FOE
$18.71
Ferro
$.08
.43%
Earnings Details
2nd Quarter June 2017
Wednesday, July 26, 2017 4:38:01 PM
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Summary

Ferro Raises Guidance

Ferro (FOE) reported 2nd Quarter June 2017 earnings of $0.37 per share on revenue of $348.6 million. The consensus earnings estimate was $0.33 per share on revenue of $332.5 million. Revenue grew 17.0% on a year-over-year basis.

The company said it expects 2017 earnings of $1.22 to $1.27 per share. The company's previous guidance was earnings of $1.17 to $1.22 per share and the current consensus earnings estimate is $1.22 per share for the year ending December 31, 2017.

Ferro Corp is a producer of specialty materials and chemicals that are sold to the manufacturers who, in turn, make products for many end-use markets. It offers electronic materials, color and glass performance materials, pigments, powders & oxides.

Results
Reported Earnings
$0.37
Earnings Whisper
-
Consensus Estimate
$0.33
Reported Revenue
$348.6 Mil
Revenue Estimate
$332.5 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Ferro Reports Strong Second Quarter Results

13.6% increase in GAAP earnings, and record quarterly adjusted EPS;

--Company updates fiscal 2017 outlook

Ferro Corporation (FOE), a leading global provider of functional coatings and color solutions, today reported results for the second quarter ended June 30, 2017.

Second Quarter Financial and Operating Highlights *:

Net sales increased 17.0%, to $348.6 million -- Organic sales rose 6.5% on a constant currency basis

-- Total volume grew 11.6% and organic volume grew 8.2%

Achieved gross margin of 31.1% despite raw material headwinds -- Adjusted gross margin was 31.5%

Earnings per diluted share increased 13.6% to $0.25 -- Adjusted earnings per diluted share increased 8.8% to $0.37

Net income attributable to Ferro Corporation common shareholders increased 10.8% to $21.0 million

-- Adjusted EBITDA grew 13.6% to $64.3 million

* Comparative percentages are relative to prior-year second quarter.

The results and guidance in this release, including in the highlights above, contain references to non-GAAP measures from continuing operations. Reconciliation of GAAP to non-GAAP results can be found at the end of this release.

Peter Thomas, Chairman, President and CEO, said, "We’ve spent the last few years purposefully developing a growth-oriented culture. Our results over the last few quarters are strong validation that our work is paying off, with market-beating organic growth and strong financial performance. In fact, this was our fourth consecutive quarter of strong sales and earnings growth. We did experience raw material price headwinds in the second quarter, as we anticipated, but our team was able to achieve margins within our expectations through a combination of pricing and optimization actions.

"During the current phase of our strategy, organic and inorganic growth has accelerated. As for organic growth, 20 percent of our revenue now comes from products developed in the last three years and our vitality index continues to expand as a result of our focus on building out our technology platforms. Regarding inorganic growth, we have closed and successfully integrated a range of strategic acquisitions across all three of our major business units.

"The growth and value we have delivered, as well as the healthy pipelines we have for further organic and inorganic growth, give us confidence that the time is right to move on to the next phase of our value creation strategy: Dynamic Innovation and Optimization.

"The Dynamic Innovation and Optimization phase involves more of the same - growth, technology leadership, and efficiency - but with deliberate concentration on extending our portfolio into innovative, next-generation technologies to lead our customers into the future and reinforce our role as a technology market leader. In this phase, we also intend to continually upgrade key facets of our business, positioning the Company for sustainable, profitable growth and more efficient and effective use of our resources. We will invest in initiatives intended to expand our leadership positions, protect our franchises, and generate solid long-term returns for Ferro shareholders as a premier global functional coatings and color solutions company.

2017 Consolidated Second Quarter Results from Continuing Operations

Second quarter net sales were $348.6 million, an increase of 17.0% from $298.0 million in the prior-year quarter. On a constant currency basis, second quarter net sales increased 19.6% compared to the prior-year quarter. Gross profit increased 10.1% to $108.3 million, from $98.4 million. Adjusted gross profit increased 11.8% to $110.0 million from $98.4 million, and the Company achieved an adjusted gross margin of 31.5% despite increases in raw materials costs. Ferro reported net income in the second quarter of $21.2 million, or $0.25 per diluted share, compared with net income of $19.1 million, or $0.22 per diluted share, in the prior-year quarter. On an adjusted basis, earnings per diluted share from continuing operations were $0.37, an increase of 8.8% from $0.34 per diluted share in the prior-year quarter.

