Rogers Delivers Strong Q4 Earnings;
Accelerates Capacity Investments
Rogers Corporation (NYSE:ROG) today announced financial results
for the 2018 fourth quarter and full year.
Fourth quarter 2018The
Company reported 2018 fourth quarter net sales of $222.9 million
compared to 2018 third quarter net sales of $226.9 million and 2017
fourth quarter net sales of $209.0 million. Net sales for the 2018
fourth quarter were above midpoint of the Company's previously
announced guidance of $215 to $225 million. Currency exchange rates
unfavorably impacted 2018 fourth quarter net sales by $2.1 million
due to weakening in the Euro and Renminbi compared to 2018 third
quarter net sales and $3.1 million compared to 2017 fourth quarter
net sales.
Earnings for the 2018 fourth quarter were $1.31 per diluted
share compared to $1.06 per diluted share in the third quarter of
2018 and $0.37 per diluted share in the fourth quarter of 2017.
Earnings per diluted share were above the Company's guidance range
of $0.84 to $0.99. On an adjusted basis, earnings were $1.67 per
diluted share for the 2018 fourth quarter compared to adjusted
earnings of $1.42 per diluted share in the third quarter of 2018
and $1.36 per diluted share in the fourth quarter of 2017. Adjusted
earnings were above the Company's guidance of $1.20 to $1.35 per
diluted share. Earnings for the 2018 fourth quarter were influenced
by a significantly lower effective tax rate (see "Effective tax
rate" section below).
Fourth quarter 2018 net income was $24.5 million compared to
$19.7 million in the third quarter of 2018 and $7.0 million in the
fourth quarter of 2017. Adjusted EBITDA was $44.0 million for the
fourth quarter of 2018 compared to $47.5 million reported in the
third quarter of 2018 and $38.1 million reported in the fourth
quarter of 2017.
Gross margin was 35.2% in the fourth quarter of 2018 compared to
34.9% in the third quarter of 2018 and 36.1% in the fourth quarter
of 2017. Operating margin was 12.0% in the fourth quarter of 2018
compared to 13.1% in the third quarter of 2018 and 8.9% in the
fourth quarter of 2017. Adjusted operating margin was 16.0% in the
fourth quarter of 2018 compared to 17.0% in the third quarter of
2018 and 13.0% in the fourth quarter of 2017.
Full year 2018The company
reported 2018 net sales of $879.1 million. Net sales for the full
year 2017 were $821.0 million. Net sales during 2018 were favorably
impacted by $15.5 million as a result of currency fluctuations, due
to a stronger Euro and Renminbi.
Earnings for full year 2018 were $4.70 per diluted share,
compared to $4.34 per diluted share for full year 2017. On an
adjusted basis, earnings were $5.77 per diluted share for full year
2018, compared to $5.76 for full year 2017. Earnings for full year
2018 were influenced by a significantly lower effective tax rate
(see "Effective tax rate" section below).
Full year 2018 net income was $87.7 million, compared to $80.5
million for full year 2017. Adjusted EBITDA was $173.6 million for
full year 2018, versus $189.7 million for full year 2017.
Gross margin was 35.4% in 2018, compared to 38.8% in 2017.
Operating margin was 12.8% for full year 2018, compared to 15.7% in
the full year of 2017. Adjusted operating margin was 15.8% in the
full year of 2018, compared to 18.3% in the full year of 2017.
“In 2018, we accelerated capacity investments as the outlook for
key applications in Advanced Connectivity and Advanced Mobility
strengthened significantly,” stated Bruce D. Hoechner, Rogers'
President and CEO. "Margins were challenged by the operational
initiatives underway as we prepare for the significant growth
opportunities in 5G wireless infrastructure, EV/HEV and Advanced
Driver Assistance Systems. While we saw some softness in Q4 2018
demand that will carry forward into Q1 2019, the investments we are
making today across the enterprise will enable Rogers to capitalize
on these opportunities that we see accelerating in 2019."
Business segment
discussion
Advanced Connectivity Solutions
(ACS)Advanced Connectivity Solutions reported 2018
fourth quarter net sales of $72.5 million, a 0.9% increase compared
to 2018 third quarter net sales of $71.9 million and a 4.0%
decrease compared to 2017 fourth quarter net sales of $75.5
million. The sequential increase in 2018 fourth quarter net sales
was largely driven by growth in high frequency circuit materials
for 5G antenna and aerospace and defense applications, partially
offset by lower demand for wireless 4G LTE power amplifiers. Fourth
quarter 2018 net sales were unfavorably impacted by $0.8 million
due to fluctuations in currency exchange rates compared to 2018
third quarter net sales and by $1.0 million compared to 2017 fourth
quarter net sales.
