Press Release Details

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

• Third quarter 2015 GAAP earnings were $0.34 per share, diluted. Adjusted third quarter earnings were $0.40 per share, diluted, in line with Company's expectations.
• First nine months of 2015 GAAP earnings were $1.24 per share, diluted. Adjusted earnings for the first nine months of 2015 were $1.24 per share, diluted, 7% above prior-year adjusted earnings of $1.16 per share, diluted.
• Net sales for the third quarter of 2015 were $244.4 million. Value-added sales were $148.8 million, 10% below third quarter 2014 value-added sales.
• Cost reduction actions were taken in the quarter to reduce operating costs primarily in China, as well as a structural reorganization to eliminate several executive level positions.
• The Company declared a fourth quarter dividend of $0.09 per share.

THIRD QUARTER 2015 RESULTS

Net sales for the third quarter were $244.4 million, compared to net sales of $291.6 million for the third quarter of 2014. Value-added sales were $148.8 million compared to value-added sales of $165.6 million for the third quarter of 2014.

The decrease in value-added sales in the third quarter of 2015 compared to the same period of last year was due primarily to weaker demand from Asian markets, customers tied to oil and gas exploration and the negative impacts from foreign exchange rates. Partially offsetting these headwinds was sales growth in the defense and industrial component markets both year over year and sequentially. New product value-added sales grew 8% over the prior-year comparable period and represented 12% of total third quarter 2015 value-added sales.

Operating profit in the third quarter of 2015 was $10.2 million, which includes $1.8 million in one-time cost reduction initiatives associated with headcount reductions primarily in our China operations and the elimination of several senior-level positions. Excluding these non-recurring costs, adjusted operating profit for the third quarter of 2015 was $12.0 million, 20% below the prior-year third quarter adjusted operating profit of $15.0 million. The decreased profits resulted primarily from the lower value-added sales levels. Adjusted operating profit margin expressed as a percent of value-added sales was 8.1% in the third quarter of 2015, below the prior-year period of 9.1%.

Net income for the third quarter of 2015 was $6.9 million, or $0.34 per share, diluted. This compares to net income of $12.6 million, or $0.61 per share, diluted, for the third quarter of the prior year. Excluding special items in both periods, adjusted earnings for the third quarter of 2015 were in line with Company expectations at $0.40 per share compared to $0.52 per share for the third quarter of 2014.

For the first nine months of 2015, net sales were $811.2 million compared to net sales of $838.5 million for the same period of last year. Value-added sales for the first nine months of 2015 were $473.8 million, up 1% compared to $470.1 million for the same period last year and up 3% exchange rate adjusted. Year-to-date net income was $25.4 million or $1.24 per share, diluted, as compared to $29.9 million in the comparable period of the prior year. Excluding special items in both periods, adjusted earnings grew 7% year over year, from $1.16 per share, diluted, in the first nine months of 2014, to $1.24 per share, diluted, in the first nine months of 2015.

CHAIRMAN'S COMMENTS

Richard J. Hipple, Chairman, President and Chief Executive Officer, stated, "Through the first nine months of 2015 we have increased value-added sales and adjusted earnings over 2014, along with doubling our cash flow from operations. I am satisfied with our year-to-date performance in the challenging environment that we find ourselves. The Materion team has responded very well in taking the necessary actions to counter some of the headwinds. The economic slowdown in China continues, along with the ongoing drop off in oil and gas exploration and the strength of the U.S. dollar; these negative factors reach across several of our end markets and geographies. We do expect to see a recovery in our Asian sales as customer inventories are adjusted in response to the lower growth conditions in Asia."

"Our long-term strategy of driving sustainable organic growth through new product development and expanding applications of our differentiated product portfolio remains intact. We made meaningful progress in the quarter with several of our strategic growth platforms. For example, optical coating products are being qualified with multiple tier one consumer electronics manufacturers. We are advancing negotiations of long-term beryllium contracts and continue to have design wins with several of our customers regarding newly developed products. While we execute on our long-term growth initiatives we are responding to current demand levels and reducing our cost structure where appropriate."

