Ferro Corporation Announces Fourth Quarter and Full Year 2003 Financial Results

Ferro Corporation (NYSE: FOE) announced on 5.Feb. that revenue from continuing operations for the fourth quarter 2003 increased 11.3% to $407.4 million, compared with $366.2 million for the fourth quarter 2002. During the fourth quarter, favorable foreign currency exchange rates, improved macro economic conditions in North America and stronger demand in several key end markets helped to offset the impact of continued sluggish economic conditions in Europe. Revenue from continuing operations for the full year 2003 increased 6.1% to $1.62 billion due mainly to favorable foreign currency exchange rates. In the fourth quarter, the Company reported income from continuing operations of $2.8 million, or $0.06 per share on a fully diluted basis, which included an after-tax charge of approximately $2.2 million, or $0.05 per share, related to consolidation and restructuring costs. This compared with income from continuing operations for fourth quarter 2002 of $7.1 million, or $0.16 per share on a fully diluted basis, which included an after-tax charge of $0.7 million, or $0.02 per share, related to the integration of the dmc2 acquisition. Earnings in the recent quarter reflect slightly higher volumes offset by increased raw material costs compared with the year ago quarter. The $2.2 million charge represents further actions the Company has taken to consolidate and improve the cost structure going forward. For full year 2003, the Company reported income from continuing operations of $17.4 million, or $0.38 per share on a fully diluted basis, compared with $33.7 million, or $0.81 per share on a fully diluted basis for full year 2002. Earnings for full year 2003 included after-tax charges of $10.9 million, or $0.26 per share, for integration and restructuring costs. Full year 2002 earnings included an after-tax charge of $6.0 million, or $0.15 per share, for similar integration and restructuring costs. Hector R. Ortino, chairman and chief executive officer, commented, "The fourth quarter provided positive signs that macro economic conditions are strengthening. Overall demand in North America improved in many of our key end markets, following two consecutive quarters of soft demand. Market conditions in the Asia-Pacific region, which is an important element in our growth strategy, remained robust through most of the year, including the fourth quarter. I was particularly pleased with the market reaction and performance of our two springboard businesses, electronic materials and pharmaceuticals and fine chemicals. Unfortunately, several of our businesses continued to be challenged late in the year by increased raw material costs and sluggish economic conditions in Europe. We took further action in the quarter to improve our cost structure and implemented price increases where appropriate to help offset higher raw material costs." The Company also reported that it generated $43 million of cash flow from operations and reduced total debt by $23 million during the fourth quarter. Ortino added, "While 2003 did not live up to our expectations due to overriding macro economic conditions, we were still able to make significant progress in improving our cost structure and strengthening our financial position by increasing our working capital efficiency and reducing total debt. With the implementation of our Leadership Agenda strategy in 1998, our portfolio of businesses has reached a balancing point, with approximately a third of our revenue coming from the springboard, platform, and foundation businesses respectively. This improved portfolio and stronger financial position has created a Company with an opportunity for significant growth and earnings power as global economic conditions improve." Segment Results -- Fourth Quarter 2003 Sales for the Coatings segment increased 14.1% to $274.2 million for the fourth quarter, compared with $240.3 million in the fourth quarter 2002. Segment income from continuing operations decreased to $21.6 million, compared with $23.3 million in the year ago quarter. The increase in revenue was driven primarily by favorable foreign currency exchange rates and increased global end market demand for electronics. Segment income in the quarter reflects cost-saving actions taken throughout the year and higher volume in electronic materials offset by higher raw material costs and lower volumes in the color and glass and tile coatings businesses. Sales for the Performance Chemicals segment were $133.2 million, compared with $125.9 million in the fourth quarter 2002, a 5.8% increase. Segment income in the fourth quarter 2003 was $3.9 million, compared with $2.5 million in the year ago quarter. The revenue increase for the quarter was driven by favorable foreign currency exchange rates and improved demand for specialty plastics from the appliance and packaging end markets. Income for the segment increased as customers did not extend holiday shutdowns and reduce inventories as dramatically as the previous two years. The polymer additives and specialty plastics businesses were negatively affected by further raw material cost increases. The pharmaceutical and fine chemicals business continued to deliver strong revenue and earnings growth as they implement the springboard growth strategies as part of the Company´s overall Leadership Agenda strategy. Segment Results -- Full Year 2003 Sales for the Coatings segment increased 8.6% in 2003 to $1,071.8 million, compared with $986.6 million in 2002. Segment income from continuing operations decreased 5.4% to $90.7 million, compared with $95.9 million a year ago. The increase in revenue was driven primarily by favorable foreign currency exchange rates and increased end market demand for electronics. The decrease in segment income reflects lower volumes in several key end markets for color and glass, tile coatings and porcelain enamel. These lower volumes were offset partially by cost-saving actions taken throughout the year and increased demand for electronic materials. Sales for the Performance Chemicals segment increased 1.6% to $550.6 million in 2003, compared with $541.9 million in 2002. Segment income in 2003 was $26.4 million, compared with $34.6 million a year ago. The increased sales resulted mainly from favorable foreign currency exchange rates. The decrease in segment income reflects lower volumes and higher raw material costs in the polymer additives and specialty plastics businesses. Outlook "We are cautiously optimistic about the sustainability of the economic recovery that appears to be taking shape in North America," Ortino stated. "Conditions in the Asia-Pacific region are expected to remain strong, but a recovery in our key end markets in Europe will likely lag North America. Raw material costs will continue to pressure margins as we move through the first quarter of 2004, but higher volumes and price increases will help to offset the higher raw material costs. In addition, actions taken in 2003 will give us approximately $15 million in cost savings for 2004 and ongoing lean manufacturing initiatives will help us to improve the efficiency of our current manufacturing asset base. This process includes a continuous review of opportunities to consolidate facilities or operations. Overall, as global economic conditions improve, we are poised to increase investment in organic growth opportunities but will remain focused on strengthening the balance sheet and closely managing working capital."