Quality reporting issues on some materials made with recycled or reclaimed content had a negative impact on A. Schulman Inc.'s recent quarterly earnings — and sent the firm's per-share stock price down almost 25 percent on Jan. 11.
The issues were with some material made at plants in the Evansville, Ind., area that originally were operated by Lucent Polymers and then by Citadel Plastic Holdings. Schulman acquired Citadel last year.
In a news release, Schulman officials said that the firm “discovered discrepancies between laboratory data and certifications provided by Lucent to customers with respect to certain products using recycled or reclaimed raw materials.”
Schulman President and CEO Bernard Rzepka added in the release that the firm “took immediate decisive actions following our initial discovery, including implementing strict protocols designed to meet customer standards and certification requirements for all future shipments.
“To date, we have notified all affected customers,” he said “And I am encouraged that no customers or other parties have initiated recalls or have made material claims against the company or have sought to terminate their relationships with us.”
Fairlawn, Ohio-based Schulman released its financial results for the first quarter of its 2016 fiscal year on Jan. 11. The quarter ended Nov. 30.
The reporting situation cost Schulman $4.9 million in the quarter. Officials said that an internal investigation will continue as to the scope of products, customers, and other parties affected.
“Our bottom line was significantly impacted by the costs incurred during the investigation and the ongoing resolution process of the Lucent quality reporting matter,” Executive Vice President and CFO Joseph Levanduski said in the release.
Schulman closed two former Lucent plants late last year. Officials could not be reached to confirm whether the plants that were closed were the ones that had reporting issues.
More cuts could be on the way, according to additional statements Rzepka made in the release.
“Fiscal 2016 has begun on a challenging note, with weakening macroeconomic conditions across several regions, continued pressure in the oil, energy, and material markets, ongoing currency headwinds, and the costs of our internal actions to resolve the Lucent matter,” Rzepka said. “To that end, we are undertaking additional cost reduction actions company-wide, designed to more than offset the first quarter shortfall.”
Lucent was founded in 1997 by compounding veteran Tim Martin. It then was acquired in late 2013 by Citadel, which combined numerous materials firms — including several compounders — before it was itself acquired by Schulman for $800 million. At the time it was acquired by Citadel, Lucent operated 15 extrusion lines and employed 250 at four Evansville-area plants.
Although Schulman's first-quarter sales grew more than 5 percent to $649.2 million vs. the same quarter in fiscal 2015, the Lucent matter and currency conversion caused first-quarter profit to tumble 44 percent to less than $7.5 million.
The 25 percent stock price drop left Schulman's per-share price near $21.50.
Schulman ranks as one of the largest compounders and concentrate makers in both North America and Europe. The firm posted sales of $2.4 billion in fiscal 2015.