Matthews International Corporation — Form 10-Q Summary
Reporting period: Second quarter and first six months of fiscal 2023, ended March 31, 2023; comparisons are with the periods ended March 31, 2022. Dollar amounts below are in millions unless stated otherwise.
Business context
Matthews operates in Memorialization, Industrial Technologies, and SGK Brand Solutions. Its products and services span memorial and cremation products, engineered energy-storage and automation solutions, and brand-management and packaging-related services.
Financial results
| Metric | Three months ended March 31 | Six months ended March 31 |
|---|---|---|
| Sales | $479.6, up 7.8% from $445.0 | $928.8, up 5.1% from $883.6 |
| Gross profit / margin | $149.6 / 31.2%; prior-year margin 28.0% | $288.6 / 31.1%; prior-year margin 29.0% |
| Operating profit | $23.1, versus $7.4 | $40.3, versus $18.1 |
| Net income (loss) attributable to Matthews shareholders | $9.1, versus a loss of $1.9 | $12.8, versus a loss of $21.7 |
| Diluted earnings (loss) per share | $0.29, versus $(0.06) | $0.41, versus $(0.68) |
| Adjusted EBITDA | $58.4, versus $55.2 | $107.7, versus $108.5 |
Six-month sales growth was led by Industrial Technologies, up to $234.7 from $152.5, principally reflecting the OLBRICH and R+S Automotive acquisitions and higher engineered-product sales. Memorialization sales were broadly flat at $429.4; SGK sales fell to $264.8 from $300.4. Foreign exchange reduced six-month consolidated sales by an estimated $27.0.
Six-month gross-margin improvement reflected higher sales, acquisitions, productivity gains, and cost initiatives, partly offset by material, labor, and transportation inflation and weaker margins in certain product areas. Interest expense rose to $22.3 from $12.8, reflecting higher average borrowing levels and rates. Adjusted EBITDA was nearly flat year over year despite higher sales.
Cash flow, debt, and liquidity
- Operating cash flow for the first six months was $44.7, down from $72.7. Working-capital changes used $10.9, compared with a $18.8 source in the prior-year period; current-period cash flow also included $24.2 of retirement-plan settlement payments and $10.5 of proceeds from settled interest-rate swaps.
- Investing cash outflow was $31.2, including $23.8 of capital expenditures and $7.6 of acquisitions, net of cash acquired. Financing cash outflow was $44.9, including $27.1 of net debt repayments and $14.1 of dividends.
- At March 31, cash was $41.9, total debt was $778.0, and long-term debt was $775.2. Cash was $69.0 and total debt $798.6 at September 30, 2022. The current ratio was 1.6; working capital was $223.8.
- The $750.0 revolving credit facility matures in March 2025; $452.5 was outstanding across revolving facilities at quarter-end. The 2025 Senior Notes carry a 5.25% coupon. The domestic facility’s weighted-average borrowing rate, including swaps, was 5.17%, versus 1.89% a year earlier. The company reported compliance with debt covenants.
- Receivables financing included $108.6 of receivables sold under the RPA at quarter-end and $17.0 of receivables factored during the six-month period. These proceeds are classified as operating cash flows. The RPA matures in March 2024.
Outlook, risks, and unusual items
- The filing gives no specific full-year earnings or sales guidance. Fiscal 2023 capital spending was estimated at approximately $70, and management expected operating cash flow to fund anticipated capital projects.
- Industrial Technologies received more than $200 of energy-storage orders in fiscal Q1, expected to affect sales through mid-fiscal 2024. Management cited economic and industrial conditions, EV and e-commerce trends, mortality and cremation rates, client marketing spending, and currency movements as business drivers.
- Management expected labor-cost increases, supply-chain challenges, and other inflationary pressures to persist in the near term, with partial mitigation from pricing and cost-reduction initiatives.
- The annual goodwill review found no impairment necessary. However, SGK Brand Solutions’ estimated fair value exceeded carrying value by approximately 9%; weaker projections or adverse valuation changes could require future goodwill write-downs.
- Fiscal 2023 included a $1.3 non-cash pension-settlement charge following $24.2 of payments to settle SERP and ORRP obligations. The prior-year comparison included a $30.9 non-cash charge related to settlement of the principal defined benefit plan and $10.5 of Russia-related asset write-downs.
- Other matters include Turkish highly inflationary accounting (six-month exchange losses of $1.2), environmental assessment and remediation obligations, and $4.5 of unrecognized tax benefits. Management said ordinary-course legal proceedings were not expected to materially adversely affect results or financial condition. No material risk-factor changes were reported.
Important facts for investors to verify
- How much Industrial Technologies’ sales and order growth reflects acquisitions versus continuing organic demand, and the timing and conversion of the energy-storage order backlog.
- Whether SGK’s lower sales and adjusted EBITDA stabilize, and whether its relatively narrow goodwill valuation cushion remains supportable.
- Whether gross-margin gains and pricing can offset ongoing labor, material, transportation, and project-cost pressures.
- Whether operating cash flow improves after working-capital use and retirement-plan payments, and how receivables sales affect reported cash generation.
- Exposure to higher interest rates and refinancing requirements, including the March 2025 revolving-facility maturity and December 2025 notes maturity.