Brush Engineered Materials Inc. Reports Stronger Than Expected Third Quarter Results

Brush Engineered Materials Inc. (NYSE:BW) today reported stronger than expected results for the third quarter of 2010 and raised its outlook for the full year.

The Company reported net income for the third quarter of $13.4 million, or $0.65 per share, diluted, on sales of $325.3 million. Sales for the third quarter were the second highest in the Company’s history, slightly below the Company’s second quarter 2010 record sales of $325.9 million.

Due to the continued broad-based strength in order entry, improved margins and better than expected economic conditions, the Company is raising its earnings per share outlook for the full year to a range of $2.00 to $2.10 per share from the previously announced range of $1.75 to $2.00 per share.

THIRD QUARTER 2010 RESULTS

Sales for the third quarter of 2010 were up 71%, or $134.8 million, to $325.3 million. This compares to sales of $190.5 million in the third quarter of 2009. The improvement in sales is primarily due to increased demand across many of the Company’s key markets, including consumer electronics, telecom infrastructure, energy, defense, commercial aerospace, and automotive electronics. The two most recent acquisitions, Barr Associates, Inc. in the fourth quarter of 2009 and Academy Corporation in the first quarter of 2010, accounted for approximately $55.1 million of the increase in sales for the third quarter and higher metal prices accounted for approximately $28.9 million of the increase. Organic sales growth was 27%, or approximately $50.8 million.

The reported net income of $13.4 million, or $0.65 per share, diluted, for the third quarter compares to $0.1 million, or $0.01 per share, diluted, for the third quarter of 2009. The increased sales volume, along with the benefit of the cost reductions that were implemented during 2009, improved pricing and a better product mix led to improved margins and the increase in earnings.

For the first nine months of 2010, sales were up approximately 89%, or $446.3 million, to $946.3 million from sales of $500.0 million for the first nine months of 2009. For the first nine months of 2010, net income was $33.8 million, or $1.65 per share, diluted, versus a net loss of $8.8 million, or $0.44 per share, diluted, for the same period last year.

BUSINESS SEGMENT REPORTING

Advanced Material Technologies and Services

The Advanced Material Technologies and Services' segment sales for the third quarter of 2010 were $214.8 million, up 68%, or $86.9 million, compared to sales of $127.9 million in the third quarter of 2009. Sales for the first nine months of 2010 were $631.7 million, up 97%, or $311.4 million, versus sales of $320.3 million for the same period of last year.

As previously noted, the acquisitions of Academy and Barr accounted for approximately $55.1 million of the growth in the segment’s sales for the third quarter and increased metal prices accounted for $26.0 million. Strong demand for the wireless handset, LED, other microelectronic product applications and thin film optics contributed to the strong sales for both the third quarter and first nine months of the year, offsetting weaker sales for the medical market applications.

Operating profit for the third quarter of 2010 was $9.0 million compared to an operating profit of $8.5 million for the third quarter of 2009. Operating profit for the first nine months of 2010 was $26.7 million, up approximately 51%, or $9.1 million, compared to $17.6 million for the first nine months of last year.

While operating profit has increased, the reported operating profit as a percent of sales for both the third quarter and the first nine months of 2010 are lower when compared to the comparable periods of 2009, due primarily to a significantly higher precious metal value in sales. The higher precious metal value in sales is driven by both the recent acquisition of Academy and the aforementioned higher precious metal prices. These factors have the effect of lowering the reported profit percent while not lowering profit dollars.

Margins and profits were negatively affected in the third quarter of 2010 by an unfavorable product mix, as sales to the segment’s higher margin medical applications were below the levels of the prior period, lowering margins by approximately $1.7 million. It is anticipated, at this time, that sales to this segment’s medical applications will begin to improve in the latter part of the fourth quarter of 2010 or early in the first quarter of 2011 as product qualifications with existing and new customers are nearing completion.

Specialty Engineered Alloys

Specialty Engineered Alloys' sales for the third quarter were $75.7 million, up $32.8 million, or 76%, compared to the third quarter 2009 sales of $42.9 million. Sales for the first nine months of 2010 were $216.9 million, up 79%, or $95.8 million, compared to $121.1 million for the first nine months of the prior year.

