Matthews International's Strategic Turnaround: A Path to Sustainable Value Creation

Matthews International (MAYS) has embarked on a transformative journey to unlock long-term value for shareholders, driven by a combination of strategic divestitures, litigation resolution, and aggressive cost discipline. As the company navigates a complex macroeconomic landscape, its recent actions—particularly the SGK divestiture, resolution of the Tesla dispute, and operational efficiency initiatives—position it as a compelling case study in business realignment. This article evaluates how these moves are stabilizing EBITDA, improving the balance sheet, and setting the stage for future earnings growth.

SGK Divestiture: A Catalyst for Financial Flexibility

The divestiture of the SGK Brand Solutions segment in May 2025 marked a pivotal moment in Matthews' strategic overhaul. By contributing SGK to Propelis—a newly formed entity—in exchange for 40% equity, $50 million in preferred investment, and $250 million in cash, the company secured $400 million in upfront proceeds. These funds were immediately allocated to debt reduction, trimming consolidated debt by $120 million in Q3 2025 alone. The transaction not only eliminated a capital-intensive business but also unlocked synergies: Propelis is projected to generate $16.8 million in adjusted EBITDA for May–June 2025, with Matthews' 40% stake contributing $6.7 million to pro forma EBITDA.

This move reflects a disciplined approach to capital allocation. By shedding non-core assets and retaining a stake in a restructured entity, Matthews has shifted its focus to higher-margin operations while reducing leverage. The SGK proceeds also funded the acquisition of The Dodge Company, a strategic addition to the Memorialization segment that is already proving accretive.

Litigation Resolution: Clearing the Path for Industrial Technologies

The prolonged legal dispute with Tesla had been a drag on the Industrial Technologies segment, suppressing engineering sales and customer orders. However, a favorable ruling in February 2025 has catalyzed a rebound. Outstanding quotes for energy storage solutions surged to $150 million by Q3 2025, with modest order conversion expected to accelerate by year-end. This segment, which saw adjusted EBITDA rise to $9 million in Q3 (up from $4.2 million in Q3 2024), is now benefiting from cost-cutting measures that reduced corporate expenses by 11.4% year-to-date.

The resolution of this litigation is critical. It not only removes a reputational and operational risk but also allows the Industrial Technologies segment to capitalize on its warehouse automation business, which is recovering due to market demand. With energy storage solutions regaining traction and engineering sales stabilizing, the segment is poised to contribute meaningfully to EBITDA growth in the coming quarters.

Cost Discipline and Operational Efficiency: The Unsung Heroes

Matthews' cost-reduction initiatives, initiated in Q4 2024, are delivering results. The company has exceeded its initial $50 million savings target, with Industrial Technologies' adjusted EBITDA margin jumping to 10.3% in Q3 2025 from 4.6% in Q3 2024. These savings stem from restructuring in engineering and tooling operations in Europe, as well as streamlined general and administrative functions.

The Memorialization segment, meanwhile, has leveraged inflationary pricing and productivity gains to offset declining casketed death rates. Despite a 7.5% sales decline in Q2 2025, adjusted EBITDA held steady at $45 million, driven by cost discipline and the integration of The Dodge Company. This segment's operating margin of 21.5% in Q3 2025 underscores its resilience.

Debt Reduction and Shareholder Returns: A Balancing Act

Matthews' debt-to-equity ratio of 2.14 remains elevated, but the company is making progress. With $2 billion in outstanding debt as of June 30, 2025, the SGK proceeds and ongoing cash flow improvements are enabling further reductions. The board has also resumed a stock repurchase program, buying 386,000 shares in Q3 2025 at an average price of $19.96. This signals confidence in the company's intrinsic value, particularly as the debt burden lightens.

Future Outlook: Earnings Potential and Strategic Alternatives

For FY2025, Matthews has maintained adjusted EBITDA guidance of at least $190 million, incorporating its 40% stake in Propelis. The Memorialization segment, bolstered by The Dodge acquisition and pricing power, is expected to remain a stable earnings driver. Meanwhile, Industrial Technologies' recovery in energy storage and warehouse automation could unlock upside if market conditions improve.

The company's ongoing evaluation of strategic alternatives—potentially including the sale of its European packaging business—adds another layer of value creation. With a history of 27 consecutive dividend increases, Matthews is balancing reinvestment in core operations with returns to shareholders.

Investment Thesis

Matthews International's strategic turnaround is a textbook example of how disciplined capital allocation and operational rigor can stabilize a business amid headwinds. While the stock trades at a slight premium (beta of 1.23), its EBITDA growth trajectory and debt reduction progress justify a cautious bullish stance. Investors should monitor the pace of SGK-related synergies, the resolution of the Tesla dispute, and the success of cost-cutting programs. For those with a medium-term horizon, the company's focus on high-margin segments and shareholder returns makes it a compelling candidate for inclusion in a diversified portfolio.

In conclusion, Matthews International is transforming from a debt-laden operator into a leaner, more agile entity. By prioritizing long-term value over short-term gains, it is laying the groundwork for sustainable earnings growth and improved shareholder returns.