Market Overview

Rogers Corporation Reports Second Quarter 2020 Results

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Operational Performance Drives Strong Profitability

Rogers Corporation (NYSE:ROG) today announced financial results for the second quarter of 2020.

"As the result of strong operational performance and favorable product mix, second quarter gross margin and adjusted earnings per share exceeded the top end of our guidance expectations," stated Bruce D. Hoechner, Rogers' President and CEO. "These solid results were driven by continued progress on our cost improvement roadmap, including timely actions in response to the challenging macro-environment. In the near-term our focus continues to be on the health and safety of our employees and supporting our global customers. In addition, we are focused on accelerating our plans to capitalize on the significant growth opportunities in Advanced Mobility markets, while we continue to pursue opportunities in Advanced Connectivity markets."

Q2 2020 Financial Overview

GAAP Results

Q2 2020

Q1 2020

Q2 2019

Net Sales ($M)

$191.2

$198.8

$242.9

Gross Margin

36.6%

33.0%

35.3%

Operating Margin

11.0%

8.8%

13.7%

Net Income ($M)

$14.5

$13.3

$24.3

Earnings Per Share

$0.78

$0.71

$1.30

 

Non-GAAP Results1

 

Q2 2020

 

Q1 2020

 

Q2 2019

Adjusted Operating Margin

15.4%

11.3%

17.2%

Adjusted Net Income ($M)

$21.1

$17.2

$30.7

Adjusted Earnings Per Share

$1.13

$0.92

$1.64

Adjusted EBITDA ($M)

$42.5

$33.4

$53.1

Adjusted EBITDA Margin

22.2%

16.8%

21.9%

 

Net Sales by Operating Segment (dollars in millions)

 

Q2 2020

 

Q1 2020

 

Q2 2019

Advanced Connectivity Solutions (ACS)

$70.9

$64.6

$92.5

Elastomeric Material Solutions (EMS)

$71.6

$83.5

$93.9

Power Electronic Solutions (PES)

$45.2

$46.7

$51.7

Other

$3.4

$4.0

$4.8

1 - A reconciliation of GAAP to non-GAAP measures is provided in the schedules included below

Q2 2020 Summary of Results

Net sales of $191.2 million decreased 3.8% versus the prior quarter, due to the impact of COVID-19 on demand across most markets. EMS and PES segment sales declined sequentially and were partially offset by higher ACS sales. EMS net sales declined in the general industrial and consumer markets, including portable electronics, partially offset by stronger sales in the EV/HEV battery market. PES net sales decreased in the traditional automotive and EV/HEV markets, partially offset by higher sales in the industrial power and mass transit markets. ACS net sales increased in the wireless infrastructure and aerospace and defense markets, partially offset by lower sales in the ADAS market. Currency exchange rates unfavorably impacted total company net sales in the second quarter of 2020 by $1.1 million compared to prior quarter net sales.

Gross margin was 36.6%, compared to 33.0% in the prior quarter. The increase in gross margin was due to favorable product mix, operational cost savings and a $3.3 million benefit from the expected recovery of previous duty taxes paid, following a change in Chinese tariff regulations. These items were partially offset by higher COVID-19 related costs and inventory reserves. COVID-19 related costs, which were primarily associated with temporary employee compensation and benefits, reduced gross margin by $3.0 million in Q2.

Selling, general and administrative (SG&A) expenses increased by $1.4 million sequentially to $41.7 million, primarily due to higher accelerated intangible amortization expense, which was partially offset by lower employee related expenses from cost containment efforts and reductions in travel and other expenses stemming from COVID-19 restrictions. $3.9 million of accelerated intangible amortization expense was incurred in Q2, related to the Company's DSP business, and an additional $11.7 million of accelerated expense is expected to be recognized in both the third quarter and fourth quarter of 2020.

GAAP operating margin of 11.0% increased by approximately 220 basis points sequentially. Adjusted operating margin of 15.4% increased by approximately 410 basis points versus the prior quarter.

GAAP earnings per share were $0.78, compared to earnings per share of $0.71 in the first quarter of 2020. The sequential improvement in GAAP earnings resulted from improved gross margin, partially offset by higher SG&A and tax expense. On an adjusted basis, earnings were $1.13 per diluted share compared to adjusted earnings of $0.92 per diluted share in the prior quarter. The increase in adjusted earnings primarily resulted from the improved gross margin, partially offset by higher tax expense.

The Company generated strong free cash flow of $39.3 million in the second quarter of 2020. Ending cash and cash equivalents was $298.7 million, a decrease of $9.5 million versus the prior quarter. Net cash provided by operating activities of $46.3 million was offset by a $50.0 million principal payment made on the outstanding borrowings under the Company's revolving credit facility and capital expenditures of $7.0 million. At the end of the second quarter of 2020, cash exceeded borrowings by $75.7 million. Subsequent to the end of the second quarter the Company made an additional $125 million principal payment on the outstanding borrowings under its revolving credit facility.