Q2 2017
Q2 2016
Earnings Per Diluted Share
GAAP
$ 0.25
$ 0.22
Adjusted (Non-GAAP)
$ 0.37
$ 0.34

In the second quarter of 2017, organic net sales (which exclude acquisitions owned less than 12 months) increased 6.5% on a constant currency basis. This is the Company’s fourth consecutive quarter of organic sales growth.

Net cash provided by operating activities improved 59.7% to $13.1 million, compared to $8.2 million in the prior-year quarter. Ferro’s adjusted free cash flow from continuing operations was $10.1 million, compared to $13.2 million in the prior-year quarter. 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.

Second Quarter Segment Results

All three of Ferro’s reporting segments delivered improved financial performance in the quarter.

Color Solutions (CS) increased sales by 46.9%, to $90.2 million, grew gross profit to $28.4 million, and generated a gross profit margin of 31.5%

Performance Color & Glass (PCG) increased sales by 11.2%, to $106.6 million, grew gross profit to $40.1 million, and generated a gross profit margin of 37.6%

Performance Coatings (PC) increased sales by 7.9%, to $151.7 million, grew gross profit to $40.2 million, and generated a gross profit margin of 26.5%.

Outlook

Management is providing 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 measure.

Ferro is updating its full year 2017 guidance based on the Company’s year-to-date performance and the acquisition of SPC in the second quarter of 2017. This guidance reflects the foreign exchange rates consistent with those from our prior guidance of foreign exchange rates as of 12/31/2016.

Adjusted EPS of $1.22 - $1.27 per diluted share, up from $1.17 - $1.22 per diluted share

Adjusted EBITDA of $223 million - $228 million, up from $214 million - $219 million

Adjusted Free Cash Flow from Continuing Operations of $90 million - $100 million, up from $85 million - $95 million

-- Consolidated sales growth of 12.0% - 13.0%, up from 8.5% - 9.5%

Ferro’s outlook assumes an exchange rate of 1.05 USD/EUR for the second half of 2017. Ferro generates approximately 35% - 40% of its revenue in Euros, and approximately 25% - 30% in U.S. Dollars. Ferro estimates that a 1% overall change in foreign currency exchange rates, weighted for the countries where it does business, would impact sales and operating profit by approximately $9.0 million and $1.3 million, respectively. Isolating the impact of the Euro, a 1% change in the Euro exchange rate would impact sales and operating profit by approximately $4.9 million and $0.7 million, respectively. If foreign exchange rates stay at the June 30, 2017 levels, Ferro estimates that this would provide a one to two cent tailwind to the above-mentioned EPS outlook.

Constant Currency

Constant currency results reflect the re-measurement of 2016 reported and adjusted local currency results using 2017 exchange rates, resulting in constant currency comparative figures to 2017 reported and adjusted results. These 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

Ferro will conduct an investor teleconference at 10:00 a.m. EDT July 27,2017. Investors can access this conference via the following:

Webcast can be accessed by clicking on the Investor Information link at the top of Ferro’s website at ferro.com.

Live telephone: Call 800-704-8781 within the U.S. or +1 303-223-4364 outside the U.S. Please join the call at least 10 minutes before the start time.

Webcast replay: Available on Ferro’s Investor website at ferro.com beginning at approximately 12:00 noon Eastern Time on July 27, 2017

Telephone replay: Call 800-633-8284 within the U.S. or +1 402-977-9140 outside the U.S. (for both U.S. and outside the U.S. access code is 21854980).

Presentation material & podcast: Earnings presentation material and podcasts can be accessed through the Investor Information portion of the Company’s Web site at ferro.com.

About Ferro Corporation

Ferro Corporation (www.ferro.com) is a leading global supplier of technology-based functional coatings and color solutions. Ferro supplies functional coatings for glass, metal, ceramic and other substrates and color solutions in the form of specialty pigments and colorants for a broad range of industries and applications. Ferro products are sold into the building and construction, automotive, electronics, industrial products, household furnishings and appliance markets. The Company’s reportable segments include: Performance Coatings (metal and ceramic coatings), Performance Colors and Glass (glass coatings), and Color Solutions. Headquartered in Mayfield Heights, Ohio, the Company has approximately 5,230 associates 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:

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;

Ferro’s ability to identify suitable acquisition candidates, complete acquisitions, effectively integrate the businesses and achieve the expected synergies (including, but not limited to, the Smalti per Cermaiche, Cappelle Pigments, Electro-Science Laboratories, Delta Performance Products, Pinturas Benicarlo, Ferer, Al Salomi, Nubiola and Vetriceramici transactions), 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;

Ferro’s ability to successfully introduce new products or enter into new growth markets;

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

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 regulations on hazardous materials and regulations affecting health, safety and the environment;

-- 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;

-- sale of products and materials into highly regulated industries;

the impact of operating hazards and investments made in order to meet stringent environmental, health and safety regulations;

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 new 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 in the normal course of business;

-- 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;

Ferro may not pay dividends on its common stock in the foreseeable future;

-- 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.

