FERRO REPORTS INCREASED EARNINGS FOR SECOND QUARTER 2016 DRIVEN BY HIGHER SALES AND GROSS PROFIT MARGINS

















CLEVELAND, Ohio – July 27, 2016 – Ferro Corporation (NYSE: FOE, the “Company”) today reported results for the second quarter ended June 30, 2016.  Second-quarter income from continuing operations attributable to common shareholders was $0.29 per diluted share compared with $0.14 per diluted share in the second quarter of 2015.  On an adjusted basis, earnings per diluted share from continuing operations were $0.34 compared with earnings of $0.20 per diluted share in the second quarter of 2015.  Adjusted earnings exclude charges relating to, among other items, restructuring activities, transaction-related expenses and gains and losses on asset sales.  Please refer to the supplemental tables at the end of this release for additional information concerning adjusted financial results.



2016 Second-Quarter Results from Continuing Operations 

Second-quarter 2016 net sales increased 11.1% to $298 million, compared with $268 million in the year-ago quarter.  Foreign currency translation reduced net sales by approximately $8 million.  On a constant currency basis, net sales increased by 14.6%.  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 lower sales in the Performance Colors and Glass segment.  Excluding sales from acquisitions of approximately $39 million, associated with Nubiola, Al Salomi, Ferer and Pinturas Benicarló, constant currency sales increased by 2.2% in the Performance Coatings segment and by 1.0%

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in the Pigments, Powders and Oxides segment, while sales declined in the Performance Colors and Glass segment by 4.1%.  Within the Performance Colors and Glass segment, demand for automotive glass coatings remained strong, with net sales increasing by 7.5%, while demand for products for electronics and decoration applications declined. 

Reported Earnings from Continuing Operations:  Second-quarter 2016 reported earnings per diluted share were $0.29 versus $0.14 in the same period last year.  Results in the second quarter of 2016 benefited from the increase in net sales, a higher gross profit margin and a lower tax rate.  Higher gross profit was partially offset by increases in selling, general and administrative (“SG&A”) expenses and increased other expenses, including interest expense, partially offset by lower restructuring and impairment charges. 

The gross profit margin for the second quarter of 2016 increased by more than 400 basis points to 33.0%, while SG&A expenses increased by approximately $5 million to $58 million, primarily associated with the acquisitions of Nubiola, Al Salomi, Ferer and Pinturas Benicarló and a decrease in pension income.  Other expenses were nearly $1 million higher in the second quarter of 2016 compared with 2015.  For the second quarter of 2016 the effective tax rate was 25.4% compared with 31.4% in the same period last year.

Adjusted Earnings from Continuing Operations:  Second-quarter 2016 adjusted earnings per diluted share were $0.34 versus $0.20 in the same period last year.  Results in the second quarter of 2016 benefited from the increase in net sales coupled with a higher adjusted gross profit margin and lower adjusted effective tax rate.  Higher gross profit was partially offset by increases in SG&A expenses and increased interest expense. 

The adjusted gross profit margin for the second quarter of 2016 increased to 33.0% from 29.0% while the adjusted effective tax rates were 26.8% and 32.7% for the second quarters of 2016 and 2015, respectively.  Adjusted SG&A expenses were approximately $4 million higher in the second quarter of 2016 compared with the prior year period.  Adjusting for the effect of foreign currency translation, SG&A expenses increased by approximately $5 million.  The increase in SG&A expenses was primarily associated with the acquisitions of Nubiola, Al Salomi, Ferer and Pinturas Benicarló and a decrease in pension income.   



2016 Second-Quarter Cash Flow and Return on Invested Capital from Continuing Operations

For the second quarter of 2016, income from continuing operations was $25 million, compared with $12 million in the same period last year.  In the second quarter of 2016, adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) was $57 million, compared with $37 million in the prior year period.  Adjusted EBITDA margins, represented as a percentage of net sales, were 19.0% and 13.9% in the second quarters of 2016 and 2015, respectively.  The adjusted return on invested capital (“ROIC”), excluding acquisitions owned less than one year, was 11.6% for the second quarter of 2016 compared with 13.7% at December 31, 2015.  The decline in ROIC was primarily due to the impact of reversing $63 million of tax valuation allowances at year-end 2015 and the inclusion of Vetriceramici.  The Company anticipates ROIC will improve to approximately 12.0% during 2016.  

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In the second quarter of 2016, net cash provided by operating activities was approximately $8 million, while net cash used in investing activities was approximately $5 million and net cash used in financing activities was $8 million.  For the period ended June 30, 2016 total debt was $496 million compared with $474 million at December 31, 2015, an increase of $22 million.  During the first six months of 2016, net debt (debt less cash and cash equivalents) increased by $31 million.  For the three months ended June 30, 2016 debt declined by $8 million, and net debt declined by $2 million. 

