Q1 2021 Ampco-Pittsburgh Corp Earnings Call
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Good day and welcome to the Amtrust Pittsburg Corporation first quarter 2021 earnings results Conference call.
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I would now like to turn the conference over to Melanie <unk> Director of Investor Relations. Please go ahead ma'am.
Thank you Rocco and good morning to everyone. Joining us on today's first quarter of 2021 conference call. Joining me today are Brent Mcbrayer, our Chief Executive Officer, and Mike Mcauley, Senior Vice President and Chief Financial Officer, and Treasurer and.
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 that 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 intention.
These matters involve certain risks and uncertainties many of which are outside of the corporation's control.
And the corporation's actual results may differ significantly from those projected interest suggested and any forward looking statements due to various factors, including those discussed and the corporations and 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 revision to our forward looking statements.
While we look forward to engaging with our shareholders at our annual shareholder meeting on May 13th 2021, consistent with our prior earnings call. We are not addressing the meeting or any of events relating to the meeting on this call. We encourage you to review our definitive proxy statement, which was filed with the SEC on March 26, 2021 and is available.
On the SEC website.
A replay of this call will be posted on our website later today to access the earnings release or the webcast replay. Please consult the investors section of our website at the Ampco PGA dot com with that I'll turn the call over to Brett Mcbrayer, Ampco, Pittsburgh and CEO.
Thank you Melanie good morning, and welcome to our call.
And I'm proud of the work Ampco, Pittsburgh and employees accomplished during the quarter.
Although we continue to fill the negative impacts of the global pandemic.
The team has been resilient and unwavering in its efforts towards achieving our near term goal of double digit EBITDA margins.
Despite the lingering headwinds we delivered another positive quarter of earnings and our liquidity position remains strong.
Our air and liquid processing segment continues to enjoy steady demand for the products.
Activity and our forged and cast engineered products segment is progressively picking up speed, we anticipate bookings to return to pre pandemic levels. During the second half of 2021, resulting in a full recovery in 2022.
We continue to be encouraged by the positive receptivity of our new customers and our non role and engineered products.
Engineered products revenue stream as a complementary source of growth for our business and fits well with our current and expanding capabilities and.
I'm excited to see the new capital equipment investment activities and accelerate.
We anticipate the final phase of our new equipment implementation to complete in 2023.
Our safety performance continues to be of focus for our team as we drive towards zero injuries in the workplace.
The hard work and dedication of our employees continues to be impressive. Thank you for your excellent work.
For further comments on our business I'd like to Terry Kenny President of Air and liquid systems, and Sam Lyon President of Union electric steel to share some of the highlights and their segments performance Terry.
Thank you Brett.
As Brent mentioned the safety of our employees is one of our key priorities I am pleased to report that air and liquid systems processing segment successfully reduced our accident and recordable rate from $2 87 in the fourth quarter of 2020 to $2 <unk> for the first quarter of this year.
In addition, I would like to recognize the employees at both Ericsson and Buffalo Air handling divisions for having zero recordable injuries during the first quarter of 2021.
Their commitment to working safely and looking out for one another has proven to be effective.
Congratulations and thank you to all of the employees of both divisions.
Orders for centrifugal pumps and custom air handlers were steady for the first quarter.
Orders for custom heat exchange coils were slow as the year began but closed the quarter straw and activity remains solid as we head into the second quarter.
First quarter revenue for the air and liquid processing segment increased five 2% compared to the prior year on increased demand for centrifugal pumps.
Operating income for the segment decreased compared to the prior year due to a slight shift and product mix.
The cost of most materials have increased over the past several months. However to date the availability of required material has not been an issue.
However, we continue to monitor all critical commodities for changes and price and availability.
We have been increasing sales prices when possible to minimize the negative impact on future earnings.
We remain optimistic that the demand for the segments products will provide steady growth opportunities for their perceivable future.
Thank you Terry I will now turn the call over to Sam Lyon and Sam.
Brett good morning.
