Q2 2020 Ampco-Pittsburgh Corp Earnings Call
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<unk> second quarter 2020, <unk> earnings conference call.
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After todays presentation, there will be an opportunity to ask questions. Please note. This event is being recorded.
I would now like turn the conference over to Melanie Solomon Director of Investor Relations. Please go ahead.
Thank you Melissa and good morning, everyone. Joining today's second quarter 2020 conference call I'm joined today by Britain Breyer, Our Chief Executive Officer, Mike Mcauley, Senior Vice President Chief Financial Officer, and Treasurer also joining us on calls today, our Sam Lion President of Union Electric steel preparation and Kerri Kenney President.
Air and liquid systems Corporation.
Before we begin I would like to remind everyone that participants on this call may make statements or comments that are forward looking may include financial projections or other statements about the corporations plans objectives expectations or intention.
These matters involve certain risks and uncertainties many of which are outside of the corporations control.
Corporations actual results may differ significantly from those projected or suggested it any forward looking statement due to a variety of factors, including those discussed in its operations. Most recently filed form 10-K.
Subsequent filings with the Securities 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 to access the earnings release, where the webcast replay. Please consult the investors section of our web site at Amco P.G.H. docs.
With that I'll turn the call over to Brent rare Ampco, Pittsburgh CEO right.
Thank you Melanie good morning, and welcome to our call.
I'm very proud of our employees performance in our second quarter of 2020.
We face tremendous obstacles during this unprecedented time however, the team met these challenges head on and delivered positive results.
The health and safety of our employees are at the forefront of everything we're doing.
We have taken extraordinary steps to safeguard their well being during this challenging period.
At all times, we have continued to see guidance from a local state and federal authorities, where we operate to ensure we meet or exceed safety and health Guy lines. During this pandemic.
From an injury perspective, we've reduced our recordable injury rate by over 30% compared to 2019.
Unfortunately, our last time rate increased by 15% during the same period.
We are keenly focused on addressing this gap as we target zero injuries in the facilities, where we operate.
As a global economy. It took a pause we initiated plant shutdowns in furloughs to meet the reduced customer demand experienced in the forged and cast engineered products segment.
Our air and liquid processing segment continued to operate without interruption during the quarter. It continues to experience a strong order book.
Despite the challenges we faced we continue to progress in our efficiency and cost improvement efforts.
I want to thank all of our employees for their dedication diligence and hard work during this time.
We reported a positive earnings per share a five cents per common share for the second quarter despite significant headwinds.
As a result, our return to profitability extended through the second quarter was a positive trailing 12 month as for the first time in many years.
Liquidity position improved through effective measures taken during the quarter to respond to the pandemic and we used our improved position to pay down debt.
I was also plays that we extend our credit agreement in Q2.
Looking ahead to the third quarter, we're electing to take proactive outages in many of our facilities before unplanned maintenance to further improve our long term performance.
I'd now like Kerri Kenney President of Air and liquid systems, and San Juan President of Union electric steel to share the improvements and their segments performance Terry.
Thank you Brett and good morning.
Second quarter sales for the air and liquid processing segment increased slightly when compared to the same period last year.
And increased by 9% when compared to the first quarter.
Increases in sales of custom air handling equipment and centrifugal pumps were partially offset by a decrease in sales of heat exchangers.
Segment operating income for the second quarter was modestly lower when compared to the second quarter last year and showed an increase when compared to the first quarter.
On a year to date basis sales and operating income displayed an increase when compared to the prior year.
The favorable results reflect the impact of increased sales prices and improved product mix and the savings generated by the process improvement efforts at all three divisions.
The air and liquid processing segment backlog is $52.4 million, which compares favorably to the 50.5 million to start the year.
As Bret mentioned earlier the operations at all three businesses that make up the segment have continued to work without interruption through the pandemic.
I'd like to thank all the employees because this would not be possible.
Without their hard work and dedication.
In addition, I would like to thank our customers for their loyalty and support.
Throughout these difficult times.
