Ferro Corporation (NYSE: FOE) has reported results for the second quarter ended June 30, 2015.
Second quarter income from continuing operations attributable to common shareholders was $0.14 per diluted share compared with $0.15 per diluted share in the second quarter of 2014. On an adjusted basis, earnings per diluted share were $0.20, versus $0.19 for the second quarter of 2014. The results in both years include a number of charges relating to, among other items, restructuring activities.
Second quarter 2015 net sales were $268 million, while value-added sales, which exclude precious metal sales, were $257 million. In the same period last year, net sales and value-added sales were $294 million and $282 million, respectively. On a constant currency basis, value-added sales increased 5%. The impact of foreign currency translation reduced value-added sales by approximately $36 million.
On a constant currency basis, all three business segments recorded increased value-added sales: Performance Coatings increased by 5%; Performance Colors and Glass increased by 3%; and Pigments, Powders and Oxides increased by 9%. Vetriceramici, a producer of coatings for high-end ceramic tile, which Ferro acquired in December 2014, contributed $17 million to value-added sales growth in the quarter, primarily in the Performance Coatings segment. Excluding the value-added sales contribution from Vetriceramici, Ferro’s base business declined by 2%, due solely to reduced sales in the Performance Coatings Segment. On a constant currency basis, all three segments also delivered increased gross profit, compared with the second quarter of 2014.
Adjusted earnings for the second quarter of 2015 benefited from increased sales and improved gross profit in all three segments, on a constant currency basis, and lower interest expense partially offset by increased selling, general and administrative (“SG&A”) expenses, primarily related to increased incentive compensation costs.
Peter Thomas, Chairman, President and Chief Executive Officer, said “We continue to make progress on creating value through organic and inorganic sales growth and by improving our profit margins. For the quarter, value-added sales increased by 5% on a constant currency basis, aided by the Vetriceramici acquisition and organic growth in the Pigments, Powders, and Oxides and Performance Colors and Glass segments.
“In addition, we continue to drive improved profitability, with our gross profit margin increasing by approximately 250 basis points over the prior year to 30.3% and our adjusted EBITDA margin improving by approximately 75 basis points to 14.5%. Adjusted operating profit, on a constant currency basis, improved by 16% to $29 million. Adjusted for currency, we were able to achieve sales growth and profitability improvement despite continued economic weakness in certain regions where we conduct business, including in Asia and the Middle East and North Africa (“MENA”) region.”
“In early July, we completed our €149 million acquisition of Nubiola, a worldwide producer of specialty inorganic pigments and the world’s largest producer of Ultramarine Blue. The acquisition substantially improves our position in inorganic pigments by expanding our product portfolio and geographic reach. We expect the transaction to add approximately $55 million – $60 million to our sales in the second half of 2015 and to be immediately accretive to earnings. Meanwhile, we are actively pursuing additional business opportunities to further strengthen our position in glass-based coatings and color solutions for industrial applications.
“Looking ahead, we anticipate economic conditions will continue to be challenging in certain regions, including Asia and in certain countries in Eastern Europe, including Russia and Ukraine. We expect this weakness to be offset by modest economic growth in the United States and Western Europe and an improving outlook for MENA. Despite the challenging economic conditions, particularly for our tile business, we expect to maintain profit margins, and will continue to execute against our strategy of pursuing value-creating growth while being keenly focused on cost controls.”
The Company expects continued global growth, but at a relatively low rate. Economic conditions in certain developing economies, including Indonesia, China, and Thailand, and certain Eastern European countries, including Russia and Ukraine, are expected to remain weak throughout the remainder of 2015, adversely impacting legacy business sales growth. In addition, the Company anticipates that foreign currency translation will continue to have a significant negative impact on reported results.
Including the recent acquisition of Nubiola and adjusting for expected foreign currency difference between periods, the Company expects second-half constant currency value-added sales growth of approximately 20% – 22% relative to the same period in 2014. Value-added sales in the second half of 2014 were $517 million, but would have been approximately $60 million lower if recorded using current foreign currency rate expectations. From this adjusted base of approximately $457 million, the legacy businesses are expected to add approximately 1% – 2% of organic sales growth, with acquisitions adding $85 million – $90 million. Precious metal sales in the second half are expected to be in the range of $15 million – $20 million.
For the second half of 2015, gross profit, as a percent of value-added sales, is expected to be in the range of 29.0% – 29.5%, and operating profit is expected to be in the range of 11.5% – 12.0% of value-added sales. The adjusted effective tax rate for the second quarter of 2015 was 32.9%, but the Company anticipates the full-year effective tax rate will be approximately 25%.
Given these expectations, the Company anticipates full-year adjusted earnings per share to be in the range of $0.82 – $0.87 compared with prior guidance of $0.89 – $0.96 per diluted share.