The significant increase in sales in the third quarter of 2010 compared to the same period of 2009 is due to strong demand from the consumer electronics, telecom infrastructure and automotive electronics markets. Demand levels were better than expected in the third quarter in these markets and improved conditions were also noted in industrial products including oil and gas, commercial aerospace and plastic tooling. The stronger conditions have continued into the fourth quarter. The growth in demand for the Company’s ToughMet materials for applications in oil and gas and commercial aerospace has doubled in volume for the first nine months of 2010.

Operating profit for the third quarter was $8.7 million, up $15.0 million, from an operating loss of $6.3 million for the third quarter of 2009. The operating profit for the first nine months of 2010 was $20.5 million, up $47.0 million, compared to an operating loss of $26.5 million for the same period of last year. The significant improvement is broad based and is due to a combination of factors, including the leverage from the higher volumes, a favorable product mix, improved pricing, lower manufacturing costs resulting from the previously implemented cost reduction initiatives and improved plant operating efficiencies.

Beryllium and Beryllium Composites

Beryllium and Beryllium Composites' sales for the third quarter of 2010 were $17.0 million, up approximately 67%, compared to $10.2 million for the third quarter of 2009. For the first nine months of 2010, sales were $45.8 million, up $9.5 million, or 26%, compared to $36.3 million for the same period of last year. The strength in the third quarter and first nine months compared to the same periods in the prior year is due to higher demand from defense and commercial applications, including medical and analytical x-ray product applications.

Operating profit for the third quarter of 2010 was $4.2 million versus an operating loss of $0.5 million for the third quarter of 2009. Operating profit for the first nine months of 2010 was $8.4 million compared to $2.4 million for the same period last year. The improvement in operating profit for the third quarter and first nine months of 2010 is due primarily to the higher sales volume.

Engineered Material Systems

Engineered Material Systems' sales for the third quarter of 2010 were $17.7 million, up approximately 86%, or $8.2 million, compared to $9.5 million for the same period of last year. Sales for the first nine months of 2010 were $51.6 million, up approximately 130%, or $29.2 million, compared to the first nine months of 2009 sales of $22.4 million. The significant increase in sales is due to stronger demand from the global automotive electronics and consumer electronics markets.

Operating profit for the third quarter of 2010 was $1.7 million compared to an operating profit of $0.1 million for the same period of last year. The operating profit for the first nine months of 2010 was $4.8 million, up $8.2 million compared to an operating loss of $3.4 million for the same period last year. The operating profit improvement is due to the higher sales volume, new products and previously implemented cost reduction initiatives.

OUTLOOK

The overall level of business activity has improved significantly as 2010 has developed and remains strong. The Company is well positioned in its markets with an array of advanced materials that enable it to take advantage of the faster growing segments of its markets. Order entry has been strong, driven up earlier in the year by the consumer electronics and automotive electronics oriented markets, and later in the year by the defense, industrial and commercial aerospace, telecom infrastructure and oil and gas markets.

The Company expects results for the fourth quarter of 2010 to reflect the usual fewer production and shipping days as well as potentially lower shipments to consumer electronics applications due to seasonal factors. In addition, as previously announced, costs associated with the start up of the Company’s new beryllium plant and the costs of other important key company initiatives are expected to lower fourth quarter 2010 results sequentially from those of the third quarter.

At this time, considering the above factors and assuming current metal prices, the Company expects sales for the full year 2010 to be in the range of $1.24 billion to $1.26 billion. The Company is raising its earnings outlook for the full year 2010 to a range of $2.00 to $2.10 per share from the previously announced range of $1.75 to $2.00 per share.

While the Company is not prepared to provide a specific forecast for the year 2011 at this time, the economic outlook for 2011 continues to look encouraging. The markets and applications for the Company’s materials appear promising. While the Company believes that a portion of the strong growth in 2010 was partially driven by inventory builds, assuming continued global economic recovery, the Company, at this time, expects single digit sales growth in 2011 driven primarily by increasing demand for the Company’s materials from applications in the telecom infrastructure, commercial aerospace, oil and gas, optics and medical markets, offsetting potential inventory adjustments in consumer electronics.

