Q1 2021 TriMas Corp Earnings Call
[music].
Please standby we're about to begin.
Thank you for standing by good day and welcome to the <unk> first quarter 2021 earnings Conference call. Today's conference is being recorded at this time I would like to turn the conference over to MS. Sherry Lauderback. Please go ahead.
Thank you and welcome to Tri Mass Corporation's first quarter 2021 earnings call participating on the call today are Tom Amato, Trimas, as president and CEO and Bob <unk>, Our Chief Financial Officer, We also have with US Scott Mel who as we announced yesterday will succeed Bob as CFO effective may 1st.
We will provide our prepared remarks on our results and our outlook and then 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 <unk> Corp Dot com.
Under the investors section.
In addition, a replay of this call will be available later today by calling 8882031112 with a replay code of 7033534.
Before we get started I would like to remind everyone that our comments today, which are intended to supplement your understanding of China may contain forward looking statements that are inherently subject to a number of risks and uncertainties.
Please refer to our form 10-K, and our force first quarter 10-Q that will be filed a day for a list of factors that could cause our results to differ from those anticipated in any forward looking statements.
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 addition, we would like to refer you to the appendix in our press release issued. This morning are included as part of this presentation for the reconciliations between GAAP and non-GAAP financial measures used during this conference call today, the discussion on our call regarding our financial results will be on unadjusted basis, excluding the impact from special items.
With that I'll turn the call over to Pam Amato, Trimas, as president and CEO Tom.
Good morning, and welcome to <unk> first quarter earnings call.
Half of our global leadership team, we are very pleased with our performance to start the year. Despite.
Despite continued challenges in accurately forecasting given the pandemic and related demand changes, we are reporting strong first quarter earnings today.
Let's turn to slide three.
As a reminder for the first quarter of 2021, we are largely comparing results from a pandemic quarter to essentially a pre pandemic quarter in 2020.
While we work on integrating more recent acquisitions, we continue to have momentum in from Mrs. Packaging segment, which was up 32% for the quarter to $132 million a record first quarter sales level.
We have previously stated that our specialty products businesses would be the first beneficiary from a market recovery. Indeed, we are excited to see sales levels at the high end of our outlook range and with better than anticipated conversion, which we attribute to prior year factory floor improvements.
While it is still difficult to predict we hope this trend continues and perhaps even dovetails into it and additional future benefits from increased infrastructure spending that may occur in the U S.
We did experience higher raw material cost from the quarter, which we largely overcame through better than anticipated volume. So again, we are very pleased with our financial results for the quarter.
Additionally, in late March we announced the successful refinancing of our revolver facility, which was otherwise expiring in 2022.
And the refinancing of our fixed rate notes.
Given historically low interest rates, we elected to upsize, our senior notes from 300 to 400 million, putting additional cash net of refinancing costs of $86 5 million on our balance sheet, while we have no immediate need for the additional cash we remain well capitalized and in a solid position.
To execute our long range strategy.
We are also well positioned to continued continued to execute share buybacks as part of our overall capital allocation strategy and.
In the first quarter, we repurchased approximately 2% of shares outstanding and have 159 million of availability under our most recent share repurchase authorization.
To increase transparency on our earnings we are also announcing today that we will be redefining adjusted earnings per share to add back non cash acquisition related amortization expense.
Given that we currently have more than $20 million, a pretax noncash acquisition amortization expense annually modifying this definition provides our investors a better view of the cash earnings power of Tri Miss.
Now before I move to our specific results for the quarter, We also announced yesterday that Bob <unk>, our CFO will be retiring.
Bob has done an incredible job over his career at <unk> and I personally feel fortunate to have partnered with Bob over my nearly five years with the company as we reposition try mass and greatly improved our performance and potential.
We also announced that we have hired Scott mill as our new CFO.
What comes to <unk> with strong financial acumen, and a deep skill set on performance improvement here.
He is also work with try minutes on a few high impact projects over the last couple of years. So he has good familiarity with the company.
I just got to introduce himself.
After which he will be leaving the call to continuous onboarding work with the wider <unk> Scott.
Thank you Tom and good morning to all.
I'm excited to be here with you today and look forward to further engagement with our investors in the months and years ahead.
My first day with dry mass was on Monday, and it has been a busy week of Onboarding with the leadership teams here at <unk> and our family of businesses.
Fortunately for me I'm very familiar with the Tri mass organization.
Prior to taking the CFO role I was the managing director at River on consulting where I worked closely with Tom Bob.
<unk> and others several high impact projects over the last 24 months.
This work has allowed me to develop a meaningful understanding of the Tri mass business model.
Our intrinsic value drivers and the work of the office of the CFO of <unk>.
But that being said I'm still going to be drinking through the fire hose for these first few weeks.
However, most of my career has been focused on providing strategic leadership during times of meaningful change. So I look forward to the challenge.
Before I go I would like to acknowledge my predecessor, Bob's Filipski and his almost 20 years with <unk>.
I've gotten to know Bob over the last few years and I wanted to take a moment to simply wish him and his family well.
Im going to drop now I'll hand, it back to Tom and Bob to take you through the first quarter results. Thank you.
Thank you Scott and I look forward to your future contributions in helping us advance try them out to the next level.
If we turn to slide four I'll review <unk> first quarter results before turning the call over to Bob who will take us through our segment results.
Consolidated sales were $206 7 million up 13, 1% as compared to the prior year quarter, driven by acquisitions organic sales increases and currency.
Organic sales were up one 9% driven exclusively by <unk> packaging group more than overcoming sales declines of <unk> aerospace and our specialty product segment.
As noted we are comparing the first quarter of 2021, a pandemic quarter, two and essentially prepaid during the quarter in 2020.
Adjusted operating profit was $26 6 million or 12, 9% per the quarter up $4 6 million as compared to the prior year quarter and adjusted net income was $17 4 million up $2 3 million as compared to the prior year quarter.
Adjusted diluted EPS was <unk> 40 per share, which exceeded the top end of our outlook range of 34% to 39.
And compares to <unk> 34 per share for the prior year quarter.
As I mentioned earlier going forward, we will be reporting our adjusted diluted EPS by excluding noncash acquisition related amortization expenses for the first quarter of 2021 under this enhanced definition, we achieved 49 per share up 16, 7% as compared to <unk> 40.
<unk> per share for the prior year quarter under the same revised definition.
Finally, adjusted EBITDA was $40 6 million or 19, 6% of sales, let's turn to slide five.
I would note that our balance sheet statistics shown in this slide has some temporary but not uncommon anomalies given that our refinancing transaction spanned over the quarter. For example funds were received from our new four and one 8% senior notes due 2029 prior to March 31.
2021.
However, we did not yet pay off our $4 seven 8% senior notes at quarter end as of today of course, we have since paid off our $4 seven <unk> percent senior notes entirely.
We delivered free cash flow of $10 3 million as compared to the prior year quarter of $1 8 million.
This performance was a result of our year over year EBITDA increase plus continued net working capital management, which was partially offset by higher level of capital spending.
Adjusted LTM EBITDA was $162 million, an increase of $5 2 million as compared to the December adjusted LTM EBITDA of $156 8 million, which highlights our continued positive momentum.
We believe that driving <unk> LTM EBITDA higher.
