Ferro Reports Strong Fourth-Quarter and Full Year Results;

Driven by Higher-value Portfolio as Growth Strategy Continues













The results and guidance in this release, including in the highlights above, contain references to non-GAAP measures from continuing operations, which are identified by the word “adjusted” preceding the measure. A reconciliation of GAAP to non-GAAP results can be found at the end of this release. 



CLEVELAND, Ohio – March 1, 2017 – Ferro Corporation (NYSE: FOE, the “Company”) today reported results for the fourth quarter and full year ended December 31, 2016. 



Peter Thomas, Ferro’s Chairman, President and CEO, said, “Ferro delivered another strong quarter, capping a year that illustrates the success of our strategy to transform Ferro into a focused functional coatings and color solutions company that provides high-value products, technical solutions and services to our customers.



“In the quarter, our global team delivered increased sales volumes and gross profit margins in all three business segments while maintaining a strong cost optimization focus.  We met or exceeded our full-year 2016 targets for sales growth, gross margin, adjusted free cash flow from operations, adjusted EBITDA and adjusted EPS.  Growth in sales and profitability was achieved organically and through acquisitions, with the team completing five acquisitions during the year. 



“Looking ahead, we are excited about the opportunities for Ferro in 2017.  We have additional opportunities for organic growth and a robust pipeline of potential acquisition targets.  In February, we closed a very successful refinancing, which positions us to execute our growth strategy with greater capacity and flexibility.  We intend to

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continue strengthening our product and technology portfolios, enhancing our market positions, and expanding our global reach to drive shareholder value.” 



Mr. Thomas continued, “Our organic growth profile has improved over the course of 2016 as new product development and geographic expansion initiatives have taken root. In addition, acquisitions integrated over the past 12 months, including Nubiola and Al Salomi, are making significant contributions to consolidated results.



“I am extremely proud of our global team and the commitment they have shown executing our acquisition, integration, cost optimization and innovation priorities.  With their continuing efforts, the business infrastructure we have in place, and our enhanced financial flexibility, we’re ready to take the Company to the next stage of growth.” 



2016 Consolidated Fourth Quarter Results from Continuing Operations

Fourth quarter net sales grew 6.2% to $281.3 million from $265.0 million in the prior year.  On a constant currency basis, fourth quarter net sales increased 11.0% compared to the prior year.  Gross profit increased to $79.6 million from $76.4 million.  Ferro reported a net loss from continuing operations in the fourth quarter of $20.6 million, or $(0.25) per diluted share, compared with net income of $59.0 million and earnings per diluted share of $0.67 for the same quarter in the prior year. On an adjusted basis, earnings per diluted share from continuing operations were $0.27, an increase of 42.1% over the $0.19 delivered in the prior-year fourth quarter.

 

 







In the fourth quarter of 2016, organic net sales (excluding acquisitions) increased 3.9%, on a constant currency basis, and the gross profit margin on organic net sales increased 220 basis points to 30.9%.



Fourth Quarter Segment Performance

In the fourth quarter, Ferro delivered improved performance in all three of its reporting segments. 













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Full-year 2016 Consolidated Results from Continuing Operations

For the year ended December 31, 2016, net sales increased to $1.15 billion, a 6.5% improvement compared to $1.08 billion generated in 2015. On a constant currency basis, net sales increased 11.1%. Gross profit increased to $351.2 million from $301.7 million and the gross margin expanded 260 basis points, to 30.7% from 28.1% in the prior year.  Reported gross profit for both years includes certain purchase accounting adjustments associated with recent acquisitions, pension and other postretirement benefit mark-to-market adjustments, and currency-related items in Venezuela in 2015 prior to the sale of our interest in the business.  Adjusting for these items, the gross profit margins in 2016 and 2015 would have been 31.4% and 28.1%, respectively.



Ferro reported 2016 income from continuing operations of $44.6 million, or $0.51 per diluted share, compared with $99.9 million, or $1.14 per diluted share, in the prior year.  On an adjusted basis, 2016 full-year earnings per diluted share increased to $1.09 from $0.85, a 28.2% improvement over the prior year.  Adjusted EBITDA improved to $194.6 million, a conversion of 17.0% of sales, up from 14.4% in 2015.





For the full year, organic net sales increased approximately 1.0%, on a constant currency basis, while the gross profit margin on organic net sales increased by 280 basis points to 31.3%.



Net cash provided by operating activities was $62.6 million, compared to $51.2 million in the prior year, an increase of 22.3%. Ferro generated adjusted free cash flow from continuing operations of $84.5 million, compared to $75.5 million in the prior year, an improvement of 11.9%.  Adjusted free cash flow from continuing operations is defined as adjusted EBITDA from continuing operations less cash items used to operate the businesses, including cash taxes and interest, changes in working capital, capital expenditures and other cash items. 



2017 Outlook

Ferro provided the following 2017 outlook:



Note: The above guidance assumes no additional acquisitions or divestitures are made in 2017 and reflects foreign currency exchange rates as of December 31, 2016.



