Q3 2020 TriMas Corp Earnings Call
And 20 earnings call participating on the call today are Tom Amato, Trimesta, as president and CEO and Bob The loop ski our Chief Financial Officer.
After our prepared remarks on our results we will open the call up for your questions.
In order to assist with the review of our results. We have included the press release and Powerpoint presentation on our company website Www Dot chime EPS Corp. dotcom under the investors section. In addition, a replay of this call will be available later today by calling 8882 031112.
With a replay code of 3061 032.
Before we get started I would like to remind everyone that our comments today, which are intended to supplement your understanding of Trimesta may contain forward looking statements that are inherently subject to a number of risks and uncertainties, including impacts from COVID-19. Please refer to our form 10-K, and our third quarter 10-Q that will be filed today for lift.
Factors that could cause our results to differ from those anticipated in any forward looking statements also.
Also we undertake no obligation to publicly update or revise any forward looking statements except as required by law. We would also direct your attention to our website where considerably more information may be found in.
In addition, we would like to refer you to the appendix in our press release issued this morning.
Or included as a part of the presentation for the reconciliations between GAAP and non-GAAP financial measures used during this conference call today the discussion on the call regarding our financial results will be on an adjusted basis, excluding the impact of special items.
With that I will turn the call over to Tom Amato, Trimesta, President and CEO Tom.
Good morning, and welcome to try Miss his third quarter earnings call.
This year, we have all were to endure modifications to our daily routines to protect the health and safety of individuals in the communities, where we live and work.
The Trimesta, we have taken steps in each of our facilities to enhance social distancing and increase awareness of cleaning and personal hygiene car.
Compounding the impact of these physical changes.
A certain of our facilities are operating at full capacity, while other facilities are operating at market reduced capacities. Both cases result in our teams having to adapt to our operating pattern to protect supply for our customers again.
As I have said on earlier calls I extend my deepest appreciation to our employees around the world for their commitment and dedication during these challenging times.
Let's turn to slide three.
[noise] Trimesta operates businesses with strong brand names in a diverse set of end markets and applications.
At the end of 2019, we successfully completed a strategic divestiture, which resulted in concentrating our family of businesses in the segment shown on the slide.
We believe this strategic step reduce trying this is overall systemic risk, which we which will benefit our shareholders in the long run.
Especially for a <unk> company of our moderate size.
Try mass his presence in a diverse set of end markets further diversifies our risk it has proven to be beneficial for our investors again in this third quarter.
As a reminder, just over 60% of Trimesters revenues are reported in our packaging segment, where we provide dispensers closure some jurors into a wide variety of consumer packaged goods and industrial applications.
Several of our product lines are used in applications that help fight against spread of germs, such as hand, Sanitizers soaps, and lotions and products per household in janitorial cleaning.
Sales within our packaging segment again outperformed our expectations given what we believe has emerged as a secular global trend, resulting from a heightened awareness of handwashing improve personal hygiene and overall cleanliness.
Expanding prime assets packaging platform is foundational to our overall growth strategy there.
Therefore, I am excited to report that we have signed a purchase agreement with the Fiberlan Ferrari a niche supplier in the euro CPG and industrial markets, which specializes in design development and manufacture of caps and closures further enhancing the breadth and scope of Trimesta is print packaging group.
Upon completion of this acquisition, which I will cover in more detail. Shortly we will have acquired our fourth packaging company since early 2019.
[noise] Trimesta as aerospace segment represents 24% of our sales, we supply engineered fasteners and fabricated products and assemblies into commercial business jet and military defense applications.
As previously as discussed previously our businesses in this segment have been severely impacted by the effects of the pandemic.
Given the reduced aircraft production build rates.
Sales began to significantly decline in the second quarter and we're currently running at about 35% below prior year revenue on an organic basis.
As noted on prior calls we have taken significant actions to better realign our cost structures with lower demand in this segment.
Given what we anticipate being a prolonged recovery period, we continue to take cost realignment actions, including more significant manufacturing footprint rationalization steps to better position trimesta gain operating leverage when the aerospace market ultimately recovers.
The balance of Trimesta as businesses in our specialty product segment, where we predominantly supply steel cylinders under the Norris cylinder branding the only remaining manufacturer of high pressure steel cylinders in the United States as well as natural gas engines and compressors under the Aero engine brand name.
Our Norris cylinder business, which represents nearly 90% of the segments revenue supplies into a wide variety of end markets, including welding and age back medical and military and defense.