It is important to continue to reiterate that the Company’s outlook is subject to significant variability, especially given the uncertainty about the sustainability and quality of the economic recovery. Seasonal factors, changes in demand levels, metal price changes, metal supply conditions, new product qualification and ramp-up rates, swings in customer inventory levels, changes in the financial health of key customers, acquisition-related integration costs and other factors can have a significant effect on actual results. The outlook provided above is based on the Company’s best estimates at this time and is subject to significant fluctuations due to these as well as other factors.

CHAIRMAN’S COMMENTS

Richard J. Hipple, Chairman, President and CEO, stated, “I am pleased with our continued growth and the stronger than anticipated third quarter results. Our positions in the faster growing segments of our markets along with new product development and applications, market diversification and cost discipline have significantly reduced the Company’s cyclicality and have provided the Company with stronger sustainable long-term growth opportunities. Although I continue to remain cautious about the global economic recovery, I am encouraged by our sales strength, margin improvements and solid order book.”

CONFERENCE CALL

Brush Engineered Materials will conduct a teleconference in conjunction with today's release. The teleconference begins at 11:00 a.m. Eastern Time, October 28, 2010. The conference call will be available via webcast through the Company’s website at www.beminc.com or through www.InvestorCalendar.com . By phone, please dial (877) 407-9210, callers outside the U.S. can dial (201) 689-8049.

FORWARD-LOOKING STATEMENTS

Portions of the narrative set forth in this document that are not statements of historical or current facts are forward-looking statements, in particular the outlook provided above. Our actual future performance may materially differ from that contemplated by the forward-looking statements as a result of a variety of factors. These factors include, in addition to those mentioned elsewhere herein:
  • The global economy;
  • The condition of the markets which we serve, whether defined geographically or by segment, with the major market segments being: consumer electronics, defense and science, industrial and commercial aerospace, automotive electronics, telecom infrastructure, appliance, medical, energy and services.
  • Changes in product mix and the financial condition of customers;
  • Actual sales, operating rates and margins for 2010 and 2011;
  • Our success in developing and introducing new products and new product ramp-up rates;
  • Our success in passing through the costs of raw materials to customers or otherwise mitigating fluctuating prices for those materials, including the impact of fluctuating prices on inventory values;
  • Our success in integrating newly acquired businesses, including the acquisitions of Barr Associates, Inc. and Academy Corporation;
  • The impact of the results of Barr Associates, Inc. and Academy Corporation on our ability to achieve fully the strategic and financial objectives related to these acquisitions, including the acquisitions being accretive to earnings in 2010;
  • Our success in implementing our strategic plans and the timely and successful completion and start-up of any capital projects, including the new primary beryllium facility being constructed in Elmore, Ohio;
  • The availability of adequate lines of credit and the associated interest rates;
  • Other financial factors, including cost and availability of raw materials (both base and precious metals), metal financing fees, tax rates, exchange rates, pension costs and required cash contributions and other employee benefit costs, energy costs, regulatory compliance costs, the cost and availability of insurance, and the impact of the Company’s stock price on the cost of incentive compensation plans;
  • The uncertainties related to the impact of war and terrorist activities;
  • Changes in government regulatory requirements and the enactment of new legislation that impacts our obligations and operations;
  • The conclusion of pending litigation matters in accordance with our expectation that there will be no material adverse effects;
  • The amount and timing of repurchases of the Company’s Common Stock, if any; and
  • The risk factors set forth in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2009.

Brush Engineered Materials Inc. is headquartered in Mayfield Heights, Ohio. The Company, through its wholly-owned subsidiaries, supplies highly engineered advanced enabling materials to global markets. Products include precious and non-precious specialty metals, inorganic chemicals and powders, specialty coatings, specialty engineered beryllium alloys, beryllium and beryllium composites, and engineered clad and plated metal systems.
Brush Engineered Materials Inc.
             