Financial Outlook

 

 Q3 2020

Net Sales ($M)

$175 to $190

Gross Margin

35.0% to 36.0%

Earnings Per Share1

$0.19 to $0.39

Non-GAAP Earnings Per Share2

$0.90 to $1.10

 

 

2020

Effective Tax Rate

25% to 26%

Capital Expenditures ($M)

$40 to $45

1-

Includes $11.7 million of accelerated intangible amortization expense associated with the DSP business

2-

A reconciliation of GAAP to non-GAAP measures is provided in the schedules included below

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 the company's growth drivers -- advanced connectivity and advanced mobility 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 concern our plans, objectives, outlook, goals, strategies, future events, future net sales or performance, capital expenditures, 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 and uncertainties that could cause such results to differ include: the duration and impacts of the novel coronavirus global pandemic and efforts to contain its transmission, including the effect of these factors on our business, our customers and economic conditions generally; failure to capitalize on, volatility within, or other adverse changes with respect to 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; the trade policy dynamics between the U.S. and China reflected in trade agreement negotiations and the imposition of tariffs and other trade restrictions, including trade restrictions on Huawei Technologies Co., Ltd.; fluctuations in foreign currency exchange rates; our ability to develop innovative products and the extent to which our products are incorporated into end-user products and systems and the extent to which end-user products and systems incorporating our products achieve commercial success; the ability of our sole or limited source suppliers to deliver certain key raw materials, including commodities, to us in a timely and cost-effective manner; intense global competition affecting both our existing products and products currently under development; business interruptions due to catastrophes or other similar events, such as natural disasters, war, terrorism or public health crises; failure to realize, or delays in the realization of anticipated benefits of acquisitions and divestitures due to, among other things, the existence of unknown liabilities or difficulty integrating acquired businesses; our ability to attract and retain management and skilled technical personnel; our ability to protect our proprietary technology from infringement by third parties and/or allegations that our technology infringes third party rights; changes in effective tax rates or tax laws and regulations in the jurisdictions in which we operate; failure to comply with financial and restrictive covenants in our credit agreement or restrictions on our operational and financial flexibility due to such covenants; the outcome of ongoing and future litigation, including our asbestos-related product liability litigation; changes in environmental laws and regulations applicable to our business; and disruptions in, or breaches of, our information technology systems. 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 reports filed with the Securities and Exchange Commission, including quarterly reports on Form 10-Q. 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 the results for the second quarter of 2020 will take place today, Thursday, July 30, 2020 at 5pm ET.

A live webcast of the event and the accompanying presentation can be accessed on the Rogers Corporation website at https://www.rogerscorp.com/investors.

To participate, please dial:

 

1-800-574-8929

Toll-free in the United States

 

1-973-935-8524

Internationally

 

The passcode for the live teleconference is 3374029.

If you are unable to attend, a conference call playback will be available from July 30, 2020 at approximately 8 pm ET through August 14, 2020 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 3374029.

Additionally, the archived webcast will be available on the Rogers website at approximately 8 pm ET July 31, 2020.

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, 2020

 

June 30, 2019

 

June 30, 2020

 

June 30, 2019

Net sales

 

$ 191,157

 

 

$ 242,852

 

 

$ 389,967

 

 

$ 482,650

 

Cost of sales

 

121,188

 

 

157,024

 

 

254,368

 

 

311,428

 

Gross margin

 

69,969

 

 

85,828

 

 

135,599

 

 

171,222

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

41,694

 

 

43,649

 

 

82,024

 

 

86,901

 

Research and development expenses

 

7,295

 

 

7,843

 

 

15,100

 

 

15,452

 

Restructuring and impairment charges

 

 

 

1,083

 

 

 

 

1,905

 

Other operating (income) expense, net

 

(112

)

 

40

 

 

(92

)

 

951

 

Operating income

 

21,092

 

 

33,213

 

 

38,567

 

 

66,013

 

 

 

 

 

 

 

 

 

 

Equity income in unconsolidated joint ventures

 

1,022

 

 

1,742

 

 

2,240

 

 

2,579

 

Pension settlement charges

 

(55

)

 

 

 

(55

)

 

 

Other income (expense), net

 

634

 

 

(1,401

)

 

(152

)

 

3

 

Interest expense, net

 

(1,779

)

 

(2,038

)

 

(2,986

)

 

(3,976

)

Income before income tax expense

 

20,914

 

 

31,516

 

 

37,614

 

 

64,619

 

Income tax expense

 

6,394

 

 

7,223

 

 

9,835

 

 

11,927

 

Net income

 

$ 14,520

 

 

$ 24,293

 