In the second quarter of 2016, continuing operations generated approximately $13 million of free cash flow, with free cash flow defined as EBITDA less cash items used to operate the business, including cash taxes and interest, investment in working capital, capital expenditures and other cash items.  The Company used the free cash flow in the quarter to invest in acquisitions ($3 million), restructure operations ($1 million) and fund discontinued operations ($7 million), resulting in a $2 million reduction in net debt



Peter Thomas, Chairman, President and CEO said, “Results for the quarter were very strong, with consolidated sales trending in line with our prior annual guidance of $1.140 to $1.155 billion and gross profit margins exceeding our expectations in all of our major business units.  Sales trends continue to improve in Performance Coatings, where we experienced strong demand for our porcelain enamel products, and we continue to see improving demand for tile coatings in Egypt, Italy and Asia.  While we experienced sequential sales improvement in the Performance Colors and Glass segment, demand continues to run below last year’s level, and we now expect full-year 2016 sales for this segment to be flat compared with 2015.  Our consolidated gross profit margin, as a percent of net sales, improved by more than 400 basis points to 33%, which is the highest level attained since we began implementing our value creation strategy in late 2012.  Higher sales volumes, improved manufacturing efficiencies and lower raw material costs contributed to the gross margin improvement.  Although the quarter was strong, economic and geopolitical challenges remain, particularly in Indonesia, Brazil, Argentina and Turkey.  Based on the strength of the quarter, but tempered by risks associated with economic weakness in certain regions, we are increasing our adjusted EPS guidance for 2016 to $1.00 - $1.05 per diluted share.”



Review of Strategic Alternatives

On May 9, 2016, Ferro announced that the Board of Directors was exploring possible strategic alternatives for the Company to enhance shareholder value and had engaged Lazard Frères & Co. as its financial advisor to assist in the review process.  The review process was extensive, covering multiple options, including the sale of the Company, a merger, transformational acquisitions, and the continuation of the Company’s value creation strategy. 

After exploring each alternative, the Board of Directors concluded that the best course of action for creating shareholder value was to continue executing Ferro’s value creation strategy, focusing on organic and inorganic growth and improving profitability.  The Company has identified efficiency optimization opportunities that are expected to increase profitability by $20 - $30 million annually, when the projects are fully implemented, which is expected to be over the next three years.  The Company intends to provide information concerning these new optimization initiatives as plans are finalized and being implemented.  In addition, the Company will continue to actively pursue strategic acquisitions, including transformational opportunities, to propel future growth.  In assessing the option

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to sell the Company, the Board of Directors determined that third party proposals undervalued the Company compared to the intrinsic value created by remaining an independent public company and pursuing the Company’s growth agenda and cost optimization initiatives.    



Addressing the strategic alternatives review process, Mr. Thomas said, “The Board of Directors has been diligent in reviewing multiple options concerning the future of the Company.  While we remain confident that shareholder value will be enhanced through our current strategy, as exemplified in our first half results, it was prudent that all other alternatives be thoroughly assessed and vetted.  As we have consistently stated over the last four years, the Company remains open to strategic alternatives, including a sale of the Company, but not at a discount to intrinsic value.”





Stock Repurchase

The Company’s Board of Directors has approved a new stock repurchase program under which the Company is authorized to repurchase up to an additional $25 million of the Company’s outstanding common stock on the open market, including through a Rule 10b5-1 plan, in privately negotiated transactions, or otherwise.  This new program is in addition to the $75 million of authorization previously approved and announced over the last 12 months.  Of the $100 million authorized, the Company previously purchased 4,458,345 shares of common stock at an average price of approximately $11.21 per share, for a total cost of $50 million.  The Company’s available repurchase authorization now stands at $50 million.  



Outlook

Based on the strength of the second-quarter operating results, the Company is increasing its prior adjusted earnings per diluted share guidance to $1.00 - $1.05 from $0.93 - $0.98 (see adjusted earnings note below).  This guidance assumes foreign exchange rates approximately in line with those at July 15, 2016. 



The guidance reflects the following items shown below (for full-year 2016 metrics; margins calculated as percent of net sales):  









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Continuing operations are expected to generate free cash flow of $85 - $95 million, with free cash flow defined as adjusted EBITDA less cash items used to operate the business, including cash taxes and interest, investment in working capital, capital expenditures and other cash items.  



Antwerp Belgium Disposition Update

Ferro continues to work toward divesting its Europe-based Polymer Additives assets, including the Antwerp Belgium dibenzoates manufacturing assets and the related Polymer Additives European headquarters and lab facilities.  These assets are currently classified as held-for-sale and reported as a discontinued operation.  The Company expects to complete the disposition during the third quarter of 2016.  The resolution of the matter could result in an impairment charge and other related expenses of up to $25 - $30 million. 





