Q2 2021 TriMas Corp Earnings Call
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Good day and welcome to the Tri Mass second quarter 2021 earnings Conference call. Today's conference is being recorded this time I would like to turn the conference over to Sherry Lauderback. Please go ahead ma'am.
Thank you and welcome.
Welcome to try and ask Corporation's second quarter 2021 earnings call participating on the call today are Tom Amato, Trimas, as president and CEO and Scott <unk>, Our Chief Financial Officer, We will provide our prepared remarks on our results and our outlook and then we'll open the call up for your questions.
In order to assist with the review.
Salt we have included the press release and Powerpoint presentation on our try maths website under the investors section. In addition, a replay of this call will be available later today by calling 8882031112 with a replay code of 7302308.
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 me for 2 or form 10-K in our second quarter 10-Q that will be filed today for a list of factors that could cause a results to differ from both anticipate.
And any forward looking statements.
Also we undertake no obligation to publicly update a revised any forward looking statements except as required by law. We would also direct your attention to our website where considerably more information may be found in.
In addition, we would like 3 for you to the appendix in our press release issued for this morning are included as part of this presentation for the reconciliation between gap and non-GAAP financial measures used during this conference call today the discussion on the call regarding our financial results will be on and adjusted basis, excluding the impact of special items.
With that I'll turn the call over to Tom a model <unk>, President and CEO Tom.
Good morning, and welcome to Troy, Miss a second quarter earnings call.
We are pleased to report the Prime Minister's files rumors momentum has continued through the second quarter.
While there were a D challenges it affected our ability to accurately forecast demand at the start of the year, we're reporting solid second quarter results today.
Turn to slide 3.
As a reminder, in the second quarter of 2021, we are comparing results to a pandemic related demand Serge and prime interest packaging group, which began in the second quarter of 2020.
However, we are also comparing against the effects of an abrupt demand slowdown in our aerospace a specialty products businesses, which also began in the second quarter of last year.
With that said are consolidated sales, where the top end of our expectations driving better than anticipated earnings.
Our primary packaging segment continues to outperform expectations as the pullback from the record 2020 pandemic related sales rate was less than expected.
We remain optimistic that the results in our private packaging group are aligned with our thesis of a positive secular demand change given that many of our products are used in applications for cleaning or the help fight for spread of germs.
We are also pleased to announce from significant investments for our future which include commercializing innovative dispensing products.
Which foster our commitment to sustainability and adding capacity in North America, a recover this more in the next slide.
In addition, within our specialty products group, specifically are nor cylinder business. We successfully achieved are made in the USA designation, we have often discussed the unique position of door cylinder as the only high pressure forged steel cylinder manufacturer in the United States and we think it is only.
[noise] fitting that we lean into this enviable position.
We believe are both discerning customers, which already rely on north cylinder for high quality products will now add the made in USA criteria to their decision making process.
As we close out the first half of 2021. We're also very pleased to sustain our positive momentum and LTM adjusted EBITDA, which we attribute to our focus on operational excellence and operating under the Tri matched business model.
Finally, we repurchased approximately 358000 trime ishares during the quarter, thereby reducing our net shares outstanding from our December 2020 level by approximately 5% we.
We are pleased to be in a position where we can provide this added benefit to our shareholders and we will continue to assess repurchasing shares as a means to return value or take advantage of any market dislocations generally.
Let's turn to slide for.
Last week, we announced that we further advanced our commitment to sustainability and the commercialization of the patented mono E pump a unique dispenser that is fully recyclable.
This was the first pump on the market made from a single polymer grade resin, which makes a pump more easily recyclable at end of us.
For example by eliminating the the metal spring and making several parts out of 1 polymer. This pump can more easily feed the post consumer resin stream, which reduces process steps investment and the overall carbon footprint.
Our single polymer pumps is commercially available and ready for advanced design applications for customers, serving the beauty personal care and other end markets.
It is already being used by 1 of our major consumer packaging customers for newly launched personal care product.
We're also working on developing additional dispensing products made from a single polymer without compromising quality aesthetics or performance.
We look forward to launching our newest pump that is currently in advanced stages of testing under the single low brand name.
As I mentioned in the last slide we're continuing to invest in capacity for try Ms packaging and have recently broke ground on a new 230000 square foot facility in new Albany, Ohio.
This this new facility will enable premise packaging to localize the production of a variety of products, including foaming in traditional dispensers currently produced overseas for a large customer while providing incremental capacity for new business growth with.