The focus for all three businesses is to continue to keep our employees safe service, our customers and build on our process improvement successes.
Thank you Terry I will now turn call over to Sam line Sam.
Good morning.
Throughout the second quarter or focus was on the well being of our employees the safe operation of our facilities liquidity maximizing cost savings and staying close to our customers to understand their needs.
From a safety perspective, I would like to congratulate recognize aren't so good Slovenia, UK and Valparaiso, Indiana operations for having zero lost time incidents here today.
Sure Bill rates are also to five year low.
The team has remained focused during this unprecedented time.
From a liquidity perspective, we took every opportunity to conserve cash as in late March in early April future is quite uncertain.
We shut down operations, then the U.S. Europe and China.
For one to six weeks, depending on the demand for each business and government guidelines.
Sweden did not shut down however, but we reduced operations by 40% to 50%.
In response to pandemic, we took the opportunity to optimize inventory and prioritize capital expenditures.
Combined with expense reductions, we expect to reduce cash outlay significantly in fiscal year 2020.
During our last call I discuss the cost savings initiatives on maintenance and quality in the United States reorganization in Europe, and the initiatives on raw material process improvements and the cost of quality and Sweden.
All of these initiatives are progressing on or ahead of plan, helping to mitigate the effects of the pandemic.
As we look to the third quarter, we're taking our seasonal European shutdowns of three to four weeks and the U.S.. We will just play production based on demand. We also we will also use this time as Bret mentioned to perform planned maintenance to further improve our performance.
Sam at this time, Mike Mcauley, we'll share more detail regarding our financial performance for the quarter Mike [noise].
Thank you Brad and good morning, everyone.
As Bret mentioned with if he has a five cents per share for the second quarter 2020.
We have go Pittsburgh It did extend its returned to profitability what is trailing 12 month Dps now positive.
Yeah, because net sales from continuing operations for the second quarter of 2020 or $74.8 million.
This compares to net sales from continuing operations for the second quarter 2019 of $102.5 million.
Net sales in the forcing cast engineered product segment of 50.5 million for the second quarter of 2020 declined approximately 36% compared to the prior year quarter, principally attributable to the lower volume of shipments due to customer old deferral of deliveries and the flat rolled steel and aluminum markets primarily in response to that.
Global pandemic.
And reduced demand for other forged engineered products.
Net sales for the air and liquid processing segment for the second quarter 2020 of 24 point Threemillion increased slightly compared to the prior year period.
Gross profit as a percentage of net sales was 19.8% for the second quarter a 2020.
Versus 17.5% for the second quarter of 2019.
The improvement is primarily attributable to the forged and cast engineered product segment, which is benefiting principally from improved pricing and product mix.
A lower cost structure due to the sale of the added more facility last year.
And lower raw material costs.
Movement was partly offset by the impacts of lower shipment volumes and net unabsorbed cost from the temporary idling of capacity caused by the pandemic.
For the air and liquid processing segment gross profit was comparable between the periods.
Selling and administrative expenses of $10.2 million for the second quarter of 2020 declined 3.7 million compared to the prior year.
The prior year quarter included a bad debt expense of $1.4 million for a castrol customer who filed for bankruptcy.
The remaining decline was driven principally by lower employee related expense due to the completion completed reduction enforce actions in 2019.
Lower professional fees and employee severance costs associated with the corporations restructuring efforts as well as ongoing cost containment initiatives.
Depreciation and amortization expense of $4.7 million for the second quarter of 2020 was flat compared with the second quarter of 2019.
Corporation recorded a nearly breakeven income for from continuing operations for the quarter, which compared favorably to the point 7 million dollar loss from continuing operations in the prior year quarter.
The prior year quarter included approximately 1.7 million, an excess carrying costs of the avid more P.A. facility cast roll facility divested in 2019.
The bad debt expense I previously mentioned of $1.4 million.
And some restructuring related costs.
Although the current your quarter benefited from improved rolled pricing the elimination of the excess costs of AVOD Mark.
And the lower SGN a expense.
These impacts could not completely offset the pandemic driven effects.
