Q2 2020 Earnings Call
Welcome to the visor and Conference Center. The next available. Comfort specialist will be with you momentarily.
Thursday
welcome to the visor and Conference Center. The next available. Comfort specialist will be with you momentarily.
Conference Center, this is Maddy. Which car would you like?
Thank you. Your name, please.
And your company name?
IRA
thank you so much. I'll do I need to the conference and the call is being recorded a quarter included an investment loss of one point 1 million compared to investment income of 2.1 million dollars a year of investment income primarily reflects. The performance of Investments held in trust for certain of the company's benefit plans, which were significantly impacted by the market downturn in March 2020.
Answered lower operating income for the current quarter compared to a year ago reflecting the decline in Consolidated sales.
Year-to-date adjusted earnings per share were $1.10 as of March Thirty One 2020 compared to $1.40 last year.
With respect to the Goodwill writedown covid-19 represented a triggering event for the performance of an impairment analysis for the Goodwill reporting units within the sgk brand Solutions segment based on our assessment of the potential impacts of covid-19 on their estimated future earnings and cash flows. The company recorded a charge of 90.4 million dollars to reduce the value of the segments Goodwill.
Interest expense for the fiscal two thousand twenty second quarter was nine point six million dollars compared to ten point three million dollars a year ago reflecting lower average debt and a declining interest rates for the current quarter relative to the same quarter last year for the six months ended March Thirty One Two thousand twenty interest expense Was Eighteen point nine million dollars compared to twelve point six million dollars last year other income and deductions net for the quarter ended March Thirty One 2020 represented a decrease in pre-tax income of 1.8 million dollars compared to one point 1 million dollars for the same quarter last year other income and deductions net for the six months ended March Thirty One 2020 represented a decrease in pre-tax income of 4.7 million dollars compared to two million dollars last year other income and deductions include the non-service portion of pension and postretirement costs for the quarter ended March Thirty $1.
20 the non-service portion of
Pension and postretirement cost was two point two million dollars compared to $970,000 last year for the six months ended March Thirty One 2020 the non-service portion of package supposed retirement costs was four point five million dollars compared to one point nine million dollars last year Consolidated income taxes for the 3 months ended March Thirty One two thousand twelve or a benefit of 11.1 million dollars compared to a benefit of $165,000 for the same quarter last year the income tax benefit for the current quarter primarily reflect the company's pre-tax loss on a gaap basis the company reported an overall tax benefit in the second fiscal quarter last year despite pre-tax income tax result of significant tax benefits discreet to that quarter Consolidated income taxes for the six months ended March Thirty One Two thousand twenty were benefit of 16.5 Million Dead.
Compared to an expense of $440,000 for the same period last year.
Please turn to slide 5 to begin a review of our segment results.
For the sgk brand Solutions segment sales were $173 for the current quarter compared to $191 a year ago the decline primarily reflects our sales in the segments principal Geographic markets, including the US Europe and asia-pacific in addition sales of cylinder surfaces and engineered products decreased from the same quarter last year all regions reported some level of commercial impact in the covid-19. Although it is difficult to quantify. These declines were partially offset by higher sales for merchandising Solutions compared to the same quarter last year.
For the six months ended March Thirty One 2020 sales for the sgk brand Solutions segment were $348 compared to $376 last year in addition to the impacts of the recent quarter. The segments years, year-to-date sales were unfavourably affected by their previously reported loss of a significant us brand client account, which occurred in the first quarter last year changes in foreign currency exchange rates had an unfavorable impact of three point two million dollars on the segment. Second quarter sales compared with the same quarter years ago and 5.1 million dollars on a year-to-date basis.
