Third-Quarter 2018 Earnings

Transcription

1 Third-Quarter 08 Earnings

2 Regulatory Statements Certain statements in this presentation may constitute forward-looking statements within the meaning of federal securities laws. These statements are subject to a variety of uncertainties, unknown risks, and other factors concerning the Company s operations and business environment. Important factors that could cause actual results to differ materially from those suggested by these forward-looking statements and that could adversely affect the Company s future financial performance include the following: demand in the industries into which Ferro sells its products may be unpredictable, cyclical, or heavily influenced by consumer spending; Ferro s ability to suessfully implement and/or administer its optimization initiatives, including its restructuring programs, and to produce the desired results; currency conversion rates and economic, social, political, and regulatory conditions in the U.S. and around the world; Ferro s ability to identify suitable acquisition candidates, complete acquisitions (including the pending acquisitions noted in the Company s second-quarter 08 earnings release), effectively integrate the businesses and achieve the expected synergies as well as the acquisitions being aretive and Ferro achieving the expected returns on invested capital; the effectiveness of the Company s efforts to improve operating margins through sales growth, price increases, productivity gains, and improved purchasing techniques; Ferro s ability to suessfully introduce new products or enter into new growth markets; the impact of interruption, damage to, failure, or compromise of the Company s information systems; restrictive covenants in the Company s credit facilities could affect its strategic initiatives and liquidity; Ferro s ability to aess capital markets, borrowings, or financial transactions; the availability of reliable sources of energy and raw materials at a reasonable cost; increasingly aggressive domestic and foreign governmental regulations on hazardous materials and regulations affecting health, safety and the environment; competitive factors, including intense price competition; Ferro s ability to protect its intellectual property, including trade secrets, or to suessfully resolve claims of infringement brought against it; sale of products and materials into highly regulated industries; the impact of operating hazards and investments made in order to meet stringent environmental, health and safety regulations; limited or no redundancy for certain of the Company s manufacturing facilities and possible interruption of operations at those facilities; management of Ferro s general and administrative expenses; 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; the effectiveness of strategies to increase Ferro s return on invested capital, and the short-term impact that acquisitions may have on return on invested capital; 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; exposure to lawsuits in the normal course of business; risks and uncertainties associated with intangible assets; Ferro s borrowing costs could be affected adversely by interest rate increases; 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 thatarebeyondits control, including disasters, aidents andgovernmentalactions. The risks and uncertainties identified above are not the only risks the Company faces. Additional risks and uncertainties not presently known to the Company or that it currently believes to be immaterial also may adversely affect the Company. Should any known or unknown risks and uncertainties develop into actual events, these developments could have material adverse effects on our business, financial condition and results of operations. This presentation contains time-sensitive information that reflects management s best analysis only as of the date of this presentation. The Company does not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events information or circumstances that arise after the date of this presentation. Additional information regarding these risks can be found in our Annual Report on Form 0-K for the year ended December 3, 07. Also, this presentation includes certain financial measurers that were not prepared in aordance with generally aepted aounting principles. Reconciliations of the historical non- GAAP financial measures to the most directly comparable GAAP financial measures can be found in the Appendices included in this presentation. This presentation includes adjusted EBITDA, adjusted EPS and adjusted cash flow conversion guidance. It is not possible, without unreasonable effort, for the Company to identify the amount or significance of future charges that would be excluded from adjusted EBITDA, adjusted EPS and adjusted free cash flow from operations conversion or the potential for other transactions that may impact such guidance. Aordingly, the Company is unable to reconcile, without unreasonable effort, the Company's forecasted range of these adjusted non-gaap financial measures to their most directly comparable GAAP financial measures.

