Q3 2019 Earnings Call

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Good morning, and welcome.

Pittsburgh Corporation third quarter 2019 earnings results Conference call.

Participants will be in listen only mode should you need assistance, we signaled conference specialist presenter Mr. Keith zero.

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Now ill turn the call whatsoever, the Middle East Boston Director Investor Relations. Please go ahead.

Thank you Brenda and good morning, everyone joining up on today's third quarter Conference call I'm joined by Britain rare, our Chief Executive Officer, and Mike Mcauley Senior Vice President Chief Financial Officer, and Treasurer also joining us on the call today, our Stanline President of Union Electric Steel Corporation, and Perry Kenney President of Air and liquid.

That's a corporation.

Before we begin I would like to remind everyone that participants on this call may make statements or comments that are forward looking and may include financial projections or other statements corporations plans objectives expectations are attention.

These matters involve certain risks and uncertainties many of which are outside corporations control.

Corporations actual results may differ significantly from those projected or suggested any forward looking statements due to a variety of factors, including those discussed kind of corporations. Most recently filed Form 10-K , and subsequent filings with the Securities and Exchange Commission.

We do not undertake any obligation to update or otherwise released publicly any revision to our forward looking statements.

A replay of this call will be posted on our website later today and remain available for two weeks following the completion of a call.

To access the earnings release, where the webcast replay. Please consult the investor section of our website at Ampco P.G.H. Dot com.

That I'll turn the call over to Britain rare Ampco Pittsburgh CEO .

Thank you Melanie good morning, and welcome to our coal or CFO , Mike Mcauley, who will review our financial results in more detail momentarily.

First I'd like to point out some of the key takeaways <unk> third quarter performance.

Hi lot of the core was the completion of the sale of both of our cast roll manufacturing facility in ever more Pennsylvania, and our Canadian specially still subsidiary SWS still the divestiture of these assets significantly improves our cost structure without compromising.

Our ability to serve current and future customers are forged and cast engineered product segment.

Based on our current order book, we anticipate these actions will result in positive operating profit for company beginning immediately.

During the third quarter. We also launched the next phase of our operational efficiency improvements at our European Casserole facilities.

These actions are expected to deliver a reduction of approximately $3 million to $4 million, an operating costs and 2020.

Sam line, President or forged and cast engineered products segment will provide more color on our progress in Europe shortly.

When compared to quarter to the third quarter also reflects the impact of pre scheduled seasonal plant shutdowns in our U.S. and European roll manufacturing locations.

These shut downs are used to maintain and improve our asset Hill.

Despite the plant shutdowns.

And the significant downturn in our Frac block sales to the oil and gas industry adjusted income from operating from continuing operations, which is a non-GAAP measure was approximately breakeven for the quarter.

As for year to date adjusted income from continuing operations yield improvement of two and half million dollars more than doubled compared to last year.

September was a particularly strong month for the quarter as we're able to officially wind down production to add more during the month in harvest operational efficiencies through targeted actions.

I'll now turn the call over to San why in electric still President who will discuss the forcing cast engineered products segment.

Two of these for the third for Sam.

Thanks, Brett.

The third quarter, we have continued focus on safety cost reductions in the U.S. plants, and as mentioned by Brett restructuring and cost reductions in the European plants. We concluded negotiations with our workforce represented by the United Steelworkers at our Carnegie, Pennsylvania plant, resulting in a 40 year contract the previous caller.

Attract was set to expire this month.

During the third quarter. We also had planned outages in the U.S. in Europe , where we took the time to work on critical equipment to ensure reliability.

Our safety performance continues to show improvement.

As stated in the previous call, we will be relentless when it comes to safety as our goal was the zero injury workplace.

During the quarter, we achieved two major milestones, but the divestitures of Evan weren't as W.

Excluding impairment charges. These actions are expected to improve after those net income by approximately $16 million to $18 million compared to our last 12 month run rate ended September Thirtyth 2019.

We used to say that the work plan for the ever more facility prior to itself in order to finished product for our customers was completed two weeks. Early this is a testament to the leadership and workforce that evermore I would like to thank them for this effort through the start of uncertainty.

All new production has been absorbed by the European gas plants.

Our fourth plants in the United States, we continue to take cost out of the system. Our tiered daily management system, where meetings are held at the department plant business and corporate level.

Continues to evolve and approved to expose issues in dry problem solving.

Year to date, our efficiencies have improved and our U.S. facilities by 7%.

This improvement that's helped study from Q2 Q3.

For our European assets. We're currently in the middle of a restructuring initiative to lead out our overhead costs, including the consolidation of some sales offices.

