Materion Corporation (NYSE:MTRN) today reported fourth quarter and full-year 2017 financial results and provided 2018 earnings guidance.

  • Net sales for the fourth quarter of 2017 were $308.7 million, compared to $234.3 million for the fourth quarter of 2016.
  • Fourth quarter 2017 value-added sales grew 25% to a record $181.2 million, from prior-year value-added sales of $145.1 million.
  • Operating profit for the fourth quarter 2017 was $13.9 million compared to $3.6 million in the prior year. Excluding non-recurring items, adjusted operating profit improved 89% to $13.6 million in the fourth quarter of 2017 from $7.2 million in the prior year.
  • Fourth quarter 2017 net loss of ($0.41) per share, diluted, due primarily to the impact of U.S. tax reform, compared to earnings of $0.33 per share in the prior year.
  • Fourth quarter 2017 adjusted earnings were up 82% at $0.51 per share, diluted, from $0.28 per share in the fourth quarter of 2016.
  • The Company is providing full-year 2018 earnings guidance of $1.95 to $2.10 per share, diluted.

FOURTH QUARTER 2017 RESULTS

Net sales for fourth quarter 2017 were $308.7 million, compared to $234.3 million for the prior year. Value-added sales grew 25% to a record $181.2 million in the quarter, compared to $145.1 million for the prior year. Growth in value-added sales was driven by a 17% increase in the base business, plus the acquisition of Heraeus’ high-performance target materials business (HTB) which contributed $11.6 million. Base business growth was driven by new product sales and improved end market demand. New product sales reached a record $31.0 million in the quarter, up 20% compared to the prior year.

Operating profit for fourth quarter 2017 totaled $13.9 million compared to $3.6 million in the prior year. Excluding non-recurring items, fourth quarter adjusted operating profit improved 89% to $13.6 million from $7.2 million in 2016.

Fourth quarter 2017 net loss was $8.2 million, or ($0.41) per share, diluted, and was driven by $21.6 million of income tax expense primarily related to U.S. tax reform, and compares to net income of $6.8 million in the prior year. Adjusted earnings for the fourth quarter of 2017, which exclude non-recurring charges related primarily to new tax legislation, the gain on sale of the Fukaya, Japan service center, and CEO transition costs, were $0.51 per share, diluted, up over 80% compared to $0.28 per share in the fourth quarter 2016.

FULL-YEAR 2017 RESULTS

For the full-year 2017, net sales were $1.1 billion compared to $969.2 million for 2016. Value-added sales were a record $677.7 million, compared to $599.9 million for the prior year. Year-over-year growth of 13% in value-added sales is attributable to new product sales growth, strength in end markets and the HTB acquisition.

Net income for 2017 was $11.5 million or $0.56 per share, diluted, as compared to $25.7 million or $1.27 per share in the prior year. Excluding special items, net income for 2017 was $35.2 million, or $1.72 per share, diluted, as compared to $26.6 million, or $1.32 per share, for the prior year.

Jugal Vijayvargiya, President and Chief Executive Officer, stated, “I am pleased with our strong finish to the year. Fourth quarter results represent the fourth consecutive quarter of year-over-year growth in both value-added sales and profits. We have momentum going into 2018, and expect to consistently deliver profitable growth as we execute on our growth strategy. As a result, we are forecasting full-year 2018 adjusted earnings of $1.95 to $2.10 per diluted share.”

BUSINESS SEGMENT FOURTH QUARTER 2017 RESULTS

Advanced Materials

Advanced Materials’ net sales for fourth quarter 2017 were $161.2 million, versus $108.3 million in the prior year. Value-added sales increased 42% to $58.3 million, versus $41.2 million in the prior year. HTB acquisition contributed $11.6 million of value-added sales, while the base business growth of 13% was led by strength in the consumer electronics end market. Operating profit increased 44% to $7.9 million, compared to $5.5 million in the prior year.

Performance Alloys and Composites

Net sales for Performance Alloys and Composites were $119.0 million compared to $95.5 million in the prior year. Value-added sales were a record $101.0 million in the fourth quarter versus $83.2 million in the prior year. The 21% year-over-year improvement in value-added sales was primarily driven by new product sales growth and end market demand, particularly in the consumer electronics, defense, and commercial aerospace markets.

