Market Overview

Materion Corporation Reports Fourth Quarter and Full-Year 2018 Financial Results and Provides 2019 Earnings Guidance

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Materion Corporation (NYSE:MTRN) today reported record fourth quarter
and full-year 2018 financial results and provided 2019 earnings guidance.

Fourth Quarter 2018 Results

  • Net sales were $298.1 million; Value-added sales increased 3% to a
    fourth quarter record of $185.8 million
  • Operating profit was $14.4 million; Adjusted operating profit improved
    29% to a fourth quarter record of $18.1 million
  • Net loss was $1.03 per share, diluted; Adjusted earnings were up 27%
    to a fourth quarter record of $0.65 per share

Full Year 2018 Results

  • Net sales were $1.2 billion; Value-added sales increased 9% to a
    record $739.0 million
  • Operating profit was $61.5 million; Adjusted operating profit improved
    39% to a record $66.0 million
  • Net income was $1.01 per share, diluted; Adjusted earnings were up 38%
    to a record $2.38 per share

Earnings Guidance

  • The Company is providing full-year 2019 adjusted earnings guidance of
    $2.62 to $2.74 per share, representing a double-digit increase for the
    third consecutive year

"We had an exceptional quarter and year as our multi-pillar strategy
continued to drive significant improvements across the company," stated
Jugal Vijayvargiya, President and Chief Executive Officer. "Our team
achieved record results for employee safety, value-added sales, and
adjusted operating profit and EPS, despite softening market conditions
in the fourth quarter. We have now delivered eight consecutive quarters
of sales and profit growth. Going into 2019, we have established a solid
base for sales and profit growth and expect to deliver double-digit
profit growth for the third consecutive year."

FOURTH QUARTER 2018 RESULTS

Net sales for the fourth quarter were $298.1 million, compared to $308.7
million for the prior year. Value-added sales of $185.8 million were a
fourth quarter record, up 3% from the prior year. Continued focus on
commercial excellence initiatives and application wins led to sales
growth despite softening market conditions in the fourth quarter.

Operating profit for the fourth quarter was $14.4 million compared to
$14.3 million in the prior year. Adjusted operating profit for the
quarter was a record $18.1 million, up 29% from the prior year. For the
second consecutive quarter, adjusted operating profit reached 10% of
value-added sales. Adjustments for special, non-recurring items in the
quarter included severance expense related to headcount reductions of
approximately 40 employees in Alzenau, Germany and the favorable impact
of year-end LIFO copper adjustment.

Fourth quarter 2018 net loss was $20.8 million, or $1.03 per share,
diluted, as a result of a non-cash, non-operating pension settlement
charge of approximately $41.0 million for annuitizing a portion of the
U.S. pension obligations. On an adjusted basis, net income was $13.4
million or $0.65 per share, diluted, up 27% compared to the prior year.

FULL-YEAR 2018 RESULTS

For the full-year 2018, net sales were $1.2 billion compared to $1.1
billion in 2017. Value-added sales were an all-time record of $739.0
million, up 9% compared to $677.7 million for the prior year. Strong
commercial execution across many of our top end markets along with new
product and new application wins contributed to growth significantly
above market.

Operating profit for the full year was $61.5 million versus $40.0
million in the prior year. Adjusted operating profit was an all-time
record of $66.0 million, up 39% from the prior year. This is the second
consecutive year of delivering greater than 30% profit growth.

Net income for 2018 was $20.8 million, or $1.01 per share, diluted, as
compared to $11.5 million, or $0.56 per share, in the prior year.
Excluding special items and the non-cash pension settlement charge, net
income for 2018 was an all-time record of $49.0 million, or $2.38 per
share, diluted, as compared to $35.2 million, or $1.72 per share, for
the prior year.

OUTLOOK

The Company has now achieved eight consecutive quarters of value-added
sales and adjusted operating profit growth. Despite growing
macroeconomic uncertainty and continued market softness in consumer
electronics, we expect strong financial performance to continue through
the execution of our multi-pillar strategy. As a result, we are
providing 2019 full-year adjusted earnings guidance of $2.62 to $2.74
per share, diluted, representing a 10% to 15% increase over the prior
year.

