Warehouse Automation And AI Will Transform Global Supply Chains

Key Takeaways

• Focus on automation, barcode solutions, and battery tech positions Matthews for margin expansion, recurring revenue, and long-term earnings growth.
  
• Portfolio realignment, asset sales, and cost reductions support debt reduction, margin improvement, and increased free cash flow.
  
• Secular declines, acquisition dependence, rising costs, legal pressures, and higher debt collectively threaten core revenues, margins, and long-term financial flexibility for Matthews International.

Catalysts

Provides brand solutions, memorialization products, and industrial technologies worldwide.

• The accelerating global shift toward warehouse automation, e-commerce growth, and digitized supply chains is increasing order rates and backlogs in Matthews International's Industrial Technologies segment, especially around AI-driven automation and product identification solutions; these trends are set to drive top-line revenue and margin expansion as automation adoption continues to rise.
  
• Regulatory and industry initiatives to replace 1D barcodes with 2D barcodes (e.g., Sunrise 2027) boost demand for Matthews' new printhead technology, which offers high-speed, disposable printheads and mandates Matthews ink, paving the way for high-margin, recurring revenue streams and future earnings growth.
  
• Growing market demand for traceability, compliance, and productivity in battery manufacturing has amplified interest in Matthews' patented dry battery electrode (DBE) calendaring and separator coating technologies, as evidenced by a robust project pipeline and recent production order wins; this supports future revenue visibility and potential EBITDA acceleration.
  
• The company's shift of portfolio mix away from legacy, lower-growth businesses toward higher-growth and higher-margin automation, software, and memorialization segments-bolstered by the accretive Dodge Company acquisition and ongoing cost rationalization-positions Matthews to expand net margins and improve free cash flow generation.
  
• Execution on ongoing portfolio simplification and deleveraging, including SGK divestiture and targeted European asset sales, is expected to reduce debt, further cut corporate costs, and enable greater investment in growth businesses, positively impacting net earnings and cash flow over time.

Matthews International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Matthews International's revenue will decrease by 16.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from -4.0% today to 5.2% in 3 years time.
• Analysts expect earnings to reach $49.9 million (and earnings per share of $1.59) by about August 2028, up from $-65.2 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 31.6x on those 2028 earnings, up from -12.0x today. This future PE is greater than the current PE for the US Consumer Services industry at 17.2x.
• Analysts expect the number of shares outstanding to grow by 2.7% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.93%, as per the Simply Wall St company report.

Matthews International Future Earnings Per Share Growth

Risks

• Persistent declines in casket and cemetery memorial sales-driven by lower U.S. casketed deaths, secular trends toward cremation, and demographic headwinds-suggest a shrinking traditional Memorialization customer base, potentially pressuring long-term revenue and net margins.
  
• Ongoing reliance on acquisitions (such as The Dodge Company) for growth in Memorialization may mask underlying volume declines; failure to sustain or integrate future acquisitions could lead to structurally weaker earnings and inconsistent EBITDA contributions.
  
• High material and input cost inflation (aggravated by tariffs and price adjustments by domestic suppliers) threatens margins in the Memorialization and Product Identification businesses, with only partial offset by price increases, risking further compression of net margins if inflation persists or volumes weaken.
  
• Litigation and competitive pressures in the Industrial Technologies segment, exemplified by ongoing and possibly escalating disputes with Tesla and entry of new competitors in dry battery electrode (DBE) technology, risk significant legal costs, revenue delays, and increased uncertainty in ramping up growth from the critical energy storage vertical.
  
• Cash used in operations and elevated debt levels-exacerbated by one-time transaction costs, legal expenses, and integration challenges-introduce risk to future free cash flow and balance sheet flexibility, limiting Matthews International's ability to invest for organic growth and weather cyclical downturns, which could impact long-term earnings and shareholder returns.

Valuation

• The analysts have a consensus price target of $37.0 for Matthews International based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $958.5 million, earnings will come to $49.9 million, and it would be trading on a PE ratio of 31.6x, assuming you use a discount rate of 8.9%.
• Given the current share price of $25.37, the analyst price target of $37.0 is 31.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.