A. Schulman Reports Fiscal 2017 First Quarter Results

AKRON, Ohio, Jan. 9, 2017 /PRNewswire/ -- A. Schulman, Inc. (Nasdaq: SHLM) today announced earnings for the fiscal 2017 first quarter for the period ended November 30, 2016. On a GAAP basis, the Company reported earnings per diluted share of $0.04 compared with $0.18 in the prior period. Adjusted earnings per diluted share were $0.49 compared with $0.50 in the prior year period. 

Consolidated net sales for the fiscal first quarter were $600 million compared with $649.2 million for the prior year quarter. Excluding the negative impact of foreign currency translation of $9.3 million, net sales fell 6.2% when compared with the prior year quarter.

GAAP gross margin in the fiscal 2017 first quarter increased to 16.8% compared with 16.2% in the prior year period. Segment gross margin in the fiscal 2017 first quarter was improved slightly when compared with the prior year period at 16.9%.

Operating income margin was 3.2% compared with 4% in the prior year period. Adjusted operating income margin was 5.8% consistent with the prior year period.

On a GAAP basis, the Company reported fiscal first quarter net income of $1.1 million, compared with $5.2 million in the first quarter of fiscal 2016. On an adjusted basis, excluding certain items as noted in the reconciliation of GAAP and Non-GAAP financial measures, the Company generated net income of $14.4 million compared with $14.9 million in the prior-year period. Fiscal first quarter adjusted EBITDA was $54.6 million, compared with $58.4 million in the prior year period. 

"Clearly, a lot of hard work remains to be done as we restore the Company's operational and financial performance worldwide. While we were able to grow sales and gross margins in Asia-Pacific and in our Engineered Composites segment, we experienced continued weakness in the United States and Europe. Our recently implemented global actions to strengthen our sales organization and optimize our footprint are designed to address this weakness," said Joseph M. Gingo, chairman, president and chief executive officer. "As we move forward in fiscal 2017, we must continue to execute as we reset the business and rejuvenate our growth plan."

John W. Richardson, chief financial officer, stated, "We are well into the completion of our simplification efforts which facilitated the consolidation of our product families allowing for the reduction of layers of middle management. We believe this will generate our previously stated savings of approximately $5 million to $6 million in fiscal 2017 and 2018. In the meantime, we continue to keep an eye on cost controls as evidenced by an improvement in SG&A."

Balance Sheet/Cash Flow 
Cash provided from operations during the fiscal first quarter was $26.3 million, compared with $40 million in the prior period. Working capital days were lower at 53 days on a trailing 12-month basis, an improvement from 54 days in the prior year.

The cash flow was used to reduce net debt, which represents total debt less cash and cash equivalents and restricted cash, by $7 million in the fiscal first quarter, to $894 million, for a net leverage ratio of 3.97x. Additionally, the Company prepaid $56 million in term debt, plus another $3.4 million of normal required payments during the quarter. The pre-payments were facilitated by the Company borrowing on its revolving credit facility in Europe and transferring approximately $40 million in a tax efficient manner to the U.S. Since the purchase of Citadel in mid-2015, the Company has paid down approximately $180 million of total debt.

Business Outlook
The Company is maintaining its previously stated fiscal 2017 targets of $2.5 billion to $2.6 billion in sales, adjusted EBITDA of $225 million to $230 million, adjusted earnings per diluted share in the range of $2.08 to $2.18, and a return on invested capital of 11 percent to 12.5 percent. Refer to the reconciliation of GAAP and Non-GAAP financial measures for the types of items excluded from the Company's business outlook.

Gingo stated, "As we look forward to the remainder of the year, we expect continued challenges to our top-line growth. Further, if the dollar remains strong against world currencies, we will see additional pressure. However, I believe the near-term benefits of our simplified business structure – coupled with our enhanced global sales process and renewed product development initiative – creates an environment for us to withstand current headwinds and deliver solid results on a full-year basis."

Conference Call on the Web
A live Internet broadcast of A. Schulman's conference call regarding fiscal 2017 first-quarter earnings can be accessed at 10:00 a.m. Eastern Time on January 10, 2017, on the Company's website, www.aschulman.com. An archived replay of the call will also be available on the website.

Investor Presentation Materials
Senior executives may participate in meetings with analysts and investors throughout the fiscal year. The Company has posted presentation materials, portions of which may be used during such meetings, in the Investors section of its website at www.aschulman.com. The presentation will remain on the website as long as it is in use.

About A. Schulman, Inc.
A. Schulman, Inc. is a leading international supplier of high-performance plastic compounds and resins headquartered in Akron, Ohio. Since 1928, the Company has been providing innovative solutions to meet its customers' demanding requirements. The Company's customers span a wide range of markets such as packaging, mobility, building & construction, electronics & electrical, agriculture, personal care & hygiene, sports, leisure & home, custom services and others. The Company employs approximately 4,800 people and has 54 manufacturing facilities globally. A. Schulman reported net sales of approximately $2.5 billion for the fiscal year ended August 31, 2016. Additional information about A. Schulman can be found at www.aschulman.com.

Use of Non-GAAP Financial Measures
This release includes certain financial information determined by methods other than in accordance with accounting principles generally accepted in the United States ("GAAP"). These non-GAAP financial measures include segment gross profit, SG&A expenses excluding certain items, segment operating income, operating income before certain items, net income excluding certain items, net income per diluted share excluding certain items and adjusted EBITDA, as discussed further in the Reconciliation of GAAP and Non-GAAP Financial Measures below. These non-GAAP financial measures are considered relevant to aid analysis and understanding of the Company's results and business trends.

