Matthews International Reports Results for Fiscal 2019 Third Quarter

Third Quarter Financial Highlights:

  • Consolidated sales of $379.3 million
  • GAAP EPS of $0.46; non-GAAP adjusted EPS of $0.90
  • Operating cash flow of $44.1 million vs. $26.5 million last year

Year-to-date Financial Highlights:

  • Consolidated sales of $1.145 billion
  • GAAP EPS of $1.05; non-GAAP adjusted EPS of $2.30
  • Operating cash flow of $89.4 million vs. $82.8 million last year

PITTSBURGH–(BUSINESS WIRE)–Matthews International Corporation (NASDAQ GSM: MATW) today announced financial results for its fiscal third quarter and nine months ended June 30, 2019.

In discussing the Company’s results for the quarter, Joseph C. Bartolacci, President and Chief Executive Officer, stated: “Consistent with the updated expectations that we provided last quarter, our third quarter continued to be challenging. The impact of the previously reported brand client account loss, continued slowness in casketed deaths, and significant currency headwinds all combined to pressure our fiscal 2019 third quarter results.

Despite the challenging conditions in the current fiscal year, we generated higher operating cash flow in the current quarter compared to a year ago. In addition, several of the businesses appear poised to deliver strong results for the fiscal 2019 fourth quarter. In our SGK Brand Solutions segment, we currently have a high order backlog for our merchandising business, much of which is expected to be delivered in the fourth fiscal quarter. In addition, our private label brand business continues to deliver on its plan to convert recent significant account wins into a strong fiscal 2019 performance.

In our Memorialization segment, work has begun on a significant incineration project in the U.K. and this business recently signed a letter of intent for another significant incineration project. Further, we appear to have a clear line of sight to several additional projects of similar scale. In addition, despite the recent delays by customers of several projects, the order backlog in the warehouse automation business looks very good for the fiscal 2019 fourth quarter and going into fiscal 2020.

Order intake for our surfaces and engineered products is at record levels and, as discussed during our investor day presentation in June 2019, customer interest in our capabilities, particularly for supporting energy storage devices, continues to grow.

Finally, we are beginning a cost reduction analysis targeting the businesses where revenue growth has been the most challenged to ensure those respective cost structures are right-sized for the current sales run-rates. We also plan to challenge our back-office administrative costs as well, particularly as we complete the final stages of our global ERP implementation.”

Third Quarter Fiscal 2019 Consolidated Results (Unaudited)

($ in millions, except per share data)

Q3 FY2019

 

Q3 FY2018

 

Change

 

% Change

Sales

$

379.3

 

 

$

411.6

 

 

$

(32.3

)

 

(7.9

)%

Net income attributable to Matthews

$

14.6

 

 

$

24.4

 

 

$

(9.8

)

 

(40.1

)%

Diluted EPS

$

0.46

 

 

$

0.77

 

 

$

(0.31

)

 

(40.3

)%

Non-GAAP adjusted net income

$

28.4

 

 

$

36.7

 

 

$

(8.3

)

 

(22.6

)%

Non-GAAP adjusted EPS

$

0.90

 

 

$

1.16

 

 

$

(0.26

)

 

(22.4

)%

Adjusted EBITDA

$

59.0

 

 

$

69.2

 

 

$

(10.2

)

 

(14.7

)%

Note: See the attached tables for additional important disclosures regarding Matthews’ use of non-GAAP measures as well as reconciliations of non-GAAP measures to corresponding GAAP measures. Organic sales represent changes in sales excluding the impact of acquisitions, divestitures, and changes in foreign currency exchange rates.

Consolidated sales for the quarter ended June 30, 2019 were $379.3 million, compared to $411.6 million for the same quarter a year ago. Changes in foreign currency exchange rates had an unfavorable impact of $8.6 million on consolidated sales compared to a year ago. In addition, the previously reported loss of a significant brand client account, the impact of an estimated decline in U.S. casketed deaths on casket sales, and delays in several warehouse automation projects contributed to the year-over-year sales decrease. Consolidated sales for the current quarter were favorably impacted by sales growth in the private label brand market and higher sales of cremation and incineration equipment.

