Materion Corporation (MTRN)

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Materion Corp (MTRN)

Q2 2013 Earnings Conference Call

July 26, 2013 10:00 ET


Mike Hasychak - VP, Treasurer, and Secretary

John Grampa - SVP & CFO

Dick Hipple - Chairman, President & CEO


Edward Marshall - Sidoti & Company

Luke Folta - Jefferies & Company

Avinash Kant - D.A. Davidson

Marco Rodriguez – Stonegate Securities

Mark Parr - KeyBanc Capital Markets

Jim Casagrande - Brant Point Capital

William Florida - Advisory Research



Greetings and welcome to the Materion Corporation Second Quarter 2013 Earnings Conference Call. (Operator Instructions). It is now my pleasure to introduce your host Mike Hasychak. Thank you, sir you may begin.

Mike Hasychak

Good morning. This is Mike Hasychak, Vice President, Treasurer, and Secretary. With me today is Dick Hipple, Chairman, President 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 second quarter 2013 results and the outlook, and Dick Hipple will give you market update. Thereafter, we will open up the teleconference call for questions. A recorded playback of this call will be available until August 10, by dialing area code 877. The number is 660-6853 or area code 201, the number is 612-7415, the conference id number is 417416. The call will also be archived on the Company’s website, To access this 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 over the call to John Grampa for comments.

John Grampa

Thank you Mike. Good morning everyone and welcome to the call to review the company’s results for the second quarter. During this call we will also provide an update on the conditions on our key markets and the outlook for the balance of the year. Thanks for taking the time to join us. Today’s agenda is identical to that of our past calls. I will review the results for the quarter and the outlook and then following my comments Dick Hipple will review the current state of our key markets and provide his perspective on certain new key product initiatives. There is good news to report related to those initiatives. And then following Dick we will open the call for your questions. As I normally do I will begin with a review of sales and earnings, I will follow this with a review of margins, I will also review the change in business levels by key market comparing the second quarter of the year to the second quarter of the prior year as well as sequentially to the first quarter of the year. I will conclude with brief comments on the balance sheet and cash flow as well as the outlook for the remainder of the year.

Before I begin though I want to call your attention to the non-GAAP value added sales and margin reporting by segment that is included in the press release. This is a supplement to the usual GAAP reporting and includes a related a reconciliation. As many of you already know we began providing this additional information with our first quarter earnings release. We are providing this additional insight because in our businesses the cost of gold, silver, platinum, palladium and copper are generally pass-through to customers and as a result movements in the price of these five pass-through metals can influence reported sales and margins expressed as a percentage of sales while having a limited effect on margin dollars and underlying profitability.

Value added sales deducts the cost of these five pass-through metals from sales and removes the potential distortion in the interpretation of business levels as well as profit margin percentage changes that can be caused by changes in the values of the metals sold. We manage our business on a value added sales and margin basis. Again the value added sales, gross margin and operating profit margin expressed as a percent of value added sales and the related reconciliations to the GAAP numbers are included in the press release by segment.

Also included are the related comparisons in the second quarter of the prior year and the first quarter of the current year. We believe that this information in the form provided is useful to investors. In my briefing this morning, comment on business levels and margins will be in value added terms. Gross margin and operating profit margins will be expressed as a percent of value added sales. Changes in business levels for the company in total as well as by market will also be expressed in this context. Let’s begin with a review of the key points highlighted at the beginning of the release. Sales for the second quarter were $306.1 million down $19 million or 6% from the second quarter of the prior year.

As was the case with our results for the first quarter of this year, herein lies a great example of why value added sales reporting is so relevant. Value added sales for the second quarter were about $159.3 million, up 4.8 million or 3% from the second quarter of 2012. What appeared to be $19 million or a 6% decline in business levels is a $5 million or 3% increase nearly a 900 basis point swing when you look at value added sales versus the reported GAAP sales levels.

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