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“In response to the difficult economic environment in 2009, Ferro took decisive action to improve the performance of the business,” said James F. Kirsch, chairman, president and CEO. “We lowered our sales breakeven as a result of sustainable improvements in our cost structure achieved through manufacturing rationalization initiatives, staffing reductions and expense controls. Our cost structure improvements have provided excellent operating leverage on modest sequential increases in quarterly sales during 2009. These operational improvements, coupled with our successful equity offering in November, provide a foundation for Ferro's future as we transition from restructuring to growth.”
Ferro’s 2009 net sales declined due to the global economic downturn and the resulting decline in customer demand. Sales were most affected in the U.S. and Europe, where credit markets were difficult and consumer demand was the most affected. Compared to 2008, demand declined sharply, particularly in the first half of the year, in economically cyclical markets such as automobiles, construction and appliances.
For the year, lower sales volume accounted for approximately 22% of the overall sales decline. Changes in product mix and prices accounted for approximately 2.6% of the sales decline, and changes in foreign currency exchange rates contributed an additional 1.5% decline. Reduced sales of precious metals, which included reductions in volume and changes in prices, contributed approximately 3.1% of the sales decline. Sales declined in all segments and all regions compared with the prior-year period.
Net sales increased sequentially in each quarter during 2009 as customers’ inventory destocking moderated and end-market demand showed modest improvement. Improved demand in Asia and Latin America was a leading contributor to the company’s sequential sales increase.
Gross profit percentage increased to 19.0% of net sales for the year, compared with 18.0% of sales in 2008. This increase was achieved despite lower sales volumes as a result of plant closures, staffing reductions and other cost-reduction activities. In 2009, gross profit was reduced by $5.0 million, primarily as a result of charges for accelerated depreciation and other costs of the company's manufacturing rationalization programs. During 2008, gross profit was reduced by $3.1 million in charges as a result of asset write-offs and other costs associated with manufacturing rationalization.
Restructuring charges declined to $11 million in 2009 from $26 million in 2008. The restructuring charges in both years were primarily related to manufacturing rationalization activities in the company’s European manufacturing operations and other cost-reduction actions.
Net sales for the three months ended December 31, 2009 were $458 million, a 6% increase over the $432 million achieved in the fourth quarter of 2008. Sales increased in the Electronic Materials, Color and Glass Performance Materials, and Performance Coatings segments. Partially offsetting these increases were sales declines in the Polymer Additives, Specialty Plastics and Pharmaceuticals segments.
Net sales increased sequentially by $16 million, or 4% percent in the fourth quarter of 2009. The growth continued a pattern of modest sequential sales increases that were recorded for the final three quarters of 2009. The sequential growth was driven by increased product sales in the company’s Electronic Materials, Performance Coatings and Pharmaceuticals segments. The sales increase was partially offset by lower sales in the Polymer Additives segment.
Gross profit percentage during the 2009 fourth quarter increased to 22.0% of sales, compared with 15.1% of sales in the fourth quarter of 2008. The increase was the result of actions taken throughout 2009 to respond to reduced customer demand associated with the worldwide economic downturn. The actions included staffing reductions and production schedule adjustments. In addition, plant shutdowns and additional reductions in manufacturing staffing to reduce costs and improve manufacturing efficiency were initiated in connection with Ferro’s worldwide manufacturing rationalization projects. During the fourth quarter of 2009, gross profit was reduced by charges of $1.1 million, primarily related to manufacturing rationalization activities.
Restructuring charges were $7.2 million in the 2009 fourth quarter, an increase from $3.7 million in the fourth quarter of 2008. The restructuring charges were primarily related to manufacturing rationalization actions and other cost and expense reduction initiatives.
Reductions in the company's cost structure that were accomplished in 2009 are expected to provide improved profitability in 2010. In addition, the company continues to execute additional manufacturing rationalization and expense reduction initiatives during 2010, including plant closings and staffing reductions. The volume of products sold in the first quarter of 2010 is expected to improve from the fourth quarter of 2009, particularly in the company's Electronic Materials, Performance Coatings and Color and Glass Performance Materials segments. Customer demand is expected to follow historical seasonal trends during 2010, with somewhat higher sales in the first half of the year compared with the second half.
The company's current outlook for 2010 assumes that worldwide real GDP growth will recover to approximately 2% and that there will not be a return to recessionary conditions in the company's major regional markets in the U.S., Europe and Asia. Based on these assumptions, the company currently estimates 2010 net sales will increase between 5 and 10% compared with 2009, to between $1.75 billion and $1.85 billion.
Additional assumptions in the company's planning for 2010 include:
- Capital expenditures of approximately $60 million
- Currently planned restructuring projects completed by the end of 2010
- Pension expense of approximately $24 million and cash contributions to the company’s worldwide pension plans of approximately $25 million
- Depreciation and amortization of $80 million, excluding accelerated depreciation associated with manufacturing rationalization projects
- Interest expense of approximately $52 million
Additional details are available at www.ferro.com.