Ferro Reports 2010 Second-Quarter Results
CLEVELAND, Jul 26, 2010 (BUSINESS WIRE) --
Copyright Business Wire 2010
--Gross profit percentage increases to 22.5 percent from 16.3 percent in the prior-year quarter
--Increased demand and restructuring programs drive improved profitability
--Full-year 2010 sales and adjusted EBITDA outlook increased
Ferro Corporation (NYSE: FOE) (the "Company") today announced net sales
of $543 million for the three months ended June 30, 2010, an increase of
36 percent from net sales of $399 million in the second quarter of 2009.
Income from continuing operations for the 2010 second quarter was $7.6
million, or $0.08 per diluted share, compared with a loss of $11.1
million, or $0.27 per diluted share, in the second quarter of 2009. The
improvement was primarily the result of higher sales volume. Increased
restructuring charges, higher selling, general and administrative
expense and increased income tax expense partially offset the benefits
of the higher sales volume. In the 2010 second quarter, the operating
results included net pre-tax charges of $26.6 million. These charges
included restructuring charges of $21.2 million partially offset by a
net pre-tax gain of $7.8 million resulting from a business combination.
The Company recorded other pre-tax charges of $13.2 million during the
second quarter, primarily related to manufacturing rationalization and
other expense reduction activities, and an increased environmental
reserve. In the second quarter of 2009, the loss from continuing
operations included net pre-tax charges of $6.4 million primarily
related to manufacturing rationalization and other cost-reduction
actions.
"Our excellent second-quarter results demonstrate the progress we have
made to reduce costs and grow our global business," said Chairman,
President and Chief Executive Officer James F. Kirsch. "The operating
leverage that we have created through our manufacturing rationalization
programs is delivering strong improvements in profitability. I am
extremely proud of the achievements of Ferro employees around the world
as they continue to demonstrate their commitment to winning. The Ferro
organization is ready to pursue further opportunities for future growth."
2010 Second-Quarter Results
Net sales increased 36 percent compared with the second quarter of 2009
as customer demand continued to recover from the global economic
downturn in 2009. In the second quarter of 2010, demand continued in a
pattern of sequential growth that began in the second quarter of 2009.
Compared with the 2009 second quarter, increased sales volume
contributed 30 percentage points to the growth in sales while changes in
product mix and price contributed 8 percentage points of sales growth.
Changes in foreign currency exchange rates reduced sales growth by
approximately 2 percentage points. Increased sales of precious metals,
including changes in both price and volume, accounted for approximately
10 percentage points of the overall sales increase compared with the
prior-year period.
Gross profit percentage increased to 22.5 percent of net sales for the
quarter, compared with 16.3 percent of net sales in the second quarter
of 2009. The increase was a result of a combination of higher sales
volume, cost reductions achieved through restructuring initiatives and
reduced staffing and benefits from changes in product pricing and mix.
In the 2010 second quarter, gross profit was reduced by $2.5 million as
a result of charges primarily for accelerated depreciation and other
costs related to the Company's manufacturing rationalization programs.
Selling, general and administrative ("SG&A") expense increased by $7.4
million compared with the second quarter of 2009. SG&A expense declined
to 12.9 percent of sales in the 2010 second quarter compared with 15.6
percent in the prior-year period. The primary drivers of the increase in
SG&A spending on a dollar basis were higher accruals for incentive
compensation and higher special charges. Included in SG&A expense during
the 2010 second quarter were charges of $5.6 million, including
severance and other costs related to manufacturing rationalization
initiatives and corporate development expenses. SG&A expense in the
second quarter of 2009 included $3.0 million in charges, primarily
related to expense reduction actions and manufacturing rationalization
related charges.
Income increased in all segments except Pharmaceuticals compared with
the prior-year period. Segment income increased in Electronic Materials
due to increased demand for many of the unit's products, particularly
metal powders and silver and aluminum pastes used by manufacturers of
solar cells. Segment income in Performance Coatings and Color and Glass
Performance Materials improved due to higher sales volumes and reduced
costs. Restructuring programs currently underway in France, Portugal and
Australia are expected to further reduce costs in the Color and Glass
Performance Materials operations during the remainder of 2010. Segment
income also increased in Polymer Additives and Specialty Plastics due to
a combination of higher sales volumes, reduced manufacturing costs and
expense reductions.
Restructuring charges increased to $21 million in the second quarter of
2010. Employee severance charges, related to initiatives to close one
manufacturing plant in France and two plants in the Netherlands, were
the primary drivers of the restructuring charges in the quarter.