With a focus on advanced manufacturing technology. This facility is expected to ensure continued excellent lead times high quality performance and collaborative product development with our customers from.
Action is expected to start in the second quarter of 2022.
If we turn to slide 5 I will now review trying to ask for a second quarter results.
Consolidated sales for 219 million up 97% as compared to the prior year quarter, driven by acquisitions organic sales increases and favourable currency exchange.
Organic sales were up to 4% driven largely by trying to add some specialty products and aerospace groups again. It is important to remember that the prior year comparison quarter had an unusually high pandemic related demand surged within China is packaging. While we also started to see an abrupt slowdown in demand in aerospace.
Based on specialty product segments.
Adjusted operating profit was $30 million or 13, 7% for the quarter up to $5 million as compared to the prior year quarter.
And adjusted net income was 22.7 million up for million as compared to the prior year quarter, primarily driven by higher than expected sales and related conversion and further boosted by a lower tax rate.
Adjusted diluted EPS was 62 cents per share for the quarter. This exceeded the top end of our outlook of 50 to 57.
<unk> compares to 52 cents for the prior year quarter.
Finally, finally, adjusted EBITDA was $45.3 million or 27% of sales up $2 million from the prior year quarter.
Turn to slide 6.
On a year to date basis for the first half consolidated sales were $425.7 million up 11.3% as compared to the prior year, driven again by acquisitions organic sales increases in currency.
Organic sales were up to 2% driven largely by try Miss Thomas is packaging and specialty products groups more than offsetting lower demand and try Mrs. Aerospace group, which started to occur in the second quarter of 2020.
Adjusted year to date operating profit was $56.6 million or $13.3 per cent of sales up 7.1 million as compared to the prior year and adjusted net income was $41 million up $6.3 million.
Adjusted diluted EPS was a dollar and 11 cents per share up 18% as compared to 94 per share for the prior year first half.
Finally, adjusted EBITDA was 85.9 million or 22% of sales up 7.3 million I will now turn the call over to Scott, who will take us through our balance sheet and segment results Scott.
Thanks, Tom Good morning, and I am pleased to be with you today on my first earnings call Us try math CFO.
I would like to begin my comments with a review of our capital structure and strong balance sheet on slide 7.
We ended the quarter with net debt of $276 million in line with our December 2020 year and level despite payment of refinancing fees.
Stepped up capital spending for our long term growth and additional share repurchases.
Given our positive momentum and adjusted EBITDA and by managing our net debt or net leverage 1.7 times below our long range target of 2.0 times.
Year to day free cash flow.
Was 39 million a $14 for percent year over year increase and.
And we have ample unrestricted cash and liquidity.
As we look forward to the remainder of 2021 and beyond we believe we have sufficient capacity to execute on our capital allocation priorities of reinvestment in our business programmatic M&A and return of capital to our investors.
Now, let's turn to slide 9 and I will take us through our segment results starting with our packaging segment.
So let me start by highlighting that are packaging segment results for the second quarter included another record setting sales performance.
This is a testament the diversification of our packaging product lines and markets are global footprint and the extraordinary efforts of our team members commitment to meeting our customers ever changing needs. During these unparalleled time.
Second quarter net sales of 139, 6 million increased approximately $10.8 million or 8.4% as compared to the year ago period.
The 4 by them for our acquisition completed in December of 2020 contributed $10 million of incremental sales, while the impact of favorable foreign currency translation added another for $6 million.
On an inorganic basis as anticipated sales decreased by 2.9% or 3.7 million.
As Tom mentioned earlier in this call. Please remember that within our packaging segment. We are comparing current results to a pandemic related demand surge, which began in the second quarter of 2020.
During this quarter, we experienced year over year growth and parts of both our food and beverage and homecare and markets.
Specifically sales for closure systems used in food and beverage applications.
<unk> sales for dispensing products used in home care applications, both experienced double digit percentage growth during the court.
As gymnasiums fitness centers and hospitality sectors start reopening in all Geography's. We have started to see an increase in demand for nutrition powders beverages, and health strength, olive which use our closure systems.
Likewise, our homecare segment has seen a surge in demand for products, which go into cleaning applications due to what we believe are secular shifts and hygiene around the globe.
As expected given the demand surge in the second quarter of 2020 sales of our dispensing products and our beauty and personal care segment, which are used in filing and the spread of germs declined in the quarter when compared year over year by approximately $5 million.
