A message from Bruce Hoechner, CEO, Rogers Corporation:

Read the corporate financials news release: Rogers Corporation Reports Results for the Fourth Quarter and Full Year 2015.

In Q4 2015 Rogers delivered record fourth-quarter net sales of $152.9 million, a 3.5% increase over Q4 2014. In addition, we achieved non-GAAP earnings of $0.69 per diluted share, exceeding our previously announced guidance.

Screen shot 2013-11-01 at 10.53.55 AMDuring the quarter, we again experienced strong contributions from our synergistic acquisition that were partially offset by a decrease in organic net sales. We believe that the organic sales decline was due to a number of factors, including global macroeconomic conditions that impacted our business segments. I will discuss the segments and details in a few moments.

Our outlook remains cautious in the near term based on the uncertain timing of the global economic recovery. However, our growth strategy remains sound, we are focused on execution, and we remain confident in our longer-term growth prospects in our key megatrend markets.

Roadmap for Growth

I would like to review our growth strategy. This roadmap has enabled us to deliver sound results, and we believe that it positions us well to capitalize on the opportunities that lie ahead, particularly when the global economy recovers.

Q4_2015_roadmap

As a market-driven organization, we leverage our strong understanding of the link between our markets and technology to develop solutions to solve unmet needs in the marketplace. A good example of this is the strong position we have established in Advanced Driver Assistance Systems.

We experienced increased demand for these applications in 2015 and expect that trend to continue based upon our customer relationships and the growth predictions for this market.

In the area of innovation leadership, we continue to cultivate a robust pipeline from the work we’re doing in our innovation centers, as well as in the operating units where our R&D teams are focused on next-generation solutions. One of the innovation centers early developments is a pioneering platform technology that enables substantially smaller, higher performance, higher frequency antennas. This technology is now being scaled up in our Advanced Connectivity Solutions business initially targeted for defense applications, and we expect broader adaption of this in commercial applications.

The Arlon acquisition has demonstrated the strength of our approach to synergistic M&A. The acquisition was completed within our 12-month goal, and it outperformed our expectations during the year. A textbook example of a successful integration, it will serve as a blueprint for future acquisitions.

We continue to see progress from our investments in operational excellence. These initiatives are helping us reduce manufacturing costs, improve inventory management, and achieve greater on-time delivery to request for our customers.

In addition, our ERP upgrade is helping our back office teams work more efficiently as we improve and standardize our systems and processes. This work also prepares us to quickly integrate future acquisitions.

Financial Goals

Our interim three-year financial goals serve as a checkpoint in our long-term plan. While market conditions impacted our 2015 results, we remain confident in our longer-term ability to achieve 15% revenue growth through a combination of organic and acquired growth.

Our commitment to this strategy is delivering sustained progress in revenue and profit performance over the past three years. We saw a slight margin dip in 2013 as we dealt with the macroeconomic conditions, but we were pleased with the contributions from our operational excellence initiatives.

I would like to take a brief look at our profitability from a slightly different perspective, EBITDA. We believe this is a key measure of our performance in assessing our internal core operating results, which improved 260 basis points.

I would like to highlight some achievements from 2015. First, our acquisition and integration of the Arlon business was highly successful. This acquisition led us to record revenues in 2015, and we are excited by the opportunities for organic growth in the future. I will address our megatrends in a bit, but here I would like to highlight that we are confident that our megatrend categories are focused on the right markets for future growth. In 2015, we selected safety and protection as a new Rogers megatrend category based upon the opportunities we see for applications in growing markets like automotive safety and consumer impact and protection.

We believe that our core capabilities align well with this megatrend, and we are executing on those opportunities.

We continue to see strong results from our investments in improving our overall operating capabilities. These initiatives are helping us lower costs and drive efficiencies in both our manufacturing and back office environments. Our focus on delivering shareholder value is reflected in our capital allocation strategy.

In 2015, we initiated a $100 million share repurchase program and bought back $40 million in shares. Building on the success of our North American Innovation Center in Burlington, Massachusetts, we opened the Asia Innovation Center in September 2015 to leverage the talent and opportunities we see in that region.

