Ferro Reports Strong Second Quarter Results

Ferro Corporation (NYSE: FOE), a leading global provider of functional coatings and color solutions, today reported results for the second quarter ended June 30, 2017.

Second Quarter Financial and Operating Highlights *:

• Net sales increased 17.0%, to $348.6 million
  • Organic sales rose 6.5% on a constant currency basis
• Total volume grew 11.6% and organic volume grew 8.2%
• Achieved gross margin of 31.1% despite raw material headwinds
  • Adjusted gross margin was 31.5%
• Earnings per diluted share increased 13.6% to $0.25
  • Adjusted earnings per diluted share increased 8.8% to $0.37
• Net income attributable to Ferro Corporation common shareholders increased 10.8% to $21.0 million
• Adjusted EBITDA grew 13.6% to $64.3 million

* Comparative percentages are relative to prior-year second quarter.

The results and guidance in this release, including in the highlights above, contain references to non-GAAP measures from continuing operations. Reconciliation of GAAP to non-GAAP results can be found at the end of this release.

Peter Thomas, Chairman, President and CEO, said, “We’ve spent the last few years purposefully developing a growth-oriented culture. Our results over the last few quarters are strong validation that our work is paying off, with market-beating organic growth and strong financial performance. In fact, this was our fourth consecutive quarter of strong sales and earnings growth. We did experience raw material price headwinds in the second quarter, as we anticipated, but our team was able to achieve margins within our expectations through a combination of pricing and optimization actions.

“During the current phase of our strategy, organic and inorganic growth has accelerated. As for organic growth, 20 percent of our revenue now comes from products developed in the last three years and our vitality index continues to expand as a result of our focus on building out our technology platforms. Regarding inorganic growth, we have closed and successfully integrated a range of strategic acquisitions across all three of our major business units.

“The growth and value we have delivered, as well as the healthy pipelines we have for further organic and inorganic growth, give us confidence that the time is right to move on to the next phase of our value creation strategy: Dynamic Innovation and Optimization.

“The Dynamic Innovation and Optimization phase involves more of the same – growth, technology leadership, and efficiency – but with deliberate concentration on extending our portfolio into innovative, next-generation technologies to lead our customers into the future and reinforce our role as a technology market leader. In this phase, we also intend to continually upgrade key facets of our business, positioning the Company for sustainable, profitable growth and more efficient and effective use of our resources. We will invest in initiatives intended to expand our leadership positions, protect our franchises, and generate solid long-term returns for Ferro shareholders as a premier global functional coatings and color solutions company.

2017 Consolidated Second Quarter Results from Continuing Operations

Second quarter net sales were $348.6 million, an increase of 17.0% from $298.0 million in the prior-year quarter. On a constant currency basis, second quarter net sales increased 19.6% compared to the prior-year quarter. Gross profit increased 10.1% to $108.3 million, from $98.4 million. Adjusted gross profit increased 11.8% to $110.0 million from $98.4 million, and the Company achieved an adjusted gross margin of 31.5% despite increases in raw materials costs. Ferro reported net income in the second quarter of $21.2 million, or $0.25 per diluted share, compared with net income of $19.1 million, or $0.22 per diluted share, in the prior-year quarter. On an adjusted basis, earnings per diluted share from continuing operations were $0.37, an increase of 8.8% from $0.34 per diluted share in the prior-year quarter.

In the second quarter of 2017, organic net sales (which exclude acquisitions owned less than 12 months) increased 6.5% on a constant currency basis. This is the Company’s fourth consecutive quarter of organic sales growth.

Net cash provided by operating activities improved 59.7% to $13.1 million, compared to $8.2 million in the prior-year quarter. Ferro’s adjusted free cash flow from continuing operations was $10.1 million, compared to $13.2 million in the prior-year quarter. Adjusted free cash flow from continuing operations is defined as adjusted EBITDA from continuing operations less cash items used to operate the businesses, including cash taxes and interest, changes in working capital, capital expenditures and other cash items.

Second Quarter Segment Results

All three of Ferro’s reporting segments delivered improved financial performance in the quarter.

