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Ferro Reports First Quarter 2008 Results

Published on 2008-05-07. Author : SpecialChem

CLEVELAND -- Ferro Corporation has announced that sales for the three months ended March 31, 2008 were a record $607.2 million, up 15 percent from the first quarter of 2007.

Income from continuing operations for the first quarter of 2008 was $9.2 million, or $0.21 per diluted share, compared with income of $6.2 million, or $0.14 per share, in 2007. In the first three months of 2008, operating income included net pre-tax charges of $4.0 million. These charges were primarily related to restructuring and other manufacturing rationalization activities. In 2007, operating income was reduced by pre-tax expenses of $4.3 million primarily related to manufacturing rationalization activities and a write-off of unamortized fees associated with an unused portion of the Company's term loan arrangements.

"We are pleased to see evidence that our profitability initiatives are gaining traction. Our improved performance is the result of hard work by the people of Ferro who are focused on executing our restructuring programs, improving our business processes and cutting costs across our worldwide operations," said James F. Kirsch, Chairman, President and Chief Executive Officer. "Our businesses delivered results better than we previously estimated in our fourth-quarter 2007 earnings release, and the improvements were achieved despite difficult economic conditions in many of the markets we serve, particularly in the United States. While we are pleased with our first-quarter results, we will continue to aggressively pursue our programs to achieve sustainable profitability improvements."

Net sales increased in the Electronic Materials, Color and Glass Performance Materials, Performance Coatings, and Polymer Additives segments, compared with sales in the first three months of 2007. Sales declined in the Specialty Plastics and Other Businesses segments. Sales to customers outside the United States grew by 22 percent while sales within the United States increased by 6 percent.

Increased product prices, including pass-throughs for precious metals, and favorable changes in foreign currency exchange rates were the primary drivers of the increased sales. Increased volume was a positive contributor to sales growth in the Performance Coatings and the Color and Glass Performance Materials segments. Lower volume in Specialty Plastics, porcelain enamel products in Performance Coatings, and Polymer Additives partially offset the sales increases. The volume declines in these businesses were largely the result of weak demand from U.S. automobile, appliance and residential housing industries.

Gross margins were 18.7 percent of sales in the first quarter of 2008, compared with 20.2 percent of sales in the prior-year period. Gross profit during the 2008 first quarter was negatively impacted by higher raw material costs, including precious metals. While the Company was generally able to increase prices to offset higher raw material costs, it was not able to increase prices sufficiently to maintain gross margin as a percent of sales. Gross profit was also reduced by manufacturing costs during the 2008 first quarter that were consequences of a temporary production interruption at the Company's Bridgeport, New Jersey, facility beginning in December 2007. Total pre-tax costs of the interruption during the first quarter were approximately $3.3 million. Charges related to the Company's ongoing manufacturing rationalization programs reduced gross profit by $0.2 million in the first quarter of 2008, compared with charges of $2.2 million during the first quarter of 2007.

Selling, general and administrative (SG&A) expense was $78.7 million in the first quarter, or 13.0 percent of sales. Included in SG&A expense during the first three months of 2008 was a net benefit of $0.4 million, primarily related to favorable litigation developments, partially offset by expenses related to corporate development activities. SG&A expense in the first quarter of 2007 was $78.8 million, or 14.9 percent of sales, including charges of $0.3 million primarily related to corporate development activities.

Total segment income for the first three months of 2008 was $41.7 million, flat with the prior-year level of $41.8 million. The total segment income reflected higher income from the Electronic Materials segment, which benefited from strong demand for the Company's metal pastes and powders that are used in applications such as solar cells and plasma displays. Income was also slightly higher in the Color and Glass Performance Materials and Other Businesses segments. Income declined in the Company's Specialty Plastics segment, primarily reflecting weak demand from U.S.-based customers in the automotive parts and residential construction markets, and in the Performance Coatings segment, due to the effects of weak customer demand for porcelain enamel products. Income declined slightly in the Polymer Additives segment as the positive effects of product price increases were more than offset by raw material cost increases and the cost associated with the December 2007 manufacturing interruption in Bridgeport, New Jersey.

Restructuring charges of $4.2 million were recorded in the first quarter, primarily resulting from rationalization programs in the Company's European inorganic materials manufacturing facilities. Restructuring charges of $1.5 million were recorded in the first quarter of 2007.

Interest expense declined to $14.0 million in the first three months of 2008 from $17.4 million in 2007, as a result of lower borrowing levels and reduced interest rates on funds borrowed. Interest expense in the 2007 first quarter included a $2.0 million write-off of unamortized fees and discounts associated with an unused portion of the Company's term loans.

Total debt on March 31, 2008 was $537.8 million, an increase of $11.7 million from the end of 2007. The increase in debt during the first quarter was due primarily to higher working capital requirements associated with increased sales. In addition, the Company had net proceeds of $67.3 million from its U.S. accounts receivable securitization program at the end of March, compared with $54.6 million at the end of 2007. The Company also had $42.5 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. Ferro generated $10.9 million of net cash from operating activities during the first quarter of 2008.

2008 Second-Quarter Estimates

Sales for the second quarter, ending June 30, 2008, are expected to be approximately $600 million to $625 million compared with sales of $554 million in the second quarter of 2007, reflecting an ongoing mix of business conditions in different regions. Business conditions in the U.S. are expected to be difficult due to continued weak demand from customers in housing, appliance and automotive industries.

Income from continuing operations for the second quarter is expected to be in the range of $0.11 to $0.16 per diluted share. This estimate includes anticipated charges of approximately $0.17 per share, primarily from the continuation of manufacturing rationalization activities. The Company reported income from continuing operations of $0.10 per share in the second quarter of 2007, including charges of approximately $0.16 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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