Advanced Connectivity Solutions (ACS) delivered record fourth-quarter net sales of $63.8 million, driven by $16.4 million from the acquisition, which was an increase of 11% over Q4 2014. ACS organic sales for the quarter declined 16.4% on a currency neutral basis. Strong demand for Advanced Driver Assistance Systems and aerospace and defense applications were offset by weaker demand and inventory rebalancing in the 4G LTE base station market, primarily in China.

Looking ahead in ACS, we anticipate that the base station recovery in China and growth in small cells will help drive demand for high-frequency circuit materials. We are very pleased with the consistently strong demand for applications for Advanced Driver Assistance Systems as these features continue to expand into mass-market automobile models.

In addition, we expect the adoption of new technologies linked to the Internet of Things and e-mobility to help drive growth in ACS.

Elastomeric Material Solutions (EMS) achieved net sales of $42.5 million, including $6.1 million from the acquisition, which is roughly flat year over year. Organic net sales were down 13.5% from 2014 on a currency neutral basis. Solid results in consumer impact and protection and automotive applications were offset by weaker demand for certain portable electronics applications. The EMS organization is addressing the headwinds in display gasket applications for portable electronics by refocusing the business on other solutions. For example, we are seeing strong interest in the new smartphone back pad solutions that we introduced in 2014, which are partially offsetting the weaker demand for display gaskets.

We also have had several design wins for sealing applications in the automotive market. In addition, we see opportunity through European and Asian geographic expansion in general, industrial and mass transit, as well as greater market penetration in consumer impact and protection applications.

Power Electronics Solutions (PES) net sales were $36.7 million, a 12% decrease compared to Q4 2014. On a currency neutral basis, PES net sales declined 3.4% from Q4 2014. Foreign exchange rates and a global slowing in industrial and infrastructure investments due to challenging macroeconomic conditions impacted PES more than our other two business segments.

During the quarter, increased demand in EV, HEV, as well as certain renewable energy applications were offset by weaker demand in mass transit.

We believe the outlook for the mid- to long-term is positive. Government mandates and climate change agreements are strengthening demand for energy-efficient motor drives and renewable energy applications. In addition, fuel efficiency regulations continue to drive demand for EV, HEV, and vehicle electrification applications.

Megatrends

We continue to be encouraged by the positive growth expectations for our key markets. Demand in areas like mobile data traffic, EV, HEV, and automotive safety are expected to drive substantial growth in the mid- to long-term.

For our 2016 plan, we are not anticipating significant movements in commodity pricing or foreign exchange rates at this time. While lower global GDP growth is muting revenue expansion, wage stability across our operating geographies appears to be in check, helping us manage operating costs.

In the face of weaker global economic conditions, we are addressing issues such as selective pricing pressures by continuing to reduce manufacturing costs. The industrial slowdown that we believe started during Q2 2015 affected sales into certain applications we serve within the industrial sector. We do expect to see an improvement in demand for these industrial applications when the global markets recovery.

Our market-driven approach is helping us form deeper partnerships with our customers. These relationships are contributing to a strong sales pipeline and positioning us to be designed into new applications and technologies.

I am very encouraged by our product development opportunities. Our investments in next-generation and new products closely align to our megatrend markets, which accounted for 66% of our sales in Q4 and full-year 2015.

Synergistic M&A opportunities continued to be actively pursued by Rogers, and we will use the successful integration of Arlon as a blueprint for future acquisitions. We are capitalizing on the investments we have made in our processes and systems to reduce costs and gain efficiency, which will also serve to accelerate the integration of future acquisitions.

In order to increase productivity and reduce costs, we are in the process of shifting some manufacturing to lower-cost locations, as well as rationalizing capacity. In addition, we are leveraging our shared service organizational model to better utilize resources.

And finally, we will continue to practice disciplined capital deployment, making strategic investments to move our growth strategies forward and deliver value to our shareholders.

Q4 and Full Year 2015 Earnings Call Full Transcript.

Q4 and Full Year 2015 Financials Press Release.

Q4 and Year End 2015 Earnings Call Slides.

 

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