FERRO SHOWS RESILIENCE WITH STRONGER RESULTS THAN ANTICIPATED,

REPORTS THIRD QUARTER 2020 PERFORMANCE AND PROVIDES FULL YEAR 2020 GUIDANCE

Improving demand driven by leadership positions in megatrend end markets.

Third Quarter Continuing Operations*               

Year through September Continuing Operations*



Net Sales declined 1.4% to $241.9M

    Net Sales declined 9.2% to $699.0M

   

Net Sales declined 2.1% on a constant currency basis

 Net Sales declined 8.0% on a constant currency basis

   

Gross Profit declined 7.8% to $70.2M, Gross Profit Margin of 29.0%

 Gross Profit declined 7.9% to $214.6M, Gross Profit Margin improved 43 basis points to 30.7%

   

Adjusted Gross Profit declined 7.4% to $72.2M, Adjusted Gross Profit Margin of 29.8%

 Adjusted Gross Profit declined 7.2%, Adjusted Gross Profit Margin improved 29 basis points to 31.4%

   

GAAP diluted EPS of $0.11, Adjusted diluted EPS of $0.19

 GAAP diluted EPS of $0.27, Adjusted diluted EPS of $0.56

   

Net Income1 improved 12.9% to $14.5M, Adjusted EBITDA declined 14.0% to $36.9M, Adjusted EBITDA Margin of 15.2%

 Net Income1 declined 32.8% to $25.1M, Adjusted EBITDA declined 9.1% to $108.5M, Adjusted EBITDA Margin of 15.5%





Ferro continued its strong recovery in the third quarter from the pandemic-impacted second quarter, demonstrating the quality and resiliency of our business. Sales increased beyond our expectations in the third quarter, although down from the prior year third quarter.  Sequentially, sales increased 18.1 percent over the second quarter of 2020.

We currently expect the positive trends in demand for our products to continue in the coming months.  Our customers do not appear to be de-stocking in the fourth quarter, as they have in more typical years, and we are seeing an uptick in demand for the new year as our customers’ markets continue to recover. We also believe that changes in consumer and other behavior resulting from the COVID pandemic will accelerate demand for Ferro products in multiple markets, including renewables, healthcare, and electronics.  In addition, as we have said previously, we hold leadership positions in markets aligned with megatrends and we have invested in innovation targeting these markets. All of this, together with our industry-leading expertise in functional coatings and color solutions, gives us confidence that Ferro is well positioned for attractive growth going forward.

Regarding the COVID pandemic, while we do not currently anticipate a significant impact on demand for our products resulting from a second wave of COVID cases, we recognize that the increasing number of cases in certain areas of the world creates macro-economic uncertainty and we continue to monitor the situation.

We also continue to advance our strategic priorities, including the sale of our Tile Coatings Systems business. The Tile transaction is subject to customary closing conditions, including regulatory approvals. Ferro and Lone Star have made substantial progress on the transaction and are working with the regulatory agencies to obtain the remaining approvals.

Peter Thomas

Chairman, President and CEO, Ferro Corporation







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

Sales and Gross Profits

Q3 2020

% Change

2020 YTD

% Change

Net Sales

$

241,877

-1.4%

$

699,004

-9.2%

Net Sales (constant currency)

241,877

-2.1%

699,004

-8.0%

Gross Profit (GAAP)

70,166

-7.8%

214,648

-7.9%

Gross Profit Margin

29.0%

(199) bps

30.7%

43 bps

Adjusted Gross Profit (constant currency)

72,178

-7.4%

219,770

-7.2%

Adjusted Gross Profit Margin

29.8%

(172) bps

31.4%

29 bps

Net Income/(Loss), EBITDA and EPS

Q3 2020

% Change

2020 YTD

% Change

Net Income/(Loss) 1

$

14,474

12.9%

$

25,057

-32.8%

Adjusted EBITDA

36,856

-14.0%

108,475

-9.1%

Adjusted EBITDA Margin

15.2%

(223) bps

15.5%

1 bps

GAAP diluted EPS

$

0.11

-45.0%

$

0.27

-38.6%

Adjusted EPS

0.19

-29.6%

0.56

-13.8%

Third Quarter 2020 Highlights

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

Functional Coatings

Q3 2020

% Change

2020 YTD

% Change

Net Sales

$

154,218

-0.3%

$

441,325

-9.1%

Net Sales (Constant Currency)

154,218

-0.8%

441,325

-7.7%

Gross Profit (GAAP)

41,906

-11.4%

125,842

-13.1%

Gross Profit Margin

27.2%

(338) bps

28.5%

(132) bps

Adjusted Gross Profit (Constant Currency)

42,912

-11.0%

129,902

-10.6%

Adj. Gross Profit Margin (Constant Currency)

27.8%

(316) bps

29.4%

(94) bps

Color Solutions

Q3 2020

% Change

2020 YTD

% Change

Net Sales

$

87,659

-3.2%

$

257,679

-9.3%

Net Sales (Constant Currency)

87,659

-4.2%

257,679

-8.6%

Gross Profit (GAAP)

28,450

-2.3%

89,222

2.3%

Gross Profit Margin

32.5%

31 bps

34.6%

394 bps

Adjusted Gross Profit (Constant Currency)

28,903

-0.9%

89,698

1.1%

Adj. Gross Profit Margin (Constant Currency)

33.0%

111 bps

34.8%

334 bps

Full-Year 2020 Guidance * (amounts in millions, except EPS)



Adjusted

Adjusted



EBITDA

Diluted EPS

2020 Full Year Guidance

$141 to $146M

$0.71 to $0.76



Currency Exposure 2019 Weighting

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

~$0.4 million to ~$0.6 million



·

factors affecting the Company’s business that are beyond its control, including disasters, pandemics (such as COVID-19), accidents and governmental actions;

·

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 margin 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;

·

borrowing costs that 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; and

·

amount and timing of any repurchase of Ferro’s common stock.





