CLEVELAND, Oct 25, 2007 (BUSINESS WIRE) --
Brush Engineered Materials Inc. (NYSE:BW) today reported third quarter 2007 sales of $230.9 million, up $30.5 million, or 15%, and net income of $9.9 million, up $2.8 million, or 40%, both compared to the third quarter of 2006. Earnings per share, diluted, was $0.48 compared to $0.35 per share, diluted, for the same quarter of the prior year.
The third quarter was the nineteenth consecutive quarter where sales were higher than the comparable quarter of the prior year and the eighth consecutive quarter of sales growth greater than 15% over the comparable quarter of the prior year. The majority of the sales growth in the quarter was driven by demand from the data storage market for the Company's new hard disk drive materials as the conversion to perpendicular media continues to ramp up. Increased demand in defense, disc drive arm materials and ToughMet(R) materials also contributed
to the growth in sales. Metal prices passed through to customers accounted for approximately 2% of the sales increase in the quarter. The Company's organic sales growth was approximately 13%. International sales continued to grow at a faster rate than domestic sales, reaching 40% of total sales in the third quarter compared to 34% in the third quarter of the prior year. The majority of the international growth was in Asia where the Company continues to expand its presence in China, Japan, Korea and Singapore.
While sales were weaker than what the Company had expected coming into the quarter due to lower than expected demand for certain of its products in two key markets, cell phone handsets and magnetic media, improved margins helped offset the impact of the lower volumes.
Gross margins and operating profit margins continued to improve in the quarter. Gross margin was $46.3
million, up $6.6 million compared to the third quarter 2006 gross margin of $39.7 million. Gross margin as a percent of sales was 20.0% compared to 19.8% for the third quarter of the prior year. Operating profit in the third quarter was $16.2 million or 7.0% of sales compared to $10.6 million or 5.3% of sales in the third quarter of 2006. The operating margin improvements were driven by the leverage from the Company's sales growth as well as the ongoing initiatives to lower costs and increase operating efficiencies.
For the first nine months of the year, sales were a record $714.8 million, up $159.6 million, or 29%, compared to the same period of the prior year. Sales growth net of metal prices was approximately 25%. Net income for the first nine months was $41.0 million, or $1.98, diluted, per share, up $21.7 million compared to net income of $19.3 million, or $0.96, diluted, per
share for the same period in 2006.
BUSINESS SEGMENT REPORTING
Beginning with the fourth quarter of 2006, the Company changed its segment reporting to more closely align with the way the business is currently managed. Prior-year results have been adjusted for each segment to reflect the change.
Advanced Material Technologies and Services
The Advanced Material Technologies and Services' segment sales for the third quarter of 2007 were up 30% to $119.4 million compared to $92.0 million in the third quarter of the prior year. Sales for the first nine months of 2007 were $384.4 million, 54% above the same period last year. Organic growth was approximately 24% in the third quarter and 48% through the first nine months of the year. Precious metal prices passed through to customers accounted for approximately 6% of the sales growth in both the third quarter and the
first nine months. Operating profit for the third quarter was $12.3 million, up $6.1 million compared to $6.2 million for the third quarter of 2006. Operating profit year to date was $49.1 million, up $24.3 million compared to the same period last year.
The strong sales growth in the third quarter and first nine months of the year continued to be driven primarily by demand for Williams Advanced Materials Inc.'s (WAM) new ruthenium-based magnetic media materials for the data storage market. In addition, wireless telecommunications and photonics product applications, semiconductor and inorganic materials also contributed to the strong sales growth throughout the first nine months of the year. WAM completed the first phase of the expansion of its Brewster, New York facility to support the growth of the data storage market and the related perpendicular magnetic recording opportunity
during the second quarter of this year. The successful ramp-up of operations to support additional growth continued during the third quarter. WAM also made good progress in the quarter in its ongoing efforts to qualify its materials for additional opportunities in the magnetic media market. New market opportunities related to energy, medical and new electronics devices also offer growth potential over the core product portfolio. WAM is expanding its geographic reach into Asia with the construction of a new operation in Suzhou, China and plans to expand its operations in Singapore.
Operating profit for the third quarter was 10.3% of sales compared to 6.7% for the prior year driven primarily by the leverage from the increased sales volume.
Specialty Engineered Alloys
The Specialty Engineered Alloys segment consists of Alloy Products which includes bulk and strip form
high performance copper-based alloy products, hydroxide and the Company's line of ToughMet(R) materials.
