8-K: Matthews International Reports Mixed Q3 Results, Announces Cost Reduction Initiatives

Matthews International Corporation reported a decrease in sales and earnings for the third quarter of fiscal 2024, while also announcing new cost reduction programs.

Summary

• Matthews International Corporation announced its financial results for the third quarter of fiscal year 2024, showing a decrease in sales to $427.8 million from $471.9 million in the same quarter last year.
• The company's GAAP earnings per share (EPS) was $0.06, down from $0.28 in the prior year, while non-GAAP adjusted EPS was $0.56, compared to $0.74 a year ago.
• Adjusted EBITDA for the quarter was $44.7 million, a decrease from $56.2 million in the prior year.
• The company experienced a $12.6 million reduction in outstanding debt during the quarter and anticipates further debt reduction in the fourth quarter.
• Matthews is projecting adjusted EBITDA for fiscal year 2024 to be in the range of $205 million to $210 million.
• The company is initiating cost reduction programs targeting annual savings of up to $50 million, with one-time costs estimated at $40 million.
• Sales in the Memorialization segment were relatively consistent with the prior year, while the SGK Brand Solutions segment saw modest growth.
• The Industrial Technologies segment experienced a sales decline due to customer delays in energy storage and slow conditions in warehouse automation.
• The company expects energy storage shipments and installations to improve in the fourth quarter of fiscal 2024 and into fiscal 2025.

Sentiment

Score: 4

Explanation: The sentiment is moderately negative due to decreased sales and earnings, although cost reduction initiatives and debt reduction are positive signs. The delays in the Industrial Technologies segment and the ongoing legal dispute with Tesla add to the negative sentiment.

Positives

• The company reduced its outstanding debt by $12.6 million during the quarter.
• The Memorialization segment's sales were relatively consistent year-over-year, despite a decline in U.S. casketed deaths, due to improved pricing and higher mausoleum sales.
• The SGK Brand Solutions segment experienced modest sales growth, driven by the private label market and European packaging business.
• Matthews is initiating cost reduction programs targeting annual savings of up to $50 million.
• Order rates for the warehouse automation business began to improve in the third quarter and have continued into the fourth quarter.
• The company expects energy storage shipments and installations to pick up in the fiscal 2024 fourth quarter and into fiscal 2025.

Negatives

• Consolidated sales decreased by 9.3% year-over-year to $427.8 million.
• GAAP EPS decreased significantly to $0.06 from $0.28 in the prior year.
• Non-GAAP adjusted EPS decreased to $0.56 from $0.74 year-over-year.
• Adjusted EBITDA decreased to $44.7 million from $56.2 million in the prior year.
• The Industrial Technologies segment experienced a sales decline due to customer delays in energy storage and slow warehouse automation market conditions.
• The company's net income attributable to Matthews decreased to $1.8 million from $8.7 million in the prior year.

Risks

• The company faces risks related to changes in domestic or international economic conditions.
• Fluctuations in foreign currency exchange rates could impact financial results.
• Changes in interest rates and the cost of materials could affect profitability.
• The company is subject to environmental liability and limitations due to environmental laws and regulations.
• Disruptions to services provided by third parties could impact operations.
• Changes in mortality and cremation rates could affect the Memorialization segment.
• The company faces competitive pressures in its various industries.
• The company's ability to achieve cost-reduction objectives is not guaranteed.
• The outcome of the company's dispute with Tesla is uncertain.
• Supply chain disruptions, labor shortages, and labor cost increases could impact operations.
• Cybersecurity threats and the costs associated with managing them pose a risk.
• The company is subject to compliance with domestic and foreign laws and regulations.
• Technological factors beyond the company's control could impact its business.
• Pandemics or similar outbreaks could disrupt industries, customers, or supply chains.
• Global conflicts, such as the war between Russia and Ukraine, could have an impact.

Future Outlook

The company projects adjusted EBITDA for fiscal 2024 to be in the range of $205 million to $210 million, with the Memorialization and SGK Brand Solutions segments expected to be relatively consistent with last year. Energy storage shipments and installations are expected to increase in the fourth quarter of fiscal 2024 and into fiscal 2025. The company is also initiating cost reduction programs targeting annual savings of up to $50 million.

Management Comments

• Joseph C. Bartolacci, President and Chief Executive Officer, stated that the company's consolidated financial results continue to be underpinned by the strength of its core businesses, particularly from the Memorialization and SGK Brand Solutions segments.
• He noted that the impact of unit volume declines in cemetery memorials and caskets related to lower deaths was substantially offset by improved pricing and higher sales of mausoleums.
• He also mentioned that further customer delays of shipments and related installations for the energy storage business unfavorably impacted the Industrial Technologies segment's sales.
• Management believes that Tesla's suit will not have a material impact on the company and that there is no merit to the claims against the company.

Industry Context

The results reflect a mixed performance across different segments, with the Memorialization segment showing resilience despite lower death rates, while the Industrial Technologies segment is facing challenges due to customer delays and market conditions. The SGK Brand Solutions segment is showing positive growth, indicating a potential shift in focus or market dynamics. The company's cost reduction initiatives suggest a proactive approach to address current challenges and position for future growth.

Comparison to Industry Standards

• The Memorialization segment's performance is notable as it maintained sales despite a decline in U.S. casketed deaths, suggesting a strong market position and effective pricing strategies, which is better than some competitors who have seen significant declines in revenue.
• The SGK Brand Solutions segment's growth in the private label market and European packaging business is a positive sign, indicating a competitive advantage in these areas, which is in line with industry trends of increased demand for private label products.
• The Industrial Technologies segment's struggles with energy storage delays and warehouse automation market conditions highlight the challenges in these sectors, which is similar to other companies in the industrial automation space that are experiencing project delays and market volatility.
• The company's overall adjusted EBITDA margin of 10.5% for the quarter is lower than the 11.9% in the prior year, indicating a need for improvement in operational efficiency and cost management, which is a common challenge in the current economic environment.
• The company's debt reduction efforts are a positive step, but the net debt leverage ratio of 3.8 is still relatively high, suggesting a need for continued focus on deleveraging, which is a common goal for companies in the current high interest rate environment.

Legal Proceedings

• Tesla recently filed a suit attempting to restrict Matthews from offering its innovative battery solutions to others, but Matthews remains confident in its ability to sell its equipment solutions and believes there is no merit to the claims against the company.

Stakeholder Impact

• Shareholders may be concerned about the decreased sales and earnings, but the cost reduction initiatives and debt reduction efforts could be viewed positively.
• Employees may be affected by the cost reduction programs, which could lead to job losses or changes in roles.
• Customers of the Industrial Technologies segment may experience delays in shipments and installations.
• Suppliers may be impacted by the company's cost reduction initiatives.
• Creditors may view the debt reduction efforts positively, but the company's overall financial performance may raise concerns.

Next Steps

• The company will host a conference call and webcast on August 2, 2024, to review its financial and operating results and discuss its corporate strategies and outlook.
• The company will initiate cost reduction programs in the fourth quarter of fiscal 2024.
• The company expects to complete the refinancing of its outstanding bonds in advance of December 1, 2024.
• The company anticipates further debt reduction in the fiscal 2024 fourth quarter.
• The company expects energy storage shipments and installations to pick up in the fiscal 2024 fourth quarter and into fiscal 2025.

Key Dates

Keywords

earnings, financial results, adjusted EBITDA, cost reduction, debt reduction, memorialization, brand solutions, industrial technologies, energy storage, warehouse automation