Ferro Reports Financial Results (posted 3/5/09)
Ferro Corp. recently announced net sales of $2,245 million for the year ended December 31, 2008, up 4.5% from net sales of $2,148 million in 2007. Loss from continuing operations for 2008 was $54 million, or $1.26 per diluted share, compared with a loss of $100 million, or $2.34 per diluted share, in 2007. The improvement was primarily the result of lower selling, general and administrative expenses; lower interest expense; and a lower impairment charge, partially offset by increased restructuring charges and a loss on the extinguishment of debt.
In 2008, the operating loss included net pre-tax charges of $116 million. These charges included impairment charges of $80 million for goodwill and other long-lived assets associated with the company’s tile, specialty plastics and electronic materials businesses, and restructuring charges of $26 million. The company recorded additional pre-tax charges of $10 million primarily related to a loss on the extinguishment of debt resulting from bond refinancing activities, manufacturing rationalization activities, and corporate development expenses. In 2007, the operating loss included $166 million in charges primarily related to impairment charges, restructuring charges and legal settlements.
“The past year closed with some of the most significant economic challenges in decades, and in response, our team took aggressive action to reduce costs and expenses, conserve cash and lower debt,” said Chairman, President and Chief Executive Officer James F. Kirsch. “We are taking additional actions in 2009 to further lower costs and assure our continued access to liquidity. These actions, combined with the initiatives we began in 2006 to rationalize our worldwide manufacturing operations, are building a strong foundation for Ferro’s future. While economic conditions are expected to remain difficult in 2009, we are focused on supporting our worldwide customers with the industry-leading products that they know and trust. I am confident that Ferro is poised to benefit strongly as the global economy rebounds.
“Although we are not satisfied with the results of the fourth quarter, we are pleased with the progress we have made to cut costs, improve efficiency and unlock the future earnings potential of the company. Our restructuring programs around the world have generated annual cost and expense savings of more than $45 million, in aggregate, from mid-2006 through the end of 2008, and we expect to generate an additional $40 million in annual savings over the next two years. These efforts are lowering our fixed costs and building a cost structure that will generate significantly improved earnings potential as the global economy recovers.”
Price increases and favorable changes in foreign currency exchange rates were the primary drivers of sales growth during 2008. Price increases during the year included those related to higher precious metal costs, which are passed through to customers as higher product prices. Changes in foreign currency exchange rates added approximately 3.5 percentage points to the increase in sales for the year. Volume declines partially offset the sales growth, particularly in the last two months of the year, as customers reduced orders sharply in concert with weakened economic activity.
In 2008, sales growth was led by the Electronic Materials segment, where demand increased for conductive pastes and powders, particularly for products used in the manufacture of solar cells. Increased precious metal costs contributed to the sales increase. Sales also increased in the Performance Coatings, Polymer Additives, and Color and Glass Performance Materials segments. In each segment, sales were higher due to a combination of favorable changes in foreign currency exchange rates and higher product pricing, partially offset by lower volumes. Sales volume declines were the most significant in the final two months of the year, as customers cut their production volumes and their inventory because of weaker economic activity around the world. Sales declined in the Specialty Plastics segment, primarily as a result of lower sales volume.
Gross profit percentage was 18.0% of sales for the year, compared with 18.7% of sales in 2007. In 2008, gross profit was essentially flat with 2007 and was reduced by $3 million, primarily as a result of charges for asset write-offs and other costs associated with the company’s manufacturing rationalization programs. During 2007, gross profit was reduced by $8 million in charges, largely resulting from accelerated depreciation and other costs related to manufacturing rationalization programs.
Net sales for the fourth quarter of 2008 were $432 million, compared with net sales of $557 million during the fourth quarter of 2007. The lower sales resulted from an abrupt decline in orders during the quarter, as customers reduced their production volumes and inventories in reaction to deteriorating economic conditions and difficult credit markets around the world. Sales related to applications in building and construction, automobiles, and appliances in all global regions were particularly weak. All segments, with the exception of Pharmaceuticals, recorded sales declines compared with the fourth quarter of 2007. The primary drivers of the sales decline were lower sales volume, lower precious metal prices and unfavorable changes in foreign currency exchange rates, partially offset by higher product prices.
Gross profit percentage during the 2008 fourth quarter was 15.1% of sales, compared with 17.9% of sales in the fourth quarter of 2007. The company took a number of actions during the quarter to reduce the cost of sales in response to the drop in customer orders. These actions included the closing of a pigments plant in Toccoa, Ga., extended plant shutdowns, reductions in manufacturing staffing, and reduced production schedules. Additional actions have been taken since the end of the year, including personnel reductions and the initiation of the final phase in the company’s European manufacturing rationalization program. During the fourth quarter of 2007, gross profit was reduced by charges of approximately $3 million, primarily as a result of accelerated depreciation from manufacturing rationalization programs. Also in the 2007 fourth quarter, gross profit was negatively impacted by approximately $2 million in costs that were required to clean up an accidental discharge of product into the wastewater treatment facility at the company’s manufacturing plant in Bridgeport, N.J.
Current customer demand is continuing at the depressed levels recorded in November and December, reflecting the effects of the global economic slowdown and customer inventory destocking. As a result, 2009 first quarter sales are expected to be below the levels recorded during the last three months of 2008. Earnings, excluding special charges, also are expected to be lower than in the fourth quarter of 2008, primarily as a result of higher pension expense. The negative effect on earnings of lower estimated sales in the first quarter of 2009 is expected to be partially offset by cost and expense reductions. Because of the continued volatility in customer orders and uncertainty in the global markets, the company will not provide specific sales and earnings estimates for the first quarter.
Additional details, including an archived conference call discussing these results, are available at www.ferro.com.