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Materion Corporation Reports Record First Quarter 2019 Financial Results and Raises Full-Year 2019 Earnings Guidance

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Materion Corporation (NYSE:MTRN) today reported first quarter 2019
financial results.

First Quarter 2019 Results

Net sales were $301.4 million; value-added sales increased 4% to a first
quarter record of $187.7 million

Operating profit was a record $21.4 million, or 11.4% of value-added
sales, the ninth consecutive quarterly year-over-year increase

Diluted earnings per share were a record $0.82, up 61% year-over-year

Earnings Guidance

The Company is raising its full-year 2019 adjusted earnings guidance to
$2.80 to $3.00 per share, diluted; a 22% increase over prior year
earnings

"Our momentum continued in the first quarter as we delivered record
earnings and the ninth consecutive quarter of year-over-year value-added
sales and profit growth," stated Jugal Vijayvargiya, President and Chief
Executive Officer. "We remain intently focused on our multi-pillar
strategy to consistently deliver profitable growth. Based on our first
quarter performance and outlook, we are raising our full-year 2019
adjusted earnings guidance range to reflect a 22% year-over-year
increase in earnings."

FIRST QUARTER 2019 RESULTS

Net sales for the first quarter of 2019 were $301.4 million, compared to
$303.5 million for the prior year. Value-added sales of $187.7 million
were a first quarter record, up 4% from the prior year. Strong
commercial execution particularly in the defense, energy, and telecom
infrastructure end markets drove the value-added sales growth and more
than offset weakness in consumer electronics.

Operating profit for the first quarter was $21.4 million, or 11.4% of
value-added sales and increased 61% compared to $13.3 million in the
prior year. Operating profit reached the highest level for any quarter
and marks the third consecutive quarter with double-digit profit
margins. The significant improvement in profitability reflects a
favorable sales mix of more differentiated products being sold into
critical applications combined with improved operational performance.

First quarter 2019 net income was $16.9 million, or $0.82 per share,
diluted, up 61% compared to 2018.

OUTLOOK

The Company has now achieved nine consecutive quarters of year-over-year
value-added sales and adjusted operating profit growth. We continue to
demonstrate an ability to navigate macroeconomic uncertainty and market
softness in consumer electronics through the execution of our
multi-pillar strategy. Based on our first quarter performance and
outlook, we are raising full-year 2019 adjusted earnings guidance
approximately 8% from $2.62 to $2.74 per share, diluted, to $2.80 to
$3.00 per share. The midpoint of the revised guidance represents a 22%
increase from 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, May 2, 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 May 16,
2019 by dialing (877) 481-4010 or (919) 882-2331; please reference
replay ID number 41629. 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 2018 Annual Report on
    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

(Unaudited)

 
First Quarter Ended
March 29,   March 30,
(In thousands except per share amounts) 2019 2018
Net sales $ 301,441 $ 303,467
Cost of sales 232,129   245,187
Gross margin 69,312 58,280
Selling, general, and administrative expense 40,064 38,462
Research and development expense 3,740 3,643
Other — net 4,121   2,924
Operating profit 21,387 13,251
Interest expense — net 466 730
Other non-operating expense—net 245   442
Income before income taxes 20,676 12,079
Income tax expense 3,770   1,515
Net income $ 16,906   $ 10,564
Basic earnings per share:
Net income per share of common stock $ 0.83 $ 0.52
Diluted earnings per share:
Net income per share of common stock $ 0.82 $ 0.51
Weighted-average number of shares of common stock outstanding:
Basic 20,267 20,135
Diluted 20,606 20,574
 
   

Attachment 2

Materion Corporation and Subsidiaries
Consolidated Balance Sheets
 
(Unaudited)  
(Thousands) March 29, 2019 December 31, 2018
Assets
Current assets
Cash and cash equivalents $ 41,864 $ 70,645
Accounts receivable 144,952 130,538
Inventories, net 224,198 214,871
Prepaid and other current assets 23,832   23,299  
Total current assets 434,846 439,353
Deferred income taxes 5,301 5,616
Property, plant, and equipment 908,481 898,251
Less allowances for depreciation, depletion, and amortization (656,326 ) (647,233 )
Property, plant, and equipment—net 252,155 251,018
Operating lease, right-of-use asset 28,327
Intangible assets 5,808 6,461
Other assets 7,725 7,236
Goodwill 90,600   90,657  
Total Assets $ 824,762   $ 800,341  
Liabilities and Shareholders' Equity
Current liabilities
Short-term debt $ 836 $ 823
Accounts payable 56,586 49,622
Salaries and wages 24,435 47,501
Other liabilities and accrued items 38,228 33,301
Income taxes 5,877 2,615
Unearned revenue 5,194   5,918  
Total current liabilities 131,156 139,780
Other long-term liabilities 11,231 14,764
Operating lease liabilities 22,575
Finance lease liabilities 18,502 15,221
Retirement and post-employment benefits 37,813 38,853
Unearned income 31,478 32,563
Long-term income taxes 3,067 2,993
Deferred income taxes 194 195
Long-term debt 1,869 2,066
Shareholders' equity 566,877   553,906  
Total Liabilities and Shareholders' Equity $ 824,762   $ 800,341  
 
