Ferro Issues Earnings Results

Ferro announced that net sales for the three months ended September 30, were $442 million, a decline of 25 percent from the third quarter of 2008.

In a release dated October 26, the company stated:

- Net sales increased 11 percent, sequentially, from the second quarter of 2009.

- For the third quarter, the company recorded income from continuing operations of $2.8 million, or $0.04 per diluted share, compared with income from continuing operations of $3.9 million, or $0.07 per share, in the third quarter of 2008. The third-quarter income from continuing operations was a $13.9 million improvement from a loss from continuing operations of $11.1 million, or $0.27 per share, in the second quarter of 2009.

- The operating income for the 2009 third quarter included net pre-tax charges of $14.1 million. These charges were primarily related to impairment of goodwill, manufacturing rationalization and other cost reduction activities. Third quarter 2008 operating income was reduced by pre-tax charges of $17.9 million primarily related to restructuring charges, a loss on extinguishment of debt and corporate development activities.

"Our positive momentum accelerated in the third quarter resulting in improved gross margins and higher segment income margins compared with the third quarter of 2008, despite lower sales," said James F. Kirsch, Chairman, President and Chief Executive Officer. "The improved margins show that our efforts to lower our sales breakeven level, reduce cost and expense, and restructure the company are achieving results. Although we have made significant progress, we are continuing our efforts to streamline the business, reduce our cost structure and improve productivity from the manufacturing floor to our corporate support operations. We believe these actions will position us to provide attractive returns to our shareholders as global customer demand continues to recover."

- Gross margins were 21.1 percent of sales in the 2009 third quarter, compared with 18.7 percent in the third quarter of 2008. Gross margin percentage increased for the third consecutive quarter, from a low in the fourth quarter of 2008, due to restructuring actions, staffing reductions and other cost reduction programs. For the quarter, raw material costs were lower compared with the third quarter of 2008. Although reductions in product prices offset much of the benefit of lower raw material costs, the lower raw material costs did have a net positive effect on gross margin percentage. Gross profit for the 2009 third quarter was reduced by charges of $0.3 million primarily related to costs of staffing reductions and accelerated depreciation. Gross profit for the 2008 third quarter included charges of $1.5 million primarily related to asset write-offs and manufacturing rationalization activities.

- SG&A expense was $65.9 million in the 2009 third quarter, a reduction of $11.0 million from $76.9 million in the prior-year quarter. The 14 percent decline was the result of expense reduction efforts, including staffing reductions, curtailment of discretionary spending and suspended incentive compensation payments. Partially offsetting the decline in SG&A expense were increased pension expenses of approximately $5.0 million. Included in SG&A expense in the 2009 third quarter were charges of $2.7 million primarily incurred in connection with expense reduction initiatives. The 2008 third-quarter SG&A expense included net charges of $1.9 million, primarily related to corporate development expenses that were partially offset by an insurance settlement.

- During the 2009 third quarter, impairment charges of $8.2 million were recorded related to the company's Pharmaceuticals business. The impairment was triggered by changes made to the assumptions used to determine valuation under the market approach. Also in the quarter, restructuring charges of $2.8 million were recorded primarily related to manufacturing rationalization activities in the company's European inorganic materials operations and other cost-reduction actions.

- Interest expense increased due to higher interest rates on Ferro's revolving credit facility and term loans as a result of the amendment to the company's credit facility that was signed in March 2009. Interest expense also increased due to higher borrowing levels, driven in part by increased collateral requirements related to precious metal leases.

- The income tax benefit for the three months ending September 30, was $3.7 million, or 400 percent of pre-tax loss, compared with income tax expense of $0.9 million, or 18.5 percent of pre-tax income, in the 2008 third quarter. The primary reason for the improvement in the effective rate was due to the generation of additional tax credits.

Ferro is a supplier of technology-based performance materials for manufacturers.