Item 5. Market for Registrant’s Common Equity
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS, (continued)
PERFORMANCE GRAPH
COMPARISON OF FIVE-YEAR CUMULATIVE RETURN *
AMONG MATTHEWS INTERNATIONAL CORPORATION,
S&P 500 INDEX, RUSSELL 2000 VALUE INDEX, S&P MIDCAP 400 INDEX AND S&P SMALLCAP 600 INDEX
This graph compares the return on Matthews’ Common Stock with that of the Standard & Poor’s 500 Index, Russell 2000 Value Index, S&P MidCap 400 Index and S&P SmallCap 600 Index for the period from October 1, 2015 through September 30, 2020. The graph assumes that on October 1, 2015, $100 was invested in each of the Company’s Common Stock , Standard & Poor’s 500 Index, Russell 2000 Value Index, S&P MidCap 400 Index and S&P SmallCap 600 Index . The graph measures total stockholder return, which takes into account both changes in stock price and dividends. It assumes that dividends paid are invested in like securities.
The Russell 2000 Value Index replaces the S&P MidCap 400 Index and S&P SmallCap 600 Index, which were used as the industry market index in the Company’s 2019 Annual Report on Form 10-K. The Company believes that the Russell 2000 Value Index , which measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values, is a more appropriate industry market index because, among other reasons, it better reflects the price volatility that a share of Matthews International Corporation Common Stock experiences.
The following graph compares the total return on the Company’s Common Stock with that of the Standard & Poor’s 500 Index, the newly selected Russell 2000 Value Index, and each of the S&P MidCap 400 Index and S&P SmallCap 600 Index used in Matthews’ 2019 Annual Report on Form 10-K. The results are not necessarily indicative of future performance.
* Total return assumes dividend reinvestment
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ITEM 6. SELECTED FINANCIAL DATA.
Years Ended September 30,
2020 (1)
2019 (2)
2018 (3)
2017 (4)
2016 (5)
(Amounts in thousands, except per share data)
(Unaudited)
Net sales $ 1,498,306 $ 1,537,276 $ 1,602,580 $ 1,515,608 $ 1,480,464
Operating (loss) profit (64,193) 10,303 138,557 121,376 127,228
Interest expense 34,885 40,962 37,427 26,371 24,344
Net (loss) income attributable to
Matthews shareholders $ (87,155) $ (37,988) $ 107,371 $ 74,368 $ 66,749
(Loss) earnings per common share:
Basic $ (2.79) $ (1.21) $ 3.39 $ 2.31 $ 2.04
Diluted (2.79) (1.21) 3.37 2.28 2.03
Weighted-average common shares outstanding:
Basic 31,190 31,416 31,674 32,240 32,642
Diluted 31,190 31,416 31,861 32,570 32,904
Cash dividends per share $ 0.84 $ 0.80 $ 0.76 $ 0.68 $ 0.60
Total assets (6)
$ 2,072,633 $ 2,190,603 $ 2,357,744 $ 2,244,649 $ 2,091,041
Long-term debt, non-current (6)
807,710 898,194 929,342 881,602 844,807
(1) Fiscal 2020 included net pre-tax charges of $139,092, primarily related to a goodwill write-down, a legal matter reserve, non-recurring / incremental coronavirus disease 2019 ("COVID-19") costs, a gain on sale of ownership interests in a subsidiary, acquisition-related costs, and strategic cost-reduction initiatives. Charges of $138,556 and $536 impacted operating profit and other deductions, respectively.
(2) Fiscal 2019 included net pre-tax charges of $114,768, primarily related to a goodwill write-down, losses from cost-method investments, losses on divestitures, acquisition-related costs, strategic cost-reduction initiatives, and net gains from the sale of buildings and vacant properties. Charges of $111,069 and $3,699 impacted operating profit and other deductions, respectively.
(3) Fiscal 2018 included net pre-tax charges of $27,115 and income of $3,771, which impacted operating profit and other deductions, respectively. These pre-tax charges primarily consisted of acquisition-related costs, and strategic cost-reduction initiatives. The pre-tax income primarily consisted of gains recognized on the disposition of certain cost-method investments.
(4) Fiscal 2017 included net pre-tax charges of $38,458 and income of $10,483, which impacted operating profit and other deductions, respectively. These pre-tax charges primarily consisted of acquisition-related costs, and strategic cost-reduction initiatives. The pre-tax income primarily consisted of loss recoveries, net of related costs, related to the previously disclosed theft of funds by a former employee.
(5) Fiscal 2016 included net pre-tax charges of $36,057 and income of $78, which impacted operating profit and other deductions, respectively. These amounts primarily consisted of acquisition-related costs and strategic cost-reduction initiatives.
(6) Reporting periods prior to fiscal year 2020 were not revised to reflect the adoption of Accounting Standards Update ("ASU") No. 2016-02, " Leases (Topic 842)". Prior periods continue to be presented in accordance with previous lease accounting guidance under GAAP.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the consolidated financial statements of Matthews and related notes thereto. In addition, see "Cautionary Statement Regarding Forward-Looking Information" included in Part I of this Annual Report on Form 10-K.
RESULTS OF OPERATIONS:
The Company manages its businesses under three segments: SGK Brand Solutions, Memorialization and Industrial Technologies. The SGK Brand Solutions segment consists of brand management, pre-media services, printing plates and cylinders, engineered products, imaging services, digital asset management, merchandising display systems, and marketing and design services primarily for the consumer goods and retail industries. The Memorialization segment consists primarily of bronze and granite memorials and other memorialization products, caskets and cremation and incineration equipment primarily for the cemetery and funeral home industries. The Industrial Technologies segment includes marking and coding equipment and consumables, industrial automation products and order fulfillment systems for identifying, tracking, picking and conveying consumer and industrial products.