Net income attributable to the Company for the quarter ended June 30, 2019 was $14.6 million, or $0.46 per share, compared to $24.4 million, or $0.77 per share, for the same quarter last year. On a non-GAAP adjusted basis, earnings for the fiscal 2019 third quarter were $0.90 per share, compared to $1.16 per share a year ago. Adjusted EBITDA (net income before interest expense, income taxes, depreciation and amortization, and other adjustments) for the fiscal 2019 third quarter was $59.0 million, compared to $69.2 million a year ago. These decreases from the fiscal 2018 third quarter primarily reflected the impacts of lower consolidated sales. See reconciliation of adjusted EBITDA below.

Sales for the SGK Brand Solutions segment were $181.9 million for the quarter ended June 30, 2019, compared to $203.0 million a year ago. The decrease primarily reflected a combination of the previously reported loss of a significant brand client account, overall slower U.S. brand market conditions and delays in customer orders. However, sales for the SGK Brand Solutions segment for the current quarter reflected higher sales in the private label brand market. In addition, the current quarter benefited from the impact of the acquisition of Frost Converting Systems (acquired November 2018). Changes in foreign currency exchange rates had an unfavorable impact of $7.1 million on the segment’s sales compared with the same quarter last year.

Memorialization segment sales for the fiscal 2019 third quarter were $158.2 million, compared to $162.0 million a year ago. The decrease primarily reflected the impact of an estimated decline in U.S. casketed deaths. In addition, fiscal 2019 sales for the Memorialization segment were unfavorably impacted by the divestiture of a controlling interest in the pet cremation business. However, sales of cremation and incineration equipment were higher during the recent quarter. Changes in foreign currency exchange rates had an unfavorable impact of approximately $840,000 on the segment’s sales compared with the same quarter last year.

Sales for the Industrial Technologies segment were $39.1 million for the quarter ended June 30, 2019, compared to $46.7 million a year ago. Warehouse automation sales were lower than the same quarter last year, primarily reflecting project delays by customers. Changes in foreign currency exchange rates had an unfavorable impact of $616,000 on the segment’s sales compared with the same quarter last year.

The Company purchased approximately 240,000 shares under its repurchase program during the fiscal 2019 third quarter.

Nine Months Fiscal 2019 Consolidated Results (Unaudited)

($ in millions, except per share data)

YTD FY2019

 

YTD FY2018

 

Change

 

% Change

Sales

$

1,144.9

 

 

$

1,195.1

 

 

$

(50.2

)

 

(4.2

)%

Net income attributable to Matthews

$

33.1

 

 

$

77.8

 

 

$

(44.7

)

 

(57.4

)%

Diluted EPS

$

1.05

 

 

$

2.44

 

 

$

(1.39

)

 

(57.0

)%

Non-GAAP adjusted net income

$

72.8

 

 

$

86.6

 

 

$

(13.8

)

 

(15.9

)%

Non-GAAP adjusted EPS

$

2.30

 

 

$

2.72

 

 

$

(0.42

)

 

(15.4

)%

Adjusted EBITDA

$

161.6

 

 

$

178.2

 

 

$

(16.6

)

 

(9.3

)%

Note: See the attached tables for additional important disclosures regarding Matthews’ use of non-GAAP measures as well as reconciliations of non-GAAP measures to corresponding GAAP measures. Organic sales represent changes in sales excluding the impact of acquisitions, divestitures, and changes in foreign currency exchange rates.

Consolidated sales for the nine months ended June 30, 2019 were $1.145 billion, compared to $1.195 billion a year ago, representing a decrease of $50.2 million from the prior year. Changes in foreign currency exchange rates had an unfavorable impact of $27.1 million on consolidated sales compared to a year ago. However, consolidated sales for the first nine months of fiscal 2019 were favorably impacted by higher sales in the private label brand market. In addition, fiscal 2019 year-to-date consolidated sales reflected organic sales growth in Europe, higher sales of surfaces and engineered products, and an increase in warehouse automation sales. Recent acquisitions also contributed to sales for the current year.