• Color Solutions (CS) increased sales by 46.9%, to $90.2 million, grew gross profit to $28.4 million, and generated a gross profit margin of 31.5%
• Performance Color & Glass (PCG) increased sales by 11.2%, to $106.6 million, grew gross profit to $40.1 million, and generated a gross profit margin of 37.6%
• Performance Coatings (PC) increased sales by 7.9%, to $151.7 million, grew gross profit to $40.2 million, and generated a gross profit margin of 26.5%.

Outlook

Management is providing adjusted diluted EPS, adjusted EBITDA and adjusted free cash flow from operations guidance on a continuing operations basis. While it is likely that Ferro could incur charges, or have cash flows for items excluded from adjusted diluted EPS, adjusted EBITDA and adjusted free cash flow from continuing operations such as mark-to-market adjustments of pension and other postretirement benefit obligations, restructuring and impairment charges, and legal and professional expenses related to certain business development activities, it is not possible, without unreasonable effort, to identify the amount or significance of these items or the potential for other transactions that may impact future GAAP net income and cash flow from operating activities. Management does not believe these items to be representative of underlying business performance. Management is unable to reconcile, without unreasonable effort, the Company's forecasted range of adjusted EPS, adjusted EBITDA and adjusted free cash from continuing operations to a comparable GAAP measure.

Ferro is updating its full year 2017 guidance based on the Company’s year-to-date performance and the acquisition of SPC in the second quarter of 2017. This guidance reflects the foreign exchange rates consistent with those from our prior guidance of foreign exchange rates as of 12/31/2016.

• Adjusted EPS of $1.22 - $1.27 per diluted share, up from $1.17 - $1.22 per diluted share
• Adjusted EBITDA of $223 million - $228 million, up from $214 million - $219 million
• Adjusted Free Cash Flow from Continuing Operations of $90 million - $100 million, up from $85 million - $95 million
• Consolidated sales growth of 12.0% - 13.0%, up from 8.5% - 9.5%

Ferro’s outlook assumes an exchange rate of 1.05 USD/EUR for the second half of 2017. Ferro generates approximately 35% – 40% of its revenue in Euros, and approximately 25% - 30% in U.S. Dollars. Ferro estimates that a 1% overall change in foreign currency exchange rates, weighted for the countries where it does business, would impact sales and operating profit by approximately $9.0 million and $1.3 million, respectively. Isolating the impact of the Euro, a 1% change in the Euro exchange rate would impact sales and operating profit by approximately $4.9 million and $0.7 million, respectively. If foreign exchange rates stay at the June 30, 2017 levels, Ferro estimates that this would provide a one to two cent tailwind to the above-mentioned EPS outlook.

Constant Currency

Constant currency results reflect the re-measurement of 2016 reported and adjusted local currency results using 2017 exchange rates, resulting in constant currency comparative figures to 2017 reported and adjusted results. These non-GAAP financial measures presented should not be considered as a substitute for the measures of financial performance prepared in accordance with GAAP.

Conference Call

Ferro will conduct an investor teleconference at 10:00 a.m. EDT July 27,2017. Investors can access this conference via the following:

• Webcast can be accessed by clicking on the Investor Information link at the top of Ferro’s website at ferro.com.
• Live telephone: Call 800-704-8781 within the U.S. or +1 303-223-4364 outside the U.S. Please join the call at least 10 minutes before the start time.
• Webcast replay: Available on Ferro’s Investor website at ferro.com beginning at approximately 12:00 noon Eastern Time on July 27, 2017
• Telephone replay: Call 800-633-8284 within the U.S. or +1 402-977-9140 outside the U.S. (for both U.S. and outside the U.S. access code is 21854980).
• Presentation material & podcast: Earnings presentation material and podcasts can be accessed through the Investor Information portion of the Company’s Web site at ferro.com.

About Ferro Corporation

Ferro Corporation (www.ferro.com) is a leading global supplier of technology-based functional coatings and color solutions. Ferro supplies functional coatings for glass, metal, ceramic and other substrates and color solutions in the form of specialty pigments and colorants for a broad range of industries and applications. Ferro products are sold into the building and construction, automotive, electronics, industrial products, household furnishings and appliance markets. The Company’s reportable segments include: Performance Coatings (metal and ceramic coatings), Performance Colors and Glass (glass coatings), and Color Solutions. Headquartered in Mayfield Heights, Ohio, the Company has approximately 5,230 associates globally and reported 2016 sales of $1.15 billion.

