Ferro Reports 73% Increase in Second Quarter Adjusted EPS from Continuing Operations

Ferro Corporation (NYSE: FOE, the “Company”) today reported results for the second quarter ended June 30, 2014. Second quarter diluted earnings per share attributable to common shareholders was $0.11, compared with a loss of $0.02 per share in the second quarter of 2013. After recognition of substantially all of the Specialty Plastics and Polymer Additives segments as discontinued operations, Ferro reported second quarter 2014 diluted earnings per share from continuing operations of $0.15, versus a loss of $0.06 per share in the same period last year.

Included in the results from continuing operations are restructuring activities, other nonrecurring income and expense items, and gains and losses on asset sales. Adjusting for these items, second quarter 2014 adjusted diluted earnings per share increased by 73% to $0.19 from $0.11 in the second quarter of 2013. Please refer to the supplemental tables at the end of this news release for additional information concerning adjusted financial results for the Company’s continuing operations.

The Company attributed the increase in profitability primarily to reduced selling, general and administrative (“SG&A”) expenses associated with the successful execution of its value creation strategy and continued expansion of gross profit margins. Ferro reported net sales of $294 million in the second quarter of 2014, compared with net sales of $319 million in the second quarter of 2013. Excluding the impact of exited business lines, primarily related to the metal powders and flakes business line divested in October 2013, and excluding precious metal sales, value-added sales were flat in the second quarter versus the same period last year.

The Company continues to experience value-added sales expansion in emerging markets, including growth of 6% in Asia Pacific and 3% in Latin America. In Asia, value-added sales increased across all segments. In Latin America, the increase in value-added sales was primarily driven by increased demand for container glass coatings and higher sales of digital inks for tile printing. Value-added sales declined in Europe by 1% primarily due to lower demand for porcelain enamel products and a shift in mix to lower-priced but higher margin products in the Performance Colors and Glass segment. Volumes for European Performance Colors and Glass increased by approximately 9%, driving an 18% increase in gross profit, while value-added sales for the segment in Europe were nearly flat. In the U.S. value-added sales declined by 4% due to reduced sales of surface polishing products in the Pigments, Powders and Oxides segment.

Peter Thomas, Chairman, President and Chief Executive Officer, commented, “Ferro had another strong quarter of earnings growth with adjusted EPS increasing by 73%. While second quarter value-added sales were short of expectations, we continue to improve profitability in all regions, and we are experiencing sales growth in Asia and Latin America. From a product line perspective, results for the Performance Colors and Glass segment were particularly strong with volume growth of approximately 15%, resulting in increased gross profit of $4 million, a 13% improvement.”

Thomas continued, “We remain on track with our previously discussed strategic initiatives. We anticipate closing on our new $500 million credit facility on July 31, 2014, which will provide for lower cost debt and flexibility to pursue growth options, and we remain on track with the Polymer Additives marketing process. We continue to work on several strategic growth opportunities focused on accelerating growth in emerging markets and expanding capacity in our core frit-based businesses. Though we remain cautious about sales growth in the second half, primarily based on lower GDP projections in Europe and the U.S. and weakness in our Pigments, Powders and Oxides segment, we continue to take actions to enhance growth and improve profitability. Consequently, we are increasing our 2014 adjusted earnings guidance to $0.52 to $0.57 per diluted share from our prior guidance of $0.48 to $0.53 per diluted share.”

2014 Second-Quarter Results

Ferro reported net sales of $294 million in the second quarter of 2014, compared with net sales of $319 million in the second quarter of 2013. Value-added sales, which exclude precious metal sales, decreased 3% to $282 million from $291 million in the second quarter last year. Adjusting for the impact of previously divested business lines, value-added sales were flat.

The Company’s Performance Colors and Glass segment contributed the highest levels of sales growth with value-added sales increasing by 3%. Value-added sales for Performance Coatings were flat year-over-year, while sales in the Pigments, Powders and Oxides segment, excluding the impact of exited business lines, declined 7%.

Gross profit was $78 million for the 2014 second quarter, compared with $75 million for the second quarter of 2013. Excluding special charges, adjusted gross profit was $78 million (27.8% of value-added sales), compared with $77 million (26.4% of value-added sales) in the prior-year period.

For the second quarter of 2014, SG&A expenses were $49 million, compared with expenses of $58 million in the prior-year quarter. Excluding special items in both periods, SG&A expenses declined 14% to $47 million from $54 million. Adjusted SG&A expenses for the second quarter of 2014 and 2013 exclude charges of $2 million and $3 million, respectively.

During the second quarter of both years, the Company incurred restructuring-related charges associated with its ongoing efforts to restructure operations and exit underperforming assets. The charge associated with continuing operations in the second quarter of 2014 was $2 million compared with $13 million in the same period last year.

Income from continuing operations for the quarter ended June 30, 2014, was $14 million, or $0.15 per diluted share, compared with a loss of $5 million, or $0.06 per diluted share, in the second quarter of 2013. Adjusted net income from continuing operations attributable to common shareholders was $17 million, or $0.19 per diluted share, compared with $10 million, or $0.11 per diluted share, in the prior-year quarter.

Adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) from continuing operations were $39 million in the second quarter of 2014, compared with $29 million in the same period last year. Adjusted EBITDA margins, as a percentage of value-added sales, were 13.8% in the second quarter of 2014 and 10.1% in the same period last year.

New Credit Facility

The Company is refinancing the borrowings under its current revolving credit facility due August 2015 and all $250 million aggregate principal amount of its outstanding 7.875% Senior Notes due August 2018 (“Notes”) with borrowings under a new senior secured credit facility. The new credit facility will be comprised of a seven-year $300 million term loan facility and a five-year $200 million revolving credit facility. Loans under the term loan facility will bear interest equal to LIBOR plus 3.25% (subject to a 0.75% LIBOR floor) and the loans under the revolver will initially bear interest at LIBOR plus 2.75%. The proceeds from the new credit facility will be used to repay all amounts outstanding under the current revolving credit facility and to repurchase all outstanding Notes, as well as for general corporate purposes, including to fund growth opportunities. The new credit facility is expected to be effective and funded on July 31, 2014.

Outlook

Based on the second quarter 2014 performance, the Company expects adjusted earnings from continuing operations for 2014 to be in the range of $0.52 to $0.57 per diluted share, up from prior guidance of $0.48 to $0.53.

Value-added sales for the second half of 2014 are expected to increase by approximately 2% versus 2013 levels, as adjusted for dispositions in the second half of 2013 that represented value-added sales of approximately $12 million. The Company is lowering its revenue outlook, as estimates of GDP growth in the regions where the Company is active have declined, on average, by approximately 1% since the beginning of the 2014, and sales in its Pigments, Powders and Oxides segment, adjusted for exited businesses, are now expected to be below 2013 levels.

The adjusted gross profit margin for the second half of 2014, expressed as a percent of value-added sales, is expected to be in the range of 27.0% to 27.5%, and SG&A expenses, excluding pension adjustments and other nonrecurring expense items, are expected to be $95 to $100 million.

The Company expects to use approximately $25 million in cash in 2014, excluding the $88 million net cash proceeds received from the sale of Specialty Plastics and the expected disposition of Polymer Additives. Uses of cash include continued funding of restructuring efforts and capital spending of approximately $65 million, including the investment in the Antwerp, Belgium, dibenzoates manufacturing project.

The Company also increased its 2015 earnings target. Adjusted earnings per share are now expected to exceed $0.90 per diluted share, up from prior guidance of greater than $0.80 per diluted share. The new guidance excludes the impact of potential acquisitions.

Conference Call

The Company will host a conference call to discuss its second-quarter financial results and current outlook for 2014 on Thursday, July 31, 2014, at 10:00 a.m. Eastern Time. To listen to the call, dial 800-354-6885 if calling from the United States or Canada, or dial 303-223-2685 if calling from outside North America. Please call approximately 10 minutes before the conference call is scheduled to begin.

An audio replay of the call will be available through noon Eastern Time on August 7th. To access the replay, dial 800-633-8284 if calling from the United States or Canada, or dial 402-977-9140 if calling from outside North America. Use the program ID #21728600 to access the audio replay.

The conference call also will be broadcast live over the Internet and will be available for replay through October 31, 2014. The live broadcast and replay can be accessed through the Investor Information portion of the Company’s Web site at www.ferro.com. A podcast of the conference call will also be available on the site.

About Ferro Corporation

Ferro Corporation (http://www.ferro.com) is a leading global supplier of technology-based performance materials, including glass-based coatings, pigments and colors, and polishing materials. Ferro products are sold into the building and construction, automotive, appliances, electronics, household furnishings, and industrial products markets. Headquartered in Mayfield Heights, Ohio, the Company has approximately 4,020 employees globally and reported 2013 sales of $1.6 billion.

Cautionary Note on Forward-Looking Statements

Certain statements in this press release may constitute "forward-looking statements" within the meaning of Federal securities laws. These statements are subject to a variety of uncertainties, unknown risks and other factors concerning Ferro's operations and business environment. Important factors that could cause actual results to differ materially from those suggested by these forward-looking statements and that could adversely affect Ferro's future financial performance include the following:

• Ferro’s ability to successfully complete the disposition of its Polymer Additives business;
• Demand in the industries into which Ferro sells its products may be unpredictable, cyclical, or heavily influenced by consumer spending;

• Ferro's ability to successfully implement its value creation strategy;
• Ferro’s ability to successfully implement and/or administer its cost-saving initiatives, including its restructuring programs and indirect spend optimization initiative, and to produce the desired results, including projected savings;

• Restrictive covenants in Ferro’s credit facilities could affect Ferro’s strategic initiatives and liquidity;

• The effectiveness of Ferro’s efforts to improve operating margins through sales growth, price increases, productivity gains, and improved purchasing techniques;

• The impact of interruption, damage to, failure, or compromise of Ferro’s information systems;