Interest expense declined in the 2010 second quarter to $14 million from
$17 million in the second quarter of 2009. The primary driver of the
decline in interest expense was a decline in average borrowing levels
compared with the prior-year quarter. Lower average interest rates also
contributed to the decline in interest expense. Included in the second
quarter interest expense was a non-cash write-off of $1.5 million in
unamortized fees related to a $50 million pay down of the Company's term
loan debt.
Total debt on June 30, 2010 was $353 million, a decrease of $71 million
from December 31, 2009. In addition, at the end of the 2010 second
quarter the Company had net proceeds of $2.6 million from international
receivables factoring programs. Net proceeds from international
receivables factoring on December 31, 2009 were $10.3 million.
During the second quarter, cash deposits related to precious metals
declined to $56 million from $107 million on March 31, 2010, primarily
as a result of reduced collateral requirements from participants in the
Company's precious metal leasing program.
Agreement to Acquire Assets in Egypt
The Company has signed an agreement to purchase a newly constructed
manufacturing plant for frits and glazes in Fayoum, Egypt. The
acquisition will allow the Company to cost-effectively serve the growing
tile manufacturing market in Egypt, the Middle East and North Africa.
The closing of the transaction is subject to governmental approvals and
the satisfaction or waiver of other customary closing conditions.
Closing is expected in the 2010 third quarter.
2010 Outlook Update
Customer demand is expected to follow historical seasonal trends during
2010, with higher sales and profitability in the first half of the year
compared with the second half. Reductions in the Company's cost
structure that were accomplished in 2009 are expected to provide
improved profitability in 2010. In addition, the Company continues to
execute additional manufacturing rationalization and expense reduction
initiatives during 2010, including plant closings and staffing
reductions.
The Company's current outlook for 2010 assumes that worldwide real GDP
growth will recover to greater than 2% and that there will not be a
return to recessionary conditions in the Company's major regional
markets in the United States, Europe and Asia.
Based on these assumptions and the first half results, the Company has
increased its estimates for 2010 financial performance. The Company
currently estimates full-year 2010 net sales will increase between 15
and 20 percent compared with 2009, to between $1.9 billion and $2.0
billion. Adjusted EBITDA is expected to be in the range of $240 million
to $255 million in 2010, compared with a previous outlook of $190
million to $210 million. Both sales and adjusted EBITDA are expected to
be higher in the first half of 2010 than the second half of the year,
consistent with the Company's normal seasonal trends.
Additional assumptions in the Company's outlook for 2010 include:
--
Capital expenditures of approximately $60 million;
--
Completion of currently planned restructuring projects by the end of
2010;
--
Pension expense of approximately $24 million and cash contributions to
the Company's worldwide pension plans of approximately $25 million;
--
Depreciation and amortization of $80 million to $85 million, excluding
accelerated depreciation associated with manufacturing rationalization
projects; and
--
Interest expense of approximately $48 million, assuming no further
return of cash collateral for precious metal leases.
Ferro expects to update its annual sales and adjusted EBITDA estimates
in the third quarter earnings release to reflect regional economic
conditions, progress on the Company's manufacturing rationalization
programs, and updated customer demand forecasts.
Non-GAAP Measures
Adjusted EBITDA is equal to income (loss) before taxes, plus interest
expense, depreciation and amortization, restructuring, impairment and
other special charges.
Adjusted EBITDA is a financial measure not required by, or presented in
accordance with, accounting principles generally accepted in the United
States (U.S. GAAP). The measure is presented here because it provides
additional information in a manner that is commonly used by investors
and reported by third-party analysts. The amount and timing of
restructuring, impairment and other special charges are difficult to
forecast due to the number of restructuring and other cost-reduction
projects currently underway within the Company and the uncertainty of
factors that determine future charges, which make a detailed
reconciliation to the most directly comparable U.S. GAAP measure
impractical.
Conference Call
The Company will host a conference call to discuss its 2010
second-quarter results, update its 2010 outlook, and its outlook for
general business conditions on Tuesday, July 27, 2010, at 10:00 a.m.
Eastern time. To participate in the call, dial 888-603-7018 if calling
from the United States or Canada, or dial 210-234-0120 if calling from
outside North America. When prompted, refer to the pass code, FOE, and
the conference leader, David Longfellow. Please call approximately 10
minutes before the conference call is scheduled to begin.
