• Net sales increased 12% in the first quarter compared with prior year period
• Segment gross margin and adjusted operating margin both improved sequentially from fourth
• Strong cash generation in the quarter with total debt reduction of $25 million, compared with
$28 million for full fiscal 2017
• Company reiterates fiscal 2018 earnings guidance of $2.00 to $2.20 per diluted share on an adjusted basis; mid-point represents a 20% increase versus prior year
In the 2018 first quarter, consolidated net sales were $674.6 million, an increase of 12.4% percent from last year’s first-quarter sales of $600 million. Operating income was $32.6 million, and on an adjusted basis, was $36.8 million compared with $19.1 million and $35 million, respectively, for fiscal 2017.
“Our first quarter results show a positive shift in momentum at A. Schulman as we continue building on our fiscal 2017 reset actions,” said Joseph M. Gingo, Chairman, President and Chief Executive Officer. “Despite the challenge of hurricane Harvey, our underlying revenue growth of approximately 9%, excluding foreign currency translation, was the strongest in many quarters, and our volume momentum shifted to growth for the first comparable period since the third quarter of fiscal 2016. Our cash flow is off to a strong start, with $25 million of total debt reduction in the first quarter alone, which is well ahead of the fiscal 2017 pace.”
Gingo continued, “Our businesses in both Asia-Pacific and Latin America delivered an even more robust performance with accelerated volume and sales growth from the fourth quarter. Volume, sales and profit growth in Engineered Composites continues into the first quarter from the prior year, assisted by improved oil field services, maintaining our above-market growth in this important business. Our EMEA segment experienced a shift to volume growth for the first time since mid-2015, and we are cautiously optimistic about the health of our key markets in the region. Finally, in USCAN, we believe our underlying business is on track for gradual recovery, despite hurricane Harvey’s approximately $1.5 million impact on the quarter’s operating income. Although our industry continues to be challenged with raw material inflation, our aggressive pricing initiatives led to four out of our five operating segments posting operating profit gains in the quarter. We believe we are on track to regain desired margins over time.”
Working Capital/Cash Flow
Cash provided from operations was $25.5 million in the first quarter. Working capital days were 43 at the end of the first quarter compared with 45 days at the end of fiscal 2017. Cash flow was used to reduce total debt by $25 million, to a net leverage ratio of 4.04x. Since the acquisition of Citadel in June 2015, the Company has paid down approximately $225 million of debt.
Capital expenditures for the first quarter of fiscal 2018 were $5.4 million. Additionally, the Company declared and paid quarterly cash dividends to common shareholders of $6.2 million, or $0.205 per common share, and also paid dividends of $1.9 million to holders of the convertible special stock.
The Company maintains its fiscal 2018 outlook, and anticipates adjusted earnings before interest, tax,
depreciation and amortization (“adjusted EBITDA”) for the year to be in the range of $220 million to
$230 million. Fiscal 2018 adjusted earnings per share (“adjusted EPS”) are expected to be between $2.00
and $2.20 per diluted share. The mid-point of the EPS estimate represents a 20% increase on a year-over-year basis. Please refer to the reconciliation of GAAP and Non-GAAP financial measures for the types of items ex-cluded from the Company's business outlook.
“Fiscal 2017 was a reset year for A. Schulman; however, we anticipate that 2018 will be a recovery year. We see many opportunities to leverage the fundamental changes we made throughout the Company during the last fiscal year. Our overarching goal is to return A. Schulman once again to the higher, sustained levels of growth and profitability that our shareholders had grown to expect from our Company,” commented Gingo.
Conference Call on the Web
A live Internet broadcast of A. Schulman’s conference call regarding fiscal 2018 first quarter earnings can be accessed at 10:00 a.m. Eastern Time on January 9, 2018, on the Company’s website, www.aschulman.com. An archived replay of the call will also be available on the website.
Investor Presentation Materials
Senior executives may participate in meetings with analysts and investors throughout the fiscal year. The Company has posted presentation materials, portions of which may be used during such meetings, in the
Investors section of its website at www.aschulman.com. The materials will remain on the website as long
as they are in use.
About A. Schulman
A. Schulman, Inc. is a leading international supplier of high-performance plastic compounds, composites
and resins headquartered in Akron, Ohio. Since 1928, the Company has been providing innovative solutions to meet its customers' demanding requirements. The Company's customers span a wide range of markets such as packaging, mobility, building & construction, electronics & electrical, agriculture, personal care &
hygiene, sports, leisure & home, custom services and others. The Company employs approximately 5,100 people and has 54 manufacturing facilities globally. A. Schulman reported net sales of approximately
$2.5 billion for the fiscal year ended August 31, 2017. Additional information about A. Schulman can be
found at www.aschulman.com.
