For Immediate Release

 

 

 

 

FERRO REPORTS SIGNIFICANTLY HIGHER ADJUSTED EPS FROM CONTINUING OPERATIONS FOR FOURTH QUARTER AND FULL YEAR 2014

 

 

 

 

 

 

  

CLEVELAND, Ohio – February 25, 2015 – Ferro Corporation (NYSE: FOE, the “Company”) today reported results for the fourth quarter and full year ended December 31, 2014.  Fourth quarter diluted earnings per share attributable to common shareholders was $0.13, compared with $0.69 in the fourth quarter of 2013.  For full year 2014, diluted earnings per share attributable to common shareholders was $0.99 compared with $0.82 for 2013.

During 2014, the Company recognized substantially all of the Specialty Plastics and Polymer Additives segments as discontinued operations and subsequently sold the majority of the related assets of these two segments in the third and fourth quarters of 2014, respectively.  Accounting for these two segments as discontinued operations, Ferro reported a fourth quarter loss from continuing operations attributable to common shareholders of $0.35 per diluted share compared with income of $0.65 per diluted share in the fourth quarter of 2013.  For the full year 2014, income from continuing operations attributable to common shareholders was a loss of $0.10 per diluted share compared with income of $0.72 per diluted share in the prior year.

The results for continuing operations in both years include a number of charges and gains, relating to, among other items, restructuring activities, asset impairments, gains and losses on certain asset sales, pension and other postretirement benefits mark-to-market adjustments, and a loss associated with the refinancing of the Company’s debt.  Adjusting for these items, fourth quarter 2014 earnings per diluted share from continuing operations increased by 117% to $0.13, compared with $0.06 per diluted share in the fourth quarter of 2013.  For full year 2014, adjusted earnings per diluted share from continuing operations increased by 88% to $0.62 versus earnings of $0.33 per diluted share in 2013.  Please refer to the supplemental tables in this news release

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for additional information concerning adjusted financial results for the Company’s continuing operations.

The Company attributed the increase in profitability for the year primarily to increased sales and gross profit in the Performance Colors and Glass segment, coupled with reduced selling, general and administrative (“SG&A”) expenses.  Performance Colors and Glass value-added sales and gross profit increased by 6% and 20%, respectively, in 2014 compared with 2013. 

On a consolidated basis, net sales were $1.1 billion in 2014, compared with net sales of $1.2 billion in 2013.  Excluding the impact of exited business lines ($30 million), primarily related to the metal powders business divested in October 2013, and excluding precious metal sales, value-added sales were flat on a year-over-year basis.  Changes in foreign currency exchange rates adversely impacted reported 2014 annual sales by approximately $20 million.  Value-added sales increased by 2% after adjusting for the foreign currency impact. 

Overall volumes for the year increased by approximately 2% compared with 2013.  Volumes improved in both the Performance Colors and Glass and the Performance Coatings segments, while volumes declined in the Pigments, Powders and Oxides segment.  While a richer mix of business within the segments contributed approximately $17 million to sales, lower average selling prices, primarily in Performance Coatings, adversely impacted consolidated sales by approximately $16 million. 

Peter Thomas, Chairman, President and Chief Executive Officer, commented, “Ferro marked another solid quarter of adjusted earnings growth, exceeding our expectations, as we continued to execute on our Value Creation Strategy.  The quarter was a strong finish to a very good year, with our adjusted ROIC, excluding the impact of the Vetriceramici acquisition, exceeding 11%.  Along with improving earnings, we have also made considerable progress realigning our business portfolio.  In December, we closed the disposition of the majority of the assets of our Polymer Additives business, and closed our €83 million acquisition of high-end tile coatings supplier Vetriceramici.”

Mr. Thomas added, “Despite headwinds in some markets and unfavorable foreign currency exchange rates, we believe Ferro is well-positioned for positive sales and earnings growth in 2015.  While we will continue to focus on optimizing our cost structure, we expect to reinvigorate sales growth through new product development and geographic expansion, and by leveraging our recent acquisitions.  For 2015, we expect value-added sales growth of 10% - 11%, excluding the effect of foreign exchange rates.  Through the increased sales, we expect to achieve adjusted EPS of $0.85 to $0.90, and generate approximately $50 million of free cash flow.  In addition, as of the end of 2014, we have a strong balance sheet with $141 million of cash and an additional $200 million of available liquidity.  We are focused on leveraging our strong balance sheet to pursue attractive growth opportunities that will build on Ferro’s market positions and further enhance shareholder value.”

2014 Fourth-Quarter Results

Ferro reported net sales of $261 million in the fourth quarter of 2014, compared with net sales of $276 million in the fourth quarter of 2013.  Value-added sales, which exclude precious metal sales, were $252 million in the fourth quarter of 2014 versus $259 million in the fourth quarter of the prior year.  Adjusting for the impact of previously divested business lines ($3 million), value-added sales declined by 1%.  Adjusting for the adverse impact of changes in foreign currency exchange rates

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(estimated at $15 million) and divested business lines, value-added sales increased by approximately 5%.    

