MTRN - Earnings call transcript Q3 2017

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Operator

Greetings and welcome to the Materion, Third Quarter 2017 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. It would now like to turn the conference over to your host Mr. Shamrock. Steve sir. you, Thank

begin. may You

Steve Shamrock

President morning. This and Vijayvargiya, President, Controller Kelley, Shamrock, and Officer. Chief is Relations. With Steve Vice Joe Investor and Jugal Executive Vice Finance me and Chief Financial Corporate Officer; Good of today President is

comments today's key opening initiatives. the format will for follows: Vijayvargiya an call conference Our quarter as and is Jugal provide on on update

questions. will quarter up Joe Kelley review for and the we Jugal, results the detailed Following for open then will call financial

Before statements remind or statements in those we as result me are made current in variety actual factors and listed factors. morning. a future are today’s including based a forward-looking begin, Those may that of company’s this any the portion expectations. section let we investors from issued release, the Outlook this performance Release contained forward-looking in question-and-answer earnings on during that Press announcement in the press differ of The the materially contemplated by

to non-recurring income morning’s Press Jugal with numbers made number And for transition purposes this in comments and the for and five to quarter I’ll shown The over actions. and in removes profit, adjustments GAAP it current reflect share regard cost in Release. are adjusted Additionally, cost comparative per reduction attachment earnings operating the now, CEO net turn comments. his

Jugal Vijayvargiya

up we for the up earnings report performance bottom results straight very $X.XX to improved year-over-year. Today previous are everyone welcome top strong and and warm third on we I’d from share, a X% I’m of the Steve. line with you, quarter call. pleased start reporting third both per Thank to to like quarter quarter. XX% in the for delivered the where

that’s $X.XX $XXX materials level increase of Record the XX% above sales EPS quarters were addition demand acquisition to a sales consecutive quarter market for period three increase of versus improvement million the and year, contributor increased last quarter is this a target X% from or year growth. first This for of for the Value fifth year-over-year. sales year. the sales the existing Heraeus’ added new same year-over-year prior the year-over-year $X.XX products at is product growth. For a of and

were use materials is camera in end to applications winning ToughMet year market sales. close of quarters metric. record We is models. level for of is of In Success for the products higher stabilization New accounting wear this of high leading strength product another are and approximate components given sales. up resistant bearings in we electronics report first legacy consumer materials product XX% XX% corrosion structural $XX and increased over resisting demand three driving market characteristics. for value to started year-over-year. bushing, for million next quarter sales strength current Through the attachments, year’s for In This are Smartphone sales business new ToughMet ratio the and the ToughMet sales since added Aerospace to follow-on had weight ToughMet Smartphones. ToughMet highest products the in the to

in we performer. some more aerospace Across are meaningful year. our are this wins largest Materion applications a consistent our New leveraging of business becoming and progress, strengths making new

consecutive earlier, top bottom improved we and line three noted I have As both for quarters.

XX% represents this As of recovery segment or the segment of added highest part Operating in profitability since sales. and Performance the improvement XX% and is deliver of plan. this, sequentially million on a XXXX $X Composite to year-over-year. and level X% early continuing value at improvement is Alloys This came for profit

XXXX. levels and by We end expect business the to continue profitability performance improvements to return of to historical

to with controls. steps reductions segment, general Precision reduce headcount Coating spending we’ve the overhead costs For and taken

plans Focus implemented excellence, operational the the underway. four-pillar phases and already in number commercial are early previously announced of acquisitions. pillar strategy and for being are excellence, are actions of each a of We innovation

For PMO Officer achieve Office who meaningful innovation the track efforts has will Management lead across Precision cost Coating types synergies based operating and to a segment with Technology the changes, and and been permanent consolidated appointed identify, deliver globally within launched to or Materion. we’ve Project greater consistently We profitable disciplined and units Chief Materion example, positioning of These growth. a generate a performance are cost culture combined effectiveness. to savings

QX. are ability continue We progress our confident to in to into

you. are earnings guidance $X.XX we the previous will call guidance Thank to is result, to the range. year a I of per range narrowing Joe. which As full share, the to $X.XX turn over end the at high

Joe Kelley

Thank you, Jugal, on and today. call the good us morning to everyone joining

I my profitability and third remainder by cover comments segment, flow the financial quarter finally a the and comments assumptions highlights, of of balance XXXX. brief some our sheet, XXXX During earnings modeling make cash will outlook on the review for cover

Following my remarks, the line will questions. open for

provided and growth represented year-over-year sales with We third top-line consecutive the third exceeded are report which pleased profit. in to the guidance quarter strong value-added and earnings operating quarter results, both