Use of Non-GAAP Financial Measures
This release includes certain financial information determined by methods other than in accordance with accounting principles generally accepted in the United States (“GAAP”). These non-GAAP financial measures include segment gross profit, SG&A expenses excluding certain items, segment operating income, operating income before certain items, net income excluding certain items, net income per diluted share excluding certain items and adjusted EBITDA, as discussed further in the Reconciliation of GAAP and Non-GAAP Financial Measures below. These non-GAAP financial measures are considered relevant to aid analysis and understanding of the Company’s results and business trends.
The Company uses segment gross profit, SG&A expenses excluding certain items, segment operating income, operating income before certain items, net income excluding certain items, net income per diluted share excluding certain items and adjusted EBITDA to assess performance and allocate resources because the Company believes that these measures are useful to investors and management in understanding current profitability levels that may serve as a basis for
evaluating future performance and facilitating comparability of results. In addition, operating income before certain items and segment operating income before certain items are important to management as all are a component of the Company’s annual and long-term employee incentive plans. Non-GAAP measures are not in accordance with, nor are they a substitute for, GAAP measures, and tables included in this release reconcile each non-GAAP financial measure with the most directly comparable GAAP financial measure. The most directly comparable GAAP financial measures for these purposes are gross profit, SG&A expenses, operating income, net income and net income per diluted share. The Company’s non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures, and should be read only in conjunction with the Company’s consolidated financial statements prepared in accordance with GAAP.
While the Company believes that these non-GAAP financial measures provide useful supplemental information to investors, there are very significant limitations associated with their use. These non-GAAP financial measures are not prepared in accordance with GAAP, may not be reported by all of the Company’s competitors and may not be directly comparable to similarly titled measures of the Company’s competitors due to potential differences in the exact method of calculation. The Company compensates for these limitations by using these non-GAAP financial measures as supplements to GAAP financial measures and by reviewing the reconciliations of the non-GAAP financial measures to their most comparable GAAP financial measures.
A number of the matters discussed in this document that are not historical or current facts deal with potential future circumstances and developments and may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they do not relate strictly to historic or current facts and relate to future events and expectations. Forward-looking statements contain such words as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” and other words and terms of similar meaning in connection with any discussion of future operating or financial performance.
Forward-looking statements are based on management’s current expectations and include known and unknown risks, uncertainties and other factors, many of which management is unable to predict or control, that may cause actual results, performance or achievements to differ materially from those expressed or implied in the forward-looking statements. Important factors that could cause actual results to differ materially from those suggested by these forward-looking statements, and that could adversely affect the Company’s future financial performance, include, but are not limited to, the following:
• worldwide and regional economic, business and political conditions, including continuing economic uncertainties in some or all of the Company’s major product markets or countries where the Company has operations;
• the effectiveness of the Company’s efforts to improve operating margins through sales growth, price increases, productivity gains, and improved purchasing techniques;
• competitive factors, including intense price competition;
• fluctuations in the value of currencies in areas where the Company operates;
• volatility of prices and availability of the supply of energy and raw materials that are critical to the manufacture of the Company’s products, particularly plastic resins derived from oil and natural gas;
• changes in customer demand and requirements;
• effectiveness of the Company to achieve the level of cost savings, productivity improvements, growth and other benefits anticipated from acquisitions and the integration thereof, joint ventures and restructuring initiatives;
• escalation in the cost of providing employee health care;
• uncertainties and unanticipated developments regarding contingencies, such as pending and future litigation and other claims, including developments that would require increases in our costs and/or reserves for such contingencies;
• the performance of the global automotive market as well as other markets served;
• further adverse changes in economic or industry conditions, including global supply and demand conditions and prices for products;
• operating problems with our information systems as a result of system security failures such as viruses,
cyber-attacks or other causes;
• our current debt position could adversely affect our financial health and prevent us from fulfilling our financial obligations; and
• failure of counterparties to perform under the terms and conditions of contractual arrangements, including
suppliers, customers, buyers and sellers of a business and other third parties with which the Company contracts.
The risks and uncertainties identified above are not the only risks the Company faces. Additional risk factors that could affect the Company’s performance are set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2017. In addition, risks and uncertainties not presently known to the Company or that it believes to be immaterial also may adversely affect the Company. Should any known or unknown risks or uncertainties develop into actual events, or underlying assumptions prove inaccurate, these developments could have material adverse effects on the Company’s business, financial condition and results of operations.
Jennifer K. Beeman
Vice President, Corporate Communications & Investor Relations
A. Schulman, Inc.
3637 Ridgewood Road
Fairlawn, Ohio 44333