Materion Corporation Reports First Quarter 2015 Financial Results

04/30/2015

Confirms Outlook for 2015

MAYFIELD HEIGHTS, Ohio--(BUSINESS WIRE)-- Materion Corporation (NYSE:MTRN) today reported first quarter 2015 financial results.

First quarter 2015 GAAP earnings were $0.47 per share, diluted. This compares to $0.35 per share, diluted, earned in the first quarter of 2014.
Adjusted first quarter earnings were $0.41 per share, diluted, up 41%, compared to $0.29 per share, diluted, in the first quarter of 2014.
Net sales for the first quarter of 2015 were $290.0 million. Value-added sales were $162.6 million, up 12% compared to the prior year period.
Adjusted operating profit margin, as a percent of value-added sales, expanded year over year to 7.4%, a 110 basis point improvement.
All three business groups delivered top line growth and expanded profit margins in the first quarter of 2015 compared to the first quarter of 2014.
The Company confirms its previously announced 2015 adjusted earnings forecast range of $1.80 to $2.00 per share, diluted.

FIRST QUARTER 2015 RESULTS

Net sales for the first quarter were $290.0 million, compared to net sales of $258.9 million for the first quarter of 2014. Value-added sales grew 12% to $162.6 million compared to value-added sales of $144.9 million for the first quarter of 2014. The growth in value-added sales in the first quarter of 2015 compared to the same period of last year was due primarily to stronger demand from customers in the industrial components, medical, consumer electronics, automotive electronics and defense markets.

Adjusted operating profit for the first quarter of 2015, which excludes the net benefit of an insurance settlement related to the pebble plant, reached $12.1 million, a 33% increase over the prior-year first quarter adjusted operating profit. Adjusted operating profit margin, expressed as a percent of value-added sales, expanded by 110 basis points to 7.4% from the 2014 first quarter level. The margin improvement is a result of the higher sales volume and an improved product mix.

Net income for the first quarter of 2015 was $9.6 million, or $0.47 per share, diluted. This compares to net income of $7.3 million, or $0.35 per share, diluted, for the first quarter of the prior year. Adjusted earnings, which excludes the net insurance settlement benefit, for the first quarter of 2015 were $0.41 per share, diluted, up 41% compared to the first quarter of 2014 adjusted earnings of $0.29 per share, diluted.

CHAIRMAN'S COMMENTS

Richard J. Hipple, Chairman, President and Chief Executive Officer, stated, "We are off to a great start for 2015. This marks the fourth consecutive quarter of meaningful year-over-year earnings and value-added sales growth. The strength across the majority of our key end markets, combined with our ability to penetrate new markets and applications with our differentiated products, more than offset the significant decline in oil and gas and adverse impacts of the weakening euro. I am encouraged with the value-added sales growth and expanded profit margin each of our three business groups recorded in the quarter, along with our new product sales comprising 11% of our net sales. We remain committed to strategies that achieve strong organic value-added sales growth and margin expansion."

ANALYST MEETING

On Wednesday, May 13, 2015, the Company is hosting an Investor Day for investment professionals at the Plaza Hotel in New York City, New York, from 9:00 a.m. to 12:00 p.m. During the event, Chairman, President and Chief Executive Officer, Richard Hipple, Vice President, Finance and Chief Financial Officer, Joseph Kelley, and each of the Company's business unit Presidents will present an overview of the Company's growth opportunities and long-range 2017 financial targets. Those interested in attending should contact Lynn Benz at (216) 383-6812.

BUSINESS SEGMENT REPORTING

Advanced Materials

Advanced Materials' net sales for the first quarter of 2015 were $149.9 million, which compares to first quarter of 2014 net sales of $129.3 million. Value-added sales for the first quarter of 2015 were $51.7 million, up 24% compared to the first quarter 2014 value-added sales of $41.7 million. The improvement in the first quarter value-added sales compared to the same period last year was driven primarily by strength from customers in the consumer electronics, industrial components and the broader semiconductor market.

Operating profit for the first quarter of 2015 was $8.9 million, up $3.4 million, or 62%, compared to an adjusted operating profit of $5.5 million in the first quarter of 2014. Operating profit as a percent of value-added sales for the first quarter of 2015 was 17.2% compared to adjusted operating profit of 13.2% for the first quarter of 2014. The significant improvement in profit margins is a result of leveraging a double-digit volume growth and favorable product mix.

Performance Alloys and Composites

Net sales for Performance Alloys and Composites in the first quarter of 2015 were $103.3 million, a 6% increase over net sales of $97.2 million in the first quarter of 2014. Value-added sales were $85.6 million in the first quarter of 2015, up $5.6 million, or 7%, compared to $80.0 million in the first quarter of 2014. A strong 8% volume increase, primarily in the industrial components end market, offset the headwinds from a weakening euro and declines in the energy market and, more specifically, with oil and gas customers.

