The decreased in sales, relative to the company’s expectations for the fourth quarter, was driven mainly by reduced customer demand in the performance coatings, color and glass performance materials, polymer additives and specialty plastics segments.
Ferro’s prior anticipation for the 2008 fourth quarter was for net sales in the range of $500 million to $550 million and earnings in the range of $0.33 to $0.38 per share, which consist of an estimated gain of about 31 cents per share related to the sale of the company’s fine chemicals business and estimated charges of 13 cents per share related to manufacturing rationalization activities.
“Ferro’s improved performance in the first three quarters of 2008 demonstrated the benefits of the Company’s worldwide restructuring and cost control initiatives,” said chairman, president and chief executive officer James F. Kirsch. “Despite the sharp decline in worldwide economic activity during the fourth quarter, our full-year 2008 earnings are expected to show improvement from 2007 when adjusted for special charges, the gain from the sale of our Fine Chemicals business and discontinued operations.”
The dividend, at this lower level would, if annualized, reduce the company’s cash outlays by about $23.6 million. It will also strengthen the balance sheet during a period of reduced customer demand and limited visibility of near-term global economic performance.
“We are seeing a world economy that is dramatically different than it was as recently as three months ago,” said Kirsch. “Strong actions, such as lowering our dividend, will conserve cash and strengthen our balance sheet. Initiatives to reduce costs and expenses produced strong year-over-year earnings improvement through the first ten months of 2008, but were not sufficient to offset the abrupt global slowdown in the fourth quarter. We continue to improve our cost structure through decisive actions, including our European restructuring; closing of excess manufacturing capacity; cuts in selling, general and administrative expense; and production staffing reductions. As our customers reset their production volume requirements, we will work closely with them, so that we can resume progress toward our long-term profitability goals once our customers and the broader worldwide economy begin to recover.”
Among the cost and expense reduction actions Ferro has initiated are:
Headcount reductions at locations around the world which reduced total employment by around 12% during 2008, with around two-thirds of the reductions occurring in the fourth quarter. Total employment was around 5,865 at year-end 2008. Additional staff reductions continue to be considered.
The fourth and final major phase of restructuring within Ferro’s Inorganics business in Europe. This phase, to be completed over two years, will reduce annual costs by around $14 million, reduce headcount by around 125, and will result in the closure of the Company’s manufacturing facility in Limoges, France. These actions are part of the previously announced plan to reduce costs by $40 million to $50 million within the European Inorganics business.
The closing of a pigments plant in Toccoa, Georgia, completed in December 2008. The action is expected to generate savings of $3 million to $4 million annually.
Production reductions, extended holiday and post-holiday shutdowns and reduced staffing at manufacturing sites worldwide. The Company’s manufacturing facilities around the world have implemented reduced work weeks where customer orders do not support full-time operations.
A 50% reduction in capital spending for 2009.
A worldwide hiring freeze and elimination of most 2009 wage increases for salaried and non-contract employees.
Significant reductions in discretionary expenses, including travel.
Improved working capital performance, primarily through reductions in inventory.
As part of its overall response to the challenges of reduced customer demand, Ferro has also implemented steps to strengthen its balance sheet and conserve cash. Total debt, together with off balance sheet receivables financing, was reduced by more than $100 million, to about $605 million on December 31, 2008 from $713 million on September 30, 2008, as a result of the proceeds from the sale of the fine chemicals business, reductions in working capital, and cost and expense reductions.
Ferro anticipates it will record non-cash impairments to goodwill and other assets in the 2008 fourth quarter as a result of the company’s expected financial performance in the 2008 fourth quarter and a reduced outlook for 2009. The anticipated fourth quarter impairments are related to tile products in the company’s performance coatings segment, the specialty plastics segment, and dielectric products in the electronic materials segment. The company will quantify these charges and provide additional details when it releases its fourth quarter and full year 2008 financial results.
