AKRON, Ohio, Jan. 9, 2017 /PRNewswire/ -- A. Schulman, Inc. (Nasdaq: SHLM) today announced earnings for the fiscal 2017 first quarter for the period ended November 30, 2016. On a GAAP basis, the Company reported earnings per diluted share of $0.04 compared with $0.18 in the prior period. Adjusted earnings per diluted share were $0.49 compared with $0.50 in the prior year period.
Consolidated net sales for the fiscal first quarter were $600 million compared with $649.2 million for the prior year quarter. Excluding the negative impact of foreign currency translation of $9.3 million, net sales fell 6.2% when compared with the prior year quarter.
GAAP gross margin in the fiscal 2017 first quarter increased to 16.8% compared with 16.2% in the prior year period. Segment gross margin in the fiscal 2017 first quarter was improved slightly when compared with the prior year period at 16.9%.
Operating income margin was 3.2% compared with 4% in the prior year period. Adjusted operating income margin was 5.8% consistent with the prior year period.
On a GAAP basis, the Company reported fiscal first quarter net income of $1.1 million, compared with $5.2 million in the first quarter of fiscal 2016. On an adjusted basis, excluding certain items as noted in the reconciliation of GAAP and Non-GAAP financial measures, the Company generated net income of $14.4 million compared with $14.9 million in the prior-year period. Fiscal first quarter adjusted EBITDA was $54.6 million, compared with $58.4 million in the prior year period.
"Clearly, a lot of hard work remains to be done as we restore the Company's operational and financial performance worldwide. While we were able to grow sales and gross margins in Asia-Pacific and in our Engineered Composites segment, we experienced continued weakness in the United States and Europe. Our recently implemented global actions to strengthen our sales organization and optimize our footprint are designed to address this weakness," said Joseph M. Gingo, chairman, president and chief executive officer. "As we move forward in fiscal 2017, we must continue to execute as we reset the business and rejuvenate our growth plan."
John W. Richardson, chief financial officer, stated, "We are well into the completion of our simplification efforts which facilitated the consolidation of our product families allowing for the reduction of layers of middle management. We believe this will generate our previously stated savings of approximately $5 million to $6 million in fiscal 2017 and 2018. In the meantime, we continue to keep an eye on cost controls as evidenced by an improvement in SG&A."
Balance Sheet/Cash Flow
Cash provided from operations during the fiscal first quarter was $26.3 million, compared with $40 million in the prior period. Working capital days were lower at 53 days on a trailing 12-month basis, an improvement from 54 days in the prior year.
The cash flow was used to reduce net debt, which represents total debt less cash and cash equivalents and restricted cash, by $7 million in the fiscal first quarter, to $894 million, for a net leverage ratio of 3.97x. Additionally, the Company prepaid $56 million in term debt, plus another $3.4 million of normal required payments during the quarter. The pre-payments were facilitated by the Company borrowing on its revolving credit facility in Europe and transferring approximately $40 million in a tax efficient manner to the U.S. Since the purchase of Citadel in mid-2015, the Company has paid down approximately $180 million of total debt.
Business Outlook
The Company is maintaining its previously stated fiscal 2017 targets of $2.5 billion to $2.6 billion in sales, adjusted EBITDA of $225 million to $230 million, adjusted earnings per diluted share in the range of $2.08 to $2.18, and a return on invested capital of 11 percent to 12.5 percent. Refer to the reconciliation of GAAP and Non-GAAP financial measures for the types of items excluded from the Company's business outlook.
Gingo stated, "As we look forward to the remainder of the year, we expect continued challenges to our top-line growth. Further, if the dollar remains strong against world currencies, we will see additional pressure. However, I believe the near-term benefits of our simplified business structure - coupled with our enhanced global sales process and renewed product development initiative - creates an environment for us to withstand current headwinds and deliver solid results on a full-year basis."
Conference Call on the Web
A live Internet broadcast of A. Schulman's conference call regarding fiscal 2017 first-quarter earnings can be accessed at 10:00 a.m. Eastern Time on January 10, 2017, on the Company's website, www.aschulman.com. An archived replay of the call will also be available on the website.