The lower shipment volumes and net unfavorable absorption due to plant shutdowns in the forged and cast engineered product segment.
Other income expense net improved for the second quarter of 2020, when compared to the prior year quarter.
Which included dividend income of approximately 1.4 million from one of the corporations Chinese joint ventures.
Partial recovery of foreign exchange rates and equity markets during the quarter. Following the pandemic related market disruptions at the end of Q1.
Resulted in unrealized gains on FX and on Rabbi Trust assets and the current quarter, which contributed to the period over period improvement.
At the bottom line.
Corporation reported net income attributable to ampco, Pittsburgh, <unk> point $7 million or five cents per share for the second quarter of 2020.
Compared to a net loss of $3.9 billion for 31 cents per share for the second quarter of 2019.
Which included a net loss from discontinued operations of 27 cents per share.
Gardening business segment results in the forest and cast engineered products segment Q2, 2020, net sales of $50.5 million declined approximately 36% versus prior year due to a lower volume of shipments of mill roles, both forged and cast.
As a result of customer deferral of orders in response to the pandemic and reduced demand for forced engineered products does offset in part by more favorable pricing and product mix.
Operating results for the second quarter of 2020 were comparable to prior year.
The segment was adversely impacted by the lower volume of shipments and net unabsorbed manufacturing costs due to the temporary plant idlings during the quarter.
But these effects were largely mitigated by the elimination of the excess carrying costs of the now divested avatar plant.
Improved product pricing and lower asked you get a expense, including the bad debt charge recorded in the prior year quarter.
In the air and liquid processing segment net sales of 24.3 million in the second quarter of 2020 were slightly higher than the comparable prior year period as higher shipments of air handlers, and centrifugal pumps more than offset a decline in shipments of heat exchangers as Terry indicated.
The air and liquid processing segment's operating income for the second quarter 2020 was comparable to prior year.
Backlog at June Thirtyth, 2020, approximated two $258 million decreased from $321 million at December 30, Onest 29 team.
The decrease is principally attributable to lower backlog for forcing cast rolls and a decline in foreign exchange rates used to convert the backlog of the corporations foreign subsidiaries into the U.S. dollar.
Although air and liquid processing backlog improved slightly over this period due to higher order intake for centrifugal pumps.
Next year or a few balance sheet and cash related cash related items for continuing operations.
Accounts receivable of $63 million at June Thirtyth, 2020 decreased by $18.8 million compared to December 30, Onest 29 team.
Primarily attributable to lower sales in the latter part of the quarter of 2020.
Compared to the latter part of the fourth quarter of 2019.
Improved collections.
And an increase in the corporations allowance for doubtful accounts provision, which is linked to the bad debt charge from the prior year.
Receivables decreased $12.3 million compared to March 31st 2020, due to lower sales in the quarter.
Inventories of $76.7 million at June Thirtyth, 2020 decreased by five and a half million dollars compared to December 30, Onest 2019, and decreased $5.6 billion compared to March 30, Onest 2020.
Accounts payable of $27 million at June Thirtyth 2020.
Decreased by $6.3 million compared to December 30, Onest 2019.
And decreased $9.2 million compared to March 30, Onest 2020.
Capital expenditures for the second quarter of 2020 were $1.4 million and our $3.3 billion year to date, primarily in the forcing cast engineered product segment.
Cash and cash equivalents for continuing operations of $15.9 million at June Thirtyth 2020.
Increased $8.9 million compared to the December 30, Onest 2019 balance.
Net cash flows provided by operating activities was robust approximately $19.3 million for Q2 2020 at approximately $31.4 million year to date.
Drawings on the Amco revolving credit facility were $15.8 million at June Thirtyth, 2020, which is down by $18.5 million compared to the 34.3 million dollar balance at December 30, Onest 2019.
The decrease in revolver borrowings reflects improved operating results in a lower investment and trade working capital.
Total debt at June Thirtyth 2020 $52.3 million.
Decreased 18.6 million or 26% from December 30, Onest 2019.
Which is aligned with the revolver decrease.