An audio replay of the call will be available from noon Eastern time on
July 27th through 9 p.m. Eastern time on August 2nd.
To access the replay, dial 866-511-5160 if calling from the United
States or Canada, or dial 203-369-1959 if calling from outside North
America.
The conference call also will be broadcast live over the Internet and
will be available for replay through the end of the second quarter. The
live broadcast and replay can be accessed through the Investor
Information portion of the Company's Web site at www.ferro.com.
A podcast of the conference call will also be available on the Company's
Web site.
About Ferro Corporation
Ferro Corporation (http://www.ferro.com)
is a leading global supplier of technology-based performance materials
for manufacturers. Ferro materials enhance the performance of products
in a variety of end markets, including electronics, solar energy,
telecommunications, pharmaceuticals, building and renovation,
appliances, automotive, household furnishings, and industrial products.
Headquartered in Cleveland, Ohio, the Company has approximately 5,200
employees globally and reported 2009 sales of $1.7 billion.
Cautionary Note on Forward-Looking
Statements
Certain statements in this press release may constitute "forward-looking
statements" within the meaning of Federal securities laws. These
statements are subject to a variety of uncertainties, unknown risks and
other factors concerning the Company's operations and business
environment. Important factors that could cause actual results to differ
materially from those suggested by these forward-looking statements and
that could adversely affect the Company's future financial performance
include the following:
--
Demand in the industries into which the Company sells its products may
be unpredictable, cyclical or heavily influenced by consumer spending;
--
The effectiveness of the Company's efforts to improve operating
margins through sales growth, price increases, productivity gains, and
improved purchasing techniques;
--
The Company's ability to successfully implement and/or administer its
restructuring programs;
--
The Company's ability to access capital markets, borrowings, or
financial transactions;
--
The Company's borrowing costs could be affected adversely by interest
rate increases;
--
The availability of reliable sources of energy and raw materials at a
reasonable cost;
--
Competitive factors, including intense price competition;
--
Currency conversion rates and changing global economic, social and
political conditions;
--
The impact of future financial performance on the Company's ability to
utilize its significant deferred tax assets;
--
Liens on Ferro assets by lenders could affect the Company's ability to
dispose of property and businesses;
--
Restrictive covenants in the Company's credit facilities could affect
strategic initiatives and its liquidity;
--
Increasingly aggressive domestic and foreign governmental regulations
on hazardous materials and regulations affecting health, safety and
the environment;
--
The Company's ability to successfully introduce new products;
--
Stringent labor and employment laws and relationships with employees;
--
The Company's ability to fund employee benefit costs, especially
post-retirement costs;
--
Risks and uncertainties associated with intangible assets;
--
Potential limitations on the use of operating loss carryforwards and
other tax attributes due to significant changes in the ownership of
Ferro's common stock;
--
The Company's presence in the Asia-Pacific region where it can be
difficult to compete lawfully;
--
The identification of any material weaknesses in internal controls in
the future could affect the Company's ability to ensure timely and
reliable financial reports;
--
Uncertainties regarding the resolution of pending and future
litigation and other claims;
--
The Company's inability to pay dividends on our common stock in the
foreseeable future; and
--
Other factors affecting the business beyond the Company's control,
including disasters, accidents, and governmental actions.
The risks and uncertainties identified above are not the only risks the
Company faces. Additional risks and uncertainties not presently known to
the Company or that it currently believes to be immaterial also may
adversely affect the Company. Should any known or unknown risks and
uncertainties develop into actual events, these developments could have
material adverse effects on our business, financial condition and
results of operations.
This release contains time-sensitive information that reflects
management's best analysis only as of the date of this release. The
Company does not undertake any obligation to publicly update or revise
any forward-looking statements to reflect future events, information or
circumstances that arise after the date of this release. Additional
information regarding these risks can be found in Ferro's Annual Report
on Form 10-K for the period ended December 31, 2009.
It should be noted that segment sales excluding precious metals is a
financial measure not required by, or presented in accordance with,
accounting principles generally accepted in the United States (U.S.
GAAP). The sales are presented here to exclude the impact of volatile
precious metal raw material costs. The precious metal raw material costs
are generally passed through directly to customers with minimal margin.
The Company believes this data provides investors with additional
information on the underlying operations of the business and enables
period-to-period comparability of financial performance. In addition,
these measures are used in the calculation of certain incentive
compensation programs for selected employees.
SOURCE: Ferro Corporation
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