3 08 Third Quarter Summary Highlights Organic sales grew 7.3% on constant currency Net Sales increased.9% to $395. million GAAP EPS declined 9.6% to $0.9 EPS increased.% to $0.37 Net Cash provided by operating activities expanded 67% to $73.4 million Free Cash Flow expanded 80% to $79. million $7.5 million of common stock repurchased from the beginning of 08 through November 7. Board of Directors has authorized an additional $50 million repurchase Full year 08 guidance reaffirmed at lower end of range for EPS and EBITDA and at upper end of range for Free Cash Flow Conversion. Note: Non-GAAP measures, see reconciliations in the appendix Note: Comparative information is relative to prior-year third quarter 3

4 08 Third Quarter Financial Results Dollars in Millions, except for EPS GAAP Total Net Sales Gross Profit Total SG&A Net Income (GAAP) EPS (GAAP) Q3 08 $395.M $05.5M $64.3M $6.M $0.9 % Δ.9%.8% -.4% -9.6% -9.6% Total Net Sales Gross Profit Total SG&A EBITDA EPS (Non-GAAP) Q3 08 $395.M $06.6M $56.M $63.7M $0.37 % Δ 6.3% 3.5% -.4% 8.4%.% Comparison in nominal currency Net Income attributable to Ferro Corporation common shareholders Constant Currency Note: Comparative information is relative to prior-year third quarter Note: Non-GAAP measures, see reconciliations in the appendix 4

5 08 Year to Date Financial Results Dollars in Millions, except for EPS GAAP Total Net Sales Gross Profit Total SG&A Net Income (GAAP) EPS (GAAP) YTD 08 $,6.9M $350.8M $07.6M $69.M $0.8 % Δ 9.4%.9% 0.% 5.% 5.% Total Net Sales Gross Profit Total SG&A EBITDA EPS (Non-GAAP) YTD 08 $,6.9M $353.5M $90.8M $0.9M $.7 % Δ 6.9% 8.7% 7.6% 3.7% 5.8% Comparison in nominal currency Net Income attributable to Ferro Corporation common shareholders Constant Currency Note: Comparative information is relative to prior year to date Note: Non-GAAP measures, see reconciliations in the appendix 5

6 Additional Financials Dollars in Millions GAAP Q3 Total SG&A Q3 SG&A Q3 Operating Cash Flow 08 $64.3M $73.4M % Δ -.4% 67% Q3 Free Cash Flow 3 08 $56.M $79.M 3 % Δ -.4% 80% GAAP YTD Total SG&A YTD SG&A YTD Operating Cash Flow 08 $07.6M $35.7M % Δ 0.%.9% YTD Free Cash Flow 3 08 $90.8M $3.4M 3 % Δ 7.6% -.5% Cash Flows from operating activities Free Cash Flow from Continuing Operations 3 Comparison of prior year at constant currency Note: Non-GAAP measures, see reconciliations in the appendix 6

7 08 Third Quarter Segment Results Dollars in Millions Segment Net Sales Gross Profit Performance Coatings Performance Colors & Glass Color Solutions $75.9M Up 6.% Organic up 7.0% Volume.7% $3.3M Up 3.5% Organic up.0% Volume 0.9% $95.9M Up 4.6% Organic up 3.5% Volume -3.5% $36.3M 0.6% GPM $40.M 3.5% GPM $3.0M 3.3% GPM comparison of prior year quarter at constant currency Constant Currency Note: Non-GAAP measures, see reconciliations in the appendix 7

8 08 Year to Date Segment Results Dollars in Millions Segment Net Sales Gross Profit Performance Coatings Performance Colors & Glass Color Solutions $554.0M Up 8.8% Organic up 8.5% Volume 3.4% $369.8M Up.% Organic up 6.6% Volume 8.5% $93.M Up 4.4% Organic up 4.% Volume -6.% $30.M 3.5% GPM $8.8M 34.8% GPM $95.7M 3.6% GPM comparison of prior year to date at constant currency Constant Currency Note: Non-GAAP measures, see reconciliations in the appendix 8

9 08 Full-Year Guidance Values in Millions except for EPS EBITDA Diluted EPS Free Cash Flow from Operations Conversion 08 Guidance $70M - $75M $.55 - $.60 40% - 45% The business expects full year 08 guidance for EPS and EBITDA to be at the lower range of guidance. In addition, the business expects full year 08 guidance for Free Cash Flow Conversion to be at the upper range of guidance. Ferro is providing EBITDA, diluted EPS and Free Cash Flow from Operations conversion guidance on a continuing operations basis. While it is likely that Ferro could incur charges for items excluded from adjusted EBITDA, adjusted diluted EPS and adjusted cash flow from operations conversion from continuing operations such as mark-to-market adjustments of pension and other postretirement benefit obligations, restructuring and impairment charges, and legal and professional expenses related to certain business development activities, it is not possible, without unreasonable effort, to identify the amount or significance of these items or the potential for other transactions that may impact future GAAP net income and cash flow from operating activities. Management does not believe these items to be representative of underlying business performance. Management is unable to reconcile, without unreasonable effort, the Company's forecasted range of these adjusted non-gaap financial measures to their most directly comparable GAAP financial measures. 9