Third quarter XXXX third $XXX.X of versus X% XXXX. quarter increased the of sales value-added million

reminder, late accounted of sales in added million acquisition of in first value third XXXX. the the closed $XX.X quarter the a for As Heraeus quarter and of XXXX

XXXX hydroxide annual to XXXX. we we on recorded term long a of you also under in large one-third If quarter. Compared only third the new the hydroxide in sales the recall spot of raw recognized of third where beryllium approximately agreement the sale supply volumes material quarter beryllium

X% in of impact factors, value-added these non-comparable sales two base year-over-year the business. grow our Excluding

year. of in the sales million, to totaled increase compared New product period in third the XXXX same XX% of $XX.X quarter an prior the

of total a end sales We end key meaningful our largest experienced product Offset of XX% level. medical markets, including end consumer quarter record partially components. and of into accounted two new strong value electronics demand sales XXXX, by third the a in market. most in the markets industrial New added decline sales for

million that $X.X due to million value-added medical impact XXXX prior value second prior saving the in impact the was excluding performance. of market period. in in Sales, compared $XX.X realized third as CEO XXXX. business XX% cost Operating third quarter Gross from have sales the quarter profit the year year Performance adjusted of and operating million, cost target gross totaled million, increase reduction year expense, increase third year operating reduction growth associated transition profit decreased pricing in to million prior million to and combined of initiatives as SG&A profit, third items third the million. and the over expense $XX.X the XXXX. profit around of commercial primarily income SG&A almost a in year-to-date prior initiatives $XX.X end lower sales the with general Adjusted sales Heraeus' directly XX% of increase expenses $X.X cost growth profit tax is as Net performance as XXX the quarter was variable sales. and largely of net in million, X% the was acquired percent $XX.X $X.X of third of manufacturing excluding totaled of of versus $X.X improved the year quarter rate, comparable at of margins, third approximate the acquisition. offset margin with the sales quarter execution of prior the administrative Tax is expense effective income offset special to to and prior Looking improvements of an added the prior to $XX of quarter to million, year improvements with based business reflective approximate value value savings added XXXX financial related cost led the year It an a increase. recorded note quarter quarter important percent operations over totaled cost Heraeus' XX% of the flat in versus comparable from basis realized this and the quarter. in point quarter negative XX% the rate. XXXX and an expense third to

earnings adjusted profits to XXXX. is However the of tax XX%, the in for guidance with were improvement a Adjusted share special approximately share earnings XXXX, quarter in $X.XX share special in-line quarter compares quarter third $X.XX totaled earnings third the rate effective third of items, in provided. which items per Diluted XXXX, per in of $X.XX the per adjusted earnings. of excluding on X%

segment. our prior quarter XX% segment Now in a $XX.X first more value a $XX million added delivered in of of third quarter. over year review than by with the Starting This value sales of Materials. XXXX Advanced sales business performance increase financial XXXX, the of million third quarter added third

sixth Excluding value-added to related consecutive with X% and growth acquisition, this growth the represents organic segment. year-over-year for was sales year-over-year sales the

quarter sales a performance of with integration million segments to adjusted in and $X.X on maintaining volume product profit market drove for was The schedule. and and improved sales. of increase end XXXX to increased continues and focused million XX% of continue we demand are profit $X.X combination business largest increase the totaled quarter third which momentum on end operating as of New Heraeus’ we progress the strong to in third to Operating in electronics the sales in compared due consumer execution. remains the the performance acquisition the in manufacturing XXXX. this This of commercial market

the $XX.X third Turning The added increase in beryllium value sales net million sales the added third of a large purchase million XXXX. quarter the X% due Composites compared and in material $X XXXX third Performance million, year-over-year spot to XXXX. value Alloys to quarter $XX.X quarter were hydroxide to was of business, of our sales reduction raw in of up

prior period business Adjusted X% XX% based and Excluding around third is $X mix. implementation sales improved increased million improvement profit the XXXX. commercial and was growth value The market of the the increase the second success product the product the year. year quarter. sales last compared new quarter in recovery value of year XX% plan introductions added $X.X hydroxide with year-over-year same to versus PAC quarter $X.X sequential above in of in XXXX The million by sales, million and added pricing rate and driven base introduced in reflective third of in operating was profitability last execution value successful

expansion. progress are segment to as to in drive highest was top reduction profit historical in margin the pleased X% opportunities including operating margins the this levels. quarter, with in cost to profit are two line continued productivity growth of improvements identifying added years. on We percent and sales remain returning we business, and of and a making yield current and PAC focused the Adjusted value profitability over further the We

to finally our precision coatings Turning business.

