infrastructure, automotive safety and radar
systems. Headquartered in Arizona (USA), Rogers operates manufacturing
facilities in the United States, China, Germany, Belgium, Hungary, and
South Korea, with joint ventures and sales offices worldwide.

Safe Harbor Statement
This
release contains forward-looking statements, which may concern our
plans, objectives, outlook, goals, strategies, future events, future net
sales or performance, capital expenditures, financing needs, future
restructuring, plans or intentions relating to expansions, business
trends and other information that is not historical information. All
forward-looking statements are based upon information available to us on
the date of this release and are subject to risks, uncertainties and
other factors, many of which are outside of our control, which could
cause actual results to differ materially from the results discussed in
the forward-looking statements. Risks that could cause such results to
differ include: failure to capitalize on, and volatility within, the
Company's growth drivers, including advanced mobility and advanced
connectivity, such as delays in adoption or implementation of new
technologies; uncertain business, economic and political conditions in
the United States and abroad, particularly in China, South Korea,
Germany, Hungary and Belgium, where we maintain significant
manufacturing, sales or administrative operations; changes in trade
policy, tariff regulation or other trade restrictions; fluctuations in
foreign currency exchange rates; research and development efforts;
competitive developments; business development transactions and related
integration considerations, including failure to realize, or delays in
the realization of anticipated benefits of such transactions; the
outcome of ongoing and future litigation, including our asbestos-related
product liability litigation; inability to obtain raw materials,
including commodities, from single or limited source suppliers in a
timely and cost effective manner; and changes in laws and regulations
applicable to our business. For additional information about the risks,
uncertainties and other factors that may affect our business, please see
our most recent annual report on Form 10-K and any subsequent quarterly
reports on Forms 10-Q filed with the Securities and Exchange Commission.
Rogers Corporation assumes no responsibility to update any
forward-looking statements contained herein except as required by law.

Conference call and additional information

A conference call to discuss 2018 second quarter results today on
Tuesday July, 31 2018 at 5pm ET.

A live webcast and slide presentation will be available under the
investors section of www.rogerscorp.com/ir.

To participate, please dial:

1-800-574-8929 Toll-free in the United States
1-973-935-8524
Internationally
There is no passcode for the live teleconference.

If you are unable to attend, a conference call playback will be
available from July 31, 2018 at approximately 8 pm ET through August 7,
2018 at 11:59 pm ET, by dialing 1-855-859-2056 from the United States,
and 1-404-537-3406 from outside of the US, each with passcode 4967299.

Additionally, the archived webcast will be available on the Rogers
website at approximately 8 pm ET July 31, 2018.

Additional information
Please contact the Company directly
via email or visit the Rogers website.

(Financial statements follow)

 

Condensed Consolidated Statements of Operations (Unaudited)

       
Three Months Ended Six Months Ended

(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

June 30, 2018   June 30, 2017 June 30, 2018   June 30, 2017
Net sales $ 214,675 $ 201,424 $ 429,286 $ 405,252
Cost of sales 138,003   120,878   276,007   244,356  
Gross margin 76,672 80,546 153,279 160,896
Selling, general and administrative expenses 42,540 40,012 83,137 74,580
Research and development expenses 8,750 7,141 16,884 14,102
Restructuring and impairment charges 541 1,079 963 1,805
Other operating (income) expense, net (383 )   (3,974 ) (942 )
Operating income 25,224 32,314 56,269 71,351
Equity income in unconsolidated joint ventures 1,804 966 2,811 1,976
Other income (expense), net (34 ) 260 32 1,379
Interest expense, net (1,292 ) (1,947 ) (2,503 ) (3,195 )
Income before income tax expense 25,702 31,593 56,609 71,511
 
Income tax expense 8,373   10,697   13,144   23,583  
Net income $ 17,329   $ 20,896   $ 43,465   $ 47,928  
       
Basic earnings per share $ 0.94   $ 1.15   $ 2.37   $ 2.65  
       
Diluted earnings per share $ 0.93   $ 1.13   $ 2.33   $ 2.60  
 
Shares used in computing:
Basic earnings per share 18,389 18,140 18,338 18,098
Diluted earnings per share       18,660     18,547     18,635     18,460
 

Please note for adoption of ASU 2017-07, Rogers has reclassified second
quarter and year to date 2017 pension and OPEB income, in the amount of
$445 and $849 thousand, respectively, from selling, general and
administrative expense to other income (expense), net, in the condensed
consolidated statements of operations above.

 

Condensed Consolidated Statements of Financial Position
(Unaudited)

       
(IN THOUSANDS) June 30, 2018 December 31, 2017
Assets
Current assets
Cash and cash equivalents $ 174,700 $ 181,159
Accounts receivable, less allowance for doubtful accounts of $1,284
and $1,525
148,727 140,562
Contract assets 21,933
Inventories 117,739 112,557
Prepaid income taxes 2,732 3,087
Current portion of asbestos-related insurance receivables 5,682 5,682
Assets held for sale 381 896
Other current assets 13,535   10,580  
Total current assets 485,429 454,523
Property, plant and equipment, net of accumulated depreciation of
$300,416 and $289,909
184,478 179,611
Investments in unconsolidated joint ventures 19,411 18,324
Deferred income taxes 3,501 6,008
Goodwill 234,287 237,107
Other intangible assets, net of amortization 152,009 160,278
Asbestos-related insurance receivables 63,511 63,511
Other long-term assets 5,503   5,772  
Total assets $ 1,148,129   $ 1,125,134  
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 37,299 $ 36,116
Accrued employee benefits and compensation 26,081 39,394
Accrued income taxes payable 3,987 6,408
Current portion of capital lease obligations 600 579
Current portion of asbestos-related liabilities 5,682 5,682
Other accrued liabilities 25,095   25,629  
Total current liabilities 98,744 113,808
Borrowings under credit facility 130,982 130,982
Non-current portion of capital lease obligations 5,404 5,873
Pension liability 8,720 8,720
Retiree health care and life insurance benefits 1,685 1,685
Asbestos-related liabilities 70,056 70,500
Non-current income tax 9,755 12,823
Deferred income taxes 13,879 10,706
Other long-term liabilities 4,119 3,464
Shareholders' equity
Capital Stock - $1 par value; 50,000 authorized shares; 18,380 and
18,255 shares issued and outstanding
18,380 18,255
Additional paid-in capital 126,452 128,933
Retained earnings 732,217 684,540
Accumulated other comprehensive loss (72,264 ) (65,155 )
Total shareholders' equity 804,785   766,573  
Total liabilities and shareholders' equity $ 1,148,129   $ 1,125,134  
 