Commenting on the outlook, Mr. Thomas said, “We are pleased to see the momentum generated in the second half of 2016 carrying into 2017.  Results in the early part of 2017 are encouraging, and we are expecting another year of solid growth with constant currency sales growth of 11% - 12%.  We expect the base business to continue

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the growth momentum it generated in the latter part of 2016, adding to our growth through acquisitions.  To capitalize on the recent organic growth momentum, we will be making additional investments in sales, technical service and research and development programs.



“The year won’t be without its challenges, however, as the raw material cost increases of the last several months are expected to continue.  We expect to offset these cost increases through pricing actions, product reformulations and optimization actions, but due to competitive dynamics and the lag in the timing between announced pricing actions and raw materials increases, we may see gross profit margin pressures from quarter to quarter. In addition, foreign currency exchange rates continue to be volatile, and we anticipate changes in rates will again adversely impact reported results.  Based on 2016 year-end rates, we estimate that foreign currency translation will adversely impact reported EBITDA by approximately $7 million, or approximately $0.04 from an EPS perspective.” 



Ferro’s outlook assumes an average exchange rate of 1.05 USD/EUR for the year, compared with an average of approximately 1.10 USD/EUR in 2016. Ferro generates approximately 30% – 35% of its revenue in Euros, and approximately 25% - 30% in U.S. Dollars. Ferro also generates revenue in foreign currencies other than the Euro, although no other single currency accounts for more than 5% of our exposure, as shown in the table below.  The Company estimates that a 1% overall change in foreign currency exchange rates, weighted for the countries where we do business, would impact sales and operating profit by approximately $8.3 million and $1.2 million, respectively.







Adjusted Guidance:  Earnings, EBITDA and Free Cash Flow from Continuing Operations

Management has provided the adjusted diluted EPS, adjusted EBITDA and adjusted free cash flow from operations guidance on a continuing operations basis. While it is likely that Ferro could incur charges, or have cash flows for items excluded from adjusted diluted EPS, adjusted EBITDA and adjusted free cash flow from continuing operations [such as mark-to-market adjustments of pension and other postretirement benefit obligations, restructuring and impairment charges, and legal and professional expenses related to certain business development activities], it is not possible, without unreasonable effort, to identify the amount or significance of these items or the potential for other transactions that may impact future GAAP net income and cash flow from operating activities. Management does not believe these items to be representative of underlying business performance. Management is unable to reconcile, without unreasonable effort, the Company's forecasted range of adjusted EPS, adjusted EBITDA and adjusted free cash from continuing operations to a comparable GAAP range.









Financing Transaction

On February 14, 2017, the Company announced that it completed a successful refinancing of its debt structure, which increased liquidity, extended debt maturities, and provided improved operating flexibility.  The refinancing

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positions Ferro to continue its value creation strategy with flexible financing options to support both organic and inorganic growth opportunities.  See Table 14 for an illustration of the Company’s capitalization on a proforma basis, as if the refinancing was completed on December 31, 2016.  



Constant Currency

Constant currency results reflect the re-measurement of 2015 reported and adjusted local currency results using 2016 exchange rates, resulting in constant currency comparative figures to 2016 reported and adjusted results. The non-GAAP financial measures presented should not be considered as a substitute for the measures of financial performance prepared in accordance with GAAP.

 

Conference Call

The Company will host a conference call to discuss its fourth-quarter and full-year financial results and its current outlook for 2017 on Thursday, March 2, 2017, at 10:00 a.m. Eastern Time.  To listen to the call, dial 888-222-3913 if calling from the United States or Canada, or dial 303-223-2686 if calling from outside North America.  Please call approximately 10 minutes before the conference call is scheduled to begin.



A replay will be available from 12 Noon Eastern Time on March 2, 2017, until 12 Noon Eastern Time on March 9, 2017.  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 #21843082 to access the audio replay.  The Webcast replay will also be available by clicking on the Investor Information link on the Ferro corporate Web site at http://www.ferro.com, beginning at approximately 12 Noon Eastern Time on March 2, 2017.

The conference call also will be broadcast live over the Internet and will be available for replay for 30 days.  The live broadcast, replay and earnings presentation material 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.

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 5,125 employees globally and reported 2016 sales of $1.15 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,

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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, 2016.







