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Ferro Reports 2008 Second Quarter Results

Published on 2008-08-06. Author : SpecialChem

CLEVELAND -- Ferro Corporation has announced sales of $650.4 million for the quarter ended June 30, 2008, up 17 percent from sales of $553.7 million in the second quarter of 2007. Income from continuing operations for the 2008 second quarter was $9.4 million, or $0.21 per diluted share, compared with $4.6 million, or $0.10 per diluted share, in the second quarter of 2007. Income from continuing operations increased as a result of the combined effects of higher gross profit driven by increased net sales, lower selling, general and administrative expenses and reduced interest expense, partially offset by higher restructuring charges. Income from continuing operations for the second quarter of 2008 included net pre-tax expenses of $13.8 million primarily related to restructuring charges, asset write-offs, and corporate development activities. In the second quarter of 2007, income from continuing operations included net pre-tax expenses of $10.0 million primarily related to litigation settlements and manufacturing rationalization costs.

"The Ferro team delivered outstanding performance in the quarter, from sales to net income," said Chairman, President and Chief Executive Officer James F. Kirsch. "Our improved results came in spite of slowing economic growth and unprecedented cost increases for a number of raw materials. Our efforts to improve business operations and restructure manufacturing assets are generating results, and we are making sustainable progress toward our long-term profitability goals."

Price increases and changes in foreign exchange were the most significant drivers of sales growth during the quarter. Price increases during the quarter include higher precious metal costs which are passed through to customers as higher product prices. Changes in foreign currency exchange rates accounted for approximately 40 percent of the sales increase. Higher sales volumes also contributed to the sales increase, particularly in Electronic Materials and Color and Glass Performance Materials. Sales volumes declined in Polymer Additives and Specialty Plastics.

In the 2008 second quarter, sales growth was strongest in the Electronic Materials segment, driven by conductive pastes used by solar cell manufacturers, particularly in Asia. Increased precious metal costs, which are passed through to customers, also contributed to the sales increase. Sales growth was also strong in Performance Coatings and Color and Glass Performance Materials, driven by sales growth in Europe, the Middle East and North Africa. Sales in Polymer Additives grew, primarily as a result of higher product pricing. Sales in Specialty Plastics declined as a result of lower demand from customers in the U.S. automotive, housing and appliance markets. This lower demand was not fully offset by higher average selling prices.

Gross profit percentage was 19.0 percent of sales for the second quarter of 2008, compared with 19.4 percent of sales in the second quarter of 2007. Gross profit for the 2008 second quarter was reduced by $1.4 million primarily as a result of asset write-offs and costs related to manufacturing rationalization activities. During the second quarter of 2007, gross profit was negatively impacted by an interruption of manufacturing activities at Ferro's South Plainfield, New Jersey, facility and by manufacturing rationalization costs of $1.9 million. Higher raw material costs, primarily the cost of precious metals that are passed through to customers, contributed to the lower gross profit percentage for the 2008 second quarter.

Selling, general and administrative (SG&A) expense was $81.2 million in the second quarter of 2008, or 12.5 percent of sales. Included in the 2008 second quarter SG&A expense were charges totaling $2.4 million, primarily related to corporate development activities, asset write-offs and employee severance expenses. SG&A expense in the second quarter of 2007 was $84.4 million, or 15.2 percent of sales, including charges of $7.8 million primarily related to increased reserves for litigation settlements.

Total segment income for the 2008 second quarter was $54.8 million compared with $40.4 million in the second quarter of 2007. The increase in total segment income reflected improved performance across a number of segments. Segment income increased in Electronic Materials as a result of higher sales, improved product mix and benefits from prior-period restructuring activities. In addition, the Electronic Materials results in the second quarter of 2007 included the costs of a temporary manufacturing interruption at the Company's South Plainfield, New Jersey, facility. Income increased in Performance Coatings and Color and Glass Performance Materials as a result of successful value pricing and improved sales volume, partially offset by higher raw material costs. Increased income in the Polymer Additives segment was driven by product price improvements that offset raw material cost increases and improved product mix. Segment income declined in Specialty Plastics as a result of lower manufacturing volume and higher raw material costs that were not fully offset by value pricing initiatives and cost control actions. Segment income declined in Other Businesses as a result of lower pharmaceutical product sales and an increased proportion of lower-margin industrial solvent sales in the quarter, as well as higher raw material and manufacturing costs.

Restructuring charges were $9.0 million for the 2008 second quarter, an increase from $0.3 million in the prior-year period. The increased charges were primarily the result of restructuring initiatives in Europe and Brazil in the Performance Coatings and Color and Glass Performance Materials segments. Ferro also recorded restructuring charges in the second quarter in the Performance Coatings, Color and Glass Performance Materials, Polymer Additives and Specialty Plastics segments as a result of continuing costs from restructuring programs initiated in late 2007 and the first half of 2008.

Interest expense for the 2008 second quarter was $13.2 million, compared with $14.3 million in the year-ago period. The lower interest expense was the result of lower interest rates on the Company's variable-rate borrowings and term loans, partially offset by higher borrowing levels.

Miscellaneous expense increased in the second quarter of 2008, primarily as a result of a $1.0 million increase in a provision for an environmental contingency in Latin America related to a previously closed manufacturing property.

The Company's tax rate for the second quarter of 2008 increased to 46.1% of pre-tax income from 37.9% in the 2007 second quarter. The 2008 second quarter effective tax rate increased as a result of a change in the mix of income by country, loss of a tax holiday and a decrease in the U.S. tax cost on foreign dividends. The effective tax rate was also impacted by an unfavorable tax decision in Brazil and favorable adjustments to prior-year accruals that increased tax expense in the 2008 second quarter by $1.6 million, in aggregate.

Total debt on June 30, 2008 was $571.0 million, an increase of $44.9 million from the end of 2007. The Company had net proceeds of $75.0 million from its U.S. accounts receivable securitization program as of the end of the 2008 second quarter, compared with $54.6 million at the end of 2007. The Company also had $41.2 million in net proceeds from similar programs outside the U.S. at the end of the quarter, compared with $42.1 million at the end of 2007. The increase in total debt was driven by increased working capital requirements resulting from higher sales, and foreign currency exchange rate changes.

Outlook

The Company expects sales to increase in the 2008 third quarter from the $551 million recorded in the third quarter of 2007. Consistent with historical seasonality, sales are forecast to decline sequentially from the second quarter of 2008. Sales for the third quarter, ending September 30, 2008, are expected to be in the range of $600 million to $625 million.

The sales estimates for the third quarter are consistent with the Company's outlook for worldwide economic activity, and its current view of the potential for increased commodity prices, higher energy costs and volatility in credit markets to affect customers' demand for products.

Net income per share in the third quarter is expected to be in the range of 8 to 13 cents per share, including approximately 20 cents per share for charges related primarily to the Company's manufacturing rationalization activities. Net income per share in the third quarter of 2007 was 12 cents per share, including charges of approximately 11 cents per share.

About Ferro Corporation:

Ferro Corporation is a leading global supplier of technology-based performance materials for manufacturers. Ferro materials enhance the performance of products in a variety of end markets, including electronics, solar energy, telecommunications, pharmaceuticals, building and renovation, appliances, automotive, household furnishings, and industrial products. Headquartered in Cleveland, Ohio, the Company has approximately 6,300 employees globally and reported 2007 sales of $2.2 billion.

Cautionary Note on Forward-Looking Statements

Certain statements in this Ferro press release 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, which are difficult to predict and often beyond the control of the Company. 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.

Source: Ferro Corporation


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