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Ferro Corp. Reports Operating Results (10-Q)

October 26, 2009 | About:

10qk

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Ferro Corp. (FOE) filed Quarterly Report for the period ended 2009-09-30.

FERRO CORP. is a worldwide producer of specialty materials for industry by organic and inorganic chemistry. It operates in 21 countries worldwide. Ferro produces a variety of specialty coatings colors ceramics plastics chemicals and related products and services. Ferro's most important product is frit produced for use in porcelain enamels and ceramic glazes. Ferro specialty materials require a high degree of technical service on an individual customer basis. Ferro Corp. has a market cap of $305.2 million; its shares were traded at around $6.79 with and P/S ratio of 0.1. Ferro Corp. had an annual average earning growth of 9.8% over the past 5 years.

Highlight of Business Operations:

Selling, general and administrative (SG&A) expense declined by $11.0 million in the quarter ended September 30, 2009, compared with the prior-year period. SG&A expense was 14.9 percent of sales in the quarter compared with 13.0 percent during the 2008 third quarter due to lower sales. SG&A expense declined as a result of expense reduction efforts we made in response to weak customer demand. The expense reductions included reduced staffing, lower incentive compensation expense and reduced discretionary spending. These actions contributed to a reduction of approximately $7.5 million in salary and wage expense and a $2.4 million reduction in travel and entertainment expense compared with the prior-year period. Partially offsetting these declines was an increase of approximately $5.0 million in pension expense. SG&A expense during the quarter included charges of approximately $2.7 million primarily related to expense reduction initiatives. The 2008 third-quarter SG&A expense included charges of approximately $1.9 million primarily related to corporate development activities, partially offset by a favorable insurance settlement.

Performance Coatings Segment Results. Sales declined in Performance Coatings primarily as a result of lower volumes of tile coatings, partially offset by modestly higher sales volume of porcelain enamel products. The decline in net volume was responsible for approximately $20 million of the reduction in sales, while changes in product prices and mix reduced sales by approximately $6.6 million and changes in foreign currency exchange rates contributed approximately $6.1 million to the sales decline. The sales decline was the largest in Europe, our largest market for these products, and sales also declined in the United States. Operating income increased due to a reduction in SG&A expense of $4.0 million, which more than offset a decline in gross profit of $1.6 million. The decline in SG&A expense was due to staffing reductions and expense control initiatives. The decline in gross profit was due to the negative effects of lower sales volume of tile products partially offset by increased gross profit from porcelain enamel products and lower manufacturing costs.

Electronic Materials Segment Results. Sales declined in Electronic Materials as a result of lower sales volume, primarily related to reduced demand for dielectric materials that are used by our customers to make capacitors. Sales of conductive metal pastes and powders and surface finishing products also declined compared with the prior-year period. A decline in sales of precious metals contributed approximately $18.8 million, or slightly less than half of the overall sales reduction, reflecting both price and volume changes. Our sales of precious metals fluctuate with both the volume of product sold and the price of precious metals. The costs of precious metals included in our product sales are generally passed through to customers with minimal gross profit contribution. Operating income declined due to a $9.0 million decrease in gross profit partially offset by a reduction of $5.0 million in SG&A expense. The decline in gross profit was primarily due to the negative effects of lower sales volumes. The decline in SG&A expense was due to expense control initiatives, including the elimination of incentive compensation and staffing reductions.

Color and Glass Performance Materials Segment Results. Sales of Color and Glass Performance Materials declined as a result of lower sales volume. Approximately $16.9 million of the reduction in sales during the third quarter was the result of lower sales volume. The remaining reduction in sales was due to a $7.3 million unfavorable change in product mix and pricing and a $2.2 million negative effect from foreign currency exchanges rates. All regions contributed to the sales decline. Operating income declined due to a $5.6 million decline in gross profit, partially offset by a $3.7 million reduction in SG&A expense. The decline in gross profit was primarily due to the negative effects of lower sales volumes. The reduction in SG&A expense was primarily due to staffing reductions and expense control initiatives.

Polymer Additives Segment Results. Sales declined in Polymer Additives primarily as a result of lower sales volume and changes in product pricing in the United States and Europe. The reduction in volume accounted for approximately $13.2 million of the reduction in sales, while changes in product pricing and mix contributed approximately $11.2 million to the sales decline. Operating profit was flat compared with the prior-year period as a decline of $1.4 million in gross profit was matched by a $1.4 million reduction in SG&A expense. The decline in gross profit was due to the negative effects of lower sales volumes partially offset by lower manufacturing costs. The decline in SG&A expense was due to staffing reductions and expense control initiatives.

Specialty Plastics Segment Results. Sales declined in Specialty Plastics primarily as a result of lower sales volume. Approximately $14.1 million of the reduction in sales during the third quarter was the result of lower sales volume and the remaining reduction was primarily driven by a $4.3 million unfavorable change in product pricing and mix. Operating income increased compared with the prior-year period as a $1.9 million reduction in SG&A expense more than offset a $1.7 million decline in gross profit. The reduction in SG&A expense was due to staffing reductions and expense control initiatives. The decline in gross profit was due to the negative effects of lower sales volumes partially offset by improved manufacturing cost performance.

Read the The complete ReportFOE is in the portfolios of George Soros of Soros Fund Management LLC.

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