Operating profit for the first quarter of 2015 was $6.8 million, or 7.9% of value-added sales, which compares to $6.2 million, or 7.8% of value-added sales, for the first quarter of 2014. The operating profit margin expansion resulted primarily from leveraging the volume growth.

Other

The Other segment includes the operating results of the Precision Coatings group and unallocated corporate costs.

Within the Other segment, Precision Coatings' net sales for the first quarter of 2015 were $36.6 million, which compare to net sales of $33.9 million for the first quarter of 2014. Value-added sales for the first quarter of 2015 were $24.6 million, up $0.7 million, or 3%, compared to value-added sales of $23.9 million for the same period of 2014. The increase in value-added sales is due to stronger demand from customers in the medical, automotive electronics and defense markets, offset in part by weaker demand in consumer electronics.

Precision Coatings' operating profit for the first quarter of 2015 was $1.7 million, or 6.9% of value-added sales, which compares to an adjusted operating profit of $1.5 million, or 6.3% of value-added sales, for the first quarter of 2014.

OUTLOOK

The success of our new product development efforts has broadened the Company's market breadth and enhanced growth opportunities across the Company's key markets. Despite the headwinds from the oil and gas market and the weakening euro, we continue to have momentum overall and are committed to growing both value-added sales and earnings in 2015. The Company is therefore confirming its previously announced 2015 adjusted earnings forecast range of $1.80 to $2.00 per share, diluted, 10-20% above 2014 adjusted earnings of $1.65 per share, diluted.

CONFERENCE CALL

Materion Corporation will host a conference call with analysts at 9:00 a.m. Eastern Time, April 30, 2015. 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 May 15, 2015 by dialing (877) 660-6853 or (201) 612-7415; please reference Conference ID Number 13606106. 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 2015;
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, energy, telecommunications infrastructure, defense, 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 integrating acquired businesses;
The impact of the results of acquisitions on our ability to achieve fully 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, including the beryllium pebble facility in Elmore, Ohio;
The availability of adequate lines of credit and the associated interest rates;
Other financial factors, including the cost and availability of raw materials (both base and precious metals), physical inventory valuations, metal financing fees, tax rates, exchange rates, pension costs and required cash contributions and other employee benefit costs, energy costs, regulatory compliance costs, the cost and availability of insurance, 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;
The success of the realignment of our businesses; and
The risk factors as set forth in Item 1A of our Form 10-K for the year ended December 31, 2014.

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.


Materion Corporation				Attachment 1
Consolidated Statements of Income
(Unaudited)

	First Quarter Ended
	April 3,			March 28,
(In thousands except per share amounts)	2015			2014

Net sales	$	290,024		$	258,929
Cost of sales		237,669			213,467
Gross margin		52,355			45,462
Selling, general and administrative expense		36,941			31,259
Research and development expense		3,348			2,787
Other - net		(2,158	)		363
Operating profit		14,224			11,053
Interest expense - net		657			695
Income before income taxes		13,567			10,358

Income tax expense		3,938			3,027

Net income	$	9,629		$	7,331


Basic earnings per share:
Net income per share of common stock	$	0.48		$	0.36

Diluted earnings per share:
Net income per share of common stock	$	0.47		$	0.35


Cash dividends per share	$	0.085		$	0.080


Weighted average number of shares of common stock outstanding
Basic		20,144			20,604
Diluted		20,447			20,962


Materion Corporation				Attachment 2
Consolidated Balance Sheets
(Unaudited)

	April 3,			Dec. 31,
(In thousands)	2015			2014
Assets
Current assets
Cash and cash equivalents	$	21,938		$	13,150
Accounts receivable		117,126			112,780
Inventories		237,028			232,409
Prepaid expenses		17,161			14,953
Deferred income taxes		13,347			13,402
Total current assets		406,600			386,694

Long-term deferred income taxes		17,494			17,722

Property, plant and equipment		813,806			800,671
Less allowances for depreciation,
depletion and amortization		(565,456	)		(553,083	)
Property, plant, and equipment - net		248,350			247,588
Intangible assets		17,109			18,559
Other assets		4,868			4,781
Goodwill		86,725			86,725
Total Assets	$	781,146		$	762,069


Liabilities and Shareholders' Equity
Current liabilities
Short-term debt	$	667		$	653
Accounts payable		38,054			36,239
Other liabilities and accrued items		41,171			59,151
Income taxes		4,222			3,144
Unearned revenue		10,389			4,879
Total current liabilities		94,503			104,066

Other long-term liabilities		17,853			18,203
Retirement and post-employment benefits		99,701			103,891
Unearned income		49,469			51,796
Long-term income taxes		1,750			1,750
Deferred income taxes		2,166			617
Long-term debt		50,787			23,613