I'd like to begin with with our safety performance, our recordable rate increased from three 3% to five three year over year.
Driven by two locations. This increase was the disappointing start to the year.
We are focused on the root causes and put improvement plans in place on a positive note our Slovenia operations continued to be recordable free and our Carnegie plant was recordable free for the quarter.
On the last call I commented on the rising cost of raw materials and scrap as a significant headwind we were facing and Q1.
While most of our business is protected by surcharge mechanisms that address these increases there was the one to two quarter lag and realizing the price increases tied to raw materials.
This lag was approximately of $400000 net hit to the statements results segment's results.
From a sales perspective, the stated in the last call, we continued to see more upside potential and downside cut.
Customer sentiment remains strong for 2021, despite the global semiconductor shortage.
Our inventory levels continue to be lean and our ability to rapidly respond to quick orders is paying off.
While our customers are posting impressive results. These are mainly driven by price increases comparing steel production and Q1 of 2021 to pre pandemic levels utilization rates have not fully recovered and our largest markets.
North American production was eight 5% lower and European production was 10, 6% lower than in Q1 of 2019.
Currently we expect 2021 revenues to come in and around the midpoint of 2019 and 2020 levels.
We also anticipate roll sales to increase going into 2022 recovering to pre pandemic levels, despite our backlog being lower than in past years at this time.
Due to the shortened industry lead time for rolls and tighter Capex control with our major customers much of the 2022 allocation, we would typically have and our backlog and start verified.
We're still in discussions with our two largest domestic customers, which should finalize in the coming weeks, we're still seeing strength and our non roll product offerings with an increase of approximately 65% and revenue in Q1 of 2021, when compared to the same quarter of last year.
It looks like we will ship more non role open die forged products and the first half of 2021 that we did and all of 2020.
I'd like to close by expanding upon bretts comments regarding the capital project that we recently launched this project is centered on our North American assets and targets two critical issues. The first is to modernize our roll finishing assets to provide better reliability lowering our operating costs and the second is to support our growing sales.
<unk> and our non rule product offerings once completed and about two years, we will have a lower cost structure and and increased capacity of approximately 80% for our non rule open die forged forged segment.
This project is very exciting for our team and will position us well for the future.
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 Brett.
Despite continued pandemic related headwinds impacting and market demand and the roll business.
Ampco Pittsburgh reported diluted EPS of <unk> <unk> per share for the first quarter of 2021 the.
The corporation's balance sheet and liquidity position remains strong with cash on hand at March 31, 2021 of $18 3 million and Undrawn availability on our credit facility of approximately $47 million.
Total debt is down 47% compared to March 31, 2020, while total shareholders' equity has risen.
As a result debt to total capitalization at March 31, 2021 was 29, 2% or nearly half the level. We saw at the end of the March quarter a year ago.
<unk> net sales for the first quarter of 2021 were at $86 $8 billion.
This compares to net sales for the first quarter of 2020 of $91 1 million the decrease is.
The principally attributable attributable to lower demand for mill rolls and pre pandemic levels offset in part by higher shipments of forged engineered products.
Gross profit as a percentage of net sales was 19, 8% for the first quarter of 2021 versus 23%.
For the first quarter of 2020 the.
And the decline is attributable to the proportion of cast engineered product segment, which was impacted by a lower volume of shipments of mill rolls.
Higher net raw material costs unfavorable manufacturing absorption.
And unfavorable changes and product mix.
Additionally, the prior year quarter benefited from a receipt of business interruption insurance proceeds of <unk>.
$8 million for equipment outages, and the forged and cast engineered product segment, which occurred in 2018.
Selling and administrative expenses of $11 6 million or 13, 3% of net sales for the first quarter of 2021.
We're down slightly compared to $11 $8 million or of 13% of net sales for the first quarter of 2020.
The impact from higher exchange rates and additional sales commissions on higher forged engineered product sales during the current year quarter was offset by lower bad debt expense.