<unk> decreased 15.9 million or 23% from March 30, Onest 2020.
At June Thirtyth 2020 in addition to the cash balance.
Corporation also has remaining availability on the revolver of approximately $34 million.
An improvement of approximately $7 million compared to availability at December 30, Onest 2019.
I'll now turn the call back over to Brad for some closing remarks.
Thank you Mike is I'd say at the beginning of the call I'd like to not be proud or the way our employees have respond pandemic, while generating positive net income for Q2.
We've taken extraordinary measures to maintain safe work environments and to protect our liquidity, including extended plant shutdowns in cost containment efforts in the quarter to mitigate reduced customer demand in our roll business.
The restructuring of our portfolio cost reduction measures and production efficiency improvements over the past two years have helped position us to achieve positive results and today minimize the effects of the pandemic.
Thank you, we'll now take questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your touched on felt if you are used to me speakerphone. Please pick up your handset before passing the key.
Joe Your question. Please press Star then Q as a reminder, we ask that you. Please limit yourself to one question and one follow up.
I have additional questions you may reenter the question queue. At this time, we will pause momentarily to assemble our roster.
Okay.
The first question today comes from Marco Rodriguez of Stonegate capital markets. Please go ahead.
Hi, Good morning, Thank you for taking my question.
I was wondering maybe you could talk a little bit more in detail on the forged and cast segment.
Stick to the deferrals you saw in the quarter.
Was it a consistent slower deferrals or can you discuss the cadence and then.
If there is any sort of color that you are bought in terms of Bob is there a typical timeframe, where those deferrals have been pushed towards.
Yes sure market this is Sam.
We saw a decline from first quarter second quarter about 27% of our sales and.
It was much more pronounced in April.
As Europe.
Had shut down much of the steel mills.
To contain contained a virus and then we saw sales improve in May and then further in June.
So many things were just moved quarter for two quarters of the right one of the things about the business is the roll business is they keep several months of inventory on hand, and so one day shut down their males for period of time, and then two as they come back up in their operating at a lower utilization rate their image.
Story on hand, instead of having two months for three months on hand, now they have three or four months on hand, so that takes a little while to absorb but we're starting to see.
If you listen to affords call or Jim's call.
Automotive is coming back up there's a shortage of products actually on the deal or loss and we're starting to see some utilization rates come up.
And steel mills across the world So.
We expect.
Q3 to be.
Better than Q2 Q4 to be better than Q3.
Understood. Thank you and then on the call in prepared remarks, you had brought out.
A few different.
Impacted the quarter for the forged and cast in terms of obviously volumes being down you had to idle some plants.
But then you had some offsets in terms of just a it's an improved pricing and the removal of excess costs I Wonder if maybe you can sort of.
In the sort of buckets. If you can talk about the biggest impact some of these impacts in the quarter and then just kind of circling back on the removal of the costs.
Just trying to confirmed but if I heard correctly that all the.
Cost reduction initiatives that you guys had introduced in late fiscal 19 dose of all they're all progressing on plan.
I'm curious through this fiscal year.
Oh, yes.
I'll take a shot at a couple and pass it off the Sam.
Just in terms of magnitude of impacts.
In the forcing cast segment Marco.
It it I would look just looking at our.
Analyzing our numbers.
The the sales volume impact.
In the quarter versus prior year was about the same magnitude as the net on absorbed.
Cost impact roughly.
So those two factors were about where about equal impacts to the.
To the reduction.
In operating income.
And then the we had some positives like we didnt have the.
We have the we didnt have the bad debt charge recur that we had in Q.
We had in the Q2 last year.
And then the.
The cost benefits are really showing through because those are the things that help keep the.
The operating income stable in such a down you know environment from a sales in absorption impact and I'll, let Sam talk about those but manifest itself not only in.
In cost of sales, but also west you get AG.
Yes, just a couple of comments.
From last year, just productivity improvements in the U.S. are well north of familiar that have dollars reduced repair and maintenance cost.