The risks and uncertainties identified above are not the only risks the Company faces. Additional risks and uncertainties not presently known to the Company or that it currently believes to be immaterial also may adversely affect the Company. Should any known or unknown risks and uncertainties develop into actual events, these developments could have material adverse effects on our business, financial condition and results of operations.

This release contains time-sensitive information that reflects management’s best analysis only as of the date of this release. The Company does not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information, or circumstances that arise after the date of this release. Additional information regarding these risks can be found in our Annual Report on Form 10-K for the year ended December 31, 2016.

Table 1
Ferro Corporation and Subsidiaries
Condensed
Consolidated Statements of Operations (unaudited)
(In thousands, except per share amounts)
Three Months Ended
Six Months Ended
June 30,
June 30,
2017
2016
2017
2016
Net sales
$ 348,632
$ 297,977
$ 669,187
$
575,428
Cost of sales
240,290
199,604
462,051
392,826
Gross profit
108,342
98,373
207,136
182,602
Selling, general and administrative expenses
62,514
57,871
121,472
110,517
Restructuring and impairment charges
3,224
787
6,242
1,668
Other expense (income):
Interest expense
6,449
5,428
12,673
10,275
Interest earned
(175)
(115)
(355)
(200)
Foreign currency losses, net
4,868
389
4,554
2,000
Loss on extinguishment of debt
-
-
3,905
-
Miscellaneous expense (income), net
1,538
669
(538)
(2,784)
Income before income taxes
29,924
33,344
59,183
61,126
Income tax expense
8,695
8,484
15,833
16,502
Income from continuing operations
21,229
24,860
43,350
44,624
Loss from discontinued operations, net of income taxes
-
(5,748)
-
(35,242)
Net income
21,229
19,112
43,350
9,382
Less: Net income attributable to noncontrolling interests
204
143
427
379
Net income attributable to Ferro Corporation common shareholders
$
21,025
$
18,969
$
42,923
$
9,003
Earnings (loss) per share attributable to Ferro Corporation
common shareholders:
Basic earnings (loss):
Continuing operations
$
0.25
$
0.30
$
0.51
$
0.53
Discontinued operations
-
(0.07)
-
(0.42)
$
0.25
$
0.23
$
0.51
$
0.11
Diluted earnings (loss):
Continuing operations
$
0.25
$
0.29
$
0.50
$
0.53
Discontinued operations
-
(0.07)
-
(0.42)
$
0.25
$
0.22
$
0.50
$
0.11
Shares outstanding:
Weighted-average basic shares
83,673
83,209
83,602
83,260
Weighted-average diluted shares
85,277
84,424
85,080
84,199
End-of-period basic shares
83,694
83,228
83,694
83,228
Table 2
Ferro Corporation and Subsidiaries
Segment
Net Sales and Gross Profit (unaudited)
(Dollars in thousands)
Three Months Ended
Six Months Ended
June 30,
June 30,
2017
2016
2017
2016
Segment Net Sales
Performance Coatings
$ 151,746
$ 140,589
$ 278,311
$
268,713
Performance Colors and Glass
106,637
95,933
210,155
184,103
Color Solutions
90,249
61,455
180,721
122,612
Total segment net sales
$ 348,632
$ 297,977
$ 669,187
$
575,428
Segment Gross Profit
Performance Coatings
$
40,246
$
39,234
$
73,735
$
71,349
Performance Colors and Glass
40,087
36,705
77,505
68,543
Color Solutions
28,416
22,404
56,598
42,690
Other costs of sales
(407)
30
(702)
20
Total gross profit
$ 108,342
$
98,373
$ 207,136
$
182,602
Selling, general and administrative expenses
Strategic services
$
33,013
$
29,012
$
64,673
$
57,416
Functional services
24,368
23,487
47,113
44,118
Incentive compensation
2,465
3,161
4,295
5,146
Stock-based compensation
2,668
2,211
5,391
3,837
Total selling, general and administrative expenses
$
62,514
$
57,871
$ 121,472
$
110,517
Restructuring and impairment charges
3,224
787
6,242
1,668
Other expense, net
12,680
6,371
20,239
9,291
Income before income taxes
$
29,924
$
33,344
$
59,183
$
61,126
Table 3
Ferro Corporation and Subsidiaries
Condensed
Consolidated Balance Sheets (unaudited)
(Dollars in thousands)
June 30,
December 31,
