Matthews International Corporation — Q2 FY2022 Form 10-Q
Reporting period: Quarter and six months ended March 31, 2022. Fiscal Q2 is the three months ended March 31. Amounts below are in millions unless otherwise stated. Matthews operates SGK Brand Solutions, Memorialization, and Industrial Technologies; it realigned surfaces and engineered products from SGK to Industrial Technologies, with prior periods revised.
Financial performance
| Metric | Q2 FY2022 | Q2 FY2021 | Six months FY2022 | Six months FY2021 |
|---|---|---|---|---|
| Sales | $445.0 | $417.2 | $883.6 | $803.8 |
| Gross profit / margin | $124.5 / 28.0% | $141.0 / 33.8% | $256.2 / 29.0% | $266.5 / 33.2% |
| Operating profit | $7.4 | $15.0 | $18.1 | $25.3 |
| Net income (loss) | $(1.9) | $5.2 | $(21.7) | $3.2 |
| EPS, diluted | $(0.06) | $0.16 | $(0.68) | $0.10 |
| Adjusted EBITDA (non-GAAP) | $55.2 | $60.9 | $108.5 | $115.7 |
- Sales growth: Q2 sales rose 6.7%; six-month sales rose 9.9%. For the first half, Memorialization sales increased to $430.7 million from $388.7 million, Industrial Technologies to $152.5 million from $118.7 million, and SGK to $300.4 million from $296.4 million.
- Profitability: Lower gross profit and adjusted EBITDA despite higher sales. The company cited inflation in materials, labor and transportation, production inefficiencies and unfavorable SGK sales mix. Six-month adjusted EBITDA fell about 6.2% year over year.
- Segment EBITDA, first half: SGK $28.9 million versus $40.2 million; Memorialization $86.3 million versus $95.7 million; Industrial Technologies $21.6 million versus $11.3 million.
- Cash flow, first half: Operating cash flow was $72.7 million versus $92.2 million. Investing used $24.7 million, including $28.1 million of capital expenditures; financing used $38.7 million. Capital spending for FY2022 was estimated at approximately $70 million.
- Liquidity and debt: Cash was $53.8 million; working capital $273.7 million and current ratio 1.8 at March 31. Total debt was $753.0 million, including $749.1 million long-term debt. The company reported compliance with debt covenants. Its $750 million revolving facility matures March 2025; $300 million of 5.25% senior notes mature December 2025.
Material changes, outlook and risks
- Second-quarter results included $10.5 million of Russia-related asset write-downs, primarily property, plant and equipment, reduced to zero amid the Russia-Ukraine war and uncertainty in projecting cash flows.
- The first-half net loss also reflected a $30.9 million non-cash pension settlement charge. Matthews terminated and fully settled its principal defined benefit plan; it contributed $35.7 million to fund the settlement. The cash distributions and annuity purchase were made from plan assets.
- In March 2022, Matthews entered a receivables purchase agreement of up to $125 million, maturing March 2024. $75.0 million of receivables had been sold and derecognized at period-end. Proceeds are classified as operating cash flow; assess this when evaluating operating cash generation.
- Outlook: No quantified full-year earnings or sales guidance is provided in the filing text. Management expected continued FY2022 growth in energy solutions, citing backlogs and customer interest, and said warehouse automation and product identification order rates/backlogs supported continued growth. It expected cost-reduction initiatives to continue and anticipated partially offsetting inflation through pricing and those initiatives.
- Key risks: Inflation, supply-chain disruption, labor shortages/costs, foreign exchange, pandemic-related effects, and the war in Ukraine—including sanctions, cyber and supply-chain risks—could adversely affect results. The Graphics Imaging goodwill reporting unit’s estimated fair value exceeded carrying value by about 10%; management warned that weaker projections or valuation changes could require future impairment. Ordinary-course legal proceedings were not expected to have a material adverse effect; environmental assessment and remediation obligations remain ongoing.
- Unrecognized tax benefits were $3.2 million; the company was under examination in several jurisdictions. Management stated current liquidity, operating cash flow and borrowing capacity should be sufficient for foreseeable capital needs.
Investor verification priorities
- Determine how much of revenue and margin performance reflects sustainable volume and pricing versus higher commodity, labor and freight costs, and whether price increases are keeping pace.
- Track segment-level profitability, especially the SGK decline and whether Industrial Technologies’ growth and improved margins continue.
- Reconcile operating cash flow with the $35.7 million pension contribution, working-capital movements and receivables-sale proceeds; assess cash generation without receivables program support.
- Review debt capacity, covenant headroom, floating-rate exposure and the refinancing implications of the March 2025 revolver maturity and December 2025 notes.
- Monitor the operational and financial consequences of the Russia-Ukraine conflict, including potential further write-downs, and the limited valuation cushion at Graphics Imaging.
- Assess the recurring nature of adjustments in non-GAAP adjusted EBITDA, including strategic costs, asset write-downs and pension-related items.