Overall, on a year-to-date basis, the impact of the previously reported brand client account loss, continued slowness in casketed deaths, and significant currency headwinds unfavorably affected sales by an estimated $54 million, which is more than the actual consolidated sales decrease of $50.2 million. Although U.S. brand market conditions slowed and several warehouse automation projects were delayed by customers during the recent quarter, the private label brand business continued to grow, and sales of cremation and incineration equipment were higher.

Net income attributable to the Company for the first nine months of fiscal 2019 was $33.1 million, or $1.05 per share. A substantial portion of the decrease from the prior period reflected the favorable impact on last year’s earnings of U.S. Federal tax regulation changes. In addition, the results for the first nine months of fiscal 2019 included a loss on the divestiture of a controlling interest in the pet cremation business and an increase in interest expense related partially to the Company’s bond offering in December 2017, compared with a year ago.

On a non-GAAP adjusted basis, earnings for the first nine months of fiscal 2019 were $2.30 per share, compared to $2.72 per share last year. The decrease primarily reflected the impacts of lower consolidated sales, higher interest expense and unfavorable changes in foreign currency exchange rates compared to last year. Adjusted EBITDA for the first nine months of fiscal 2019 was $161.6 million, compared to $178.2 million a year ago. Changes in foreign currency rates were estimated to have an unfavorable impact of $4.9 million ($0.12 per share) on adjusted EBITDA compared to last year. See reconciliation of adjusted EBITDA below.

The Company purchased approximately 570,000 shares under its repurchase program during the first nine months of fiscal 2019.

Outlook

Mr. Bartolacci further stated: “We currently expect year-over-year comparability to continue to be impacted for the remainder of fiscal 2019 by the headwinds of currency rate changes, the decline in U.S. casketed deaths, and the brand client loss. In addition, recent slowing in our U.S. brand business markets remains a near-term concern.

However, strong order rates in our warehouse automation, cremation and incineration, and surfaces and engineered products businesses are encouraging. In addition, our private label business continues to strengthen, trends are improving in product identification sales and we currently maintain a strong backlog in our merchandising business.

Based on these factors, we are not adjusting our current fiscal 2019 earnings targets at this time but remain cautious in light of the continuing challenges in our larger businesses.”

Webcast

The Company will host a conference call and webcast on Friday, August 2, 2019 at 9:00 a.m. Eastern Time to review its financial and operating results, and discuss its corporate strategies and outlook. A question-and-answer session will follow.

The conference call can be accessed by calling (201) 689-8471. The audio webcast can be monitored at www.matw.com. A telephonic replay will be available from 12:00 p.m. ET on the day of the call through Friday, August 16, 2019. To listen to the archived call, dial (412) 317-6671 and enter the pass code 13692057. The webcast replay will be available in the investor relations section of the Company’s website at www.matw.com, where a transcript will also be posted once available.

About Matthews International Corporation

Matthews International Corporation is a global provider of brand solutions, memorialization products and industrial technologies. The SGK Brand Solutions segment is a leader in providing brand development, deployment and delivery services that help build our clients’ brands and consumers’ desire for them. The Memorialization segment is a leading provider of memorialization products, including memorials, caskets and cremation equipment, primarily to cemetery and funeral home customers that help families move from grief to remembrance. The Industrial Technologies segment designs, manufactures and distributes marking, coding and industrial automation technologies and solutions. The Company has approximately 11,000 employees in more than 25 countries on six continents that are committed to delivering the highest quality products and services.