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 14, 2019. 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 February
28, 2019 by dialing (877) 481-4010 or (919) 882-2331; please reference
replay ID number 41628. 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 2019;
  • The global economy, including the impact of tariffs and trade
    agreements;
  • 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;
  • 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 (Loss)
(Unaudited)
 
Fourth Quarter Ended Year Ended

December 31,

 

December 31,

December 31,

 

December 31,

(In thousands except per share amounts)

2018

2017

2018

2017

Net sales $ 298,070 $ 308,668 $ 1,207,815 $ 1,139,447
Cost of sales 232,018   249,683   956,710   926,618
Gross margin 66,052 58,985 251,105 212,829
Selling, general, and administrative expense 37,682 37,859 153,489 144,280
Research and development expense 3,434 3,878 15,187 13,981
Restructuring expense 5,599 (1,288 ) 5,599 644
Other — net 4,950   4,258   15,334   13,893
Operating profit 14,387 14,278 61,496 40,031
Interest expense — net 461 462 2,471 2,183
Other non-operating expense — net 41,004   411   42,683   1,452
Income (loss) before income taxes (27,078 ) 13,405 16,342 36,396
Income tax (benefit) expense (6,250 ) 21,637   (4,504 ) 24,945
Net income (loss) $ (20,828 ) $ (8,232 ) $ 20,846   $ 11,451
Basic earnings per share:
Net income (loss) per share of common stock $ (1.03 ) $ (0.41 ) $ 1.03 $ 0.57
Diluted earnings per share:
Net income (loss) per share of common stock $ (1.03 ) $ (0.41 ) $ 1.01 $ 0.56
Cash dividends per share $ 0.105 $ 0.100 $ 0.415 $ 0.395

Weighted-average number of shares of common stock outstanding:

Basic 20,249 20,086 20,212 20,027
Diluted 20,249 20,086 20,613 20,415
 
   

Attachment 2

Materion Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
 
(Thousands) December 31, 2018 December 31, 2017
Assets
Current assets
Cash and cash equivalents $ 70,645 $ 41,844
Accounts receivable 130,538 124,014
Inventories 214,871 220,352
Prepaid and other current assets 23,299   24,733  
Total current assets 439,353 410,943
Deferred income taxes 5,616 17,047
Property, plant, and equipment 898,251 891,789
Less allowances for depreciation, depletion, and amortization (647,233 ) (636,211 )
Property, plant, and equipment—net 251,018 255,578
Intangible assets 6,461 9,847
Other assets 7,236 6,992
Goodwill 90,657   90,677  
Total Assets $ 800,341   $ 791,084  
Liabilities and Shareholders' Equity
Current liabilities
Short-term debt $ 823 $ 777
Accounts payable 49,622 49,059
Salaries and wages 47,501 42,694
Other liabilities and accrued items 33,301 28,044
Income taxes 2,615 1,084
Unearned revenue 5,918   5,451  
Total current liabilities 139,780 127,109
Other long-term liabilities 14,764 14,895
Capital lease obligations 15,221 16,072
Retirement and post-employment benefits 38,853 93,225
Unearned income 32,563 36,905
Long-term income taxes 2,993 4,857
Deferred income taxes 195 213
Long-term debt 2,066 2,827
Shareholders' equity 553,906   494,981  
Total Liabilities and Shareholders' Equity $ 800,341   $ 791,084  
 
   

Attachment 3

Materion Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
 
(Thousands) 2018 2017
Cash flows from operating activities:
Net income $ 20,846 $ 11,451
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, depletion, and amortization 35,524 42,751
Amortization of deferred financing costs in interest expense 1,009 919
Stock-based compensation expense (non-cash) 5,313 4,957
Amortization of pension and post-retirement costs

5,551

4,865
Loss (gain) on the sale of property, plant, and equipment 518 234
Deferred income tax (benefit) expense (1,318 ) 20,256
Pension settlement charges 41,406
Changes in assets and liabilities net of acquired assets and
liabilities:
Decrease (increase) in accounts receivable (7,219 ) (18,484 )
Decrease (increase) in inventory 4,234 (9,462 )
Decrease (increase) in prepaid and other current assets 1,162 (11,606 )
Increase (decrease) in accounts payable and accrued expenses 8,820 34,433
Increase (decrease) in unearned revenue 477 4,336
Increase (decrease) in interest and taxes payable 435 (514 )
Domestic pension plan contributions (42,000 ) (16,000 )
Other-net

1,616

  (341 )
Net cash provided by operating activities 76,374 67,795
Cash flows from investing activities:
Payments for purchase of property, plant, and equipment (27,702 ) (27,516 )
Payments for mine development (6,558 ) (1,560 )
Payments for acquisition (16,504 )
Proceeds from sale of property, plant, and equipment 432   2,222  
Net cash (used in) investing activities (33,828 ) (43,358 )
Cash flows from financing activities:
Proceeds from issuance of long-term debt 55,000
Repayment of long-term debt (777 ) (55,797 )
Principal payments under capital lease obligations (861 ) (843 )
Cash dividends paid (8,389 ) (7,913 )
Deferred financing costs (300 )
Repurchase of common stock (422 ) (1,086 )
Payments of withholding taxes for stock-based compensation awards (3,156 ) (4,506 )
Net cash (used in) financing activities (13,605 ) (15,445 )
Effects of exchange rate changes (140 ) 1,388  
Net change in cash and cash equivalents 28,801 10,380
Cash and cash equivalents at beginning of period 41,844   31,464  
Cash and cash equivalents at end of period $ 70,645   $ 41,844  
 