2017
2016
ASSETS
Current assets
Cash and cash equivalents
$
78,866
$
45,582
Accounts receivable, net
330,461
259,687
Inventories
272,180
229,847
Other receivables
40,893
37,814
Other current assets
13,808
9,087
Total current assets
736,208
582,017
Other assets
Property, plant and equipment, net
273,964
262,026
Goodwill
157,828
148,296
Intangible assets, net
142,524
137,850
Deferred income taxes
115,181
106,454
Other non-current assets
52,096
47,126
Total assets
$ 1,477,801
$
1,283,769
LIABILITIES AND EQUITY
Current liabilities
Loans payable and current portion of long-term debt
$
23,051
$
17,310
Accounts payable
158,659
127,655
Accrued payrolls
35,151
35,859
Accrued expenses and other current liabilities
70,571
65,203
Total current liabilities
287,432
246,027
Other liabilities
Long-term debt, less current portion
637,863
557,175
Postretirement and pension liabilities
168,231
162,941
Other non-current liabilities
61,383
62,594
Total liabilities
1,154,909
1,028,737
Equity
Total Ferro Corporation shareholders’ equity
314,904
247,113
Noncontrolling interests
7,988
7,919
Total liabilities and equity
$ 1,477,801
$
1,283,769
Table 4
Ferro Corporation and Subsidiaries
Condensed
Consolidated Statements of Cash Flows (unaudited)
(Dollars in thousands)
Three Months Ended
Six Months Ended
June 30,
June 30,
2017
2016
2017
2016
Cash flows from operating activities
Net income
$
21,229
$
19,112
$
43,350
$
9,382
Loss (gain) on sale of assets and business
866
309
1,285
(3,774)
Depreciation and amortization
11,781
11,257
23,156
21,929
Interest amortization
953
329
1,432
644
Restructuring and impairment
1,046
(513)
3,874
23,651
Loss on extinguishment of debt
-
-
3,905
-
Accounts receivable
(21,564)
(18,105)
(48,183)
(41,687)
Inventories
(11,545)
(9,989)
(28,659)
(17,695)
Accounts payable
5,934
(2,329)
14,122
3,226
Other current assets and liabilities, net
(1,846)
1,092
(5,111)
2,968
Other adjustments, net
6,221
7,023
5,534
(619)
Net cash provided by (used in) operating activities
13,075
8,186
14,705
(1,975)
Cash flows from investing activities
Capital expenditures for property, plant and equipment and other
(10,128)
(6,679)
(16,894)
(14,044)
long lived assets
Proceeds from sale of assets
143
11
145
3,597
Business acquisitions, net of cash acquired
(14,752)
1,270
(14,752)
(6,639)
Net cash used in investing activities
(24,737)
(5,398)
(31,501)
(17,086)
Cash flows from financing activities
Net (repayments) borrowings under loans payable
(1,660)
(530)
(5,645)
3,031
Proceeds from revolving credit facility, maturing 2019
-
45,682
15,628
163,516
Principal payments on revolving credit facility, maturing 2019
-
(52,494)
(327,183)
(92,706)
Principal payments on term loan facility, maturing 2021
-
(750)
(243,250)
(51,500)
Principal payments on term loan facility, maturing 2024
(1,596)
(1,596)
Proceeds from term loan facility, maturing 2024
-
-
623,827
-
Payment of debt issuance costs
(215)
-
(12,927)
(301)
Purchase of treasury stock
-
-
-
(11,429)
Other financing activities
(540)
(286)
(930)
211
Net cash (used in) provided by financing activities
(4,011)
(8,378)
47,924
10,822
Effect of exchange rate changes on cash and cash equivalents
1,710
(859)
2,156
(725)
(Decrease) increase in cash and cash equivalents
(13,963)
(6,449)
33,284
(8,964)
Cash and cash equivalents at beginning of period
92,829
55,865
45,582
58,380
Cash and cash equivalents at end of period
$
78,866
$
49,416
$
78,866
$
49,416
Cash paid during the period for:
Interest
$
8,179
$
4,520
$
14,714
$
9,283
Income taxes
$
5,416
$
4,763
$
9,513
$
7,432
Table 5
Ferro Corporation and Subsidiaries
Supplemental
Information
Reconciliation of Reported Income to
Adjusted Income
For the Three Months Ended June 30
(unaudited)
(Dollars in thousands, except per share amounts)
Cost of
Selling
Restructuring
Other
Income tax
Net income
Diluted
sales
general and
and
expense,
expense(3)
attributable
earnings
administrative
impairment
net
to common
per share
expenses