Operating profit for the fourth quarter of 2017 was $9.5 million compared to $0.5 million in the prior year. Excluding the gain on sale and related closure costs associated with exiting the Fukaya, Japan service center, adjusted operating profit for the quarter was $8.2 million, versus $3.1 million in the prior year. The significant year-over-year profit increase of $5.1 million or 165% was led by performance improvements across the business, new product sales growth, and an improved product mix.

Precision Coatings

Precision Coatings’ net sales for the fourth quarter of 2017 were $28.5 million versus prior-year sales of $30.5 million. Value-added sales were $22.9 million, a 3% increase compared to $22.2 million for the same period of 2016. Operating profit increased 28% to $2.3 million, or 10% of value-added sales in the fourth quarter of 2017, versus $1.8 million in the prior year.

OUTLOOK

The Company delivered favorable full-year 2017 financial results on both top and bottom line, led by performance improvements across the business, record new product sales, and improved end market demand. We expect this performance to continue and are providing 2018 full-year adjusted earnings guidance of $1.95 to $2.10 per share, diluted, which represents a year-over-year increase of 13 to 22 percent.

ADJUSTED EARNINGS GUIDANCE

It is not possible for the Company to identify the amount or significance of future adjustments associated with potential insurance and litigation claims, legacy environmental costs, acquisition and integration costs, certain income tax items, or other non-routine costs that the Company adjusts in the presentation of adjusted earnings guidance. These items are dependent on future events that are not reasonably estimable at this time. Accordingly, the Company is unable to reconcile without unreasonable effort the forecasted range of adjusted earnings guidance for the full year to a comparable GAAP range. However, items excluded from the Company's adjusted earnings guidance include the historical adjustments noted in Attachments 4 and 5 to this press release.

CONFERENCE CALL

Materion Corporation will host an investor conference call with analysts at 9:00 a.m. Eastern Time, February 15, 2018. The conference call will be available via webcast through the Company’s website at www.materion.com or through www.InvestorCalendar.com. By phone, please dial (877) 407-0778. Callers outside the U.S. can dial (201) 689-8565. A replay of the call will be available until March 1, 2018 by dialing (877) 481-4010 or (919) 882-2331; please reference replay ID number 23757. The call will also be archived on the Company’s website.

FORWARD-LOOKING STATEMENTS

Portions of the narrative set forth in this document that are not statements of historical or current facts are forward-looking statements, in particular, the outlook provided above. Our actual future performance may materially differ from that contemplated by the forward-looking statements as a result of a variety of factors.

These factors include, in addition to those mentioned elsewhere herein:

  • Actual net sales, operating rates, and margins for 2018;
  • The global economy;
  • The impact of any U.S. Federal Government shutdowns and sequestrations;
  • The condition of the markets which we serve, whether defined geographically or by segment, with the major market segments being: consumer electronics, industrial components, medical, automotive electronics, defense, telecommunications infrastructure, energy, commercial aerospace, and science;
  • Changes in product mix and the financial condition of customers;
  • Our success in developing and introducing new products and new product ramp-up rates;
  • Our success in passing through the costs of raw materials to customers or otherwise mitigating fluctuating prices for those materials, including the impact of fluctuating prices on inventory values;
  • Our success in identifying acquisition candidates and in acquiring and integrating such businesses, including our ability to effectively integrate the HTB acquisition;
  • The impact of the results of acquisitions on our ability to fully achieve the strategic and financial objectives related to these acquisitions;
  • Our success in implementing our strategic plans and the timely and successful completion and start-up of any capital projects;
  • Other financial and economic factors, including the cost and availability of raw materials (both base and precious metals), physical inventory valuations, metal financing fees, tax rates, exchange rates, interest rates, pension costs and required cash contributions and other employee benefit costs, energy costs, regulatory compliance costs, the cost and availability of insurance, credit availability, and the impact of the Company’s stock price on the cost of incentive compensation plans;
  • The uncertainties related to the impact of war, terrorist activities, and acts of God;
  • Changes in government regulatory requirements and the enactment of new legislation that impacts our obligations and operations;
  • The conclusion of pending litigation matters in accordance with our expectation that there will be no material adverse effects; and
  • The risk factors as set forth in Item 1A of our Form 10-K.