Fiscal two thousand twenty second quarter adjusted ebitda for the sgk brand Solutions segment was 22.2 Million compared to twenty nine point four million dollars a year ago adjusted ebitda for the sgk brand Solutions segment for the six months ended March Thirty One 2020 was $41 compared to fifty six point seven million dollars a year ago the quarter and year-to-date declines primarily reflected. The impact of lower sales combined with an unfavorable product mix shift and pricing the unfavorable shift in product mix partly reflected lower tobacco-related sales, which generally have higher incremental margins.
and
Addition the year-to-date adjusted ebitda margin for the current period reflected the unfavorable impact of the brand client account laws, which also had higher incremental margins are recent cost structure initiatives partly mitigated these declines. Please turn to slide six memorialization segment sales for the current quarter. We're $160 million dollars, which was relatively consistent with the second fiscal quarter last year similarly for the first six months of fiscal 2020 memorialization segment sales were $316 compared to $316 last year higher cremation equipment sales and improved price realization for caskets and Memorial products were offset by the impact of lower unit down volume four caskets and Memorial products.
For the recent quarter International Memorial product sales were lower reflecting the impact of covid-19 particularly in the Italian market changes in foreign currency exchange rates at an unfavorable impact of approximately $389,000 on the segment sales compared with the same quarter last year and $711,000 a year to date basis memorialization segment adjusted ebitda for the fiscal 2020. Second quarter was 35.2 million dollars compared to $35 billion dollars a year ago for the first six months of fiscal 2020 memorialization segment adjusted ebitda was 65.3 million dollars, which was relatively unchanged from the same period last year.
The current Year's results primarily reflected the benefits of higher revenues and productivity initiatives offset by higher materials and freight costs.
Please turn to slide seven industrial technology sales for the fiscal two thousand twenty second quarter or forty Point 1 million dollars compared to thirty eight point six million dollars a yeara ago for the six months ended March Thirty One 2020 industrial technology sales for fiscal two thousand twenty four seventy five point eight million dollars compared to seventy three point six million dollars a year or higher product identification sales were partially offset by lower sales of Warehouse automation systems the decline in Warehouse automation systems primarily result from Project delays by customers as backlog in this business continues to remain solid in addition the segment small operation and China was impacted during the recent quarter due 2019.
Changes in foreign currency exchange rates had an unfavorable impact of $336,000 on the segment sales compared with the same quarter last year and $658,000 on the year-to-date basis.
Adjusted ebitda for the industrial technology segment for the current quarter with 6.2 million dollars compared with 4.8 million dollars a year ago year to date the segments adjusted ebitda was six point five million dollars compared to eight point four million dollars last year the increase in the segment's adjusted ebitda for the current year primarily reflected the sales increase in a lower product development costs. Please turn to slide a
Cash flow from operating activities for the fiscal 2020 second quarter was 60.6 million dollars compared to thirty six point nine million dollars a year ago cash flow from operating activities for the first six months of fiscal 2020 with 66 million dollars compared to forty five point three million dollars a year ago the significant increase from last year primarily reflected the favor of changes in our working capital particularly accounts receivable and accounts payable.
As a result of the company strong operating cash flow during the fiscal two thousand twenty second quarter. The company reduced its Consolidated net debt during the fiscal 2026 quarter by $34 billion dollars, the leverage ratio Covenant in our domestic credit facility is based on net debt, which represents outstanding debt less cash off standing debt level declined slightly from $967 at December Thirty One 2019 to $966 million at March Thirty One Two thousand twenty. However, our Consolidated cash position increased from $39 at December Thirty One 2019 272 million dollars at March Thirty One 2020.
Due to current economic conditions we chose to maintain a higher level of cash in the near-term the company intends to continue to focus fiscal 2020 cash flow on wage reduction as previously reported. We renewed our domestic revolving credit facility and accounts receivable securitization facility in March 2028. The renewed of a revolving credit facility provides for borrowings up to 750 million dollars and has a five-year term the timing of this renewal reflects the company's routine process of renewing sylheti approximately one year prior to maturity as the previous facility was scheduled to mature in April 2021.
The company reduced the size of this facility from nine hundred million dollars as the previous facility was put in place prior to the company's $300 Bond offering phone number 2017. The renewed revolving credit facility generally maintains the same terms and interest rate structure of the previous facility and provides for a temporary increase in a leverage ratio Covenant in light of current global economic conditions.
Approximately 331.3 million shares were outstanding at March Thirty One 2020 during the recent quarter the company purchased only $20,750 shares under wage or repurchase program year-to-date. The company has purchased only approximately 73000 shares a significant portion of which related to fulfilling required withholding tax obligation a connection with Equity compensation with respect to the company's outlook for the remainder of this fiscal year. The company is withdrawing its earnings guidance for fiscal 2020 as a result of covid-19 and the uncertainty of the extent of its impact on our markets and industries.