While simultaneously maintaining a deleveraging model against net debt ultimately will drive long term shareholder value creation.
Finally, our net leverage was one seven times well below our stated long range goal of two times and we have sufficient borrowing capacity.
When adjusted for the redemption of our 478% senior notes, we have more than $400 million of available cash and liquidity at quarter end.
I will now turn the call over to Bob who will take us through our segment results Bob. Thank you Tom.
Turn to slide seven I will begin my comments with a review of our packaging segment.
I would first like to highlight that <unk> packaging group reported record quarterly sales and operating profit for its first fiscal quarter. This accomplishment is a testimony to the hard work and dedication of all of our packaging team members globally, considering the unprecedented nature of the pandemic and its ongoing impacts.
First quarter net sales of $132 $1 million increased approximately 32 million or 32% net of foreign currency as compared to the year ago period on an organic basis sales increased $15 9 million up almost 16% while acquisitions contributed an additional.
All $13 4 million and the impact of favorable currency translation.
<unk> added $2 7 million.
Sales of our products used in beauty and personal care and home care application that help fight the spread of germs led the way increasing approximately $9 million on an organic basis, while <unk> continues to experience strong demand for dispensing products due to the pandemic, we did see some softening in the order book in.
Q1, as our customers worked through overstock levels of inventory on certain dispensing product line, which we believe may have a dampening effect on second quarter 2021 sales levels that Tom will speak to later.
Sales of products used in food and beverage applications increased approximately $2 million organically compared to the year ago period, driven by higher sales of caps and closures while sales of products used in industrial applications increased approximately $3 3 million organically.
Due primarily to higher sales of polymeric closures as customers restocked in anticipation of higher demand in a recovering industrial economy.
Operating profit increased $5 million to $23 6 million driven by the higher overall sales levels.
Operating margin was 17, 9% compared to 18, 6% a year ago due primarily to higher input costs, mainly resin, but also free and the margin impact of the <unk> acquisition.
Higher material costs resulted in an estimated 2 million earnings drag in the quarter as contractual price escalators and commercial actions typically lag input cost increase was 60 to 90 days.
Although we anticipate input costs will remain elevated through second quarter, we expect pricing escalators and commercial actions implemented will result in full recovery of the higher material costs.
And as I noted in our last earnings call. We have now completed the consolidation of the repack manufacturing footprint and anticipate operating margins will improve as we progress through the remainder of 2021.
Adjusted EBITDA increased $7 1 million or approximately 30% to $31 million versus the prior year quarter of $23 9 million.
As we enter second quarter I wanted to highlight a couple of important developments in the Tri mass packaging group.
From an innovation perspective, <unk> is Ricky business has introduced the commercial ready single polymer dispensing pump the mono <unk> pump.
Patented mono <unk> features six components all made from one polymer unlike conventional pumps, which include many parts made from different materials.
This first to market innovation is 100% recyclable, which contributes to a reduced carbon footprint.
In addition, the mono to E as ecommerce ready mitigating the risk of leaking during transit and as Amazon approved a risky business is experiencing significant commercial significant commercial interest in the mono tube pump and is actively working to extend the amount of polymer technology to several of its dispensing product.
Right.
I would also like to note that we have entered into a new multiyear contract with one of our largest packaging retail customers that commits us to relocate production of existing purchases of certain dispenser product into North America versus what is currently imported.
As noted on our last call. The specific onshoring project will require one time capital spending of an incremental $20 million above our normalized capital spending levels, which will be spread out over the next two years.
Each of these items are exciting developments the longer term future of the <unk> packaging growth nearer term as we consider the second quarter of 2021 through the end of year, we anticipate lesser organic sales demand compared to the comparable quarter in 2020 as a result of our expectation that one some of the unusually high.
Activity of pandemic related sales, partially receipts and two customers potentially adjusting their overall purchases and inventory planning levels.
Turning to slide eight I will now update you on our <unk> Aerospace group.
Net sales for the quarter declined $4 3 million or eight 8% to $44 6 million sales.
Sales of core fastener products and machine components declined approximately $8 6 million or 17, 5% compared to the year ago period. As a result of continued low travel demand and related softness in aircraft build rates due to the global pandemic.
RSA engineered products acquired at the end of February 2020 contributed $4 3 million of sales in January and February 2021, which helped to offset a portion of the organic sales decline.
As a reminder, after the first full year of ownership, we consider any year over year sales changes in an acquisition as organic.
Operating.
Profit was $5 million or 11, 1% of sales as compared to $6 1 million or 12, 4% in the prior year cost savings, resulting from our prior realignment actions helped to substantially offset the impact of lower absorption of fixed costs on the sales volume decline and higher amortization expense related.
Two acquisition intangibles.
Adjusted EBITDA for the quarter was 19 was $9 5 million or 21, 4%, which represents a 70 basis point improvement compared to the prior year period, primarily as a result of the realignment actions and other spending reductions implemented in 2020 in response to the sales volume decline.
Although first quarter sales were lower than the year ago period, now that we have nearly lapped the onset of the pandemic, we anticipate sales in the second quarter and for full year 2021 will be higher versus 2020, driven by both a full year of acquisition sales and secondly, meaningful stocking orders in.
Specialized fasteners from the distributors that beginning Q1, and which we anticipate will continue for the remainder of the year.
Our Tri mass leadership Aerospace leadership team continues to evaluate practical steps to further align our manufacturing footprint and related cost structure with current demand levels, while balancing its priority of continuing to invest in new and innovative products to support its global customers and positioning itself for <unk>.
<unk> business opportunities.
Moving to slide nine I will now review our specialty products segment.
Net sales in the first quarter declined $3 8 million to $30 million or approximately 11 to 11, 2% compared to the same period, a year ago sales of steel cylinders used in construction and packaged gas end market as well as sales of engines and compressors used in upstream oil and gas applications.
Each for the North American market continued to be impacted by the effects of the global pandemic.
However, operating profit in the quarter was $4 5 million or 15, 1% of sales as compared to $3 4 million and 10, 1% in the year ago period operating margin improved significantly in the current quarter, primarily as a result of cost realignment actions and factory floor improvement implemented.
In the prior year.
Adjusted EBITDA of $5 5 million or 18, 3% of sales was also significantly better than the prior year's quarter of $4 4 million or 13% of sales of 530 basis point improvement on a year over year basis.
We continue to closely monitor end market demand impacted by the effects of the pandemic as we believe these businesses are well positioned for improved financial performance in an industrial economic recovery with increased.
Operating leverage as a result of the 2020 realignment actions.
While recent order intake levels are noticeably stronger relative to the past several months. It is still too soon to know if this trend will sustain over the remainder of the year.
We will continue to monitor order activity and backlog and provide an updated market outlook in connection with our Q2 reporting.
Before turning the call back to Tom I would like to comment briefly on my planned retirement from the company.
While the decision process was difficult. It was certainly made easier knowing that our businesses have successfully weathered the COVID-19 pandemic and that <unk> is well positioned for its next phase of growth.
Over the past 19 years I've had the distinct honor and privilege of working with many outstanding talented individuals who contributed not only to the success of the company, but it will also assisted me in my career along the way.
To all of you I would like to say thank you.