Investor Presentation Materials
Senior executives may participate in meetings with analysts and investors throughout the fiscal year. The Company has posted presentation materials, portions of which may be used during such meetings, in the Investors section of its website at www.aschulman.com. The presentation will remain on the website as long as it is in use.
About A. Schulman, Inc.
A. Schulman, Inc. is a leading international supplier of high-performance plastic compounds and resins headquartered in Akron, Ohio. Since 1928, the Company has been providing innovative solutions to meet its customers' demanding requirements. The Company's customers span a wide range of markets such as packaging, mobility, building & construction, electronics & electrical, agriculture, personal care & hygiene, sports, leisure & home, custom services and others. The Company employs approximately 4,800 people and has 54 manufacturing facilities globally. A. Schulman reported net sales of approximately $2.5 billion for the fiscal year ended August 31, 2016. Additional information about A. Schulman can be found at www.aschulman.com.
Use of Non-GAAP Financial Measures
This release includes certain financial information determined by methods other than in accordance with accounting principles generally accepted in the United States ("GAAP"). These non-GAAP financial measures include segment gross profit, SG&A expenses excluding certain items, segment operating income, operating income before certain items, net income excluding certain items, net income per diluted share excluding certain items and adjusted EBITDA, as discussed further in the Reconciliation of GAAP and Non-GAAP Financial Measures below. These non-GAAP financial measures are considered relevant to aid analysis and understanding of the Company's results and business trends.
The Company uses segment gross profit, SG&A expenses excluding certain items, segment operating income, operating income before certain items, net income excluding certain items, net income per diluted share excluding certain items and adjusted EBITDA to assess performance and allocate resources because the Company believes that these measures are useful to investors and management in understanding current profitability levels that may serve as a basis for evaluating future performance and facilitating comparability of results. In addition, operating income before certain items, segment operating income before certain items and net income excluding certain items are important to management as all are a component of the Company's annual and long-term employee incentive plans. Non-GAAP measures are not in accordance with, nor are they a substitute for, GAAP measures, and tables included in this release reconcile each non-GAAP financial measure with the most directly comparable GAAP financial measure. The most directly comparable GAAP financial measures for these purposes are gross profit, SG&A expenses, operating income, net income and net income per diluted share. The Company's non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures, and should be read only in conjunction with the Company's consolidated financial statements prepared in accordance with GAAP.
While the Company believes that these non-GAAP financial measures provide useful supplemental information to investors, there are very significant limitations associated with their use. These non-GAAP financial measures are not prepared in accordance with GAAP, may not be reported by all of the Company's competitors and may not be directly comparable to similarly titled measures of the Company's competitors due to potential differences in the exact method of calculation. The Company compensates for these limitations by using these non-GAAP financial measures as supplements to GAAP financial measures and by reviewing the reconciliations of the non-GAAP financial measures to their most comparable GAAP financial measures.
Cautionary Statements
A number of the matters discussed in this document that are not historical or current facts deal with potential future circumstances and developments and may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they do not relate strictly to historic or current facts and relate to future events and expectations. Forward-looking statements contain such words as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. Forward-looking statements are based on management's current expectations and include known and unknown risks, uncertainties and other factors, many of which management is unable to predict or control, that may cause actual results, performance or achievements to differ materially from those expressed or implied in the forward-looking statements. 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, but are not limited to, the following:
-- worldwide and regional economic, business and political conditions, including continuing economic uncertainties in some or all of the Company's major product markets or countries where the Company has operations; -- the effectiveness of the Company's efforts to improve operating margins through sales growth, price increases, productivity gains, and improved purchasing techniques; -- competitive factors, including intense price competition; -- fluctuations in the value of currencies in areas where the Company operates; -- volatility of prices and availability of the supply of energy and raw materials that are critical to the manufacture of the Company's products, particularly plastic resins derived from oil and natural gas; -- changes in customer demand and requirements; -- effectiveness of the Company to achieve the level of cost savings, productivity improvements, growth and other benefits anticipated from acquisitions and the integration thereof, joint ventures and restructuring initiatives; -- escalation in the cost of providing employee health care; -- uncertainties regarding the resolution of pending and future litigation and other claims; -- the performance of the global automotive market as well as other markets served; -- further adverse changes in economic or industry conditions, including global supply and demand conditions and prices for products; -- operating problems with our information systems as a result of system security failures such as viruses, cyber-attacks or other causes; -- our current debt position could adversely affect our financial health and prevent us from fulfilling our financial obligations; and -- failure of counterparties to perform under the terms and conditions of contractual arrangements, including suppliers, customers, buyers and sellers of a business and other third parties with which the Company contracts.