Materion Corporation is headquartered in Mayfield Heights, Ohio. The Company, through its wholly owned subsidiaries, supplies highly engineered advanced enabling materials to global markets. Products include precious and non-precious specialty metals, inorganic chemicals and powders, specialty coatings, specialty engineered beryllium alloys, beryllium and beryllium composites, and engineered clad and plated metal systems.

   

Attachment 1

Materion Corporation and Subsidiaries
Consolidated Statements of Income
 
Fourth Quarter Ended Year Ended
December 31,   December 31, December 31,   December 31,
(In thousands except per share amounts) 2017 2016 2017 2016
Net sales $ 308,668 $ 234,330 $ 1,139,447 $ 969,236
Cost of sales 249,930   190,285   927,953   785,773  
Gross margin 58,738 44,045 211,494 183,463
Selling, general, and administrative expense 38,052 32,582 146,170 129,683
Research and development expense 3,878 2,942 13,981 12,802
Other — net 2,941   4,877   12,764   13,874  
Operating profit 13,867 3,644 38,579 27,104
Interest expense — net 462   372   2,183   1,789  
Income before income taxes 13,405 3,272 36,396 25,315
Income tax expense (benefit) 21,637   (3,506 ) 24,945   (425 )
Net income (loss) $ (8,232 ) $ 6,778   $ 11,451   $ 25,740  
Basic earnings per share:
Net income (loss) per share of common stock $ (0.41 ) $ 0.34 $ 0.57 $ 1.29
Diluted earnings per share:
Net income (loss) per share of common stock $ (0.41 ) $ 0.33 $ 0.56 $ 1.27
Cash dividends per share $ 0.100 $ 0.095 $ 0.395 $ 0.375
Weighted-average number of shares of common stock outstanding:
Basic 20,086 19,944 20,027 19,983
Diluted 20,086 20,287 20,415 20,213
 
       

Attachment 2

Materion Corporation and Subsidiaries
Consolidated Balance Sheets
 
(Thousands) December 31, 2017 December 31, 2016
Assets
Current assets
Cash and cash equivalents $ 41,844 $ 31,464
Accounts receivable 124,014 100,817
Inventories 220,352 200,865
Prepaid and other current assets 24,733   12,138  
Total current assets 410,943 345,284
Long-term deferred income taxes 17,047 39,409
Property, plant, and equipment 891,789 861,267
Less allowances for depreciation, depletion, and amortization (636,211 ) (608,636 )
Property, plant, and equipment—net 255,578 252,631
Intangible assets 9,847 11,074
Other assets 6,992 5,950
Goodwill 90,677   86,950  
Total Assets $ 791,084   $ 741,298  
Liabilities and Shareholders’ Equity
Current liabilities
Short-term debt $ 777 $ 733
Accounts payable 49,059 32,533
Salaries and wages 42,694 29,885
Other liabilities and accrued items 28,044 21,340
Income taxes 1,084 4,781
Unearned revenue 5,451   1,105  
Total current liabilities 127,109 90,377
Other long-term liabilities 30,967 17,979
Retirement and post-employment benefits 93,225 91,505
Unearned income 36,905 41,369
Long-term income taxes 4,857 2,100
Deferred income taxes 213 274
Long-term debt 2,827 3,605
Shareholders’ equity 494,981   494,089  
Total Liabilities and Shareholders’ Equity $ 791,084   $ 741,298  
 
       

