Materion Corporation (MTRN)

MTRN 
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Materion Corporation (MTRN)

Q4 2012 Earnings Call

February 28, 2013 10:00 am ET

Executives

Michael C. Hasychak – Vice President, Treasurer and Secretary

Richard J. Hipple – Chairman, President and Chief Executive Officer

John D. Grampa – Senior Vice President Finance and Chief Financial Officer

Analysts

Luke Folta – Jefferies & Company

Edward Marshall – Sidoti & Company, LLC

Avinash Kant – D. A. Davidson & Co.

Marco Rodriguez – Stonegate Securities

Rob Young – William Smith

Mark Parr – KeyBanc Capital Markets

William Florida – Advisory Research

Phil Gibbs – KeyBanc Capital Markets

Presentation

Operator

Greetings, and welcome to the Materion Corporation Year End 2012 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Michael Hasychak, Vice President, Treasurer, and Secretary for Materion Corporation. Thank you, you may begin.

Michael C. Hasychak

Good morning. This is Mike Hasychak. With me today is Dick Hipple, President, Chairman, and CEO; John Grampa, Senior Vice President, Finance and Chief Financial Officer; and Jim Marrotte, Vice President and Corporate Controller.

Our format for today’s conference call is as follows. John Grampa will comment on the fourth quarter and year 2012 results and the outlook, and Dick Hipple will give a market update. Thereafter, we will open up the teleconference call for questions. A recorded playback of this call will be available until March 15 by dialing area code 877. The number is 660-6853 or area code 201, the number is 612-7415, the conference id number is 408800. The call will also be archived on the Company’s website, materion.com. To access the replay, click on Events and Presentations on the Investor Relations page.

Any forward-looking statements made in this announcement, including those in the outlook section, and during the question-and-answer portion are based on current expectations. The company’s actual future performance may materially differ from that contemplated by the forward-looking statements as a result of a variety of factors. Those factors are listed in the earnings press release issued this morning.

And now, I’ll turn it over to John Grampa for comments.

John D. Grampa

Thank you, Mike. Good morning everyone, and thanks for taking the time to join us this morning. Today’s agenda is similar to that of our past calls. I will review the results for the quarter, as well as review the outlook for 2013. And following my comments Dick Hipple will review the current state of our key markets, and provide his perspective on certain specific key new product initiatives. Following Dick, we will open the call for your questions.

As I normally do, I’ll cover sales, earnings and margins isolating the influence of high value pass-through metal, which as most of you know in our company can crowd real margin levels and trends in both business levels and margins particularly in an environment of pass-through metal prices or ships in metal mix or metal stores can change meaningfully from period-to-period.

I’ll also review the key changes in business levels by key market comparing the fourth quarter of 2012 to the fourth quarter of the prior year as well as sequentially to the third quarter of the year.

For the quarter, I will summarize the impact of the three previously announced non-recurring items. These being the facility consolidation charges announced in early December, the physical inventory adjustment announced on February 13, and a tax benefit also announced on February 13.

I’ll follow these with a review of margins and brief comment on the balance sheet and cash flow. And then finally, I will review the outlook for 2013 as we see it unfolding at this time.

Let’s begin with the review of the fourth quarter, first sales and business levels. Today we reported results for the quarter that were $0.01 per share above the high end of the range we provided in our February 13th pre-release. Adjusting results to exclude the negative impact of the facility consolidation and physical inventory adjustment as well as the tax benefit, earnings for the quarter were well ahead of what we expected coming into the quarter due primarily to higher business levels across the number of our markets.

Sales for the fourth quarter were about $304 million, down approximately 9% or $31 million compared to sales of about $334 million for the fourth quarter of 2011. Comparing sequentially to the third quarter of the year, fourth quarter sales were up approximately 5%.

Net of high value pass-through metal influences business levels for the quarter were actually up about 4% year-over-year. The improvement in the fourth quarter business levels when compared to the prior year levels was primarily due to higher demand for our materials from the automotive electronics, consumer electronics, medical, telecom infrastructure and industrial and commercial aerospace markets.

Automotive electronics was up approximately 26% year-over-year; consumer electronics was up approximately 16% and medical was up approximately 11%. Industrial and commercial aerospace and telecom infrastructure were up approximately 5% and 2% respectively in the fourth quarter year-over-year. The increases in these areas were partially offset in the year-over-year fourth quarter comparison by decreases of about 14% in energy, and 5% in defense and science. Comparing the fourth quarter sequentially to the third quarter of the year, business levels improved nicely in areas that had been weaker earlier in the year.

Energy was up about 17%, and defense and science was up about 4%. Automotive electronics and medical which were up significantly year-over-year in the fourth quarter were also both up sequentially as well by about 13% respectively, and 4% respectively.

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