The risks and uncertainties identified above are not the only risks the Company faces. Additional risk factors that could affect the Company's performance are set forth in the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2016. In addition, risks and uncertainties not presently known to the Company or that it believes to be immaterial also may adversely affect the Company. Should any known or unknown risks or uncertainties develop into actual events, or underlying assumptions prove inaccurate, these developments could have material adverse effects on the Company's business, financial condition and results of operations.
SHLM_ALL
A. SCHULMAN, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three months ended November 30, 2016 2015 ---- ---- (In thousands, except per share data) Net sales $600,000 $649,219 Cost of sales 498,985 544,290 Selling, general and administrative expenses 72,374 77,237 Restructuring expense 9,544 1,546 Operating income (loss) 19,097 26,146 Interest expense 13,164 13,618 Foreign currency transaction (gains) losses 562 729 Other (income) expense, net (1,132) 51 Income (loss) before taxes 6,503 11,748 Provision (benefit) for U.S. and foreign income taxes 3,319 4,251 ----- ----- Net income (loss) 3,184 7,497 Noncontrolling interests (241) (404) ---- ---- Net income (loss) attributable to A. Schulman, Inc. 2,943 7,093 Convertible special stock dividends 1,875 1,875 Net income (loss) available to A. Schulman, Inc. common stockholders $1,068 $5,218 ====== ====== Weighted-average number of shares outstanding: Basic 29,363 29,223 Diluted 29,477 29,462 Net income (loss) per common share available to A. Schulman, Inc. common stockholders Basic $0.04 $0.18 Diluted $0.04 $0.18 Cash dividends per common share $0.205 $0.205 ====== ====== Cash dividends per share of convertible special stock $15.00 $15.00 ====== ======
A. SCHULMAN, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) November 30, August 31, 2016 2016 ---- ---- (In thousands) ASSETS Current assets: Cash and cash equivalents $39,285 $35,260 Restricted cash 8,256 8,143 Accounts receivable, less allowance for doubtful accounts of $11,106 at November 30, 2016 and $11,341 at August 31, 2016 376,138 376,786 Inventories 275,663 263,617 Prepaid expenses and other current assets 44,516 40,263 ------ ------ Total current assets 743,858 724,069 ------- ------- Property, plant and equipment, at cost: Land and improvements 32,423 32,957 Buildings and leasehold improvements 179,274 184,291 Machinery and equipment 435,993 447,932 Furniture and fixtures 33,615 34,457 Construction in progress 23,095 20,431 ------ ------ Gross property, plant and equipment 704,400 720,068 Accumulated depreciation 401,151 405,246 Net property, plant and equipment 303,249 314,822 ------- ------- Deferred charges and other noncurrent assets 84,995 88,161 Goodwill 256,878 257,773 Intangible assets, net 352,046 362,614 ------- ------- Total assets $1,741,026 $1,747,439 ========== ========== LIABILITIES AND EQUITY Current liabilities: Accounts payable $281,056 $280,060 U.S. and foreign income taxes payable 6,707 8,985 Accrued payroll, taxes and related benefits 52,517 47,569 Other accrued liabilities 87,113 67,704 Short-term debt 37,659 25,447 ------ ------ Total current liabilities 465,052 429,765 Long-term debt 904,352 919,349 Pension plans 139,108 145,108 Deferred income taxes 57,636 59,013 Other long-term liabilities 24,599 25,844 ------ ------ Total liabilities 1,590,747 1,579,079 --------- --------- Commitments and contingencies Stockholders' equity: Convertible special stock, no par value 120,289 120,289 Common stock, $1 par value, authorized -75,000 