Q2 2021 Ampco-Pittsburgh Corp Earnings Call
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Good day and welcome to the Ampco Pittsburgh Corporation second 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.
Thank you Sarah and good morning to everyone. Joining us on today's second quarter 2021 Conference call. Joining me today are Brett Mcbrayer, our Chief Executive Officer, Mike Mcauley, Senior Vice President Chief Financial Officer and Treasurer.
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.
Where 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 or intentions.
Matters involve certain risks and uncertainties many of which are outside of the corporation's control.
Corporations actual results may differ significantly from those projected or suggested in any forward looking statements due to various factors, including those discussed in the Corporation's most recently filed form 10-K, and subsequent filings with the Securities and Exchange Commission, we do not undertake any obligation to update or otherwise release publicly.
Our forward looking statements.
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 <unk> Dot com.
With that I'll turn the call over to Brett Mcbrayer Ampco, Pittsburgh's CEO, Brett. Thank you Melanie and good morning, and I want to thank everyone for joining our call. This morning.
I'll begin with our safety performance, where we saw a significant improvement for the quarter was 61% reduction in our recordable injury rate and 65% reduction of our lost time injury rate compared to our first quarter.
The organization continues to push towards our goal zero injuries in the workplace and I want to thank our employees for their commitment to this effort.
Ampco Pittsburgh continued our positive earnings trend delivering earnings per share of <unk> <unk> for the quarter.
Our sales increase sequentially for the quarter by 6% and our backlog is growing with order activity gaining momentum in our forged and cast engineered products segment.
There's still an aluminum output continues to improve and utilization rates strengthen we expect a much stronger 2022 as business returns to pre pandemic volume.
Growth in our forged non rolled products continues to accelerate with robust sales and a growing customer base.
Our air and liquid systems segment continues to see strong demand with a growing backlog.
During the quarter, we continued to execute our equipment modernization plans, which will further improve our cost structure and expand our top line capabilities.
We also amended and extended our revolving credit facility during the quarter to support our capital improvements and anticipated working capital growth.
Our liquidity position remains strong and has further strengthened through our new agreement.
Despite our positive performance for the quarter, we faced headwinds with rising raw material prices and logistical and supply chain delays.
These headwinds continued to negatively impact our performance.
Our surcharge to our customers lagged the rising price of raw materials and transportation.
However, this GAAP will close as prices stabilize.
Although we conduct annual outages each year to improve the reliability of our assets we were conservative in our spending last year due to the uncertainty of the global pandemic and to protect our liquidity.
During the third quarter, we will address the items, we deferred in 2020 as well as undertake our normal reliability improvement work.
As a result, many of our factories will be idle for portions of the quarter as we do this critical work.
For further comments on our business is now like Terry Kenny President of Air and liquid systems, and Sam Lyon President of Union electric steel to share some of the highlights of our segments performance Terry.
Thank you Brett and good morning.
I would first like to talk about our safety performance we.
We had 1 osha recordable accident during the second quarter.
I am pleased to report that the employee received minor medical treatment is back to work.
I would like to acknowledge the employees at the European Division for achieving 18 months without an osha recordable injury, all Arafat employees should be proud of this significant accomplishment.
Orders received for this segment in the quarter increased 39% compared to the prior year's quarter.
Orders for centrifugal pumps and custom air handling equipment were the primary reason for the increase.
Orders for heat exchangers have increased and are exhibiting the expected growth as the country continues to reopen.
As a result, the segment backlog increased 9.9% during the quarter.
Revenue for the quarter was down when compared to the prior year, principally due to customer requested delays and our lower beginning backlog of heat exchangers. The.
The decrease in sales was the primary contributor to the lower operating income.
As Brent mentioned, we have experienced rising material cost combined with supply chain delays. Additionally, we have increases in material lead times and delays in purchase material delivery date commitments to.
To date material availability issues have had minor impacts on the operations.
The demand for the segments products is strong and we remain optimistic about the segment's future growth.
