FERRO DELIVERS SEVENTH CONSECUTIVE QUARTER OF ORGANIC GROWTH AND 

REAFFIRMS FULL-YEAR 2018 GUIDANCE

Company delivers strong revenue growth in first quarter 2018



First Quarter *



    

Net Sales increased 26.5% to $405.5 million

     Ferro delivered another quarter of robust growth, maintaining the momentum of the last several quarters.  Our global team continued to press our market and technology leadership positions and to advance optimization initiatives throughout our business.

     For the seventh consecutive quarter, the business generated mid-single digit organic growth, driven by a combination of sales from the organic pipeline, pricing strategies and customer optimization decisions. These and other initiatives generated greater profitability, despite headwinds from continued raw material price inflation.

     We remain focused on innovation and optimization to create value for our shareholders and to achieve our Vision 2020 goals.

Peter Thomas

Chairman, President and CEO, Ferro Corporation

    

Organic sales grew 4.6% on constant currency

    

GAAP EPS improved 3.8% to $0.27

    

Adjusted EPS increased 16.1% to $0.36

    

Net Income increased 6.8% to $23.4 million, with EBITDA expanding 14.5% to $64.0 million

    

Capital structure refinanced, enhancing financial flexibility and reducing interest rates.

    

Full-year 2018 guidance maintained for non-GAAP Adjusted EPS, Adjusted EBITDA, and Adjusted Free Cash Flow from Operations Conversion.





Key Results * (amounts in millions, except EPS)



Sales and Gross Profits

Q1 2018

Q1 2017

% Change

Net Sales

$

405.5

$

320.6

26.5%

Net Sales (Constant Currency)

405.5

343.5

18.1%

Gross Profit (GAAP)

118.7

98.8

20.1%

Adjusted Gross Profit (Constant Currency)

119.7

108.9

9.9%



Net Income, Adjusted EBITDA and EPS

Q1 2018

Q1 2017

% Change

Net Income1

$

23.4

$

21.9

6.8%

Adjusted EBITDA

64.0

55.9

14.5%

GAAP diluted EPS

$

0.27

$

0.26

3.8%

Adjusted EPS

0.36

0.31

16.1%



Segment Results * (amounts in millions)



Performance Coatings

Q1 2018

Q1 2017

% Change

Net Sales

$

184.6

$

126.6

45.8%

Net Sales (Constant Currency)

184.6

136.3

35.4%

Gross Profit (GAAP)

  43.8

  33.5

30.7%

Adjusted Gross Profit (Constant Currency)

  43.7

  36.5

19.7%

Performance Colors & Glass

Q1 2018

Q1 2017

% Change

Net Sales

$

120.5

$

103.5

16.4%

Net Sales (Constant Currency)

120.5

111.1

  8.5%

Gross Profit (GAAP)

  43.3

  37.4

15.8%

Adjusted Gross Profit (Constant Currency)

  43.3

  40.6

  6.7%

Color Solutions

Q1 2018

Q1 2017

% Change

Net Sales

$

100.4

$

  90.5

10.9%

Net Sales (Constant Currency)

100.4

  96.1

  4.5%

Gross Profit (GAAP)

  32.1

  28.2

13.8%

Adjusted Gross Profit (Constant Currency)

  32.7

  31.9

  2.5%



Full Year 2018 Guidance





Adjusted Free Cash



Adjusted

Adjusted

Flow from Operations



EBITDA

EPS

Conversion1

2018 Guidance

$270 - $275M

$1.55 - $1.60

40% - 45%



Currency Exposure 2017 Weighting

2018 Guidance FX sensitivity

EUR - Euro

35% to 40%

% Change

Operating Profit

CNY - Yuan Renminbi

5% to 7%

+ 1 all FX change

~ $1.3 million to ~$1.5 million

MXN - Mexican Peso

4% to 6%

+ 1 Euro change

~ $0.8 million to ~$1.0 million

EGP - Egyptian Pound

2% to 5%

·

demand in the industries into which Ferro sells its products may be unpredictable, cyclical, or heavily influenced by consumer spending;

·

Ferro’s ability to successfully implement and/or administer its optimization initiatives, including its investment and restructuring programs, and to produce the desired results;

·

currency conversion rates and economic, social, political, and regulatory conditions in the U.S. and around the world;

·

challenges associated with a multi-national company such as Ferro competing lawfully with local competitors in certain regions of the world;

·

our ability to implement and/or administer optimization intiatives to rationalize our operations and improve operating performance;

·

Ferro’s ability to identify suitable acquisition candidates, complete acquisitions, effectively integrate the acquired businesses and achieve the expected synergies, as well as the acquisitions being accretive and Ferro achieving the expected returns on invested capital;

·

the effectiveness of the Company’s efforts to improve operating margins through sales growth, price increases, productivity gains, and improved purchasing techniques;

·

the impact of damage to, or the interruption, failure or compromise of the Company’s information systems;

·

the implementation and operations of business information systems and processes;

·

compliance costs associated with domestic and international laws, rules, policies and other obligations regarding data protection;

·

restrictive covenants in the Company’s credit facilities could affect its strategic initiatives and liquidity;