Shareholders' equity		464,917			458,133
Total Liabilities and Shareholders' Equity	$	781,146		$	762,069


Materion Corporation				Attachment 3
Consolidated Statements of Cash Flows
(Unaudited)
	Three Months Ended
	April 3,			March 28,
(In thousands)	2015				2014
Cash flows from operating activities:
Net income	$	9,629		$	7,331
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation, depletion and amortization		11,909			12,131
Amortization of deferred financing costs in interest expense		148			178
Changes in assets and liabilities net of acquired assets and liabilities:
Decrease (increase) in accounts receivable		(5,467	)		(8,214	)
Decrease (increase) in inventory		(5,925	)		(13,363	)
Decrease (increase) in prepaid and other current assets		(2,480	)		153
Decrease (increase) in deferred income taxes		340			17
Increase (decrease) in accounts payable and accrued expenses		(18,494	)		(16,474	)
Increase (decrease) in unearned revenue		5,510			1,462
Increase (decrease) in interest and taxes payable		1,314			2,648
Increase (decrease) in long-term liabilities		(1,520	)		(7,671	)
Other - net		969			(1,409	)
Net cash used in operating activities		(4,067	)		(23,211	)


Cash flows from investing activities:
Payments for purchase of property, plant and equipment		(7,196	)		(6,120	)
Payments for mine development		(3,748	)		(80	)
Proceeds from sale of property, plant and equipment		-			3,009
Net cash used in investing activities		(10,944	)		(3,191	)

Cash flows from financing activities:
Proceeds from issuance (repayment) of short-term debt		13			4,119
Proceeds from issuance of long-term debt		41,103			30,086
Repayment of long-term debt		(13,929	)		(8,246	)
Principal payments under capital lease obligations		(230	)		(163	)
Cash dividends paid		(1,708	)		(1,648	)
Repurchase of common stock		(768	)		(1,466	)
Issuance of common stock under stock option plans		-			65
Tax benefit from stock compensation realization		-			13
Net cash provided from financing activities		24,481			22,760
Effects of exchange rate changes		(682	)		181
Net change in cash and cash equivalents		8,788			(3,461	)
Cash and cash equivalents at beginning of period		13,150			22,774
Cash and cash equivalents at end of period	$	21,938		$	19,313


Materion Corporation																Attachment 4
Reconciliation of Non-GAAP Measure Value-added sales
(Unaudited)


	(In millions)	First Quarter Ended														Fourth Quarter
		April 3, 2015							March 28, 2014							Dec. 31, 2014
Net Sales
	PAC	$	103.3						$	97.2						$	112.3
	AM		149.9							129.3							135.3
	Other		36.8							32.4							40.8
	PC				36.6							33.9							39.7
	Corp				0.2							(1.5	)						1.1
	Total	$	290.0						$	258.9						$	288.4

Less: Pass-through Metal Cost
	PAC	$	17.7						$	17.2						$	18.4
	AM		98.2							87.6							87.0
	Other		11.5							9.2							16.0
	PC				12.0							10.0							13.2
	Corp				(0.5	)						(0.8	)						2.8
	Total	$	127.4						$	114.0						$	121.4

Value-added Sales (non-GAAP)
	PAC	$	85.6						$	80.0						$	93.9
	AM		51.7							41.7							48.3
	Other		25.3							23.2							24.8
	PC				24.6							23.9							26.5
	Corp				0.7							(0.7	)						(1.7	)
	Total	$	162.6						$	144.9						$	167.0

							% of VA							% of VA							% of VA
Gross Margin
	PAC	$	23.1				27	%	$	22.7				28	%	$	26.8				29	%
	AM		20.7				40	%		16.1				39	%		20.6				43	%
	Other		8.6				-			6.7				-			8.5				-
	PC				8.3		34	%				7.1		30	%				9.6		36	%
	Corp				0.3		-					(0.4	)	-					(1.1	)	-
	Total	$	52.4				32	%	$	45.5				31	%	$	55.8				33	%

							% of VA							% of VA							% of VA
Operating Profit
	PAC	$	6.8				8	%	$	6.2				8	%	$	9.9				11	%
	AM		8.9				17	%		5.1				12	%		7.2				15	%
	Other		(1.5	)			-			(0.2	)			-			(3.2	)			-
	PC				1.7		7	%				4.1		17	%				2.5		9	%
	Corp				(3.2	)	-					(4.3	)	-					(5.7	)	-
	Total	$	14.2				9	%	$	11.1				8	%	$	13.9				8	%


Special Items
	PAC	$	-						$	-						$	-
	AM									0.4							-
	Other		(2.1	)						(2.4	)
	PC											(2.6	)
	Corp		-		(2.1	)				-		0.2					-
	Total	$	(2.1	)					$	(2.0	)					$	-


Operating Profit Excluding Special Items							% of VA							% of VA							% of VA
	PAC	$	6.8				7.9	%	$	6.2				7.8	%	$	9.9				10.5	%
	AM		8.9				17.2	%		5.5				13.2	%		7.2				14.9	%
	Other		(3.6	)						(2.6	)						(3.2	)
	PC				1.7		6.9	%		-		1.5		6.3	%				2.5		9.4	%
	Corp				(5.3	)						(4.1	)						(5.7	)
	Total	$	12.1				7.4	%	$	9.1				6.3	%	$	13.9				8.3	%

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 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 their 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.