shares, issued -48,526 shares at November 30, 2016 and 48,510 shares at August 31, 2016 48,526 48,510 Additional paid-in capital 276,456 275,115 Accumulated other comprehensive income (loss) (135,373) (120,721) Retained earnings 214,047 219,039 Treasury stock, at cost, 19,067 shares at November 30, 2016 and 19,069 shares at August 31, 2016 (382,928) (382,963) -------- -------- Total A. Schulman, Inc.'s stockholders' equity 141,017 159,269 ------- ------- Noncontrolling interests 9,262 9,091 ----- ----- Total equity 150,279 168,360 Total liabilities and equity $1,741,026 $1,747,439 ========== ==========
A. SCHULMAN, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three months ended November 30, 2016 2015 ---- ---- (In thousands) Operating activities: Net income $3,184 $7,497 Adjustments to reconcile net income to net cash provided from (used in) operating activities: Depreciation 11,172 12,013 Amortization 8,817 10,039 Deferred tax provision (benefit) (2,429) 1,306 Pension, postretirement benefits and other compensation 1,893 1,217 Changes in assets and liabilities, net of acquisitions: Accounts receivable (12,947) 7,345 Inventories (21,639) (8,671) Accounts payable 16,404 377 Income taxes (2,723) 1,432 Accrued payroll and other accrued liabilities 27,623 18,614 Other assets and long- term liabilities (3,046) (11,144) ------ ------- Net cash provided from (used in) operating activities 26,309 40,025 ------ ------ Investing activities Expenditures for property, plant and equipment (12,972) (7,402) Proceeds from the sale of assets 375 361 Other investing activities 12 - --- --- Net cash provided from (used in) investing activities (12,585) (7,041) ------- ------ Financing activities: Cash dividends paid to special stockholders (1,875) (1,875) Cash dividends paid to common stockholders (6,060) (6,024) Increase (decrease) in short- term debt 14,546 1,926 Borrowings on long-term debt 133,985 - Repayments on long-term debt including current portion (149,301) (24,946) Issuances of stock, common and treasury 51 90 Redemptions of common stock (229) - Net cash provided from (used in) financing activities (8,883) (30,829) ------ ------- Effect of exchange rate changes on cash (816) (3,465) ---- ------ Net increase (decrease) in cash and cash equivalents 4,025 (1,310) Cash and cash equivalents at beginning of period 35,260 96,872 ------ ------ Cash and cash equivalents at end of period $39,285 $95,562 ======= =======
A. SCHULMAN, INC. Reconciliation of GAAP and Non-GAAP Financial Measures Unaudited Three months ended November 30, 2016 Cost of Gross SG&A Restruct. Oper. Non Operating Income Tax Net Income Margin Expense (Income) Expense Available to ASI Expense (Benefit) Common Stockholders Diluted Sales Income EPS --- ----- ------ --- (In thousands, except for %'s and per share data) As reported $498,985 16.8% $72,374 $9,544 $19,097 $12,594 $3,319 $1,068 $0.04 Certain items: Asset impairment (8) - (678) - 678 - 183 495 0.02 Accelerated depreciation (1) (355) (1) - 356 - 96 260 0.01 Costs related to acquisitions and integrations (2) (57) (548) - 605 - 163 442 0.01 Restructuring and related costs (3) (173) (3,556) (9,544) 13,273 - 3,584 9,689 0.33 Lucent costs (4) (85) (724) - 809 - 218 591 0.02 CEO transition costs (5) - (189) - 189 - 51 138 - Accelerated amortization of debt issuance costs (6) - - - - (205) 55 150 0.01 Tax (benefits) charges (7) - - - - - (1,562) 1,562 0.05 Total certain items (670) 0.1% (5,696) (9,544) 15,910 (205) 2,788 13,327 0.45 ---- --- ------ ------ ------ ---- ----- ------ ---- As Adjusted $498,315 16.9% $66,678 $ - $35,007 $12,389 $6,107 $14,395 $0.49 ======== ==== ======= === === ======= ======= ====== ======= ===== Percentage