A. Schulman Reports Strong Fiscal 2014 Third Quarter

AKRON, Ohio, July 1, 2014 /PRNewswire/ --

• Net income from continuing operations for the third quarter of fiscal 2014 was $19.1 million, or $0.65 per diluted share; adjusted net income from continuing operations for the third quarter of fiscal 2014, excluding certain items, was $21.8 million, or $0.74 per diluted share, a 48% improvement over the prior-year quarter
• The Company benefitted from both organic growth as well as acquisitions in the quarter
• Company raises full-year fiscal 2014 adjusted net income guidance to a range of $2.31 to $2.36 per diluted share

A. Schulman, Inc. (Nasdaq-GS: SHLM) announced today earnings for the fiscal 2014 third quarter ended May 31, 2014.

Joseph M. Gingo, Chairman, President and Chief Executive Officer, said, "I am pleased with our excellent third-quarter financial results which reflect continued demand in our key end markets as well as contributions from our recent acquisitions. Unlike last year's unusual third quarter, I believe we have returned to our typical historic pattern where our third quarter is the strongest.  While our results are strong, we will continue to look for operational efficiencies, drive product mix improvement and seek acquisitions that expand our markets and provide profitable growth."

Bernard Rzepka, Chief Operating Officer, stated, "We are pleased with our global organic growth rate, particularly in Europe where improved mix and growing automotive sales have bolstered our quarter and nine-month results.  Globally, we continue to achieve double-digit growth in our custom performance color product family.   In Europe, Middle East and Africa (EMEA) we continue to see steady growth in other key markets such as packaging.  In the Americas, we saw a similar pattern with strength in our engineered plastics product family as a result of our acquisitions, and we had significant contributions from our specialty powders business.  In Asia Pacific (APAC), we continue to improve volume and sales by executing our growth activities aided by our recent Perrite acquisition.  Globally, our recent acquisitions contributed to a 10.2% quarter-over-quarter increase in net sales.  We expect this growth rate to continue now that we have closed on the acquisition of Ferro Corporation's specialty plastics business." 

Fiscal Third-Quarter Results

In the fiscal 2014 third quarter, net sales in the EMEA segment increased 14% compared with the same period last year.  During the quarter, the incremental contribution of the Perrite acquisition in EMEA was $22.2 million and 14.2 million pounds in net sales and volume, respectively.  Additionally, sales and volume benefited from greater demand as a result of continued strengthening in the automotive market and consistent strength in the packaging market.  Foreign currency translation positively impacted the segment's net sales by $21.6 million.  EMEA gross profit was $56.8 million for the quarter, an increase of $8.1 million compared with the same three-month period last year.  The increase in gross profit was primarily attributed to the incremental contribution of the Perrite acquisition, favorable product mix and overall higher volumes in all product families.  Foreign currency translation positively impacted EMEA gross profit by $2.9 million.

Net sales for the Americas increased by 18.9% compared with the prior-year period.  This increase was primarily driven by the incremental contributions of the Network Polymers and Prime Colorants acquisitions which totaled $20 million and 13.3 million pounds in net sales and volume, respectively. Foreign currency translation negatively impacted the segment's net sales by $5.1 million. Gross profit for the Americas was $28.3 million in the quarter, an increase of $8.3 million compared with the same period last year.  Gross profit benefitted from recent acquisitions, improved mix, and prior restructuring initiatives which were partially offset by the increased variable incentive compensation expense of $0.5 million and unfavorable foreign currency translation of $0.6 million.  

During the quarter, net sales for the Company's APAC segment increased approximately 52% compared with the same prior-year period. The contribution of the Perrite acquisition in APAC was $13.5 million and 10.1 million pounds in net sales and volume, respectively.  Excluding the Perrite acquisition, volume increased by 22% but was partially offset by decreased price per pound driven by continued competitive pricing pressures primarily in the masterbatch business.  Gross profit for APAC for the quarter increased 24% compared with the prior-year period.  This increase was primarily attributed to the positive contribution from the Perrite acquisition. Gross profit percentage declined as a result of competitive pricing pressures and the broadening of the Company's product portfolio within the APAC region. 

Year-to-Date Results

Net sales for the nine months ended May 31, 2014 were $1.8 billion, an increase of 14% compared with the same period last year.  Incremental net sales and volume from the Company's recent acquisitions contributed $142.6 million and 98.1 million pounds, respectively. Excluding the impact of recent acquisitions, net sales were positively impacted by a 3.2% increase in price per pound and a 1.8% increase in volume. Foreign currency translation favorably impacted net sales by $30.8 million.

The Company's SG&A expenses, excluding certain items, increased $20.6 million compared with the same period in the prior year. The increase was primarily attributable to incremental SG&A expense of $7.6 million from recent acquisitions, higher variable incentive compensation expense of $9.4 million and unfavorable foreign currency translation of $2.5 million.  SG&A expense, excluding certain items, was 9.6% of net sales for the nine-month period. Operating income increased $15.2 million for the nine months ended May 31, 2014, compared with the same prior-year period. Total operating income, before certain items, for the nine months ended May 31, 2014, was $72.1 million, an increase of $16.7 million compared with a year ago.

Working Capital/Cash Flow From Operations

Cash provided from operations was $35 million and $52.6 million for the nine months ended May 31, 2014 and 2013, respectively.  The Company's cash and cash equivalents decreased $23.3 million from August 31, 2013. This decrease was driven primarily by fiscal 2014 acquisitions and was partially offset by an increase in net borrowings and cash generated from operations.  Working capital was 60 days at the end of the fiscal 2014 third quarter, an increase of three days when compared with the same period last year.

Capital expenditures for the nine months were $24.1 million compared with $20.5 million last year.  The Company continued regular and ongoing investments in the Company's global manufacturing facilities and technical innovation centers.

During the three- and nine-month periods ended May 31, 2014, the Company declared and paid quarterly cash dividends of $0.20 and $0.60 per common share, respectively. The total amount of these dividends was $5.9 million and $17.7 million, respectively.

Business Outlook

"We are pleased with the strength of our third-quarter and year-to-date results despite modest global economic growth.  Our acquisitions, combined with the benefits of prior restructurings and our organic growth initiatives, are putting us on pace to deliver a record year for A. Schulman.  Accordingly, we are raising our expectations for fiscal 2014 adjusted net income to be in a range of $2.31 to $2.36 per diluted share, which would represent an approximate 25% increase over the prior-year results using the high end of this range.  This equates to a fourth-quarter adjusted net income expectation of between $0.61 and $0.66 per diluted share, which resumes a more historical trend of quarterly earnings given the normal holiday cycle in the U.S. and Europe in the July and August time period," Gingo said.  

Conference Call on the Web

A live Internet broadcast of A. Schulman's conference call regarding fiscal 2014 third-quarter earnings can be accessed at 10:00 a.m. Eastern Time on Wednesday, July 2, 2014 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 of the Company 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 3,800 people and has 43 manufacturing facilities globally.  A. Schulman reported net sales of $2.1 billion for the fiscal year ended August 31, 2013. 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, operating income excluding certain items, net income excluding certain items and net income per diluted share excluding certain items, 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. However, 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, 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; and
• operating problems with our information systems as a result of system security failures such as viruses, computer "hackers" or other causes.

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, 2013. 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

www.aschulman.com