FERRO REPORTS FOURTH QUARTER AND FULL YEAR 2019 RESULTS

Tile Coatings Systems moved to Discontinued Operations following agreement to sell

Fourth Quarter Continuing Operations*

Full Year Continuing Operations*



Net Sales declined 7.7% to $245.9M



Net Sales declined 5.9% to $1,018.4M

 

Gross Profit of $75.3M, Gross Profit Margin of 30.6%



Gross Profit of $308.8M, Gross Profit Margin of 30.3%



Adjusted Gross Profit Margin of 31.0%



Adjusted Gross Profit Margin of 31.0%



GAAP diluted EPS of $(0.03), Adjusted EPS of $0.17



GAAP diluted EPS of $0.41, Adjusted EPS of $0.83



Net Loss1 of $2.2M



Net Income1 of $34.3M



Adjusted EBITDA of $37.4M, Adjusted EBITDA Margin of 15.2%



Adjusted EBITDA of $158.9M, Adjusted EBITDA Margin of 15.6%



Ferro’s growth in 2019 was hampered by challenging macro-economic conditions in certain geographies and end markets and by cyclical customer orders falling outside the year. We managed through these challenges with optimization initiatives that enabled operating margins to recover and, with some tailwinds from lower raw material costs, we completed the year comfortably within our revised Total Ferro Adjusted EPS guidance. We are optimistic that the more positive trends in the fourth quarter will continue into 2020, due to continued optimization, as well as economic strengthening in a number of our high-value end markets.

We are making progress toward completion of the sale of our Tile Coatings Systems business, which we announced in December 2019. We are looking forward to completion of the sale, after which Ferro will have a portfolio of businesses more concentrated in specialty materials and more targeted to higher-growth end markets.  Our Company also will have better balance to its geographic footprint and the financial flexibility to make greater investments in growth, both organic and inorganic.  

2020 will be a transition year for Ferro as we focus on closing the Tile Coatings Systems sale, advancing optimization initiatives, right-sizing the footprint and cost structure of the business, and removing stranded costs. We expect the enhanced profile of Ferro to be in place in 2021, at which point Ferro will be well-positioned to accelerate growth and innovation and to benefit from our ongoing optimization efforts.  After the transition, we believe Ferro should yield, on average, double-digit year-on-year Adjusted EBITDA growth.

Peter Thomas
Chairman, President and CEO, Ferro Corporation











Key Results from Continuing Operations*    (amounts in millions, except EPS)

Sales and Gross Profits

Q4 2019

% Change

2019

% Change

Net Sales

$

245.9

-7.7%

$

1,018.4

-5.9%

Net Sales (constant currency)

245.9

-6.8%

1,018.4

-3.3%

Gross Profit (GAAP)

75.3

-6.5%

308.8

-9.1%

Adjusted Gross Profit cc    

76.2

-8.7%

316.0

-6.3%

Net Income/(Loss), EBITDA and EPS

Q4 2019

% Change

2019

% Change

Net Income/(Loss) 1

$

(2.2)

NM

$

34.3

-38.8%

Adjusted EBITDA

37.4

-11.9%

158.9

-13.9%

GAAP diluted EPS

$

(0.03)

NM

$

0.41

-37.9%

Adjusted EPS

0.17

-48.5%

0.83

-27.2%



Cash Flow 

Q4 2019

%Change

2019

%Change

Net Cash provided by operating activities (GAAP)2

$

85.0

-42.3%

$

17.7

NM

Adjusted Free Cash Flow from Operating Activities (Non-GAAP)3

111.0

-29.6%

130.2

-31.2%

2019 Highlights

 Segment Results Continuing Operations * (amounts in millions, except EPS)

Performance Colors & Glass

Q4 2019

% Change

2019

% Change

Net Sales

$

160.4

-4.8%

$

648.7

-6.1%

Net Sales (Constant Currency)

160.4

-3.9%

648.7

-3.4%

Gross Profit (GAAP)

47.9

-0.2%

193.5

-8.9%

Adjusted Gross Profit (Constant Currency)