It's Joe indicate.
Traded in our earnings release covid-19 is impacted each of our segments to varying degrees and the business environment continues to change. However, we completed the fiscal 2012-13 second quarter with strong operating cash flow resulting in good liquidity and capital availability going into our third fiscal quarter cash and working Capital Management is a high priority in these changing conditions. For example, we recognize accounts receivable collectability maybe a concern in this economic climate and intend to closely monitor our account. In addition. We will continue to emphasize debt reduction.
Finally the board last week declared a dividend of $0.21 per share on the company's common stock. The dividend is payable May 18th 2022 stockholders of record, May 4th 2020. This concludes the financial review and Joe will now comment on our company's operations. Thank you Steve. Good morning.
First off. I'd like to thank all of our employees around the world for the commitment and significant effort during these uncertain times. They have all responded with great resolve and dealing with unprecedented challenges.
Like many other companies last quarter, we began and challenging time for our business because of our vast Geographic footprint. We began to feel the impact of the coronavirus in our Chinese locations in January that early warning allowed us to make they begin preparations, which today is resulted in more than half of our 11,000 Global Workforce being able to work from home. I cannot stress enough the significance of this effort because in a matter of weeks the major production centers for our brand business and back office support for our Global operations. We're forced to shut down due to governmental stay-at-home workers. Most of our brand production employees were prevented from returning to work and we were forced to find a way to allow them to work from home to keep our business operating off.
This quick response was made possible by our significant investment over the past few years in our Global Erp similarly that early warning allowed us to repair our memorialization and on just automations businesses to make accommodations to continue to operate as an essential business in this new environment moreover during the quarter the latter part of the the quarter wage earner Home Products teams in New York City region led by the pond tone family began to feel the impact of the virus on a personal basis as they worked endless hours 7 days a week from late Monday through today to assist a funeral industry in that region to deal with the Calamity that has occurred and proud to see how our teams are responding because of their effort. We not only protected are employees, but we deliver good relative performance. When you consider the individual businesses within the segment each major business delivered solid ebitda performance, except one month.
Our business has responded well to our Cost Containment efforts while we focus our efforts on cash conversion, which allowed us to reduce our net debt by over.
30 million dollars as you might expect this was hard work because our clients and vendors were focusing their own cash effort as well.
Looking forward our ability to forecast is cloudy, but we are confident of our strong positions and resilient markets throughout the dispatch throughout this pandemic and to this day substantial all of our businesses remain open.
Looking at our current performance. Our memorialization segment continues to see higher volumes in our Funeral Home Products division while our Cemetery products division is seeing a temporarily low order rate is National stay-at-home orders have prevented family's from visiting the cemetery to place orders for markers. Our our experience would suggest that orders for those unmarked graves will come as loggin pressures. He's and we expect a more normalized order rate starting by the end of this quarter similarly our Environmental Solutions business has seen increased orders for both new cremation equipment and maintenance services has providers around the world realize the need for more and better performing equipment during these challenging times. Although these orders have longer lead times as the leads provider of cremation equipment in the world. We expect our business to be strong for the foreseeable future.
As discussed above our brand business has successfully transitioned to work from home Arrangements around the world to allow our customers to continue to adapt their product offerings.
While covid-19 has had an impact on the operating results in parts of this segment. We continue to see relatively stable work from our largest cpg clients, especially those that who are Baptists in the food household goods and pharmaceutical Industries as our clients adjust their product lines to respond to the changing demand of the consumer in these unique times. We are their providers of packaging religious services around the world are private label brand business is slow during this period due to the all-out effort required by retailers just to keep their shelves stocked. There's little time frame is the focus on adjusting the product offerings and they see unprecedented volumes through their stores. We expect our private label business to grow significantly with conditions improve as retailers. Also respond to changing consumer demands.
