8-K: Matthews International Reports Disappointing First Quarter Fiscal 2025 Results, Maintains Full-Year Outlook

Matthews International's first quarter fiscal 2025 results were generally in line with expectations, but the company reported a net loss and a decrease in adjusted EBITDA compared to the prior year.

Summary

• Matthews International Corporation announced its financial results for the first quarter of fiscal 2025.
• The company reported a net loss attributable to Matthews of $3.5 million, or $0.11 per share, compared to a net loss of $2.3 million, or $0.07 per share, in the prior year.
• Non-GAAP adjusted earnings per share were $0.14, down from $0.37 a year ago.
• Adjusted EBITDA decreased to $40.0 million from $45.5 million in the same quarter last year.
• Consolidated sales for the quarter were $401.8 million, a decrease from $450.0 million in the prior year.
• The company is maintaining its outlook for fiscal 2025, projecting adjusted EBITDA in the range of $205 million to $215 million, subject to the completion of the SGK Brand Solutions transaction.
• The company expects to complete the SGK transaction by mid-2025, with proceeds applied to debt reduction.
• A cost reduction program is underway and progressing well, expected to achieve at least $50 million in cost reductions.
• Outstanding debt increased by $32.7 million during the quarter.
• The company's net debt leverage ratio was 3.9 as of December 31, 2024.
• A quarterly dividend of $0.25 per share is payable on February 24, 2025.

Sentiment

Score: 4

Explanation: The sentiment is slightly negative due to the reported net loss, decreased adjusted EBITDA and sales, and the impact of the Tesla litigation, although the company maintains its full-year outlook and has a cost reduction program in place.

Positives

• The company maintains its outlook for fiscal 2025.
• The SGK Brand Solutions segment reported a modest increase in sales.
• The company's cost reduction program is on track to achieve at least $50 million in savings.
• The company won an arbitration ruling affirming its right to sell its Dry Battery Electrode (DBE) solutions.
• The company expects to complete the SGK transaction by mid-2025, with proceeds applied to debt reduction.
• The U.S. brand market continued to demonstrate improving conditions and sales in the Asia-Pacific region increased.
• Private label and European cylinder sales increased compared to a year ago.

Negatives

• The company reported a net loss of $3.5 million, or $0.11 per share, for the first quarter of fiscal 2025.
• Adjusted EBITDA decreased to $40.0 million from $45.5 million in the same quarter last year.
• Consolidated sales decreased to $401.8 million from $450.0 million year-over-year.
• The Industrial Technologies segment reported significantly lower sales, primarily reflecting a slowdown in Tesla project work and the impact of the litigation on work with other customers.
• Health care costs were approximately $1.6 million higher for the current quarter compared to a year ago.
• Outstanding debt increased by $32.7 million during the quarter.
• The European brand markets remained soft.
• Lower U.S. death rates and the prior year included sales in connection with a reduction in backlog of granite memorials negatively impacted the Memorialization segment.