Value-added sales for the Performance Colors and Glass segment increased by 6%.  Value-added sales for Performance Coatings declined 5%, and value-added sales in the Pigments, Powders and Oxides segment, excluding the impact of exited business lines not reported as discontinued operations, declined 8%.  On a constant currency basis, removing the negative impact of foreign currency exchange rates, value-added sales increased by 12% for Performance Colors and Glass and by 2% for Performance Coatings, and declined by 6% in the Pigments, Powders and Oxides segment.    

The Company recognizes actuarial gains and losses on its pension and other postretirement benefit plans in operating results in the year in which the gains or losses occur.  Gains and losses are generally measured annually as of December 31 and recorded in the fourth quarter.  The mark-to-market adjustments impact cost of goods sold and SG&A costs.  For the fourth quarter of 2014, the adjustments resulted in a charge, increasing cost of goods sold by approximately $6 million and SG&A expenses by approximately $81 million.  The fourth-quarter 2013 pension adjustment resulted in a gain of approximately $70 million, primarily recorded within SG&A.  The gains and losses in both years are primarily associated with actuarial assumptions used in calculating the value of the U.S. pension liability.  In 2014, the discount rate used to value the liability declined by 100 basis points, compared with the prior year, increasing the value of the liability by approximately $50 million.  In addition, during the fourth quarter of 2014, the Company adopted the use of new mortality tables within its valuation assumptions, which had a one-time impact of increasing the liability.  The new mortality tables reflect underlying increases in life expectancy of participants, resulting in longer benefit payment periods.  The impact of the change in mortality assumption on the U.S. pension liability was an increase of the liability of approximately $18 million.  The 2013 gain was primarily driven by the change in discount rate used to value the liability, which increased by 95 basis points compared with 2012, resulting in a reduction in the value of the liability. 

 

Gross profit was $59 million for the 2014 fourth quarter compared with $67 million for the fourth quarter of 2013.  Excluding special charges, adjusted gross profit was $65 million (25.8% of value-added sales) compared with $67 million (26.0% of value-added sales) in the prior-year period.     

SG&A expenses for the 2014 fourth quarter were $134 million.  For the fourth quarter of 2013, SG&A expenses were recorded as income of $15 million.  Excluding special items in both periods, including the pension adjustments described above, SG&A expenses declined 15% to $46 million from $55 million.  Included in both periods is the impact of incentive and stock-based compensation accruals, including a charge of approximately $5 million in the fourth quarter of 2014 versus a charge of $7 million in the same quarter of 2013.       

During the fourth quarter of both years, the Company incurred charges associated with its ongoing efforts to restructure operations and exit underperforming assets.  Fourth quarter 2014 restructuring charges were $1 million, which compared with restructuring and impairment charges of $5 million and $10 million, respectively, in the fourth quarter of 2013. 

Net income attributable to common shareholders for the quarter ended December 31, 2014, was $11 million, or $0.13 per diluted share, compared with net income of $61 million, or $0.69 per diluted share, in the fourth quarter of 2013.  Included in both periods are the Company’s defined benefit pension and other postretirement benefit mark-to-market adjustments, as described above, which negatively impacted 2014 earnings and favorably affected 2013 earnings.  Adjusted

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net income from continuing operations attributable to common shareholders was $12 million, or $0.13 per diluted share, compared with adjusted net income of $5 million, or $0.06 per diluted share, in the prior-year quarter. 

Adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) were approximately $28 million in the fourth quarter of 2014, compared with $22 million in the same period of 2013. Adjusted EBITDA margins, as a percentage of value-added sales, were 11.2% in the fourth quarter of 2014 and 8.6% in the same period last year.

2014 Full Year Results

Ferro reported net sales of $1.1 billion for the full year 2014 compared with net sales of $1.2 billion for 2013.  Value-added sales were $1.1 billion for both the full year 2014 and 2013.  Excluding the impact of exited business lines ($30 million), primarily related to the metal powders business divested in October 2013, and excluding precious metal sales, value-added sales were flat on a year-over-year basis.  Changes in foreign currency exchange rates adversely impacted reported sales by approximately $20 million.  Adjusting for the foreign currency impact, value-added sales increased by 2%.

Gross profit was $285 million for 2014 compared with $278 million for 2013.  Excluding special charges, adjusted gross profit was $291 million (27.3% of value-added sales) compared with $282 million (25.8% of value-added sales) in 2013. 