the added the in increase strip sales test combination of into quarter a XX% million XXXX. in sales value added of sales sales million due the decrease $XX.X $XX.X were compared is value sales XXXX to decrease area of large an added of market, volume in The of coatings to optics. added X% by a glucose in the blood quarter year-over-year third value third value material offset The precision

continue we have Here products sensing applications. imaging new introducing and to success for

line. in period the compared million XXXX profit to to next decreased medical a into negatively or quarter XXXX, volume to on of value product quarters. as the customer sales mentioned generation are generation third year. a due lower in late was previous which the As the significant product same quarter in applications. the and impacted prior calls, profit sales four added the $X.X of participating added the we sales primarily product in has began complete product line transition was of Adjusted a of is end operating the value The last $X medical customer’s X% transition market for The fourth in next million

headcount to based top We improve our actions North reduce structures these the volumes. have line cost business on profits sales to related segment. identifying grow focused We taken and of Asia the this opportunities and in on remain and lower America

on from flow were We capital full run year-over-year grow operations million we to due XXXX improved activities to the position should And to and company the with including for investments. to in flow, operating million million Moving and sheet liquidity million to the priorities Annual development the opportunities, compared mentioned effective totaled growth to quarter. run should adjusted key quarter previously, of cash on shareholders. million. $X run and $XX $X.X available end flow to of million, approximately investments rate have be reducing the and organic financial million Cash $XX be to year. $XX should finally less growth approximately results focus to Cash return provided approximately should strategic allocation have a consistently from net $XX.X second further of mine million cash significant modeling to continues of able support assumed. XX% inorganic opportunities than depreciation working operating capital operating XX% cash quarter. and Materion of flow the a assumptions. ended net $XX capital position balance the an should Capital at earnings tax spending $XX.X third debt

year earnings guidance for our year of results. approximately profitability we earnings narrowing XXXX, delivered midpoint execution, the growth the a manufacturing updated year-over-year for of by three new $X.XX earnings value This year, remainder In and the improved to full performance, of growth full to XX% improvement XXXX these commercial level of range year-to-date share. balance consecutive we of continue On of $X.XX terms per our cost $X.XX of per guidance quarters on been profitability sales the will driven the outlook guidance are that to compared including high share. and factors The a the efficiency record of previously the issued has expectation product an improved and our forecasted and strong structure. performance to reflects added $X.XX the positive end represents have The sales, basis.

Looking year-over-year an the earnings. prepared concludes in fourth the adjusted the remarks. guidance XX% at our This approximate specifically of midpoint quarter, growth represents

We questions. will the for now open line

Operator

Thank you.

will [Operator Please Company. & Instructions] proceed. first be a with comes session. question-and-answer from Marshall We Edward question Sidoti Our now conducting

Edward Marshall

morning guys. Good are you? How

Joe Kelley

Ed. morning Good

We’re well. doing

Jugal Vijayvargiya

We’re doing well.

Edward Marshall

the mix in margin good I there electronics, at as the know on cost I’m the there a is the as Advanced I third see electronics looking well and gross increased. margin I’m there curious; So savings consumer Materials, that quarter? benefit sales side the

Jugal Vijayvargiya

Yeah, a so is so consumer favorable a favorable. electronics is the margin, pointed you – as is that there strong out,

the so $XX.X Heraeus’ margins million offset of the of business AM on that partially. increase that the However,

basis, why that’s you on they the are. where see incremental year-over-year So a margins

Edward Marshall

Got it.

It there wanted too. is at Coatings test can sequentially get down second the is participating rate are in glucose like to Precision you gears curious, XQ. looks We in margin XX% or I if I’m the you than strip now fully a So though. that your did switch again out me to expected, for or run there. came – the split the you a rate blood and were you less run this something XX% in help

Jugal Vijayvargiya

It a Yeah, Ed last approximately sales. $XX now for operating is Rico. QX would of participation there in line. profit slight disruption added around I next our we’ve late of in run Ed million three the quarters reflective around to the been The the generation that only of with product your was comment, is add the hurricane that $X rate Puerto and at in thing this million is value

out large in the that in business year-over-year speaking, did quarter good there the rate. new embedded of so had that Our quite the some run is quarter X% right have What nice here of and trends some growing, customer the reflective with optics some and this disruption and at of about there we But largely optimistic see a sales. is is news slight our in push continuing the growing portfolio. are we product their end

Edward Marshall

are the opportunities spent that see of I’m you some time spent and you different etcetera? time the Got segments curious, now different improvement some within you Materion for what that at here. Jugal, it. division some biggest

