Q4 2020 Ampco-Pittsburgh Corp Earnings Call
[music].
Good day and welcome to the Ampco Pittsburgh Corporation fourth quarter and full year 2020 earnings results Conference call.
All participants will be in listen only mode true do you need assistance. Please signal of the conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded.
I'd now like to turn the conference over to melody Sprouts and director of Investor Relations. Please go ahead.
Thank you Carrie and good morning to everyone joining us on the fourth quarter and full year of 2020 conference call.
The me today are Brett Mcbrayer, our Chief Executive Officer, and Mike Mcauley, Senior Vice President Chief Financial Officer, and Treasurer of.
Also joining us on the call today are Sam Lyon, President of Union Electric Steel Corporation, and Terry Kenny President of Air and liquid Systems Corporation.
Before we begin I would like to remind everyone. The participants on this call may make statements or comments that are forward looking and may include financial projections or other statements of the corporations plans objectives expectations of our attention. These matters involve certain risks and uncertainties many of which are outside of the corporation's control.
The corporation's actual results may differ significantly from those projected or suggested in any forward looking statements due to various factors, including those discussed in the Corporation's 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 release publicly any revisions of our forward looking statements.
On this call today, we are not addressing the potential proxy contest the background of set for it in the preliminary proxy statement, we filed with the security and Exchange Commission on March 12 2021.
The replay of this call will be posted on our website later today.
Access to the earnings release for the webcast replay. Please consult the investors section of our website of Ampco PVH dotcom.
With that I'll turn the call over to Brett Mcbrayer, Ampco, Pittsburgh's CEO Brett.
Melanie good morning, and welcome to our call well, we have aggressively pursued our goal of improved shareholder return, there's been nothing more important than protecting our employees' health safety and wellbeing and protecting the environment, where we operate.
We are intently focused on eliminating injuries and incidence in the workplace.
Identifying and correcting potential hazards before in the incident occurs is everyone's responsibility and all ampco Pittsburgh locations worldwide.
On the onset of the global pandemic, we found ourselves confronted with new and unexpected threats.
The response of our employees to these new challenges was and continues to be outstanding.
We have successfully altered how we conduct business in our facilities and how we engage with other suppliers and customers.
Got it.
Okay.
Sure.
I am proud of our employees hard work to protect our teammates themselves and our communities, where we interact on live.
All of this was achieved while still honoring our commitments to our customers.
I'm very proud of.
Despite the challenges we faced our employees continue to demonstrate their dedication to continued improvement.
By reducing the loss work day rate by 6% in 2020 versus the prior year and our recordable injury rate by 26%.
As we have in previous years, we focused on identifying and eliminating high risk hazards that could permanently alter an employee's lives I'm.
I am encouraged by our progress to date.
The effort will continue to be of primary objective for our businesses in 2021.
On the financial front, our businesses achieved an operating income of $6 $4 million in 2020 compared to a loss of $10 $9 million in 2019 the.
The $17 4 million dollar improvement was achieved despite the global pandemic significant impact on our customers and their end markets.
The restructuring activities and efficiency improvements the team has been engaged in over the past two years positioned us to face these challenges and deliver our first profitable year since 2015.
Consequently, net income of $8 million was the $29 million improvement compared to a loss last year of $21 million.
The net result for our shareholders was the achievement of an earnings per share of 56, and 2020 versus an earnings per share of loss of $1 67 in 2019.
As we ended 2020, we marked our fifth consecutive quarter of positive earnings.
Two of process efficiency improvements, we delivered free cash flow from continuing operations of $33 $6 million from 2020.
These improvements coupled with our successful equity raise of little over $19 million positioned us to reduce our total debt by approximately $44 million or 47% during 2020.
Not only did we use our enhanced liquidity to improve our balance sheet, but we are now on a position to pursue our equipment upgrade initiatives, allowing us to further reduce our total cost structure grow our topline and meet the needs of our customers now and well into the future.
Regarding 2021, we are cautiously optimistic that order activity levels will increase moving into the second half of the year as the lingering impacts of the pandemic subside.
For further comments on our businesses I'd like Terry Kenny President of Air and liquid systems, and Sam Lyon President of the intellectual steel to share some of the highlights in the segment's performance Terry.
Thank you Brett.
I would like to start off with the acknowledging the orphan division for having zero Osha recordable injuries in 2020 ever.