Terry I will now turn the call over to Sam line Sam.
Thanks, Brett and good morning.
I'd like to be able to safety, Brett already talked about our improvements in the rates. We continue to focus on potential hazards and identify the root causes and mitigation actions when an incident does occur.
I'd like to recognize our operations in Valparaiso Erie Carnegie Austin town, Ohio, The U K, Slovenia for being recordable free for the quarter.
A remarkable accomplishment.
From a cost perspective, raw materials and scrap continued to be a headwind our surcharge mechanism lags actual cost by 1 to 2 quarters, depending on the customer.
This has compressed our margins in the first 2 quarters of 2021, when compared to 2020 by approximately $1 million.
Both raw materials and scrap appear to be moderating.
This moderation continues we will see improved margin in the second half of the year.
We continue to control, what we can and our teams are delivering on managing maintenance and repair costs as well as reducing the overall cost of quality for the entire business.
At the end of Q2, and beginning of Q3, our planned outages that Brett referenced in the United States were extended by 1 week to perform furnace rebuilds that were deferred as resolve the ongoing uncertainty of the pandemic last summer.
This 3 week outage was completed as scheduled.
European plants will have their summer holiday shutdowns during Q3.
In addition, our UK plant has seen lower production rates in Q3 as the COVID-19 Delta variant has resulted in significant absences, causing output issues, which will reduce shipments by approximately $700000 in the quarter. These absences are now abating.
From a sales perspective, 52% of our cast rules and 38% of our forged rolls have been awarded we still see overall sales activity recovering roughly to 2019 levels in 2022, while.
While the flat rolled producers are making record profit the capacity utilization in the United States just recover to 2019 levels in Q2, the consensus of our customers is that pricing and demand should remain strong as inventories of both automobiles and steel at service centers are at historic lows.
Demand remained strong in the automotive consumer packaging and white goods segments. Also there is a pending infrastructure bill on the horizon as well as the elimination of the tax rebate in China on ex sported hot rolled coil cold rolled coil and hot dip galvanized steel all of these items to support the demand for our customer base as well as strong.
Pricing for them.
For our forged engineered product segment, which is our non roll business bookings increased 385 per cent year over year for the first half of 2021, we're excited about our prospects here are expansion and modernization programs.
That I referenced in the last few calls are well underway.
As Brett stated these investments will further support growth in the forged engineered products business and a lower cost structure and our rolls business.
Approximately 70% of the project has been scoped and approved and we expect the completion of the project by the middle of 2023.
Now I'll turn it back over to Brett.
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 with.
With sales up 24% versus the prior year quarter and up 6% sequentially Ampco Pittsburgh reported basic EPS of <unk> <unk> per share for the second quarter of 2021.
The corporation's balance sheet and liquidity position continues to remain strong with cash on hand at June 32021 of $13.3 million and Undrawn availability on our revolving credit facility of approximately $47 million.
Total debt is down 22% compared to June 30 of 2020, while total shareholders' equity has risen 50%.
<unk> net sales for the second quarter of 2021 were $92.4 million, an increase of 24% compared to net sales for the second quarter of 2020 of $74.8 million.
In the forged and cast engineered products segment Q2, 2021, net sales increased approximately 41% versus prior year due to higher shipments of forged and cast mill roles as well as higher shipments of forged engineered products.
Net sales for the air and liquid processing segment in the second quarter of 2021 or approximately 12% lower than prior year, driven mainly by some customer requested delays.
Gross profit as a percentage of net sales was 18, 4% for the second quarter of 2021 versus 19, 8% for the second quarter of 2020.
The decline is mainly attributable to the forged and cast engineered products segment, which has been impacted by higher net raw material costs and unfavorable changes in product mix and.
In addition, the prior year quarter benefited from the receipt of $1.8 million in business interruption insurance proceeds.