Elastomeric Material Solutions
(EMS)Elastomeric Material Solutions reported 2018 fourth
quarter net sales of $88.3 million, a 7.8% decrease compared to
2018 third quarter net sales of $95.8 million and a 16.2% increase
compared to 2017 fourth quarter net sales of $76.0 million. The
sequential decrease in 2018 fourth quarter net sales was due to
lower seasonal demand in portable electronics as well as weaker
demand in general industrial and automotive applications.
Fluctuations in currency exchange rates unfavorably impacted net
sales by $0.7 million in the 2018 fourth quarter compared to 2018
third quarter net sales and by $0.9 million compared to 2017 fourth
quarter net sales.
Power Electronics Solutions
(PES)Power Electronics Solutions reported 2018 fourth
quarter net sales of $56.8 million, a 2.8% increase compared to
2018 third quarter net sales of $55.2 million and a 9.2% increase
compared to 2017 fourth quarter net sales of $52.0 million. The
2018 fourth quarter sequential increase was due to higher demand
for rail applications, partially offset by lower demand for
variable frequency motor drives. Fourth quarter 2018 net sales were
unfavorably impacted by $0.6 million due to fluctuations in
currency exchange rates compared to 2018 third quarter net sales
and by $1.1 million compared to 2017 fourth quarter net sales.
OtherOther reported 2018
fourth quarter net sales of $5.4 million, up $1.4 million compared
to the third quarter of 2018 sales of $4.0 million.
Balance sheet and other
highlights
Cash positionRogers ended
the fourth quarter of 2018 with cash and cash equivalents of $167.7
million, a decrease of $13.5 million from $181.2 million at
December 31, 2017. The primary drivers of the lower cash balance
were acquisitions completed in the third quarter of 2018 for
approximately $121.4 million and capital expenditures of $47.1
million, partially offset by increase in net borrowings of $96.3
million and net cash provided from operating activities of $66.8
million.
Effective tax rateRogers'
effective tax rate was 3.6% for the fourth quarter of 2018,
compared to 31.0% for the third quarter of 2018. The decrease was
primarily due to the implementation of tax strategies late in the
fourth quarter which significantly lowered our foreign taxes and
facilitated the reversal of reserves associated with uncertain tax
positions. Recently issued U.S. tax legislation benefited our 2018
fourth quarter tax rate.
Rogers' effective tax rate for 2018 was 20.7% compared to 39.5%
in 2017. The 2018 rate decrease was primarily due to a lower U.S.
statutory tax rate and the absence of the transition tax impact on
the current year, as a result of U.S. Tax Reform, as well as the
benefits impacting the fourth quarter discussed in the above
paragraph.
Financial outlookRogers
guides its 2019 first quarter net sales to a range of $220 to $230
million and gross margin to a range of 35% to 36%. Rogers guides
its 2019 first quarter earnings to a range of $0.97 to $1.12 per
diluted share. Adjusted earnings are guided to a range of $1.25 to
$1.40 per diluted share. Rogers guides its 2019 effective tax rate
to be approximately 27-28%.
For the full year 2019, Rogers expects capital expenditures to
be in a range of $50 to $60 million.
About Rogers
CorporationRogers Corporation (NYSE:ROG) is a global
leader in engineered materials to power, protect, and connect our
world. With more than 180 years of materials science experience,
Rogers delivers high-performance solutions that enable clean
energy, internet connectivity, and safety and protection
applications, as well as other technologies where reliability is
critical. Rogers delivers Power Electronics Solutions for
energy-efficient motor drives, e-Mobility and renewable energy;
Elastomeric Material Solutions for sealing, vibration management
and impact protection in mobile devices, transportation interiors,
industrial equipment and performance apparel; and Advanced
Connectivity Solutions for wireless infrastructure, automotive
safety and radar systems. Headquartered in Arizona (USA), Rogers
operates manufacturing facilities in the United States, China,
Germany, Belgium, Hungary, and South Korea, with joint ventures and
sales offices worldwide.
