Materion Corporation (MTRN)

MTRN 
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Materion Corporation (MTRN)

Q3 2013 Earnings Conference Call

October 24, 2013 09:00 AM ET

Executives

Mike Hasychak - VP, Treasurer, and Secretary

John Grampa - Senior Vice President, Finance and CFO

Dick Hipple - Chairman, President and CEO

Jim Marrotte - Vice President and Corporate Controller

Analysts

Martin Engler - Jefferies & Company

Avinash Kant - D. A. Davidson

Ed Marshall - Sidoti & Company

Marco Rodriguez - Stonegate Securities

Brad Evans - Heartland

Rob Amman - RK Capital

Presentation

Operator

Greetings and welcome to the Materion Corporation third quarter 2013 earnings conference call. At this time all participants are in a listen-only mode. A brief 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, 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, 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 third quarter 2013 results and the outlook, and Dick Hipple will give a market update. Thereafter, we will open up for teleconference call for questions. A recorded playback of this call will be available until November 8, by dialing area code 877-660-6853 or area code 201-612-7415, conference id number is 100466. 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.

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

John Grampa

Thank you, Mike. Good morning, everyone, and thank you for taking the time to join us this morning. As I normally do I will begin with a review of sales, earnings and operating margins. That will be followed by a review of the changes in business levels by key markets. Here I will compare the third quarter of 2013 to the third quarter of the prior year as well as sequentially to the second quarter of the current year. Then following brief comments on the balance sheet and cash flow, I will review the previously announced initiatives to reduce cost and improve margins. I will conclude with a review of the outlook for the remainder of the year. Throughout my remarks I will reference and expand a bit further where appropriate on the conditions outlined in our October 7th release, those being the conditions that led to the weaker than initially expected third quarter.

For those on the call that are unfamiliar with our reporting, I want to bring 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-based reporting and includes a reconciliation to GAAP, also included other related comparisons to the third quarter of the prior year and the second quarter of the current year.

We began providing this information with our first quarter earnings release. The additional data and related metrics are very relevant because in our businesses the cost of gold, silver, platinum, palladium and copper are for the more part pass through to customers. And as a result movements in the price of these five pass-through metals can noticeably influence reported sales and margins expressed as a percentage of sales while usually 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 much of any potential distortion in the interpretation of changes in business levels or profit margin percentages caused by changes in the values of the metals sold. Changes in business levels or margin percentages expressed as changes in value-added sales will therefore be primarily due to changes in the volume, pricing or product mix.

Throughout my briefing this morning, information on business level or margin changes whether for the company in total or by market will be expressed in this context.

Let’s begin. Sales for the third quarter were $275.4 million, down $15.2 million or about 5% from the third quarter of the prior year. As was the case with our results for the first and second quarters of this year, our third quarter provides another good example of why value-added sales reporting is so relevant.

Value-added sales for the third quarter were about $148.7 million, down $3.6 million or 2% from the third quarter of 2012. What would have appeared to be a $15.2 million or a 5% decline in business levels is more accurately expressed as a decline of $3.6 million or 2%.

As we reported in our October 7th press release, the year-over-year comparison was affected by the delay in high margin defense and nuclear science shipments. These delayed shipments totaled approximately $3.5 million in value-added sales and affected earnings in the quarter by about $0.06 per share.

Comparing sequentially to the second quarter of the year, business levels were down $10.6 million or over 6% in value-added terms as opposed to being down 10% on a GAAP basis. The sequential decline is related to the shipment delays, seasonal factors and weaker than expected market conditions in general. Each of those factors represent about one-third of the change. I will review these specific changes in more detail by key market a bit later.

Read the rest of this transcript for free on seekingalpha.com