Depreciation and amortization expense of $4 7 million for the first quarter of 2021 was flat compared to prior year.
Income from operations on an as reported GAAP basis for the first quarter of 2021 was <unk> $9 million.
This compares to income from operations and the prior year quarter of $4 4 million, which included the benefit for business interruption insurance proceeds of $1 8 million.
Other income expense net improved for the first quarter of 2021, when compared to the prior year quarter.
Due to changes in unrealized gains and losses on Rabbi Trust investments.
Principally due to market volatility and the prior year associated with the COVID-19 pandemic.
Lower foreign exchange losses as.
As well as higher pension income given the lower discount rates favorably impacting interest cost and the current year and expected returns on a higher level of planned assets.
The period over period of change and the income tax provision was driven principally by a benefit of approximately $3 $5 million due to the expanded tax loss carryback provisions made possible by the cares Act, which was recorded and the prior year quarter.
At the bottom line the Corporation reported a GAAP net income attributable to ampco Pittsburgh of point.
$2 million or <unk> <unk> per diluted share for the first quarter of 2021.
Compared to net income of $4 1 million or of 33 per diluted share for the first quarter of 2020.
Which included a combined benefit of 34 per diluted share for the cares Act tax loss carry back and the proceeds from the business interruption insurance claim both recorded and the prior year quarter.
Here's some detail of the segment level.
And the forged and cast engineered products segment Q1, 2021, net sales of $63 4 million declined approximately 8% versus prior year due to lower shipment volumes of mill rolls, especially large rolls offset by a higher volume of forged engineered product shipments as the result of increased demand.
From the oil and gas market and steel distribution markets.
The segment's operating results declined for the first quarter of 2021 compared to prior year due to the lower volume of shipments lower cost absorption, resulting from reduced production levels.
Higher net raw material costs.
Less favorable mix of roll sales.
And the proceeds from the business interruption insurance claim which benefited the prior year.
Net sales of $23 4 million for the air and liquid processing segment for the first quarter of 2021 were approximately 5% higher than the prior year period.
Sales of pumps improved from a year ago by approximately 22% and benefited from a higher volume of shipments to U S. Navy shipbuilders, which was partially offset by lower shipments to the power generation industry.
By comparison sales of heat exchange coils decreased from a year ago by approximately seven 5%.
And were negatively impacted by a lower volume of of replacement sales.
Sales of air handling units were relatively comparable quarter over quarter the.
The segment's operating results declined slightly for the first quarter of 2021 compared to prior year, primarily due to the product mix.
Backlog at March 31, 2021, approximated $240 million of decrease from $246 million at December 31, 2020 of.
The decrease is principally due to lower backlog for forged and cast rolls.
And over overall increase and foreign exchange rates used to translate the backlog to the corporation and the flow of the corporation's foreign subsidiaries into the U S dollar and higher backlog for forged engineered products due to improved demand helped to offset the decrease from December 31 2020.
Backlog for the air and liquid processing segment improved sequentially, principally as a result of improved order intake for air handling units for the hospital and pharmaceutical markets.
Net cash flows provided by operating activities was modestly positive at approximately $1 9 million for Q1 2021 as trade working capital levels increased during the quarter.
Capital expenditures for the first quarter of 2021 were $2 $4 million, primarily for the forged and cast engineered product segment.
Drawings on the ampco revolving credit facility were $5 6 million at March 31, 2021 day.
Down slightly from March 31, 2020.
And about $25 $9 million less than the $31 $5 million drawn at March 31, 2020.
Total debt at March 31, 2021 was $36 $5 million and down 2% from the prior from December 31 2020.
And this is the decreased $31 7 million or 47% from.
For March 31 2020.
During the Corp. During the quarter. The corporation received $3 1 million and proceeds from warrants exercised during the quarter, which was a boost of shareholders' equity and accounted for an increase of 539000 common shares outstanding.
I will reiterate that at March 31, 2021 in addition to and $18 million cash balance.