Even our merchandising business which delivers stor in-store displays has responded admirably as you might expect their revenues have recently started to Trend lower wage begun to produce face Shields with her Nimble Workforce, which will help mitigate the Lost Revenue while we wait for retail stores to reopen also in our brand business. We have continued to work on our significant energy storage equipment opportunity, which we announced recently, although delivery is expected in the latter part of this calendar year. We are already beginning discussions for future orders. Unfortunately, I'm the one business that was challenged in the quarter was our European tooling business. This business has seen a decline in tobacco orders and slowness and surfaces orders. Our services business uses large engineered tooling generally considered capital goods
that tooling is used in the production of things like tissues and nonwoven materials like those used in the protective equipment in to
Like medical gowns and face. Max face masks given the current environment. We expect this business to see strong borders in the coming months.
Regarding our industrial technology segment not surprisingly. Our warehouse automation business is seeing strong demand for our Solutions is more people shop online and we expect to we are expecting to finish the game strong interest in Need for our Solutions is only increase as a result of the events of the last few months. We expect this business to continue to grow.
In our product identification business also part of our industrial technology segment after a very strong first half of the year. We are expecting to complete this year ahead of Prior year because of our Innovations in New Jersey twins, despite the challenges that we Face. We also saw progress on our new product which we have been developing. Unfortunately. We have slowed but not stopped off the R&D spending on this product during this period however, the progress made today continues to assure us of our eventual success this team continues to execute on a strong strategy.
All in all our company remains healthy continued focus on Cost Containment and cash generation should allow us to further reduce our debt during the balance of the year as we had committed earlier this year, We may not be able to give clear guidance of our full-year expectations at this time. We do not believe that our company will be severely impacted by the pandemic as you might expect. However, we remain cautious as there is much to be uncertain about the one thing that we are confident about though is that as a result of our business continuity efforts, we expect to come out of this challenge with renewed emphasis on our cost structure including a strong focus on the real estate costs and the benefits of telecommuting as we begin our planning for 20 21 the lessons learned from this crisis have exposed further opportunities for improvement, which would benefit periods to come.
Now let's open it up for questions.
Thank you. We will now be conducting a question-and-answer session. If you would like to ask the question, please press star one on your telephone keypad Thursday at 2. If you'd like to move your question from the two for participants using speaker equipment may be necessary to pick up your handset before pressing the star key and the interest of time. We ask that you please limit yourself to one question and one follow-up one moment, please while we pull for your questions.
Our first question comes from the line of Daniel more with c j s security. Please proceed with your question Joe and Steve. Good morning. I hope you're well and thank you for taking the questions. Good morning. Good morning. Dan want to pull on the string. You just finished with Joe. You know, it's interesting to think about the changes in work flow that have come about as a result. You know of the pandemic wage particularly in sgk. Is it possible at this stage to elaborate on you know, potential cost-savings as well as real estate monetization opportunities. That might come about as a result.
I can tell you what the ideas are damn, but I don't I'm a little difficult to quantify at this point. We're still trying to get through these quarters as we go through but the fact of the matter is we have well over a thousand people scattered around the world that are in production facilities that help us deliver the $700 or so that we produce in that in that segment. Those folks today are operating largely came home. That is taught us a few things one is whether or not they need to be sitting side-by-side to whether or not we have the systems but in place to properly manage productivity and efficiency, but three you begin to question the need for sitting across in tight quarters all all the folks in one location are total dollar spent on on real estate around the world is significant how much of that I actually need as we look forward is is unsure unsure but it what it does do frankly is open up my ass.
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Markets as potential places for us to provide services to because I don't necessarily need an office facility able to house a thousand people so little early to quantify but from a strategic standpoint this our investment in the RP and some other Investments we've made in technology and frankly a very very strong production technology team in that group as allowed us to look at what we can be on a virtual basis going forward very helpful in the very short-term. Maybe just elaborate on your productivity there. Can you keep up with the levels of of productivity that you would normally have or you expect at least, you know some potential modest impact in the very short-term. Then I'd love to share with you the email we received some from some of our largest accounts who are quite frankly thrilled in our ability to continue to deliver these in these challenging times are I mean the commentary from Brands you would all night long.