Reconciliation of non-GAAP financial measures to the comparable
GAAP measures

Non-GAAP financial measures:

This earnings release includes the following financial measures that are
not presented in accordance with generally accepted accounting
principles in the United States of America ("GAAP"):

(1) Adjusted earnings per diluted share, which the Company defines as
earnings per diluted share excluding acquisition-related amortization of
intangible assets and discrete items, such as restructuring expenses,
acquisition and related integration costs, and gains or losses on asset
or business dispositions (collectively, "Discrete Items");

(2) Adjusted EBITDA, which the Company defines as net income excluding
interest expense, income tax expense, depreciation and amortization, and
Discrete Items; and

(3) Adjusted operating margin, which the Company defines as operating
margin excluding acquisition-related amortization of intangible assets
and Discrete Items.

Management believes each of these measures is useful to investors
because they allow for comparison to the Company's performance in prior
periods without the effect of items that, by their nature, tend to
obscure the Company's core operating results due to the potential
variability across periods based on the timing, frequency and magnitude.
As a result, management believes that adjusted earnings per diluted
share, adjusted EBITDA and adjusted operating margin enhance the ability
of investors to analyze trends in the Company's business and evaluate
the Company's performance relative to peer companies. However, non-GAAP
financial measures have limitations as analytical tools and should not
be considered in isolation from, or solely as alternatives to, financial
measures prepared in accordance with GAAP. In addition, these non-GAAP
financial measures may differ from similarly named measures used by
other companies. Reconciliations of the differences between these
non-GAAP financial measures and their most directly comparable financial
measures calculated in accordance with GAAP are set forth below.

**2017 financial measures below have been adjusted for the adoption of
ASU 2017-07, and has reclassified pension and OPEB income from selling,
general and administrative expense to other income (expense), net.

Reconciliation of GAAP earnings per diluted share to
adjusted earnings per diluted share for the second quarter:

         
        2018     2017
Earnings per diluted share       Q2     Q2
GAAP earnings per diluted share $ 0.93 $ 1.13
 
Restructuring, severance, impairment and other related costs 0.09 0.04
Acquisition and related integration costs 0.04 0.03
Gain on sale of long-lived asset         (0.02 )      
Total discrete items       $ 0.11       $ 0.07
Earnings per diluted share adjusted for discrete items       $ 1.04       $ 1.20
 
Acquisition intangible amortization 0.15 0.13
               
Adjusted earnings per diluted share       $ 1.19       $ 1.33
 
 

Reconciliation of GAAP net income to adjusted EBITDA for the
second quarter*:

         
        2018     2017
(amounts in millions)       Q2     Q2
Net income $ 17.3 $ 20.9
 
Interest expense, net 1.3 1.9
Income tax expense 8.4 10.7
Depreciation 7.1 7.2
Amortization 3.8 3.8
Restructuring, severance, impairment and other related costs 2.2 1.1
Acquisition and related integration costs 0.9 0.9
Loss (gain) on sale of long-lived assets         (0.4 )      
Adjusted EBITDA       $ 40.7       $ 46.5
 

*Values in table may not add due to rounding.

 

 

Reconciliation of GAAP operating margin to adjusted
operating margin for the second quarter*:

         
        2018     2017
Operating margin       Q2     Q2
**GAAP operating margin 11.7 % 16.0 %
 
Restructuring, severance, impairment and other related costs 1.0 % 0.5 %
Acquisition and related integration costs 0.4 % 0.5 %
Loss (gain) on sale of long-lived assets       (0.2 )%     %
Total discrete Items       1.2 %     1.0 %
Operating margin adjusted for discrete items       13.0 %     17.0 %
 
Acquisition intangible amortization 1.8 % 1.8 %
               
Adjusted operating margin       14.8 %     18.8 %
 

*Percentages in table may not add due to rounding.

 
 

Reconciliation of GAAP earnings per diluted share to
adjusted earnings per diluted share guidance for the 2018 second
quarter:

     
        Guidance
Q2 2018
GAAP earnings per diluted share $1.10 - $1.25
 
Discrete items $0.01
 
Acquisition intangible amortization $0.14
         
Adjusted earnings per diluted share       $1.25 - $1.40
 
 

Reconciliation of GAAP earnings per diluted share to
adjusted earnings per diluted share guidance for the 2018 third
quarter:

     
        Guidance
Q3 2018
GAAP earnings per diluted share $0.97 - $1.12
 
Discrete items $0.13
 
Acquisition intangible amortization $0.15
         
Adjusted earnings per diluted share       $1.25 - $1.40

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