The Corporation also has remaining availability on the revolver of approximately $47 million and.
And improvement of approximately $16 million and availability compared to March 31 2020.
I will now turn the call back over to Brett for some closing points.
And thank you, Mike and actually now we're going to open the line for questions.
Yes sure no problem, we will now begin the question and answer session.
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And our first question today comes from Justin Bergner would you squeeze research. Please go ahead.
Good morning.
Good morning, good morning.
And how you Brad How're you.
Good good.
Thank you.
The first question just help me understand the mixed dynamic in the air and liquid processing.
What part of the mix is becoming the <unk>.
<unk>.
And what's the headwind there will sort of continue.
That's I guess the question.
Each each market Digest and this is Terry and chip.
And.
Each market the air and liquid processing serves has different gross margins and.
And the demand for the in the first quarter was shifted slightly too.
A few of few markets that have lower margin, but it is not we do not feel it and say is a headwind or something that is going to be continuing.
Okay.
Second question is in regards to the.
John.
Forged and cast engineered products business.
I was trying to gather from your comments Bret if you were suggesting that you could see a return to sort of 2019 levels as soon as 2022 or was it just more of a comment that you expect to get back there and the coming years.
We're seeing based on the activity, we're seeing right now just and.
Starting starting to pick up which we anticipate that we stayed in and the last call that we expected the activity to pick up and the second half and we're already starting to see some momentum in that direction and as we said before there is somewhat of a lag between.
The demand from the.
The growth from our customers and when actually trickles down to us.
I think our customers have taken some positions where inventory levels or lower than traditionally have been.
And obviously out of concern about what may happen and the future and so it's a little bit if you will the new normal but activity is picking up and we are anticipating.
And based on that the hitting in 2022, we'll be back to the 2019 levels.
Okay got it and then lastly are you under producing I mean was your comment about lower production rates meant to suggest that you were under producing shipments in the first quarter and net weighed on absorption.
Yes, we took it while it's I'll, let <unk> add to this but we've taken some elective outages and the quarter just didn't want to make sure we're matching of demand with.
So what we're actually doing the production areas and.
And just the we've also we've taken.
About 20 days out of our large role lead time.
The path so yes.
Made less and we ship that's accurate.
Okay, so that tempered as it just temporary <unk>.
Yes, we don't anticipate taking any more time out.
Okay. Thank you for taking my questions.
Thank you Jeff Thanks, Kevin.
And our next question today comes from John Walsh, Walt housing with warehousing and company. Please go ahead.
Hi, Yes, good morning, guys.
John.
Yes.
I guess, the 70 has Mike.
A question and my hint with steel prices up so strong to me that would make.
Everybody is nil.
Volume and price.
And why is production down.
Well steel prices are up.
Up because the recovery happened much faster than anybody anticipated and as I stated in my and my comments the.
And North America, and Europe, there is still down which are two largest areas that we ship into there is still not back producing at levels that they were prior to the pandemic. So the.
They're charging tremendously more because of the market will bear it for hot rolled and cold rolled steel.
The double what it was prior to or even more proud of the pandemic now just recently the.
The largest blast furnace in <unk> and <unk>.
Arcelor Middles portfolio and jet just came back online after a re line. So they are back to full capacity now.
U S steel's ramping up.
So people are getting there and thats why again and we anticipate that.
Based on talking to all of our customers that 'twenty 'twenty, two we'll be back to pre pandemic levels, but we have the lag and the other comment I'll make is that you see it come back first on the hot rolled rules, which we did now we're starting to see it come back on the <unk> side, and then after that and we'll come back on the backup roles and so theres a lag is there.
The ramp up to when we actually see our production volumes ramp up.
Right.
So and.
And this time.
And frankly, you battle of their cash flow, reducing their inventory of the backup roles.
I think that day lowered it and they intend to leave it there is what we're hearing now this is the only from a couple of customers. So all of them are different but they were controlling just as everybody was there of controlling cash extremely tightly during the first six to nine months of the pandemic, but yes, you are correct some of them have been made.
