Schulman Inc. (SHLM, Financial) recently revealed its second-quarter results for fiscal 2015. The plastic compounds and resins supplier reported net GAAP loss of $0.9 million for the quarter, translating to a loss of $0.03 per share. This compares to the year-ago quarter’s net profit of $6.9 million or gain of $0.23 a share. On a non-GAAP basis that excludes one-time items and restructuring charges, Schulman logged adjusted earnings of $0.39 a share, falling slightly short of the consensus estimate of $0.40 a share. Following the results, Schulman shares remained relatively flat during the day’s trading but fell 2.93% in after-hours trading to $46.98.
Revenues fall, but gross margins see robust growth
Schulman’s revenues for the second quarter of fiscal 2015 stood at $542.3 million, down from the year-ago quarter’s $588.5 million and falling well short of the consensus estimate of $579.4 million. However, the company managed to post solid expansion in gross margins within its legacy businesses from 12.8% in the year-ago quarter to 14.5% despite foreign currency headwinds that clipped $59.7 million off the company’s total revenues for the quarter. The company attributed the positive trend to the success of its organic growth strategies, enduring activities towards cost reduction and restructuring. Schulman’s revenue also benefited from incremental sales of $36.7 million from its recent well-integrated acquisitions.
Regionwise, Schulman saw its revenues from Canada and the U.S. growing 22.8% year-over-year to $133.4 million during Q2 2015. The results benefited from the acquisition of Ferro Specialty Plastics and Prime Colorants that contributed nearly $24.6 million in net sales. Gross profit from the region grew from $13.3 million from the year-ago quarter to $19.7 million. Schulman’s net revenues from the EMEA stood at $315.1 million, down from the year-ago quarter’s $380.0 million as sales dropped 4.2% on the back of declining prices of raw materials and reduced sales prices. The results were also affected by negative foreign currency headwinds. Gross profits however grew 7.5% on the back of better inventory management and product mix as well as the incremental contribution of around $9.7 million from the acquisition of Ferro Specialty Plastics.
Latin America contributed $41.1 million to Schulman’s net revenues, down by $7.3 million compared to the year-ago quarter. Gross profit also dipped by $0.8 million year-over-year to $7.1 million for the quarter. Finally, net sales in the Asia Pacific region amounted to $52.6 million, up from the prior-year quarter’s $48.4 million. While the acquisition of Compco contributed $2.4 million in incremental sales, the gain was offset by negative foreign currency headwinds of $2 million during the quarter. Gross profit from the region stood at $7.4 million, up by $0.9 million year-over-year.
Schulman, which competes with businesses such as BASF (BASFY, Financial), The Dow Chemical Company (DOW, Financial) and E I du Pont de Nemours and Company (DD, Financial) in the diversified chemicals sector, also declared a quarterly cash dividend of $0.41 a share amounting to a total pay-out of $12.0 million.
Outlook for fiscal 2015
Schulman had recorded adjusted earnings of $2.36 per diluted share in FY2014. Although the company expects to better the earnings for fiscal 2015, enduring foreign currency headwinds have resulted in Schulman revising its guidance for FY2015 from the earlier $2.60-$2.65 per diluted share to $2.50-$2.55 per diluted share. While the new guidance still represents a 6%-8% growth from the previous fiscal, it does not take into account the incremental contributions from Schulman’s pending acquisition of Citadel. Consensus estimates peg the company’s EPS for fiscal 2015 at $2.48-$2.50 a share.
Final thoughts
Although Schulman’s revenues and earnings for the second quarter of FY2015 failed to meet market expectations, the company logged strong growth in gross margins despite foreign currency headwinds. The trend, which indicates the success of Schulman’s cost reduction and restructuring strategies, along with the company’s consistent dividend payout history will placate investors who without doubt would be disappointed with Schulman’s lowered guidance for fiscal 2015. Although an estimate for long-term earnings growth for Schulman is not available, experts foresee the company’s annual earnings growth rate peaking in fiscal 2016 at around 28%. The Schulman stock currently carries a "buy" guidance.