charges
shareholders
2017
As reported
$
240,290
$
62,514
$
3,224
$
12,680
$
8,695
$
21,025
$
0.25
Special items:
Restructuring
-
-
(3,224)
-
584
2,640
0.03
Other(1)
(1,631)
(5,023)
-
(4,159)
3,267
7,546
0.09
Total special items(4)
(1,631)
(5,023)
(3,224)
(4,159)
3,851
10,186
0.12
As adjusted
$
238,659
$
57,491
$
-
$
8,521
$
12,546
$
31,211
$
0.37
2016
As reported
$
199,604
$
57,871
$
787
$
6,371
$
8,484
$
18,969
$
0.22
Special items:
Restructuring
-
-
(787)
-
244
543
0.01
Other(2)
-
(4,810)
-
(700)
1,902
3,608
0.04
Discontinued operations
-
-
-
-
-
5,748
0.07
Total special items(4)
-
(4,810)
(787)
(700)
2,146
9,899
0.12
As adjusted
$
199,604
$
53,061
$
-
$
5,671
$
10,630
$
28,868
$
0.34
(1)
The adjustments to "Cost of Sales" primarily include the
amortization of purchase accounting adjustments related to our
recent acquisitions, and other acquisition costs. 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 relate to the FX loss incurred on our Euro-denominated
term loan, a loss on an equity method investment, and a loss on an
asset sale during the quarter.
(2)
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 relate to the finalization of the purchase
price for the acquisition of Vetriceramici.
(3)
The tax rate reflects the reported tax rate, adjusted for non-GAAP
adjustments 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.
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,
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.
Table 6
Ferro Corporation and Subsidiaries
Supplemental
Information
Reconciliation of Reported Income to
Adjusted Income
For the Six Months Ended June 30
(unaudited)
(Dollars in thousands, except per share amounts)
Cost of
Selling
Restructuring
Other
Income
Net income
Diluted
sales
general and
and
expense,
tax
attributable
earnings
administrative
impairment
net
expense(3)
to common
per share
expenses
charges
shareholders
2017
As reported
$
462,051
$
121,472
$
6,242
$
20,239
$
15,833
$
42,923
$
0.50
Special items:
Restructuring
-
-
(6,242)
-
1,596
4,646
0.05
Other(1)
(4,268)
(7,573)
-
(5,333)
6,942
10,232
0.12
Total special items(4)
(4,268)
(7,573)
(6,242)
(5,333)
8,538
14,878
0.17
As adjusted
$
457,783
$
113,899
$
-
$
14,906
$
24,371
$
57,801
$
0.68
2016
As reported
$
392,826
$
110,517
$
1,668
$
9,291
$
16,502
$
9,003
$
0.11
Special items:
Restructuring
-
-
(1,668)
-
515
1,153
0.01
Other(2)
-
(6,241)
-
3,065
1,267
1,909
0.02
Discontinued operations
-
-
-
-
-
35,242
0.42
Total special items(4)
-
(6,241)
(1,668)
3,065
1,782
38,304
0.45
As adjusted
$
392,826
$
104,276
$
-
$
12,356
$
18,284
$
47,307
$
0.56
(1)
The adjustments to "Cost of Sales" primarily include the
amortization of purchase accounting adjustments related to our
recent acquisitions, and other acquisition costs. 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 relate to the FX loss incurred on our Euro-denominated
term loan, a loss on an equity method investment, the loss/gain on
an asset sale, debt extinguishment costs and a reduction of a
contingent liability in Argentina.
(2)
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 relate to the gain on an asset sale that was
recognized, and the finalization of the purchase price for the
acquisition of Vetriceramici.
(3)
The tax rate reflects the reported tax rate, adjusted for non-GAAP
adjustments 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.
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, gain
on sale of assets, debt extinguishment costs, 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.
Table 7
Ferro Corporation and Subsidiaries
Supplemental
Information
Reconciliation of Adjusted Gross Profit
(unaudited)
(Dollars in thousands)
Three Months Ended
Six Months Ended
June 30,
June 30,
2017
2016
2017
2016
Performance Coatings
$ 151,746
$ 140,589
$ 278,311
$ 268,713
Performance Colors and Glass
106,637
95,933
210,155
184,103
Color Solutions
90,249
61,455
180,721
122,612
Total net sales
$ 348,632
$ 297,977
$ 669,187
