Materion Corporation (MTRN)

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Materion Corporation (MTRN)

Q1 2014 Results Earnings Conference Call

April 24, 2014, 09:00 AM ET


Michael Hasychak - VP of IR

John Grampa - SVP and CFO

Richard Hipple - Chairman, President and CEO


Edward Marshall - Sidoti and Company

Avinash Kant - D. A. Davidson

Luke Folta - Jefferies

Marco Rodriguez - Stonegate Securities



Greetings and welcome to the Materion Corporation First Quarter 2014 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.

I would now like to turn the conference over to your host, Mr. Mike Hasychak, Vice President, Treasurer and Secretary for Materion Corporation. Thank you, sir. You may begin.

Michael 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; Joe Kelley, Vice President of Finance; and Jim Marrotte, Vice President and Corporate Controller.

Our format for today's conference call is as follows; John Grampa and Joe Kelley will comment on the first quarter 2014 results and the outlook, and Dick Hipple will provide additional commentary. Thereafter, we will open up the teleconference call for your questions.

A recorded playback of this call will be available until May 9, by dialing area code 877-660-6853 or you can dial area code 201-612-7415, conference ID number is 13579692. The call will also be archived on the company's website, 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 Grampa

Thank you, Mike. Richard, will review the financial results for the quarter then I will return and review the outlook. Following my comments, Dick Hipple will review the state of our key markets, and provide his perspective on certain specific key new product initiatives as well as other developments.

Following Dick we will open the call for your questions. Joe?

Joe Kelley

Thank you, John. I will cover first quarter sales, margins and earnings. I will then review the key changes in business levels by key markets, comparing the first quarter of 2014 to the first quarter of the prior year and sequentially compared to the fourth quarter of 2013. I will also make some great comments on the balance sheet and cash flow.

Looking at our first question 2014 financial performance, sales for the quarter were $258.9 million down $40.3 million or 13% from first quarter 2013 levels driven primarily by changes in precious metal market pricing.

Value-added sales for the first quarter were $144.9 million down only 4% below the prior year first quarter value-added sales.

The year-over-year decline in value-added sales is attributable to lower volumes related to sever weather conditions at our facilities and our customer's facilities.

Inventory destocking and the automotive supply chain and lower shipment volumes of hydroxide this later factor is due to the fact that hydroxide shipments to our one hydroxide customer are now quarterly versus semi-annually in the prior years.

Gross margins in the first quarter was $45.5 million around 6% from the prior first quarter gross margin of $48.3 million. Gross margin expressed as a percentage of value-added sales was 31.4% in the quarter inline with prior year margins of 32%.

Improved product mix and manufacturing efficiencies plus reduced cost related to the company's facility consolidation efforts resulted in comparable profit margins year-over-year despite the lower volumes in the quarter.

We're clearly starting to see the financial benefits from our facility closure and product line rationalization efforts. Plus we are seeing improved productivity as a company's beryllium pebble plant.

During the quarter, the pebble plant achieved approximately 75% of its targeted end of year 2014 output rate and is on track to meet or exceed 85% of the forecasted end of year production efficiency levels in the second quarter.

On the facility closure and product line rationalization front, the vast majority of the work is completed. And the company is well on it's way to achieving the identified $0.30 per share targeted annual cost reduction benefit.

In addition to permanently lowering our cost structure, this facility reorganization is enabling us to better serve our customer and markets.

One example of this benefit is visible in our microelectronic packaging product line. We relocated the production of this product from the U.S. to Asia during 2013 in an effort to consolidate our operations and be closer to our customers.

The sales and profit margins generated from this product line in Q1, 2014 are exceeding targeted levels and we're well-positioned to leverage our standard Asian manufacturing footprint to capture additional market share in the region.

Operating profit for the first quarter of 2014 was $11.1 million or 7.6% of value-added sales. This included a net benefit of $2 million associated with the facility consolidation efforts as the company recorded approximately $600,000 of consolidation expenses offset by a $2.6 million gain on a sale of related assets.

Excluding this net benefit, adjusted operating profit was $9.1 million, 4.6% or $400,000 below prior year Q1 levels.

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