Safe Harbor StatementThis
release contains forward-looking statements, which may concern our
plans, objectives, outlook, goals, strategies, future events,
future net sales or performance, capital expenditures, financing
needs, future restructuring, plans or intentions relating to
expansions, business trends and other information that is not
historical information. All forward-looking statements are based
upon information available to us on the date of this release and
are subject to risks, uncertainties and other factors, many of
which are outside of our control, which could cause actual results
to differ materially from the results discussed in the
forward-looking statements. Risks and uncertainties that could
cause such results to differ include: failure to capitalize on,
volatility within, or other adverse changes with respect to the
Company's growth drivers, including advanced mobility and advanced
connectivity, such as delays in adoption or implementation of new
technologies; uncertain business, economic and political conditions
in the United States and abroad, particularly in China, South
Korea, Germany, Hungary and Belgium, where we maintain significant
manufacturing, sales or administrative operations; the ongoing
trade policy dispute between the United States and China, as well
as adverse changes in trade policy, tariff regulation or other
trade restrictions; fluctuations in foreign currency exchange
rates; the results of our research and development efforts; adverse
competitive developments; business development transactions and
related integration considerations, including failure to realize,
or delays in the realization of anticipated benefits of such
transactions; the outcome of ongoing and future litigation,
including our asbestos-related product liability litigation;
inability to obtain raw materials, including commodities, from
single or limited source suppliers in a timely and cost effective
manner; and changes in laws and regulations applicable to our
business. For additional information about the risks, uncertainties
and other factors that may affect our business, please see our most
recent annual report on Form 10-K and any subsequent reports filed
with the Securities and Exchange Commission, including quarterly
reports on Form 10-Q. Rogers Corporation assumes no responsibility
to update any forward-looking statements contained herein except as
required by law.
Conference call and additional
information
A conference call to discuss 2018 fourth quarter results will
take place today, Wednesday February 20, 2019 at 5 pm ET.
A live webcast and slide presentation will be available under
the investors section of www.rogerscorp.com/ir.
To participate, please dial:
1-800-574-8929 Toll-free in the United
States1-973-935-8524 InternationallyThere is no passcode for the
live teleconference.
If you are unable to attend, a conference call playback will be
available from February 20, 2019 at approximately 8 pm ET through
March 6, 2019 at 11:59 pm ET, by dialing 1-855-859-2056 from the
United States, and 1-404-537-3406 from outside of the US, each with
passcode 3169706.
Additionally, the archived webcast will be available on the
Rogers website at approximately 8 pm ET February 21, 2019.
Additional informationPlease contact the Company directly
via email or visit the Rogers website.
(Financial statements follow)
Condensed Consolidated Statements of
Operations (Unaudited)
Three Months
Ended Year Ended (DOLLARS AND SHARES IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
December 31,2018
December 31,2017
December 31,2018
December 31,2017
Net sales
$ 222,942 $ 209,008
$ 879,091
$ 821,043 Cost of sales
144,567 133,517
568,308 502,468 Gross margin
78,375
75,491
310,783 318,575 Selling, general and administrative
expenses
40,966 48,061
164,046 161,651 Research and
development expenses
8,561 8,035
33,075 29,547
Restructuring and impairment charges
2,023 800
4,038
3,567 Other operating (income) expense, net
24 —
(3,087 ) (5,329 ) Operating income
26,801 18,595
112,711 129,139 Equity income in
unconsolidated joint ventures
1,048 1,539
5,501 4,898
Other income (expense), net
(347 ) 1,649
(994
) 5,019 Interest expense, net
(2,126 ) (1,297
)
(6,629 ) (6,131 ) Income before income tax expense
25,376 20,486
110,589 132,925 Income tax
expense
924 13,487
22,938 52,466
Net income
$ 24,452 $ 6,999
$ 87,651 $ 80,459
Basic earnings per share
$ 1.33 $ 0.38
$ 4.77 $ 4.43
Diluted earnings per share
$ 1.31
$ 0.37
$ 4.70 $ 4.34
Shares used in computing: Basic earnings per share
18,385 18,239
18,374 18,154 Diluted earnings per
share
18,687
18,682
18,659
18,547
Please note for adoption of ASU 2017-07, Rogers has reclassified
fourth quarter and year to date 2017 pension and OPEB income, in
the amounts of $396 and $1,640 thousand, respectively, from
Selling, general and administrative expense to Other income
(expense), net, in the condensed consolidated statements of
operations above.