$ 575,428
Total net sales
$ 348,632
$ 297,977
$ 669,187
$ 575,428
Adjusted cost of sales(1)
238,659
199,604
457,783
392,826
Adjusted gross profit
$ 109,973
$
98,373
$ 211,404
$ 182,602
Adjusted gross profit percentage
31.5 %
33.0 %
31.6 %
31.7 %
(1)
Refer to Table 5 and Table 6 for the reconciliation of cost of sales
to adjusted cost of sales for the three and six months ended June
30, 2017 and 2016, respectively.
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 amortization of purchase accounting adjustments related to our
recent acquisitions, and other acquisition costs. 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.
Table 8
Ferro Corporation and Subsidiaries
Supplemental
Information
Constant Currency Schedule of Adjusted
Operating Profit (unaudited)
Three Months Ended
(Dollars in thousands)
June 30,
2016
Adjusted
2017
2017 vs Adjusted
2016(1)
2016
Segment net sales
Performance Coatings
$ 140,589
$ 136,083
$ 151,746
$
15,663
Performance Colors and Glass
95,933
94,423
106,637
12,214
Color Solutions
61,455
60,907
90,249
29,342
Total segment net sales
$ 297,977
$ 291,413
$ 348,632
$
57,219
Segment adjusted gross profit
Performance Coatings
$
39,234
$
37,998
$
40,889
$
2,891
Performance Colors and Glass
36,705
36,123
40,405
4,282
Color Solutions
22,404
22,249
28,962
6,713
Other costs of sales
30
28
(283)
(311)
Total adjusted gross profit(2)
$
98,373
$
96,398
$ 109,973
$
13,575
Adjusted selling, general and administrative expenses
Strategic services
$
29,012
$
28,349
$
32,715
$
4,366
Functional services
18,677
18,477
19,643
1,166
Incentive compensation
3,161
3,138
2,465
(673)
Stock-based compensation
2,211
2,211
2,668
457
Total adjusted selling, general and administrative expenses(3)
$
53,061
$
52,175
$
57,491
$
5,316
Adjusted operating profit
$
45,312
$
44,223
$
52,482
$
8,259
Adjusted operating profit as a % of net sales
15.2%
15.2%
15.1%
(1)
Reflects the remeasurement of 2016 reported and adjusted local
currency results using 2017 exchange rates, resulting in constant
currency comparative figures to 2017 reported and adjusted results.
See Table 5 for non-GAAP adjustments applicable to the three month
period.
(2)
Refer to Table 7 for the reconciliation of adjusted gross profit for
the three months ended June 30, 2017 and 2016, respectively.
(3)
Refer to Table 5 for the reconciliation of SG&A expenses to adjusted
SG&A expenses for the three months ended June 30, 2017 and 2016,
respectively.
It should be noted that adjusted 2016 results 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 this financial
measure 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.
Table 9
Ferro Corporation and Subsidiaries
Supplemental
Information
Constant Currency Schedule of Adjusted
Operating Profit (unaudited)
Six Months Ended
(Dollars in thousands)
June 30,
2016
Adjusted
2017
2017 vs
2016(1)
Adjusted 2016
Segment net sales
Performance Coatings
$ 268,713
$ 258,819
$ 278,311
$
19,492
Performance Colors and Glass
184,103
180,998
210,155
29,157
Color Solutions
122,612
121,435
180,721
59,286
Total segment net sales
$ 575,428
$ 561,252
$ 669,187
$
107,935
Segment adjusted gross profit
Performance Coatings
$
71,349
$
68,646
$
74,378
$
5,732
Performance Colors and Glass
68,543
67,411
78,290
10,879
Color Solutions
42,690
42,320
59,262
16,942
Other costs of sales
20
18
(526)
(544)
Total adjusted gross profit(2)
$ 182,602
$ 178,395
$ 211,404
$
33,009
Adjusted selling, general and administrative expenses
Strategic services
$
57,416
$
55,934
$
64,300
$
8,366
Functional services
37,877
37,507
39,913
2,406
Incentive compensation
5,146
5,084
4,295
(789)
Stock-based compensation
3,837
3,837
5,391
1,554
Total adjusted selling, general and administrative expenses(3)
$ 104,276
$ 102,362
$ 113,899
$
11,537
Adjusted operating profit
$
78,326
$
76,033
$
97,505
$
21,472
Adjusted operating profit as a % of net sales
13.6%
13.5%
14.6%
(1)
Reflects the remeasurement of 2016 reported and adjusted local