Every employee at <unk> deserves recognition for their efforts. Thank you for a great job.
The segment experienced a decrease in the recordable rate from 4.16 to $2 87 in the fourth quarter.
The health and safety via our employees remains our priority as we continue to take every safeguard to limit their exposure to COVID-19.
During the pandemic all three businesses that make up the segment continued to operate three shifts per day six days per week without interruption.
This would not have been possible without the personal sacrifices and dedication of all of our employees.
A sincere thank you to all.
I would be remiss without thanking our customers for their loyal support through these unprecedented times, thank you to them as well.
The fourth quarter revenue and operating income before asbestos expense outpaced the previous quarter the.
On the pump business had a strong showing in the quarter the.
The heat exchanger business has been adversely impacted by lower activity in the commercial and industrial OEM markets.
The air handling business continues to be under pressure with competitive pricing.
Our material costs have been increasing for the last several months the.
The businesses are able to incorporate these increases for the most part in our pricing.
Orders received for the fourth quarter were below that of the third quarter with softness experienced in the heat exchanger business and the air handling business.
The segment backlog remains strong at $54 $2 million, which is seven 1% above that at the end of 2019.
We remain optimistic that as certain of our markets continue to rebound and in person customer access improves our topline opportunities will expand.
We continue to concentrate our efforts on improving our efficiency in all areas of the business, while providing quality products at competitive prices to our customers.
Thank you Terry I'll now turn the call over to Sam Lyon Sam.
Good morning.
First I'd like to recognize our Slovenia and Valparaiso, Indiana operations for achieving zero lost time incidents in 2020. These.
These locations also had our lowest recordable rates in the forged and cast engineered products segment with zero and 238, respectively.
Compounded with the additional requirements that COVID-19 demanded this is quite an achievement.
Our overall recordable rate for the fourth quarter reduced from $4, one sixth of 2.2, when compared to the prior quarter.
Our number one focus will always be the safety and wellbeing of our team members.
Liquidity continues to be a strong focus for us we've had great success here, Mike Mcauley will cover this in more detail. Shortly we have challenged our teams of reduced our inventory to levels not seen the many years working hard to maintain these gains has resulted in shorter lead times and the ability to react to order sooner.
We continue our weekly team meetings to review our inventory positions receivables and payables. All of these actions have resulted in the segment generating strong cash flow in 2020.
Thank you for our operations continued to run on a reduced schedule.
The government programs in the U K have been extended again through September, allowing us to be flexible with our workforce. Currently we're bringing people back in the U K to support increasing customer demand in the Q for Q3, and Q4 timeframe of this year.
As stated on the last call in the U S. We adjusted our work schedule to align with demand by taking out for weeks of production rather than reducing staff and operating at a lower daily output.
We shut down our Harmon Creek, Pennsylvania melt facility for the first week of this quarter for maintenance work from will continue to monitor order intake and adjust operations accordingly in the second quarter of 2021.
The rising cost of raw materials and scrap.
As a significant headwind we are facing in Q1, while the majority of our business is covered by a surcharge mechanism that addresses. These increases there is a one or two quarter lag in realizing price increases tied to raw materials.
Switching to sales, we continue to see more upside potential than downside.
The most of our customer side of it is strong for 2021.
We currently expect 2021 revenues to come in around the midpoint of 2029 2019 of 2020.
We also anticipate <unk> sales to increase going into 2022 for.
Following up on the new oil and gas orders I mentioned on the last call.
We have shipped initial product and continue to receive new orders or shipments from backlog of non rule product are already equal to our shipments for non oral product in 2020.
We are targeting and Resourcing this product segment for growth over the next three years.
I want to close by thanking the entire Union electric global team for their hard work and commitment to deliver in 2020.
Thank you Sam at this time, Mike Mcauley, our Chief Financial Officer will share more detail regarding our financial performance for the quarter Mike.
Thank you Brad and good morning.
I'd like to focus my comments on the current quarter's results today commentary on our full year results is available in our earnings press release issued this morning and will also be included in our forthcoming form 10-K.
With EPS of <unk> 12 per share for the fourth quarter of 2020.
Ampco Pittsburgh continued to remain profitable on a net basis for the fifth consecutive quarter and sequentially higher than Q3 of 2020 EPS.
Quite the contained continued negative impact of the COVID-19 pandemic on our end markets.
