Matthews International Corporation — FY2020 Form 10-K
Reporting period: Fiscal year ended September 30, 2020. The filing also reports fourth-quarter results; fiscal 2020 Q4 is the quarter ended September 30, 2020. Matthews provides brand solutions, memorialization products, and industrial technologies.
Financial results
| Metric | FY2020 | FY2019 |
|---|---|---|
| Sales | $1.498 billion | $1.537 billion |
| Gross profit / margin | $497.8 million / 33.2% | $542.5 million / 35.3% |
| Operating profit (loss) | $(64.2) million | $10.3 million |
| Net income (loss) attributable to Matthews shareholders | $(87.2) million | $(38.0) million |
| Diluted EPS | $(2.79) | $(1.21) |
| Adjusted EBITDA (non-GAAP) | $203.1 million | $220.9 million |
| Cash provided by operating activities | $180.4 million | $131.1 million |
Fourth-quarter results: Sales were $399.1 million, operating profit was $20.6 million, net income attributable to Matthews shareholders was $7.4 million, and diluted EPS was $0.24. The comparable FY2019 quarter had sales of $392.4 million, an operating loss of $59.8 million, a net loss attributable to Matthews shareholders of $71.1 million, and diluted EPS of $(2.28), largely reflecting the prior-year goodwill impairment.
Cash, liquidity, and debt: Cash and equivalents were $41.3 million at year-end versus $35.3 million a year earlier. Working capital was $258.7 million versus $303.8 million; the current ratio was 1.8 versus 2.1. Total debt, including current maturities, was $834.5 million, down from $940.7 million; long-term debt was $807.7 million. The company reported compliance with debt covenants. Cash used in investing was $2.7 million and cash used in financing was $172.3 million. Capital expenditures were $34.8 million; dividends paid were $26.4 million, or $0.84 per share.
Material changes and segment performance
- SGK Brand Solutions: Sales fell to $693.1 million from $743.9 million; adjusted EBITDA declined to $90.6 million from $119.5 million. Lower brand, private-label, and European cylinder and surface sales, mix, and pricing pressure weighed on results.
- Memorialization: Sales increased to $656.0 million from $636.9 million; adjusted EBITDA rose to $146.3 million from $134.3 million. Higher casket sales and pricing and increased cremation and incineration equipment sales contributed, while cemetery memorial sales were affected by pandemic restrictions.
- Industrial Technologies: Sales decreased to $149.2 million from $156.5 million; adjusted EBITDA fell to $22.8 million from $24.1 million, mainly reflecting lower warehouse automation sales as COVID-19 restricted access to customer project sites.
- Consolidated sales declined 2.5%. Gross margin contracted by 2.1 percentage points. Adjusted EBITDA, a company-defined non-GAAP measure, declined about 8%.
Outlook, risks, and unusual items
- Management expected COVID-19 to continue to affect sales and results in the short term through customer disruptions, project delays, weaker economic conditions, and potential supply or operating interruptions. Substantially all operations remained open; management anticipated a return toward normalized conditions after the pandemic subsided, but provided no quantified earnings or sales guidance.
- Fiscal 2021 capital expenditures were estimated at approximately $40 million, with management expecting operating cash flow to fund planned spending. A strategic cost-structure program was expected to continue through fiscal 2022.
- FY2020 included $139.1 million of net pretax charges, chiefly a $90.4 million SGK goodwill impairment, a $10.6 million reserve for a Saudi Arabian customer letter-of-credit dispute, $4.7 million of incremental COVID-related costs, acquisition and integration costs, and strategic initiatives. The company also recorded an $11.2 million gain on sale of a Memorialization ownership interest.
- The company fully reserved the funded letter of credit, approximately $11.0 million, amid delayed Saudi proceedings and increased uncertainty about recovery and government support. It continued to pursue recovery; the outcome and timing remain uncertain.
- After the impairment, the fair values of two SGK reporting units approximately equaled their carrying values. Further goodwill impairment may be required if projections or valuation assumptions deteriorate.
- Other principal risks include foreign exchange, raw-material costs, competitive pricing, mortality and cremation trends, acquisition integration, environmental obligations, data privacy and cybersecurity, and pandemic-related operational and demand disruptions. Management and the auditor reported effective internal control over financial reporting; the financial-statement audit opinion was unqualified.
Important facts for investors to verify
- Whether SGK’s operating performance and goodwill valuations stabilize, and whether additional impairment charges arise.
- COVID-19’s continuing effects on customer demand, project execution, supply chains, and each segment’s margins.
- Progress, timing, and likely recoverability of the Saudi letter-of-credit dispute despite the full reserve.
- Debt maturities, covenant headroom, refinancing or extension of facilities, and cash generation relative to dividends and investment needs.
- Execution and realized savings from the cost-reduction program through fiscal 2022.