FAIRLAWN, Ohio—A large, non-cash charge related to its troubled deal for Citadel Plastics caused materials firm A. Schulman Inc. to post a loss of more than $350 million for its 2016 fiscal year.
Schulman's 2016 fiscal year ended Aug. 31. The $401.7 million fourth-quarter charge was a goodwill impairment that resulted from “a combination of items, including the fraudulent activity discovered at Citadel's Lucent subsidiary, as well as a sharply lowered outlook for oil field service activity and other factors that reduced the long-term outlook for these businesses,” officials with Fairlawn-based Schulman said in an Oct. 26 news release.
For the fiscal year, Schulman's sales were up just over 4 percent to $2.5 billion. But, in many ways, it was a year the firm would like to forget. Earnings shortfalls and the Citadel problem led to the ouster of CEO Bernard Rzepka in August. Chief Financial Officer Joseph Levanduski also left the firm on Nov. 1.
On Wall Street, Schulman's per-share stock price was near $33.50 in early September, but was at $29.50 in late trading Nov. 8—a drop of almost 12 percent. Former CEO Joseph Gingo has returned to the firm, which has initiated a comprehensive review that could lead to the potential sale of the company.
“As I've said previously, the board is not satisfied with the company's performance and the pace of execution throughout fiscal 2016,” Gingo said in the release. “Over the past two months as chief executive officer, I've led our internal team and our outside advisors in a thorough review of every aspect of our business in order to verify our market intelligence, refine our vision and improve our execution.
“I believe we have a clear and realistic path forward to restore and reset A. Schulman's operational and financial performance worldwide to the sustainable levels our shareholders previously realized and rightfully expect of us,” he added.
Problems at Citadel came to light when concerns were raised about the quality of some materials made at a plant in Evansville, Ind., which was operated by Citadel's Lucent Polymers unit. The quality issues were with compounds based on polypropylene or polycarbonate that included recycled or reclaimed content.
In June, Schulman filed a lawsuit against Citadel and its former owners, seeking damages and accusing Citadel/Lucent of falsifying certificates of analysis given to customers that exaggerated flame retardant properties and other characteristics of the compounds that Lucent was making.
“The Lucent matter obviously had a big impact on us in fiscal 2016,” Gingo said in the release. “We believe that the sellers are responsible to compensate us for the damages that the company has experienced or may incur. As previously stated, we have filed a lawsuit and are pursuing it aggressively.”
Without the fourth-quarter charge, Schulman would have posted adjusted net income of $61.2 million for fiscal 2016. The firm's fiscal 2016 operating income grew 21 percent to $146 million.
Based on product categories, Schulman's fiscal 2016 sales fell 18 percent in distribution, 12 percent in specialty powders, almost 6 percent in masterbatch concentrates and 5 percent in customer performance colors. Full-year sales in engineered plastics were up almost 13 percent and its engineered composites sales more than tripled via sales added from Citadel.
Geographically, Schulman's fiscal 2016 sales grew 13 percent in the U.S. and Canada, but fell 3 percent in Mexico and Latin America, 7 percent in Europe, Middle East and Africa and 10 percent in the Asia-Pacific region.
For full-year 2016, Schulman generated just over half of its sales from EMEA, almost 33 percent from the U.S. and Canada, 9 percent from Mexico and Latin America and 8 percent from Asia-Pacific.
In an Oct. 28 research note, stock analyst Kevin Hocevar downgraded Schulman stock from Buy to Neutral, but added that “we still believe [Schulman] is on the right path to fix itself.
“We continue to believe that there are meaningful costs that can come out of the [Schulman] system,” wrote Hocevar, who's with Northcoast Research in Cleveland. “We believe that fiscal 2016 was the low point for Schulman and better days are ahead.”