• The availability of reliable sources of energy and raw materials at a reasonable cost;
• Currency conversion rates and economic, social, regulatory, and political conditions around the world;

• Ferro’s presence in certain geographic regions, including Latin America and Asia-Pacific, where it can be difficult to compete lawfully;

• Increasingly aggressive domestic and foreign governmental regulations on hazardous materials and regulations affecting health, safety and the environment;

• Ferro’s ability to successfully introduce new products or enter into new growth markets;
• Ferro’s ability to complete future acquisitions or dispositions, or successfully integrate future acquisitions;

• Sale of products into highly regulated industries;

• Limited or no redundancy for certain of Ferro’s manufacturing facilities and possible interruption of operations at those facilities;

• Competitive factors, including intense price competition;

• Ferro’s ability to protect its intellectual property or to successfully resolve claims of infringement brought against Ferro;

• The impact of operating hazards and investments made in order to meet stringent environmental, health and safety regulations;

• Management of Ferro’s general and administrative expenses;
• Ferro’s multi-jurisdictional tax structure;

• The impact of Ferro’s performance on its ability to utilize significant deferred tax assets;
• The effectiveness of strategies to increase Ferro’s return on invested capital;
• Stringent labor and employment laws and relationships with Ferro’s employees;

• The impact of requirements to fund employee benefit costs, especially post-retirement costs;
• Implementation of new business processes and information systems;

• Exposure to lawsuits in the normal course of business;

• Risks and uncertainties associated with intangible assets;
• Ferro’s borrowing costs could be affected adversely by interest rate increases;

• Liens on Ferro’s assets by its lenders affect its ability to dispose of property and businesses;
• Ferro may not pay dividends on its common stock in the foreseeable future; and
• Other factors affecting Ferro’s business that are beyond its control, including disasters, accidents and governmental actions.

The risks and uncertainties identified above are not the only risks Ferro faces. Additional risks and uncertainties not presently known to Ferro or that it currently believes to be immaterial also may adversely affect Ferro. Should any known or unknown risks and uncertainties develop into actual events, these developments could have material adverse effects on Ferro’s business, financial condition and results of operations.

This release contains time-sensitive information that reflects management’s best analysis only as of the date of this release. Ferro does not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information, or circumstances that arise after the date of this release. Additional information regarding these risks can be found in Ferro’s Annual Report on Form 10-K for the year ended December 31, 2013.

It should be noted that adjusted earnings and earnings per share are financial measures not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). The adjusted earnings and earnings per share presented here exclude certain special items including, restructuring charges, certain severance costs, ongoing costs at facilities that have been idled, gain/loss on divestitures, proxy contest related costs and certain business development activities, certain costs related to divested assets and product lines, taxes and discontinued operations. We believe this data provides investors with additional information on the underlying operations of the business and enables period-to-period comparability of financial performance. In addition, these measures are used in the calculation of certain incentive compensation programs for selected employees.

It should be noted that adjusted earnings and earnings per share are financial measures not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). The adjusted earnings and earnings per share presented here exclude certain special items including, restructuring charges, severance costs, costs at facilities that have been idled, gain/loss on divestitures, proxy contest related costs, the overall financial impact of currency related items in South America, certain business development costs, taxes and discontinued operations. We believe this data provides investors with additional information on the underlying operations of the business and enables period-to-period comparability of financial performance. In addition, these measures are used in the calculation of certain incentive compensation programs for selected employees.

It should be noted that segment net sales excluding precious metals, adjusted cost of sales and adjusted gross profit are financial measures not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). The sales are presented here to exclude the impact of volatile precious metal raw material costs. The precious metal raw material costs are generally passed through directly to customers with minimal margin. Adjusted gross profit and adjusted cost of sales excludes special items, primarily comprised of costs at facilities that have been idled and certain costs related to divested businesses and product lines. We believe this data provides investors with additional useful information on the underlying operations of the business and enables period-to-period comparability of financial performance.

It should be noted that operating group sales, gross profit, selling, general and administrative charges, and operating profit are financial measures not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). The respective information has been aggregated in a manner consistent with the operating groups of the Company. We believe this data provides investors with additional information on the underlying operations of the business and enables period-to-period comparability of financial performance

It should be noted that operating group sales, gross profit, selling, general and administrative charges, and operating profit are financial measures not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). The respective information has been aggregated in a manner consistent with the operating groups of the Company. We believe this data provides investors with additional information on the underlying operations of the business and enables period-to-period comparability of financial performance.

It should be noted that adjusted EBITDA is a financial measure not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). Adjusted EBITDA is net income before the effects of discontinued operations, interest, income taxes, depreciation and amortization, non-recurring adjustments to cost of sales, non-recurring adjustments to SG&A, restructuring and impairment charges, non-recurring adjustments to miscellaneous income and expense, and the gain and impact of solar operations on Q1 2013. We believe this data provides investors with additional information on the underlying operations of the business and enables period-to-period comparability of financial performance. In addition, these measures are used in the calculation of certain incentive compensation programs for selected employees.