MATW Q2 Deep Dive: Restructuring, Automation Expansion, and Divestitures Shape Outlook

Diversified solutions provider Matthews International (NASDAQ:MATW) reported Q2 CY2025 results beating Wall Street’s revenue expectations, but sales fell by 18.3% year on year to $349.4 million. Its non-GAAP profit of $0.28 per share was 30.2% above analysts’ consensus estimates.

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StockStory’s Take

Matthews International’s second quarter was marked by strategic changes and a positive share price reaction, as the company’s results exceeded Wall Street’s revenue and non-GAAP profit expectations. Management credited early benefits from its value creation plan, including cost reductions and the divestiture of the SGK business, as well as margin improvements in both the Memorialization and Industrial Technologies segments. CEO Joseph Bartolacci highlighted that, “the transition has been smooth so far with synergy being quickly captured and our expectations for EBITDA improvement are high,” particularly referencing the Dodge acquisition and ongoing cost initiatives.

Looking forward, Matthews’ guidance reflects confidence in continued operational improvements, new product launches, and further simplification of the business. Management is focused on integrating recent acquisitions, such as Dodge, and capturing synergies from the Propelis partnership. Bartolacci stated, “We expect this transaction to create significant value as we exit in the future,” underscoring the importance of the Propelis joint venture and the anticipated launch of the Axiom printhead product. The company also expects ongoing automation trends and its pipeline in energy storage solutions to support future growth, despite some industry headwinds.

Key Insights from Management’s Remarks

Management signaled that divestitures, cost controls, and targeted investments underpinned improved margins and set the stage for future growth despite top-line declines.

• SGK divestiture impact: The sale of the SGK business was the main driver of the year-over-year revenue decline, but enabled Matthews to simplify its structure, reduce debt, and focus on higher-margin operations. Management noted early positive feedback and new business wins through the Propelis partnership, in which Matthews retains a 40% interest.
• Cost reduction benefits: A comprehensive cost savings program initiated in the prior year contributed meaningfully to margin expansion and lower corporate expenses. CFO Steven Nicola reported that savings are on track to exceed the original $50 million target, with the greatest impact in engineering, tooling, and administrative functions.
• Memorialization segment stability: This segment remains the company’s financial anchor, benefiting from inflationary price realization and the addition of the Dodge Company. The Dodge acquisition, which closed in May, is already accretive and expected to add approximately $12 million in annual EBITDA once fully integrated.
• Industrial Technologies recovery: Warehouse automation saw improving order trends and increased backlog, offsetting weakness in the energy and engineering sub-segments. Management attributed the recovery to renewed demand for AI-driven automation and predictive analytics, with large retailers driving order activity.
• Legal and competitive developments: The ongoing dispute with Tesla over dry battery electrode (DBE) technology highlights Matthews’ intellectual property portfolio in the battery sector. Management reported a favorable arbitration ruling and increasing market interest, including new orders from solid-state battery manufacturers, despite continued legal challenges and a broader slowdown in EV demand.

Drivers of Future Performance

Matthews’ outlook is driven by cost discipline, automation tailwinds, and the integration of new products and partnerships, with risks from tariffs and industry-specific legal disputes.

• Automation and AI demand: Management expects the warehouse automation business to benefit from rising demand for AI-enabled solutions and predictive analytics, as e-commerce and supply chain modernization accelerate. The company’s backlog has grown due to orders from large retailers, and management believes this trend will continue as capital investment tax incentives encourage further automation.
• New product launches: The upcoming launch of the Axiom printhead, designed for advanced 2D barcode printing, is positioned to capitalize on regulatory changes (the Sunrise 2027 initiative) and to create high-margin, recurring revenue streams. Management believes this product will facilitate entry into new markets and strengthen the Product Identification segment.
• Tariff and legal risks: While cost inflation from tariffs is expected to be largely passed on to customers, management noted that Memorialization is most exposed to these pressures. In addition, continued legal disputes around DBE technology could introduce uncertainty, though management remains confident in the company’s intellectual property and market positioning.

Catalysts in Upcoming Quarters

In the coming quarters, our analysts will be focused on (1) the successful integration and synergy realization from the Dodge acquisition and Propelis partnership, (2) evidence of accelerating order growth and backlog conversion in warehouse automation, and (3) the commercial launch and initial adoption of the Axiom printhead product. Additionally, we will monitor the outcomes of ongoing legal proceedings and the company’s continued progress on debt reduction and asset sales.

Matthews currently trades at $24.34, up from $24.06 just before the earnings. At this price, is it a buy or sell? See for yourself in our full research report (it’s free).

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