SG&A expenses were $287 million for the full year compared with $151 million in 2013.  Excluding special charges in both years, including the pension adjustment described above, SG&A expenses declined 10% to $192 million from $213 million. Included in both years is the impact of incentive and stock-based compensation accruals, including a charge of approximately $21 million in 2014 compared with a charge of approximately $25 million in 2013. 

The Company recorded a $9 million charge associated with restructuring in 2014 compared with restructuring and impairment charges totaling $41 million in 2013.  The charges are related to the Company’s ongoing efforts to restructure operations and exit underperforming assets. 

Net income attributable to common shareholders for the year ended December 31, 2014, was $86 million, or $0.99 per diluted share, compared with net income of $72 million, or $0.82 per diluted share, in 2013. Adjusted net income from continuing operations attributable to common shareholders was $54 million, or $0.62 per diluted share, compared with $29 million, or $0.33 per diluted share, in the prior year. 

Adjusted EBITDA was approximately $133 million for 2014 compared with $101 million in 2013.  Adjusted EBITDA margins, represented as a percentage of value-added sales, were 12.4% in 2014 and 9.2% in 2013.

ROIC from continuing operations for 2014 was 9.4%.  This includes one month of operating results for Vetriceramici, as the business was acquired in December 2014, and the invested capital associated with the acquisition.  Adjusting to exclude the Vetriceramici acquisition, ROIC from continuing operations was 11.1% compared, with 7.7% for the full year 2013.

Total debt at December 31, 2014 was $312 million, equivalent to the prior year-end.  Cash balances increased by $112 million to $141 million, resulting in a reduction in net debt (debt less cash) of $112 million.  Disposition proceeds derived from the sale of the Specialty Plastics and

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Polymer Additives assets, net of the cash used in the purchase of Vetriceramici, was the primary driver for the reduction in net debt during 2014.      

Outlook

The Company expects adjusted earnings for 2015 to be in the range of $0.85 to $0.90 per diluted share.  This guidance includes a negative earnings impact of $0.12 - $0.14 associated with expected changes in foreign currency rates. 

Value-added sales, which exclude precious metals sales, are expected to increase by 2% - 3%, including a projected 8% negative impact from changes in foreign currency exchange rates.  Holding 2015 budgeted foreign exchange rates constant at 2014 levels, value-added sales growth would be 10% - 11%.  Gross profit, as a percent of value-added sales, is expected to be in the range of 29.0% - 29.5%, and operating profit is expected to be in the range of 11.5% - 12.0% of value-added sales. 

 

The increase in operating profit coupled with a lower effective tax rate of 29% and lower interest expense, resulting from Ferro’s August 2014 refinancing, is expected to drive increased adjusted earnings per share from continuing operations and result in free cash flow of approximately $50 million.  The Company continues to target an annualized return on invested capital of 15%, which it expects to achieve in the 2015 - 2016 time frame. 

 

The Company estimates that changes in foreign currency rates between 2015 and 2014 will adversely impact operating profit from continuing operations by $15 million - $17 million, or $0.12 - $0.14 on a diluted earnings per share basis, including the impact of translation and the effect of selling certain U.S. manufactured products into Asia, that are priced in local currency.  For budgeting purposes, the Company has assumed a U.S. dollar to euro exchange rate of 1.12.  The change in the euro exchange rate accounts for approximately 75% of the sales and operating income reduction associated with foreign currency.  Other currencies, primarily in Asia, Latin America and Russia, account for the remaining adverse impact on forecasted sales and operating income.    

 

The 2015 full year guidance assumes no additional acquisitions, although the Company is pursuing additional business opportunities to strengthen its position in glass-based coatings and to expand its presence as a leading provider of color solutions for industrial applications.

Mr. Thomas noted, “Business conditions remain challenging, including persistent weakness in Europe, but we continue to see 2015 as a year of substantial adjusted earnings growth and strong cash generation.  We strongly believe that our core business portfolio, as it is now comprised, can deliver increased cash flow, higher returns on invested capital, and greater shareholder value.  We also believe there are ample opportunities within our markets to continue to make value creating investments to expand our geographic footprint, improve our technology position and enhance our business portfolio.”

Conference Call

The Company will host a conference call to discuss its fourth-quarter financial results and current outlook for 2015 on Thursday, February 26, 2015, at 10:00 a.m. Eastern Time.  To listen to the call, dial 800-755-6634 if calling from the United States or Canada, or dial 212-231-2919 if calling from outside North America.  Please call approximately 10 minutes before the conference call is scheduled to begin.

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An audio replay of the call will be available through noon Eastern Time on March 5th.  To access the replay, dial 800-633-8284 if calling from the United States or Canada, or dial 402-977-9140 if calling from outside North America.  Use the program ID #21761892 to access the audio replay. 

The conference call also will be broadcast live over the Internet and will be available for replay through March 31, 2015.  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 site.