I would also like to point out that the corporation's capitalization of significantly improved versus a year ago.
December 31, 2020 Amp gross total debt was nearly half the amount we opened the year with.
Given the free cash flow generation of the business in 2020 and the initial use of the proceeds from the equity offering completed in Q3 2020.
<unk> is $87 million of net sales from continuing operations for the fourth quarter of 2020 declined 10% from $97 million in the fourth quarter of 2019 is a direct result of the pandemic.
Net sales on the force and cast the engineered product segment of $64 $2 million for the fourth quarter of 2020 decline narrow the nearly 14% compared to the prior year quarter, principally driven by a lower volume of shipments from customer deferrals in the flat rolled steel and aluminum markets along with the <unk>.
<unk> demand for other forged engineered products, primarily for the oil and gas market.
Net sales for air and liquid processing segment for the fourth quarter of 2020.
Of $22 $9 million increased marginally compared to the prior year period as Terry described despite the pandemic.
The only selling admin and administrative expenses of $12 1 million for the fourth quarter of 2020 declined $1 4 million compared to the prior year.
We were able to deliver approximately a 10% year over year of reduction in SG&A expense for the quarter.
Depreciation and amortization expense of $4 7 million for the fourth quarter of 2020 was approximately comparable to the prior year amount.
Excluding the $3 million charge associated with the potential on solvency of an asbestos insurance carrier, which is recorded in the current year quarter.
And excluding the $1 $8 million in proceeds from a business interruption claim and the restructuring related costs of approximately <unk> 7 million both.
Growth recorded in Q4 2019.
Adjusted income from continuing operations, which is the non-GAAP measure.
Improved from $1 $9 million last year to $2 $3 million this year.
This was despite the pandemic driven effects of the lower shipment volumes net.
Unfavorable absorption due to plant downtime in the forged and cast engineered product segment.
A reconciliation of GAAP to non-GAAP adjusted operating results is included in the non-GAAP financial measures reconciliation schedule include.
Included in today's earnings release.
Other income expense net for the fourth quarter of 2020, when compared to the prior year.
<unk>.
Improved primarily due to lower interest expense given the lower debt balance.
At the bottom line. The Corporation reported net income attributable to ampco, Pittsburgh of $2 $2 million or <unk> 12 per share for the fourth quarter of 2020.
Compared to net income of $3 1 million or 24 per share for the fourth quarter of 2019.
Which include a day net loss from discontinued operations of <unk> <unk> per share.
Here are some highlights regarding business segment results for.
For the portion of cash engineered products segment Q4 net sales of.
The $64 $2 million declined approximately 14% versus prior year, primarily due to a lower volume of shipments of mill rolls as a result of customer deferrals in response to the pandemic and reduced demand for other forged engineered products.
Operating results for the forged and cast engineered products segment declined in the fourth quarter of 2020, when compared to prior year, which included a $1 8 million dollar amount.
The amount and proceeds from a business.
Interruption insurance claim.
The unfavorable effects of lower sales volumes pricing and product mix for more than offset by the favorable effects of reduced cost structure from the segments restructuring efforts and.
And the restructuring related costs recorded in the prior year quarter, which were onetime in nature.
In the air and liquid processing segment net sales of $22 9 million in Q4 2020 were comparable to the prior year period. Despite the pandemic.
The air and liquid processing segment operating income in the fourth quarter of 2020 was approximately equal to prior year. Despite the asbestos related charge recorded in the current quarter of <unk>.
Segment successfully mitigated the negative impact on revenue and income from the pandemic.
Backlog at December 31, 2020, approximated $246 million.
The decline of 23% from $321 million in backlog at December 31, 2019.
The decrease is principally due to the lower backlog for forged and cast rolls as a result of customers postponing order a replay of order placement given the uncertainty surrounding the pandemic.
Aaron the voice processing backlog improved over this period driven by centrifugal pumps.
Next I'd like to cover a few balance sheet and cash related items for continuing operations.
Accounts receivable of $60 2 million at December 31, 2020 decreased by $21 $6 million compared to December 31, 2019.
<unk> attributable to lower sales in the latter part of 2020 versus 2019 and improved collections.
Receivables increased $4 1 million compared to September 32020, due to higher sales in the current quarter.
Inventories of $73 2 million at December 31, 2020 <unk>.
Decreased by $9 million compared to December 31, 2019.
