Business Overview and History

Matthews International Corporation (NASDAQ:MATW) is a global provider of memorialization products, industrial technologies, and brand solutions. With a rich history spanning over 175 years, the company has evolved and diversified, positioning itself as a leader in various industries. As Matthews navigates the dynamic landscape, its commitment to innovation, strategic partnerships, and operational excellence has been crucial in driving long-term value for its shareholders.

Founded in 1850 in Pittsburgh, Pennsylvania, Matthews International Corporation began as a small bronze foundry, specializing in the production of high-quality memorials and monuments. Over the decades, the company has undergone a remarkable transformation, expanding its product portfolio and geographical footprint to become a diversified global enterprise.

Matthews International Corporation was incorporated in Pennsylvania in 1902, solidifying its legal structure and setting the stage for future growth. In the 1960s, the company embarked on a significant diversification strategy, expanding beyond its core memorialization business. This period saw Matthews acquiring companies in the graphics and industrial automation industries, a move that would prove crucial in reducing its reliance on the cyclical funeral home and cemetery markets.

The 1980s marked a pivotal moment in Matthews' history, as the company established its three main business segments that continue to define its operations today: Memorialization, Industrial Technologies, and SGK Brand Solutions. This structure has allowed Matthews to maintain a diverse portfolio of products and services, catering to various industries and market needs.

Throughout its history, Matthews has faced and overcome numerous challenges. These include fluctuating death rates, the growing trend towards cremation impacting casket sales, global economic conditions affecting its brand and industrial customers, and competitive pressures in various markets. The company's ability to navigate these challenges through continuous operational improvements, new product development, strategic acquisitions, and diversification of its business lines has been key to its longevity and success.

Today, Matthews International Corporation operates through three core business segments: Memorialization, Industrial Technologies, and SGK Brand Solutions. The Memorialization segment remains the company's primary revenue generator, offering a comprehensive range of memorial products, including bronze and granite memorials, caskets, and cremation-related equipment. The Industrial Technologies segment designs and manufactures innovative solutions for the energy storage, product identification, and warehouse automation industries. The SGK Brand Solutions segment provides a suite of branding, pre-media, and marketing services to global consumer goods and retail clients.

Financial Performance and Ratios

Over the past three fiscal years, Matthews International Corporation has demonstrated a mixed financial performance. In the fiscal year ended September 30, 2024, the company reported total revenue of $1.80 billion, a slight decrease from the previous year. The company's net income for the same period was a loss of $59.7 million, reflecting ongoing challenges in certain segments.

The company's liquidity position, as measured by the current ratio, has remained relatively stable, with a current ratio of 1.60 as of December 31, 2024. The company's debt-to-equity ratio has also remained manageable, standing at 2.11 as of December 31, 2024.

In terms of profitability, Matthews International Corporation's gross profit margin was 29.4% in fiscal year 2023, a slight decrease from the previous year's 30.7%. The company's operating profit margin has been more volatile, declining from 4.7% in fiscal year 2021 to -0.7% in fiscal year 2022, before improving to 4.9% in fiscal year 2023.

The company's cash flow generation has remained positive, with operating cash flow of $79.3 million and free cash flow of $34.1 million in fiscal year 2024.

Quarterly Performance and Segment Analysis

For the first quarter of fiscal year 2025, Matthews International Corporation reported mixed results. The company's total revenue for the quarter was $401.8 million, a decline of 10.7% from the $450.0 million reported in the same period of the previous year. The company's net loss for the quarter was $3.5 million, compared to a net loss of $2.3 million in the prior-year period.

The Memorialization segment reported sales of $190.5 million for the first quarter of fiscal 2025, compared to $208.1 million in the prior year period. This decline reflected lower unit sales of caskets, granite memorial products, and cremation equipment, partially offset by improved price realization. Adjusted EBITDA for the segment was relatively stable at $36.6 million, compared to $36.7 million in the prior year period, with the impact of lower unit sales and higher labor costs offset by improved pricing and productivity benefits.