10 Ferro s 00 Vision PHASE I: FIX PHASE II: TRANSITION PHASE III: GROW PHASE IV: INNOVATE Simplify operations and reduce infrastructure costs Harvest underperforming and non-strategic assets Invest in higher value growth opportunities Dynamic innovation and optimization Organic Growth Optimization Inorganic Growth 3-4% annual growth Gross Margin 33-34% Existing M&A pipeline New product pipeline EBITDA 0% Expand market - % FCF conversion 50-60% Market + -% % Annually Strategic Acquisitions $50M / Year 0 Note: Inorganic growth excluded from 00 vision metrics 0

11 Ferro Investor Relations Contact Phone: Internet: Ferro Investor Relations

12 Appendix

13 Reconciliation of Q3 Reported to Financials Ferro Corporation and Subsidiaries Reconciliation of Reported to Financials For the Three Months and the Nine Months Ended September and 07 (Unaudited) Net Sales Gross Profit Total SG&A Operating Income (Dollars in millions) PCG CS PC Ferro Total PCG CS PC Other Ferro Total Ferro Total Ferro Total Q3 08 As Reported from Continuing Operations (GAAP) $ 3.3 $ 95.9 $ 75.9 $ 395. $ 40. $ 30. $ 36.3 $ (.0) $ 05.5 $ 64.3 $ 4. Special Items: Acquisition related professional fees (5.7) 6.5 Costs related to optimization projects (.5).8 Costs related to divested businesses Total Special Items (8.) 9.3 Constant Currency FX Impact As from Continuing Operations (Non-GAAP measure) $ 3.3 $ 95.9 $ 75.9 $ 395. $ 40. $ 3.0 $ 36.3 $ (0.8) $ 06.6 $ 56. $ 50.4 Q3 07 As Reported from Continuing Operations (GAAP) $ 0.6 $ 93. $ 46. $ $ 37.9 $ 3.0 $ 35.5 $ (0.8) $ 03.6 $ 65.9 $ 37.7 Special Items: Acquisition related professional fees (4.9) 6. Costs related to optimization projects (0.6) 0.7 Costs related to divested businesses (.4).4 Total Special Items (6.9) 8. Constant Currency FX Impact (.0) (.4) (6.8) (0.) (0.6) (0.4) (.) 0. (.0) (.5) (0.5) As from Continuing Operations (Non-GAAP measure) $ 08.6 $ 9.8 $ 39.4 $ $ 38.0 $ 30.6 $ 34.8 $ (0.5) $ 03.0 $ 57.6 $ Reflects the remeasurement of 07 reported and adjusted local currency results using 08 exchange rates, resulting in a constant currency comparative figures to 08 reported and adjusted results. It should be noted that adjusted net sales, gross profit, selling, general and administrative expenses and operating income referred to above are financial measures not required by, or presented in aordance with, aounting principles generally aepted in the United States (U.S. GAAP). These non-gaap financial measures should be considered as a supplement to, and not as a substitute for, the financial measures prepared in aordance with U.S. GAAP and a reconciliation of these financial measures to the most comparable U.S. GAAP financial measures is presented. We believe this data provides investors with additional information on the underlying operations and trends of the business and enables period-to-period comparability of financial performance. 3