48.2

-1.2%

196.1

-4.8%

Color Solutions

Q4 2019

% Change

2019

% Change

Net Sales

$

85.5

-12.7%

$

369.7

-5.5%

Net Sales (Constant Currency)

85.5

-11.8%

369.7

-3.0%

Gross Profit (GAAP)

27.7

-10.5%

114.9

-7.9%

Adjusted Gross Profit (Constant Currency)

27.8

-16.0%

117.0

-7.5%



Full Year 2020 Continuing Operations Guidance







Net Sales

Adjusted

Adjusted

Net Debt/ Adj. EBITDA



(% of PY Sales)

EBITDA

Diluted EPS

Leverage

2019 Results

$1.018.4M

$158.9M

$0.83

3.2x

2020 Guidance

flat to +2.0%

$160M - $170M

$0.82 - $0.92

Approximately 1.5x2

YoY Change

Flat  to +7%

Flat to +11%

YoY Constant Change1

2% to 3%

2% to 9%

1% to 13%



Currency Exposure 2019 Weighting

2020 Guidance FX sensitivity

EUR - Euro

35% to 40%

% Change

Operating Profit

CNY -Yuan Renminbi

6% to 8%

+1% all FX change

~$0.6 million to ~$0.8 million

MXN – Mexican Peso

2% to 4%

+1% Euro change

~$0.5 million to ~$0.7 million



·

Ferro’s ability to successfully complete the sale of its Tile Coatings Systems business, including obtaining the requisite regulatory approvals;

·

demand in the industries into which Ferro sells its products may be unpredictable, cyclical, or heavily influenced by consumer spending;

·

the effectiveness of the Company’s efforts to improve operating margins through sales growth, price increases, productivity gains, and improved purchasing techniques;

·

currency conversion rates and economic, social, political, and regulatory conditions in the U.S. and around the world;

·

the availability of reliable sources of energy and raw materials at a reasonable cost;

·

challenges associated with a multi-national company such as Ferro competing lawfully with local competitors in certain regions of the world;

·

Ferro’s ability to successfully implement and/or administer its optimization initiatives, including its investment and restructuring programs, and to produce the desired results;

·

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

·

Ferro’s ability to identify suitable acquisition candidates, complete acquisitions, effectively integrate the acquired businesses and achieve the expected synergies, as well as the acquisitions being accretive and Ferro achieving the expected returns on invested capital;

·

the impact of damage to, or the interruption, failure or compromise of the Company’s information systems due to events including but not limited to aging information systems infrastructure, computer viruses and cyber security breaches;

·

the implementation and operations of business information systems and processes;

·

increasingly aggressive domestic and foreign governmental regulation of hazardous and other materials and regulations affecting health, safety and the environment;

·

our ability to address safety, human health, social, product liability and environmental risks associated with our current and historical products, product life cycles and production processes;

·

competitive factors, including intense price competition;

·

increased, and possibly inconsistent, domestic and foreign regulations of privacy and data security;

·

changes in U.S. and other governments’ trade policies;

·

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; sale of products and materials into highly regulated industries;

·

limited or no redundancy for certain of the Company’s manufacturing facilities and possible interruption of operations at those facilities;

·

our ability to attract and retain key personnel;

·

exposure to lawsuits, governmental investigations and proceedings relating to current and historical operations and products;

·

Ferro’s ability to protect its intellectual property, including trade secrets, or to successfully resolve claims of infringement brought against it;

·

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;

·

Ferro’s borrowing costs could be affected adversely by interest rate increases;

·

management of Ferro’s general and administrative expenses;

·

the impact of the Tax Cuts and Jobs Act on our business;

·

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 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;

·

risks and uncertainties associated with intangible assets;

·

the effectiveness of strategies to increase Ferro’s return on invested capital, internal rate of return and other return metrics, and the short-term impact that acquisitions may have on such metrics;

·

liens on the Company’s assets by its lenders affect its ability to dispose of property and businesses;

·

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, pandemics (such as COVID-19), accidents and governmental actions.