   

Attachment 4

Materion Corporation and Subsidiaries
Reconciliation of Non-GAAP Measure - Value-added Sales
(Unaudited)
 
Fourth Quarter Ended Year Ended
(Millions) December 31, 2018   December 31, 2017 December 31, 2018   December 31, 2017
Net Sales        
Performance Alloys and Composites $ 128.5 $ 119.0 $ 500.6 $ 429.5
Advanced Materials 138.7 161.2 586.6 590.8
Precision Coatings 30.9 28.5 120.6 119.2
Other          
Total $ 298.1 $ 308.7 $ 1,207.8 $ 1,139.5
 
Less: Pass-through Metal Cost
Performance Alloys and Composites $ 18.4 $ 18.0 $ 75.1 $ 66.0
Advanced Materials 85.9 102.9 362.9 362.8
Precision Coatings 6.7 5.6 26.4 28.5
Other 1.3   1.0   4.4   4.5  
Total $ 112.3 $ 127.5 $ 468.8 $ 461.8
 
Value-added Sales (non-GAAP)
Performance Alloys and Composites $ 110.1 $ 101.0 $ 425.5 $ 363.5
Advanced Materials 52.8 58.3 223.7 228.0
Precision Coatings 24.2 22.9 94.2 90.7
Other (1.3 ) (1.0 ) (4.4 ) (4.5 )
Total $ 185.8 $ 181.2 $ 739.0 $ 677.7
 
% of % of % of % of
Gross Margin VA VA VA VA
Performance Alloys and Composites $ 38.7 35 % $ 27.0 27 % $ 133.0 31 % $ 89.8 25 %
Advanced Materials 16.4 31 % 22.4 38 % 79.0 35 % 88.5 39 %
Precision Coatings 10.2 42 % 9.1 40 % 39.1 42 % 34.0 37 %
Other 0.8   0.5     0.5  
Total $ 66.1 36 % $ 59.0 33 % $ 251.1 34 % $ 212.8 31 %
 
% of % of % of % of
Operating Profit VA VA VA VA
Performance Alloys and Composites $ 19.9 18 % $ 9.5 9 % $ 58.8 14 % $ 22.0 6 %
Advanced Materials (0.7 ) (1 )% 7.9 14 % 17.6 8 % 32.8 14 %
Precision Coatings 2.4 10 % 2.3 10 % 11.5 12 % 8.4 9 %
Other (7.2 ) (5.4 ) (26.4 ) (23.2 )
Total $ 14.4 8 % $ 14.3 8 % $ 61.5 8 % $ 40.0 6 %
 
   
Fourth Quarter Ended Year Ended
(Millions) December 31, 2018   December 31, 2017 December 31, 2018   December 31, 2017
Special Items        
Performance Alloys and Composites $ (1.9 ) $ (1.3 ) $ (1.9 ) $ 0.1
Advanced Materials 5.6 5.6 1.3
Precision Coatings 0.4
Other   1.0   0.8   5.6  
Total $ 3.7 $ (0.3 ) $ 4.5 $ 7.4
 

 

% of % of % of % of

Operating Profit Excluding Special Items

VA

VA

VA

 

VA

Performance Alloys and Composites $ 18.0 16 % $ 8.2 8 % $ 56.9 13 % $ 22.1 6 %
Advanced Materials 4.9 9 % 7.9 14 % 23.2 10 % 34.1 15 %
Precision Coatings 2.4 10 % 2.3 10 % 11.5 12 % 8.8 10 %
Other (7.2 ) (4.4 ) (25.6 ) (17.6 )
Total $ 18.1 10 % $ 14.0 8 % $ 66.0 9 % $ 47.4 7 %
 

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
(Unaudited)
 
Fourth Quarter Ended Year Ended
December 31,   December 31, December 31,   December 31,
(Millions except per share amounts) 2018 2017 2018 2017
GAAP as Reported
Net Sales $ 298.1 $ 308.7 $ 1,207.8 $ 1,139.5
Operating profit 14.4 14.3 61.5 40.0
Net income (loss) (20.8 ) (8.2 ) 20.8 11.5
EPS - Diluted $ (1.03 ) $ (0.41 ) $ 1.01 $ 0.56
 