While volume in our specialty product segment has been off due to the pandemic through Swift realignment efforts. This segment is also positively contributing to try messes overall earnings and cash flow.
Moreover.
We anticipate our specialty product segment, particularly our Norris cylinder business, we will begin to recover first when the effect from the pandemic begin to subside.
Let's now turn to slide four.
[noise], despite priority shifts, resulting from the effects of the pandemic, we remain committed to try masses overall growth strategy.
Executing against our strategy begins with our strong commitment to the Tri mass business model in fact, the triumph business model process facilitated our swift response to rapidly changing environment to drive or in some cases protect performance.
Another top priority of our strategy is our commitment to reinvest in each of our businesses to accelerate their long term organic growth benefiting try mass overall and therefore our investors.
To remain edging our businesses, while investing in our products and processes and maintaining an appropriate capital structure. We also remain committed to building out try masses key platforms through bolt on M&A as noted we continue to execute against our strategy with today's announced acquisition.
Our ability to execute our strategy is predicated on our commitment to generate exceptional free cash flow.
Our cash flow characteristics, even in challenging periods is our strategies oxygen. It allows us to reinvest in our businesses, both organic and acquisition growth and to take treasury steps to benefit our shareholders, which we have successfully done over the past few years through both debt reduction and share buyback.
Thanks.
Let's turn to slide five.
As noted earlier, we were excited to announce that we entered into an agreement to acquire of Fiberlan Ferrari a company that specializes in the design development and manufacture of plastic caps and closures for the euro CPG and industrial markets.
Five and Ferrari is a single manufacturing plant operation located in Borgo, San Giovanni, Italy, which is highly automated and equipped with appropriate certifications for supply into aseptic and other beverage applications.
Approximately 75% of a five and for our sales are sold into energetic juice or dairy applications with the balance of sales sold sold into agricultural and industrial applications.
We expect our 2020 sales to be approximately 32 million euro with an EBITDA margin of around 30%.
And we paid a total enterprise value at a rate of about 8.75 times EBITDA.
A five in Ferrari will ultimately report into our Riki Division, which is included as part of Trimesta as packaging segment.
We are also very pleased that both Sylvia Ferrari and Guglielmo Ferrari siblings, and the daughter and son of the original founder have both agreed to stay on with the five and for Ari under the trial under Trimesta as ownership, where they will continue to execute against the overall growth strategy.
We look forward to closing the transaction, which is expected to occur by the end of the year and we welcome the a five and for our it team to try messes family of businesses.
Let's now turn to slide six and I will cover our financial performance drew.
Driven by the exceptional performance of our Ricky Division, our consolidated third quarter results were strong despite uncertainty in many of our end markets.
Net sales for the quarter were 199.5 million up 5.9% as compared to the prior year period, and up 8.4% net of currency and acquisitions.
Consolidated operating profit for the quarter was $29.6 million or 14.8% of sales 5 million higher than the prior year period, which was $24.6 million or 13.1% of sales.
Net income was $18.6 million or 43 cents per share up nearly 20% as compared to 36 cents per share in the prior year period.
At Trimesta, we'd like to track, our adjusted EBITDA momentum to assess how much ground, we are gaining particularly one in challenging periods.
In this regard on a segment basis, our September 2020, LTM, adjusted EBITDA was $173.9 million or 23.1% of sales.
And up 3.8 million versus June 2020 LTM.
On a consolidated basis was 154 million or 20.5% of sales and up $4.3 million.
Again versus to June 2020 LTM.
So despite challenges in certain end markets, we were able to gain ground on EBITDA momentum under our time as business model.
Further given that we reduced net debt from $230 million at the end of June to just under 200 million at the end of September it becomes evident why we remain comfortable with executing both our share repurchase and acquisition strategies to augment organic growth.
Let's now turn to slide seven.
On a year to date basis, net sales were $581.8 million up 5.3% as compared to the prior year period, and essentially flat net of currency and acquisitions.
Year to date consolidated operating profit was $79.1 million or 13.6% of sales higher than the prior year period, which was $75 million.
Net income was $52.4 million or $1.19 per share up 4.4% versus $1.14 per share on a year to date prior year comparison.
I'll now turn the call over to Bob who will take us through our cash flow balance sheet and segment results Bob. Thanks.
Thank you Tom.
If we turn to slide eight I would like to begin my comments with a review of our continued strong financial position.