Digest of Earnings
 
October 1, 2010
 
 
2010 2009
 
Third Quarter
 
Net Sales $ 325,309,000 $ 190,538,000
 
Net Income $ 13,358,000 $ 126,000
 
Share Earnings - Basic $ 0.66 $ 0.01
 
Average Shares - Basic 20,273,000 20,215,000
 
Share Earnings - Diluted $ 0.65 $ 0.01
 
Average Shares - Diluted 20,553,000 20,421,000
 
 
Year-to-date
 
Net Sales $ 946,337,000 $ 500,032,000
 
Net Income (Loss) $ 33,798,000 ($8,804,000 )
 
Share Earnings - Basic $ 1.67 ($0.44 )
 
Average Shares - Basic 20,284,000 20,178,000
 
Share Earnings - Diluted $ 1.65 ($0.44 )
 
Average Shares - Diluted 20,540,000 20,178,000
 
Consolidated Balance Sheets
(Unaudited)
   
Oct. 1, Dec. 31,
(Dollars in thousands) 2010 2009
Assets
Current assets
Cash and cash equivalents $ 15,424 $ 12,253
Accounts receivable 133,552 83,997
Other receivables 834 11,056
Inventories 152,292 130,098
Prepaid expenses 31,777 28,020
Deferred income taxes   7,526     14,752  
Total current assets 341,405 280,176
 
Related-party notes receivable 90 90
Long-term deferred income taxes 2,403 4,873
Property, plant and equipment - cost 727,727 665,361

Less allowances for depreciation, depletion and amortization
  (457,561 )   (437,595 )
Property, plant and equipment - net 270,166 227,766
 
Other assets 40,606 42,014
Goodwill   70,479     67,034  
Total assets $ 725,149   $ 621,953  
 
 
Liabilities and Shareholders' Equity
Current liabilities
Short-term debt $ 39,816 $ 56,148
Accounts payable 37,435 36,573
Other liabilities and accrued items 55,912 44,082
Unearned revenue 840 432
Income taxes   3,362     2,459  
Total current liabilities 137,365 139,694
 
Other long-term liabilities 18,796 9,579
Retirement and post-employment benefits 73,294 82,354
Unearned income 57,538 39,697
Long-term income taxes 2,329 2,329
Deferred income taxes 2,064 136
Long-term debt 58,305 8,305
 
Shareholders' equity   375,458     339,859  
Total liabilities and shareholders' equity $ 725,149   $ 621,953  
 

See notes to consolidated financial statements.
Consolidated Statements of Income and Loss
(Unaudited)
       

Third Quarter Ended

Nine Months Ended
Oct. 1, Oct. 2, Oct. 1, Oct. 2,
(Thousands, except per share amounts) 2010   2009 2010   2009
 
Net sales $ 325,309 $ 190,538 $ 946,337 $ 500,032
Cost of sales   267,095   165,347     782,956   438,104  
Gross margin 58,214 25,191 163,381 61,928
Selling, general and administrative expense 31,621 21,468 92,571 64,707
Research and development expense 1,742 1,720 5,226 4,940
Other-net   3,928   2,554     10,958   5,784  
Operating profit (loss) 20,923 (551 ) 54,626 (13,503 )
Interest expense - net   835   221     2,145   819  
Income (loss) before income taxes 20,088 (772 ) 52,481 (14,322 )
 
Income tax expense (benefit)   6,730   (898 )   18,683   (5,518 )
 
Net income (loss) $ 13,358 $ 126   $ 33,798 $ (8,804 )
 
Net income (loss) per share of common stock - basic $ 0.66 $ 0.01 $ 1.67 $ (0.44 )
 

Weighted-average number of common shares outstanding - basic
20,273 20,215 20,284 20,178
 
 
Net income (loss) per share of common stock - diluted $ 0.65 $ 0.01 $ 1.65 $ (0.44 )
 

Weighted-average number of common shares outstanding - diluted
20,553 20,421 20,540 20,178
 

See notes to consolidated financial statements.
Consolidated Statements of Cash Flows
(Unaudited)
  Nine Months Ended
Oct. 1,   Oct. 2,
(Dollars in thousands) 2010 2009
 
Net income (loss) $ 33,798 $ (8,804 )

Adjustments to reconcile net income (loss) to net cash provided from operating activities:
Depreciation, depletion and amortization 25,778 21,635
Amortization of mine costs - 2,620
Amortization of deferred financing costs in interest expense 419 313
Derivative financial instrument ineffectiveness 598 -
Stock-based compensation expense 3,034 2,555