And I would also like to thank Tom our finance and business leadership teams throughout the company and the <unk> Board of directors for your support throughout my tenure as CFO. The company is well prepared to execute on its strategy and I wish the <unk> leadership team continued success at all future endeavors, and now I will turn the call back to Tom to provide.
Our Q2 outlook in his concluding remarks.
Thank you, Bob and again on behalf of all <unk> employees and our board of directors. Thank you for your dedication and commitment over year, nearly 20 year career at <unk> and particularly over this past unprecedented year.
Turning to slide 11, given that we continue to operate in this pandemic period still with a great deal of uncertainty in demand changes, we're going to again only provide the forward quarter outlook at this time, along with reaffirming our broader views in the full year as provided at the beginning of the year.
While there were still some anomalies in the prior year quarter related to the onset of the pandemic. Our second quarter of 2021 will be better aligned to the second quarter of 2020 from a comparison perspective than the first quarter also we will reassess returning to full year guidance, when we announced second quarter.
Results at which time, we hope to have a better information on overall market dynamics.
For Q2, we expect consolidated sales to be 3% to 12% higher as compared to the same quarter last year driven by anticipated growth in all segments. We expect the growth from acquisitions in our packaging segment when combined with the organic growth in specialty products from <unk> aerospace.
To overcome the anticipated decline of any COVID-19 related dispenser closure sales in Q2.
As we discussed in our prior earnings call. This decrease this decrease of COVID-19 related sales in <unk> packaging group was anticipated given the very highest high sales rate in 2020, which began in the second quarter of 2020.
We.
<unk> adjusted earnings per share will be in the 50 to 57 per share range as compared to <unk> 52 per share from the prior year quarter.
Both of these periods have <unk> <unk> per share from noncash acquisition related amortization expenses excluded from these numbers.
Let's turn to slide 12.
We continue to remain excited about the thesis for investing in <unk> today.
Our diverse set of end markets allows investors to participate in a positive secular change in demand for our products that are used in applications that improve cleanliness and helped quite the spread of germs product lines, which are concentrated in our packaging business in.
In addition, as markets start to recover investors are able to participate in our growth first and specialty products, which should be an early beneficiary to a market recovery and then <unk> aerospace as the aerospace market begins its long road to recovery over the coming years.
If we turn to slide 13, we believe investors will further benefit from our disciplined capital allocation strategy, which is shown in this slide.
As we have stated previously <unk> will ensure that we operate our businesses and a culture of kaizen built upon a foundation of operational excellence will.
We will utilize our <unk> business model to track and measure our near term performance against our longer term strategic plan and proactively adjusted as markets change.
We will reinvest our cash generation first to improve and grow our businesses organically and to also ensure net debt remains in check to protect our shareholders.
And we will deploy capital to augment organic growth through programmatic M&A and also return value to our shareholders through treasury actions such as share buybacks.
We continue to believe <unk> is an exciting company to invest in and with that I'll turn the call back to Sherry Sherry. Thanks.
Thanks, Tom at this point, we'd like to open the call up to your questions.
Thank you to signal for a question. Please press star one on your telephone keypad also if you are using a speaker phone. Please make sure that your mute button is turned off to allow your signal to reach our equipment. Once again. Please press star one at this time for questions and we will pause to give everyone the opportunity to signal.
And our first question will come from Brendan Popkin with CGS Securities.
Yeah.
Hi, Good morning first of all I just wanted to.
I think Bob and wish him well in retirement.
Thank you Brenda.
And.
Looking at our packaging.
Wanted to ask about.
In your guidance.
Look for the next quarter.
Obviously, you guys have.
The last few quarters.
It exceeded your.
You your outlook and understand the way you have to you have to consider.
Potential yeah at some point a reduction in demand.
But obviously it keeps it keeps beating and exceeding expectations.
Want to ask how much upside do you think there could be and in packaging.
And then just also just what you're hearing from them.
From the channel.
Considering.
We are kind of nearing an inflection point, where we will see I guess, how consumers behave and how much of this demand is sustained versus isn't.
Brendan Thank you very much for the question.
It is a little bit challenging.
Sure.
Clearly staying very close to our customers. During this period, we have obviously most of last year.
We're seeing we're seeing.
Sort of a customer dependent.
Our specific.
The challenge.
Customers for example could be a little bit longer on inventory going into Q2, and we're seeing some effects from planning their planning and order intake related to those specific customers and then we have other customers where demand remains pretty robust and also.
We're seeing differences by end market.
We talk about presenting our forecast only on a quarterly basis right now given some of the challenges we have in forecasting.
And I'm glad you sort of suddenly pointed that out it's not necessarily a negative.
We just.
It's difficult for us to rely on some of the Lumpiness, we've seen in various ordering patterns, particularly over the past few quarters. So.
Hard for us to say specifically on balance taking a look at our total customer pool all end markets.
We continue to see some of the positive trends that we felt would emerge from this secular change in in the use of some of our products.
With the only challenge being the very robust levels of orders in 2020 that we believe will start to ascend here as we go into Q2 and beyond and it's really difficult for us to put an exact number on it.
Obviously, we'll know more at the end of the quarter and then and then hopefully that helps us with predicting a little bit more a better cadence for the rest of the year.
Okay, great and and are talking.
Talking about our specialty in aerospace I think the margin in.
Both of those.
And that's really helped.
The offset obviously the resin cost headwinds.
Hmm.
You know what I guess, how much of that exceed your expectations and I also wanted to ask about specialty in particular.
A larger range of I guess more upside than I would expect for Q2 by saw your 2021 thought still say relatively flat sales year to year is there is there a potentially large order in there or how should we think about.
Specialty for us from here.
So let me just touch upon aerospace I would say aerospace was largely what we anticipated on balance.
But yes for specialty products, we were we were positively.
Surprised and excited about the outlook and the reason why are the performance and the reason why we have an adjusted sort of the full year view.
Views yet on it is we really want to see what happens with order order intake and shipments this quarter and towards the ended the quarter I would note that our specialty products business. The largest driver of it is our Norris cylinder business, it's pretty short cycle. So we could get an order today.
Day that ships out in <unk>.
Next week late next week, so it's really difficult from a planning perspective for us too.
Copy and paste would happen in Q1 and drive it through the rest of the year. We certainly hope that's the case and maybe even more so but that's one of the reasons why I wanted to point out as I did earlier that.
It shouldn't be read into the fact that we're not forecasting out more than a quarter as potentially a negative I mean, there could be some positive.
Impacts from specialty products, which would be great for us overall.
Okay, and then where I mean, where can the margin gets you from specialty I mean, you got.
<unk> got almost a 20% on the EBITDA.
18.
ATM change and where can that go and can you talk to like Incrementals at all in and.
I guess, it's more specialty or area either of those segments.
Well look if we if we if we stay with.
With North, which again is the main driver for specialty products contributing to this result, largely.
The incremental should be pretty positive.
We were we're coming off a sales base. It is pretty low for this business and we have obviously some fixed costs related to the business and.
As we get in each incremental dollar of <unk>.
Profitable orders and additional cylinder sales, we should get pretty good conversion. So I don't want to say it.
Exactly what we see the margin going to but I would like all of our businesses to be no less than 20% I'd like to <unk> and the EBITDA basis, I'd like <unk> overall to be over 20% I've said that before.
And my expectation for our specialty products segment is that with demand getting to a more normalized level, we should be there.