Despite operating in a period of unprecedented dislocation exiting second quarter, we remain confident that prior actions taken to strengthen our balance sheet, we continue to benefit us over the second half of the year.
City to execute our capital allocation priorities of reinvestment in our businesses programmatic M&A and return of capital to our investors through share repurchases.
Turning to slide 10, and a review of our packaging segment.
I would first like to highlight that Q3 represented the second consecutive record quarter in terms of sales and operating profit for triumph is packaging group, while demand as certain and markets has certainly been strong this accomplishment as a testimony to the hard work and dedication of all of our packaging team members globally. Despite the.
Unprecedented nature of the pandemic and it's many impacts.
Third quarter net sales of 135 million increased approximately $29 million or 27, 5% net of foreign currency compared to the year ago period organically, we achieved robust sales growth of $24.1 million up 22, 8% and acquisitions can.
Tribute did an incremental four $9 million in sales.
Packed a foreign currency translation was.
Negligible in the quarter.
Sales of our dispensing products used in beauty and personal care and home care applications that help fight the spread of germs led the way increasing approximately $23 million as Ricky continues to experience robust demand due to the COVID-19 pandemic.
Sales of products used in food and beverage applications were also higher increasing approximately eight 5 million primarily due to the aforementioned acquisition sales, but as well as higher sales of dispensers caps enclosures used in traditional food and beverage applications.
Sales of products used an industrial markets declined approximately $2.4 million versus the prior year quarter is the impact of Covid related demand for our products used an industrial cleaning applications was more than offset by overall lower industrial activity in North America and Europe each of the pandemic.
Operating profit increased seven $9 million to 28 million driven by the aforementioned sales increases all operating margin of 20.
7% increase to 160 basis points versus the same period, a year ago. Adjusted EBITDA also increased seven $4 million or more than 27% to $34 2 million versus the partners quarter of $26.8 million.
We continue to experience high demand for many of our beauty and personal care and home care products more specifically farming pumps soap and lotion pumps sanitizer pumps and related closure products and are actively working to increase our capacity in order to meet our customer requirements and increased market.
Turning to slide 11th I will now update you on our try mass Aerospace group net.
Net sales for the quarter declined approximately 11 5 million or 22.6% to 39 1 million sales of core fastener products and machine components declined $16 1 million or approximately 32% compared to the year ago period as a result of continued.
Road travel demand and related reductions an aircraft build rates to the global pandemic.
Nails or fasteners, we're also lower as compared to Q3 2019 due to the 737, Max grounding, which was expected.
Say engineered products acquired in February 2020 contributed four $7 million of sales, which helped offset a portion of the organic sales decline noted above.
Operating prospect declined for $1 million to three 7 million for Q3 due to significantly lower sales volumes and the less favorable sales mix operating profit margin was also lower at nine 5% down from 15.4% in Q3, a year ago as a result of lower absorption.
A fixed costs of a sales decline in production inefficiencies associated with impacts of the global pandemic.
However, try mass aerospace's still able to achieve adjusted EBITDA for the quarter of 29% as we do carry a significant amount of non-cash depreciation and intangible amortization in this sector.
At this point I also wanted to comment on the non-cash goodwill and intangible asset impairment charge, we reported in this morning's earnings release like many companies in the aerospace supply chain since late second quarter, we have been challenged by significant reductions in and market demand.
Falloff in sales has also resulted in a significant decline in our aerospace groups financial results, which when combined with the uncertainty around the duration and magnitude of the pandemics impact on future air travel and new aircraft demand required we assess for potential asset impairment.
As a result of this review, we recorded a non-cash pretax goodwill and intangible assets impairment charges totaling 134 $6 million related to the aerospace segment.
Please refer to our third quarter financial statements filed on form 10-Q for further details regarding the timing rationale and valuation approaches utilized in determining the amount of these charges.
You try mass aerospace leadership team continues to evaluate further practical steps to align our manufacturing footprint and related cost structure with the lower demand being experienced in and markets impacted by the pandemic, while balancing its priority of investing in new and innovative products to support its global customers.
Moving to slide 12, I will now review our specialty product segment net sales in the third quarter declined seven $2 million or approximately 22% compared to the same period a year ago. This decline sales decline was driven by lower sales of steel cylinders used in construction in H back.
And market as well as lower sales of <unk> and compressors used it upstream oil and gas applications. Each for the North American market is industrial economic activity continues to be severely hampered by the effects of the global pandemic.