Company Contacts:



Investor Contact:

Kevin Cornelius Grant, 216-875-5451

Manager of Investor Relations

kevincornelius.grant@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

Consolidated Statements of Operations







































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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

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, 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).  These non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, the financial measures prepared in accordance with U.S. GAAP and a reconciliation of these financial measures to the most comparable U.S. GAAP financial measures is presented.  The adjusted income, earnings per share and other adjusted items presented above exclude certain special items including restructuring charges, certain business development activities,  gains/loss on sale of assets, the overall financial impact of currency related items in Egypt and Argentina, pension and other postretirement benefit mark-to-market adjustments,  certain purchase accounting adjustments and discontinued operations.  We believe this data provides investors with additional information on the underlying operations and trends 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 Twelve Months Ended December 31 (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).  These non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, the financial measures prepared in accordance with U.S. GAAP and a reconciliation of these financial measures to the most comparable U.S. GAAP financial measures is presented.  The adjusted income, earnings per share and other adjusted items presented above exclude certain special items including restructuring charges, certain business development activities, gains/loss on sale of assets, the overall financial impact of currency related items in Venezuela, Argentina and Egypt, pension and other postretirement benefit mark-to-market adjustments, purchase accounting adjustments and discontinued operations.  We believe this data provides investors with additional information on the underlying operations and trends of the business and enables period-to-period comparability of financial performance.

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Table 7

Ferro Corporation and Subsidiaries

Supplemental Information

Reconciliation 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). These non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, the financial measures prepared in accordance with U.S. GAAP and a reconciliation of these financial measures to the most comparable U.S. GAAP financial measures is presented.   Adjusted gross profit and adjusted cost of sales exclude certain items, primarily comprised of the cost of goods sold portion of the pension and other postretirement benefit mark-to-market adjustments in the three and twelve months ended December 31, 2016 and 2015, the amortization of purchase accounting adjustments related to our recent acquisitions in the three and twelve months ended December 31, 2016 and the impact of currency-related items in Venezuela in the twelve months ended December 31, 2015.  We believe this data provides investors with additional information on the underlying operations and trends 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).  These non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, the financial measures prepared in accordance with U.S. GAAP and a reconciliation of these financial measures to the most comparable U.S. GAAP financial measures is presented.  We believe this data provides investors with additional information on the underlying operations and trends 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).  These non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, the financial measures prepared in accordance with U.S. GAAP and a reconciliation of these financial measures to the most comparable U.S. GAAP financial measures is presented.  We believe this data provides investors with additional information on the underlying operations and trends 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 (loss) 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). This non-GAAP financial measure should be considered as a supplement to, and not as a substitute for, the financial measures prepared in accordance with U.S. GAAP and a reconciliation of these financial measures to the most comparable U.S. GAAP financial measures is presented.    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 expense (income), net, interest expense, income tax expense, depreciation and amortization, non-GAAP adjustments to cost of sales and non-GAAP adjustments to SG&A.  We believe this data provides investors with additional information on the underlying operations and trends 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 net adjusted operating profit after tax 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). These non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, the financial measures prepared in accordance with U.S. GAAP and a reconciliation of these financial measures to the most comparable U.S. GAAP financial measures is presented.    Net adjusted operating profit after tax is operating profit from continuing operations,  adjusted for non-GAAP adjustments to cost of sales and non-GAAP adjustments to SG&A tax effected.  We believe this data provides investors with additional information on the underlying operations and trends 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

Change in Net Debt (unaudited)



















We believe that given the significant cash and cash equivalents on its balance sheet that net cash against outstanding debt, net debt, between periods is a meaningful measure.  The majority of the Company’s cash and cash equivalents reside in international jurisdictions for all periods presented. 



























































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Table 13

Ferro Corporation and Subsidiaries

Supplemental Information

Adjusted Free Cash Flow from Continuing Operations (unaudited)















It should be noted that adjusted EBITDA and adjusted free cash flow from continuing operations are financial measures not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). These non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, the financial measures prepared in accordance with U.S. GAAP and a reconciliation of these financial measures to the most comparable U.S. GAAP financial measures is presented.    Adjusted EBITDA is net income before the effects of income (loss) attributable to noncontrolling interest, discontinued operations, restructuring and impairment charges, other expense (income) net, interest expense, income tax expense, depreciation and amortization, non-GAAP adjustments to cost of sales, and non-GAAP adjustments to SG&A. Adjusted Free Cash Flow from Continuing Operations is adjusted EBITDA less capital expenditures, changes in working capital, cash income taxes, cash interest, pension contributions, incentive compensation payments, and other continuing operations cash items. We believe this data provides investors with additional information on the underlying operations and trends 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 14

Ferro Corporation and Subsidiaries

Supplemental Information

Capitalization Restated as if Refinancing Occurred on December 31, 2016 (unaudited)













(1) Comprised of $357.5 million tranche and €250 million euro tranche.

(2) “Other debt” is comprised of capital leases and short and long-term notes payable.







It should be noted that adjusted Net Debt for the twelve months ended December 31, 2016 is a financial measure not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). This non-GAAP financial measure should be considered as a supplement to, and not as a substitute for, the financial measure prepared in accordance with U.S. GAAP and a reconciliation of this financial measure to the most comparable U.S. GAAP financial measure is presented.   Adjusted Net Debt for the twelve months ended December 31, 2016 is our debt balances outstanding at December 31, 2016 as presented on our consolidated balance sheet adjusted for the refinancing of the Credit Facility that occurred on February 14, 2017. We believe this data provides investors with additional information on the amount of liquidity available to Ferro.



















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