of Revenue 11.1% 5.8% 2.4% ==== === === Effective Tax Rate 27.0% ==== Three months ended November 30, 2015 Cost of Gross SG&A Restruct. Oper. Non Operating Income Tax Net Income Margin Expense (Income) Expense Available to ASI Expense (Benefit) Common Stockholders Diluted Sales Income EPS --- ----- ------ --- (In thousands, except for %'s and per share data) As reported $544,290 16.2% $77,237 $1,546 $26,146 $14,398 $4,251 $5,218 $0.18 Certain items: Accelerated depreciation (1) (1,447) (6) - 1,453 - 406 1,047 0.03 Costs related to acquisitions and integrations (2) (129) (1,737) - 1,866 - 522 1,344 0.05 Restructuring and related costs (3) (430) (2,694) (1,546) 4,670 (277) 1,391 3,556 0.12 Lucent costs (4) (1,830) (1,876) - 3,706 - 1,037 2,669 0.09 Accelerated amortization of debt issuance costs (6) - - - - (110) 31 79 - Tax (benefits) charges (7) - - - - - (965) 965 0.03 Total certain items (3,836) 0.6% (6,313) (1,546) 11,695 (387) 2,422 9,660 0.32 ------ --- ------ ------ ------ ---- ----- ----- ---- As Adjusted $540,454 16.8% $70,924 $ - $37,841 $14,011 $6,673 $14,878 $0.50 ======== ==== ======= === === ======= ======= ====== ======= ===== Percentage of Revenue 10.9% 5.8% - 2.3% ==== === === Effective Tax Rate 28.0% ====
1 - Accelerated depreciation is related to restructuring plans in the Company's USCAN and EMEA segments.
2 - Costs related to acquisitions and integrations primarily include third party professional, legal, IT and other expenses associated with successful and unsuccessful full or partial acquisition and divestiture/dissolution transactions, as well as certain employee-related expenses such as travel, one-time bonuses and post-acquisition severance separate from a formal restructuring plan.
3 - Restructuring and related costs include items such as employee severance charges, lease termination charges, curtailment gains/losses, other employee termination costs and charges related to the reorganization of the legal entity structure. Refer to Note 12 in the Company's Quarterly Report on Form 10-Q for the three months ended November 30, 2016 for further discussion.
4 - Lucent costs primarily represent legal and investigation costs related to resolving the Lucent matter, product manufacturing costs for reworking existing Lucent inventory, obsolete Lucent inventory reserve costs, and dedicated internal personnel costs that would have otherwise been focused on normal operations.
5 - CEO transition costs represent charges for deferred compensation granted to Bernard Rzepka.
6 - Write off of debt issuance costs are related to prepayments of $56.0 million of Term Loan B. Refer to Note 3 in the Company's Quarterly Report on Form 10-Q for further discussion.
7 - Tax (benefits) charges represent the Company's quarterly non-GAAP tax based on the overall estimated annual non-GAAP effective tax rates.
8 - Asset impairment relates to the discontinuation of information technology assets in the USCAN segment.
A. SCHULMAN, INC. ADJUSTED EBITDA RECONCILIATION (Unaudited) Three months ended Nov 30, 2016 2015 ---- ---- (In thousands) Net income available to A. Schulman, Inc. common stockholders $1,068 $5,218 Interest expense 13,164 13,618 Provision for U.S. and foreign income taxes 3,319 4,251 Depreciation and amortization 19,989 22,052 Noncontrolling interests 241 404 Convertible special stock dividends 1,875 1,875 Other (1) (570) 780 ---- --- EBITDA, as calculated $39,086 $48,198 ======= ======= Non-GAAP Adjustments (2) 15,554 10,236 EBITDA, as adjusted $54,640 $58,434 ======= =======
(1) - Other includes Foreign currency transaction (gains) losses and Other (income) expense, net.