I mean, if you look at the trend in operating profitability over the last three quarters, it's improved each quarter.
Over different levels of demand and so it would be.
Very likely that with more volume.
Average would continue.
Okay, great. Thank you for the color.
Thanks Brendan.
And once again it is star one for questions moving on we'll go to Steve Barger with Keybanc capital markets.
Hey, good morning, everybody, it's Ken Newman on for Steve.
Hello.
Okay.
Good luck on the retirement, it's been great working with you.
Thank you.
Sure.
So first question I did want to go back to the margins.
Particularly on Aero I guess asked another way.
Would you view the first quarter for aerospace maybe the baseline for the rest of the year just given.
The expectation for higher revenue for the entire year broadly.
Now I would say that.
The margin performance in Q1.
Was a bit stronger than what we anticipated.
It was largely due to the mix of product that was manufactured in that in that quarter.
While volumes will be.
Up over the remainder of the year.
Have to look really hard at it whats the mix of those products in at least four.
The foreseeable future, we do not see that mix as being as favorable as it was in Q1.
Understood.
And Bob just to clarify on the packaging price comment you made.
Did you say you expect margins for the segment to return back to those high teen levels in the second quarter or is that something that you think you recoup it.
Closer into the second half.
I think it probably happens over the balance of the year.
From.
Our cost input perspective, with rising prices. There is the lag that we experience in terms of our ability to pass that through.
In the first quarter, we had about a 2 million dollar impact that as we look at quarter, two and beyond we would expect a recovery to be about one per one on those higher material costs. So that drag will work its way out.
As we go through quarter, two and beyond depend.
Depending on what happens with input costs, there may be some tailwind on the back end of that where.
You get the benefit of the higher price book before they get passed back to the customer so.
In the main I think over the course of the year that'll be that'll be neutralized.
And of course with the <unk>.
<unk> situation as <unk>.
Volumes improve there and productivity improves that will be less of a drag.
On that margin, so getting getting our operating margins back into that 19% to 20% range, where we've been at pretty consistently over the past several quarters I do think as is in the offing.
Understood.
And one more from me if you don't mind.
I was curious if you could just talk to the preference of capital deployment between M&A and share repurchases, obviously, you've you've refinanced the balance sheet theres a lot of capacity here.
Curious should we imply that means that you're willing to look at larger deals or is this really just to give you some more dry powder and and and more optionality going forward.
Yeah, I think well first of all.
If it's yes to both.
But the biggest driver to taking advantage of the refinancing when we did as I noted.
We essentially had to go into the market any way because of our revolver just to get that out of the way and then we wanted to take advantage of what we thought was.
This is a historic period in time with low interest rates and.
And took advantage of an opportunistic step as I look forward over the next.
More than a few years.
Our balance sheet is essentially set opposite our strategic plan that we have in place. So we could do.
A few larger deals without disrupting our balance sheet or we could do several smaller deals, but there is nothing that I would read into this.
Ken specifically that says because of the refinancing we're now going to do that.
Great.
I guess back to the first part of that question on the preference between deals and share repurchase.
You did a little bit this quarter.
Can you just talk about how are you.
Strategically or is this more opportunistic is there.
And internal price point that you guys are looking to to protect.
No there is not necessarily an internal price point, we're looking to protect.
That being said if there was disruption obviously, we would take advantage of that opportunity, but we're looking at share repurchasing.
More as a.
Our capital allocation strategy and it means to return capital to shareholders through taking out shares outstanding and.
We haven't we haven't quite said this specifically, but if you look at our cadence over the past couple of years, we've made great progress I personally I'd like it to be above 1% as.
As a minimum on an annualized basis, we're sort of on that track currently.
We will have to assess what we do going forward, if we pick up that pace or not but but I would consider more of our normal capital allocation strategy going forward versus just purely opportunistic.
Understood great color. Thank you.
Thanks, Kevin Thank you.
And as a final reminder, star one at this time for questions, we'll pause for just a moment.
And we do have a follow up from the line of Steve Barger with Keybanc capital markets.
Hey, thanks for the follow up.
Just quickly.
Quickly I was curious if you could just talk about.
Yeah.
Any impacts from supply chain.
<unk> seen in the corner.
How are you kind of thinking about tighter supply chain across all the segments.
With regard either to the second quarter outlook.
Your broader 2021 to use.
Well it is.
<unk>.
Apply chain challenges.
Our very real like all companies are seeing it is in our Q2 thinking and it's in our broader range views.
And we've been very working very hard.
Particularly.
In the packaging and our packaging business to secure.
Some input materials that are.
A little more scarce than normal.
And then also obviously theres two components right. There is a scarcity in price so theres availability for the most part on metals. So we're not experiencing any scarcity there but.
We're just dealing with price here so overall.
We're working through it.
We've had to bring on some additional suppliers to protect supply for our customers.
That has been a bit of a drag and hard to quantify exactly how much in Q1, we might have some lingering effect in Q2.
But my hope is Bob sort of alluded to as well as we get into the second half.
There are some easing on that front, both in terms of supply and hopefully in terms of economics.
Yes.
When I think about that in the context of specialty, particularly on our Norris business given how steel have you can be can you just talk about.
The expected impact on price cost for some of those products.
The price escalators, if there are any.
It's a mix of contractual price escalators in commercial negotiations I would say as we get into.
Our run rate that that is a little more sustained at a higher.
Based in surcharge surcharge level on SBU special bar quality steel.
We tend to get pretty close to a one to one price cost ratio.
Okay.
And then just lastly, sticking on this whole supply chain issue or just.
Theme I guess.
Can you just talk a little bit about how much obviously youre pulling a little bit more from your suppliers I think everyone is just trying to protect.
Delivery and lead times.
Are you seeing any customers pool product as well so maybe trying to get ahead of potential further tightness in.
Just I'd be curious to hear about order inquiries across all the businesses as it relates to.
Im trying to.
Yes protect inventory levels from a go forward basis.
Yes.
That's a good question and that is something that we see as I.
<unk> from CGS as sort of a similar type of question.
Answer with a little more specificity, Ken and how you phrased it.
It's very customer specific rate and.
Some of our retail customers going into the year end holiday season.
We're pretty heavy in sort of they're going into their selling season sort of ordered heavy.
And now we're starting to see a little bit of what looks like <unk>.
Very temporary higher levels of inventory in there and so.
The planning numbers that come to us get revised up to a softer level again. These are these aren't.
Or panic levels for us, it's what I would call sort of normal planning I do think that that there has been a bit of a ripple effect right given the uncertainty of COVID-19 given the pandemic given the uncertainty.
Planning, our customers' ordering patterns have been somewhat lumpy as well so.
Fortunately.
We're maintaining very good communication with our our customer base and are giving us good for warning. So we're not.
Trying to not get into situations, where we produce something for them that they don't take I mean that gets a little bit challenging for us. So we're really getting good for the most part for warnings on future production levels and planning levels and Thats, just part of what I'll call normal planning with our customers, but in this uncertain period.
<unk>.
Okay.
That's very helpful. Thanks, again for the follow up here.
Thank you.
And there are no further questions at this time I'd like to turn it back to our presenters for any additional or closing comments.
Thank you everyone again for joining us on our earnings call and we look forward to updating you again next quarter. Please everyone stay safe and healthy. Thank you.