About Ferro Corporation

 

Ferro Corporation (http://www.ferro.com) is a leading global supplier of technology-based performance materials, including glass-based coatings, pigments and colors, and polishing materials. Ferro products are sold into the building and construction, automotive, appliances, electronics, household furnishings, and industrial products markets. Headquartered in Mayfield Heights, Ohio, the Company has approximately 3,985 employees globally and reported 2014 sales of $1.1 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:

 

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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 our Annual Report on Form 10-K for the year ended December 31, 2014.

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Contacts:

Investor Contact:
John Bingle, 216-875-5411
Treasurer and Director of Investor Relations
john.bingle@ferro.com

 

or

 

Media Contact:
Mary Abood, 216-875-5401
Director, Corporate Communications
mary.abood@ferro.com

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Table 1

Ferro Corporation and Subsidiaries

Consolidated Statements of Operations 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Table 2

Ferro Corporation and Subsidiaries

Segment Net Sales and Gross Profit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Table 3

Ferro Corporation and Subsidiaries

Consolidated Balance Sheets 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Table 4

Ferro Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

 

 

 

 

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Table 5

Ferro Corporation and Subsidiaries

Supplemental Information

Reconciliation of Reported Income to Adjusted Income

For the Three Months Ended December 31 (unaudited)

 

 

 

 

 

 

 

 

It should be noted that adjusted income and earnings per share are financial measures not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP).  The adjusted income and earnings per share presented here exclude certain special items including restructuring charges, pension and other postretirement benefit mark-to-market adjustments, certain severance costs, ongoing costs at facilities that have been idled, gain/loss on divestitures, proxy contest related costs and certain business development activities, certain costs related to divested assets and product lines, income taxes and discontinued operations.  We believe 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.

 

 

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Table 6

Ferro Corporation and Subsidiaries

Supplemental Information

Reconciliation of Reported Income to Adjusted Income

For the Twelve Months Ended December 31 (unaudited)

 

 

 

 

 

 

 

 

It should be noted that adjusted income and earnings per share are financial measures not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP).  The adjusted income and earnings per share presented here exclude certain special items including, restructuring  charges, severance costs, pension and other postretirement benefit mark-to-market adjustments, costs at facilities that have been idled, gain/loss on divestitures, proxy contest related costs, the overall financial impact of currency related items in South America, certain business development costs, taxes and discontinued operations. We believe 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.

 

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Table 7

Ferro Corporation and Subsidiaries

Supplemental Information

Reconciliation of Segment Net Sales Excluding Precious Metals to Net Sales

and Schedule of Adjusted Gross Profit (unaudited)

 

 

 

 

 

 

 

It should be noted that segment net sales excluding precious metals, adjusted cost of sales and adjusted gross profit are financial measures 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. Adjusted gross profit and adjusted cost of sales excludes special items, primarily comprised of costs at facilities that have been idled and certain costs related to divested businesses and product lines. We believe this data provides investors with additional useful information on the underlying operations of the business and enables period-to-period comparability of financial performance.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Table 8

Ferro Corporation and Subsidiaries

Reconciliation of Net Income to Adjusted EBITDA (unaudited)

 

 

 

 

 

 

It should be noted that 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).  Adjusted EBITDA is net income before the effects of discontinued operations, interest, income taxes, depreciation and amortization, non-recurring adjustments to cost of sales, non-recurring adjustments to SG&A, restructuring and impairment charges, non recurring adjustments to miscellaneous income and expense, and the gain and impact of solar operations in the first quarter of 2013. We believe 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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Table 9

Ferro Corporation and Subsidiaries

Supplemental Information

Return on Invested Capital

For the Twelve Months Ended (unaudited)

 

 

 

 

 

 

1  Includes pension and other postretirement benefits mark-to-market adjustments. ongoing costs at facilities that have been idled, proxy contest related costs, certain environmental related costs, certain business development activities, costs related to certain corporate projects, costs related to consignment costs of precious metal leases, certain costs related to divested businesses, assets and product lines and the overall financial impact of currency related items in South America.  We believe this data provides investors with additional useful information on the underlying operations of the business and enables period-to-period comparability of financial performance.

 

 

It should be noted that adjusted operating profit and return on invested capital are financial measures not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP).  Adjusted operating profit is operating profit before the effects of discontinued operations, non recurring adjustments to cost of sales, non recurring adjustments to SG&A, and operations of our exited businesses. We believe 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.

 

 

 

 

 

 

 

 

 

 

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Table 10

Ferro Corporation and Subsidiaries

Supplemental Information

Adjusted Net Sales excluding Precious Metals (unaudited)

 

 

 

 

 

 

 

It should be noted that adjusted 2013 segment net 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).  Adjusted 2013 segment net sales excluding precious metals is retranslated using the current year’s exchange rate. We believe this data provides investors with additional information on the underlying operations of the business and enables period-to-period comparability of financial performance.

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