Condensed Consolidated Statements of
Financial Position (Unaudited)
(IN THOUSANDS)
December 31, 2018 December 31, 2017
Assets Current assets Cash and cash equivalents
$
167,738 $ 181,159 Accounts receivable, less allowance for
doubtful accounts of $1,354 and $1,525
144,623 140,562
Contract assets
22,728 — Inventories
132,637 112,557
Prepaid income taxes
3,093 3,087 Asbestos-related insurance
receivables, current portion
4,138 5,682 Assets held for
sale
— 896 Other current assets
10,829 10,580
Total current assets
485,786 454,523 Property, plant
and equipment, net of accumulated depreciation of $317,414 and
$289,909
242,759 179,611 Investments in unconsolidated joint
ventures
18,667 18,324 Deferred income taxes
8,236
6,008 Goodwill
264,885 237,107 Other intangible assets, net
of amortization
177,008 160,278 Asbestos-related insurance
receivables, non-current portion
59,685 63,511 Other
long-term assets
22,318 5,772 Total assets
$ 1,279,344 $ 1,125,134
Liabilities
and Shareholders’ Equity Current liabilities Accounts payable
$ 40,321 $ 36,116 Accrued employee benefits and
compensation
30,491 39,394 Accrued income taxes payable
7,032 6,408 Capital lease obligations, current portion
420 579 Asbestos-related liabilities, current portion
5,547 5,682 Other accrued liabilities
23,369
25,629 Total current liabilities
107,180 113,808
Borrowings under revolving credit facility
228,482 130,982
Capital lease obligations, non-current portion
4,629 5,873
Pension liability
270 8,720 Retiree health care and life
insurance benefits
1,469 1,685 Asbestos-related liabilities,
non-current portion
64,799 70,500 Non-current income tax
8,418 12,823 Deferred income taxes
10,806 10,706
Other long-term liabilities
4,967 3,464 Shareholders’ equity
Capital stock - $1 par value; 50,000 authorized shares; 18,395 and
18,255 shares issued and outstanding
18,395 18,255
Additional paid-in capital
132,360 128,933 Retained earnings
776,403 684,540 Accumulated other comprehensive loss
(78,834 ) (65,155 ) Total shareholders' equity
848,324 766,573 Total liabilities and
shareholders' equity
$ 1,279,344 $ 1,125,134
Reconciliation of non-GAAP financial
measures to the comparable GAAP measures
Non-GAAP financial measures:
This earnings release includes the following financial measures
that are not presented in accordance with generally accepted
accounting principles in the United States of America (“GAAP”):
(1) Adjusted earnings per diluted share, which the Company
defines as earnings per diluted share excluding acquisition-related
amortization of intangible assets and discrete items, such as
restructuring expenses, asbestos litigation-related charges, gain
from antitrust litigation settlement, acquisition and related
integration costs, tax expense related to United States tax reform,
transition services related to the asset acquisition, purchase
accounting inventory adjustments, and gains or losses on asset or
business dispositions (collectively, “Discrete Items”);
(2) Adjusted EBITDA, which the Company defines as net income
excluding interest expense, income tax expense, depreciation and
amortization, and Discrete Items; and
(3) Adjusted operating margin, which the Company defines as
operating margin excluding acquisition-related amortization of
intangible assets and Discrete Items.
Management believes each of these measures is useful to
investors because they allow for comparison to the Company’s
performance in prior periods without the effect of items that, by
their nature, tend to obscure the Company’s core operating results
due to the potential variability across periods based on the
timing, frequency and magnitude. As a result, management believes
that adjusted earnings per diluted share, adjusted EBITDA and
adjusted operating margin enhance the ability of investors to
analyze trends in the Company’s business and evaluate the Company’s
performance relative to peer companies. However, non-GAAP financial
measures have limitations as analytical tools and should not be
considered in isolation from, or solely as alternatives to,
financial measures prepared in accordance with GAAP. In addition,
these non-GAAP financial measures may differ from similarly named
measures used by other companies. Reconciliations of the
differences between these non-GAAP financial measures and their
most directly comparable financial measures calculated in
accordance with GAAP are set forth below.
**2017 financial measures below have been adjusted for the
adoption of ASU 2017-07, and have been adjusted for the Company's
reclassification of pension and OPEB income from selling, general
and administrative expense to other income (expense), net.