And decreased by $5 2 million compared to September 32020.
Accounts payable of $26 7 million at December 31, 2020.
Decreased by $6 6 billion compared to December 31, 2019 and.
The decreased by $2 2 million compared to September 30 of 2020.
Capital expenditures for the fourth quarter of $2022 5 million.
And were $8 $5 million for the full year 2020.
Primarily expanded into force and cast engineered product segment.
Cash and cash equivalents for continuing operations of $16 8 million at December 31, 2020 increased $9 $9 million compared to December 31 2019.
Andy and the decreased $1 $4 million compared to the September 30 of 2020 balance.
Cash provided by operating activities for full year of 2020 was $33 6 million.
In Q4, 2020, we make cash contributions to our defined benefit pension plans of approximately $5 4 million principally funded by our revolver as.
As such drawings on the ampco revolving credit facility for $6 million at December 31, 2020, which is down by $28 3 million compared to the balance at December 31 2019.
The reduction in revolver borrowings for the year reflects improved operating results and lower investment in trade working capital through the year as well as the initial use of the net proceeds from the equity offering.
Total debt at December 31, 2020 of $37 2 million decreased $33 6 million or 47% from December 31 2019.
An increased for $4 6 million or approximately 14% for.
From September 32020.
At December 31, 2020. In addition to our cash balance for the Corporation also has remaining availability on the revolver of approximately $48 million and.
An improvement of approximately 21 $21 million compared to availability at December 31, 2019.
I will now turn the call back over to Brett for some closing remarks.
Thank you Mike.
Credibly proud of the results of our team achieved in 2020 and I want to personally. Thank every employee for their hard work dedication and resilience as we face the many challenges and opportunities that the year presented.
We are not satisfied with where we are and we have much more work to do.
But I am confident of our efforts will be reflected in continuing improved performance as we move forward.
Thank you we will now take questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
We're using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two we do ask that you limit yourself to one question and the single follow up after that time you may rejoin the question queue. At this time, we will pause momentarily to assemble our roster.
The first question will be from Justin Bergner of G. Research. Please go ahead.
Good morning, Brett Good morning, Mike.
Good morning current Joseph.
Two quick ones and then two more substantive ones the quick ones I'm not sure I heard the gross cash balance at December 31, and then the second quick one would be any comment on sort of pension sensitivity to a move in the discount rates given what's transpired since year end.
Yes, the Justin I can handle that the cash balance at December 31, 2020 was $16 8 million.
Consolidated.
And then.
This will be on our 10-K, but from the.
Pension sensitivity standpoint of 825 basis point change in the discount rate will move.
The the calculated liability for.
For pension and <unk> plans by $10 $9 million for.
For ampco in total.
Great.
On the more substantive side.
How much in temporary cost reductions should we see us returning back into the business in 2021 and were temporary cost reductions.
Outside of <unk>.
Yes, those directly related to.
Manufacturing utilization still in play in the fourth quarter with the those mainly out of the system.
Well this is Sam Justin I can say that we were able to flex down our costs. The majority of the cost takeout were hourly people.
Or blue collar workers and so.
When we flex those regularly with the business so as we ramp up they come back and as we ramp down. They go down the only difference in that would be in the U K and Sweden, where it's more difficult to do that but we're still able to do that this year up through September as I had mentioned in the UK through government support so.
The other I guess substantial losses.
Standard, but the other cost savings that we've seen is nobody's traveling of course.
But I would expect us to start traveling again, but not to the same amount that we were before as we've learned to do things differently in the new world.
So some of that some of that will stay.
Probably on want to put a number on it but I could imagine us having.
A third less travel going forward or something like that.
Okay and.
I guess my final question.
Would relate to the forged and cast engineered products and sort of the non roll opportunity.
I guess.
Ampco Pittsburgh has fairly ambitious goals there over a multiyear period any sort of update on how.
You've seen that progress through the trajectory of <unk>.
The orders interest.
Whatever metrics might be meaningful.
Sure I mean, the big Big changes there are on the oil and gas side of the business. There was really no business up until last year. This year, we've seen that come back.
And we're selling to a higher tier than we were we were selling two lower tier customers so that should be.
More stable going forward, but I stated that we've already shipped and booked.
Product equal to what we shipped in all of last year.
And so.
We see a pretty.
A pretty good growth rate.
As much as for as much as double what we shipped last year potentially for this year.