·

Ferro’s ability to access capital markets, borrowings, or financial transactions;

·

the availability of reliable sources of energy and raw materials at a reasonable cost;

·

increasingly aggressive domestic and foreign governmental regulation of hazardous and other materials and regulations affecting health, safety and the environment;

·

sale of products and materials into highly regulated industries;

·

our ability to address safety, human health, product liability and environmental risks associated with our current and historical products, product life cycle and production processes;

·

competitive factors, including intense price competition;

·

Ferro’s ability to protect its intellectual property, including trade secrets, or to successfully resolve claims of infringement brought against it;

·

limited or no redundancy for certain of the Company’s manufacturing facilities and possible interruption of operations at those facilities;

·

management of Ferro’s general and administrative expenses;

·

Ferro’s multi-jurisdictional tax structure and its ability to reduce its effective tax rate, including the impact of the Company’s performance on its ability to utilize significant deferred tax assets;

·

the effectiveness of strategies to increase Ferro’s return on invested capital, and the short-term impact that acquisitions may have on return on invested capital;

·

stringent labor and employment laws and relationships with the Company’s employees;

·

the impact of requirements to fund employee benefit costs, especially post-retirement costs;

·

implementation of business processes and information systems, including the outsourcing of functions to third parties;

·

risks associated with the manufacture and sale of material into industries making products for sensitive applications;

·

exposure to lawsuits, governmental investigations and proceedings relating to current and historical operations and products;

·

risks and uncertainties associated with intangible assets;

·

Ferro’s borrowing costs could be affected adversely by interest rate increases;

·

liens on the Company’s assets by its lenders affect its ability to dispose of property and businesses;

·

amount and timing of any repurchase of Ferro’s common stock; and

·

other factors affecting the Company’s business that are beyond its control, including disasters, accidents and governmental actions.





(In thousands, except per share amounts)

Three Months Ended



March 31,



2018

2017



Net sales

$

$

Cost of sales

Gross profit

Selling, general and administrative expenses

Restructuring and impairment charges

Other expense (income):

Interest expense

Interest earned

Foreign currency loss (gain), net

Loss on extinguishment of debt

 -

Miscellaneous expense (income), net

Income before income taxes

Income tax expense

Net income

Less: Net income attributable to noncontrolling interests

Net income attributable to Ferro Corporation common shareholders

$

$

Earnings per share attributable to Ferro Corporation common shareholders:

Basic earnings per share

$

$

Diluted earnings per share

$

$



Shares outstanding:

Weighted-average basic shares

Weighted-average diluted shares

End-of-period basic shares





(Dollars in thousands)

Three Months Ended



March 31,



2018

2017

Segment Net Sales

Performance Coatings

$

$

Performance Colors and Glass

Color Solutions

Total segment net sales

$

$



Segment Gross Profit

Performance Coatings

$

$

Performance Colors and Glass

Color Solutions

Other costs of sales

Total gross profit

$

$



Selling, general and administrative expenses

Strategic services

$

$

Functional services

Incentive compensation

Stock-based compensation

Total selling, general and administrative expenses

$

$







(Dollars in thousands)

March 31,

December 31,



2018

2017

ASSETS

Current assets

Cash and cash equivalents

$

$

Accounts receivable, net

Inventories

Other receivables

Other current assets

Total current assets

Other assets

Property, plant and equipment, net

Goodwill

Intangible assets, net

Deferred income taxes

Other non-current assets

Total assets

$

$



LIABILITIES AND EQUITY

Current liabilities

Loans payable and current portion of long-term debt

$

$

Accounts payable

Accrued payrolls

Accrued expenses and other current liabilities

Total current liabilities

Other liabilities

Long-term debt, less current portion

Postretirement and pension liabilities

Other non-current liabilities

Total liabilities

Equity

Total Ferro Corporation shareholders’ equity

Noncontrolling interests

Total liabilities and equity

$

$





(Dollars in thousands)

Three Months Ended



March 31,



2018

2017

Cash flows from operating activities

Net income

$

$

Loss on sale of assets

Depreciation and amortization

Interest amortization

Restructuring and impairment

Loss on extinguishment of debt

 -

Accounts receivable

Inventories

Accounts payable

Other current assets and liabilities, net

Other adjustments, net

Net cash (used in) provided by operating activities

Cash flows from investing activities

Capital expenditures for property, plant and equipment and other long lived assets

Business acquisitions, net of cash acquired

 -

Other investing

Net cash used in investing activities

Cash flows from financing activities

Net borrowings (repayments) under loans payable

Proceeds from revolving credit facility, maturing 2019

 -

Principal payments on revolving credit facility, maturing 2019

 -

Principal payments on term loan facility, maturing 2021

 -

Proceeds from term loan facility, maturing 2024

 -

Principal payments on term loan facility, maturing 2024

 -

Proceeds from revolving credit facility, maturing 2022

 -

Principal payments on revolving credit facility, maturing 2022

 -

Payment of debt issuance costs

 -

Acquisition related contingent consideration payment

 -

Other financing activities

Net cash provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

(Decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

$

$

Cash paid during the period for:

Interest

$

$

Income taxes

$

$







(Dollars in thousands, except per share amounts)

Cost of sales

Selling general and administrative expenses

Restructuring and impairment charges

Other expense, net

Income tax expense3  

Net income attributable to common shareholders

Diluted earnings per share





2018



As reported

$

$

$

$

$

$

$

Special items:

Restructuring

 -

 -

 -

Other1

 -

Total special items4

As adjusted

$

$

$

 -

$

$

$

$







2017



As reported

$

$

$

$

$

$

$

Special items:

Restructuring

 -

 -

 -

Other2

 -

Total special items4

As adjusted

$

$

$

 -

$

$

$

$

(1)

The adjustments to “Cost of Sales” primarily include costs associated with an acquisition. The adjustments to “Selling, general and administrative expenses” primarily include legal, professional and other expenses related to certain business development activities, as well as fees associated with certain reorganization projects and other legal fees.  The adjustments to “Other expense, net” primarily relate earn out adjustments for acquisitions and other acquisition costs.

(2)

The adjustments to “Cost of Sales” primarily include the amortization of purchase accounting adjustments related to our recent acquisitions. The adjustments to “Selling, general and administrative expenses” primarily include legal, professional and other expenses related to certain business development activities. The adjustments to “Other expense, net” primarily relates to debt extinguishment costs and a reduction of a contingent liability in Argentina.

(3)

The tax rate reflects the reported tax rate, adjusted for special items being tax effected at the respective statutory rate where the item originated.

(4)

Due to rounding, total earnings per share related to special items does not always add to the total adjusted earnings per share.







Three Months Ended

(Dollars in thousands)

March 31,



2017

Adjusted 20171

2018

2018 vs  Adjusted 2017

Segment net sales

Performance Coatings

$

$

$

$

Performance Colors and Glass

Color Solutions

Total segment net sales

$

$

$

$



Segment adjusted gross profit

Performance Coatings

$

$

$

$

Performance Colors and Glass

Color Solutions

Other costs of sales

Total adjusted gross profit2

$

$

$

$



Adjusted selling, general and administrative expenses

Strategic services

$

$

$

$

Functional services

Incentive compensation

Stock-based compensation

Total adjusted selling, general and administrative expenses3

$

$

$

$



Adjusted operating profit

$

$

$

$

Adjusted operating profit as a % of net sales

(1)

Reflects the remeasurement of 2017 reported and adjusted local currency results using 2018 exchange rates, resulting in constant currency comparative figures to 2018 reported and adjusted results.  See Table 5 for non-GAAP adjustments applicable to the three month period.

(2)

Refer to Table 5 for the reconciliation of adjusted gross profit for the three months ended March 31, 2018 and 2017, respectively.

(3)

Refer to Table 5 for the reconciliation of SG&A expenses to adjusted SG&A expenses for the three months ended March 31, 2018 and 2017, respectively.





(Dollars in thousands)

Three Months Ended



March 31,



2018

2017

Net income attributable to Ferro Corporation common shareholders

$

$

Net income attributable to noncontrolling interests

Restructuring and impairment charges

Other expense, net

Interest expense

Income tax expense

Depreciation and amortization

Less: interest amortization expense and other

Cost of sales adjustments1

SG&A adjustments1

Adjusted EBITDA

$

$



Net sales

$

$

Adjusted EBITDA as a % of net sales

%

%

(1)

For details of Non-GAAP adjustments, refer to Table 5 for the reconciliation of cost of sales to adjusted cost of sales and SG&A to adjusted SG&A for the three months ended March 31, 2018 and 2017, respectively.



(Dollars in thousands)

Three Months Ended



March 31,



2018

2017

Beginning of period

  Gross debt

$

$

  Cash

  Debt, net of cash



  Unamortized debt issuance costs

  Debt, net of cash and unamortized debt issuance costs



End of period

  Gross debt

  Cash

  Debt, net of cash



  Unamortized debt issuance costs

  Debt, net of cash and unamortized debt issuance costs



  Change from FX on Euro term loan debt

 -



Period increase in debt, net of cash, unamortized debt issuance costs and FX

$

$



Period increase in debt, net of cash and unamortized debt issuance costs

$

$





(Dollars in thousands)

Three Months Ended



March 31,



2018

2017



As Adjusted



Adjusted EBITDA1

$

$

Capital expenditures

Working capital

Cash income taxes

Cash interest

Pension

Incentive compensation payments

Other

Adjusted Free Cash Flow from Continuing Operations

$

$



Restructuring/Other

Outflows from M&A activity

Debt issuance costs

 -



Period increase in debt, net of cash, unamortized debt issuance costs and FX2

$

$



Change in unamortized debt issuance costs

Change from FX on Euro term loan debt

 -



Period increase in debt, net of cash and unamortized debt issuance costs

$

$

(1)

See Table 7 for the reconciliation of net income attributable to Ferro Corporation common shareholders to adjusted EBITDA. 

(2)

See Table 8 for the reconciliation of period change in debt, net of cash, unamortized debt issuance costs and FX.