Changes in assets and liabilities net of acquired assets and liabilities:
Decrease (increase) in accounts receivable (44,621 ) 9,115
Decrease (increase) in other receivables 10,222 1,072
Decrease (increase) in inventory (20,971 ) 27,410
Decrease (increase) in prepaid and other current assets (3,791 ) 2,048
Decrease (increase) in deferred income taxes 11,827 (4,798 )
Increase (decrease) in accounts payable and accrued expenses 7,954 (16,462 )
Increase (decrease) in unearned revenue 406 19
Increase (decrease) in interest and taxes payable 751 (637 )
Increase (decrease) in long-term liabilities (8,991 ) (17,450 )
Other - net   (1,591 )   2,528  
Net cash provided from operating activities 14,822 21,164
 
Cash flows from investing activities:
Payments for purchase of property, plant and equipment (33,813 ) (26,694 )
Payments for mine development (11,066 ) (460 )
Reimbursements for capital equipment under government contracts 17,840 15,440
Payments for purchase of business net of cash received (20,605 ) -
Proceeds from transfer of acquired inventory to consignment line 5,667 -
Proceeds from sale of property, plant and equipment 83 -
Other investments - net   14     1,321  
Net cash used in investing activities (41,880 ) (10,393 )
 
Cash flows from financing activities:
Proceeds from issuance (repayment) of short-term debt (16,457 ) (2,337 )
Proceeds from issuance of long-term debt 80,000 7,700
Repayment of long-term debt (30,000 ) (8,000 )
Principal payments under capital lease obligations (566 ) (127 )
Repurchase of common stock (3,527 ) -
Issuance of common stock under stock option plans 876 444
Tax benefit from exercise of stock options   173     47  
Net cash provided from (used in) financing activities 30,499 (2,273 )
Effects of exchange rate changes   (270 )   (135 )
Net change in cash and cash equivalents 3,171 8,363
Cash and cash equivalents at beginning of period   12,253     18,546  
Cash and cash equivalents at end of period $ 15,424   $ 26,909  
 

See notes to consolidated financial statements.
Notes to Consolidated Financial Statements
(Unaudited)
   
 
Note A - Accounting Policies
 

In management's opinion, the accompanying consolidated financial statements contain all adjustments necessary to present fairly the financial position as of October 1, 2010 and December 31, 2009 and the results of operations for the third quarter and nine months ended October 1, 2010 and October 2, 2009. All adjustments were of a normal and recurring nature. Certain amounts in prior years have been reclassified to conform to the 2010 consolidated financial statement presentation.
 
Note B - Inventories    
          Oct. 1, Dec. 31,
(Dollars in thousands) 2010 2009
 
Principally average cost:
Raw materials and supplies $ 43,618 $ 38,740
Work in process 132,963 119,698
Finished goods   50,288   38,950
Gross inventories 226,869 197,388
 
Excess of average cost over LIFO inventory value   74,577   67,290
Net inventories $ 152,292 $ 130,098
 
Notes to Consolidated Financial Statements
(Unaudited)
 
 
Note C - Pensions and Other Post-retirement Benefits
 

The following is a summary of the third quarter and first nine months 2010 and 2009 net periodic benefit cost for the domestic defined benefit pension plan and the domestic retiree medical plan.
 
      Pension Benefits   Other Benefits
Third Quarter Ended Third Quarter Ended
Oct. 1,   Oct. 2, Oct. 1,   Oct. 2,
(Dollars in thousands) 2010 2009 2010 2009
 
Components of net periodic benefit cost
 
Service cost $ 1,244 $ 1,067 $ 68 $ 72
Interest cost 2,156 2,164 434 482
Expected return on plan assets (2,536 ) (2,445 ) - -
Amortization of prior service cost (132 ) (135 ) (9 ) (9 )
Amortization of net loss   711     375     -     -  
Net periodic benefit cost $ 1,443   $ 1,026   $ 493   $ 545  
 
 
 
Pension Benefits Other Benefits
Nine Months Ended Nine Months Ended
Oct. 1, Oct. 2, Oct. 1, Oct. 2,
(Dollars in thousands) 2010 2009 2010 2009
 