Specialty Engineered Alloys' sales for the third quarter were $74.1 million, up slightly compared to the third quarter 2006 sales of $73.2 million. Year-to-date sales of $220.0 million were up $17.4 million or 9% higher than sales of $202.6 million for the first nine months of 2006. Operating profit for the third quarter was $2.6 million versus $3.7 million for the third quarter of 2006. Operating profit of $9.3 million year-to-date 2007 was $3.7 million higher than operating profit of $5.6 million for the same period last year.
The increase in sales for the third quarter is due primarily to higher selling prices and the pass through of higher base metal prices, particularly copper passed through to customers. Alloy Products continues to experience strong demand from its
global oil and gas and aerospace markets and new products such as ToughMet(R) are continuing to find their way into new application opportunities particularly in aerospace, oil and gas and heavy equipment markets. This strength however was offset in the quarter by significantly weaker demand from the telecommunications handset market. Overall demand, in unit volume terms, was down 10% in the quarter. However, Alloy Products began to see some increased demand in handsets in the latter weeks of the quarter.
Third quarter operating profit was negatively impacted by the lower sales volume which led to manufacturing inefficiencies and lower production levels.
Beryllium and Beryllium Composites
The Beryllium and Beryllium Composites segment consists of Beryllium Products including beryllia ceramic manufactured by Brush Ceramic Products Inc.
Beryllium and Beryllium
Composites' sales for the third quarter of 2007 were $15.2 million, up 12%, or $1.6 million, compared to the third quarter of 2006. Year-to-date sales of $46.8 million were up $10.1 million, or 28% higher than the same period last year. Operating profit for the second quarter was $2.2 million versus $1.7 million for the third quarter of 2006. Operating profit for the first nine months of 2007 was $6.8 million, up $4.0 million above operating profit of $2.8 million for the first nine months of 2006.
The Beryllium and Beryllium Composites double-digit sales growth for both the third quarter and year to date has been fueled primarily by demand for defense applications. Defense sales of AlBeMet(R) materials continued to show strength throughout the third quarter driven by tactical optics (including FLIR systems), airborne electronics and space systems. Medical and industrial x-ray and
acoustic speaker product applications also contributed to the sales growth for the first nine months of the year.
The improvement in operating profit is due to the increase in sales volume.
Engineered Material Systems
Engineered Material Systems' sales for the third quarter of 2007 were $18.6 million, up $1.6 million, or 9%, compared to the third quarter 2006 sales of $17.0 million. Sales for the first nine months of 2007 were $52.2 million, down slightly from year-to-date 2006 sales of $53.0 million. Operating profit in the third quarter was $1.7 million compared to an operating profit of $0.6 million for the third quarter of 2006. Operating profit for the first nine months of 2007 was $3.0 million versus $3.2 million for the same period in 2006.
The increase in sales for the third quarter was driven by stronger demand for disk drive applications. New
products accounted for 20% of Technical Materials, Inc.'s (TMI) sales in the third quarter of 2007. The sales order entry rate also strengthened during the third quarter.
The improvement in operating profit for the third quarter was due to the improved sales volume.
OUTLOOK
Going into the third quarter, the Company expected stronger demand from two of its key markets during the third quarter. Sales of the Company's products into cell phone handset and magnetic media markets were weaker than expected.
The overall cell phone handset market is strong and demand for the materials supplied into that market from the Company's Advanced Material Technologies and Services Segment was as the Company expected in the third quarter. However, the customers and applications served by the Company's Specialty Engineered Alloys segment in this market were well below
expectations. In magnetic media, or hard disc drives, while the market gained strength following a softer second quarter, the demand from the customers the Company supplies in support of the industry conversion to perpendicular recording technology was also below the Company's expectations. In both of these markets, conditions improved as the third quarter progressed and demand levels in the final weeks of the quarter were well above those of the first several weeks.
Given these trends, the Company at this time expects sales and earnings levels for the fourth quarter of the year to be stronger than the third quarter. The current expectation is for fourth quarter sales to be in the $245.0 million to $255.0 million range, up 18% to 23% compared to the same quarter of the prior year. Earnings are expected to be in the range of $0.50 to $0.60 per share.
It is important to
continue to reiterate that the Company's sales and earnings estimates are subject to significant variability. Metal price changes, metal supply conditions, fluctuations in demand levels driven by such factors as inventory swings in the market, and new product ramp-up rates in critical markets such as the media market can have a significant effect on actual results. The outlook for the fourth quarter is based on the Company's best estimates at this time and is subject to significant fluctuations due to these as well as other factors.