Adjusted Earnings Guidance

Adjusted earnings per diluted share guidance excludes the impact of certain items, primarily associated with restructuring activities, transaction-related expenses, gains and losses on asset sales, and mark-to-market adjustments to the Company’s pension and postretirement benefit liabilities.  The impact of adjusting for these items for the first six months of 2016 was an increase to GAAP earnings per diluted share from continuing operations of $0.03, from $0.53 to $0.56.  It is not possible at this time to identify the potential amount or significance of these items for the balance of the year, as they have not occurred yet.  Therefore, the Company is unable to reconcile its full-year 2016 adjusted earnings per diluted share guidance.



Conference Call

The Company will host a conference call to discuss its second-quarter financial results and its current outlook for 2016 on Thursday, July 28, 2016, at 10:00 a.m. Eastern Time.  To listen to the call, dial 800-622-2443 if calling from the United States or Canada, or dial 303-223-2682 if calling from outside North America.  Please call approximately 10 minutes before the conference call is scheduled to begin.

An audio replay of the call will be available through noon Eastern Time on August 4, 2016.  To access the replay, dial 800-633-8284 (toll free) if calling from the United States or Canada, or dial 402-977-9140 if calling from outside North America.  Use the program ID #21814015 to access the audio replay. 

The conference call will also be broadcast live over the Internet and will be available for replay through September 30, 2016.  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 also will be available on the site.







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About Ferro Corporation

Ferro Corporation (http://www.ferro.com) is a leading global functional coatings and color solutions company that supplies 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 4,880 employees globally and reported 2015 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 period ended December 31, 2015.

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Company Contacts:



Investor Contact:

John Bingle, 216-875-5411

Treasurer and Director of Investor Relations

john.bingle@ferro.com



Media Contact:

Mary Abood, 216-875-5401

Director, Corporate Communications

mary.abood@ferro.com

































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Table 1

Ferro Corporation and Subsidiaries

Condensed Consolidated Statements of Operations (unaudited)





























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Table 2

Ferro Corporation and Subsidiaries

Segment Net Sales and Gross Profit (unaudited)





























































































































































































































































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Table 3

Ferro Corporation and Subsidiaries

Condensed Consolidated Balance Sheets (unaudited)





















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Table 4

Ferro Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)



























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Table 5

Ferro Corporation and Subsidiaries

Supplemental Information

Reconciliation of Reported Income to Adjusted Income

For the Three Months Ended June 30 (unaudited)













It should be noted that adjusted income, earnings per share and other adjusted items referred to above 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, earnings per share and other adjusted items presented above exclude certain special items including restructuring charges, certain business development activities,  gains on sale of assets, the overall financial impact of currency related items in Venezuela 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. 



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Table 6

Ferro Corporation and Subsidiaries

Supplemental Information

Reconciliation of Reported Income to Adjusted Income

For the Six Months Ended June 30 (unaudited)











It should be noted that adjusted income, earnings per share and other adjusted items referred to above 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, earnings per share and other adjusted items presented above exclude certain special items including restructuring charges, certain business development activities, gains on sale of assets, the overall financial impact of currency related items in Venezuela 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.

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Table 7

Ferro Corporation and Subsidiaries

Supplemental Information

Schedule of Adjusted Gross Profit (unaudited)















It should be noted that 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). Adjusted gross profit and adjusted cost of sales excludes certain items, primarily comprised of the impact of the loss on a foreign currency contract associated with the purchase of Nubiola and currency-related items in Venezuela in 2015. 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

Supplemental Information

Constant Currency Schedule of Adjusted Operating Profit (unaudited)













It should be noted that the adjusted 2015 results is a financial measure not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP).  Adjusted 2015 results are remeasured using the respective 2016 exchange rates.  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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Table 9

Ferro Corporation and Subsidiaries

Supplemental Information

Constant Currency Schedule of Adjusted Operating Profit (unaudited)











It should be noted that the adjusted 2015 results is a financial measure not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP).  Adjusted 2015 results are remeasured using the respective 2016 exchange rates.  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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Table 10

Ferro Corporation and Subsidiaries

Supplemental Information

Reconciliation of Net  income attributable to Ferro Corporation

common shareholders 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 attributable to Ferro Corporation common shareholders before the effects of net income (loss) attributable to noncontrolling interest, discontinued operations, restructuring and impairment charges, other (income) expense, net, interest expense, income tax expense, depreciation and amortization, nonrecurring adjustments to cost of sales and nonrecurring adjustments to SG&A. 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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Table 11

Ferro Corporation and Subsidiaries

Supplemental Information

Return on Invested Capital

For the Rolling Twelve Months Ended (unaudited)









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, and non-recurring adjustments to SG&A. 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 12

Ferro Corporation and Subsidiaries

Supplemental Information

Adjusted EBITDA Cash Flow (unaudited)













It should be noted that total free cash flow from continuing operations and change in net debt are financial measures 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 income (loss) attributable to noncontrolling interest, discontinued operations, restructuring and impairment charges, other (income) expense net, interest expense, income tax expense, depreciation and amortization, nonrecurring adjustments to cost of sales, and nonrecurring adjustments to SG&A. 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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