14 Reconciliation of YTD Reported to Financials Ferro Corporation and Subsidiaries Reconciliation of Reported to Financials For the Three Months and the Nine Months Ended September and 07 (Unaudited) Net Sales Gross Profit Total SG&A Operating Income (Dollars in millions) PCG CS PC Ferro Total PCG CS PC Other Ferro Total Ferro Total Ferro Total YTD 08 As Reported from Continuing Operations (GAAP) $ $ 93. $ $,6.9 $ 8.8 $ 93.9 $ 30.3 $ (.) $ $ 07.6 $ 43.3 Special Items: Acquisition related professional fees (0.) 0..7 (.5) 3. Costs related to optimization projects (4.9) 5.8 Costs related to divested businesses - (0.4) 0.4 Total Special Items (0.).0.7 (6.7) 9.4 Constant Currency FX Impact As from Continuing Operations (Non-GAAP measure) $ $ 93. $ $,6.9 $ 8.8 $ 95.7 $ 30. $ (.) $ $ 90.8 $ 6.7 YTD 07 As Reported from Continuing Operations (GAAP) $ 30.7 $ 73.9 $ 44.5 $,09. $ 5.4 $ 87.6 $ 09. $ (.5) $ 30.8 $ 88.4 $.4 Special Items: Acquisition related professional fees (.3) 6.6 Costs related to optimization projects (.0).3 Costs related to divested businesses (.). Total Special Items (4.4) 0. Constant Currency FX Impact As from Continuing Operations (Non-GAAP measure) $ $ 80.7 $ 430. $,040.9 $ 0. $ 9. $ 3.7 $ (.0) $ 35. $ 77.4 $ Reflects the remeasurement of 07 reported and adjusted local currency results using 08 exchange rates, resulting in a constant currency comparative figures to 08 reported and adjusted results. It should be noted that adjusted net sales, gross profit, selling, general and administrative expenses and operating income referred to above are financial measures not required by, or presented in aordance with, aounting principles generally aepted in the United States (U.S. GAAP). These non-gaap financial measures should be considered as a supplement to, and not as a substitute for, the financial measures prepared in aordance with U.S. GAAP and a reconciliation of these financial measures to the most comparable U.S. GAAP financial measures is presented. We believe this data provides investors with additional information on the underlying operations and trends of the business and enables period-to-period comparability of financial performance. 4

15 Reconciliation of Q3 and YTD EBITDA Ferro Corporation and Subsidiaries Reconciliation of Net Income attributable to Ferro Corporation common shareholders to EBITDA For the Three Months and the Nine Months Ended September and 07 (Unaudited) (Dollars in millions) Q3 08 Q3 07 YTD 08 YTD 07 Net income attributable to Ferro Corporation common shareholders (GAAP) $ 6. $.8 $ 69. $ 65.7 Net income attributable to noncontrolling interests Restructuring and impairment charges Other expense, net.5 (.4) Interest expense Income tax expense Depreciation and amortization Less: interest amortization expense and other (0.9) (0.9) (.7) (.4) Reported EBITDA (Non-GAAP measure) Cost of sales Non-GAAP adjustments SG&A Non-GAAP adjustments EBITDA (Non-GAAP measure) EBITDA is net income attributable to Ferro Corporation common shareholders before the effects of income attributable to noncontrolling interest, restructuring and impairment charges, other expense net, interest expense, income tax expense, depreciation and amortization, non-gaap adjustments to cost of sales and non-gaap adjustments to SG&A. The Non-GAAP adjustments to cost of sales and SG&A are described in the "Reconciliation of Q3 Reported to Financials" and the "Reconciliation of YTD Reported to Financials" appendices. It should be noted that EBITDA is a financial measures not required by, or presented in aordance with, aounting principles generally aepted in the United States (U.S. GAAP). This non-gaap financial measure should be considered as a supplement to, and not as a substitute for, the financial measures prepared in aordance with U.S. GAAP and a reconciliation of this financial measure to the most comparable U.S. GAAP financial measure is presented. We believe this data provides investors with additional information on the underlying operations and trends of the business and enables period-to-period comparability of financial performance. 5