(2) - For details on Non-GAAP adjustments, refer to "Reconciliation of GAAP and Non-GAAP Financial Measures", items (2) - (8). Amounts are included in Operating Income. Accelerated depreciation on the "Reconciliation of GAAP and Non-GAAP Financial Measures" has been excluded as it is already included in Depreciation and amortization above.
A. SCHULMAN, INC. SUPPLEMENTAL SEGMENT INFORMATION (Unaudited) Net Sales --------- Three months ended November 30, EMEA 2016 2015 $ Change % Change ---- ---- ---- -------- -------- (In thousands, except for %'s) Custom Concentrates and Services 158,035 174,129 (16,094) (9.2)% Performance Materials 138,037 153,967 (15,930) (10.3)% ------- ------- ------- ------ Total EMEA $296,072 $328,096 $(32,024) (9.8)% ======== ======== ======== ===== Net Sales --------- Three months ended November 30, USCAN 2016 2015 $ Change % Change ----- ---- ---- -------- -------- (In thousands, except for %'s) Custom Concentrates and Services 62,926 64,152 (1,226) (1.9)% Performance Materials 93,492 114,130 (20,638) (18.1)% ------ ------- ------- Total USCAN $156,418 $178,282 $(21,864) (12.3)% ======== ======== ======== ====== Net Sales --------- Three months ended November 30, LATAM 2016 2015 $ Change % Change ----- ---- ---- -------- -------- (In thousands, except for %'s) Custom Concentrates and Services 29,969 34,013 (4,044) (11.9)% Performance Materials 12,247 11,190 1,057 9.4% ------ ------ ----- --- Total LATAM $42,216 $45,203 $(2,987) (6.6)% ======= ======= ======= ===== Net Sales --------- Three months ended November 30, APAC 2016 2015 $ Change % Change ---- ---- ---- -------- -------- (In thousands, except for %'s) Custom Concentrates and Services 24,991 23,543 1,448 6.2% Performance Materials 25,746 22,149 3,597 16.2% Total APAC $50,737 $45,692 $5,045 11.0% ======= ======= ====== ==== Net Sales --------- Three months ended November 30, Consolidated 2016 2015 $ Change % Change ------------ ---- ---- -------- -------- (In thousands, except for %'s) Engineered Composites $54,557 $51,946 $2,611 5.0% Custom Concentrates and Services 275,921 295,837 (19,916) (6.7% Performance Materials 269,522 301,436 (31,914) (10.6)% ------- ------- ------- Total Consolidated $600,000 $649,219 $(49,219) (7.6)% ======== ======== ======== =====
Segment Gross Profit -------------------- Three months ended November 30, 2016 2015 $ Change % Change ---- ---- -------- -------- (In thousands, except for %'s) EMEA $44,658 $47,684 $(3,026) (6.3)% USCAN 24,516 30,294 $(5,778) (19.1)% LATAM 9,417 9,705 $(288) (3.0)% APAC 9,126 7,874 $1,252 15.9% EC 13,968 13,208 $760 5.8% ------ ------ ---- --- Total segment gross profit $101,685 $108,765 $(7,080) (6.5)% Accelerated depreciation and restructuring related costs (528) (1,877) $1,349 (71.9)% Costs related to acquisitions and integrations (57) (129) $72 (55.8)% Lucent costs (1) (85) (1,830) $1,745 (95.4)% Total gross profit $101,015 $104,929 $(3,914) (3.7)% ======== ======== ======= ===== (1)Refer to Note 13 in the Company's Quarterly Report on Form 10-Q for the three months ended November 30, 2016 for additional discussion on this matter. Lucent costs in cost of sales in the three months ended November 30, 2016 and 2015 include additional product and manufacturing operational costs for reworking inventory. In the three months ended November 30, 2016 and 2015, additional Lucent costs in selling, general and administrative expenses include legal and investigative costs. In the three months ended November 30, 2015, Lucent costs in SG&A also include dedicated internal personnel costs that would have otherwise been focused on normal operations.
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SOURCE A. Schulman, Inc.