(In thousands, except per share amounts)

Three Months Ended

Nine Months Ended



September 30,

September 30,



2020

2019

2020

2019



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

Miscellaneous expense (income), net

Income before income taxes

Income tax expense

Income from continuing operations

Income (loss) from discontinued operations, net of income taxes

Net income

Less: Net income attributable to noncontrolling interests

Net income attributable to Ferro Corporation common shareholders

$

$

$

$

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

Basic earnings (loss):

Continuing operations

Discontinued operations



Diluted earnings (loss):

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

Nine Months Ended



September 30,

September 30,



2020

2019

2020

2019

Segment Net Sales

Functional Coatings

$

$

$

$

Color Solutions

Total segment net sales

$

$

$

$



Segment Gross Profit

Functional Coatings

$

$

$

$

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)

September 30,

December 31,



2020

2019

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

Nine Months Ended



September 30,

September 30,



2020

2019

2020

2019

Cash flows from operating activities

Net income

$

$

$

$

Loss (gain) on sale of assets

Depreciation and amortization

Interest amortization

Restructuring and impairment

Accounts receivable

Inventories

Accounts payable

Other current assets and liabilities, net

Other adjustments, net

Net cash provided by (used in) 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 provided by investing activities

Cash flows from financing activities

Net borrowings under loans payable

Principal payments on term loan facility - Amended Credit Facility

Proceeds from revolving credit facility - Amended Credit Facility

Principal payments on revolving credit facility - Amended Credit Facility

Purchase of treasury stock

 -

 -

 -

Other financing activities

Net cash provided by (used in) financing activities

Effect of exchange rate changes on cash and cash equivalents

Increase (decrease) 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 expense7

Net income attributable to common shareholders

Diluted earnings per share





2020



As reported

$

$

$

$

$

$

$

Adjustments:

Restructuring

 -

 -

 -

 -

Acquisition related costs1

 -

 -

 -

 -

 -

Costs related to optimization projects3

 -

 -

 -

Costs related to divested businesses and assets

 -

 -

 -

     Other5

 -

 -

 -

Tax on adjustments

 -

 -

 -

 -

Total adjustments8

As adjusted

$

$

$

 -

$

$

$

$







2019



As reported

$

$

$

$

$

$

$

Adjustments:

Restructuring

 -

 -

 -

 -

Acquisition related costs2

 -

 -

 -

Costs related to optimization projects4

 -

 -

 -

Costs related to divested businesses and assets

 -

 -

 -

     Other6

 -

 -

 -

 -

Tax on adjustments

 -

 -

 -

 -

Total adjustments8

As adjusted

$

$

$

 -

$

$

$

$

(1)

The adjustments to “Selling general and administrative expenses” primarily include legal, professional and other expenses related to acquisition costs.

(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)

Costs related to Optimization projects of $3.3 million include costs associated with our Americas manufacturing optimization initiative of $2.3 million, which is comprised of costs for process development and production testing, professional fees for legal and tax services, supplies and equipment commissioning, and utility setup and testing. The remaining $1.0 million of costs relate to global optimization projects and discrete projects at our previous acquisitions.

(4)

Costs related to Optimization projects of $2.2 million include costs associated with our Americas manufacturing optimization initiative of $2.1 million, which is comprised of costs for process development and production testing, professional fees for legal and tax services, supplies and equipment commissioning, and utility setup and testing. The remaining $0.1 million of costs relate to global optimization projects and discrete projects at our previous acquisitions.

(5)

The adjustments to “Other expense, net” relate to losses from fire in Columbia and impacts of currency related items in Thailand.

(6)

The adjustments to “Other expense, net” relate to impacts of currency related items in Argentina.

(7)

Income tax expense reflects the reported expense, adjusted for adjustments being tax effected at the respective statutory rate where the item originated.

(8)

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





(Dollars in thousands, except per share amounts)

Cost of sales

Selling general and administrative expenses

Restructuring and impairment charges

Other expense, net

Income tax expense7

Net income  attributable to common shareholders

Diluted earnings per share





2020



As reported

$

$

$

$

$

$

$

Adjustments:

Restructuring

 -

 -

 -

 -

Acquisition related costs1

 -

 -

 -

Costs related to optimization projects3

 -

 -

 -

Costs related to divested businesses and assets

 -

 -

 -

     Other5

 -

 -

 -

Tax on adjustments

 -

 -

 -

 -

Total adjustments8

As adjusted

$

$

$

 -

$

$

$

$







2019



As reported

$

$

$

$

$

$

$

Adjustments:

Restructuring

 -

 -

 -

 -

Acquisition related costs2

 -

 -

Costs related to optimization projects4

 -

 -

Costs related to divested businesses and assets

 -

 -

 -

     Other6

 -

 -

 -

 -

 -

Tax on adjustments

 -

 -

 -

 -

Total adjustments8