While our packaging segment continues to experience strong demand for dispensing products. We do expect that some of our customers will continue pardon me will continue to actively manage the inventory levels on certain product lines.
Operating profit when compared to Q2, 2020 increased $1 million to $28.2 million driven by higher overall sales levels.
Operating margin was 22% compared to $21, 1% a year ago with the change primarily due to less favorable product mix and higher input costs, specifically resin and free.
With regard to resin prices, we have experienced cost increases of almost 50% since the beginning of the year spicy.
Spiking more quickly than most of our contractual price recovery mechanisms are able to offset.
We estimate these cost increases net of price for recovery impacted the quarter by approximately 4 million.
While our expectation is that resin prices will stabilize during the second half of 2021 or second half of 2021 operating margins may be impacted at present prices continue their upwards sectary.
As we know that during our last earnings call. We have now completed the consolidation of our flexible packaging manufacturing footprint at Ray pack and anticipate operating margins will continue to improve as a result, as we progress through the remainder of 2021.
Adjusted EBITDA increased point $9 million or approximately 2.5% to $36.2 million versus the prior year quarter of 35.3 million.
Turning to slide 10, I will know update you on our try mass Aerospace group.
Net sales for the quarter improved by $2 million or for 6% to 40 for 6 million.
Sales of our fastener product lines increased by approximately $1 million compared to the year ago period.
Primarily as a result of approximately $8 million of stocking orders a specialized fasteners.
Sales of our engineered projects increased by approximately $1 million on account of modest volume improvements.
Please note that Q2.2020 was the first quarter, where we began to see meaningful reductions in travel demand and aircraft build rates and the corresponding impact on our business.
Operating profit for the quarter was $2.7 million or $6, 1% of sales as compared to for $3 million or $10, 1% in the prior year.
This year over year decline is primarily attributable to the impact of the COVID-19 pandemic.
Specifically lower absorption of fixed costs in our fastener product lines.
And ongoing labor efficiency challenges and certain of our California facilities.
Adjusted EBITDA for the quarter was 7.4 million or 16.5% compared to $8.9 million for the prior year period.
Looking forward for the rest of 2021, we anticipate sales in the second half will be meaningfully higher when compared to 2020, driven by 1 fulfillment of additional stocking orders of specialized fasteners that began in cute 1 of 2021 in which we anticipate will continue for the.
Remainder of the year.
To the ramp up of new business Awards.
And 3 modest volume improvements when compared to a highly depressed second half of 2020.
As mentioned on previous earnings calls or try mass aerospace leadership team continues to evaluate practical steps to further align our manufacturing footprint and related cost structure with current and expected 2000, 2022 pardon me 2022 demand levels, while also balancing.
Its priority of continuing to invest in new and innovative products to support its global customers and positioning itself for future business opportunities.
Moving to slide 11, now review, our specialty product segment.
Net sales in the quarter increased $6.7 million for $34.8 million or approximately 24% when compared to the same period a year ago.
Order intake for both steel cylinders and engines and compressors used an upstream oil and gas applications each for the North American market, where a significantly higher in the corridor when compared to the same period in 2020.
Sales of product, serving the construction H Faq general industrial and upstream oil and gas and markets began to show signs of meaningful recovery during the quarter.
Operating profit in the quarter was $6 million or 17.3 per cent of sales as compared to $3.8 million or $13 for percent and the previous year.
Operating margin improvement significantly in the current quarter, primarily as a result of incremental sales and the impact of costs realignment actions and factory floor improvements implemented during 2020.
Adjusted EBITDA of $7.2 million or 27% of sales was also significantly better than the prior year's quarter of for $7 million or 16.9% of sales a 380 basis point improvement on a year over year comparison.
While we are extremely pleased with our second quarter performance within specialty products. These are short cycle businesses for try mass and accordingly, we will continue to closely monitor potential and market demand changes related to any further widespread COVID-19 outbreaks or other factors.
At the end of the quarter, a specialty product segments backlog remains high when compared to historical periods, which we believe is indicative of our customers confidence.
And continued market recovery.
Now I would like to hand, it back over to Tom to provide a full year outlook and his concluding remarks Tom.
Thank you Scott, let's turn to slide 13.
Although we continue to operate this pandemic period with a fair amount of uncertainty surrounding future demand with the benefits. The first half completed we are providing a full year outlook at this time.
We anticipate full year consolidated sales to be up between 9 and 14% as compared to 2020.
We expect to achieve this overall growth as a result of acquisition related sales and it pick up in sales largely within specialty products.