Attachment 3

Materion Corporation and Subsidiaries
Consolidated Statements of Cash Flows
 
(Thousands) 2017 2016
Cash flows from operating activities:
Net income $ 11,451 $ 25,740
Adjustments to reconcile net income to net cash provided from operating activities:
Depreciation, depletion, and amortization 42,751 45,651
Amortization of deferred financing costs in interest expense 919 666
Stock-based compensation expense (non-cash) 4,957 3,174
(Gain) loss on sale of property, plant, and equipment (1,150 ) (648 )
Deferred tax expense (benefit) 20,256 (9,010 )
Changes in assets and liabilities net of acquired assets and liabilities:
Decrease (increase) in accounts receivable (18,484 ) (4,096 )
Decrease (increase) in inventory (9,462 ) 10,791
Decrease (increase) in prepaid and other current assets (11,606 ) 658
Increase (decrease) in accounts payable and accrued expenses 34,433 2,758
Increase (decrease) in unearned revenue 4,336 (2,590 )
Increase (decrease) in interest and taxes payable (514 ) 2,511
Increase (decrease) in long-term liabilities (4,264 ) (684 )
Other-net (5,828 ) (6,741 )
Net cash provided from operating activities 67,795 68,180
Cash flows from investing activities:
Payments for purchase of property, plant, and equipment (27,516 ) (27,177 )
Payments for mine development (1,560 ) (9,861 )
Payments for acquisition (16,504 ) (1,750 )
Proceeds from sale of property, plant, and equipment 2,222   1,433  
Net cash (used in) investing activities (43,358 ) (37,355 )
Cash flows from financing activities:
Repayment of short-term debt — (8,305 )
Proceeds from issuance of long-term debt 55,000 10,000
Repayment of long-term debt (55,797 ) (10,694 )
Principal payments under capital lease obligations (843 ) (736 )
Cash dividends paid (7,913 ) (7,496 )
Deferred financing costs (300 ) (1,000 )
Repurchase of common stock (1,086 ) (3,798 )
Payments of withholding taxes for stock-based compensation awards (4,506 ) (1,089 )
Net cash (used in) financing activities (15,445 ) (23,118 )
Effects of exchange rate changes 1,388   (479 )
Net change in cash and cash equivalents 10,380 7,228
Cash and cash equivalents at beginning of period 31,464   24,236  
Cash and cash equivalents at end of period $ 41,844   $ 31,464  
 
   

Attachment 4

Materion Corporation and Subsidiaries
Reconciliation of Non-GAAP Measure - Value-added Sales
 
Fourth Quarter Ended Year Ended
(Millions) December 31, 2017   December 31, 2016 December 31, 2017   December 31, 2016
Net Sales
Performance Alloys and Composites $ 119.0 $ 95.5 $ 429.5 $ 387.5
Advanced Materials 161.2 108.3 590.8 437.2
Precision Coatings 28.5 30.5 119.2 144.5
Other —   —     —   —  
Total $ 308.7 $ 234.3 $ 1,139.5 $ 969.2
 
Less: Pass-through Metal Cost
Performance Alloys and Composites $ 18.0 $ 12.3 $ 66.0 $ 55.5
Advanced Materials 102.9 67.1 362.8 260.9
Precision Coatings 5.6 8.3 28.5 46.8
Other 1.0   1.5   4.5   6.1  
Total $ 127.5 $ 89.2 $ 461.8 $ 369.3
 
Value-added Sales (non-GAAP)
Performance Alloys and Composites $ 101.0 $ 83.2 $ 363.5 $ 332.0
Advanced Materials 58.3 41.2 228.0 176.3
Precision Coatings 22.9 22.2 90.7 97.7
Other (1.0 ) (1.5 ) (4.5 ) (6.1 )
Total $ 181.2 $ 145.1 $ 677.7 $ 599.9
 
% of % of % of % of
Gross Margin VA VA VA VA
Performance Alloys and Composites $ 27.0 27% $ 19.0 23% $ 89.7 25% $ 73.6 22%
Advanced Materials 22.4 38% 16.7 41% 88.5 39% 71.6 41%
Precision Coatings 9.1 40% 7.6 34% 33.7 37% 37.8 39%
Other 0.2   — 0.8   — (0.4 ) — 0.5   —
Total $ 58.7 32% $ 44.1 30% $ 211.5 31% $ 183.5 31%
 
% of % of % of % of
Operating Profit VA VA VA VA
Performance Alloys and Composites $ 9.5 9% $ 0.5 1% $ 22.0 6% $ 6.6 2%
Advanced Materials 7.9 14% 5.5 13% 32.8 14% 26.3 15%
Precision Coatings 2.3 10% 1.8 8% 8.4 9% 11.6 12%
Other (5.8 )