Thank you and that does conclude today's conference we'd like to thank everyone for their participation you may now disconnect.
[music].
[music].
Thank you for standing by good day, and welcome to the Tri Mass first quarter 2021 earnings Conference call. Today's conference is being recorded at this time I would like to turn the conference over to MS. Sherry Lauderback. Please go ahead.
Thank you and welcome to try and ask Corporation's first quarter 2021 earnings call participating on the call today are Tom Amato, Trimas, as president and CEO and Bob <unk>, Our Chief Financial Officer, We also have with US Scott Mel, whereas we announced yesterday will succeed Bob as CFO effective may 1st.
We will provide our prepared remarks on our results and our outlook and then 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 <unk> Corp dotcom.
Under the investors section.
In addition, a replay of this call will be available later today by calling eight a 82031112 with a replay code of 7033534.
Before we get started I would like to remind everyone that our comments today, which are intended to supplement your understanding of China may contain forward looking statements that are inherently subject to a number of risks and uncertainties.
Please refer to our form 10-K, and our force first quarter 10-Q that will be filed today for a list of factors that could cause our results to differ from those anticipated in any forward looking statement.
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 addition, we would like to refer you to the appendix in our press release issued. This morning are included as part of this presentation for the reconciliations between GAAP and non-GAAP financial measures used during this conference call today, the discussion on our call regarding our financial results will be on adjusted basis, excluding the impact of special items.
With that I'll turn the call over to Pam Amato, Trimas, as president and CEO Tom.
Good morning, and welcome to <unk> first quarter earnings call.
On behalf of our global leadership team, we are very pleased with our performance to start the year.
Despite continued challenges in accurately forecasting given the pandemic and related demand changes, we are reporting strong first quarter earnings today.
Let's turn to slide three.
As a reminder for the first quarter of 2021, we are largely comparing results from a pandemic quarter to essentially a pre pandemic quarter in 2020.
While we work on integrating more recent acquisitions, we continue to have momentum in <unk> packaging segment, which was up 32% for the quarter to $132 million a record first quarter sales level.
We have previously stated that our specialty products businesses would be the first beneficiary from a market recovery. Indeed, we are excited to see sales levels at the high end of our outlook range and with better than anticipated conversion, which we attribute to prior year factory floor improvements.
While it is still difficult to predict we hope this trend continues and perhaps even dovetails into it and additional future benefits from increased infrastructure spending that may occur in the U S.
We did experience higher raw material costs in the quarter, which we largely overcame through better than anticipated volume. So again, we are very pleased with our financial results for the quarter.
Additionally, in late March we announced the successful refinancing of our revolver facility, which was otherwise expiring in 2022 and the refinancing of our fixed rate notes.
Given historically low interest rates, we elected to upsize, our senior notes from $300 million to $400 million, putting additional cash net of refinancing costs of $86 5 million on our balance sheet.
While we have no immediate need for the additional cash we remain well capitalized and in a solid position to execute our long range strategy.
We are also well positioned to continued continued to execute share buybacks as part of our overall capital allocation strategy.
In the first quarter, we repurchased approximately 2% of shares outstanding and have $159 million of availability under our most recent share repurchase authorization.
To increase transparency on our earnings we are also announcing today that we will be redefining adjusted earnings per share to add back non cash acquisition related amortization expense.
Given that we currently have more than $20 million of pretax non cash acquisition amortization expense annually. Modifying. This definition provides our investors a better view of the cash earnings power of Tri mass.
Now before I move to our specific results for the quarter, We also announced yesterday that Bob <unk>, our CFO will be retiring.
Bob has done an incredible job over his career at <unk> and I personally feel fortunate to have partnered with Bob over my nearly five years with the company as we reposition try man and greatly improved our performance and potential.
We also announced that we've hired Scott mill as our new CFO.
<unk> with strong financial acumen, and a deep skill set on performance improvement here.
He has also worked with <unk> on a few high impact projects over the last couple of years. So he has good familiarity with the company.
I just got to introduce himself.
After which he will be leaving the call to continuous onboarding work with the wider <unk> Scott.
Thank you Tom and good morning to all.
I'm excited to be here with you today and look forward to further engagement with our investors in the months and years ahead.
My first day with dry mass was on Monday, and there has been a busy week of Onboarding with the leadership teams here at <unk> and our family of businesses.
Fortunately for me I'm very familiar with the <unk> organization.
They're taking the CFO role, our managing director at River on consulting where I worked closely with Tom.
And others several high impact projects over the last 24 months.
This work has allowed me to develop a meaningful understanding of the <unk> business model, our intrinsic value drivers and the work of the office of the CFO of <unk>.
But that being said I am still going to be drinking through the fire hose for these first few weeks.
However, most of my career has been focused on providing strategic leadership during times of meaningful change. So I look forward to the challenge.
Before I go I would like to acknowledge my predecessor, Bob <unk> and his almost 20 years with <unk>.
I've gotten to know Bob over the last few years and I wanted to take a moment to simply wish him and his family well.
I'm going to drop now I'll hand, it back to Tom and Bob to take you through the first quarter results. Thank you.
Thank you Scott and I look forward to your future contributions in helping us advance <unk> to the next level.
If we turn to slide four I'll review <unk> first quarter results before turning the call over to Bob who will take us through our segment results.
Consolidated sales were $206 7 million up 13, 1% as compared to the prior year quarter, driven by acquisitions organic sales increases and currency.
Organic sales were up one 9% driven exclusively by <unk> packaging group more than overcoming sales declines in <unk> aerospace and our specialty products segment.
As noted we are comparing the first quarter of 2021, a pandemic quarter, two and essentially pre pandemic quarter in 2020.
Adjusted operating profit was $26 6 million or 12, 9% per quarter up $4 6 million as compared to the prior year quarter and adjusted net income was $17 4 million up $2 3 million as compared to the prior year quarter.
Adjusted diluted EPS was <unk> 40 per share, which exceeded the top end of our outlook range of 34 to 39.
And compared to 34 per share for the prior year quarter.
As I mentioned earlier going forward, we will be reporting our adjusted diluted EPS by excluding noncash acquisition related amortization expenses for the first quarter of 2021 under this enhanced definition, we achieved 49 per share up 16, 7% as compared to <unk> 40.
<unk> per share for the prior year quarter under the same revised definition.
Finally, adjusted EBITDA was $40 6 million or 19, 6% of sales, let's turn to slide five.
I would note that our balance sheet statistics shown on this slide has some temporary but not uncommon anomalies given that our refinancing transaction spanned over the quarter. For example funds were received from our new four and one 8% senior notes due 2029 prior to March 31.
2021.
However, we did not yet pay off our $4 seven 8% senior notes at quarter end as of today of course, we have since paid off our $4, 78% senior notes entirely.
We delivered free cash flow of $10 3 million as compared to the prior year quarter of $1 8 million.
This performance was a result of our year over year EBITDA increase plus continued net working capital management, which was partially offset by higher level of capital spending.
Adjusted LTM EBITDA was $162 million, an increase of $5 2 million as compared to the December adjusted LTM EBITDA of $156 8 million, which highlights our continued positive momentum.
We believe that driving <unk> LTM EBITDA higher.
While simultaneously maintaining a deleveraging model against net debt ultimately will drive long term shareholder value creation.