BUSINESS SEGMENT REPORTING

Performance Alloys and Composites

Net sales for Performance Alloys and Composites in the third quarter of 2015 were $93.6 million compared to net sales of $114.2 million in the third quarter of 2014. Value-added sales were $79.6 million in the third quarter of 2015, down 16% compared to $94.7 million in the third quarter of 2014. The decline in value-added sales was due to a combination of weaker demand in the oil and gas market, unfavorable foreign exchange rates and slower growth in the consumer electronics and telecommunications infrastructure primarily in Asia, offset in part by stronger demand from the defense and industrial components end markets.

During the third quarter of 2015, Performance Alloys and Composites, in response to the lower business levels, reduced headcount by 4% and reorganized the management structure to reduce senior level positions.

Operating profit for the third quarter of 2015 was $4.5 million compared to prior-year operating profit of $10.8 million. The decline in operating profit is a result of the reduction in value-added sales and unfavorable product mix. Operating profit as a percent of value-added sales for the third quarter of 2015 was 5.7%.

Advanced Materials

Advanced Materials' net sales for the third quarter of 2015 were $113.6 million, compared to third quarter of 2014 net sales of $137.6 million. After a strong first half, value-added sales for the third quarter of 2015 were $44.5 million, down 3% compared to the third quarter 2014 value-added sales of $46.1 million. The decline in the third quarter value-added sales compared to the same period last year was driven primarily from the weakness in Asia customers serving the consumer electronics, services and telecommunications infrastructure end markets. These weaknesses were offset in part by strength from the solar energy, industrial components, medical and defense end markets.

Operating profit for the third quarter of 2015 was $7.0 million, down 10% compared to operating profit of $7.8 million in the third quarter of 2014. Operating profit as a percent of value-added sales for the third quarter of 2015 was 15.7%, compared to 16.9% for the prior-year period.

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 third quarter of 2015 were $37.2 million, which compares to net sales of $39.9 million for the third quarter of 2014. Value-added sales for the third quarter of 2015 were $25.7 million, compared to value-added sales of $27.0 million for the same period of 2014. Similar to the second quarter of 2015 results, the year-over-year decline was driven by weaker demand in consumer electronics, particularly the projector display market. These declines were offset by a 2% growth in medical end-market sales, the group's largest end market.

Precision Coatings' operating profit for the third quarter of 2015 was $2.3 million. Adjusted operating profit for the third quarter of 2015, excluding severance and other cost reduction actions primarily related to the precision optics operation in China, was $3.6 million, up $1.5 million as compared to the same period of last year. Adjusted operating profit as a percent of value-added sales was 14%, up approximately 600 basis points above the same period last year. The improved profitability on lower sales volume is reflective of improved product mix and lower operating costs.

OUTLOOK

Demand in Asia, primarily China, fell off significantly in the third quarter and oil and gas related demand deteriorated sequentially and year over year. Recovery in these two key markets is not forecasted to occur in the fourth quarter. Given these softening market demand conditions and the greater than forecasted decline in third quarter order entry, we are revising our full-year adjusted EPS guidance to $1.55 - $1.65 per share, diluted. On an encouraging note, our weekly order rate appears to have bottomed out and is modestly recovering from the trough levels, but not yet achieving levels seen in late 2014 and the first half of 2015. This increase in order rate most likely reflects some of the market inventory adjustments having been liquidated.

DIVIDEND

Today the Company announced the declaration of its fourth quarter dividend of $0.09 per share payable on November 27, 2015 to shareholders of record on November 9, 2015.

CONFERENCE CALL

Materion Corporation will host a conference call with analysts at 9:00 a.m. Eastern Standard Time, October 29, 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 November 13, 2015 by dialing (877) 660-6853 or (201) 612-7415; please reference Conference ID Number 13621493. 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;
• Our ability to strengthen our internal control over financial reporting and disclosure controls and procedures;
• 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 fully achieve the strategic and financial objectives related to these acquisitions;
• Our success in implementing our strategic plans and the timely and successful completion and start-up of any capital projects;
• 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.