Reconciliation of GAAP earnings per
diluted share to adjusted earnings per diluted share for the fourth
quarter*:
2018 2017
Earnings per diluted share Q4
Q3 YTD Q4
YTD GAAP earnings per diluted share
$
1.31 $ 1.06
$ 4.70 $ 0.37 $ 4.34
Restructuring, severance, impairment and other related costs
0.11 0.11 0.37 0.03 0.13 Acquisition and
related integration costs
0.02 0.04 0.11 0.02
0.11 Tax expense primarily related to U.S. tax reform
—
— — 0.69 0.69 Gain from antitrust litigation
settlement
(0.06 ) — (0.21 ) — —
Loss (gain) on sale of long-lived assets
— —
(0.02 ) — (0.19 ) Purchase accounting inventory
adjustment
— 0.02 0.01 — 0.05 Asbestos related
charges
0.03 — 0.03 0.12 0.12 Transition
services, net
0.08
0.03 0.11
— —
Total discrete items
$ 0.18
$ 0.19
$ 0.40 $ 0.86
$ 0.91 Earnings per diluted share adjusted for
discrete items
$ 1.49
$ 1.24 $
5.10 $ 1.23 $ 5.25
Acquisition intangible amortization
0.18
0.18 0.67 0.13 0.51
Adjusted earnings per diluted share
$ 1.67
$ 1.42 $ 5.77
$ 1.36 $ 5.76
Reconciliation of GAAP net income to
adjusted EBITDA for the fourth quarter*:
2018 2017
(amounts in millions)
Q4
Q3 YTD Q4
YTD Net income
$ 24.5 $
19.7 $ 87.7 $ 7.0
$ 80.5 Interest expense, net
2.1 2.0
6.6 1.3 6.1 Income tax expense
0.9 8.9
22.9 13.5 52.5 Depreciation
10.3 8.8
33.5 7.6 29.3 Amortization
4.4 4.4 16.5
3.8 14.8 Restructuring, severance, impairment and other related
costs
2.7 2.7 9.0 0.8 3.6 Acquisition and
related integration costs
0.4 0.9 2.6 0.7 3.2
Gain from antitrust litigation settlement
(1.3 )
— (4.9 ) Asbestos-related charges
0.7
— 0.7 3.4 3.4 Loss (gain) on sale of long-lived
assets
— — (0.4 ) 0.0 (5.3 ) Purchase
accounting inventory adjustment
— 0.3 0.3 —
1.6 Transition services lease income
(0.7 ) (0.2 )
(1.0 ) —
— Adjusted EBITDA
$ 44.0 $
47.5 $ 173.6
$ 38.1 $ 189.7
*Values in table may not add due to
rounding.
Reconciliation of GAAP operating margin
to adjusted operating margin for the fourth quarter*:
2018 2017
Operating margin Q4
Q3 YTD Q4
YTD **GAAP operating margin
12.0 %
13.1 % 12.8 % 8.9
% 15.7 % Restructuring, severance, impairment
and other related costs
1.2 % 1.2 %
1.0 % 0.4 % 0.4 % Acquisition and related integration
costs
0.2 % 0.4 % 0.3 %
0.3 % 0.4 % Asbestos-related charges
0.3 % —
% 0.1 % 1.6 % 0.4 % Gain from antitrust
litigation settlement
(0.6 )% — %
(0.6 )% — % — % Loss (gain) on sale of long-lived
assets
— % — % (0.1 )% —
% (0.6 )% Purchase accounting inventory adjustment
—
% 0.1 % — % — % 0.2 % Transition
services, net
0.9 %
0.3 % 0.3 %
— % — % Total discrete Items
2.0 % 2.0 %
1.0 % 2.3 % 0.8 %
Operating margin adjusted for discrete items
14.0 % 15.1 %
13.8 % 11.2 % 16.5
% Acquisition intangible amortization
2.0 %
1.9 % 1.9 % 1.8 % 1.8 %
Adjusted operating margin
16.0 % 17.0
% 15.8 % 13.0 %
18.3 %
*Percentages in table may not add due to
rounding.
Reconciliation of GAAP earnings per
diluted share to adjusted earnings per diluted share guidance for
the 2018 fourth quarter:
GuidanceQ4 2018 GAAP earnings per diluted share
$0.84 - $0.99 Discrete items
$0.18
Acquisition intangible amortization
$0.18
Adjusted earnings per diluted share
$1.20 - $1.35
Reconciliation of GAAP earnings per
diluted share to adjusted earnings per diluted share guidance for
the 2019 first quarter:
GuidanceQ1 2019
GAAP earnings per diluted share
$0.97 - $1.12
Discrete items
$0.10 Acquisition intangible
amortization
$0.18
Adjusted earnings per diluted share
$1.25 -
$1.40
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190220005834/en/
Investor contact:Mike
Ludwig480-917-6073investor.relations@rogerscorp.comhttp://www.rogerscorp.com
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