16 Reconciliation of Diluted Earnings Per Share Ferro Corporation and Subsidiaries Reconciliation of Reported to Diluted Earnings per Share For the Three Months Ended March 3 08, June 30, 08, September 30, 08, March 3 07, June 30, 07 and September 30, 08 (unaudited) Q 08 Q 08 Q3 08 Q 07 Q 07 Q3 07 Diluted earnings per share (GAAP) $ 0.7 $ 0.35 $ 0.9 $ 0.6 $ 0.5 $ 0.7 Special items: Restructuring Other Tax (0.03) (0.03) 0.03 (0.06) (0.05) (0.03) Total special items diluted earnings per share (Non GAAP measure) $ 0.36 $ 0.44 $ 0.37 $ 0.3 $ 0.37 $ For 08 and 07, the description of adjustments for Cost of Sales and SG&A are detailed in the "Reconciliation of Q3 Reported to Financials" and the "Reconciliation of YTD Reported to Financials" appendices. In 08, the adjustments to "Other expense, net" primarily relate to impacts of currency related items in Argentina, debt extinguishment charges, fees expensed associated with the Amended Credit Facility, a gain recognized on increasing our ownership interest in FMU, earn out adjustment for acquisitions and other acquisition related costs. For 07, the adjustments to "Other expense, net" primarily relate to the FX loss incurred on our Euro-denominated term loan, a loss on an equity method investment, the loss/gain on an asset sale, debt extinguishment costs, a reduction of a contingent lability in Argentina and a gain on purchase of an equity method investment.. The tax rate reflects the reported tax rate, adjusted for special items being tax effected at the respective statutory rate where the item originated. 3. Due to rounding, total earnings per share related to special items does not always add to the total Earnings Per Share. It should be noted that adjusted diluted earnings per share items is a financial measure not required by, or presented in aordance with, aounting principles generally aepted in the United States (U.S. GAAP). This non-gaap financial measures should be considered as a supplement to, and not as a substitute for, the financial measure prepared in aordance with U.S. GAAP, and a reconciliation of this financial measure to the most comparable U.S. GAAP financial measure is presented. We believe this data provides investors with additional information on the underlying operations and trends of the business and enables periodto-period comparability of financial performance. 6

17 Reconciliation of Free Cash Flow Ferro Corporation and Subsidiaries Reconciliation of Net Cash Provided by Operating Activities (GAAP) to Free Cash Flow from Continuing Operations (Non-GAAP) For the Three Months and the Nine Months Ended September and 07 (Unaudited) (Dollars in millions) Q3 08 Q3 07 YTD 08 YTD 07 Cash flows from operating activities Net income $ 6. $ 3.0 $ 69.6 $ 66.3 Loss (gain) on sale of assets 0. (.5) 0.5 (.) Depreciation and amortization Interest amortization Restructuring and impairment (.) (0.) Loss on extinguishment of debt Aounts receivable (36.4) (45.0) Inventories 6.5 (.7) (58.8) (3.4) Aounts payable.6 (3.5). 0.6 Other current assets and liabilities, net.5 (6.5) (7.3) (.7) Other adjustments, net Net cash provided by operating activities (GAAP) $ 73.4 $ 0.0 $ 35.7 $ 34.7 Less: Capital Expenditures (0.6) (3.) (64.) (30.) Free Cash Flow provided by (used in) Continuing Operations (Non-GAAP) $ 5.8 $ 6.7 $ (8.5) $ 4.6 Plus: cash used for restructuring Plus: cash used for capital expenditures related to optimization projects () Plus: Cash used for net working capital investment related to optimization projects () Plus: Cash used for acquisition related professional fees (3) Plus: Cash used for optimization projects (3) Plus: Cash used for divested businesses and assets (3) Free Cash Flow from Continuing Operations (Non-GAAP) $ 79. $ 0.8 $ 3.4 $ 3.9 () The adjustment to capital expenditures represents capital spend for certain optimization projects that are not expected to recur in the long-term at the current rate. () The adjustment to net working capital represents spend for the build in inventory related to optimization projects noted in () above. This build in inventory is considered to be outside of the normal operations of the underlying business, and expected to be temporary in nature. (3) The adjustment represents those cash outlays for (a) acquisitions related professional fees, (b) costs related to certain optimization projects, and (c) costs related to divested businesses and assets, as detailed in the description of adjustments in the "Reconciliation of Q3 Reported to Financials" and the "Reconciliation of YTD Reported to Financials" appendices. It should be noted that Free Cash Flow from continuing operations is a financial measures not required by, or presented in aordance with, aounting principles generally aepted in the United States (GAAP). The non-gaap financial measures should be considered as a supplement to, and not as a substitute for, the financial measures prepared in aordance with GAAP and a reconciliation of the financial measures to the most comparable U.S. GAAP financial measures is presented. We believe this data provides investors with additional information on the underlying operations and trends of the business, and enables period-to-period comparability of the financial performance of the business. Additionally, certain elements of these measures are used in the calculation of certain incentive compensation programs for management. 7