(Dollars in thousands, except per share amounts)

Three Months Ended

Twelve Months Ended



December 31, (Unaudited)

December 31,



2019

2018

2019

2018



Net sales

$

$

$

$

Cost of sales

Gross profit

Selling, general and administrative expenses

Restructuring and impairment charges

Other expense (income):

Interest expense

Interest earned

Foreign currency losses, net

Loss on extinguishment of debt

 -

 -

 -

Miscellaneous expense, net

Income before income taxes

Income tax (benefit) expense

Income from continuing operations

Income from discontinued operations, net of taxes

Net  (loss)  income

Less: Net income attributable to noncontrolling interests

Net income (loss) attributable to Ferro Corporation common shareholders

$

$

$

$

Amounts attributable to Ferro Corporation:

Net income attributable to Ferro Corporation from continuing operations, net of income tax

Net income (loss) attributable to Ferro Corporation from discontinued operations, net of income tax

Earnings (loss) per share attributable to Ferro Corporation common shareholders:

Basic earnings:

Continuing operations

$

$

$

$

Discontinued operations

$

$

$

$



Diluted earnings:

Continuing operations

$

$

$

$

Discontinued operations

$

$

$

$



Shares outstanding:

Weighted-average basic shares

Weighted-average diluted shares

End-of-period basic shares





(Dollars in thousands)

Three Months Ended

Twelve Months Ended



December 31,

December 31,



2019

2018

2019

2018

Segment Net Sales

Performance Colors and Glass

Color Solutions

Total segment net sales

$

$

$

$



Segment Gross Profit

Performance Colors and Glass

Color Solutions

Other costs of sales

Total gross profit

$

$

$

$



Selling, general and administrative expenses

Strategic services

Functional services

Incentive compensation

Stock-based compensation

Total selling, general and administrative expenses

$

$

$

$







(Dollars in thousands)

December 31,

December 31,



2019

2018

ASSETS

Current assets

Cash and cash equivalents

$

$

Accounts receivable, net

Inventories

Other receivables

Other current assets

Current assets held-for-sale

Total current assets

Other assets

Property, plant and equipment, net

Goodwill

Intangible assets, net

Deferred income taxes

Operating leased assets

 -

Other non-current assets

Non-current assets held-for-sale

Total assets

$

$



LIABILITIES AND EQUITY

Current liabilities

Loans payable and current portion of long-term debt

$

$

Accounts payable

Accrued payrolls

Accrued expenses and other current liabilities

Current liabilities held-for-sale

Total current liabilities

Other liabilities

Long-term debt, less current portion

Postretirement and pension liabilities

Operating leased non-current liabilities

 -

Other non-current liabilities

Non-current liabilities held-for-sale

Total liabilities

Equity

Total Ferro Corporation shareholders’ equity

Noncontrolling interests

Total liabilities and equity

$

$



(Dollars in thousands)

Three Months Ended

Twelve Months Ended



December 31, (Unaudited)

December 31,



2019

2018

2019

2018

Cash flows from operating activities

Net (loss) income

$

$

$

$

Loss (gain) on sale of assets and businesses

Depreciation and amortization

Interest amortization

Restructuring and impairment charges

Loss on extinguishment of debt

 —

 —

 —

Accounts receivable

Inventories

Accounts payable

Other current assets and liabilities, net

Other adjustments, net

Net cash provided by operating activities



Cash flows from investing activities

Capital expenditures for property, plant and equipment and other long-lived assets

Collections of financing receivables

Business acquisitions, net of cash acquired

 —

Other investing activities

 —

Net cash (used in) provided by investing activities



Cash flows from financing activities

Net (repayments) borrowings under loan payable

Principal payments on term loan facility - Credit Facility

 —

 —

 —

Principal payments on term loan facility - Amended Credit Facility

Proceeds from term loan facility - Amended Credit Facility

 —

 —

 —

Proceeds from revolving credit facility - Credit Facility

 —

 —

 —

Principal payments on revolving credit facility - Credit Facility

 —

 —

 —

Proceeds from revolving credit facility - Amended Credit Facility

Principal payments on revolving credit facility - Amended Credit Facility

Payment of debt issuance costs

 —

 —

 —

Acquisition related contingent consideration payment

 —

 —

Proceeds from exercise of stock options

Purchase of treasury stock

 —

Other financing activities

Net cash (used in) provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

(Decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Less: Cash and cash equivalents of discontinued operations at end of period

