Business News

A. Schulman Reports Strong Fiscal 2014 Second Quarter

Thursday 10. April 2014 - Net income from continuing operations for the second quarter of fiscal 2014 was $6.5 million, or $0.22 per diluted share; adjusted net income from continuing operations for the second quarter of fiscal 2014, excluding certain items, was $11.3 million, or $0.39 per diluted share, a 39% improvement over the prior-year quarter

Company raises full-year fiscal 2014 adjusted net income guidance to a range of $2.23 to $2.28 per diluted share
A. Schulman, Inc. (Nasdaq-GS: SHLM) announced today earnings for the fiscal 2014 second quarter ended February 28, 2014.
Joseph M. Gingo, Chairman, President and Chief Executive Officer, said, “Our strong second-quarter financial results reflect sustained operational improvements combined with the benefits of our acquisition strategy.  The dedicated work of our European associates related to operational efficiencies and restructuring initiatives took full advantage of the modest volume improvements over the past two quarters to drive stronger profits.  At the same time, we continue to benefit from our aggressive acquisition strategy and gained solid contributions from our bolt-on acquisitions this quarter, which exceeded our expectations.  This combination is adding excitement to what we believe will be a strong 2014 for A. Schulman.”
Bernard Rzepka, Chief Operating Officer, stated, “I am very pleased that our European team has been able to capitalize on strengthening demand, especially in the automotive and electronics & electrical markets. In the Americas, I am encouraged that organic net sales in the region remained consistent with the prior year despite an 8.2% drop in organic volume and negative foreign currency headwinds in Latin America.  Volume was, of course, impacted by the severe winter weather in the United States, but also by the Company’s continuous strategy to reduce less-profitable commodity sales. In Asia Pacific (APAC), the addition of our Perrite Group’s Malaysian facility has led to significant growth and provides us with solid engineered plastics operations in Southeast Asia.  Additionally, we are seeing organic growth across all product families in the region, as well as a stabilization of gross margins on a sequential basis. APAC is a key strategic market for us, and we are pleased with our progress in the region.”
Fiscal Second-Quarter Results
In the fiscal 2014 second quarter, net sales in the Europe, Middle East and Africa (EMEA) segment increased 11.9% compared with the same period last year.  During the quarter, the incremental contribution of the Perrite acquisition in EMEA was $21.4 million and 13.6 million pounds in net sales and volume, respectively.  Additionally, sales and volume benefited from greater demand as a result of continued strengthening in the automotive market as well as strong performance in the Company’s engineered plastics business associated with the electronics & electrical markets.  Foreign currency translation positively impacted net sales by $8.1 million.  EMEA gross profit was $47.5 million for the quarter, an increase of $7.6 million compared with the same three-month period last year.  The increase in gross profit was primarily attributed to the incremental contribution of the Perrite acquisition; favorable product mix; savings from successful purchasing initiatives and prior restructuring initiatives; and overall higher volumes.  Foreign currency translation positively impacted EMEA gross profit by $0.9 million.
Net sales for the Americas increased by 8.9% compared with the prior-year period.  This increase was primarily driven by the incremental contribution of the Network Polymers and Prime Colorants acquisitions which totaled $17.3 million and 12.2 million pounds in net sales and volume, respectively.  Driven primarily by the devaluation of the Argentine peso, foreign currency translation negatively impacted net sales by $4.4 million. Gross profit for the Americas was $21.2 million in the quarter, an increase of $2.5 million compared with the same period last year.  Gross profit benefitted from recent acquisitions, and improved mix, which was partially offset by the negative impacts of lower volume and unfavorable $0.5 million of foreign currency translation.
During the quarter, net sales for the Company’s APAC segment increased approximately 67% compared with the same prior-year period. The incremental contribution of the Perrite acquisition in APAC was $13.7 million and 10.7 million pounds in net sales and volume, respectively.  Excluding the Perrite acquisition, volume increased by 26% but was partially offset by decreased price per pound driven by competitive pricing pressures primarily in the masterbatch business.  Gross profit for APAC for the quarter increased approximately 32.2% compared with the prior-year period.  This increase was primarily attributed to the positive contribution from the Perrite acquisition and increased volume. Gross profit percentage declined as a result of competitive pricing pressures and the broadening of the Company’s product portfolio within the APAC region.
Year-to-Date Results
Net sales for the six months ended February 28, 2014 were $1.2 billion, an increase of 12.1% compared with the same period last year.  Incremental net sales and volume from the Company’s recent acquisitions contributed $86.9 million and 60.5 million pounds, respectively. Excluding the impact of recent acquisitions, net sales were positively impacted by a 2.7% increase in price per pound and a 1% increase in volume. Foreign currency translation favorably impacted net sales by $14.9 million.
The Company’s SG&A expenses increased $12.8 million compared with the same period in the prior year. The increase was primarily attributable to incremental SG&A expense of $4.6 million from recent acquisitions, higher incentive compensation expense of $3.4 million and unfavorable foreign currency translation of $1.3 million. SG&A expense, excluding certain items, was 9.5% of net sales for the six-month period. Operating income increased $6.6 million for the six months ended February 28, 2014, compared with the same prior-year period. Total operating income, before certain items, for the six months ended February 28, 2014, was $43.7 million, an increase of $10.4 million compared with a year ago.
Working Capital/Cash Flow From Operations
Cash used in operations was $8.7 million and $8.1 million for the six months ended February 28, 2014 and 2013, respectively.  The Company’s cash and cash equivalents decreased $44 million from August 31, 2013. This decrease was driven primarily by fiscal 2014 acquisitions which were only partially offset by an increase in net borrowings.  Working capital was 66 days at the end of the fiscal 2014 second quarter, a decrease of two days when compared with the same period last year.
Capital expenditures for the six months were $16.5 million compared with $12.9 million last year. The increase in capital expenditures principally relates to a $3.5 million purchase of a previously leased manufacturing facility in the United States as well as regular and ongoing investments in the Company’s global manufacturing facilities.
During the three- and six-month periods ended February 28, 2014, the Company declared and paid quarterly cash dividends of $0.20 and $0.40 per common share, respectively. The total amount of these dividends was $5.9 million and $11.8 million, respectively.
Business Outlook
“Driven by the trend of our positive European results, the continuation of relatively stable raw material pricing and modest global economic growth, we have raised our expectations for 2014 adjusted net income to a range of $2.23 to $2.28 per diluted share, which would represent an approximately 25% increase over the prior-year results using the high-end of this range,” Gingo said.