Q4 2021 Ampco-Pittsburgh Corp Earnings Call
Pardon me the Ampco Pittsburgh Corporation Conference call will start momentarily I repeat the conference call will start momentarily. Thank you for your patience.
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Good day and welcome to the Ampco Pittsburgh Corporation fourth quarter and full year 2021 earnings results Conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask.
A question you May Press Star then one on your telephone keypad and to withdraw your question. Please press Star then two please.
Please note. This event is being recorded I would now like to turn the conference over to Miss Melanie Sprouts and director of Investor Relations. Please go ahead ma'am.
Thank you Chuck and good morning to everyone joining us on todays fourth quarter and fiscal year 2021 Conference call. Joining me today are Brett Mcbrayer, our Chief Executive Officer, and 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 Dave Anderson, 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 or intentions. These matters involve certain risks and uncertainties many of which are outside of the corporation's control.
The corporation's actual results may differ significantly from those projected or suggested in any forward looking statements due to various factors, including those discussed in the Corporation's most recently filed Form 10-K , and subsequent filings with the Securities and Exchange Commission, we do not undertake any obligation to update or otherwise release publicly any.
A revision to 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 Agco P. G. H 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 thank you for joining our call.
As shared in todays press release, Ampco, Pittsburgh record a loss in the fourth quarter of 2021.
This loss was driven primarily by the under recovery of inflationary headwinds that began last July and a noncash as best as liability adjustment.
Despite these temporary setbacks I'm encouraged by the ever increasing demand for our products.
Full year backlog has increased 19% with continuing momentum as we have entered the new year.
The diversification of our forged and cast engineered products segment continues to go well with open die forged engineered products backlog up over 300% at the end of Q4.
As mentioned in prior press releases, we commence price increases across all of our products to address negative inflationary costs impacting primarily our forged and cast engineered product segment.
These increases included new surcharges, which capture the dramatic shifts in energy and transportation costs across our global operations.
The transformation of our North American fixed assets in our forging casting your product segment is on track with completion targeted mid 2023.
Despite the challenges we have recently faced we are confident in our path forward with facilitate long term consistent profitability for our businesses.
Although both segments have experienced supply chain constraints over the last six months, our air and liquid processing segment performance was impacted the greatest krill.
Critical component lead times, you began to extend in the second half of 2021 impacting shipments in the fourth quarter.
Lead times have stabilized in these deferred sales will be realized in 2022.
From a safety perspective over the last 12 months, we conducted 18 high risk assessments across our businesses.
The goal of these assessments is a challenge our current work practices to ensure robust safeguards are in place for our employees.
The engagement of our workforce and their actions to improve our work environment have been impressive.
Our previous air and liquid systems, President Terry Kenny retired at the end of 2021.
His successor, David Anderson is joining the call. This morning, and will discuss the segments performance in more detail Dave.
Brett good morning.
First I'd like to talk about our safety performance in the fourth quarter, we had zero Osha recordable accidents for all air and liquid location.
I would like to thank all three business units for their continued focus on safety our backlog continued to strengthen in the fourth quarter at the end of 2021, our backlog was 28% higher than prior year and 19% higher than the prior quarter in January of 2022, our backlog continued to increase.
Sales declined for both the quarter and the year, primarily due to lower shipments of centrifugal pumps and custom air handling units.
We continue to experience supply chain related issues, including extended lead time on materials and customer requested deferrals.
While these supply chain issues impacted our business in 2021, they are short term in nature and do not impact the long term strategic direction of the business.
Noncash asbestos related expense of $6 $7 million drove the quarter to an operating loss of $5 $4 million compared to prior year income of $2 4 million.
Full year results declined due to the noncash, especially this expense and lower sales compared to the prior year.
As we move forward all three business units have identified new growth opportunities and we are moving forward with new market initiatives, both in the United States and abroad.
Dave I will now turn the call over to Sam Lyon, President of forged and cast engineered products Sam.
Thank you Brett and good morning.
From a sales perspective backlog is up 25% from the low point of the pandemic and up sequentially. Since the end of Q3. This segment's highest levels since may of 2020.
Supply chain worries and supply stability are becoming more of a factor in our customers ordering decisions.
Although there were some supply of rules to the market coming out of Ukraine, and Russia reliability of these sources is uncertain.
As a result, we have seen more inquiries and questions from our customers regarding our potential available capacity since the war in Ukraine has begun.
As stated in our last call. Our first quarter is very strong for our non rule forged engineered product line. We also anticipate an improved rules sales mix with increased large forged rural sales starting in Q2 of 2022 and continuing into 2023.
Inflation continued to impact operations in Q4 of 2021 and continuing into Q1 of 2022 materials and energy prices have remained elevated and the volatility in Europe has been extreme.