Are are wonderful to hear our team is heard about them and frankly, I would tell you that right now. We are continuing to see orders coming in at good range that would suggest that our clients are confident of our ability to deliver them on time and around the world for them as they need it. So we see no decline in our ability to do that page and if the consumer shifts to more online purchasing, you know, if that shift becomes more permanent for Staples groceries things of that nature and you know, how does the brand Solutions offerings translate in that world? So I mean look I am we are operators not prognosticators. The fact of the matter is is that we think there might be a structural shift back to the package in all this you don't at the end of the day what you're finding is people reverting back to packaged food dead.
just packaged products in the continuing evolution of
Product that you see on the shelf that doesn't change as we go to to uh e Commerce might in fact accelerate. So it's hard to tell Dan I would tell you that we're not we don't control the marketing budgets of our brand but we do execute a large portion of what they do on the shelf or on on on web got it very helpful and then they'll sneak one more in and jump out but the capex for the remainder of the Year given, you know, probably in a little bit of Cost Containment mode and just more generally Capital allocation priorities off that I know debt paydown is is the top one right now. What would you have to see in terms of stability in the markets or decline and leverage ratio to before you would want to deploy Capital significantly via, you know internal investment seminar et cetera. Thank you for the color.
So right now then I would tell you we're not seeing that significant decline that we would tail Capital Investments are our decisions to cut back on capital is more Prudence than it is a significant need. We're continuing to make appropriate Capital Investments at this time. Maybe uh a more detailed rate than we would normally have had thought I would tell you that things like the are indeed spending they were doing on our new product development continues, but at a slower rate, we're building a a new facility in in Germany. They had our life stories because we think there's a significant opportunity. We recently opened a new groove your facility Indonesia to be able to service that market for or if you're a cylinders. So we're making appropriate Capital Investments because we're not seeing the dramatic drops that that you that you might have. We might have expected but we are being very prudent with our Capital constraints wage.
Point in time where you would continue to focus or Capital as we said earlier on paying down our debt for the balance of this year and we think that could be a nice leverage point out for us as we start to look forward at what we're going to do in 2021.
Very good. Thank you. Our next question comes from the line of Lambert. Please proceed with your question. Thank you. Good morning. Good morning. Good morning land.
Joe could you give us a sense of the progress or where you are in terms of your cost saving initiatives. If you laid out earlier this year, you mentioned that you're getting some of the benefit on SDK, but if you give us a sense of how that's going and what the timing is. Well frankly Liam, we we are in in the still in the early stages much of our effort on their home has been focused on trying to match Demand with with our staffing with our volumes. I would also tell you that the cockpit initiatives at that time did not contemplate significant ability to tell a commute who have to look at that again. I would tell you that starting in twenty one. We should be able to pick this up as long as this thing off Eliza's again. So we we believe there's still opportunity to continue to reduce our cost structure.
Okay and Samuel STK?
Tobacco sales were down that business comes and goes has been very variable depending on the quarter. We're lack of sales on the tobacco front page of virus related or was that just the typical variability you see in that business. I would tell you it's difficult for us to tell you know, we we're getting very little guidance as often folks are also working from home and some are better at uh, some of our clients are better at working from home than others and I can't I can't tell you whether our tobacco clients are there or not. The fact of the matter is the volume is down. The bigger opportunity Liam is what I said in in my comments are circuses businesses down materially and the types of work we do in that business like the nonwoven matures. I mentioned on masks and gowns and things that we think that has some good Tailwinds that will come out of this as we go forward and not we we know of equipment being placed in China. We have not even strangers.
See the equipment that will be paid to place. We believe in North America and South America. We're one of the few providers of those large Capital pieces of equipment of tooling around the world. We think we think there's great opportunity.
Great and then Steve, do you anticipate any benefit from lower materials costs memorialization the rest of the year for the balance of the Year, Liam given the turn given given the cycle of purchase through our inventory production systems. I would say that that that's likely a next year been a sitting on a current year benefit.
Great. Okay. Thanks Joe. Thank you, Steve. All right. All right. Thank you.
Thank you. There are no further questions at this time. I'd like to turn the call back over to mr. Wilson for any closing remarks.
Thank you for joining us today, and thank you for your interest in Matthews for additional information about the company in our financial results. Please visit our website stay safe and enjoy the rest of your day. Thank you.
Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.
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