Operating Profit Special Items
Cost reductions $ 5.6 $ (1.3 ) $ 5.6 $ 0.7
Legacy legal & environmental costs 0.3 0.8 0.5
LIFO inventory adjustment (1.9 ) (1.9 )
CEO transition 0.7 4.1
Acquisition costs       2.1  
Total operating profit special items $ 3.7   $ (0.3 ) $ 4.5   $ 7.4  
Operating Profit Special Items - net of tax $ 4.1 $ (0.2 ) $ 4.7 $ 4.8
Other Non-Operating Expense Special Items - net of tax $ 31.4 $ $ 31.4 $
Tax Special Items $ (1.3 ) $ 18.9 $ (7.9 ) $ 18.9
 
Non-GAAP Measures - Adjusted Profitability
Value-added (VA) sales $ 185.8 $ 181.2 $ 739.0 $ 677.7
Operating profit 18.1 14.0 66.0 47.4
Operating profit % of VA 9.7 % 7.7 % 8.9 % 7.0 %
Net income 13.4 10.5 49.0 35.2
EPS - Diluted $ 0.65 $ 0.51 $ 2.38 $ 1.72

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 non-cash pension
settlement charges, cost reduction initiatives (i.e., severance, asset
impairment charges, and net gains on asset disposals), legacy legal and
environmental costs, merger and acquisition costs, certain LIFO
inventory adjustments, certain income tax items, and CEO transition
costs 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
(Unaudited)
 
Fourth Quarter Ended Year Ended
December 31,   December 31, December 31,   December 31,
(Millions) 2018 2017 % Change 2018 2017 % Change
Materion Corporation
Consumer Electronics $ 52.9 $ 57.9 (8.6 )% $ 215.7 $ 215.2 0.2 %
Industrial Components 27.6 26.8 3.0 % 117.5 105.3 11.6 %
Defense 19.0 18.5 2.7 % 71.3 55.3 28.9 %
Energy 18.0 14.5 24.1 % 71.1 49.1 44.8 %
Medical 15.8 13.1 20.6 % 58.8 56.1 4.8 %
Automotive Electronics 13.1 12.9 1.6 % 58.9 53.2 10.7 %
Telecom Infrastructure 9.7 8.2 18.3 % 39.4 31.3 25.9 %
Other 29.7   29.3   1.4 % 106.3   112.2   (5.3 )%
Total $ 185.8 $ 181.2 2.5 % $ 739.0 $ 677.7 9.0 %
Performance Alloy and Composites
Consumer Electronics $ 20.7 $ 20.4 1.5 % $ 81.0 $ 75.4 7.4 %
Industrial Components 21.4 20.9 2.4 % 92.7 80.0 15.9 %
Defense 12.2 13.2 (7.6 )% 45.1 33.8 33.4 %
Energy 10.4 5.6 85.7 % 35.2 19.5 80.5 %
Medical 2.8 1.6 75.0 % 8.0 6.8 17.6 %
Automotive Electronics 12.8 12.7 0.8 % 57.4 51.7 11.0 %
Telecom Infrastructure 8.6 6.6 30.3 % 34.0 24.2 40.5 %
Other 21.2   20.0   6.0 % 72.1   72.1   %
Total $ 110.1 $ 101.0 9.0 % $ 425.5 $ 363.5 17.1 %
Advanced Materials
Consumer Electronics $ 27.4 $ 32.1 (14.6 )% $ 115.8 $ 121.8 (4.9 )%
Industrial Components 3.2 3.2 % 13.6 13.9 (2.2 )%
Defense 1.5 1.4 7.1 % 6.2 5.8 6.9 %
Energy 7.6 9.0 (15.6 )% 35.9 29.7 20.9 %
Medical 3.2 2.3 39.1 % 11.8 10.7 10.3 %
Automotive Electronics % %
Telecom Infrastructure 1.1 1.6 (31.3 )% 5.3 7.1 (25.4 )%
Other 8.8   8.7   1.1 % 35.1   39.0   (10.0 )%
Total $ 52.8 $ 58.3 (9.4 )% $ 223.7 $ 228.0 (1.9 )%
Precision Coatings
Consumer Electronics $ 4.9 $ 5.4 (9.3 )% $ 18.9 $ 18.0 5.0 %
Industrial Components 2.8 2.7 3.7 % 11.1 11.4 (2.6 )%
Defense 5.4 3.8 42.1 % 20.1 15.6 28.8 %
Energy % %
Medical 9.8 9.2 6.5 % 39.0 38.6 1.0 %
Automotive Electronics 0.3 0.2 50.0 % 1.5 1.4 7.1 %
Telecom Infrastructure % %
Other 1.0   1.6   (37.5 )% 3.6   5.7   (36.8 )%
Total $ 24.2 $ 22.9 5.7 % $ 94.2 $ 90.7 3.9 %
 
Eliminations $ (1.3 ) $ (1.0 ) $ (4.4 ) $ (4.5 )

Prior year numbers have been restated to conform to the current year
presentation.

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