Ferro reports strong second quarter results

Ferro generates fourth consecutive quarter of strong organic volume and sales growth, 13.6% increase in GAAP earnings, and record quarterly adjusted EPS; updates fiscal 2017 outlook.

Ferro Corporation reported results for the second quarter ended 30 June 2017.

Second Quarter Financial and Operating Highlights included a net sales increase of 17.0%, to USD 348.6 million, a rise in organic sales of 6.5% on a constant currency basis, growth in total volume of 11.6% and organic volume of 8.2%, gross margin of 31.1% despite raw material headwinds, adjusted gross margin of 31.5%, increase in earnings per diluted share of 13.6% to USD 0.25, an increase in adjusted earnings per diluted share of 8.8% to USD 0.37, net income attributable to Ferro Corporation common shareholders increased 10.8% to USD 21.0 million, and adjusted EBITDA grew 13.6% to USD 64.3 million.

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% 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.”

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

* Color Solutions (CS) increased sales by 46.9%, to USD 90.2 million, grew gross profit to USD 28.4 million, and generated a gross profit margin of 31.5%
* Performance Color & Glass (PCG) increased sales by 11.2%, to USD 106.6 million, grew gross profit to USD 40.1 million, and generated a gross profit margin of 37.6%
* Performance Coatings (PC) increased sales by 7.9%, to USD 151.7 million, grew gross profit to USD 40.2 million, and generated a gross profit margin of 26.5%.

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 USD 1.22 – USD 1.27 per diluted share, up from USD 1.17 – USD 1.22 per diluted share
* Adjusted EBITDA of USD 223 million – USD 228 million, up from USD 214 million – USD 219 million
* Adjusted Free Cash Flow from Continuing Operations of USD 90 million – USD 100 million, up from USD 85 million – USD 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 USD 9.0 million and USD 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 USD 4.9 million and USD 0.7 million, respectively. If foreign exchange rates stay at the 30 June 2017 levels, Ferro estimates that this would provide a one to two cent tailwind to the above-mentioned EPS outlook.