Cash and cash equivalents of continuing operations at end of period

$

$

$

$



Cash paid during the period for:

Interest

$

$

$

$

Income taxes

$

$

$

$







(Dollars in thousands, except per share amounts)

Cost of sales

Selling general and administrative expenses

Restructuring and impairment charges

Other expense, net

Income tax expense4

Net income (loss) attributable to common shareholders

Diluted earnings (loss) per share





2019



As reported from Continuing Operations

$

$

$

$

$

$

$

Adjustments:

Restructuring

 —

 —

 —

 —

Pension1

 —

 —

 —

 —

Acquisition related costs2

 —

 —

 —

Costs related to optimization projects

 —

 —

 —

Costs related to divested businesses and assets

 —

 —

Tax on adjustments

 —

 —

 —

 —

Total adjustments6

As adjusted from Continuing Operations

$

$

$

 —

$

$

$

$

As reported from Discontinued Operations7

$

 —

$

 —

$

 —

$

 —

$

 —

$

$





2018



As reported from Continuing Operations

$

$

$

$

$

$

$

Adjustments:

Restructuring

 —

 —

 —

 —

Pension1

 —

 —

 —

 —

Acquisition related costs3

 —

 —

 —

Costs related to optimization projects

 —

 —

 —

Costs related to divested businesses and assets

 —

 —

 —

 —

 -

Other5

 —

 —

 —

 —

Tax on adjustments

 —

 —

 —

 —

Total adjustments6

As adjusted from Continuing Operations

$

$

$

 —

$

$

$

$

As reported from Discontinued Operations7

$

 —

$

 —

$

 —

$

 —

$

 —

$

$

(1)

The adjustments relate to pension and other postretirement benefit mark-to-market adjustments and settlements.

(2)

The adjustments to “Cost of Sales” primarily include environmental costs related to our recent acquisitions. The adjustments to “Selling general and administrative expenses” primarily include legal, professional and other expenses related to acquisition costs.

(3)

The adjustments to “Cost of Sales” primarily include the amortization of purchase accounting adjustments related to our recent acquisitions. The adjustments to “Selling, general and administrative expenses” primarily include legal, professional and other expenses related to acquisition costs.

(4)

Income tax expense reflects the reported expense, adjusted for adjustments being tax effected at the respective statutory rate where the item originated, as well as the impacts associated with the Tax Cuts and Jobs Act that were recorded in 2019 and 2018.

(5)

The adjustments to “Other expense, net” primarily relate to a earn out adjustments for acquisitions.

(6)

Due to rounding, total earnings per share related to adjustments does not always add to the total adjusted earnings per share.

(7)

Included in Discontinued Operations are $33.4 million in impairment charges, $0.1 million in restructuring charges, and $3.3 million in acquisition costs totaling $36.8 million net of tax, or $0.45 per share, that would have historically been excluded from Adjusted Earnings Per Share for the three months ended December 31, 2019 and $0.4 million in restructuring charges and

$0.5 million in acquisition costs totaling $0.9 million net of tax, or $0.01 per share, that would have historically been excluded from Adjusted Earnings Per Share for the three months ended December 31, 2018.





(Dollars in thousands, except per share amounts)

Cost of sales

Selling general and administrative expenses

Restructuring and impairment charges

Other expense, net

Income tax expense6  

Net income attributable to common shareholders

Diluted earnings per share





2019



As reported from Continuing Operations

$

$

$

$

$

$

$

Adjustments:

Restructuring

 —

 —

 —

 —

Pension1

 —

 —

 —

 —

Acquisition related costs2

 —

 —

Costs related to optimization projects

 —

 —

Costs related to divested businesses and assets

 —

 —

 —

Other4

 —