These increases are expected to more than offset any pullback from the pandemic related demand surged that we experienced in 2020 within our time is packaging group.
As Scott noted try Miss Aerospace has been benefiting from a stocking order of specialized fasteners by certain customers on a year to date basis. These orders, which totaled approximately $14 million in sales have almost offset the decline in organic sales within aerospace.
We expect to fulfill the remainder of the stacking order, which should run it similar sales level in the second half during 2021.
We anticipate full year adjusted EPS to be in the $2.15 to $2.30 range a year over year increase of about 16% at the midpoint.
We are also forecasting free cash flow to be above 100% of net income. Despite what we believe is a capital spending rate higher than our historical average of about 4% of sales plus.
Let's turn to slide 14.
I will close out our comments by showing just a few examples of why we remain excited about the long term prospects for try mass.
First.
3 through repositioning our company over the past 18 months now nearly 2 thirds of try Mrs revenues are generated from our packaging group.
We believe there are long term benefits to the overall stability and growth characteristics by focusing focusing try myth and the global CPG and industrial packaging markets.
We also believe we have a robust and growing pipeline of innovative product solutions to augment our long term growth.
Next week.
We expect to have further long term performance gains and specialty products and eventually an aerospace as those markets recover, especially given previous realignment action.
Also we have excellent cash flow and capacity to continue to augment our organic growth by building out our most desireable platforms with strategic acquisitions.
While we continue to reinvest in our businesses for long term growth. We also anticipate continuing to return capital to capital to our shareholders.
2 day, we have made excellent progress and repurchasing shares and we continue to assess our cadence of share repurchases along with other triumph treasury actions.
Finally, we were carefully to position trying to ask with a strong balance sheet.
As we look at our position today, we have a capital structure in place that will allow us to execute against our long term investment and growth plan.
Again, we continue to believe try masses and exciting company to invest in and with that I'll turn the call back to share it Sherry.
Tom at this point, we would like to open the call up to your question.
If you would like to ask a question. Please signal my furnishings star 1 on your telephone keypad. If you are using a speakerphone. Please make sure your new functions turned off to allow your signal to reach our equipment.
For Star 1 to ask a question.
The first question comes from Brendan Thompson.
C G a securities.
Good morning, I Brendan.
Great quarter.
Great guide as well.
To ask about.
I guess any indication given the packaging has has.
Some better than I expected on this.
The year over year basis again.
The record levels.
Is there any indication of normalised levels, and packaging and anything you're hearing from customers that would that would that would indicate where.
Were normalized levels might be.
Well. Thank you for your question.
We're trying to assess that I think.
And we're sort of looking at at the love the rate that we're at.
Currently.
And we sort of use that as a guide for along with or in bookings as we forecast the rest of the year.
We sort of feel like we're getting close to that level there might be some puts and takes as we go through any particular month or quarter on that but we sort of feel like we've achieved that part of.
The challenge we've had through the year. So far is comparing to some quarters last year that we're a little bit abnormal I do think we will start to normalize. This as we get into next year and are comparing to the rates that we're at today.
Great and then I want to ask about.
Most price to see the margin in aerospace obviously.
Tough year, but you guys a call out some labour efficiency challenges in California could use that day.
<unk> more than when what exactly.
Incremental costs, you're facing them.
Yeah, Yeah, I mean, it's.
A couple of different factors, though first of all on a comp basis compared to the first quarter of this year as we noted on that call that was a particularly good quarter for.
Predominantly related to some mix matters.
As we look at the performance this year so far.
We're still seeing in.
Some of our West coast operations.
Because of the pandemic absentee levels that before the pandemic would suggest there was a big problem at various locations well and that's not the case. That's just the current state of play in operating manufacturing operations in this current time so.
With that.
On a daily or weekly basis when people are out you have.
We call manufacturers were bumping and grinding of roles and responsibilities in an operation that creates inefficiencies.
We do expect that again normalized and time as we as we get go forward and get into next year and hopefully.
Get to a period, where it's even more predictable to.
Operating the pandemic and certainly.
Hoping that this is behind us altogether, but the biggest driver too. It has just been what I would call efficiencies related to operating in this current environment not anything specific we believe to try mass.
Okay and is is any of that.
Just increase.
I've been hearing from a lot of companies about.
Labor costs going up as some of that as well trying to attract people or is it simply just absentee.
Yeah, I think I think for us.
It's probably more the latter than the former at this point I do the point, you're raising is 1 that we're certainly aware of and.