Forward-looking Information

Any forward-looking statements contained in this release are included pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks and uncertainties that may cause the Company’s actual results in future periods to be materially different from management’s expectations. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove correct. Factors that could cause the Company’s results to differ materially from the results discussed in such forward-looking statements principally include changes in domestic or international economic conditions, changes in foreign currency exchange rates, changes in the cost of materials used in the manufacture of the Company’s products, changes in mortality and cremation rates, changes in product demand or pricing as a result of consolidation in the industries in which the Company operates, changes in product demand or pricing as a result of domestic or international competitive pressures, unknown risks in connection with the Company’s acquisitions, cybersecurity concerns, effectiveness of the Company’s internal controls, compliance with domestic and foreign laws and regulations, technological factors beyond the Company’s control, and other factors described in the Company’s Annual Report on Form 10-K and other periodic filings with the U.S. Securities and Exchange Commission.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(In thousands, except per share data)

 

Three Months Ended

June 30,

 

 

 

Nine Months Ended

June 30,

 

 

 

2019

 

2018(1)

 

% Change

 

2019

 

2018(1)

 

% Change

Sales

$

379,294

 

 

$

411,621

 

 

(7.9

)%

 

$

1,144,871

 

 

$

1,195,136

 

 

(4.2

)%

Cost of sales

(242,116

)

 

(259,006

)

 

(6.5

)%

 

(745,001

)

 

(760,428

)

 

(2.0

)%

Gross profit

137,178

 

 

152,615

 

 

(10.1

)%

 

399,870

 

 

434,708

 

 

(8.0

)%

Gross margin

36.2

%

 

37.1

%

 

 

 

34.9

%

 

36.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and administrative expenses

(97,944

)

 

(104,961

)

 

(6.7

)%

 

(302,584

)

 

(321,559

)

 

(5.9

)%

Amortization of intangible assets

(9,543

)

 

(8,334

)

 

14.5

%

 

(27,165

)

 

(23,264

)

 

16.8

%

Operating profit

29,691

 

 

39,320

 

 

(24.5

)%

 

70,121

 

 

89,885

 

 

(22.0

)%

Operating margin

7.8

%

 

9.6

%

 

 

 

6.1

%

 

7.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other income (deductions), net

(11,278

)

 

(10,663

)

 

5.8

%

 

(33,090

)

 

(31,013

)

 

6.7

%

Income before income taxes

18,413

 

 

28,657

 

 

(35.7

)%

 

37,031

 

 

58,872

 

 

(37.1

)%

Income taxes

(3,989

)

 

(4,312

)

 

(7.5

)%

 

(4,429

)

 

18,703

 

 

(123.7

)%

Net income

14,424

 

 

24,345

 

 

(40.8

)%

 

32,602

 

 

77,575

 

 

(58.0

)%

Non-controlling interests

205

 

 

69

 

 

197.1

%

 

541

 

 

201

 

 

169.2

%

Net income attributable to Matthews

$

14,629

 

 

$

24,414

 

 

(40.1

)%

 

$

33,143

 

 

$

77,776

 

 

(57.4

)%

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share — diluted

$

0.46

 

 

$

0.77

 

 

(40.3

)%

 

$

1.05

 

 

$

2.44

 

 

(57.0

)%

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share — non-GAAP(2)

$

0.90

 

 

$

1.16

 

 

(22.4

)%

 

$

2.30

 

 

$

2.72

 

 

(15.4

)%

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per share

$

0.20

 

 

$

0.19

 

 

5.3

%

 

$

0.60

 

 

$

0.57

 

 

5.3

%

(1) Information for the three and nine months ended June 30, 2018 has been adjusted to reflect the adoption of ASU No. 2017-07. The Company adopted this standard on October 1, 2018 applying the presentation requirements retrospectively resulting in a reclassification of net benefit costs of $714, $226 and $485 from cost of sales, selling expense and administrative expense, respectively, to other income (deductions), net for the three months ended June 30, 2018; and $2,142, $678 and $1,455 from cost of sales, selling expense and administrative expense, respectively, to other income (deductions), net for the nine months ended June 30, 2018

(2) See reconciliation of non-GAAP financial information provided in tables at the end of this release

SEGMENT INFORMATION (Unaudited)

(In thousands)

 

Three Months Ended

June 30,

 

Nine Months Ended

June 30,

 

2019

 

2018

 

2019

 

2018

Sales:

 

 

 

 

 

 

 