Components of net periodic benefit cost
 
Service cost $ 3,732 $ 3,249 $ 205 $ 217
Interest cost 6,468 6,321 1,303 1,446
Expected return on plan assets (7,608 ) (7,061 ) - -
Amortization of prior service cost (398 ) (414 ) (27 ) (27 )
Amortization of net loss 2,133 1,184 - -
Curtailment gain   -     (1,069 )   -     -  
Net periodic benefit cost $ 4,327   $ 2,210   $ 1,481   $ 1,636  
 

As a result of a significant reduction in force, management determined that there was a curtailment of the domestic defined benefit pension plan in the first quarter 2009. In accordance with accounting guidelines, the plan assets and liabilities were remeasured as of the curtailment date of February 28, 2009. As part of the remeasurement, management reviewed all of the key valuation assumptions and increased the discount rate from 6.15% to 6.80%.
 

The curtailment reduced the annual expense for 2009 on the domestic plan from a previously estimated $5.3 million to $4.3 million. In addition, the curtailment resulted in the recording of a $1.1 million one-time benefit in the first quarter 2009 as a result of applying the percentage reduction in the estimated future working lifetime of the plan participants against the unrecognized prior service cost benefit. Cost of sales was reduced by $0.8 million and selling, general and administrative expense was reduced by $0.3 million from the recording of the one-time benefit.
 

The Company made contributions to the domestic defined benefit pension plan of $11.7 million in the first nine months of 2010.
 
Notes to Consolidated Financial Statements
(Unaudited)              
 
 
Note D - Segment Reporting
 
Advanced
Material Specialty Beryllium Engineered
Technologies Engineered and Beryllium Material All
(Dollars in thousands) and Services Alloys Composites Systems Subtotal Other Total
Third Quarter 2010
Sales to external customers $ 214,825 $ 75,680 $ 17,010 $ 17,748 $ 325,263 $ 46 $ 325,309
 
Intersegment sales 1,171 319 54 911 2,455 - 2,455
 
Operating profit (loss) 8,961 8,671 4,153 1,738 23,523 (2,600 ) 20,923
 
 
Third Quarter 2009
Sales to external customers $ 127,912 $ 42,931 $ 10,171 $ 9,524 $ 190,538 $ - $ 190,538
 
Intersegment sales 155 2,621 63 409 3,248 - 3,248
 
Operating profit (loss) 8,534 (6,308 ) (472 ) 95 1,849 (2,400 ) (551 )
 
 
First Nine Months 2010
Sales to external customers $ 631,732 $ 216,920 $ 45,843 $ 51,623 $ 946,118 $ 219 $ 946,337
 
Intersegment sales 2,032 7,003 231 2,222 11,488 - 11,488
 
Operating profit (loss) 26,672 20,509 8,384 4,812 60,377 (5,751 ) 54,626
 
Assets 322,208 221,464 121,253 25,443 690,368 34,781 725,149
 
 
First Nine Months 2009
Sales to external customers $ 320,256 $ 121,063 $ 36,285 $ 22,428 $ 500,032 $ - $ 500,032
 
Intersegment sales 330 3,896 141 952 5,319 - 5,319
 
Operating profit (loss) 17,629 (26,501 ) 2,387 (3,355 ) (9,840 ) (3,663 ) (13,503 )
 
Assets 213,961 202,367 66,447 19,892 502,667 62,708 565,375

Copyright Business Wire 2010

More from Press Releases

NFL Pushes for Regulation Following Supreme Court's Sports Gambling Ruling

NFL Pushes for Regulation Following Supreme Court's Sports Gambling Ruling

21st Century Fox Scoops Up Local News Stations

21st Century Fox Scoops Up Local News Stations

Walmart CEO: 'We Are Transforming Globally' With Flipkart

Walmart CEO: 'We Are Transforming Globally' With Flipkart

Three-Part FREE Webinar Series

Three-Part FREE Webinar Series

March 24 Full-Day Course Offering: Professional Approach to Trading SPX

March 24 Full-Day Course Offering: Professional Approach to Trading SPX