The stock of Matthews International Corporation (MATW) has lost more than half of its value since 2017. Over that time, the company has struggled to sustain its profitability due to the earnings deterioration in its SGK Brand Solutions’ business; the ongoing secular shift favoring cremations over burials in its Memorialization segment; and sales and profitability challenges in its Industrial Technology businesses.
Poor stock price performance attracted the attention of Barington Capital Group, which now holds 1.9% of Matthews’ stock. After working with Matthews under an advisory contract for a year, Barington declined to sign a confidentiality agreement because it believed that the company was not engaging in good faith. It now argues that Matthews’ Board of Directors needs to be refreshed in order to gain some independence from management and pursue initiatives that are likely to recover lost equity value. Accordingly, it has proposed a slate of three directors, including Barington’s CEO James A. Mitarotonda, in place of Matthews’ nominees for the upcoming proxy vote on February 20.
In its letters to Matthews, Barington has recommended that the company: (1) replace CEO Joseph C. Bartolacci; (2) find a strategic partner for its Energy Solutions business; (2) initiate strategic reviews of each of its Industrial Technology businesses; (3) initiate an $80 million cost reduction program and (4) sell SGK Brand Solutions.
Matthews, meanwhile, is now engaged in arbitration with Tesla over a dispute about intellectual property rights for its dry battery electrode (DBE) technology, part of its Energy Solutions business, which could conceivably result in a strategic partnership. In August, it hired J.P. Morgan to conduct strategic reviews of its Industry Technology businesses. In November, it announced a $50 million restructuring program. On January 8, it announced an agreement to merge SGK Brand Solutions with SGS & Co., a competitor, which is controlled by Strategic Value Partners. If consummated, Matthews will receive $250 million in cash, $50 million in preferred stock and a 40% stake in the joint venture.
The company posted a GAAP net loss of $59.7 million or $1.93 per share in the fiscal year just ended, due in part to asset and goodwill write-downs. Adjusted EPS of $2.17, according to the company’s definition, includes several items that should not be considered exceptional, in my view, so I also utilize other measures to assess valuation. My projections include the expected impact of the SGK sale, but still show MATW with a small loss for 2025 and a profit in 2026.
With its strained profitability and lack of clarity in Industrial Technology, valuing Matthews is a challenge. It currently has an enterprise value of $1.7 billion. When SGK closes, it will get $250 million in cash and securities whose initial value will be questionable. The Memorialization business should be worth $1.1-$1.4 billion conservatively at 8-10 times EBITDA (my definition) minus estimated stand alone costs. That suggests that the market is valuing Industrial Technology at around $250-$400 million, which looks cheap. Matthews Engineering Group, part of Industrial Technology, could be worth a multiple of that. The Warehouse Automation and Product Identification businesses could add to the total.
With last week’s sell off, I am initiating coverage of MATW with a performance rating of “2” outperform and a price target of $32, which I consider speculative. Near-term upside catalysts could come from a resolution to the Tesla arbitration, the completion of the SGK transaction and demonstrated progress on the cost reduction program.
This is a summary of my primary report on Matthews International Corporation (MATW). For those interested in Matthews, my primary report provides a much more comprehensive analysis of the company and its businesses than the summary provided above. To obtain a copy of the report, please reach out to me using the contact information provided below.
January 29, 2025 (Report published on January 27, 2025.)
Stephen P. Percoco
Lark Research
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