Matthews International Corporation — Q2 FY2024 Form 10-Q
Business context and reporting period. Matthews provides memorialization products, industrial technologies and SGK brand solutions. This unaudited report covers the quarter and six months ended March 31, 2024; the quarter is the company’s second fiscal quarter. Dollar amounts below are in millions unless noted.
Financial performance
| Metric | Q2 FY2024 | Q2 FY2023 | Six months FY2024 | Six months FY2023 |
|---|---|---|---|---|
| Sales | $471.2 | $479.6 | $921.2 | $928.8 |
| Gross profit / margin | $148.2 / 31.4% | $149.6 / 31.2% | $280.5 / 30.5% | $288.6 / 31.1% |
| Operating profit | $21.3 | $23.1 | $30.8 | $40.3 |
| Net income attributable to Matthews | $9.0 | $9.1 | $6.7 | $12.8 |
| Diluted EPS | $0.29 | $0.29 | $0.22 | $0.41 |
| Adjusted EBITDA (non-GAAP) | $56.8 | $58.4 | $102.3 | $107.7 |
For the six months, sales declined 0.8%, operating profit fell 23.6%, and adjusted EBITDA declined 5.1%. Interest expense rose to $24.1 from $22.3, reflecting higher average borrowing and rates. A $1.8 income-tax benefit, including discrete tax benefits, partly offset lower pretax income.
Segment results
| Segment | Six-month sales, 2024 vs. 2023 | Six-month adjusted EBITDA, 2024 vs. 2023 |
|---|---|---|
| Memorialization | $430.2 vs. $429.4 | $83.3 vs. $87.2 |
| Industrial Technologies | $227.5 vs. $234.7 | $19.7 vs. $27.8 |
| SGK Brand Solutions | $263.5 vs. $264.8 | $28.3 vs. $23.3 |
Management attributed weaker gross profit to lower sales, lower margins on engineered and cremation products, and higher material and labor costs; productivity and cost-reduction benefits partly offset these pressures. Industrial Technologies’ adjusted EBITDA weakened with lower sales, labor costs and engineered-product margins. SGK EBITDA improved on cost initiatives and stronger cylinder-product margins. Memorialization sales benefited from granite products, acquisitions and pricing, but lower casket, bronze memorial and cremation-equipment volumes weighed on results.
Cash flow, debt and liquidity
- Six-month operating cash flow was $29.8, down from $44.7. Working-capital changes used $35.6, compared with $10.9 in the prior period.
- Investing cash outflow was $29.8, including $24.0 of capital expenditures and $5.8 for acquisitions. Management estimates FY2024 capital spending of about $60 and expects operating cash to fund planned projects.
- Cash was $45.5 at March 31, versus $42.1 at September 30, 2023. Working capital was $295.3 and the current ratio was 1.8, compared with $253.7 and 1.6 at fiscal year-end.
- Total debt was $842.8, up from $790.2 at September 30; long-term debt was $837.4. The company reported compliance with its debt covenants.
- The amended $750 revolving credit facility matures in January 2029. The $299.2 of 5.25% senior notes are due December 2025. The company also had $109.9 of receivables sold under its revolving receivables purchase agreement; that agreement was extended to March 2026.
- Financing activities provided $3.0, including $41.6 net debt proceeds, offset by $17.2 of share repurchases, $16.7 of dividends and $4.7 of debt issuance costs.
Outlook, risks and unusual items
- No specific full-year revenue or earnings guidance is provided. Management expects recent labor-cost increases, supply-chain challenges and other inflation-related pressures to continue, with partial mitigation from pricing and cost-reduction initiatives.
- Management states current liquidity, operating cash flow and borrowing capacity should meet foreseeable capital needs. It expects FY2024 capital expenditures of approximately $60.
- Adjusted EBITDA excludes specified costs and is a non-GAAP measure; it should be considered alongside GAAP results, not as a substitute for them. FY2024 six-month strategic initiatives and other charges included $5.0 related to an ongoing contractual dispute.
- The annual goodwill review found no impairment, but SGK Brand Solutions’ estimated fair value exceeded carrying value by only about 7%. Changes in forecasts, discount rates or industry conditions could lead to future impairment.
- Risks cited include economic and currency changes, interest and material costs, demand and pricing, labor and supply-chain constraints, customer and industry consolidation, cost-reduction execution, cybersecurity, environmental matters and geopolitical disruption. The filing reports no material change to previously disclosed risk factors; ordinary-course legal proceedings are not expected to have a material adverse effect.
- Unrecognized tax benefits were $4.5; approximately $2.9 could decrease in the next 12 months, primarily from audits and statute expirations. The company remains subject to tax examinations in multiple jurisdictions.
Key facts investors should verify
- Whether Industrial Technologies’ sales and profitability recover, and whether SGK’s improved EBITDA is sustained.
- Whether working-capital outflows reverse and operating cash flow supports planned capital spending, dividends and debt service.
- Debt levels, variable-rate exposure, the December 2025 notes maturity, and ongoing reliance on receivables-sale programs.
- Progress and remaining costs for the contractual dispute, ERP integration and other strategic initiatives excluded from adjusted EBITDA.
- SGK goodwill valuation assumptions and any developments in tax examinations, environmental remediation or other contingencies.