Ferro Corporation reported results for the third quarter ended September 30, 2014.
Ferro Corporation (NYSE: FOE) reported results for the third quarter ended September 30, 2014. Third quarter diluted earnings per share attributable to common shareholders was 0.55 USD, compared with 0.15 USD per share in the third quarter of 2013. After recognition of substantially all of the Specialty Plastics and Polymer Additives segments as discontinued operations, Ferro reported a loss of 0.03 USD for third quarter 2014 diluted earnings per share from continuing operations, versus earnings of 0.11 USD per share in the same period last year.
Included in the results from continuing operations are restructuring activities, a loss associated with the refinancing of the company’s debt, other nonrecurring income and expense items, and gains and losses on certain asset sales. Adjusting for these items, third quarter 2014 adjusted diluted earnings per share increased by 33 percent to 0.16 USD from 0.12 USD in the third quarter of 2013.
The company attributed the increase in profitability primarily to increased sales and gross profit in the Performance Colors and Glass segment coupled with reduced selling, general and administrative (SG&A) expenses associated with continued cost reduction activities. Results in the Performance Colors and Glass segment were particularly strong with net sales and gross profit increasing by 9 and 18 percent, respectively, for the third quarter of 2014 compared with the same period last year.
On a consolidated basis, Ferro reported net sales of 276 million USD in the third quarter of 2014, compared with net sales of 298 million USD in the third quarter of 2013. Excluding the impact of exited business lines (9 million USD), primarily related to the metal powders business divested in October 2013, and excluding precious metal sales, value-added sales declined by 1 percent in the third quarter versus the same period last year.
Overall volumes for the third quarter of 2014 increased by approximately 3 percent compared with the same period last year. Volumes improved in both the Performance Colors and Glass and Performance Coatings segments, while volumes declined in the Pigments, Powders and Oxides segment. Third quarter consolidated value-added sales lagged volume growth principally due to lower pricing associated with competitive pressures in key product lines in the Performance Coatings segment. Reduced average selling prices also adversely impacted profitability for the Performance Coatings segment. Pricing pressure was the most severe for digital inks in the Tile Coatings business, where pricing has declined by approximately 20 percent over the last 12 months.
Peter Thomas, Chairman, President and Chief Executive Officer, commented, “Ferro had another solid quarter of earnings growth and we continue to make progress on our Value Creation strategy. In this quarter, we achieved a major milestone related to our strategy by surpassing an initial ROIC threshold of 10 percent. Early on, we set an internal ROIC goal of 10 percent, as we considered this threshold the point where the company would begin generating positive value for our shareholders. In early 2013, we estimated that the then-current set of businesses was generating returns below 5 percent. While reaching the 10 percent threshold is noteworthy, we continue to focus on our longer-term target of delivering consistent and predictable ROIC of 15 percent.”
Mr. Thomas added, “To that end, during the quarter, we continued to take actions to enhance growth, improve profitability and focus the business portfolio on our core performance materials and color solutions franchise. Last month, we announced a definitive agreement to acquire Vetriceramici, a leading global supplier of high-end tile coatings, and we expect to close the 83 million EUR transaction during the quarter. In addition, we continue to work on other opportunities to accelerate growth in emerging markets and to expand capacity in our core frit-based businesses … While we are seeing a number of positive developments across our businesses, in Tile Coatings, and, to a lesser extent, Porcelain Enamel, we are facing a difficult pricing environment in softening markets. Despite this pricing pressure, based on the strong third-quarter results, and lower SG&A costs, we expect full-year adjusted EPS will be at the high end of our current earnings guidance of 0.52 to 0.57 USD.”
Ferro reported net sales of 276 million USD in the third quarter of 2014, compared with net sales of 298 million USD in the third quarter of 2013. Value-added sales, which exclude precious metal sales, decreased 5 percent to 265 million USD from 277 million USD in the third quarter last year. Adjusting for the impact of previously divested business lines (9 million USD), value-added sales declined by 1 percent.
The Performance Colors and Glass segment contributed the highest levels of sales growth with value-added sales increasing by 8 percent. Value-added sales for Performance Coatings declined 6 percent, and sales in the Pigments, Powders and Oxides segment, excluding the impact of exited business lines, declined 5 percent.
Gross profit was 73 million USD for the 2014 third quarter, compared with 72 million USD for the third quarter of 2013. Excluding special charges, adjusted gross profit was 73 million USD (27.5 percent of value-added sales), compared with 73 million USD (26.2 percent of value-added sales) in the prior-year period.
For the third quarter of 2014, SG&A expenses were 52 million USD, compared with expenses of 53 million USD in the prior-year quarter. Excluding special items in both periods, SG&A expenses declined 6 percent to 47 million USD from 50 million USD.
During the third quarter of both years, the company incurred charges associated with ongoing efforts to restructure operations and exit underperforming assets. The charge associated with continuing operations in the third quarter of 2014 was 2 million USD compared with 4 million USD in the same period last year.
Income from continuing operations for the quarter ended September 30, 2014, was a loss of 3 million USD, or 0.03 USD per diluted share, compared to income of 10 million USD, or 0.11 USD per diluted share, in the third quarter of 2013. Adjusted net income from continuing operations attributable to common shareholders was 14 million USD, or 0.16 USD per diluted share, compared with 10 million USD, or 0.12 USD per diluted share, in the prior-year quarter.
Adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) from continuing operations were 34 million USD in the third quarter of 2014, compared with 30 million USD in the same period last year. Adjusted EBITDA margins, as a percentage of value-added sales, were 12.8 percent in the third quarter of 2014 and 10.7 percent in the same period last year.
Total debt as of the end of the third quarter was 309 million USD, a reduction of 3 million USD from December 31, 2013. In addition, cash balances increased 67 million USD during the first nine months of the year to 95 million USD, resulting in a reduction in net debt (debt less cash) of 70 million USD during the first nine months of the year. Receipt of the net cash proceeds from the sale of the company’s Specialty Plastics business of approximately 88 million USD is the primary driver for the reduction in net debt.
Based on third-quarter performance, the Company expects adjusted earnings from continuing operations for 2014 to be at the high end of the previously provided earnings guidance of 0.52 USD to 0.57 USD per diluted share.
Value-added sales for the fourth quarter of 2014 are expected to be flat versus 2013 levels, as adjusted for dispositions in the fourth quarter of 2013 that represented value-added sales of approximately 3 million USD. The company is lowering its prior revenue outlook, as overall business conditions in Europe and Asia have weakened. In addition, the company expects average selling prices in the Performance Coatings Segment will continue to be under pressure and sales for the Pigments, Powders and Oxides segment, adjusted for exited businesses, will be below last year’s levels.
The adjusted gross profit margin for the fourth quarter of 2014, expressed as a percent of value-added sales, is expected to be in the range of 26.0 to 26.5 percent, and SG&A expenses, excluding pension adjustments and other nonrecurring expense items, are expected to be 45 to 50 million USD.
For the full year, the company expects to use approximately 15 million USD in cash, excluding the impact of acquisitions and divestitures. Uses of cash include continued funding of restructuring efforts and capital spending of approximately 60 million USD, including the plant conversion investment in Antwerp, Belgium, to support manufacturing of dibenzoates as a phthalates replacement.