In the United States Natural gas has remained elevated at more than double the previous levels from around the midpoint of 2021.
Alloys, such as multi oxide and ferrochrome were up over 80% since Q2 of 2021.
In the U K natural gas spot prices have increased over 300% in Q4 and between 300 and 800% in Q1 of 2022.
All costs, including Refractories transportation and labor are higher.
As I stated previously our surcharge mechanism has some lag compared to actual costs in Q4, our sales team is very busy implementing new surcharge mechanisms to address the energy and transportation costs and.
In addition to surcharge expansion price based pricing has been increased to address other general inflationary pressures with a typical increase ranging from five years to 7% over 2021 based pricing.
Our ability to work with our customers to implement these pricing mechanisms is a testament to our value to the market.
These pricing mechanisms will allow better stability throughout commodity cycles.
Our previously discussed expansion and modernization programs for our U S plant assets continue to make progress. These investments will provide a lower cost structure and our roll business and further growth in the non rural business, which is currently at capacity.
On this note we have seen a resurgence in the oil patch and a strong order book, resulting from the increase in tracking we expect to reach completion of our Capex program by the Middle of 2023, I will now turn it back over to Brett. Thank you Sam at this time, Mike Mcauley, our Chief Financial Officer.
We will share more detail regarding our financial performance for the quarter, Mike. Thank you Bret I'll focus my comments on Q4 2021 results commentary on our full year results is available in our earnings release issued this morning.
It will also be included in our forthcoming Form 10-K , there were a few large unusual items recorded during the quarter, namely a noncash net asbestos related liability and insurance receivable revaluation charge of $6 7 million as well as organization reorganization related costs of $1 four.
Yeah.
Aimed at reducing the corporation's long term cost structure.
The organization related costs included early retirement incentives a reduction enforced charge for termination of one of our cast roll manufacturing facilities and costs associated with the closure of our foreign sales office entity.
Please refer to the non-GAAP financial measures reconciliation table included in this morning's earnings release and related footnotes.
<unk> net sales for the fourth quarter of 2021 were $84 $5 million, a decrease of approximately 3% compared to $87 million for the fourth quarter of 2020.
In the forged and cast engineered products segment Q4, 'twenty, one net sales compared to the same quarter of the prior year.
Were comparable.
As higher sales of forged engineered products offset lower sales of mill rolls.
Net sales for the air and liquid processing segment in the fourth quarter of 2021 were 13% lower than the prior year period due to customer requested deferrals and delays in receiving required components due to supply chain issues.
Selling and administrative expenses of $11 5 million or 13, 6% of net sales for the fourth quarter of 'twenty, one were down compared to $12 1 billion or 13, 9% of net sales for the fourth quarter of 2020.
Lower employee related costs and lower spend on research and development activities were offset by the impact from higher exchange rates and additional sales commissions on higher forged engineered product sales during the current year quarter.
Depreciation and amortization expense of $4 4 million for the fourth quarter of 'twenty, one was down slightly compared to the prior year.
Adjusted loss from operations for the fourth quarter of 2021 after the asbestos related charge and reorganization related costs was $4 6 million.
This compares to adjusted income from operations in the prior year quarter of $2 3 million.
A portion of cast engineered products segments operating results declined for the fourth quarter of 'twenty, one compared to prior year, primarily due to higher raw materials energy and other operating costs net of surcharges passed through to customers as well as higher maintenance spending associated with some extended machine outages, which more.
More than offset the effect of higher sales and higher manufacturing cost absorption.
Outside of the asbestos charge, the air and liquid processing segment underlying operating results declined for the fourth quarter of 2021 compared to prior year, primarily due to the lower volume of shipments, but it benefited from changes in product mix and savings generated from process improvements.
At the bottom line the Corporation reported a net loss attributable to ampco Pittsburgh of $12 $3 million.
65 cents per share loss for the fourth quarter of 2021 compared to net income of $2 2 million or <unk> 12 per share for the fourth quarter of 2020.
Results for 2021 include the asbestos related charge and the reorganization related charge, which combined to increase the net loss by $8 1 million or <unk> 42 per common share.
So about 65% of the current quarter EPS loss was driven by these two unusual items.
Backlog for the forged and cast engineered products segment improved 16% year over year. The increase is principally due to the favorable product mix surcharge in pricing for mill rolls along with increased demand for forged engineered products.
In fact, the backlog for forged engineered products increased four fold from a year ago.
Backlog for the air and liquid processing segment increased approximately 28% year over year, principally due to additional order intake for centrifugal pumps and higher Alejandro orders for air handlers.
Net cash flows used in operating activities was approximately $11 5 million for Q4, 'twenty, one primarily due to an increase in trade working capital associated with the higher level of business activity.