Joe Kelley

I excites has. and growth to converting months that six a can we’re tell for and look about excited, Ed, company the the the do revenue, mean business some continue I already. business opportunities more quite innovation in fact the to you, think starting see new so bit I here we well that I I you’re the me have had of of positioned to be that. of activities into that at Yeah opportunity that sort When a lot this and un-tap to have or about and excited I potential very

new of the VA It’s that as level indicated As growth. business started since $XX we’ve that already had we’ve highest metric, almost had this we reporting million QX. XX% we in

that we’re So of we’re some as be see I hope a to starting that able lot go of more to think to going that demonstrate we and I forward.

operational think are I opportunities excellence. on there

with a a project that organic excellence. drive course we’ve opportunity, disciplined initiatives put and we’ve set looking great number you got know operational what investment remarks, we my really that on come that’s and that see that from start our office, have And quarter in really would for operational down in a think some the it’s quarter-by-quarter improvements PMO indicated in we good excellence. significant know I of paying identify you company sheet improvements in a of of to balance I you inorganic. that expect as positioning up opportunity So is then you know mean know management perspective. here place I or and we through did the We’ve third the I appropriate debt

as I think well. opportunity it’s great a

So of fourth the term. I things what the think be quarter to there’s excite for me then company and the do we and indicated we’ve for were gives do that to confidence to a long going position number us able the

Edward Marshall

Got specific that, it. appreciate laser there Its can I high your particularly level business on? focused business line at this that or but point, is any

Joe Kelley

I you you okay; It’s on. the Well, say look that would we’re I of our what laser I think is at all business laser there just we’re we know mean focused know business on. mean when different is focused are; I things

there’s today, businesses. business, our When those better on to and that growth tremendous got on business sure is I on not plan, side, continue for can the So hit it from PC the not that are you the line business the at improve, business… we’re PAC only of laser sure but that I think we look focused to substantially to our our make of than recovery we can at tell you so ROIC that but the when example is business absolutely clearly the only business, AM we from want bottom making making – returns, that overall where I look push cost

got – know own its growth double on, has we’ve things general and focused digit – all that to amounts above hopefully but unique think we I that can we you each to market So drive. in we’re continue growth got business it EPS

Edward Marshall

Got targets today? about and for could it. are ROIC curious; the you PAC talk they where I’m

Joe Kelley

business, can we mean we want I’m [alright] know can sure do not you I sure and any stay but Joe and certainly returning you I you remarks we’re can can that’s it. know of are on then focused as I one, for yeah, we’ve into to and targets improvement on than if I are we do to his we number as us Well that we go better key communicate what than and make assure that, with you ROIC, that substantial if to we capital better so right, that want a specific is highlighted the focus going cost on made in working our capital the typically in

Edward Marshall

Got it.

Okay, very much. thanks

Joe Kelley

Yeah, thank you Ed.

Operator

Our next Please Marco Rodriguez question comes Stonegate Markets. with Capital from proceed.

Marco Rodriguez

questions. my guys. morning you taking Thank Good for

Joe Kelley

morning Good Marco.

Joe Kelley

morning. Good

Marco Rodriguez

I on I’m sales, in maybe the just sequentially. yet into was dive we kind wondering decline your value call, the VA performance on up deeper sequentially a everything Hey, gross if could but not bit little I down went added sure of did margin sequential caught we a see gross here. margins sales overall

little in heard as initiatives, some gross value as far I just increase dive down a Can think you some bit I pricing. maybe the drove what margins? cost deeper cutting

Joe Kelley

if look business. it me so by -- Yes, just you down let break

driving business, and continued however relatively sequentially also terms looking there, the The the would of And business margins business, that QX up margins improvements deterioration tell XX margins which business, at segment PAC to with consumer offset so XX%. in in a down the flat, the value that. mix pricing side a Precision in went within I add and was our partially stand and was driven was know medical business about and Asia went however to improvement negatively mix also but sequentially performance gross XX% flat that which from a XXX mix favorable finally from know If from points Materials you was VA there was to and growth There mix PAC you is drop-off manufacturing that, then the on XX% within from based by look XX% those XX. drove in impacts so so Coatings and some driven in the relatively of efficiency business portion that that within it you basis expanded the electronics Advanced that that’s value the point. by up unfavorable QX sequential the there of you,

sequential that’s combination So going the XX% that a the drove basis. into on XX%

Marco Rodriguez

bit Got you then you consumer little the could a maybe market. and electronics talk about

where, customers? you demand of applications kind the what Just your from seeing sort end are of