Cautionary Note on Forward-Looking Statements

Certain statements in this press release may constitute “forward-looking statements” within the meaning of federal securities laws. These statements are subject to a variety of uncertainties, unknown risks, and other factors concerning the Company’s operations and business environment. Important factors that could cause actual results to differ materially from those suggested by these forward-looking statements and that could adversely affect the Company’s future financial performance include the following:

• demand in the industries into which Ferro sells its products may be unpredictable, cyclical, or heavily influenced by consumer spending;
• Ferro’s ability to successfully implement and/or administer its optimization initiatives, including its investment and restructuring programs, and to produce the desired results;
• currency conversion rates and economic, social, political, and regulatory conditions in the U.S. and around the world;
• Ferro’s ability to identify suitable acquisition candidates, complete acquisitions, effectively integrate the businesses and achieve the expected synergies (including, but not limited to, the Smalti per Cermaiche, Cappelle Pigments, Electro-Science Laboratories, Delta Performance Products, Pinturas Benicarló, Ferer, Al Salomi, Nubiola and Vetriceramici transactions), as well as the acquisitions being accretive and Ferro achieving the expected returns on invested capital;
• the effectiveness of the Company’s efforts to improve operating margins through sales growth, price increases, productivity gains, and improved purchasing techniques;
• Ferro’s ability to successfully introduce new products or enter into new growth markets;
• the impact of interruption, damage to, failure, or compromise of the Company’s information systems;
• restrictive covenants in the Company’s credit facilities could affect its strategic initiatives and liquidity;
• Ferro’s ability to access capital markets, borrowings, or financial transactions;
• the availability of reliable sources of energy and raw materials at a reasonable cost;
• increasingly aggressive domestic and foreign governmental regulations on hazardous materials and regulations affecting health, safety and the environment;
• competitive factors, including intense price competition;
• Ferro’s ability to protect its intellectual property, including trade secrets, or to successfully resolve claims of infringement brought against it;
• sale of products and materials into highly regulated industries;
• the impact of operating hazards and investments made in order to meet stringent environmental, health and safety regulations;
• limited or no redundancy for certain of the Company’s manufacturing facilities and possible interruption of operations at those facilities;
• management of Ferro’s general and administrative expenses;
• Ferro’s multi-jurisdictional tax structure and its ability to reduce its effective tax rate, including the impact of the Company’s performance on its ability to utilize significant deferred tax assets;
• the effectiveness of strategies to increase Ferro’s return on invested capital, and the short-term impact that acquisitions may have on return on invested capital;
• stringent labor and employment laws and relationships with the Company’s employees;
• the impact of requirements to fund employee benefit costs, especially post-retirement costs;
• implementation of new business processes and information systems, including the outsourcing of functions to third parties;
• risks associated with the manufacture and sale of material into industries making products for sensitive applications;
• exposure to lawsuits in the normal course of business;
• risks and uncertainties associated with intangible assets;
• Ferro’s borrowing costs could be affected adversely by interest rate increases;
• liens on the Company’s assets by its lenders affect its ability to dispose of property and businesses;
• Ferro may not pay dividends on its common stock in the foreseeable future;
• amount and timing of any repurchase of Ferro’s common stock; and
• other factors affecting the Company’s business that are beyond its control, including disasters, accidents and governmental actions.

The risks and uncertainties identified above are not the only risks the Company faces. Additional risks and uncertainties not presently known to the Company or that it currently believes to be immaterial also may adversely affect the Company. Should any known or unknown risks and uncertainties develop into actual events, these developments could have material adverse effects on our business, financial condition and results of operations.

This release contains time-sensitive information that reflects management’s best analysis only as of the date of this release. The Company does not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information, or circumstances that arise after the date of this release. Additional information regarding these risks can be found in our Annual Report on Form 10-K for the year ended December 31, 2016.

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