Operating profit was $3.4 million for the quarter as compared to three 6 million in Q3 2019, while adjusted EBITDA for $3 million was also down slightly versus the prior year's quarter of 459.
However, adjusted EBITDA margin in the quarter of 16, 9% was more than 300 basis points higher than the prior year's Q3 level of 13.8%.
As discussed on last quarter's call. We are seeing the benefits of significant realignment actions executed during the second quarter within specialty products, we implemented a series of cost reductions in manufacturing process changes to flex the operating cost structure of our cylinder business to better align with changing customer demand.
And narrowed the commercial and operational focus of our Earl engine business by exiting a significant number of non-core products.
Although a specialty product sales declined approximately 22% with Q3 compared to the prior year the change and adjusted EBITDA was approximately flat in the margin fall off or substantially mitigated.
We will closely monitor and market demand challenged by the effects of the pandemic, while continuing to position. These businesses for early wins in an economic recovery with increased operating leverage as a result of the 2020 realignment actions with that I will turn the call back over to tab to discuss outlook and his concluding remarks.
Tom.
Thank you Bob.
Let's turn to slide 14.
As we near the end of the year, we have a better sense of how our customers activities are tracking while we also recognize that consumer confidence remains fragile and ordering patterns can change swiftly.
We also know that queue for is historically, our lowest sales quarter with less ship days as compared to earlier quarters and the year.
We expect sales in our packaging segment will remain strong vert the prior year period, although we anticipate some slowing in the rate of growth that has occurred over the past two quarters as customers evaluate year and inventory positions.
We also expect sales in our aerospace segment to remain well off the prior year quarter, given low travel rates and corresponding bold production rates commercial checks and finally, we expect to continue with the current run rate of our specialty product segment through the balance of the year.
Therefore in light of these assumptions, we anticipate full year 2020 sales to be up 4% to 6% as compared to 2019, we.
We anticipate full year EPS to be in the range of $1.45 to $1.50 with a higher end of the range achieved if order in taken deliveries and are trying to is packaging group remains strong full.
Full year cash flow was anticipant anticipate to be greater than 90 million again, proving that even in challenging times, our commitment to cash conversion remains solid.
We're also working on our 2021 outlook, while I don't have any specific numbers to offer on this call. We do believe as with most companies that should a vaccine to the market calm should should a vaccine come to the market or the rate of COVID-19 cases significantly subsides that this will begin to benefit try Miss.
Aerospace and try minutes, a specialty product segments.
On the other hand, we are also contemplating the action, we would need to take should a significant second.
Outbreak occur in the United States are globally.
Let's now turn to slide 15.
We recently attended William Blair Virtual Investor Conference, where in a refreshing way they ask companies to discuss a post pandemic environment focusing on well beyond of 2021 period.
This slide shows what we believe are now the modified value drivers and rationale for investing and try mass.
Specifically.
We will continue to leverage our largest business rekey positioning for long term organic growth and what we believe is a new global secular trend for personal hygiene and cleaning products.
For some of our more challenge businesses, we we expect the steps we have in our taking during this lower demand period will improve cost structures. So when markets recover we will have an opportunity for future operating leverage game.
We will continue to enhance try Matt by leveraging growth through acquisitions, and our largest platforms with the priority on packaging, but also aerospace even during this challenging period.
Of course, we will continue to return capital and ship value to our shareholders by managing our debt level and executing share buyback.
Finally, our ability to execute against our strategy is predicated on our maintaining a strong balance sheet, having ample liquidity and generating solid cash flow.
We continue to believe try misses an exciting company to invest in and with that I'll turn the call back to Sherri Sherri.
Thanks, Tom at this point, we would like to open the call up to your question.
Thank you if you would like to ask a question. Please signify packing star one on your telephone keypad, if you're using a speaker phone. Please make sure that your mute function as turned off to allow your signal to reach our appointment.
Again that is star one track an audience question well policy, just a moment to allow everyone the opportunity to signal.
Once again, that's star one.
Alright, I am showing no questions at this time.
Thank you operator.
We have been alerted by a number of our analysts given how busy this day as in terms of.
Earnings being reported that they would be circling up with US later for those on the call I want to thank you for your time, please stay safe and healthy and we will talk to you at the next earnings call next quarter. Thank you very much.
Thank you ladies and gentlemen is complete today's teleconference. You may now disconnect.
[music].
[music].
[music].