Risks

• The company's future results could be materially different from management's expectations due to various risks and uncertainties.
• The terms of the final award in the Tesla dispute may differ from the interim award and may be challenged.
• The company's ability to satisfy the conditions precedent to the consummation of the proposed joint venture transaction on the expected timeline or at all is uncertain.
• The company's ability to achieve the anticipated benefits of the proposed joint venture transaction is uncertain.
• Uncertainties regarding future actions that may be taken by Barington in furtherance of its intention to nominate director candidates for election at the Company's 2025 Annual Meeting exist.
• Potential operational disruption caused by Barington's actions may make it more difficult to maintain relationships with customers, employees or partners.
• Changes in domestic or international economic conditions, foreign currency exchange rates, interest rates, and the cost of materials used in the manufacture of the Company's products could negatively impact results.
• Any impairment of goodwill or intangible assets could negatively impact results.
• Environmental liability and limitations on the Company's operations due to environmental laws and regulations could negatively impact results.
• Disruptions to certain services, such as telecommunications, network server maintenance, cloud computing or transaction processing services, provided to the Company by third-parties could negatively impact results.
• Changes in mortality and cremation rates could negatively impact results.
• Changes in product demand or pricing as a result of consolidation in the industries in which the Company operates, or other factors such as supply chain disruptions, labor shortages or labor cost increases could negatively impact results.
• Changes in product demand or pricing as a result of domestic or international competitive pressures could negatively impact results.
• Ability to achieve cost-reduction objectives is uncertain.
• Unknown risks in connection with the Company's acquisitions, divestitures and business combinations could negatively impact results.
• Cybersecurity concerns and costs arising with management of cybersecurity threats could negatively impact results.
• Effectiveness of the Company's internal controls is uncertain.
• Compliance with domestic and foreign laws and regulations is uncertain.
• Technological factors beyond the Company's control could negatively impact results.
• Impact of pandemics or similar outbreaks, or other disruptions to our industries, customers, or supply chains could negatively impact results.
• The impact of global conflicts, such as the current war between Russia and Ukraine, could negatively impact results.
• The Company's plans and expectations with respect to its exploration, and contemplated execution, of various strategies with respect to its portfolio of businesses are uncertain.
• The Company's plans and expectations with respect to its Board are uncertain.

Future Outlook

The company maintains its outlook for fiscal 2025, projecting adjusted EBITDA in the range of $205 million to $215 million, subject to the completion of the SGK Brand Solutions transaction.

Management Comments

• Joseph C. Bartolacci, President and Chief Executive Officer, stated that the results for the fiscal 2025 first quarter were generally in line with expectations and, as a result, the company is maintaining its outlook for the full fiscal year.
• Bartolacci noted that the Memorialization and SGK Brand Solutions segments continued their solid performance in the quarter.
• Bartolacci mentioned that the Industrial Technologies segment was challenged by the impact of the Tesla litigation, but the company looks forward to improving in this business.
• The company intends to immediately begin marketing, selling, and delivering its DBE solutions to other customers and unlock their value for shareholders.
• The company remains on track to complete the SGK transaction by mid-2025.
• The Boards comprehensive evaluation of strategic alternatives for our entire portfolio remains ongoing.

Industry Context

Matthews International operates in the memorialization, industrial technologies, and brand solutions industries, and its performance is influenced by factors such as mortality rates, economic conditions, and competitive pressures.

Comparison to Industry Standards

• It is difficult to provide a direct comparison to industry standards without specific competitor data.
• However, the company's performance can be assessed relative to its own historical performance and the performance of companies in similar industries.
• For example, Service Corporation International (SCI) is a major player in the death care industry, and its financial results could provide a benchmark for the Memorialization segment.
• Similarly, companies like Tetra Tech (TTEK) or Rockwell Automation (ROK) in the industrial automation space could be used as a benchmark for the Industrial Technologies segment.
• For the SGK Brand Solutions segment, companies like SGK's new owner, or other marketing and packaging solutions providers, could be used for comparison.

Legal Proceedings

• The company is involved in ongoing litigation with Tesla, Inc.

Stakeholder Impact

• Shareholders will be impacted by the decreased earnings and adjusted EBITDA.
• Employees may be impacted by the cost reduction program, which includes severance and other employee terminations.
• Customers in the Industrial Technologies segment may be impacted by the slowdown in Tesla project work and the impact of the litigation on work with other customers.
• Creditors may be impacted by the increase in outstanding debt.

Next Steps

• Complete the SGK Brand Solutions transaction by mid-2025.
• Continue the cost reduction program to achieve at least $50 million in savings.
• Market, sell, and deliver DBE solutions to other customers.
• Continue the Boards comprehensive evaluation of strategic alternatives for the entire portfolio.
• Host a conference call and webcast on February 7, 2025, to review financial and operating results and discuss corporate strategies and outlook.

Key Dates

Keywords

Matthews International, earnings, financial results, fiscal 2025, adjusted EBITDA, net loss, sales, SGK Brand Solutions, Industrial Technologies, Memorialization, cost reduction, Tesla litigation, debt reduction, dividend