Our focus on quality has already yielded benefits, we expect annualized savings of approximately $3 million to $4 million from these activities starting in Q4.

Finally from a bookings perspective, we have a solid backlog for our roll business with some specialty grade and size combinations being sold out for the next year.

Thanks, Sam what else sort of call over to Cherry kidney air and liquid processing segment President.

Thank you Brett and good morning.

As Bretton Sam discussed one of our major focus is is the safety empower employees the air and liquid processing segment has experienced significant improvement in osha recordable accidents, which have decreased by more than 50% when compared to prior year.

This is a segment wide effort and every employee is responsible for this success and the success of the safety program and I thank them for their efforts.

Net sales for air and liquid processing segment for the third quarter ended September Thirtyth 2019 were 3% below that of the prior year as a result of changes in customer required delivery dates.

The operating income for the quarter when compared to prior year was negatively impacted by the lower sales and a shift in product mix.

The segment's backlog as of September Thirtyth, 2019, approximated $53 million, which compares favorably to approximately $44.4 million at December 31st 2018.

The backlog at each of the three businesses, which make up the air and liquid processing segment have increased when compared to December 30, Onest 2018.

We're now seeing positive results of our process improvement efforts in increased productivity and material utilization improvement. We're pleased with the results to date and confident confident that the success, we have experienced well continue to grow.

Thank you Terry with data like the hand, the call over to our CFO , Mike Mcauley sort of your financial results for the quarter and much more detail Mike.

Thank you Brett good morning, and thank you for joining our call today.

My commentary today contains the use of certain non-GAAP measures I referred to I refer you to our disclosures regarding non-GAAP measures and the related non-GAAP financial measures reconciliation schedule included in this morning's earnings release.

I'd like to focus on our Q3 results. This morning and discussion of year to date results is included in todays earnings release.

Amco SNET sales from continuing operations for the third quarter up 29 team where $90.9 million.

This compares to net sales from continuing operations for the third quarter of 2018 of $98.8 million.

Net sales in the forged and cast engineered product segment declined approximately 10% compared to the prior year period.

Primarily due to lower sales of forged engineered products to the oil and gas industry.

Net sales for the air and liquid processing segment for the third quarter of 2019 were relatively comparable to prior year.

I will comment more on segment level results momentarily.

Gross profit as a percentage of net sales was 16.9% for the third quarter up 2019.

And was approximately flat with a third quarter of 2018.

Higher pricing for mill roles and operating efficiencies within the domestic forged operations were offset by the effects of weaker pricing for forged engineered products and changes in product mix for the air and liquid systems processing segment.

Selling and administrative expenses up $12.4 million or 13.6% of net sales for the third quarter of 2019.

We're down compared to $14 million or 14.2% of net sales for the third quarter of 2018.

We were able to show a year over year reduction in SGN, a for the quarter due in part to our reduction enforce actions earlier this year.

Lower professional fees associated with restructuring activities as well as lower volume driven commissions expense.

Depreciation and amortization expense of $4.5 million for the third quarter of 2019 was down compared to $5.4 million for the third quarter of 2018.

Due in part to the sale of our vertical seal division last year and the cessation of depreciation at the having a more facility beginning in King Q2 in connection with the write down of certain assets to their estimated net realizable value.

Loss from continuing operations on an as reported GAAP basis for the third quarter of 2019 was $1.3 million.

This compare it to a loss from continuing operations in the prior year quarter of $2.8 million the improvement being driven in part by lower losses at the after more facility.

As operations were curtailed in anticipation of its sale.

And the year over year reduction NSG anyway, I just described.

Excluding the restructuring related costs and estimated temporary excess costs of the Evan more facility as defined in the earnings release. This morning.

non-GAAP adjusted loss from continuing operations was approximately point $1 million for the quarter.

This reflects an improvement of point $6 million compared to the prior year quarter on the same basis.

This improvement is primarily attributable to higher pricing for mill roles.

Manufacturing efficiencies in our domestic forged operations.

And lower overhead costs, partially offset by lower sales affords engineered products to the oil and gas industry.

And the effect of a shift in product mix and the air and liquid processing segment.

Other income declined slightly for the third quarter of 2019, when compared to the prior year quarter.

Although we recorded a net gain of $2.3 million on the curtailment of the defined benefit pension and post retirement plans.

And recognition of special termination benefits associated with the divestiture of the avid mark facility and the current your quarter.

This was offset by higher transact transaction losses on foreign exchange.

Higher interest expense.

And the timing of it dividends received from one of our cast roll joint ventures in the prior year quarter.