CHAIRMAN'S COMMENTS
Commenting on the results, Dick Hipple, Chairman, President and CEO, stated, "I am very pleased with the continued growth and improvement in margins noted in the third quarter as well as the progress made with our initiatives to grow with the new perpendicular media technology. I was disappointed to see the softness noted in
this market during the first part of the quarter as well as the impact of the downturn in demand for products supplied to the cell phone handset market by our Specialty Engineered Alloys business. It is noteworthy that our sales have now grown over the comparable quarter in the prior year for nineteen straight quarters and operating profit has improved over the comparable quarter for nine consecutive quarters. We are continuing to leverage our materials technology and services by targeting high growth opportunities. We are committed to profitably growing this company and creating value for our shareholders."
CONFERENCE CALL
Brush Engineered Materials will conduct a teleconference in conjunction with today's release. The teleconference begins at 2:00 p.m. Eastern Time, October 25, 2007. The conference call will be available via webcast through the Company's website at
www.beminc.com or through www.InvestorCalendar.com. By phone, please dial (877) 407-0782, callers outside the U.S. can dial (201) 689-8567.
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. 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 herein:
-- The global and domestic economies;
-- The condition of the markets which we serve, whether defined geographically or by segment, with the major market segments being telecommunications and computer, data storage,
aerospace and defense, automotive electronics, industrial components and appliance;
-- Changes in
product mix and the financial condition of customers;
-- Actual sales, operating rates and margins for the year 2007;
-- Our success in developing and introducing new products and new product ramp up rates, including the actual ramp up of the perpendicular media market;
-- 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 integrating newly acquired businesses;
-- Our success in implementing our strategic plans and the timely and successful completion of any capital projects;
-- The availability of adequate lines of credit and the associated interest rates;
-- Other financial factors, including cost and
availability of materials, tax rates, exchange rates, pension and other employee benefit costs, energy costs, regulatory compliance costs, and the cost and availability of insurance;
-- The uncertainties related to the impact of war and terrorist activities;
-- Changes in government regulatory requirements and the enactment of new legislation that impacts our obligations; and
-- The conclusion of pending litigation matters in accordance with our expectation that there will be no material adverse effects.
Brush Engineered Materials Inc. is headquartered in Cleveland, Ohio. The Company, through its wholly-owned subsidiaries, supplies worldwide markets with beryllium products, alloy products, electronic products, precious metal products, and engineered material systems.
Brush Engineered Materials Inc.
Digest of Earnings
September 28, 2007
2007 2006
------------ ------------
Third Quarter
Net Sales $230,928,000 $200,426,000
Net Income $9,908,000 $7,087,000
Share Earnings - Basic $0.49 $0.36
Average Shares - Basic 20,392,000 19,784,000
Share Earnings - Diluted $0.48 $0.35
Average Shares - Diluted 20,730,000 20,111,000
Year-to-date
Net Sales $714,805,000 $555,227,000
Net Income $40,961,000 $19,282,000
Share Earnings - Basic $2.02 $0.99
Average Shares - Basic 20,300,000 19,547,000
Share Earnings - Diluted $1.98 $0.96
Average Shares - Diluted 20,736,000 19,998,000
Consolidated Balance Sheets
(Unaudited)
Sept. 28, Dec. 31,
(Dollars in thousands) 2007 2006
----------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $16,967 $15,644
Accounts receivable 116,877 86,461
Inventories 163,798 151,950
Prepaid expenses 16,308 13,988
Deferred income taxes 3,279 3,541
--------- --------
Total current assets 317,229 271,584
Other assets 13,152 13,577
Related-party notes receivable 98 98
Long-term deferred income taxes 4,655 15,575
Property, plant and equipment 575,512 557,861
Less allowances for depreciation, depletion and
amortization 392,647 381,932
182,865 175,929
Goodwill 21,782 21,843
--------- --------
$539,781 $498,606
========= ========
Liabilities and Shareholders' Equity
Current liabilities
Short-term debt $29,908 $28,076
Current portion of long-term debt 631 632
Accounts payable 30,240 30,744
Other liabilities and accrued items 53,239 52,161
Unearned revenue 2,652 314
Income taxes 1,086 4,515
--------- --------
Total current liabilities 117,756 116,442
Other long-term liabilities 11,780 11,642
Retirement and post-employment benefits 59,200 59,089
Long-term income taxes 4,331 -
Deferred income taxes 0 151
Long-term debt 9,645 20,282
Shareholders' equity 337,069 291,000
--------- --------
$539,781 $498,606
========= ========
See notes to consolidated financial statements.