Is another little bit north of 1 million and a half year to date, and that's really driven by switch from reactive and proactive maintenance.
That increased to about 80% proactive in Q2, we did have the opportunity as Brad said well the plants were down to to make sure that any critical maintenance items were actually.
Taking care of while the plant was down so we took advantage of that are causing quality, both internal and returns.
Down year over year and Thats trending.
Almost $2 million and then we have the reduction in force is that we had.
Which is about 1 million and a half dollars and those are those are pretty much the big wells.
Got it and if I could just one more in near real quick just on the air and liquid processing.
Pretty strong growth sequentially, just wondering if any sort of.
Products Scott.
Delivered earlier than than expected. Thank you.
No we had no delays, but we did not have any equipment that was asked to be delivered sooner.
Thanks, a lot guys appreciate the time.
Thank you Mark.
The next question today comes from David Wright of heavy investment Trust. Please go ahead.
Good morning.
Great quarter so.
For forged and cast would be down 36% in kind of still breakeven is really phenomenal.
So just great job with air and liquid.
As well.
A lot of businesses that are flat year over year in this environment.
My couple of questions for you.
Did you a absent any extraordinary events do you have a target or at least a trend for net debt between now and ended the year.
[noise].
Yes, David we.
I would say that were on the cash side just one of the things to note is that were our U.S. cash we got sweeping against the line. So we keep us cash very fairly minimal.
Hi, target, we target to keep about $10 million to $12 million globally on cash.
Yeah.
On a on the balance sheet and for working working fund needs.
So that would be like a kind of a projection to keep in mind.
And then on the debt.
You know it all depends on the recovery.
We will be using our credit line to support.
A rebound in trade working capital.
What else therefore.
So with a with sales stepping up.
As Sam indicated that he that he believed in Q3 and then again in Q4, we're going to see the revolver grow a little bit further but I'm much.
[music].
I am I'm very pleased with our liquidity situation at the moment relatively speaking.
You know with borrowings down to 15 point.
6 million on the on the revolver, we got plenty of capacity on the revolver.
I don't see all the other thing is that in July we haven't we had an industrial revenue bonds of 4.2 million dollar that we did retire so that was due July 1st so it's not a news numbers, but as a piece of debt.
Let's now gone.
And the revolver balance Didnt really go up that much because we've we've we've paid some additional down since then so.
You if you're trying to project net debt I would take out the industrial revenue bond and.
Using cash balance I and I kind of indicated there and then.
Maybe a little something for working capital growth.
Right. So in terms of the of the trend is.
Hi, can obviously fluctuate, but yes, it sounds like based on current business trends, you're seeing the high for the year in net debt.
Is that a fair statement.
Yes.
Okay.
And then on SGN now I know you'd have ongoing initiatives and you're down in the last quarter to basically $10 million.
Do you have any sense of what SGN, a absent again anything extraordinary.
Would be for the next couple of quarters.
We expected to be flat.
Okay.
And then Sam just to.
For different words on something that you said two to the previous questioner.
In terms of roll shipments you would anticipate.
The unit shipments would be higher in Q3 than they were in Q2 and then higher in Q4, then they would be in Q3.
Yes.
Great.
And Ah thanks, very much keep up the good work.
Thanks, David.
Ken If you have a question. Please press Star then one the next question comes from Mr. White head of key.
And then like guarding please go ahead.
Good morning, I'm wondering if that is the but this quarter will be affecting the upcoming rights offering.
Well.
Thank you for your question.
Regarding the Companys right rights offering the company has filed a registration statement with the FCC.
And we did recently put out of.
Account, a press release syndicating, our calendar with our proposed timing.
So that's out there.
We're going to be offering common stock with warrants to purchase additional shares of common stock.
And we are expecting or to try to raised gross proceeds of 20 million from the from the from the offering.
But we'd like to refer you to our filings made with the FCC in regards to that.
Which will be updated with additional information once available.
Okay. Thank you.
Thanks.
No further questions. This concludes our question and answer session. The conference has now also concluded. Thank you for attending today's presentation. You may now disconnect.