—

(4.2 ) — (24.6 ) — (17.4 ) —
Total $ 13.9 8% $ 3.6 2% $ 38.6 6% $ 27.1 5%
 
   
Fourth Quarter Ended   Year Ended
(Millions) December 31, 2017   December 31, 2016 December 31, 2017   December 31, 2016
Special Items      
Performance Alloys and Composites $ (1.3 ) $ 2.6 $ 0.1 $ 2.6
Advanced Materials — — 1.3 —
Precision Coatings — — 0.4 —
Other 1.0   1.0   5.6   5.3  
Total $ (0.3 ) $ 3.6 $ 7.4 $ 7.9
 
% of % of % of % of
Operating Profit Excluding Special Items VA VA VA VA
Performance Alloys and Composites $ 8.2 8% $ 3.1 4% $ 22.1 6% $ 9.2 3%
Advanced Materials 7.9 14% 5.5 13% 34.1 15% 26.3 15%
Precision Coatings 2.3 10% 1.8 8% 8.8 10% 11.6 12%
Other (4.8 ) — (3.2 ) — (19.0 ) — (12.1 ) —
Total $ 13.6 8% $ 7.2 5% $ 46.0 7% $ 35.0 6%
 

The cost of gold, silver, platinum, palladium, and copper is passed through to customers and, therefore, the trends and comparisons of net sales are affected by movements in the market price of these metals. Internally, management also reviews net sales on a value-added basis. Value-added sales is a non-GAAP financial measure that deducts the value of the pass-through metals sold from net sales. Value-added sales allows management to assess the impact of differences in net sales between periods or segments and analyze the resulting margins and profitability without the distortion of the movements in pass-through metal prices. The dollar amount of gross margin and operating profit is not affected by the value-added sales calculation. The Company sells other metals and materials that are not considered direct pass throughs, and these costs are not deducted from net sales to calculate value-added sales.

The Company’s pricing policy is to pass the cost of these metals on to customers in order to mitigate the impact of price volatility on the Company’s results from operations. Value-added information is being presented since changes in metal prices may not directly impact profitability. It is the Company’s intent to allow users of the financial statements to review sales with and without the impact of the pass-through metals.

   

Attachment 5

Materion Corporation and Subsidiaries
Reconciliation of Non-GAAP Measures - Profitability
 
Fourth Quarter Ended Year Ended
(Millions except per share amounts) December 31, 2017   December 31, 2016 December 31, 2017   December 31, 2016
GAAP as Reported
Net Sales $ 308.7 $ 234.3 $ 1,139.5 $ 969.2
Operating profit 13.9 3.6 38.6 27.1
Net income (loss) (8.2 ) 6.8 11.5 25.7
EPS - Diluted $ (0.41 ) $ 0.33 $ 0.56 $ 1.27
 
Operating Profit Special Items
Cost reductions $ (1.3 ) $ 2.6 $ 0.7 $ 2.6
Legacy legal & environmental costs 0.3 — 0.5 1.4
CEO transition 0.7 — 4.1 —
Acquisition costs —   1.0   2.1   3.9  
Total operating profit special items $ (0.3 ) $ 3.6   $ 7.4   $ 7.9  
Operating Profit Special Items - net of tax $ (0.2 ) $ 2.3 $ 4.8 $ 5.1
Tax Special Item $ 18.9 $ (3.3 ) $ 18.9 $ (4.2 )
 
Non-GAAP Measures - Adjusted Profitability
Value-added (VA) sales $ 181.2 $ 145.1 $ 677.7 $ 599.9
Operating profit 13.6 7.2 46.0 35.0
Operating profit % of VA 7.5 % 5.0 % 6.8 % 5.8 %
Net income 10.5 5.8 35.2 26.6
EPS - Diluted $ 0.51 $ 0.28 $ 1.72 $ 1.32
 

In addition to presenting financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP), this earnings release contains financial measures, including operating profit, segment operating profit, net income, and earnings per share, on a non-GAAP basis. As detailed in the above reconciliation and Attachment 4, we have adjusted the results for certain special items such as CEO transition costs, cost reduction initiatives (i.e., asset impairment charges and severance), legacy environmental costs, merger and acquisition costs, and certain income tax items from the applicable GAAP financial measure. Internally, management reviews the results of operations without the impact of these costs in order to assess the profitability from ongoing activities. We are providing this information because we believe it will assist investors in analyzing our financial results and, when viewed in conjunction with the GAAP results, provide a more comprehensive understanding of the factors and trends affecting our operations.