Consolidated Statements of Income
(Unaudited)
Third Quarter Ended Nine Months Ended
(Dollars in thousands
except share and per Sept. 28, Sept. 29, Sept. 28, Sept. 29,
share amounts) 2007 2006 2007 2006
------------------------------------------------ ---------------------
Net sales $230,928 $200,426 $714,805 $555,227
Cost of sales 184,655 160,715 557,367 441,554
---------- ---------- ---------- ----------
Gross margin 46,273 39,711 157,438 113,673
Selling, general and
administrative
expense 27,456 26,848 82,690 77,951
Research and
development expense 968 971 3,569 3,006
Other-net 1,679 1,258 5,537 1,960
---------- ---------- ---------- ----------
Operating profit 16,170 10,634 65,642 30,756
Interest expense 286 983 1,540 3,250
---------- ---------- ---------- ----------
Income before income taxes 15,884 9,651 64,102 27,506
Income taxes 5,976 2,564 23,141 8,224
---------- ---------- ---------- ----------
Net income $9,908 $7,087 $40,961 $19,282
========== ========== ========== ==========
Per share of common stock:
basic $0.49 $0.36 $2.02 $0.99
Weighted average number of
common shares outstanding 20,392,000 19,784,000 20,300,000 19,547,000
Per share of common stock:
diluted $0.48 $0.35 $1.98 $0.96
Weighted average number of
common shares outstanding 20,730,000 20,111,000 20,736,000 19,998,000
See notes to consolidated financial statements.
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
Sept. 28, Sept. 29,
(Dollars in thousands) 2007 2006
----------------------------------------------------------------------
Net income $40,961 $19,282
Adjustments to reconcile net income to net cash
provided from operating activities:
Depreciation, depletion and amortization 17,944 17,668
Amortization of deferred financing costs in
interest expense 321 440
Derivative financial instrument ineffectiveness 42 (163)
Stock-based compensation expense 2,928 1,200
Decrease (increase) in accounts receivable (29,122) (30,951)
Decrease (increase) in inventory (12,440) (33,966)
Decrease (increase) in prepaid and other
current assets (1,941) (896)
Decrease (increase) in deferred income taxes (3,680) 6,075
Increase (decrease) in accounts payable and
accrued expenses (3,763) 14,212
Increase (decrease) in unearned revenue 2,338 190
Increase (decrease) in interest and taxes
payable 10,471 1,198
Increase (decrease) in other long-term
liabilities 3,286 3,013
Other - net (2,080) 7,123
--------- ---------
Net cash provided from
operating activities 25,265 4,425
Cash flows from investing activities:
Payments for purchase of property, plant and
equipment (17,644) (9,659)
Payments for mine development (6,778) (72)
Payments for purchase of business net of cash
received - (25,694)
Proceeds from sale of business 2,150 -
Proceeds from sale of property, plant and
equipment 46 -
Other investments - net 42 33
--------- ---------
Net cash used in investing activities (22,184) (35,392)
Cash flows from financing activities:
Proceeds from issuance (repayment) of short-
term debt 1,467 7,619
Proceeds from issuance of long-term debt 15,747 26,000
Repayment of long-term debt (26,393) (10,633)
Issuance of common stock under stock option
plans 4,914 9,441
Tax benefit from exercise of stock options 2,733 -
--------- ---------
Net cash provided from (used
in) financing activities (1,532) 32,427
Effects of exchange rate changes (226) (284)
--------- ---------
Net change in cash and cash
equivalents 1,323 1,176
Cash and cash equivalents at
beginning of period 15,644 10,642
--------- ---------
Cash and cash equivalents at
end of period $16,967 $11,818
========= =========
See notes to consolidated financial statements.
Notes to Consolidated Financial Statements
(Unaudited)
Note A - Accounting Policies
In management's opinion, the accompanying consolidated financial
statements contain all adjustments necessary to present fairly the
financial position as of September 28, 2007 and December 31, 2006 and
the results of operations for the third quarter and first nine months
ended September 28, 2007 and September 29, 2006. All of the
adjustments were of a normal and recurring nature.