At the bottom line the Corporation reported a GAAP net loss from continuing operations of $1.2 million or 10 cents per common share for the third quarter of 2019.

Compared to a net loss of $3 million or 24 cents per common share for the third quarter of 2018.

The Corporation also reported a net loss from continuing from discontinued operations, reflecting the operations of our Canadian subsidiary I asked W. steel.

$3.4 million were 27 cents per common share.

For the third quarter of 2019.

Compared to a net loss of $3.4 million or 28 cents per common share for the third quarter of 2018.

With the divestiture of this that business at September Thirtyth 2019, we will no longer be carrying this discontinued operation going forward.

With respect to results across business segments.

And the forcing cast engineered product segment, despite approximately 10% decline in sales in Q3, due due to mainly to a drop enforced engineered product demand and the oil and gas industry.

Segments operating results improved from a year ago by $1.1 million, primarily due to lower losses at the aftermarket facility as operations worker Tech curtailed and in anticipation of its sale.

The effect from lower forced engineered product sales was offset by better pricing for our mill roles.

Manufacturing efficiencies for our domestic forced operations were partially mitigated by Unabsorbed costs, primarily at our European operations due to seasonal summer summer maintenance shutdown activity.

Net sales for the air and liquid processing.

Segment for the third quarter 2019 were down slightly approximately 3% compared to prior year.

Whereas the segment's operating income for the second quarter of 2019 decreased by 23% or $685000.

Versus prior year, principally due to changes in product mix and some shipment timing issues as Terry described earlier.

Now I will review a few cash related items from for continuing operations.

Capital expenditures for the third quarter of 2019 were $3.4 million for continuing operations.

And our at $7.2 million year to date.

Cash and cash equivalents for continuing operations up $9.8 million at September Thirtyth 2019 decreased compared to that December 30, Onest 2018 balance of $19.7 million.

As I explained on prior calls cash from our domestic customer remittances are now swept daily against the credit line to minimize borrowings as.

As a result, we are maintaining minimal domestic cash and the reported cash balance reflects primarily foreign cash.

[noise] drawings on the Amco revolving credit facility, our $38.4 million at December 32019, which is down versus the $41.3 million at June Thirtyth.

The change reflects the proceeds from the two divestitures, which closed on September thirtyth.

Which were used to pay down the revolver, but this was partly offset by having drawn on the revolver to fund operations earlier in the quarter.

The increase in revolver borrowings compared to December 31st 2018.

Balance of $14.3 million reflects the use of the credit facility as planned.

To repay the promissory notes on interest which were retired in the first quarter of 2019.

At September Thirtyth 2019. In addition to the cash balance. The Corporation also has remaining availability on the revolver of approximately $21 million.

I'll now turn the call back over to Brett for some closing remarks.

Thank you Mike I am excited encouraged by the progress or theme has made thus far.

We've made substantial improvements were not finished.

We'll continue to push for topline growth and operational efficiencies across our core business.

During the fourth quarter, we expect improved operating income as result of projects and initiatives that we've discussed this morning, our employees remain focused and committed to building a sustainable and profitable future for businesses have great confident as weve confidence as we move forward.

Thank you again for joining us Ram took as Bruce Conference call today at this time, we will open up the line for your questions.

We'll now begin the question and answer session.

We ask that you please limit yourself to one question and one follow up to.

To ask a question. He May press Star then one on your Touchtone phone.

You are using a speakerphone. Please pick up your handset before question the keys to withdraw your question. Please press Star then to at this time, we will pause momentarily to assemble a roster.

Our first question comes from Marco Rodriguez with Stonegate capital. Please go ahead.

Hi, Good morning, Thank you for taking my questions.

Well I was wondering if you could talk a little bit more in regard to initiatives to improve your operating efficiencies obviously youve.

Maybe a couple significant divestures. If you can just put some more color and some more metrics as far as what you we should be expecting as you guys move into fiscal 22.

For those types of initiatives.

Sam.

On the European side, I mentioned, we initiated a restructuring and cost improvement program there.

That's mainly some some overhead or redundancies that have been that we're negotiating through and getting reduced and that's occurring or most of that is completed and some sales office consolidation.

Which will be completed.

By the end of Q1, so we expect to see a three to 4 million dollar improvement out of that.

Tivity that also included does that in that as a scrap reduction program, where we've already got to capture the benefit there starting in Q4.

So melia that's done at 80% other restructuring.

Ben complete at this point.

Those but the main thing that that's occurred and this quarter. The in the U.S. side, we continue to perform strong compared to last year, there will be more opportunity.

I think we've.

We've captured were switched our focus to Europe .