Finally, our net leverage was one seven times well below our stated long range goal of two times and we have sufficient borrowing capacity.
When adjusted for the redemption of our 478% senior notes, we have more than $400 million of available cash and liquidity at quarter end.
I will now turn the call over to Bob who will take us through our segment results. Thank you Tom.
Turn to slide seven I will begin my comments with a review of our packaging segment.
I would first like to highlight that <unk> packaging group reported record quarterly sales and operating profit for its first fiscal quarter. This accomplishment is a testimony to the hard work and dedication of all of our packaging team members globally, considering the unprecedented nature of the pandemic and its ongoing impact.
First quarter net sales of $132 $1 million increased approximately $32 million or 32% net of foreign currency as compared to the year ago period on an organic basis sales increased $15 9 million up almost 16% while acquisitions contributed an additional.
All $13 4 million and the impact of favorable currency translation.
<unk> added $2 7 million.
Sales of our products used in beauty and personal care and home care applications that help fight the spread of germs led the way increasing approximately $9 million on an organic basis, while <unk> continues to experience strong demand for our dispensing products due to the pandemic, we did see some softening in the order book in.
Q1, as our customers work through overstock levels of inventory on certain dispensing product line, which we believe may have a dampening effect on second quarter 2021 sales levels as Tom will speak to later.
Sales of products used in food and beverage applications increased approximately $2 million organically compared to the year ago period, driven by higher sales of caps and closures while sales of products used in industrial applications increased approximately $3 3 million organically.
Due primarily to higher sales of polymeric closures as customers restocked in anticipation of higher demand in a recovering industrial economy.
Operating profit increased <unk> 5 million to $23 6 million driven by the higher overall sales level.
Operating margin was 17, 9% compared to 18, 6% a year ago due primarily to higher input costs, mainly resin, but also free and the margin impact of the <unk> acquisition.
Higher material costs resulted in an estimated 2 million earnings drag in the quarter as contractual price escalators and commercial actions typically lag input cost increase was 60 to 90 days.
Although we anticipate input costs will remain elevated through second quarter, we expect pricing escalators and commercial actions implemented will result in full recovery of the higher material costs and as I noted in our last earnings call. We have now completed the consolidation of the repack manufacturing footprint and anticipate operating.
Margins will improve as we progress through the remainder of 2021.
Adjusted EBITDA increased $7 1 million or approximately 30% to $31 million versus the prior year quarter of $23 9 million.
As we enter the second quarter I wanted to highlight a couple of important developments in the <unk> packaging group from.
From an innovation perspective dried up as Ricky business has introduced a commercial ready single polymer dispensing pump the mono <unk> pump.
Patented mono to EEG features six components all made from one polymer. Unlike conventional pumps, which include many parts made from different materials. This first to market innovation is 100% recyclable, which contributes to a reduced carbon footprint.
In addition, the mono to E as ecommerce ready mitigating the risk of leaking during transit and as Amazon approved a risky business is experiencing significant commercial significant commercial interest in the mono tube pump and is actively working to extend the amount of polymer technology to several of its dispensing product.
<unk>.
I would also like to note that we have entered into a new multiyear contract with one of our largest packaging retail customers that commits us to relocate production of existing purchases of certain dispenser product into North America versus what is currently imported as noted on our last call. The specific onshoring project will require.
One time capital spending of an incremental $20 million above our normalized capital spending levels, which will be spread out over the next few years.
Each of these items are exciting developments the longer term future of the <unk> packaging group nearer term as we considered the second quarter of 2021 through the end of year, we anticipate lesser organic sales demand compared to the comparable quarter in 2020 as a result of our expectation that one some of the unusually high acts.
<unk>, a pandemic related sales, partially receipt and two customers potentially adjusting their overall purchases and inventory planning levels.
Turning to slide eight I will now update you on our <unk> Aerospace group.
Net sales for the quarter declined $4 3 million or eight 8% to $44 6 million sales of core fastener products and machine components declined approximately $8 6 million or 17, 5% compared to the year ago period. As a result of continued low travel demand.
<unk> and related softness in aircraft build rates due to the global pandemic.
RSA engineered products acquired at the end of February 2020 contributed $4 $3 million of sales in January and February 2021, which helped offset a portion of the organic sales decline.
As a reminder, after the first full year of ownership, we consider any year over year sales changes in an acquisition as organic.
Operating.
Profit was $5 million or 11, one percentage of sales as compared to $6 1 million or 12, 4% in the prior year cost savings, resulting from our prior realignment actions helped to substantially offset the impact of lower absorption of fixed costs on the sales volume decline and higher amortization expense relate.
Two acquisition intangibles.
Adjusted EBITDA for the quarter was 19 was $9 5 million or 21, 4%, which represents a 70 basis point improvement compared to the prior year period, primarily as a result of the realignment actions and other spending reductions implemented in 2020 in response to the sales volume decline.
Although first quarter sales were lower than the year ago period, now that we have nearly lapped the onset of the pandemic, we anticipate sales in the second quarter and for full year 2021 will be higher versus 2020, driven by both a full year of acquisition sales and secondly, meaningful stocking orders in.
Specialized fasteners from distributors that began in Q1, and which we anticipate will continue for the remainder of the year.
Our Tri mass leadership Aerospace leadership team continues to evaluate practical steps to further align our manufacturing footprint and related cost structure with current demand levels, while balancing this priority of continuing to invest in new and innovative products to support its global customers and positioning itself for <unk>.
<unk> business opportunities.
Moving to slide nine I will now review our specialty product segment.
Net sales in the first quarter declined $3 8 million to $30 million or approximately 11 to 11, 2% compared to the same period, a year ago sales of steel cylinders used in construction and packaged gas end markets as well as sales of engines and compressors used in upstream oil and gas applications.
Each for the North American market continued to be impacted by the effects of the global pandemic.
However, operating profit in the quarter was $4 5 million or 15, 1% of sales as compared to $3 4 million and 10, 1% in the year ago period operating margin improved significantly in the current quarter, primarily as a result of cost realignment actions and factory floor improvement implemented.
In the prior year.
Adjusted EBITDA of $5 5 million or 18, 3% of sales was also significantly better than the prior year's quarter of $4 4 million or 13% of sales of 530 basis point improvement on a year over year basis.
We continue to closely monitor end market demand impacted by the effects of the pandemic as we believe these businesses are well positioned for improved financial performance in an industrial economic recovery with increased operating.
Operating leverage as a result of the 2020 realignment actions.
While recent order intake levels are noticeably stronger relative to the past several months. It is still too soon to know if this trend will sustain over the remainder of the year.
We will continue to monitor order activity and backlog and provide an updated market outlook in connection with our Q2 reporting.
Before turning the call back to Tom I would like to comment briefly on my planned retirement from the company.
While the decision process was difficult. It was certainly made easier knowing that our businesses have successfully weathered the COVID-19 pandemic and that <unk> is well positioned for its next phase of growth.
Over the past 19 years I've had the distinct honor and privilege of working with many outstanding talented individuals who contributed not only to the success of the company, but it will also assisted me in my career along the way.
To all of you I would like to say thank you.
And I would also like to thank Tom our finance and business leadership teams throughout the company and the <unk> Board of directors for your support throughout my tenure as CFO. The company is well prepared to execute on its strategy and I wish the <unk> leadership team continued success at all future endeavors, and now I will turn the call back to time to provide.