The Company uses segment gross profit, SG&A expenses excluding certain items, segment operating income, operating income before certain items, net income excluding certain items, net income per diluted share excluding certain items and adjusted EBITDA to assess performance and allocate resources because the Company believes that these measures are useful to investors and management in understanding current profitability levels that may serve as a basis for evaluating future performance and facilitating comparability of results. In addition, operating income before certain items, segment operating income before certain items and net income excluding certain items are important to management as all are a component of the Company's annual and long-term employee incentive plans. Non-GAAP measures are not in accordance with, nor are they a substitute for, GAAP measures, and tables included in this release reconcile each non-GAAP financial measure with the most directly comparable GAAP financial measure. The most directly comparable GAAP financial measures for these purposes are gross profit, SG&A expenses, operating income, net income and net income per diluted share. The Company's non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures, and should be read only in conjunction with the Company's consolidated financial statements prepared in accordance with GAAP.

While the Company believes that these non-GAAP financial measures provide useful supplemental information to investors, there are very significant limitations associated with their use. These non-GAAP financial measures are not prepared in accordance with GAAP, may not be reported by all of the Company's competitors and may not be directly comparable to similarly titled measures of the Company's competitors due to potential differences in the exact method of calculation. The Company compensates for these limitations by using these non-GAAP financial measures as supplements to GAAP financial measures and by reviewing the reconciliations of the non-GAAP financial measures to their most comparable GAAP financial measures.

Cautionary Statements

A number of the matters discussed in this document that are not historical or current facts deal with potential future circumstances and developments and may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they do not relate strictly to historic or current facts and relate to future events and expectations. Forward-looking statements contain such words as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. Forward-looking statements are based on management's current expectations and include known and unknown risks, uncertainties and other factors, many of which management is unable to predict or control, that may cause actual results, performance or achievements to differ materially from those expressed or implied in the forward-looking statements. Important factors that could cause actual results to differ materially from those suggested by these forward-looking statements, and that could adversely affect the Company's future financial performance, include, but are not limited to, the following:

• worldwide and regional economic, business and political conditions, including continuing economic uncertainties in some or all of the Company's major product markets or countries where the Company has operations;
• the effectiveness of the Company's efforts to improve operating margins through sales growth, price increases, productivity gains, and improved purchasing techniques;
• competitive factors, including intense price competition;
• fluctuations in the value of currencies in areas where the Company operates;
• volatility of prices and availability of the supply of energy and raw materials that are critical to the manufacture of the Company's products, particularly plastic resins derived from oil and natural gas;
• changes in customer demand and requirements;
• effectiveness of the Company to achieve the level of cost savings, productivity improvements, growth and other benefits anticipated from acquisitions and the integration thereof, joint ventures and restructuring initiatives;
• escalation in the cost of providing employee health care;
• uncertainties regarding the resolution of pending and future litigation and other claims;
• the performance of the global automotive market as well as other markets served;
• further adverse changes in economic or industry conditions, including global supply and demand conditions and prices for products;
• operating problems with our information systems as a result of system security failures such as viruses, cyber-attacks or other causes;
• our current debt position could adversely affect our financial health and prevent us from fulfilling our financial obligations; and
• failure of counterparties to perform under the terms and conditions of contractual arrangements, including suppliers, customers, buyers and sellers of a business and other third parties with which the Company contracts.  

The risks and uncertainties identified above are not the only risks the Company faces. Additional risk factors that could affect the Company's performance are set forth in the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2016. In addition, risks and uncertainties not presently known to the Company or that it believes to be immaterial also may adversely affect the Company. Should any known or unknown risks or uncertainties develop into actual events, or underlying assumptions prove inaccurate, these developments could have material adverse effects on the Company's business, financial condition and results of operations.

SHLM_ALL

1 - Accelerated depreciation is related to restructuring plans in the Company's USCAN and EMEA segments.

2 - Costs related to acquisitions and integrations primarily include third party professional, legal, IT and other expenses associated with successful and unsuccessful full or partial acquisition and divestiture/dissolution transactions, as well as certain employee-related expenses such as travel, one-time bonuses and post-acquisition severance separate from a formal restructuring plan.

3 - Restructuring and related costs include items such as employee severance charges, lease termination charges, curtailment gains/losses, other employee termination costs and charges related to the reorganization of the legal entity structure. Refer to Note 12 in the Company's Quarterly Report on Form 10-Q for the three months ended November 30, 2016 for further discussion.

4 - Lucent costs primarily represent legal and investigation costs related to resolving the Lucent matter, product manufacturing costs for reworking existing Lucent inventory, obsolete Lucent inventory reserve costs, and dedicated internal personnel costs that would have otherwise been focused on normal operations.

5 - CEO transition costs represent charges for deferred compensation granted to Bernard Rzepka.

6 - Write off of debt issuance costs are related to prepayments of $56.0 million of Term Loan B. Refer to Note 3 in the Company's Quarterly Report on Form 10-Q for further discussion.

7 - Tax (benefits) charges represent the Company's quarterly non-GAAP tax based on the overall estimated annual non-GAAP effective tax rates.

8 - Asset impairment relates to the discontinuation of information technology assets in the USCAN segment.

(1) - Other includes Foreign currency transaction (gains) losses and Other (income) expense, net.

(2) - For details on Non-GAAP adjustments, refer to "Reconciliation of GAAP and Non-GAAP Financial Measures", items (2) - (8).  Amounts are included in Operating Income. Accelerated depreciation on the "Reconciliation of GAAP and Non-GAAP Financial Measures" has been excluded as it is already included in Depreciation and amortization above.

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SOURCE A. Schulman, Inc.