The Industrial Technologies segment saw a more significant decline, with revenue decreasing from $111.4 million in the first quarter of fiscal year 2024 to $80.5 million in the current quarter. This decrease was primarily due to lower sales of purpose-built engineered products, including energy storage solutions, and reduced sales of warehouse automation solutions. Adjusted EBITDA for the segment decreased to $1.8 million from $9.6 million in the prior year period, primarily due to the impact of lower sales and lower margins on engineered products.

The SGK Brand Solutions segment reported relatively stable performance, with revenue increasing slightly from $130.5 million in the first quarter of fiscal year 2024 to $130.8 million in the current quarter. This was driven by improved pricing to mitigate inflationary cost increases and higher sales in the company's private label and European cylinder businesses, partially offset by lower brand experience and European brand sales. Adjusted EBITDA for the segment decreased to $12.3 million from $12.9 million in the prior year period, primarily due to higher labor costs.

Geographic Performance and Market Presence

Matthews International Corporation maintains a global footprint, with operations and sales across multiple regions. In the first quarter of fiscal year 2025, North America accounted for 68.4% of total sales, Europe 25.6%, and Asia/Australia 5.9%. This diverse geographical presence allows the company to mitigate risks associated with regional economic fluctuations and capitalize on growth opportunities in various markets.

Liquidity and Capital Structure

As of December 31, 2024, Matthews International Corporation had a debt-to-equity ratio of 2.11. The company maintains a $750 million senior secured revolving credit facility, of which $484.1 million was outstanding as of December 31, 2024. This facility matures in January 2029. Additionally, the company has $300 million of 8.625% senior secured second lien notes due in 2027.

The company's liquidity position remains solid, with a current ratio of 1.60 and a quick ratio of 0.96 as of December 31, 2024. These ratios indicate that Matthews International Corporation has sufficient short-term assets to cover its short-term liabilities.

Strategic Initiatives and Future Outlook

Matthews International Corporation has recently initiated cost reduction programs that are expected to result in annual consolidated savings of up to $50 million. The company reports being on track to achieve and potentially exceed this target. The most significant portions of the estimated savings will come from the company's engineering and tooling operations in Europe and its general and administrative functions. Matthews expects to achieve $25-30 million in run-rate savings by the end of fiscal 2025 and the remaining savings by the end of fiscal 2026.

Additionally, the company has announced plans to sell its interest in the SGK Brand Solutions business to a newly formed entity. This strategic divestiture is expected to provide $250 million in cash proceeds, which the company plans to substantially apply to debt reduction upon receipt. The transaction is anticipated to close in mid-2025.

Challenges and Opportunities

Matthews International Corporation has faced several challenges in recent years, including the impact of the COVID-19 pandemic on its memorialization and industrial technology businesses, as well as the ongoing legal dispute with Tesla over the company's dry battery electrode (DBE) technology.

The pandemic's effect on death rates and cremation preferences has created headwinds for the Memorialization segment, leading to lower casket and granite memorial sales. The company's Industrial Technologies segment has also been impacted by supply chain disruptions and delays in project timelines, particularly for its energy storage solutions.

The legal dispute with Tesla has cast uncertainty over the company's ability to fully capitalize on its innovative DBE technology, which has been a key growth driver for the Industrial Technologies segment. However, the company's recent victory in arbitration, affirming its right to sell its DBE solutions to other customers, has opened up new opportunities for the segment.

Looking ahead, Matthews International Corporation is focused on leveraging its diverse business model, investing in research and development, and exploring strategic partnerships to drive long-term growth. The company's foray into emerging technologies, such as 2D coding for product identification, as well as its efforts to expand its customer base in the energy storage and warehouse automation industries, present promising avenues for future success.

Conclusion

Matthews International Corporation's rich history, diversified business model, and commitment to innovation position the company for long-term success. Despite facing various challenges, including recent declines in certain segments, the company has demonstrated resilience and the ability to adapt to changing market conditions. With a focus on operational efficiency, strategic partnerships, and prudent capital allocation, Matthews International Corporation is taking proactive steps to optimize its portfolio and strengthen its financial position. The planned divestiture of the SGK Brand Solutions segment and ongoing cost reduction initiatives are expected to improve the company's financial flexibility and position it for future growth. As Matthews continues to navigate the evolving landscape of its various markets, its ability to innovate and adapt will be crucial in delivering value to its shareholders in the years to come.