Note B - Inventories
Sept. 28, Dec. 31,
(Dollars in thousands) 2007 2006
----------------------------------------------------------------------
Principally average cost:
Raw materials and supplies $28,036 $36,390
Work in process 150,741 124,670
Finished goods 52,601 56,721
--------- ---------
Gross inventories 231,378 217,781
Excess of average cost over
LIFO inventory value 67,580 65,831
--------- ---------
Net inventories $163,798 $151,950
========= =========
Note C - Pensions and Other Post-retirement Benefits
Pension Benefits Other Benefits
-------------------- -------------------
Third Quarter Ended Third Quarter Ended
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
(Dollars in thousands) 2007 2006 2007 2006
---------- --------- --------- ---------
Components of net periodic
benefit cost
Service cost $1,185 $1,253 $75 $74
Interest cost 1,888 1,742 477 476
Expected return on plan
assets (2,200) (2,078) - -
Amortization of prior service
cost (167) (178) (9) (9)
Amortization of net loss 445 517 - -
---------- --------- --------- ---------
Net periodic benefit cost $1,151 $1,256 $543 $541
========== ========= ========= =========
Pension Benefits Other Benefits
-------------------- -------------------
Nine Months Ended Nine Months Ended
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
(Dollars in thousands) 2007 2006 2007 2006
---------- --------- --------- ---------
Components of net periodic
benefit cost
Service cost $3,499 $3,760 $226 $222
Interest cost 5,577 5,227 1,431 1,427
Expected return on plan
assets (6,497) (6,235) - -
Amortization of prior service
cost (494) (534) (27) (27)
Amortization of net loss 1,314 1,550 - -
---------- --------- --------- ---------
Net periodic benefit cost $3,399 $3,768 $1,630 $1,622
========== ========= ========= =========
Notes to Consolidated Financial Statements
(Unaudited)
Note D - Segment Reporting
Beginning in the fourth quarter 2006 and due largely because the
Company has a new chief operating decision maker, the operating
segments will no longer be aggregated and the Company will report its
four material segments separately. WAM is reported as Advanced
Material Technologies and Services, Alloy Products reported as
Specialty Engineered Alloys, Beryllium Products is now Beryllium and
Beryllium Composites and Technical Materials Inc. is Engineered
Material Systems. Brush Ceramic Products, a wholly owned subsidiary
that formerly was part of Electronic Products, has been merged into
Beryllium and Beryllium Composites. The remaining portions of
Electronic Products, due to their insignificance, are reported in the
reconciling All Other column in the table below.
Advanced Beryllium
Material Specialty Composites Engineered
(Dollars in Technologies Engineered and Material
thousands) and Services Alloys Beryllium Systems
----------------------------------------------------------------------
Third Quarter
2007
-----------------
Revenues from
external
customers $119,418 $74,117 $15,159 $18,614
Intersegment
revenues 1,406 335 209 322
Operating profit
(loss) 12,279 2,566 2,204 1,710
Third Quarter
2006
-----------------
Revenues from
external
customers $91,994 $73,205 $13,554 $17,039
Intersegment
revenues 1,125 2,463 270 1,287
Operating profit
(loss) 6,158 3,695 1,706 602
First Nine
Months 2007
-----------------
Revenues from
external
customers $384,352 $220,028 $46,818 $52,227
Intersegment
revenues 3,879 3,403 752 1,787
Operating profit
(loss) 49,109 9,258 6,762 3,016
Assets 190,920 239,339 38,217 27,287
First Nine
Months 2006
-----------------
Revenues from
external
customers $250,279 $202,569 $36,696 $52,977
Intersegment
revenues 3,196 5,753 632 2,680
Operating profit
(loss) 24,750 5,641 2,803 3,166
Assets 150,592 233,286 36,039 29,524
All
(Dollars in thousands) Subtotal Other Total
----------------------------------------------------------------------
Third Quarter 2007
------------------------------------------
Revenues from external customers $227,308 $3,620 $230,928
Intersegment revenues 2,272 2 2,274
Operating profit (loss) 18,759 (2,589) 16,170
Third Quarter 2006
------------------------------------------
Revenues from external customers $195,792 $4,634 $200,426
Intersegment revenues 5,145 19 5,164
Operating profit (loss) 12,161 (1,527) 10,634
First Nine Months 2007
------------------------------------------
Revenues from external customers $703,425 $11,380 $714,805
Intersegment revenues 9,821 14 9,835
Operating profit (loss) 68,145 (2,503) 65,642
Assets 495,763 44,018 539,781
First Nine Months 2006
------------------------------------------
Revenues from external customers $542,521 $12,706 $555,227
Intersegment revenues 12,261 21 12,282
Operating profit (loss) 36,360 (5,604) 30,756
Assets 449,441 37,099 486,540
SOURCE: Brush Engineered Materials Inc.
Brush Engineered Materials Inc.
Investors:
Michael C. Hasychak, 216-383-6823
Media:
Patrick S. Carpenter, 216-383-6835
http://www.beminc.com
Copyright Business Wire 2007
News Provided by COMTEX