Selling and administrative expenses of $12.1 million or 13, 1% of net sales for the second quarter of 2021 were up compared to $10.2 million or 13, 6% of net sales for the second quarter of 2020.
The impact from higher exchange rates and additional sales commissions on higher forged engineered product sales during the current year quarter were the primary factors for the increase.
Higher stock related compensation costs due in part to the increase in share value of the corporation's common stock was also a factor.
Depreciation and amortization expense of $4.5 million for the second quarter of 2021 was comparable to the second quarter of 2020.
Income from operations for the second quarter of 2021 was <unk> $5 million.
This compares to loss from operations in the prior year quarter of $1.1 million.
The portion of cash engineered product segment's operating results improved for the second quarter of 2021 compared to prior year.
Due to the higher volume of shipments.
Production levels contributing to better cost absorption.
Partly offset by higher net raw material costs and less favorable mix of roll sales.
The air and liquid processing segments operating results declined for the second quarter of 2021 compared to prior year due to the lower volume of shipments.
Other income expense net improved for the second quarter of 2021, when compared to the prior year quarter, primarily due to the timing of dividend income of $1 million in the current year quarter from 1 of the Corporation's Chinese joint ventures.
Over a period of change in the income tax provision was driven principally by the revaluation of certain deferred income tax net liabilities for future rate change enacted in the U K during the quarter.
And for the restructuring of our foreign sales office.
Unfavorable discrete tax items negatively impacted EPS in the quarter by <unk> <unk> per share.
At the bottom line. The Corporation reported net income attributable to Ampco, Pittsburgh of $1.1 million or <unk> <unk> per share for the second quarter of 2021.
Compared to net income of $7 million or <unk> <unk> per share for the second quarter of 2020.
Backlog at June 30 of 2021 of $254 million.
Increased 6% for March 31, 2021.
Backlog for the forest and cash engineered products segment improved approximately 4% sequentially the.
The increase was principally due to higher order intake for forged rolls and per forged engineered products due to improved demand.
Backlog for the air and liquid processing segment improved approximately 10% sequentially as a result of improved order intake for centrifugal pumps and heat exchange coils.
Net cash flows used in operating activities was approximately $4.7 million for Q2.2021. The result of an increase in trade working capital associated with the higher level of business activity.
Capital expenditures for the second quarter of 2021 were $4.3 million, a $6.7 million year to day, primarily for the force of cash engineered product segment.
Total debt at June 30 of 2021 of $49 million is up 10% from December 31, 2020, due primarily to usage of the revolver to fund working capital growth.
Debt has decreased to $11.4 million or 22% from June 32020.
Corp has received $3.2 million in proceeds from warrants exercised as of June 32021.
Representing an increase of approximately 559000 common shares outstanding.
I will now turn the call back over to Brett. Thank you Mike at this time, we'd like to open the line for questions.
Thank you.
We will now begin the question and answer session.
To ask a question you May Press Star then 1 on your Touchtone phone.
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Well John Your question. Please press Star then 2.
Also please limit yourself to 1 question and 1 follow up.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from David Wright with Henry Investment Trust. Please go ahead.
Good morning, everyone.
Good morning, David.
A question for Sam.
In in your remarks, Sam you talked about a certain percentage of the rules being awarded could you re re read that since I have a question around it.
Yes, it's really 52%.
Let me try that Leslie.
Sure.
Hey, guys.
2% of the cash to 30% of the Board's rules have been awarded Thats really.
That's the amount of the customers that have.
Have given us their allocations for 2022.
Right. Okay. So in the last call you commented that you were still in negotiations with the <unk>.
Company's 2 largest customers and thought those might be concluded in the coming weeks.
Or are you still in negotiations with those 2.
No we're finished with.
7 of the 10 largest customers that we have at this point in time.
Okay. So so when you say <unk> 38 per cent of the rules or 52% of the rules are awarded just switch the definition of that.
Just from from the total amount that.
We know what the customers get what they use and that we negotiate with them and then we get our allocation. So for example.
