Matthews International Corporation (MATW) reported 25Q1 revenues of $401.8 million, down 10.7%. Sales at its Memorialization business fell 8.5%, which the company attributes to a decline in U.S. death rates. Industrial Technology’s sales plunged 27.7%, mostly in energy storage solutions (from the Tesla litigation) and lower warehouse automation sales. Sales at its SGK Solutions business, which is scheduled to be sold this year, rose 0.2%.
With the drop in sales, operating profit fell 40%, as margin contracted from 2.1% to 1.4%. MATW’s net loss widened by 50.8% to $3.5 million and loss per share increased from $0.07 to $0.11. Adjusted EPS fell from $0.37 to $0.14. 25Q1 revenues were 7% below my estimate. GAAP loss per share was $0.15 below my projected $0.26. Adjusted EPS of $0.14 fell short of my $0.28. Adjusted EBITDA of $40.0 million was below my $45.6 million. Yet, results were mostly in line with management’s expectations, as it affirmed 2025 adjusted EBITDA guidance of $205-$210 million. Cash flow from operating activities was better than I projected, mainly because Matthews did not pay down other liabilities as much as I thought. Thus, I have pared my expectations for operating cash outflows for 2025 and the resulting lower debt levels reduce projected interest expense, leading to lower projected GAAP net losses and higher adjusted EPS.
The arbitrator in Matthews’ dispute with Tesla over the commercial rights to its Dry Battery Electrode (DBE) technology affirmed that Matthews has the right to sell its solutions to other customers. What is less clear now, however, is the status of Matthews relationship with Tesla, which Barington Capital said may be its only customer (so far) for the DBE equipment. Management said only that it expects to deliver out its backlog of orders to Tesla.
The company faces a challenge from the activist Barington Capital, which is seeking three Board seats at its upcoming annual meeting on Feb. 20. 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 its Industrial Technology businesses; (3) expand its $50 million cost reduction program to $80 million and (4) sell SGK Brand Solutions. Proxy advisors ISS, Glass Lewis and Egan-Jones are recommending that shareholders vote for the Barington nominees.
The company, meanwhile, has agreed to merge SGK with SGS & Co., a competitor controlled by Strategic Value Partners. It is conducting strategic reviews of the Industrial Technology businesses. It will likely seek more cost cuts, if that makes sense. Barington worries that the strategic reviews are focused only on potential acquisitions, which is probably correct.
Since initiating coverage on Jan. 27 with a performance rating of “2” outperform, MATW’s stock has fallen nearly 14%. Since its recent intraday peak of $31.64 on Jan. 14, the stock has plunged nearly 25%, posting daily losses in 14 out of 16 trading sessions. At its current price of $24.97, MATW is trading at 45 times my revised fiscal 2026 GAAP EPS projection of $0.55 and 12 times projected 2026 adjusted EPS of $1.88. My $32 price target, which is unchanged, values the stock at 58 times fiscal 2026 GAAP earnings and 15 times adjusted (non-GAAP) EPS. With the stock’s 4.0% dividend yield, the $32 price target equates to a potential total return of 32%, so I am raising my performance rating by a notch to “1” (Buy). Achieving the price target implicitly assumes a sustainable rebound in Energy Solutions sales and stable performance in Memorialization and the rest of the Industrial Technology businesses.
Activist Campaign Update. Since my initial report, Matthews has attacked Barington aggressively in its press releases, questioning the competence and abilities of Barington’s CEO, James Mitarotonda, and its Board nominees. Those attacks seem misplaced. Barington has a demonstrated record of success in the 100 or so activist campaigns that it has conducted since it was founded in 2000. If Mr. Mitarotonda does not understand key aspects of the company’s businesses, Matthews itself may be partially to blame, as it had the opportunity to educate Mr. Mitarotonda over their two year engagement.
On the other hand, Mr. Mitarotonda has also erred, I believe, in calling for Mr. Joseph Bartolacci to be replaced as Matthews’ CEO. He says that the results (i.e. the stock’s underperformance) “speak for themselves.” Yet, Mr. Mitarotonda bases that assertion on a statistical sleight of hand. Yes, the stock has underperformed over 1-year, 3-year, 5-year, 10-year and 18-year time frames, but Matthews’ stock only modestly underperformed the S&P SmallCap 600 from the start of Mr. Bartolacci’s tenure in September 2006 until the stock’s peak of $77.85 in January 2017, rising at an average annual rate of 7.2% vs. SML’s 8.0%. MATW’s significant underperformance has occurred from Jan. 2017 through today, with SML up 7.0% annually over that time period and MATW falling 11.6% annually.
While the difference in presentation may seem small, it is not. Eighteen years of underperformance places the weight of evidence more firmly against the CEO’s skill and competence. Eleven years of acceptable performance followed by seven years of significant underperformance introduces the possibility of extenuating circumstances. Barington must have known that presenting the data more accurately in this way would weaken its case against Mr. Bartolacci. It is likely that the three proxy advisors – ISS, Glass Lewis and Egan Jones – all of which have thrown their support to the Barington nominees, overlooked this detail in their decision-making. Mr. Mitarotonda may ultimately be correct in pressing for a new CEO, but since the only support that he offers is misleading, it raises questions in my mind about the validity of his recommendation.
Even if his analysis is correct, it probably would have been better to wait until he and his fellow nominees gained more experience and acquired a deeper understanding of the company after joining the Board before calling for Mr. Bartolacci’s replacement. Unless Barington is assuming that Mr. Bartolacci will resign if Barington’s nominees are elected, its call to replace him might make it more difficult for it and its nominees to work constructively with management and the rest of the Board.
As discussed in my initial report, I believe that Matthews could indeed benefit from an outsider’s perspective and influence. A major contributing factor to the stock’s underperformance since 2017, I believe, has been a deterioration in its financial reporting practices and lack of candor in many of its disclosures. However, Barington has not indicated in any of its communications with investors that it sees this as a problem. Consequently, there is no guarantee that Matthews’ financial and operating disclosures will improve, if Barington’s nominees are elected.
How I Will Vote My Shares. While I support outside representation, I do not believe that Barington should get three seats on Matthews Board of Directors at this time. I intend to vote for one Barington nominee – Mr. Mitarotonda – despite his call for Mr. Bartolacci’s head – and withhold my vote for Alvaro Garcia-Tunon, Matthews’ Board Chairman. (To its credit, Matthews said in its Dec. 10, 2024 press release that its Board and leadership team have a long-term relationship with Barington and remain open to constructive dialog. Hopefully, that is still the case.) One seat may not give Mr. Mitarotonda the clout that he seeks to push through his recommendations immediately, but it will give him the opportunity to learn more about the company, patch up his differences with its leadership and, if necessary, help prepare the company and the Board for a leadership transition. After a year’s time, if Matthews has not made sufficient progress in Mr. Mitarotonda’s eyes, he should be in a better position to make his case to Matthews’ shareholders and push more decisively for change by proposing another slate of directors.
This is a summary of my recent update report on Matthews International Corporation (MATW). To obtain a copy of the report, please reach out to me using the contact information provide below.
February 14, 2025 (Report published on February 13, 2025.)
Stephen P. Percoco
Lark Research
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© 2015-2025 by Stephen P. Percoco, Lark Research. All rights reserved.
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