Our Q2 outlook in his concluding remarks.
Thank you, Bob and again on behalf of all <unk> employees and our board of directors. Thank you for your dedication and commitment over your nearly 20 year career at <unk> and particularly over this past unprecedented year.
Turning to slide 11, given that we continue to operate in this pandemic period still with a great deal of uncertainty in demand changes, we're going to again only provide the forward quarter outlook at this time, along with reaffirming our broader views on the full year as provided at the beginning of the year.
While while there were still some anomalies in the prior year quarter related to the onset of the pandemic. Our second quarter of 2021 will be better aligned to the second quarter of 2020 from a comparison perspective than the first quarter also we will reassess returning to full year guidance, when we announced second quarter.
Results at which time, we hope to have a better information on overall market dynamics.
For Q2, we expect consolidated sales to be 3% to 12% higher as compared to the same quarter last year driven by anticipated growth in all segments. We expect the growth from acquisitions in our packaging segment when combined with the organic growth in specialty products in <unk> aerospace.
To overcome the anticipated decline of any COVID-19 related dispenser closure sales in Q2.
As we discussed in our prior earnings call. This decrease this decrease of COVID-19 related sales in <unk> packaging group was anticipated given the very highest high sales rate in 2020, which began in the second quarter of 2020.
We anticipate adjusted earnings per share will be in the 50 to 57 per share range.
As compared to <unk> 52 per share from the prior year quarter book.
Both of these periods have <unk> <unk> per share from noncash acquisition related amortization expenses excluded from these numbers.
Let's turn to slide 12.
We continue to remain excited about the thesis for investing in <unk> today.
Our diverse set of end markets allows investors to participate in a positive secular change in demand for our products that are used in applications that improve cleanliness and helped quite the spread of germs product lines, which are concentrated in our packaging business in.
In addition, as markets start to recover investors are able to participate in our growth first and specialty products, which should be an early beneficiary to a market recovery and then <unk> aerospace as the aerospace market begins its long road to recovery over the coming years.
If we turn to slide 13, we believe investors will further benefit from our disciplined capital allocation strategy, which is shown in this slide.
As we have stated previously <unk> will ensure that we operate our businesses and a culture of kaizen built upon a foundation of operational excellence will.
We will utilize our <unk> business model to track and measure our near term performance against our longer term strategic plans and proactively adjust as markets change.
We will reinvest our cash generation first to improve and grow our businesses organically and to also ensure net debt remains in check to protect our shareholders.
And we will deploy capital to augment organic growth through programmatic M&A and also return value to our shareholders through treasury actions such as share buybacks.
We continue to believe <unk> is an exciting company to invest in and with that I'll turn the call back to Sherry Sherry. Thanks, Tom at this point, we'd like to open the call up to your questions.
Thank you to signal for a question. Please press star one on your telephone keypad also if you are using a speaker phone. Please make sure that your mute button is turned off to allow your signal to reach our equipment. Once again. Please press star one at this time for questions and we will pause to give everyone the opportunity to signal.
And our first question will come from Brendan <unk> with CJS Securities.
Hi, Good morning first of all I just wanted to.
Thanks, Bob.
And wish him well in retirement.
Thank you Brenda.
And the.
Looking at our packaging I wanted to ask about.
In your guidance.
Outlook for next quarter.
Obviously, you guys have.
The last few quarters.
It exceeded your.
Your outlook and understand the way you have to you have to consider.
Potential at some point a reduction in demand.
But obviously you keep that it keeps beating and exceeding expectations.
Want to ask how much upside do you think there could be in packaging.
And then just one.
Also just what youre hearing from them.
From the channel.
Considering.
We are kind of nearing an inflection point, where we will see I guess, how consumers behave and how much of this demand is sustained versus isn't.
Yes, Brian Thank you very much for the question.
It is a little bit challenging.
Sure.
Clearly staying very close to our customers. During this period, we have obviously most of last year.
We're seeing we're seeing.
Sort of a customer dependent.
Our specific.
The challenge.
Customers for example could be a little bit longer on inventory going into Q2, and we're seeing some effects from planning their planning and order intake related to those specific customers and then we have other customers where demand remains pretty robust and also.
We're seeing differences by end market.
We talk about presenting our forecast only on a quarterly basis right now given some of the challenges we have in forecasting.
And I am glad you sort of subtlety pointed that out that's not necessarily a negative.
We just.
It's difficult for us to rely on some of the Lumpiness, we've seen in various ordering patterns, particularly over the past few quarters. So.
Hard for us to say specifically on balance taking a look at our total customer pool all end markets.
We continue to see some of the positive trends that we felt would emerge from the secular change in in the use of some of our products.
With the only challenge being the very robust levels of orders in 2020 that we believe we will start to ascend here as we go into Q2 and beyond and it's really difficult for us to put an exact number on it.
Obviously, we'll know more at the end of the quarter and then and then hopefully that helps us with predicting.
Bit more a better cadence for the rest of the year.
Okay, great and.
Talking about our specialty in aerospace I think the margin then.
Both of those.
Segments really helped.
The offset obviously the resin cost headwinds.
Hmm.
You know what I guess, how much of that exceed your expectations and I also wanted to ask about specialty in particular.
A larger range of I guess more upside than I would expect for Q2 by saw your 2021 thought still say relatively flat sales year to year is there is there a potentially large order in there or how should we think about.
Specialty for rest of the year.
So let me just touch upon aerospace I would say aerospace was largely what we anticipated on balance.
But yes for specialty products, we were we were positively.
Surprised and excited about the outlook and the reason why are the performance and the reason why we have an adjusted sort of the full year.
Use yet on it is we really want to see what happens with order order intake and shipments this quarter and towards the ended the quarter I would note that our specialty products business. The largest driver of it is our Norris cylinder business, it's pretty short cycle. So we could get an order today.
Day that ships out in <unk>.
Next week late next week, so it's really difficult from a planning perspective for us too.
Copy and paste what happened in Q1 and drive it through the rest of the year. We certainly hope that's the case and maybe even more so but that's one of the reasons why I wanted to point out as I did earlier that.
It shouldn't be read into the fact that we're not forecasting out more than a quarter as potentially a negative I mean, there could be some positive.
Impacts from specialty products, which would be great for us overall.
Okay, and then where I mean, where can the margin gets you for specialty I mean.
You got almost 20% on the EBITDA.
<unk>.
ATM change and where can that go and can you talk to like Incrementals at all.
And I guess for specialty or area either of those segments.
Well look if we if we if we stay with.
With North, which again is a main driver for specialty products contributing to this result, largely.
The incremental should be pretty positive.
We were we're coming off a sales base. It is pretty low for this business and we have obviously some fixed costs related to the business and.
As we get in each incremental dollar of.
Profitable orders and additional cylinder sales.
Should get pretty good conversion, so I don't want to say.
Exactly what we see the margin going to but I would like all of our businesses to be no less than 20% I'd like <unk> and the EBITDA basis, I'd like <unk> overall to be over 20% I've said that before.
And my expectation for our specialty product segment is that with demand getting to a more normalized level, we should be there.
If you look at the trend in operating profitability over the last three quarters has improved each quarter.