       

Attachment 6

Materion Corporation and Subsidiaries
Value-added sales by Market
 
Fourth Quarter Ended   Year Ended
December 31,   December 31, December 31,   December 31,
(Millions) 2017 2016 % Change 2017 2016 % Change
Materion Corporation
Consumer Electronics $ 54.1 $ 43.8 23.5 % $ 204.7 $ 177.5 15.3 %
Industrial Components 25.3 22.9 10.5 % 99.8 85.9 16.2 %
Defense 19.6 14.8 32.4 % 59.5 56.1 6.1 %
Energy 14.8 7.2 105.6 % 49.7 31.7 56.8 %
Medical 13.5 13.9 (2.9 )% 58.5 68.2 (14.2 )%
Automotive Electronics 12.6 11.8 6.8 % 51.8 49.6 4.4 %
Telecom Infrastructure 8.2 8.5 (3.5 )% 31.3 33.4 (6.3 )%
Other 33.1   22.2   49.1 % 122.4   97.5   25.5 %
Total $ 181.2 $ 145.1 24.9 % $ 677.7 $ 599.9 13.0 %
Performance Alloy and Composites
Consumer Electronics $ 20.4 $ 17.8 14.6 % $ 75.4 $ 68.2 10.6 %
Industrial Components 19.1 18.4 3.8 % 76.0 68.5 10.9 %
Defense 12.2 9.9 23.2 % 32.6 36.2 (9.9 )%
Energy 5.9 4.5 31.1 % 20.8 19.7 5.6 %
Medical 1.6 1.7 (5.9 )% 6.8 7.5 (9.3 )%
Automotive Electronics 12.4 11.3 9.7 % 50.4 47.9 5.2 %
Telecom Infrastructure 6.6 6.8 (2.9 )% 24.2 25.5 (5.1 )%
Other 22.8   12.8   78.1 % 77.3   58.5   32.1 %
Total $ 101.0 $ 83.2 21.4 % $ 363.5 $ 332.0 9.5 %
Advanced Materials
Consumer Electronics $ 28.1 $ 21.0 33.8 % $ 110.9 $ 89.9 23.4 %
Industrial Components 4.5 3.3 36.4 % 17.4 13.4 29.9 %
Defense 3.5 1.6 118.8 % 11.3 6.5 73.8 %
Energy 8.9 2.7 229.6 % 28.9 12.0 140.8 %
Medical 2.4 2.7 (11.1 )% 10.8 11.4 (5.3 )%
Automotive Electronics — — — % — — — %
Telecom Infrastructure 1.6 1.6 — % 7.1 7.9 (10.1 )%
Other 9.3   8.3   12.0 % 41.6   35.2   18.2 %
Total $ 58.3 $ 41.2 41.5 % $ 228.0 $ 176.3 29.3 %
Precision Coatings
Consumer Electronics $ 5.6 $ 5.0 12.0 % $ 18.4 $ 19.5 (5.6 )%
Industrial Components 1.7 1.2 41.7 % 6.5 4.0 62.5 %
Defense 3.9 3.3 18.2 % 15.6 13.5 15.6 %
Energy — — — % — — — %
Medical 9.5 9.5 — % 40.8 49.2 (17.1 )%
Automotive Electronics 0.2 0.5 (60.0 )% 1.4 1.7 (17.6 )%
Telecom Infrastructure — — — % — —

 

— %
Other 2.0   2.7   (25.9 )% 8.0   9.8   (18.4 )%
Total $ 22.9 $ 22.2 3.2 % $ 90.7 $ 97.7 (7.2 )%
 
Eliminations $ (1.0 ) $ (1.5 ) $ (4.5 ) $ (6.1 )

Prior year numbers have been restated to conform to the current year presentation.