currency results using 2017 exchange rates, resulting in constant
currency comparative figures to 2017 reported and adjusted results.
See Table 6 for non-GAAP adjustments applicable to the six month
period.
(2)
Refer to Table 7 for the reconciliation of adjusted gross profit for
the six months ended June 30, 2017 and 2016, respectively.
(3)
Refer to Table 6 for the reconciliation of SG&A expenses to adjusted
SG&A expenses for the six months ended June 30, 2017 and 2016,
respectively.
It should be noted that adjusted 2016 results 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 this financial
measure 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
Table 10
Ferro Corporation and Subsidiaries
Supplemental
Information
Reconciliation of Net income attributable
to Ferro Corporation
common shareholders to Adjusted
EBITDA (unaudited)
(Dollars in thousands)
Three Months Ended
Six Months Ended
June 30,
June 30,
2017
2016
2017
2016
Net income attributable to Ferro Corporation common shareholders
$
21,025
$
18,969
$
42,923
$
9,003
Net income attributable to noncontrolling interests
204
143
427
379
Loss from discontinued operations, net of income taxes
-
5,748
-
35,242
Restructuring and impairment charges
3,224
787
6,242
1,668
Other expense (income), net
6,231
943
7,566
(984)
Interest expense
6,449
5,428
12,673
10,275
Income tax expense
8,695
8,484
15,833
16,502
Depreciation and amortization
12,734
11,586
24,588
22,573
Less: interest amortization expense and other
(953)
(329)
(1,432)
(644)
Cost of sales adjustments(1)
1,631
-
4,268
-
SG&A adjustments(1)
5,023
4,810
7,573
6,241
Adjusted EBITDA
$
64,263
$
56,569
$ 120,661
$ 100,255
Net sales
$ 348,632
$ 297,977
$ 669,187
$ 575,428
Adjusted EBITDA as a % of net sales
18.4 %
19.0 %
18.0 %
17.4 %
(1)
For details of Non-GAAP adjustments, refer to Table 5 and Table 6
for the reconciliation of cost of sales to adjusted cost of sales
and SG&A to adjusted SG&A for the three and six months ended June
30, 2017 and 2016, respectively.
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 this financial measure 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 attributable to
noncontrolling interests, 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.
Table 11
Ferro Corporation and Subsidiaries
Supplemental
Information
Return on Invested Capital
For
the Rolling Twelve Months Ended (unaudited)
(Dollars in thousands)
June 30,
December 31,
2017
2016
Gross profit
$
375,751
$
351,217
Selling, general and administrative expenses
252,657
241,702
Total operating profit
123,094
109,515
Non-GAAP adjustments(1)
48,410
42,688
Adjusted operating profit before tax
171,504
152,203
Less: Tax expense(2)
(47,164)
(40,182)
Adjusted net operating profit after tax (NOPAT)
$
124,340
$
112,021
Recent acquisitions(3) NOPAT gain
8,532
2,535
Adjusted net operating profit after tax excluding recent acquisitions
$
115,808
$
109,486
Equity
322,892
255,032
Debt
660,914
574,485
Off balance sheet precious metal leases
33,415
28,743
Postretirement and pension liabilities
168,231
162,941
Environmental liabilities
12,090
15,531
Cash
(78,866)
(45,582)
Invested capital
$ 1,118,676
$
991,150
Return on invested capital
11.1%
11.3%
Less: recent acquisitions(3) invested capital
148,509
143,047
Invested capital excluding recent acquisitions
$
970,167
$
848,103
Return on invested capital excluding recent acquisitions
11.9%
12.9%
(1)
The "Non-GAAP adjustments" include non-GAAP adjustments to cost of
sales and non-GAAP adjustments to SG&A for the rolling twelve months
ended June 30, 2017 and December 31, 2016. The "Non-GAAP
adjustments" also includes precious metal lease fees which were $0.9
million and $0.8 million for the rolling twelve months ended June
30, 2017 and December 31, 2016, respectively.
(2)
Operating profit for 2017 and 2016 is tax effected at 27.5% and
26.4%, respectively.
(3)
For the rolling twelve months ended June 30, 2017, the recent
acquisitions include Delta Performance Products, ESL, Cappelle and