Over different levels of demand and so it would be.
Very likely that with more.
The leverage would continue.
Okay, great. Thank you for the color.
Thanks Brendan.
And once again it is star one for questions moving on we'll go to Steve Barger with Keybanc capital markets.
Hey, good morning, everybody, it's Ken Newman on for Steve.
Okay. Good.
Good luck on the retirement, it's been great working with you.
Okay.
So first question I did want to go back to the margins.
Particularly on Aero I guess asked another way.
Would you view the first quarter for aerospace maybe the baseline for the rest of the year just given.
The expectation for higher revenue for the entire year broadly.
No I would say that.
The margin performance in Q1.
Was a bit stronger than what we anticipated.
It was largely due to the mix of product that was manufactured in that in that quarter.
While volumes will be.
Up over the remainder of the year.
You have to look really hard at it whats the mix of those products and at least from.
The foreseeable.
Foreseeable future, we do not see that mix as being as favorable as it was in Q1.
Understood.
And Bob just to clarify on the packaging price comment you made.
Did you say you expect margins for the segment to return back to those high teen levels in the second quarter or is that something that you think you recoup.
Closer into the second half.
I think it probably happens over the balance of the year.
From.
Our cost input perspective, with rising prices. There is the lag that we experience in terms of our ability to pass that through.
In the first quarter, we had about a 2 million dollar impact that as we look at quarter, two and beyond we would expect our recovery to be about one per one on those higher material costs. So that drag will work its way out.
As we go through quarter, two and beyond the.
Depending on what happens with input costs, there may be some tailwind on the back end of that were.
You get the benefit of the higher price book before they get passed back to the customer so.
In the main I think over the course of the year that'll be that'll be neutralized.
And of course with the Rapex situation.
As <unk>.
Volumes improved there and productivity improves that it'll be less of a drag.
On that margin, so getting getting our operating margins back into that 19% to 20% range, where we've been app pretty consistently over the past several quarters I do think as is in the offing.
Okay.
Understood.
And one more from me if you don't mind.
I was curious if you could just talk to the preference of capital deployment between M&A and share repurchases, obviously, you've you've refinanced the balance sheet theres a lot of capacity here.
Curious should we imply that that means that you are willing to look at larger deals or is this really just to give you some more dry powder and more optionality going forward.
Yeah, I think well first of all.
It's it's yes to both.
But the biggest driver to taking advantage of the refinancing when we did as I noted.
We essentially had to go into the market any way because of our revolver just to get that out of the way and then we wanted to take advantage of what we thought was.
This is a historic period in time with low interest rates.
And took advantage of an opportunistic step as I look forward over the next.
More than a few years.
Our balance sheet is essentially set opposite our strategic plan that we have in place. So we could do.
A few larger deals without disrupting our balance sheet or we could do several smaller deals, but there is nothing that I would read into this.
Ken specifically this is because of the refinancing we're now going to do that.
Great.
I guess back to the first part of that question on the preference between deals and share repurchase.
You did a little bit this quarter.
Can you just talk about how you.
Strategically or is this more opportunistic is there.
And internal price point that you guys are looking to to protect.
No there is not necessarily an internal price point, we're looking to protect.
That being said if there was disruption obviously, we would take advantage of that opportunity, but we're looking at share repurchasing.
More as a.
Our capital allocation strategy and it means to return capital to shareholders through taking out shares outstanding and.
We haven't we haven't quite said this specifically, but if you look at our cadence over the past couple of years, we've made great progress I personally I'd like it to be above 1%.
As a minimum on an annualized basis, we're sort of on that track currently.
We will have to assess what we do going forward, if we pick up that pace or not but but.
I would consider it more of our normal capital allocation strategy going forward versus just purely opportunistic.
Understood great color. Thank you.
Thanks, Ken Thank you.
And as a final reminder, star one at this time for questions, we'll pause for just a moment.
And we do have a follow up from the line of Steve Barger with Keybanc capital markets.
Hey, thanks for the follow ups.
Just quickly.
Quickly I was curious if you could just talk about.
Yeah.
Any impact from supply chain.
<unk> seen in the quarter and just how are you kind of thinking about it.
Tighter supply chain across all the segments.
With regard either to the second quarter outlook or just your broader 2021.
Well.
It is.
<unk>.
Apply chain challenges.
Our very real like all companies are seeing it is in our Q2 thinking and it's in our broader range views.
And we've been very working very hard.
Particularly.
In the packaging and our packaging business to secure.
Some input materials that are.
A little more scarce than normal.
And then also obviously theres two components right. There is a scarcity in price so theres availability for the most part.
On metals, so we're not experiencing any scarcity there but.
We're just dealing with price there so overall we're.
We're working through it.
We've had to bring on some additional suppliers to protect supply for our customers.
That has been a bit of a drag in hard to quantify exactly how much in Q1, we might have some lingering effect in Q2.
But my hope is Bob sort of alluded to as well as we get into the second half.
There are some easing on that front, both in terms of supply and hopefully in terms of economics.
Yes.
When I think about that in the context of specialty, particularly on the Norris business given how steel have you can be can you just talk about.
The expected impact on price cost for some of those products and just.
The price escalators, if there are any.
It's a mix of contractual price escalators in commercial negotiations.
I would say as we get into.
From a run rate that that is a little more sustained at a higher.
Based in surcharges surcharge level on SBU special bar quality steel.
We tend to get pretty close to a one to one price cost ratio.
Okay.
And then just lastly, sticking on this whole supply chain issue or just.
The theme I guess.
Yes.
Can you just talk a little bit about how much obviously youre pulling a little bit more from your suppliers I think everyone is trying to protect.
Delivery and lead times.
Are you seeing any customers pool product as well to maybe try to get ahead of potential further tightness in.
Just I'd be curious to hear about order inquiries across all the businesses as it relates to.
Trying to.
Yes protect inventory levels from a go forward basis.
That's a good question and that is something that we see as Brandon from CGS as sort of a similar type of question.
Answer with a little more specificity, Ken and how you phrased it.
Very customer specific rate and.
Some of our retail customers going into the year end holiday season.
Order pretty heavy in sort of they're going into their selling season sort of ordered heavy and now we're starting to see a little bit of what looks like.
Very temporary higher levels of inventory in there and so.
The planning numbers that come to us get revised up to a softer level again. These are these aren't.
Or panic levels for us what I would call sort of normal planning I do think that that there has been a bit of a ripple effect right given the uncertainty of COVID-19 given the pandemic given the uncertainty.
Planning, our customers' ordering patterns have been somewhat lumpy as well so.
Fortunately.
We're maintaining very good communication with our customer base and they're giving us good for warning. So we're not.
<unk> did not get into situations, where we produce something for them that they don't take I mean that gets a little bit challenging for us. So we're really getting good for the most part for warnings on future production levels and planning levels and Thats, just part of what I'll call normal planning with our customers, but in this uncertain period.
<unk>.
That's very helpful. Thanks, again for the follow up here.
Thank you.
And there are no further questions at this time I'd like to turn it back to our presenters for any additional or closing comments.
Thank you everyone again for joining us on our earnings call and we look forward to updating you again next quarter. Please everyone stay safe and healthy. Thank you.
Thank you and that does conclude today's conference we'd like to thank everyone for their participation you may now disconnect.