 

$ 27,779

 

 

$ 52,692

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$ 0.78

 

 

$ 1.31

 

 

$ 1.49

 

 

$ 2.84

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share

 

$ 0.78

 

 

$ 1.30

 

 

$ 1.49

 

 

$ 2.82

 

 

 

 

 

 

 

 

 

 

Shares used in computing:

 

 

 

 

 

 

 

 

Basic earnings per share

 

18,676

 

 

18,568

 

 

18,673

 

 

18,562

 

Diluted earnings per share

 

18,681

 

 

18,730

 

 

18,686

 

 

18,711

 

Condensed Consolidated Statements of Financial Position (Unaudited)

   

(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PAR VALUE)

June 30, 2020

 

December 31, 2019

Assets

 

 

 

Current assets

 

 

 

Cash and cash equivalents

$ 298,742

 

$ 166,849

Accounts receivable, less allowance for doubtful accounts of $1,667 and $1,691

128,697

 

122,285

Contract assets

19,280

 

22,455

Inventories

124,747

 

132,859

Prepaid income taxes

3,801

 

4,524

Asbestos-related insurance receivables, current portion

4,292

 

4,292

Other current assets

11,131

 

10,838

Total current assets

590,690

 

464,102

Property, plant and equipment, net of accumulated depreciation of $361,541 and $341,119

263,051

 

260,246

Investments in unconsolidated joint ventures

16,907

 

16,461

Deferred income taxes

25,474

 

17,117

Goodwill

262,469

 

262,930

Other intangible assets, net of amortization

147,722

 

158,947

Pension assets

4,173

 

12,790

Asbestos-related insurance receivables, non-current portion

74,024

 

74,024

Other long-term assets

16,031

 

6,564

Total assets

$ 1,400,541

 

$ 1,273,181

Liabilities and Shareholders' Equity

 

 

 

Current liabilities

Accounts payable

$ 35,616

 

$ 33,019

Accrued employee benefits and compensation

25,230

 

29,678

Accrued income taxes payable

11,358

 

10,649

Asbestos-related liabilities, current portion

5,007

 

5,007

Other accrued liabilities

19,654

 

21,872

Total current liabilities

96,865

 

100,225

Borrowings under revolving credit facility

223,000

 

123,000

Pension and other postretirement benefits liabilities

1,625

 

1,567

Asbestos-related liabilities, non-current portion

80,696

 

80,873

Non-current income tax

14,554

 

10,423

Deferred income taxes

8,493

 

9,220

Other long-term liabilities

12,726

 

13,973

Shareholders' equity

 

 

 

Capital stock - $1 par value; 50,000 authorized shares; 18,668 and 18,577 shares issued and outstanding

18,668

 

18,577

Additional paid-in capital

141,092

 

138,526

Retained earnings

851,481

 

823,702

Accumulated other comprehensive loss

(48,659)

 

(46,905)

Total shareholders' equity

962,582

 

933,900

Total liabilities and shareholders' equity

$ 1,400,541

 

$ 1,273,181

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 net income, which the Company defines as net income excluding amortization of acquisition intangible assets and discrete items, such as acquisition and related integration costs, asbestos-related charges, environmental accrual adjustment, gains or losses on the sale or disposal of property, plant and equipment, pension settlement charges, restructuring, severance, impairment and other related costs, and the related income tax effect on these items (collectively, "discrete items"), and transition services, net;

 
(2)

Adjusted earnings per diluted share, which the Company defines as earnings per diluted share excluding amortization of acquisition intangible assets, discrete items, transition services, net and the impact of including dilutive securities divided by adjusted weighted average shares outstanding - diluted;

 
(3)

Adjusted EBITDA, which the Company defines as net income excluding interest expense, net, income tax expense, depreciation and amortization, stock-based compensation expense, transition services lease income and discrete items;

 
(4)

Adjusted operating margin, which the Company defines as operating margin excluding acquisition-related amortization of intangible assets, discrete items excluding pension settlement charges, and transition services, net;

 
(5)

Free cash flow, which the Company defines as net cash provided by operating activities less non-acquisition capital expenditures.

Management believes adjusted net income, adjusted earnings per diluted share, adjusted EBITDA and adjusted operating margin are 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 potential variability across periods based on the timing, frequency and magnitude of such items. As a result, management believes that these measures enhance the ability of investors to analyze trends in the Company's business and evaluate the Company's performance relative to peer companies. Management also believes free cash flow is useful to investors as an additional way of viewing the Company's liquidity and provides a more complete understanding of factors and trends affecting the Company's cash flows. 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.

