Ferro Corporation (NYSE: FOE) has reported results for the first quarter ended March 31, 2016.
First quarter income from continuing operations attributable to common shareholders was $0.23 per diluted share compared with $0.17 per diluted share in the first quarter of 2015. On an adjusted basis, earnings per diluted share from continuing operations were $0.22 compared with earnings of $0.23 per diluted share in the first quarter of 2015. Adjusted earnings exclude charges relating to, among other items, restructuring activities and transaction-related expenses, gains and losses on asset sales, and, in the first quarter of 2015, the impact of currency devaluation in Venezuela.
2016 First-Quarter Results from Continuing Operations
First-quarter 2016 net sales increased 6% to $277 million, compared with $263 million in the year-ago quarter. Foreign currency translation reduced net sales by approximately $18 million. On a constant currency basis, net sales increased by 13.4%. Constant currency sales growth was due to acquisitions and increased sales in the Pigments, Powders and Oxides and the Performance Coatings segments, partially offset by a reduction in sales in the Performance Colors and Glass segment. Excluding acquisitions, constant currency sales increased by 5.0% in the Pigments, Powders and Oxides segment and by 2.8% in the Tile Coatings business line, while sales declined in the Performance Colors and Glass segment by 9.8%. Within the Performance Colors and Glass segment, demand for automotive glass coatings remained strong, with volume up 7.8%, while demand for high-end glass coatings for construction, electronics, and decorations declined.
First-quarter 2016 adjusted earnings per diluted share were $0.22 versus $0.23 in the same period last year. Results in the first quarter of 2016 benefitted from the increase in net sales coupled with a higher adjusted gross profit margin. Higher gross profit was partially offset by increases in selling, general and administrative (“SG&A”) expenses, interest, and other income and expense coupled with a higher adjusted effective tax rate.
The adjusted gross profit margin for the first quarter of 2016 increased by nearly 250 basis points to 30.4% from 27.9% while the adjusted effective tax rates were 29.1% and 15.2% for first quarters of 2016 and 2015, respectively. Adjusted SG&A expenses were approximately $4 million higher in the first quarter of 2016 compared with the prior year period. Adjusting for the effect of foreign currency translation, SG&A expenses increased by approximately $6 million. The increase in SG&A expenses is primarily associated with the acquisitions of Nubiola, Al Salomi and Ferer and a decrease in pension income.
2016 First-Quarter Cash Flow and Return on Invested Capital from Continuing Operations
For the first quarter of 2016, adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) was $44 million compared with $34 million in the prior year period. Adjusted EBITDA margins, represented as a percentage of net sales, were 15.7% and 13.0% in the first quarters of 2016 and 2015, respectively. The adjusted return on invested capital (“ROIC”), excluding acquisitions owned less than one year, was 11.2% for the first quarter of 2016 compared with 13.7% at December 31, 2015. The decline in ROIC is primarily due to the impact of reversing tax valuation allowances at year-end 2015 and the inclusion of Vetriceramici. The Company anticipates ROIC will improve to approximately 12.0% during 2016.
In the first quarter of 2016, continuing operations used approximately $3 million of cash, compared with approximately $14 million in the first quarter of 2015. In addition, the Company used cash to invest in acquisitions ($10 million), restructure operations ($1 million), repurchase the Company’s common stock ($11 million) and fund discontinued operations ($9 million).
For the quarter, net debt (debt less cash and cash equivalents) increased by $33 million to $448 million.
Peter Thomas, Chairman, President and CEO said, “We had a very good start to the year with profitability metrics continuing to improve and sales meeting or exceeding our expectations in nearly all product lines and geographies, with the exception of high-end glass coatings. I was particularly pleased with constant currency sales growth in the Pigments, Powders and Oxides segment and in Tile Coatings. The Tile business is showing improvement, with demand returning in Southern Europe, the Middle East and North Africa. Asia also appears to have stabilized. Primarily based on the strength of our first quarter results, we are increasing our adjusted EPS guidance for 2016 to $0.93 – $0.98 per diluted share. While we started the year off well, we continue to face economic challenges in Latin America and Asia and foreign currency exchange rates continue to be volatile.”
Mr. Thomas concluded, “We continue to advance our value creation strategy. We expect to continue to grow organically and by adding new attractive businesses, while leveraging our lean and efficient infrastructure. We believe there are excellent opportunities to acquire additional assets that will strengthen our product and technology portfolios, improve our market position, expand our global reach, and drive shareholder value. Our recent acquisitions are having an appreciable impact on our results, with both Vetriceramici and Nubiola performing at or above expectations, and we strongly believe we can continue to add value through strategic acquisitions.”
Primarily based on the strength of the first-quarter operating results, the Company is increasing its prior adjusted earnings per diluted share guidance to $0.93 – $0.98 from $0.90 – $0.95. This guidance assumes foreign exchange rates in line with those at the end of March 2016. Continuing operations are expected to generate free cash flow of $80 – $90 million.
More information and figures are available on the company website: www.ferro.com