And quite of lot of cash recently, so that will help going forward.
So is it reasonable to anticipate and the sort of quarter by quarter and we.
Get passed the.
You are reducing lead times there and.
And we start quarter by quarter seeing better production levels, the better sales and growth.
And Thats, what we would anticipate yes, okay. Okay. That's helpful and then the other.
And the other question and if I may and the open die.
Putting a major emphasis on increasing.
Capacity there have you opened up significantly significant other marketplaces, and the oil and gas.
The marketplace there.
Some of that you can talk about.
Yes, there's two areas that we ship into one is material that goes into making plastic index injection molds and the other is material that goes into make and automotive totally.
So our our goal of our end game.
About the and a couple of years is that the oil and gas will be is less and 50% of what we're going to be targeting and those and that product line.
Okay, Great that's very helpful.
Thanks, John.
And our next question today comes from David Low with Henry Investment Trust. Please go ahead.
Good morning, everyone.
Good morning, David.
Mike the <unk>.
This release mentions.
Foreign exchange impact and you can you talk about can you quantify the effect from that and the quarter and and then.
Maybe elaborate a little bit on the extent to which you can hedge the at the cost of hedging.
Et cetera.
Mhm.
David Yes.
Foreign exchange and we're talking about.
One of them when we were referring to that were talking about realized and unrealized.
Foreign exchange gain or loss on the P&L, which is an element of other income expense and.
And during the quarter that number was about.
One 2 million of the loss in the current year.
And and the prior year was $1 7 million of loss.
So that appears and other income expense below operating income and.
And and Thats a measure of the.
The difference and exchange rates for when we register a receivable or payable.
And the rate in which it settles.
It's also a.
A measure of the debt.
Change in exchange rates.
Balances and our foreign subs that are in currencies other than their functional currency for example, U S dollar of intercompany loans and things like that and our objective is to try to minimize those balances we have not been.
Hedging their balance sheet.
We do some hedging on our.
And are on our earnings.
And if not.
Taken of large position on hedging our balance sheet for.
For these balances.
Because it's a cash.
Cash risk item and.
We have for the last several years, we have been.
And trying to preserve cash and.
And it exposes you to the significant cash settlement.
Sure.
Loss potentially.
Any of that of a shock.
So it's a bit more risky than like hedging.
Our cash flows and the projected cash flows.
So it's something that we just elected not to focus on hedging.
Until perhaps we can consider it downstream, but those were the numbers.
And I think one of the ways to manage that as the on the intercompany balances and so forth is to settle the number of these balances.
And the subsidiaries to reduce debt and in terms of international cash management and repatriation opportunities.
The two to consider that and the mix because that's always something that I'm focused on to just get the balance is down for the rest of the board.
So you look at this as kind of a $1 million to $2 million per quarter.
Items.
No. This is the doubt it often goes the other way and sometimes it's very small of our nothing so.
Yes.
Okay.
It depends on the movement in rates and it depends on the on the balances.
Our foreign subs.
Thanks.
Hey, listen I'm does great savings that you made from changing auditors.
You don't have a gigantic guarded staff and.
Excuse me of accounting staff and.
And so it's a lot of work to change auditors, but that was of great saving that you produce for the company.
Okay.
Thank you David.
Question for Sam.
Using a baseball analogy and just talking about.
The <unk>.
We're trying to do with the.
With the operations growth in the U S and in Europe.
And leaving aside what you hope to get from the.
And.
As of the new equipment.
What inning are you in in each.
And in each market in terms of where you want to get too with the ninth inning being youre happy.
I don't know of third.
Probably.
We came a long way on savings just getting the organization, where it needed to be getting the right leadership in place.
The right amount of people and the facilities and so and so now.
What's left is <unk>.
Really the implementation of the capital.
Now, we're ramping up our European assets.
To meet future customer demand.
And that's key in front of US and then we still have just ongoing year over year cost savings projects.