Jugal Vijayvargiya

or first think all I activities particularly the and on the electronics number of Yeah, in are of we’ve got so highlight Smartphone I’ll involved we market consumer market. that a the

have side, are launched some we’ve yielding number of metal well our results, our both We a good those there chemical as advanced on initiatives as that in side. and

we good really into in-roads a sector. making that’s where are of strong So think example I consumer electronics the

Joe Kelley

PM Yeah on the some talking consumer you is used was in quarter. you used hand space talking I’ll the so held the we to just look. mentioned, in colored Filters metals non-PM give contributing out; and and products, some as camera is strongest are when electronics material the the generally RF unit for and quarter. QX about commentary connector then strong stabilization seasonality and Jugal the are to there And point precious and you devices

Marco Rodriguez

from gas. in been it and it into just have I doing to been that push perspective in marketing It driven that’s helpful. you, believe kind little bit Got you pushing talked different about end kind prepared ToughMet started sounds product of client applications, in markets that guys into areas. like of versus of you kind that Has a where the product terms line, of then of the oil remarks. new new a And your

Jugal Vijayvargiya

that initiative business we’ve strong Yeah, it’s say both, into to would but markets. other I actually taken push

the know market, get. investment the made that’s team return should market, automotive the many years the market, aerospace and understands So electronics our then the that over whether you we’ve level of that consumer that investment

markets. opportunities the very identifying ToughMet new we into business for are So in active

Marco Rodriguez

Thanks lot I’ll in guys. you. jump queue. Got back a

Joe Kelley

you. Thank

Jugal Vijayvargiya

Thanks Marco.

Operator

Instructions]. Once [Operator again

Gibbs from comes question Capital Markets. KeyBanc next Please Our Phil with proceed.

Phil Gibbs

morning. good Hey,

Joe Kelley

morning Good Phil.

Phil Gibbs

as fourth the be On look that? about how about normal in into the you you market, more you electronics businesses, talked normal the guidance. the know I thinking are we but connectors bridge here quarter, that PAC seasonality at fact of in so market that think we down? in-line mean Is terms seasonality I with the are the talking the just will about

Jugal Vijayvargiya

Phil, on Yeah and Joe to well. certainly me it comment then can let that add as

the potential of expect the seasonality what strong comparison First all, said, we medical of would With a on regarding I year-over-year earlier be expecting in we’ve QX driven some made our also that’s gives QX know the expect year for of QX I is there overall then and performance PAC, we’ve to into and Puerto and in end as high a then that electronics, consumer confidence quarter AM regard uptick then very say guidance impact business There Phil. ago to you guidance into you planning that to particular our like and say fourth on business. in Joe QX are we a think from the to indicated the I comparable the year in QX is strong some PAC seasonality I performance Rico would XX% around us for a mean continue delivering we to and when at hurricane improvement you look over QX. ago, and

Joe Kelley

a BE, copper I our the strip due which is in be PAC that but primarily seasonality in as thing there BE standpoint them. which large seasonality is quarter generally to QX add sequentially familiar beryllium it’s line, electronics consumer business, a of AM purity in strength would effects exposure last will the a couple strong you and of consumer QX PAC the electronics the business both in offsetting business product from their in ToughMet, decline normal of soft some seasonally years for historically been only also are with the And business has the high or

Phil Gibbs

it general XX of seeing what defense visibility. in next, the terms in and a on terms for expectations months in what are Okay, question to are of call just you and markets your the there XX

Jugal Vijayvargiya

as calls that are know on many I changes I fact in been in it’s and would soft administration as of made. still well say some you we’ve going defense think so Yeah, the due have has last the indicated the not couple appointments market that a the and to been in bit

to budget see and in little a with that defense as appointments market getting our appointments is pickup a in made, continue the of as side are are starting but expectation the down some these are will are bit a of to think the We that resolved. now I issues good be general market some

So we in expect months. the next XX a defense market to to the XX be good market

Phil Gibbs

much. very Thanks

Joe Kelley

Thank Phil. you,

Jugal Vijayvargiya

thanks Okay, very much Phil.

Operator

turn no to Thank I you. to back this are floor at There closing like time. further would the questions over Steve for remarks.

Steve Shamrock

number for questions. call company’s like on will quarter this to you call We XXXX in A interest follow-up to of dial recorded answer My Materion. any the participating all thank you much. available is this your Thank the on I website, Thank be very would will playback and XXX-XXX-XXXX. you. be morning This our direct available earnings is Steve Shamrock concludes of third call. and this Materion.com.

Joe Kelley

you. Thank

Jugal Vijayvargiya

you. Thank

Operator

This participation. for today's Thank your teleconference. concludes you

Materion (MTRN) 26 Oct 172017 Q3 Earnings call transcript