Materion (NYSE:MTRN) executives said the company is entering 2026 with “confidence” after what Chief Executive Officer Jugal Vijayvargiya described as strong underlying momentum across key end markets, despite a fourth-quarter quality event that disrupted shipments to its largest precision clad strip customer.
Quality event disrupts precision clad strip shipments
Vijayvargiya said fourth-quarter sales were affected after a large precision clad strip customer alerted Materion to a performance issue discovered during the customer’s production process. He said the issue stemmed from a control failure in one production step that the company’s quality system did not detect, allowing nonconforming material to reach the customer.
On the call, Vijayvargiya said the customer visited the facilities and reviewed changes made, and the company added quality leadership and resources. He said Materion is focused on ramping production during the first quarter and expects higher production in the second quarter and beyond to support 2026 volumes, adding that 2026 clad strip volumes are expected to be better than 2025.
Asked about potential FDA approval timing for the customer’s device, management said it had no new information to share.
Fourth-quarter results: growth in Electronic Materials and Precision Optics
Chief Financial Officer Shelly Chadwick said fourth-quarter value-added sales (which exclude pass-through precious metal costs) were $253.9 million. She said value-added sales were up 7% organically from the prior year when excluding precision clad strip, but “all in” value-added sales were down 14%, primarily due to the quality event that limited sales to the company’s largest customer.
Chadwick reported adjusted earnings per share of $1.53, up 9% sequentially. Adjusted EBITDA was $57 million, or 22.5% of value-added sales, down 7% year-over-year but up 170 basis points on margin. She attributed the EBITDA decline to reduced precision clad strip volume, partially offset by higher volume, strong price mix, and improved performance in Electronic Materials and Precision Optics.
- Performance Materials: Value-added sales of $132.4 million, down 32% year-over-year, driven primarily by lower precision clad strip sales. Adjusted EBITDA was $35.8 million, or 27% of value-added sales, down 33% year-over-year, with strong price mix partially offsetting volume declines.
- Electronic Materials: Value-added sales of $94.1 million, up 20% year-over-year and up 18% sequentially. Adjusted EBITDA was $22 million, or 23.4%, with nearly 500 basis points of year-over-year margin improvement.
- Precision Optics: Value-added sales of $27.4 million, up 26% year-over-year. EBITDA (excluding special items) was $4.3 million, or 15.7% of value-added sales, marking the second consecutive quarter of double-digit margin performance, according to management.
Vijayvargiya said Electronic Materials posted its strongest sales quarter in nearly three years, driven by semiconductor growth tied to AI, high-performance computing, and data storage. He said Precision Optics delivered its third consecutive quarter of top-line improvement and was supported by new business wins in semiconductor, space, defense, and automotive.
In the Q&A, management addressed questions about sequential leverage in Electronic Materials, citing quarter-to-quarter mix factors and noting “one-time items” in the third quarter and mix issues in the fourth quarter. Vijayvargiya pointed to year-over-year improvement and said the company expects continued progress in 2026 from prior cost actions and operational efficiency initiatives.
Full-year 2025: margin progress and backlog growth
For full-year 2025, Chadwick said value-added sales were approximately $1.05 billion, up 4% organically excluding precision clad strip, but down 4% organically “all in” due to lower clad strip volume. She reported adjusted EBITDA of $217 million, down 2% year-over-year, while adjusted EBITDA margin improved to 20.7% of value-added sales, the company’s fifth consecutive year of higher adjusted EBITDA margins. Adjusted EPS was $5.44, up 2% year-over-year, aided by lower interest expense and tax initiatives.
Vijayvargiya highlighted several operational and commercial milestones from 2025, including record new business bookings of nearly $140 million and a new-business RFQ pipeline of approximately $200 million. He said total backlog increased 7% year-over-year, with second-half backlog up 12% versus the first half, and said semiconductor order rates were up 6% year-over-year, or 14% excluding China.
Management also cited growth in new energy, saying sales more than doubled year-over-year. Vijayvargiya referenced a multi-year supply agreement with Commonwealth Fusion Systems and, later in the Q&A, said Materion made its first shipment under an initial contract in the fourth quarter and expects to continue shipments in 2026.
Defense demand and beryllium capacity investment
Executives emphasized defense as a key growth driver. Vijayvargiya said the company surpassed $100 million in defense sales for the second consecutive year and has delivered 10% annual growth in defense sales since 2020. He also said Materion secured a $65 million investment from a major U.S. defense prime to expand beryllium capacity.
In the Q&A, Vijayvargiya said the $65 million is fully funded by the customer and will be received over 2026 and 2027 as the project progresses, impacting two facilities in the beryllium value stream. He said the additional capacity is expected to come online in the 2028 timeframe, while existing capacity supports volumes in 2026 and 2027. Asked about strategic mineral reserves, he said he could not discuss the topic in detail but noted the company works actively with the government.
2026 outlook: EPS guidance and seasonally slower first quarter
Looking ahead, management said it expects approximately 15% earnings growth in 2026 on strong sales growth, with continued progress toward its 23% midterm EBITDA margin target. Chadwick provided adjusted EPS guidance of $6.00 to $6.50 for 2026, which she said represents about 15% growth at the midpoint.
Chadwick said the first quarter is expected to be a slower start due to normal seasonality—adding that defense and semiconductor tend to be softer in Q1—along with additional costs to ensure a “smooth and efficient restart” of clad strip production. She said the company expects first-quarter earnings to be roughly 10% higher than the prior-year first quarter, followed by sequential step-ups through the year.
On cash and liquidity, Chadwick said Materion ended the quarter with net debt of approximately $445 million and $224 million of available capacity on its credit facility, with leverage at 2.1 times. She said the clad strip quality event temporarily impacted cash flow as inventory movement and cash receipts for that business paused. Management said it expects free cash flow to strengthen in 2026 through higher profitability and working capital improvements.
About Materion (NYSE:MTRN)
Materion Corporation (NYSE: MTRN) is a global supplier of advanced materials and precision-engineered solutions. The company develops and manufactures high-performance alloys, engineered clad and composite materials, precision thin film products, and advanced optical and electronic materials. Materion’s offerings address critical performance requirements for industries where material properties such as strength, wear resistance, conductivity and optical clarity are paramount.
Materion’s core businesses include beryllium and beryllium composites for aerospace and defense platforms, nickel- and copper-based specialty alloys for industrial and medical applications, optical coatings and substrates for scientific instrumentation, and electronic materials used in semiconductor production.