SGK Brand Solutions

$

181,930

 

 

$

202,976

 

 

$

557,881

 

 

$

601,794

 

Memorialization

158,217

 

 

161,979

 

 

474,279

 

 

475,557

 

Industrial Technologies

39,147

 

 

46,666

 

 

112,711

 

 

117,785

 

 

$

379,294

 

 

$

411,621

 

 

$

1,144,871

 

 

$

1,195,136

 

Adjusted EBITDA:(1)

 

 

 

 

 

 

 

SGK Brand Solutions

$

29,891

 

 

$

37,003

 

 

$

86,612

 

 

$

102,954

 

Memorialization

36,075

 

 

39,677

 

 

101,361

 

 

107,598

 

Industrial Technologies

7,278

 

 

8,241

 

 

15,665

 

 

16,809

 

Corporate and Non-Operating

(14,290

)

 

(15,709

)

 

(42,015

)

 

(49,198

)

Total Adjusted EBITDA(2)

$

58,954

 

 

$

69,212

 

 

$

161,623

 

 

$

178,163

 

(1) Beginning in fiscal 2019, the Company changed its primary measure of segment profitability from operating profit to adjusted EBITDA on a pre-corporate cost allocation basis. This presentation is consistent with how the Company’s chief operating decision maker evaluates the results of operations and makes strategic decisions about the business.

(2) See reconciliation of non-GAAP financial information provided in tables at the end of this release

CONDENSED CONSOLIDATED BALANCE SHEET INFORMATION (Unaudited)

(In thousands)

 

June 30, 2019

 

September 30, 2018

ASSETS

 

 

 

 

 

Cash and cash equivalents

 

$

33,603

 

 

 

$

41,572

 

Accounts receivable, net

 

318,717

 

 

 

331,463

 

Inventories, net

 

188,658

 

 

 

180,451

 

Other current assets

 

73,467

 

 

 

61,592

 

Total current assets

 

614,445

 

 

 

615,078

 

Property, plant and equipment, net

 

247,169

 

 

 

252,775

 

Goodwill

 

935,107

 

 

 

948,894

 

Other intangible assets, net

 

420,795

 

 

 

443,910

 

Other long-term assets

 

127,777

 

 

 

97,087

 

Total assets

 

$

2,345,293

 

 

 

$

2,357,744

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

Long-term debt, current maturities

 

$

58,080

 

 

 

$

31,260

 

Other current liabilities

 

255,967

 

 

 

255,142

 

Total current liabilities

 

314,047

 

 

 

286,402

 

Long-term debt

 

921,520

 

 

 

929,342

 

Other long-term liabilities

 

261,301

 

 

 

273,286

 

Total liabilities

 

1,496,868

 

 

 

1,489,030

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

Total shareholders’ equity

 

848,425

 

 

 

868,714

 

Total liabilities and shareholders’ equity

 

$

2,345,293

 

 

 

$

2,357,744

 

CONDENSED CONSOLIDATED CASH FLOWS INFORMATION (Unaudited)

(In thousands)

 

Nine Months Ended June 30,

 

2019

 

2018

Cash flows from operating activities:

 

 

 

Net income

$

32,602

 

 

$

77,575

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

Depreciation and amortization

60,759

 

 

57,052

 

Changes in working capital items

(14,543

)

 

(5,897

)

Other operating activities

10,596

 

 

(45,924

)

Net cash provided by operating activities

89,414

 

 

82,806

 

 

 

 

 

Cash flows from investing activities:

 

 

 

Capital expenditures

(31,963

)

 

(32,150

)

Acquisitions, net of cash acquired

(11,525

)

 

(119,953

)

Other investing activities

(23,311

)

 

(8,513

)

Net cash used in investing activities

(66,799

)

 

(160,616

)

 

 

 

 

Cash flows from financing activities:

 

 

 

Net proceeds from long-term debt

16,395

 

 

114,406

 

Purchases of treasury stock

(21,815

)

 

(20,091

)

Dividends

(19,254

)

 

(18,528

)

Other financing activities

(5,489

)