Okay Alright.
Alright, Thats helpful. I wasn't sure I, followed the the ship comments youre, saying in two and a half months you've shipped with John.
Shipped plus backlog, so what we've shipped and what we're going to ship over the next few months.
Is equal to what we shipped all of last year. So.
It's more of a transactional business, we don't have orders out in Q3 and Q4 at this point in time.
On the order activity.
The first half of this year is significantly higher than last year.
So it refers to shift and sort of planned to be shipped orders yet the cabinet.
Equivalency alright, Thank you I'll hop back in the queue.
Thank you Joseph.
The next question will be from David Wright of Henry Investment Trust.
Hi, Good morning question Terry.
And thank you so much.
Thanks.
Yes.
The U S Navy.
The U S Navy and juice business.
I'm sorry.
Okay.
To repeat that David will give the little audio trouble here.
I'm sorry can you hear me better yes, that's good.
Terry.
The Buffalo pumps.
What's the impact of Navy business on on the <unk>.
Recent results.
The Navy business in 2020.
<unk> was strong and was relatively flat between 2019 and 2020.
But the activity remains.
Strong.
Okay.
Sam in your prepared remarks, I missed your full comment on Harmon Creek shutdown.
I just said we were down the first week of the year.
Harmon Creek, just for maintenance work and then in the second quarter, we'll evaluate order intake whether or not we need to take on.
A week or two out at the end of the quarter, but just didn't relative.
Relative to last year, we had six weeks out in the fourth quarter of last year.
Okay.
And then just lastly.
Can you give us any expanded detail on where you are with the equipment upgrade initiatives.
Yes, so we have we have been working.
Our final.
Kind of lay out David is what this is going to look like and how we're going to deploy the deploy the capital needs.
We are at the point now of placing orders.
And.
Aggressively trying to move these.
These expenditures are.
These expenditures happened as quickly as possible, obviously, we're pretty excited about the.
The transformation of its going to occur in the forged and cast engineered products segment, and we have a little patience for for delay.
On those improvements and so we're trying to push in expedite.
The equipment into our facilities as soon as possible, we're obviously doing some.
Thank you of heavy negotiation with our equipment suppliers trying to see what we can do to shorten their lead times to us but.
The <unk>.
Program of the process is well underway and look for to being able to the.
The share the results with you David and the rest of our shareholders.
Hopefully here in the very near future.
Okay, well congratulations on the continued improving results and thanks for the great job you're doing for all of the stockholders.
Thank you David very much.
Once again, if you have a question you can press Star then one on your telephone keypad the nurse.
Next question is a follow up from Justin Bergner of G Research.
Thanks for the follow up just one quick one here could you elaborate a bit more on some of the headwinds youre seeing.
The heat exchangers, and the air handling systems.
And.
Obviously, the backlog was up year on year.
And for by some of the comments you need and any comment on sort of the relative profitability of those three product lines just from a range of view in the air and liquid processing. If you are able to share that.
Okay.
Justin Thank you for the question.
The.
The headwinds that we've experienced has been.
For the heat exchanger business.
Specifically is the.
Lack of or the reduced replacement business opportunities.
The capacity the occupancy and office buildings.
That we've experienced as well as not being able to reach out in person to maintenance maintenance people.
In various facilities. So that has been the headwind on the heat exchanger business the air handling business has been.
At the impact of the slightly.
With the reduction of.
Capital spending in some of our markets specifically in the University market.
Okay.
And then just on all of this is Brett I'll, just add to <unk> comments.
The big.
Tractor I would say for for those two businesses for Terry has been the fact that limited actually filled activity, where we have our salespeople actually out of the field and Thats, where a lot of of our our transactional work occurs and it's.
It's been learning a new way to do the dance. If you will still there are some barriers that make it difficult and so.
The <unk> team of worked I think extremely well.
Round those challenges but.
It's been one that's been very apparent to us.
Okay and then just.
One I guess clarifying question with respect to heat exchangers, you mentioned industrial and commercial headwinds are the heat exchangers sort of split fairly evenly between industrial and commercial markets or is it much more commercial and industrial.
It's probably 60% commercial.
Adjusted.
Okay.
Thank you for the follow up.
And this concludes our question and answer session and this also concludes our conference call for today, we want to thank you all for joining feel free to disconnect. At this time have a great day.
[music].