Matthews International Corporation — Q3 FY2023 Form 10-Q
Reporting period: Fiscal third quarter and nine months ended June 30, 2023; comparative periods ended June 30, 2022. Unless noted otherwise, amounts below are in millions of U.S. dollars. Matthews operates Memorialization, Industrial Technologies, and SGK Brand Solutions.
Financial performance
| Metric | Q3 FY2023 | Q3 FY2022 | Nine months FY2023 | Nine months FY2022 |
|---|---|---|---|---|
| Sales | $471.9 | $421.7 | $1,400.7 | $1,305.3 |
| Gross profit | $138.3 | $120.9 | $426.9 | $377.0 |
| Gross margin | 29.3% | 28.7% | 30.5% | 28.9% |
| Operating profit | $21.5 | $11.0 | $61.8 | $29.1 |
| Net income (loss) attributable to Matthews shareholders | $8.7 | $2.9 | $21.6 | $(18.8) |
| Diluted earnings (loss) per share | $0.28 | $0.09 | $0.69 | $(0.60) |
| Adjusted EBITDA, non-GAAP | $56.2 | $46.0 | $163.9 | $154.5 |
Q3 sales rose about 12% year over year; nine-month sales rose about 7%. Nine-month gross margin improved 1.6 percentage points. Nine-month operating profit and net income improved substantially, while adjusted EBITDA increased about 6%. Nine-month GAAP results in 2022 included a $30.9 million non-cash pension settlement charge and $10.0 million of Russia-related asset write-downs. Adjusted EBITDA is a company-defined non-GAAP measure and excludes specified costs.
Segments and drivers
- Memorialization: Nine-month sales were $638.1 million versus $633.9 million; adjusted EBITDA was $127.1 million versus $118.4 million. Higher pricing, granite memorials, mausoleums, cremation equipment, productivity improvements, and Eagle Granite contributed; lower casket and bronze memorial unit sales partly offset gains.
- Industrial Technologies: Nine-month sales were $365.2 million versus $230.9 million; adjusted EBITDA was $42.8 million versus $33.4 million. Growth reflected the prior-year OLBRICH and R+S Automotive acquisitions and increased engineered energy-storage, product-identification, and warehouse-automation sales. Management said more than $200 million of energy-storage orders received in Q1 are expected to affect sales through mid-FY2024.
- SGK Brand Solutions: Nine-month sales were $397.4 million versus $440.5 million; adjusted EBITDA was $39.6 million versus $43.4 million. Lower European brand and cylinder sales and lower U.S. and European retail-based sales weighed on results; pricing and cost-reduction benefits partly offset declines.
Cash flow, liquidity, and debt
- Nine-month operating cash flow was $76.9 million, down from $84.4 million. Capital expenditures were $37.1 million, implying operating cash flow less capital expenditures of approximately $39.8 million. Investing cash use was $53.7 million, including $15.3 million for acquisitions; financing cash use was $56.4 million.
- Cash and cash equivalents were $39.3 million at June 30, 2023, versus $69.0 million at September 30, 2022. Working capital was $239.5 million; the current ratio was 1.6.
- Total debt was $775.0 million, down from $798.6 million at September 30, 2022; long-term debt was $772.1 million. The domestic revolving facility has a $750 million commitment and matures in March 2025. Revolver borrowing cost, including swaps, averaged 5.59%, compared with 1.92% a year earlier. The company reported compliance with debt covenants.
- The $299.6 million 5.25% senior notes mature December 2025. A receivables purchase agreement matures March 2024; $113.2 million of receivables had been sold and derecognized at June 30. A U.K. factoring arrangement also began during the period.
Outlook, risks, and unusual items
- No specific consolidated earnings or revenue guidance is provided. Management estimated FY2023 capital spending of approximately $65 million and expected operating cash flow to fund anticipated capital projects.
- Management cited labor-cost increases, supply-chain challenges, and inflation as near-term pressures, with pricing and cost-reduction initiatives expected to mitigate some effects. Foreign exchange was estimated to have reduced nine-month sales by $28.6 million year over year.
- Higher interest rates contributed to nine-month interest expense rising to $33.2 million from $19.4 million. Turkish highly inflationary accounting produced $3.1 million of nine-month currency losses.
- SGK’s goodwill fair value exceeded carrying value by approximately 9%; management cautioned that lower-than-projected performance or changes in valuation factors could require future impairment. No impairment was recorded in the fiscal 2023 annual review.
- The company settled SERP and certain ORRP obligations with $24.2 million of payments and recorded a $1.3 million non-cash settlement charge. It reported $4.6 million of unrecognized tax benefits; approximately $3.2 million could decrease within 12 months, principally from audits or statute expirations.
- Management said ordinary-course legal proceedings are not expected to materially adversely affect the company. It reported no material changes to previously disclosed risk factors and no material changes in market risk. Environmental assessment and remediation obligations remain ongoing.
Important facts for investors to verify
- Whether the Industrial Technologies order backlog converts to revenue on the expected timeline and at acceptable margins.
- How SGK sales and profitability, and the relatively narrow goodwill valuation cushion, develop.
- Whether working-capital needs, receivables-sale programs, and cash generation support planned capital expenditures and debt obligations.
- The effect of higher borrowing costs, the March 2025 revolver maturity, and the December 2025 senior-note maturity on refinancing and liquidity.
- Whether pricing and productivity gains offset labor, materials, currency, and other inflationary pressures.