SPC. For the rolling twelve months ended December 31, 2016, the
recent acquisitions include Ferer, Pinturas, Delta Performance
Products, ESL and Cappelle. Acquisitions are removed from being
included in the recent acquisitions line item after the acquisitions
are included in the Company for a full year.
It should be noted that adjusted net 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. Adjusted
net 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.
Table 12
Ferro Corporation and Subsidiaries
Supplemental
Information
Change in Net Debt (unaudited)
(Dollars in thousands)
Three Months Ended
Six Months Ended
June 30,
June 30,
2017
2016
2017
2016
Beginning of period
Gross debt
$
643,173
$ 508,689
$
578,205
$
478,087
Cash
92,829
55,865
45,582
58,380
Debt, net of cash
550,344
452,824
532,623
419,707
Unamortized debt issuance costs
8,206
4,329
3,720
4,533
Debt, net of cash and unamortized debt issuance costs
542,138
448,495
528,903
415,174
End of period
Gross debt
668,993
500,039
668,993
500,039
Cash
78,866
49,416
78,866
49,416
Debt, net of cash
590,127
450,623
590,127
450,623
Unamortized debt issuance costs
8,079
4,152
8,079
4,152
Debt, net of cash and unamortized debt issuance costs
582,048
446,471
582,048
446,471
Change from FX on Euro term loan debt
(19,259)
-
(19,232)
-
Assumption of debt from acquisitions
(7,975)
-
(7,975)
-
Period (increase) decrease in debt, net of cash, unamortized debt
$ (12,549)
$
2,201
$ (30,297)
$
(30,916)
issuance costs, FX, and assumption of debt from acquisitions
Period (increase) decrease in debt, net of cash and unamortized debt
$ (39,910)
$
2,024
$ (53,145)
$
(31,297)
issuance costs
We believe that given the significant cash and cash equivalents on
the balance sheet that the change in net cash against outstanding
debt, net debt, between periods is a meaningful measure.
Table 13
Ferro Corporation and Subsidiaries
Supplemental
Information
Adjusted Free Cash Flow from Continuing
Operations (unaudited)
(Dollars in thousands)
Three Months Ended
Six Months Ended
June 30,
June 30,
2017
2016
2017
2016
As Adjusted
Adjusted EBITDA(1)
$
64,263
$
56,569
$
120,661
$
100,255
Capital expenditures
(10,128)
(6,016)
(16,894)
(13,222)
Working capital
(27,175)
(28,833)
(62,720)
(51,517)
Cash income taxes
(5,416)
(4,763)
(9,513)
(7,432)
Cash interest
(8,179)
(4,520)
(14,714)
(9,283)
Pension
(820)
(1,576)
(1,439)
(2,498)
Incentive compensation payments
-
-
(12,224)
(8,802)
Other
(2,463)
2,332
4,683
2,939
Free Cash Flow from Continuing Operations
$
10,082
$
13,193
$
7,840
$
10,440
Discontinued operations
-
(7,146)
-
(15,729)
Restructuring/Other
(3,761)
(1,271)
(4,197)
(2,076)
Outflows from M&A activity
(18,655)
(2,575)
(21,013)
(12,122)
Debt issuance costs
(215)
-
(12,927)
-
Stock repurchase
-
-
-
(11,429)
Period (increase) decrease in debt, net of cash, unamortized debt
$
(12,549)
$
2,201
$
(30,297)
$
(30,916)
issuance costs, FX, and assumption of debt from acquisitions
Change in unamortized debt issuance costs
(127)
(177)
4,359
(381)
Change from FX on Euro term loan debt
(19,259)
-
(19,232)
-
Assumption of debt from acquisitions
(7,975)
-
(7,975)
-
Period (increase) decrease in debt, net of cash and unamortized debt
$
(39,910)
$
2,024
$
(53,145)
$
(31,297)
issuance costs
(1)
See Table 10 for the reconciliation of net income attributable to
Ferro Corporation common shareholders to adjusted EBITDA.
(2)
See Table 12 for the reconciliation of gross and net debt.
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 attributable to Ferro Corporation common
shareholders before the effects of income 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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SOURCE: Ferro Corporation

Ferro Corporation
Investor Contact:
Kevin Cornelius Grant, 216-875-5451
Investor Relations
kevincornelius.grant@ferro.com
or
Media Contact:
Mary Abood, 216-875-5401
Director, Corporate Communications
mary.abood@ferro.com