Scrap reduction.
And on time delivery of that kind of normal stuff. So I don't know third I guess and maybe on the part of a third top of the third I don't know.
Would you say this is the lids the.
And does that both operations are kind of at the same place ones not further along than the other.
Yes, I'd say that.
And then theres more of Theres more opportunity I think and Sweden UK is very stable Slovenia is very stable and our equipment modernization here is really important.
Okay, and then when you you say debt.
Are you hopeful that 2022, we'll get back to 2019.
Levels in terms of mill roll business are you are you talking revenue or are you talking units.
Revenue.
It's fairly similar.
Been able to.
Get some pricing.
But.
Both of them early.
Okay Alright.
Thanks very much.
Youre welcome and thanks, David Thanks, David.
And ladies and gentlemen, as a reminder to ask the question. Please press Star then one today's next question comes from Greg <unk> with Morgan Stanley. Please go ahead.
Hi.
Is labor and issue right now.
<unk> been hearing that.
And people, having a hard time getting people back to work does that impact any of your operations.
I'll talk on the steel side.
We are.
It's difficult to find qualified people, but we've been.
The.
Really reducing people through productivity. So we haven't really had the need for.
A lot of people and the.
And the U K and Sweden Theres not.
The more overseas theres not as much of an issue at all so it's not really affecting the steel side of the business.
Okay.
Go ahead.
Yes on the air and liquid processing side.
It is a challenge.
It's not only the challenge to get people new people in and get them trained and then retain them but.
And we're able to.
Overcome most of the issues that are presented to us as a result of productivity.
The improvements, but yes. It is we are seeing and difficulty in hiring.
And at times.
And in the air and liquid processing segment.
The the modernization program.
And the Capex for that monarch is broken down it sounds like into two categories. One is the modernization and the other is actually and the non roll business that youre going to be entering new markets.
Is it and either one of those kind of take effect or begin this year and may have an impact positive impact for this year.
And the lead time on the equipment as of year, plus so we're thinking of.
Total Q4 of.
2002, when you start seeing some benefit.
The you mentioned something debt and.
And the non role and would increase the capacity by 80%.
Is that youre going to take market share away from.
Other competitors and that area or these are new.
The new markets and are the is that from foreign sources the competition or is the domestic.
Almost all of us would ship domestically and so certainly the.
The $2 32 section.
The section 232 has increased the.
The need for domestic sources of material, so and <unk>.
We're not a very big player.
So it's not we're not taking huge share away from anybody we don't we don't believe.
So the customers the audio or of plastics are they they are buying.
Foreign sources, correct is that what's happening right now.
One of our larger customers, we shipped two was buying.
Fourth and.
This was actually from.
I believe it was Brazil, and they had a quota system. So they got to put a quota system secondly, shipped 70% of what they used to ship into the U S. So therefore, the opens up and opportunity for the other the other 30.
And then I think they enjoy the short lead time, we provide the customer is not very far away from us and they don't have the quarter stuff six weeks out and project and so I think once we got in there.
We're having success.
The size of that market. If we were to look out two years three years from now three years from now what kind of sales.
The investment that Youre going to make what kind of sales do you think and could generate.
We are.
We would rent last year, we had about 11 or $12 million and it could be 60% to 70.
Really that's pretty impressive.
Okay. Thank you very much I appreciate all your work alright.
Alright. Thank you. Thank you.
And ladies and gentlemen. This concludes the question and answer session I would like to turn the conference back over to Brett Mcbrayer for any closing remarks.
Yes, Thanks, Rocco just to just a few comments and again I want to thank the employees of Ampco Pittsburgh for their continued hard work and dedication to the success of our businesses.
I also want to thank those who joined US on our call. Today, we are excited about our future and look forward of demonstrating the full capabilities of ampco Pittsburgh. Thank you very much.
Thank you Sir This concludes today's conference call and then.
And now disconnect your lines and have a wonderful day.
Yes.