 

Attachment 3

Materion Corporation and Subsidiaries
Consolidated Statements of Cash Flows

(Unaudited)

 
Three Months Ended
(Thousands) March 29, 2019   March 30, 2018
Cash flows from operating activities:
Net income $ 16,906 $ 10,564
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Depreciation, depletion, and amortization 9,067 9,207
Amortization of deferred financing costs in interest expense 236 261
Stock-based compensation expense (non-cash) 1,547 771
Deferred income tax expense (benefit) 371 (359 )
Changes in assets and liabilities:
Decrease (increase) in accounts receivable (14,698 ) (8,582 )
Decrease (increase) in inventory (9,561 ) 5,097
Decrease (increase) in prepaid and other current assets (556 ) (634 )
Increase (decrease) in accounts payable and accrued expenses (16,030 ) (16,308 )
Increase (decrease) in interest and taxes payable 2,525 1,626
Domestic pension plan contributions (1,500 ) (9,000 )
Other-net (924 ) (818 )
Net cash used in operating activities (12,617 ) (8,175 )
Cash flows from investing activities:
Payments for purchase of property, plant, and equipment (8,027 ) (7,867 )
Payments for mine development (1,352 ) (1,661 )
Proceeds from sale of property, plant, and equipment 58   3  
Net cash used in investing activities (9,321 ) (9,525 )
Cash flows from financing activities:
Repayment of long-term debt (197 ) (190 )
Principal payments under finance lease obligations (298 ) (211 )
Cash dividends paid (2,125 ) (2,012 )
Repurchase of common stock (199 )
Payments of withholding taxes for stock-based compensation awards (3,978 ) (2,133 )
Net cash used in financing activities (6,797 ) (4,546 )
Effects of exchange rate changes (46 ) 608  
Net change in cash and cash equivalents (28,781 ) (21,638 )
Cash and cash equivalents at beginning of period 70,645   41,844  
Cash and cash equivalents at end of period $ 41,864   $ 20,206  
 
   

Attachment 4

Materion Corporation and Subsidiaries
Reconciliation of Non-GAAP Measure - Value-added Sales

(Unaudited)

 
First Quarter Ended Fourth Quarter Ended
(Millions) March 29, 2019   March 30, 2018 December 31, 2018
Net Sales      
Performance Alloys and Composites $ 127.1 $ 118.3 $ 128.5
Advanced Materials 144.0 153.5 138.7
Precision Coatings 30.3 31.7 30.9
Other        
Total $ 301.4 $ 303.5 $ 298.1
 
Less: Pass-through Metal Cost
Performance Alloys and Composites $ 17.5 $ 18.0 $ 18.4
Advanced Materials 86.5 95.2 85.9
Precision Coatings 7.8 8.1 6.7
Other 1.9   0.9     1.3  
Total $ 113.7 $ 122.2 $ 112.3
 
Value-added Sales (non-GAAP)
Performance Alloys and Composites $ 109.6 $ 100.3 $ 110.1
Advanced Materials 57.5 58.3 52.8
Precision Coatings 22.5 23.6 24.2
Other (1.9 ) (0.9 )   (1.3 )
Total $ 187.7 $ 181.3 $ 185.8
 
% of % of % of
Gross Margin VA VA VA
Performance Alloys and Composites $ 39.3 36% $ 27.8 28% $ 38.7 35%
Advanced Materials 22.0 38% 20.8 36% 16.4 31%
Precision Coatings 9.4 42% 10.0 42% 10.2 42%
Other (1.4 ) (0.3 ) 0.8  
Total $ 69.3 37% $ 58.3 32% $ 66.1 36%
 
% of % of % of
Operating Profit VA VA VA
Performance Alloys and Composites $ 18.9 17% $ 9.9 10% $ 19.9 18%
Advanced Materials 7.1 12% 5.9 10% (0.7 ) (1)%
Precision Coatings 2.1 9% 3.4 14% 2.4 10%
Other (6.7 ) (5.9 ) (7.2 )
Total $ 21.4 11% $ 13.3 7% $ 14.4 8%
 
  First Quarter Ended   Fourth Quarter Ended
(Millions) March 29, 2019   March 30, 2018 December 31, 2018
Special Items      
Performance Alloys and Composites $ $ $ (1.9 )
Advanced Materials 5.6
Precision Coatings
Other   0.7    
Total $ $ 0.7 $ 3.7
 