If the customer had.
100 rules to give we have 40% market share typically.
Can we get that award, we get 40% and whatever that number equals.
For the year, if we're going to do to for example, making these numbers up but if we're going to do 2000 roles, 50%. We have roughly 1000 of them in our order book for next year roughly.
And that's in backlog.
Yeah, but it's really they're placeholders, they give us orders as the year goes, but they're pretty they're pretty well known as long as another pandemic doesn't occur or something like that they sort of know what theyre going to use based on their run rates and their usage and how much steel they plan to produce so it's pretty it's pretty close.
If anything they allocate lower and they add spot orders on top as the year goes.
Okay, and then to follow up how how has has you know unit pricing Ben.
Relative to say last year.
It varies by customer, but I would say flat to up.
Several percentage points and then we also have.
Our surcharge mechanism, which accounts for the raw material pricing that goes up and down okay. That's it for me and thanks very much.
Thank you thanks, David.
Our next question comes from Justin Bergner with Gabelli.
Please go ahead.
Oh, Hey, good morning, Brett Good morning, Mike.
Good morning, Good morning, John.
Just 2 quick sort of.
Clarification questions.
Could you.
We see what the impact of the sort of surcharge lag was and how much money and shares have been issued associated with the warrants.
Well I'll take this surcharge 1 this is Sam Justin.
Roughly $1 million.
Of margin compression in the first half.
Oh it was the first half not the second quarter.
First half.
Yes.
Okay.
Fairly close first quarter second quarter, the prices have been rising pretty steadily as the raw materials day now.
Have appeared to Monterrey and on to steel dynamics earnings call day, They project scrapped to actually be flat to declining in the second half, which would which would be good.
And the second question Joseph was about there about warrants.
Yes, just before the warrants I, just just to make sure I understand so without the surcharge lag income.
From operations from forged and cast engineered products would have been about $4.5 volume versus $3.5 million in the first half.
Oh, yes, yes.
Okay.
And then the second question was just the award detail.
On the exercise the amount raised came at me a bit quick I, just wondered if you could repeat that as well.
Sure, Yes, so year to date, we've got $3.2 million in on the warrants and Thats.
But I'll ever since the warrants have been outstanding and the exercise price.
The trading price has exceeded the exercised price we have had incremental exercises.
We had we had most of it was Q1.
We have some additional incremental exercises in Q2.
The total proceeds received by the corporation, so far $3.2 million.
And Thats about Thats worth about $559.
Additional shares and the share and a share count.
Okay and then my last question would be you said that the unit pricing was flat to up a few percent I think that was a sequential comment on top of the surcharge mechanism.
Are you seeing an acceleration.
Pricing outside of the surcharge mechanism sort of as you finished <unk> in getting to <unk> or.
Has demand at the sort of steel producer level, not yet reached the point yet accelerating price surcharge.
I think thats right other than a little bit of an inflationary.
Inflationary pricing.
The utilization just looking at <unk>.
<unk> dynamics earnings call I mean, it was 77% in Q1 for the U S versus the low like 80 in 2019 and 81% in Q2. So it's just recovered last few months is 80.845.
But theres still.
Yes, we're still in competition with with all of our competitors on the rolls side. So.
But we have been able to its really where youre roles perform where your preferred supplier. You can you have some some ability to raise price and then there is some work where you are.
To get in and get some market share.
We're trying to get your roles into the into the business to for a trial.
You have to be.
More competitive.
Great. Thank you for taking my questions.
Thanks, Justin.
This concludes our question and answer questions I would like to turn the conference back over to Brett Mcbrayer for any closing remarks.
Thank you I continue to be extremely proud of the employees, who work in our businesses that makeup ampco Pittsburgh of share my gratitude and support for their outstanding were personally, but I want to take this opportunity to again state my sincere. Thanks on this call.
We remain optimistic as our market activity continues to accelerate and as we simultaneously execute on our business improvement actions.
Thank you very much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.