Reconciliation of GAAP net income to adjusted net income:

(amounts in millions)

2020

2019

Net income

Q2

Q1

Q2

GAAP net income

$

14.5

 

$

13.3

 

$

24.3

 

Acquisition and related integration costs

 

0.4

 

 

0.4

 

 

0.3

 

Asbestos-related charges

 

 

 

 

 

0.1

 

Environmental accrual adjustment

 

(0.2

)

 

 

 

 

Loss on sale or disposal of property, plant and equipment

 

0.1

 

 

 

 

 

Restructuring, severance, impairment and other related costs

 

0.6

 

 

1.1

 

 

3.7

 

Acquisition intangible amortization

 

7.5

 

 

3.6

 

 

4.4

 

Income tax effect of non-GAAP adjustments and intangible amortization

 

(1.9

)

 

(1.2

)

 

(2.1

)

Adjusted net income

$

21.1

 

$

17.2

 

$

30.7

 

*Values in table may not add due to rounding.

Reconciliation of GAAP earnings per diluted share to adjusted earnings per diluted share*:

2020

2019

Earnings per diluted share

Q2

Q1

Q2

GAAP earnings per diluted share

$

0.78

 

$

0.71

$

1.30

Acquisition and related integration costs

 

0.02

 

 

0.02

 

0.01

Environmental accrual adjustment

 

(0.01

)

 

 

Restructuring, severance, impairment and other related costs

 

0.02

 

 

0.04

 

0.15

Total discrete items

$

0.04

 

$

0.06

$

0.16

 

Earnings per diluted share adjusted for discrete items

 

$

 

0.82

 

 

 

$

 

0.77

 

$

 

1.46

Acquisition intangible amortization

$

0.31

 

$

0.15

$

0.18

 

 

 

 

Adjusted earnings per diluted share

$

1.13

 

$

0.92

$

1.64

*Values in table may not add due to rounding.

Reconciliation of GAAP net income to adjusted EBITDA*:

2020

2019

(amounts in millions)

Q2

Q1

Q2

GAAP Net income

$

14.5

 

$

13.3

$

24.3

 

Interest expense, net

 

1.8

 

 

1.2

 

2.0

 

Income tax expense

 

6.4

 

 

3.4

 

7.2

 

Depreciation

 

7.4

 

 

7.3

 

7.7

 

Amortization

 

7.6

 

 

3.7

 

4.4

 

Stock-based compensation expense

 

3.9

 

 

3.1

 

3.7

 

Acquisition and related integration costs

 

0.4

 

 

0.4

 

0.3

 

Asbestos-related charges

 

 

 

 

0.1

 

Environmental accrual adjustment

 

(0.2

)

 

 

 

Loss on sale or disposal of property, plant and equipment

 

0.1

 

 

 

 

Restructuring, severance, impairment and other related costs

 

0.6

 

 

1.1

 

3.7

 

Transition services lease income

 

 

 

 

(0.3

)

Adjusted EBITDA

$

42.5

 

$

33.4

$

53.1

 

*Values in table may not add due to rounding.

Reconciliation of GAAP operating margin to adjusted operating margin*:

2020

2019

Operating margin

Q2

Q1

Q2

GAAP operating margin

11.0

%

8.8

%

13.7

%

Acquisition and related integration costs

0.2

%

0.2

%

0.1

%

Environmental accrual adjustment

(0.1%)

0.0%

0.0%

Restructuring, severance, impairment and other related costs

0.3%

0.5%

1.5%

Total discrete items

0.5

%

0.7

%

1.7

%

Operating margin adjusted for discrete items

11.5

%

9.5

%

15.4

%

Acquisition intangible amortization

3.9

%

1.8

%

1.8

%

Adjusted operating margin

15.4

%

11.3

%

17.2

%

*Percentages in table may not add due to rounding.

Reconciliation of net cash provided by operating activities to free cash flow*:

2020

2019

(amounts in millions)

Q2

Q1

Q2

Net cash provided by operating activities

Non-acquisition capital expenditures

$

 

46.3

(7.0)

$

 

8.6

(11.2

 

)

$

 

50.4

(11.4)

Free cash flow

$

39.3

$

(2.5

)

$

39.0

*Values in table may not add due to rounding.

Reconciliation of GAAP earnings per diluted share to adjusted earnings per diluted share guidance for the 2020 second quarter:

Guidance

Q2

2020

GAAP earnings per diluted share

$0.58 - $0.78

Discrete items

$0.07

Acquisition intangible amortization

$0.15

Adjusted earnings per diluted share

$0.80 - $1.00

Reconciliation of GAAP earnings per diluted share to adjusted earnings per diluted share guidance for the 2020 third quarter:

Guidance

Q3

2020

GAAP earnings per diluted share

$0.19 - $0.39

Discrete items

$0.08

Acquisition intangible amortization*

$0.63

Adjusted earnings per diluted share

$0.90 - $1.10

*Includes $11.7 million of accelerated intangible amortization expense associated with the DSP business

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