% of % of % of
Operating Profit Excluding Special Items VA VA VA
Performance Alloys and Composites $ 18.9 17% $ 9.9 10% $ 18.0 16%
Advanced Materials 7.1 12% 5.9 10% 4.9 9%
Precision Coatings 2.1 9% 3.4 14% 2.4 10%
Other (6.7 ) (5.2 ) (7.2 )
Total $ 21.4 11% $ 14.0 8% $ 18.1 10%
 

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)

 
First Quarter Ended Fourth Quarter Ended
(Millions except per share amounts) March 29, 2019   March 30, 2018 December 31, 2018
GAAP as Reported
Net Sales $ 301.4 $ 303.5 $ 298.1
Operating profit 21.4 13.3 14.4
Net income (loss) 16.9 10.6 (20.8 )
EPS - Diluted $ 0.82 $ 0.51 $ (1.03 )
 
Operating Profit Special Items
Cost reductions $ $ $ 5.6
Legacy legal & environmental costs 0.7
LIFO inventory adjustment     (1.9 )
Total operating profit special items $   $ 0.7   $ 3.7  
Operating Profit Special Items - net of tax $ $ 0.6 $ 4.1

Other Non-Operating Expense Special Items - net of tax

$ $ $ 31.4
Tax Special Item $ $ (0.6 ) $ (1.3 )
 
Non-GAAP Measures - Adjusted Profitability
Value-added (VA) sales $ 187.7 $ 181.3 $ 185.8
Operating profit 21.4 14.0 18.1
Operating profit % of VA 11.4 % 7.7 % 9.7 %
Net income 16.9 10.6 13.4
EPS - Diluted $ 0.82 $ 0.51 $ 0.65
 

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), legacy
legal and environmental costs, certain LIFO inventory adjustments, and
certain income tax items 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)

 
First Quarter Ended Fourth Quarter Ended
(Millions) March 29, 2019   March 30, 2018 % Change December 31, 2018 % Change
Materion Corporation
Consumer Electronics $ 50.9 $ 53.6 (5.0 )% $ 52.9 (3.8 )%
Industrial Components 28.2 32.1 (12.1 )% 27.6 2.2 %
Defense 19.6 12.3 59.3 % 19.0 3.2 %
Energy 19.4 17.4 11.5 % 18.0 7.8 %
Medical 16.1 15.5 3.9 % 15.8 1.9 %
Automotive Electronics 13.4 14.8 (9.5 )% 13.1 2.3 %
Telecom Infrastructure 10.2 8.7 17.2 % 9.7 5.2 %
Other 29.9   26.9   11.2 % 29.7   0.7 %
Total $ 187.7 $ 181.3 3.5 % $ 185.8 1.0 %
Performance Alloy and Composites
Consumer Electronics $ 18.5 $ 20.0 (7.5 )% $ 20.7 (10.6 )%
Industrial Components 22.0 25.8 (14.7 )% 21.4 2.8 %
Defense 12.7 6.6 92.4 % 12.2 4.1 %
Energy 10.6 6.4 65.6 % 10.4 1.9 %
Medical 2.7 1.6 68.8 % 2.8 (3.6 )%
Automotive Electronics 13.4 14.6 (8.2 )% 12.8 4.7 %
Telecom Infrastructure 8.9 7.1 25.4 % 8.6 3.5 %
Other 20.8   18.2   14.3 % 21.2   (1.9 )%
Total $ 109.6 $ 100.3 9.3 % $ 110.1 (0.5 )%
Advanced Materials
Consumer Electronics $ 28.7 $ 29.3 (2.0 )% $ 27.4 4.7 %
Industrial Components 3.2 3.8 (15.8 )% 3.2 %
Defense 1.7 1.4 21.4 % 1.5 13.3 %
Energy 8.8 11.0 (20.0 )% 7.6 15.8 %
Medical 4.0 2.9 37.9 % 3.2 25.0 %
Automotive Electronics % %
Telecom Infrastructure 1.2 1.5 (20.0 )% 1.1 9.1 %
Other 9.9   8.4   17.9 % 8.8   12.5 %
Total $ 57.5 $ 58.3 (1.4 )% $ 52.8 8.9 %
Precision Coatings
Consumer Electronics $ 3.7 $ 4.3 (14.0 )% $ 4.9 (24.5 )%
Industrial Components 3.0 2.5 20.0 % 2.8 7.1 %
Defense 5.3 4.3 23.3 % 5.4 (1.9 )%
Energy % %
Medical 9.5 11.0 (13.6 )% 9.8 (3.1 )%
Automotive Electronics 0.2 % 0.3 %
Telecom Infrastructure 0.1 % %
Other 1.0   1.2   (16.7 )% 1.0   %
Total $ 22.5 $ 23.6 (4.7 )% $ 24.2 (7.0 )%
 
Eliminations $ (1.9 ) $ (0.9 ) $ (1.3 )

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