Matthews International Corporation — Q1 FY2024 10-Q
Reporting period: Three months ended December 31, 2023. All dollar amounts below are U.S. dollars; financial statement amounts are converted to millions unless otherwise noted. The filing is unaudited. Matthews operates in Memorialization, Industrial Technologies and SGK Brand Solutions.
Financial performance and liquidity
| Metric | Q1 FY2024 | Q1 FY2023 / comparison |
|---|---|---|
| Sales | $450.0 million | $449.2 million; up 0.2% |
| Gross profit / margin | $132.4 million / 29.4% | $138.9 million / 30.9% |
| Operating profit | $9.4 million | $17.2 million |
| Net income (loss) attributable to Matthews shareholders | $(2.3) million; $(0.07) per diluted share | $3.7 million; $0.12 per diluted share |
| Adjusted EBITDA, non-GAAP | $45.5 million | $49.3 million |
| Cash from operating activities | $(27.3) million | $(36.2) million |
| Capital expenditures | $14.1 million | $12.4 million |
Operating cash use reflected a $51.6 million working-capital outflow, including incentive compensation payments, higher receivables, lower payables and movements in contract assets and liabilities. Cash less capital expenditures was approximately negative $41.3 million, derived from reported figures. Financing activities provided $36.1 million, including $62.6 million of net long-term debt proceeds, $17.2 million of treasury-share purchases and $9.3 million of dividends. Cash ended the quarter at $37.9 million, down from $42.1 million at September 30, 2023.
At December 31, 2023, total debt was $862.4 million, versus $790.2 million at September 30, 2023; long-term debt included $521.1 million of revolving-credit borrowings and approximately $298.6 million of 5.25% senior notes due December 2025. The domestic revolving facility had a $750 million limit and its reported weighted-average borrowing rate was 5.32%. The company reported covenant compliance. Working capital was $308.9 million and the current ratio was 1.9, compared with $253.7 million and 1.6 at fiscal year-end.
Material changes and segment trends
- Memorialization: Sales rose to $208.1 million from $206.5 million, while adjusted EBITDA fell to $36.7 million from $39.1 million. Granite memorial sales, Eagle Granite acquisition benefits and pricing helped sales; lower casket and cremation-equipment sales and unfavorable mix pressured results.
- Industrial Technologies: Sales increased to $111.4 million from $109.1 million, but adjusted EBITDA declined to $9.6 million from $12.2 million. Growth in engineered products, product identification and surfaces was offset by weaker warehouse automation and automotive engineering sales; higher labor costs and lower engineered-product margins weighed on earnings.
- SGK Brand Solutions: Sales decreased to $130.5 million from $133.6 million, while adjusted EBITDA improved to $12.9 million from $12.2 million. Lower retail-based sales were partly offset by pricing and cost-reduction benefits.
Consolidated sales were nearly flat, with estimated favorable currency effects of $5.1 million. Gross margin declined 1.5 percentage points, primarily due to mix, lower margins on engineered and cremation products, and higher material and labor costs. Selling and administrative expenses rose to $113.1 million from $111.4 million. Strategic initiative and other charges were $5.9 million versus $1.8 million; the company also reported $1.2 million of acquisition/divestiture-related items and $1.2 million of receivables-program and factoring fees in interest expense.
Outlook, risks and unusual items
- Management estimated fiscal 2024 capital spending at approximately $65 million and expected operating cash flow and borrowing capacity to meet anticipated capital needs. No specific earnings or sales guidance was provided.
- Management expects labor-cost increases, supply-chain challenges and other inflationary impacts to continue in the near term, with partial mitigation from pricing and cost-reduction initiatives. Industrial Technologies’ fiscal 2024 sales are expected to be influenced by execution timing on previously received energy-storage orders; segment demand drivers also include EV and e-commerce trends. Memorialization is exposed to death rates and cremation trends; SGK to economic conditions and client marketing spending.
- The domestic credit facility was amended on January 31, 2024, extending its maturity and retaining borrowing limits. The filing’s Note 17 says January 2029, while the MD&A contractual-obligations footnote says February 2029; verify the correct maturity date and amended terms.
- The receivables purchase agreement, with up to $125 million of capacity, was scheduled to mature in March 2024. At quarter-end, $101.9 million of receivables had been sold under it. The company also reported $17.1 million of receivables sold through U.K. factoring during the quarter.
- SGK goodwill fair value exceeded carrying value by approximately 4% in the September 2023 interim review. Management cautioned that weaker projections, higher discount rates or continued industry challenges could lead to future impairment.
- Other exposures include foreign-exchange and interest-rate movements, environmental assessment and remediation at certain sites, tax examinations and $4.2 million of unrecognized tax benefits (excluding penalties and interest). Management did not expect ordinary-course legal proceedings to materially affect financial condition, results or cash flows. No material change to previously disclosed risk factors was reported.
Important facts for investors to verify
- Confirm the domestic credit facility’s amended maturity date (January versus February 2029) and assess its leverage and interest-coverage covenants.
- Review refinancing and repayment plans for the $298.6 million senior notes due December 2025 and the scheduled March 2024 receivables-agreement maturity.
- Track operating cash conversion and working-capital movements, given the quarter’s $27.3 million operating cash outflow and $51.6 million working-capital use.
- Assess whether margin pressure and lower adjusted EBITDA persist, especially in Memorialization and Industrial Technologies, and distinguish recurring costs from the company’s non-GAAP adjustments.
- Monitor SGK’s narrow estimated goodwill valuation cushion, along with tax and environmental contingencies.