Weaker than expected demand from PV producers hits Ferro’s earnings

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Significant booking reductions from customers in the PV manufacturing sector impacted revenue at Ferro Corporation in 2011. The materials provider reported net sales of US$443 million in the fourth quarter, down 18% from net sales of US$537 million in the fourth quarter of 2010.

The company said that reduced customer demand for conductive pastes used in solar cell applications as well as a decline in a variety of electronic products resulted in sales falling by US$103 million in its Electronic Materials segment. Furthermore, the company noted a US$65 million decline in sales of precious metals due to be reduced in volume and lower silver prices.

“We began 2011 with high expectations following a strong performance in 2010 that was driven by worldwide economic growth and surging demand for solar power. During the year, the anticipated demand for conductive pastes used in solar cells did not materialize, resulting in significant booking reductions by our customers throughout the world, adversely affecting earnings,” noted James F. Kirsch, chairman, president and chief executive officer, Ferro Corporation.

Not surprisingly, Ferro also highlighted that the demand for conductive pastes remained weak due to low end-market demand and excess inventory of completed PV modules within the supply chain. Ferro noted that this was especially true of the European PV market.

Indeed, management noted that profits had been hit by charges of US$1.1 million, primarily related to residual costs at closed manufacturing sites that were affected by prior-period restructuring actions. Ferro reported a gross profit of US$75 million in the fourth quarter or 16.9% of net sales, compared with US$109 million, or 20.3% of net sales, during the fourth quarter of 2010.

Ferro also reported full-year results indicating sales topped US$2.2 billion, an increase of 2.6% compared with 2010. Sales increased in all segments except Electronic Materials, due to the weaker than expected demand.

The company guided that sales of electronic materials products are expected to be lower in 2012 compared with 2011. However, sales are expected to improve during the course of 2012, with most of the improvement expected in the second half of the year, strongly suggesting that the weak demand cycle has yet to bottom-out. Though management expected sales to improve, it was uncertain when a recovery in the PV sector demand would occur.

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