 

 

Net cash (used in) provided by financing activities

(30,163

)

 

75,787

 

 

 

 

 

Effect of exchange rate changes on cash

(421

)

 

(1,777

)

 

 

 

 

Net change in cash and cash equivalents

$

(7,969

)

 

$

(3,800

)

Reconciliations of Non-GAAP Financial Measures

Included in this report are measures of financial performance that are not defined by GAAP. The Company uses non-GAAP financial measures to assist in comparing its performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect the Company’s core operations including acquisition costs, ERP integration costs, strategic initiative and other charges (which includes non-recurring charges related to operational initiatives and exit activities), stock-based compensation and the non-service portion of pension and postretirement expense. Management believes that presenting non-GAAP financial measures is useful to investors because it (i) provides investors with meaningful supplemental information regarding financial performance by excluding certain items that management believes do not directly reflect the Company’s core operations, (ii) permits investors to view performance using the same tools that management uses to budget, forecast, make operating and strategic decisions, and evaluate historical performance, and (iii) otherwise provides supplemental information that may be useful to investors in evaluating the Company’s results. The Company believes that the presentation of these non-GAAP financial measures, when considered together with the corresponding GAAP financial measures and the reconciliations to those measures, provided herein, provide investors with an additional understanding of the factors and trends affecting the Company’s business that could not be obtained absent these disclosures.

ADJUSTED NET INCOME AND EPS RECONCILIATION (Unaudited)

(In thousands, except per share data)

 

Three Months Ended

June 30,

 

Nine Months Ended

June 30,

 

2019

 

2018

 

2019

 

2018

 

 

per share

 

 

per share

 

 

per share

 

 

per share

Net income attributable to Matthews

$

14,629

 

$

0.46

 

 

$

24,414

 

$

0.77

 

 

$

33,143

 

$

1.05

 

 

$

77,776

 

$

2.44

 

Acquisition costs

2,373

 

0.08

 

 

2,604

 

0.08

 

 

6,373

 

0.20

 

 

6,939

 

0.22

 

ERP integration costs

1,869

 

0.06

 

 

2,005

 

0.06

 

 

4,816

 

0.15

 

 

6,125

 

0.19

 

Strategic initiatives and other charges

830

 

0.03

 

 

478

 

0.02

 

 

2,393

 

0.08

 

 

2,118

 

0.07

 

Loss on divestiture

90

 

 

 

 

 

 

3,394

 

0.10

 

 

 

 

Joint Venture intangible amortization expense (1)

210

 

0.01

 

 

 

 

 

210

 

0.01

 

 

 

 

Non-service pension and postretirement expense (2)

759

 

0.02

 

 

1,055

 

0.03

 

 

2,167

 

0.07

 

 

3,164

 

0.10

 

Intangible amortization expense

7,606

 

0.24

 

 

6,167

 

0.20

 

 

20,646

 

0.65

 

 

17,215

 

0.54

 

Tax-related (3)

 

 

 

 

 

 

(300

)

(0.01

)

 

(26,738

)

(0.84

)

Adjusted net income

$

28,366

 

$

0.90

 

 

$

36,723

 

$

1.16

 

 

$

72,842

 

$

2.30

 

 

$

86,599

 

$

2.72

 

Note: Adjustments to net income for non-GAAP reconciling items were calculated using an income tax rate of 20.3% and 24.0% for the three and nine months ended June 30, 2019, respectively, and 26% for the three and nine months ended June 30, 2018.

(1) Represents the Company’s portion of intangible amortization expense incurred by non-consolidated subsidiaries accounted for as equity-method investments within the Memorialization segment.

(2) The non-GAAP adjustment to pension and postretirement expense represents the add-back of the non-service related components of these costs. Non-service related components include interest cost, expected return on plan assets and amortization of actuarial gains and losses. The service cost and prior service cost components of pension and postretirement expense are considered to be a better reflection of the ongoing service-related costs of providing these benefits.

Contacts

Steven F. Nicola

Chief Financial Officer

(412) 442-8200

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