Materion Corporation										Attachment 5
Reconciliation of Non-GAAP Measure - Profitability
(Unaudited)



				First Quarter Ended						Fourth Quarter Ended
		(In millions except per share amounts)		April 3, 2015			March 28, 2014			Dec. 31, 2014

	GAAP as Reported
			Net sales	$	290.0		$	258.9		$	288.4
			Gross margin		52.4			45.5			55.8
			Operating profit		14.2			11.1			13.9
			Net income		9.6			7.3			12.0
			EPS - Diluted	$	0.47		$	0.35		$	0.58

	Facility closure and reorganization costs (benefits)
			Cost of goods sold	$	-		$	0.2		$	-
			Selling, general and administrative		-			0.4			-
			Other-net		-			(2.6	)		-
	Recovery from insurance and other litigation, net of expenses
			Selling, general and administrative	$	1.7		$	-		$	-
			Other-net		(3.8	)		-			-
		Total special items		$	(2.1	)	$	(2.0	)	$	-

		Special items - net of tax		$	(1.5	)	$	(1.3	)		-

		Tax Special Item		$	0.2		$	-		$	(1.8	)


	Non-GAAP Measures - Adjusted Profitability
			Value-added (VA) sales	$	162.6		$	144.9		$	167.0
			Gross margin		52.4			45.7			55.8
			Gross margin % of VA		32.2	%		31.5	%		33.4	%
			Operating profit		12.1			9.1			13.9
			Operating profit % of VA		7.4	%		6.3	%		8.3	%
			Net income		8.3			6.0			10.2
			EPS - Diluted	$	0.41		$	0.29		$	0.50

In addition to presenting financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP), this earnings release contains financial measures, including gross margin, operating profit, net income and earnings per share, on a non-GAAP basis. As detailed in the above reconciliation, we have adjusted out the cost (benefit) impact of the net recovery from insurance and other litigation claims and certain income tax items from the applicable GAAP 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.


Materion Corporation							Attachment 6
Value-added sales by Market
(Unaudited)

(In millions)

			First Quarter Ended
			April 3, 2015		March 28, 2014		% Change

Materion Corporation

	Consumer Electronics		$	44.4	$	41.9	6	%
	Industrial Components			25.2		19.3	31	%
	Medical			17.6		14.2	24	%
	Automotive Electronics			15.0		13.6	10	%
	Energy			12.4		12.2	2	%
	Defense			9.6		8.4	14	%
	Telecom Infrastructure			9.2		8.2	12	%
	Other			29.2		27.1	8	%
		Total	$	162.6	$	144.9	12	%


Performance Alloy & Composites

	Consumer Electronics		$	15.9	$	15.0	6	%
	Industrial Components			18.1		13.9	30	%
	Medical			1.8		1.8	0	%
	Automotive Electronics			13.9		13.3	5	%
	Energy			8.3		9.1	-9	%
	Defense			4.9		5.0	-2	%
	Telecom Infrastructure			6.6		5.9	12	%
	Other			16.1		16.0	1	%
		Total	$	85.6	$	80.0	7	%

Advanced Materials

	Consumer Electronics		$	23.4	$	20.1	16	%
	Industrial Components			6.4		4.4	45	%
	Medical			2.6		1.8	44	%
	Automotive Electronics			-		-	0	%
	Energy			4.1		3.1	32	%
	Defense			2.0		1.3	54	%
	Telecom Infrastructure			2.7		2.3	17	%
	Other			10.5		8.7	21	%
		Total	$	51.7	$	41.7	24	%


Other/Precision Coatings Group

	Consumer Electronics		$	5.1	$	6.8	-25	%
	Industrial Components			0.7		1.0	-30	%
	Medical			13.2		10.6	25	%
	Automotive Electronics			1.1		0.3	267	%
	Energy			-		-	-
	Defense			2.7		2.1	29	%
	Telecom Infrastructure			-		-	-
	Other			2.5		2.4	4	%
		Total	$	25.3	$	23.2	9	%

Materion Corporation
Investors:
Michael C. Hasychak, 216-383-6823
mike.hasychak@materion.com
or
Media:
Patrick S. Carpenter, 216-383-6835
patrick.carpenter@materion.com
http://www.materion.com
Mayfield Hts-g

Source: Materion Corporation

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