Understood and then in terms of the air and liquid.

Business you you mentioned on the call that there were some timing issues and.

Switches in mix, if you could just provide some more detail in regard to that.

Yes. This is Terry.

And then at the end of the third quarter US a few customers asked requested construction projects were delayed they asked us to delay some shipments so we.

I had no choice, but to to accommodate that.

And the the switching this shift in product mix was to some lower margin business from our air handling business to our two some lower margin business at our air handling business from some more profitable business from our son tropical pump business.

And the did those delays shipments are they going to be completed in Q4 or they pushed out into fiscal 20.

They are will be shipped in Q4, if they haven't already been shipped by now.

Okay and can you quantify the dollar amount.

No I.

We're down about 3% for dynamite here actually approximately 3% of.

Quarter shipments were delayed.

Hi, Thanks, a lot appreciate your time.

Our next question comes from Justin Bergner, what's good Dot research. Please go ahead.

Sorry for the company Mr. intrusions, you Dot research a good morning, guys.

Hi, Justin.

So.

The mix, an air and liquid processing is that.

Dynamic supposed to continue.

Will that be sort of sorted out once these delayed shipments take effect it will be shorted out once sorted out once the delayed shipments occur.

Okay, Great and then could you just remind us what the proceeds as are from the combined sales of the.

And more facility in the SW Canadian specialty steel operation.

Yeah.

Hi can Justin this is Mike I could fill you in on that and you'll see we didn't disclose it when we announced the they're not the deals but.

You'll be seeing it in our Q, which will be coming out shortly.

Combined after consideration of the.

Purchase price adjustment mechanism for changes in networking capital.

The combined proceeds from divestitures was in the range of $8 million.

We use those proceeds to to pay down the line.

On the on the day that proceeds came in.

Okay.

Thank you.

Our next question comes from David Wright with Henry Investment Trust. Please go ahead.

Hi, good morning, Sam.

Made a comment in his remarks about.

The $16 million to $18 million of.

Operating profit.

Swing from having completed the two divestitures I just wanted to make sure I understood that could you go over it again.

Yeah.

David highest Mike.

He didnt say operating properties had net income number one because.

We're talking about a SW, which as a discontinued operation.

So if you look at our figuring out and you look at our earnings release. This morning, you you see that.

Results from discontinued operations, which is below.

Loss from continuing operations.

That's all I asked I'll tell you when it's $9 million year to date.

We were looking and he was he was making a reference to the impact of losing that.

On compared to a kind of an annualized run rate by looking at our last for finished quarters.

And if you go back in time into that math, that's that's a big chunk of it.

And then he was also including the you haven't more temporary excess costs, which if you look at RP attachment to our press release.

We've identified the the nine months' worth of that piece.

On our non-GAAP .

Financial measures this disclosure and if you if you go back and look at a of our our four quarter run rate on that.

And in your excluding things like impairment and so forth one off items.

You can get these numbers that that you cited something in the range of 16 to 18 combined at the net income level.

So that's what it would have been if you hadn't had these two things.

Theoretically, yes, and and there's another item in there as well, David where you know I mentioned on on my remarks that we we recorded at a 2.3 million net gain on the.

On the curtailment of.

Certain pension and.

Post retirement benefit plan.

Numbers that are it's in other income expense, that's where that resides geography geographically on the piano. So we know that down that $2.3 million gain as well.

Alright, well that's great.

It seems like you are.

So far it just seems that you said you were going to execute on you have executed on sort of one or two to acknowledge that endo wish you continued good luck.

Thank you very much.

Our next question is a follow up question from Justin Bergner with GE Dot research. Please go ahead.

Thanks, again, I just wanted to understand within the breakeven adjusted.

Results for this quarter.

How much was avenue or adding more still weighing that down to whatever direct or indirect costs.

Were incurred after you know whatever you adjusted back out yeah.

Justin It's Mike again on on the attach the table attached the press release, we've kind of spike that out.

That we think the excess cost of and more in the third quarter or about 685000.

It's a little bit lower than it's lower than we had had been seeing in prior quarters, because you know it's.

It was starting we started the wind down.

You know earlier, so we started seeing the benefit already of getting out of it.

Some of that some of the benefit.

But when we said it was nine to 10 million dollar benefit you know we were talking about a run rate from around the earlier part of the year. When it was you know more in the range of you know $2 million to $2.2 million kind of a quarterly value.

Which if you annualized that.

That's how we got to to the.

To the to the impact versus that that prior run right.

Okay got it yeah. So it seems like all the having more costs are backed out and when you get to that break even number okay. One mixture that was the case alright. Thank you again okay.

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