The Company's primary measure of segment profitability is adjusted earnings before interest, income taxes, depreciation and amortization ("adjusted EBITDA"). Adjusted EBITDA is defined by the Company as earnings before interest, income taxes, depreciation, amortization and certain non-cash and/or non-recurring items that do not contribute directly to management’s evaluation of its operating results. These items include stock-based compensation, the non-service portion of pension and postretirement expense, acquisition costs, ERP integration costs, and strategic initiatives and other charges. This presentation is consistent with how the Company's chief operating decision maker (the “CODM”) evaluates the results of operations and makes strategic decisions about the business. For these reasons, the Company believes that adjusted EBITDA represents the most relevant measure of segment profit and loss.
In addition, the CODM manages and evaluates the operating performance of the segments, as described above, on a pre-corporate cost allocation basis. Accordingly, for segment reporting purposes, the Company does not allocate corporate costs to its reportable segments. Corporate costs include management and administrative support to the Company, which consists of certain aspects of the Company’s executive management, legal, compliance, human resources, information technology (including operational support) and finance departments. These costs are included within "Corporate and Non-Operating" in the following table to reconcile to consolidated adjusted EBITDA and are not considered a separate reportable segment. Management does not allocate non-operating items such as investment income, other income (deductions), net and noncontrolling interest to the segments.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS, (continued)
The following table sets forth sales and adjusted EBITDA for the Company's SGK Brand Solutions, Memorialization and Industrial Technologies segments for each of the last three fiscal years. Refer to Note 19, "Segment Information" in Item 8 - "Financial Statements and Supplemental Data" for the Company's financial information by segment.
Years Ended September 30,
2020 2019 2018
(Dollar amounts in thousands)
Sales to external customers:
SGK Brand Solutions $ 693,093 $ 743,869 $ 805,274
Memorialization 656,035 636,892 631,392
Industrial Technologies 149,178 156,515 165,914
Consolidated Sales $ 1,498,306 $ 1,537,276 $ 1,602,580
Adjusted EBITDA:
SGK Brand Solutions $ 90,644 $ 119,493 $ 150,233
Memorialization 146,285 134,286 145,487
Industrial Technologies 22,753 24,082 25,864
Corporate and Non-Operating (56,602) (56,989) (66,470)
Total Adjusted EBITDA (1)
$ 203,080 $ 220,872 $ 255,114
(1) Total Adjusted EBITDA is a non-GAAP financial measure. See the "Non-GAAP Financial Measures" section below.
Comparison of Fiscal 2020 and Fiscal 2019:
Sales for the year ended September 30, 2020 were $1.50 billion, compared to $1.54 billion for the year ended September 30, 2019, representing a decrease of $39.0 million. The decrease in fiscal 2020 sales reflected lower sales in the SGK Brand Solutions and Industrial Technologies segments, partially offset by increased sales in the Memorialization segment. Changes in foreign currency rates were estimated to have an unfavorable impact of $6.9 million on fiscal 2020 consolidated sales compared to a year ago. Fiscal 2020 sales were unfavorably impacted by the global outbreak of COVID-19, which has caused some commercial impact and business disruptions in certain of the Company's segments and geographic locations. While substantially all of the Company's operations have remained open during the COVID-19 pandemic, management expects COVID-19 to continue to impact its sales and results of operations in the short-term until the pandemic subsides (see "Forward Looking Information" below).
In the SGK Brand Solutions segment, sales for fiscal 2020 were $693.1 million, compared to $743.9 million in fiscal 2019. The decrease primarily resulted from lower brand sales in the U.S. and the U.K., sales declines in the private label brand market, and lower sales of cylinders and surfaces products in Europe. These decreases were partially offset by increased revenues from purpose-built machinery projects and higher sales in the Asia-Pacific region. Changes in foreign currency exchange rates had an unfavorable impact of $5.9 million on the segment's sales compared to the prior year. Memorialization segment sales for fiscal 2020 were $656.0 million, compared to $636.9 million for fiscal 2019. The increase in sales primarily resulted from increased unit sales of caskets due to COVID-19, improved price realization on caskets and cemetery memorial products, and higher sales of cremation and incineration equipment. These increases were partially offset by lower unit sales of cemetery memorial products, which were impacted by COVID-19 related stay-at-home orders that limited families' access with cemeteries to arrange for their memorials. Changes in foreign currency exchange rates had an unfavorable impact of $615,000 on the segment's sales compared to the prior year. Industrial Technologies segment sales for fiscal 2020 were $149.2 million, compared to $156.5 million for fiscal 2019. The decrease primarily reflected lower sales of warehouse automation systems. Orders for warehouse automation solutions remained strong, but access to job sites to complete these projects has been restricted due to COVID-19. Changes in foreign currency exchange rates had an unfavorable impact of $356,000 on the segment's sales compared to the prior year.
Gross profit for the year ended September 30, 2020 was $497.8 million, compared to $542.5 million for fiscal 2019. Consolidated gross profit as a percent of sales was 33.2% and 35.3% in fiscal 2020 and fiscal 2019, respectively. The decrease in gross profit primarily reflected lower sales, unfavorable changes in product mix, ongoing price competition in the brand market, and unfavorable changes in margins for cylinders, surfaces and engineered products. These declines were partially offset by the realization of productivity improvements and cost-reduction initiatives. Gross profit also included acquisition integration costs and other charges primarily in connection with cost-reduction initiatives totaling $12.4 million and $2.4 million in fiscal 2020 and 2019, respectively.
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