Concerned with as we see some inflationary pressures set in but.
That's not the driver to what we're seeing in our second quarter.
Outperformance within aerospace.
Okay, great. Thank you Tom.
Thank you.
Our next question comes from Steve Barker Keybanc capital markets.
Hey, good morning, everyone can noumenon for Steve.
Hi, Ken.
Okay.
Just going back to <unk>.
Packaging for a minute.
It looks like there's some decent margin improvement implied in the second half here I'm curious if you could just help us parse out how much of that relief is from material costs.
Starting to normalize here versus the improving next.
Yes. Good morning, It's Scott <unk>, let me respond to that I think as we look at the second half of 2021 in our packaging segment, we do as I mentioned expect resin costs for continued to stabilize over the second half of the year, we're starting to see some of <unk>.
That occur now I think the other factor and play there for the second half of the year that some of the pricing recovery that we've already instituted.
Under our contractual agreements.
There is a lag factor there and we've seen price increasing within resins and packaging all the way through.
June of last month in June. So obviously some of that is going to kick in and that pricing recovery is going to going to combine with what we believe to be stabilization on the resin side to.
To provide some of that uptick in the operating profit that you're seeing in the second half of the year.
Yeah.
Okay can.
Can you use to remind us what the typical lag from these price escalators are if rubbing cough continue to move against you.
Yes, I mean, we think it's anywhere from.
45 to 60 Dag day lag time, depending on the contractual agreement.
Got it.
And then switching to you too arrow and I think we often moves in the production schedules from from Boeing I think there are some news for the 77 Macs are also some cuts to the 77 and the F 35.
Any sense of how we should think about how these changes kind of flow through the tri mass through next year as you as you think about some of the investments are making to improve the operations and arrow.
Well look I mean, it's a little bit difficult and early for up to to say and.
Some of those changes frankly, because as we talked about with the business overall some book direct single for distribution, there's a little bit of inventory in the mix and a little bit of cushioning related to the demand poll of verse more just in time related businesses.
That being said.
Some some of the pull that we expect will help I mean, it just sort of help from the overall outlook and when we can expect a recovery to start to occur in aerospace.
I continue to be very excited about the businesses and the brand and the innovative products that we own in our aerospace sector before the pandemic hit.
We really had 1 of our I think better years in a long time, certainly since I've been at the company and the demand change, obviously disrupted that a bit but.
We took advantage of that I expect to see margin as we get towards a.
A new state within aerospace.
Coverage day with an aerospace I expect ultimately our margins to be above where we were in 2019.
Got it.
Tom.
Well for the pain or when the pandemic. It I should say you saw a little bit of a lag impact to the arrow fasteners business and as we kind of think about the recovery of some of these volumes as as the economy continues to open up year would you expect that similar kind of lag or do you think the inventory levels here.
Have been correctly calibrated for this expected recovery.
It's really a great question. This is something that we look at quite a bit as a management team. We do expect there will be a similar effect.
During the recovery period, but I look at that frankly, Ken is pretty Temporo. I mean, we are clearly want to enjoy a recovery in aerospace and there might be a quarter, where I explain why.
R. A rate is slightly below market or whatever but it's going to be related to inventory, but we're talking about a quarter or months. I mean. These are these are very temp oral matters in the overall scheme of things.
Alright.
1 more for me that I'll jump back into you.
I think the implied margins for specialty in the back half are around the mid teen range can.
Can you talk about the moving pieces driving that margin declining sequentially into the back half and how do we think about run right margins for this segment exiting the year.
Yeah. So I think some of that is some of that is material related material costs related.
And we'll we'll sort of as we go through the second half will update from the second quarter, where we stand.
The the pretty important takeaway from this call I hope.
That you can see and Scott mentioned, this as well and in.
His rollout of specialty products his performance as the the order book within our north cylinder business.
Is.
What's the strongest books that we've had in a long time and I'm, even considering before the pandemic hit we're really excited about that it means that we have.
It means that we have some work to do in terms of getting out.
The product to fulfill the orders.
And we also have for summer months that we have some holiday periods for things that that work against that but but overall.
I sort of looking at our specialty products business, where we are today first just 6 months ago I am really pleased that the demand has ticked up there I think up quicker than I anticipated.
Okay.
Think I'll go back in line.
Okay. Thank you.
We have no further questions in the queue at this time.
Okay.
Thank you for joining us on our earnings call and we look forward to updating you again next quarter, please stay safe and healthy everyone take care.
Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.
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