Capital expenditures for the fourth quarter of 2021 were $3 million and our $15 $2 million year to date, primarily.
The fortune cast engineered product segment.
At December 31, 2021, the corporation's balance sheet and liquidity position, including cash on hand of $10 3 million and undrawn availability on our revolving credit facility of $34 million.
Despite the Q4 book loss total shareholders' equity as of December 31, 2021 grew by 8% or $6 $8 million compared to December 31, 2020, and grew nearly 4% sequentially.
This was driven by a significant improvement in the balance of employee benefit obligations, namely the higher funded status of our global pension plans from horizon discount rates and good asset return performance during the year.
Operator at this time, we would now 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 one on your Touchtone phone.
Youre using a speakerphone please pick up your handset before pressing the keys.
And to withdraw your question. Please press Star then two please.
Please limit yourself to one question and one follow up and if you have further questions you may reenter the question queue.
And at this time, we will pause momentarily to assemble our roster.
Okay.
And the first question will come from David Wright with Henry Investment Trust. Please go ahead.
Hi, Good morning, Ken can you.
Rich you talked about the mid 2023 target completion.
Is it is.
Is it possible for anyone to see.
Walk us through.
What's going to happen between now and then.
New equipment.
And so on.
Sure ill, let Sam kind of.
Lay out kind of capital is going to be hitting.
The business and kind of the path forward from an improvement standpoint, Sam you want to get that yes, sure. Thanks, Brett David there's three aspects to it.
A couple of pieces of equipment for large rolled processing and thats, our large backup roles that have.
Very good margin and Thats really stability of that product flow path. Those machines are being built as we speak and.
Excuse me will be installed in the next in the next year.
About 12 months from now if you go to the work rule machines that sort of a similar path.
And then the forged non rule.
The.
Improvement, which is really growth.
We're waiting right now on the DP to improve the permitting which is in our plans to finish in 2023 and those those furnaces to improve that growth will be installed beginning to mid 2023 to complete the capital.
And what facilities are those for.
The furnaces for the non rule will go into Harmon Creek and then the other machines will some of them will go into Harmon Creek and some of them will go into Carnegie.
So, finishing the finishing machines go into Carnegie and the wrapping machines or the.
Intermediate processing machines going to Harmon Creek.
Okay, Thanks and.
Mike can you tell us.
In the fourth quarter how much.
For Gen cast revenue was from.
Non roll the engineered products revenue.
Yes.
Okay.
Okay.
No.
Okay.
75.
Alright, 12, 14% something like that 15% yes.
We have to validate that but that.
That would be rough numbers.
I'm, sorry, I didn't hear you.
Between tests.
Hi, Michael validate the number so.
Yes.
Did you get late David.
No I Didnt hear remember.
Okay.
It's roughly between 10 and 15%, but we're trying to get that number right now so it should be in the neighborhood of we did over $30 million roughly 25% of that would've been in Q4.
So $8 million to $9 million out of our 75 ish million dollars $70 million total got it okay alright. Thank you very much.
Thanks, David.
The next question will come from Justin Bergner with Gabelli funds. Please go ahead.
Good morning, Brad Good morning, Mike.
Morning, gentlemen.
You mentioned.
Customers are less willing to rely on.
Rolls.
<unk> from Ukraine, and Russia could you elaborate a bit more there and how much of the overall market is supplied by facilities in those countries and is it primarily captive for those markets or those being exported to European markets. It now the customers need to find alternative suppliers.
Four.
This is Sam just I can't really comment on the size or how much. They are participating they are we do see them, particularly.
Particularly in Europe , and one of our larger customers in Europe has reached out to us in place some place some orders to backfill.
To backfill some rules.
That region and so we're just this is just starting we are starting to see people look at where they have exposure and what their what they're going to do about it.
I wouldn't call it.
Not significant but there is an opportunity for for the western suppliers to pick up share.
Okay.
Second question would be on the price increases that are being implemented in the first half.
Of 2022 in the forged and cast engineered products side.
Is it anticipated.
That those price increases will recover.
The entire set of inflationary forces to date across materials freight.
Energy and labor.
Hi.
A significant portion of it. So we have two two portions of the price increase Theres a base price increase to cover general inflationary pressures and then there's a surcharge mechanism.
<unk> implemented that surcharge mechanism.
It will reduce our exposure to roughly 20% of our customer base that will be non covered in those cases.
We're going back and more regularly visiting the base price. So we're getting it through based price, where we're getting it through surcharge mechanism the preferred method.
From our customer base and from us as the surcharge mechanism, just because it's a lot easier and cleaner.
But.
The anticipation is to capture those costs yes.
Okay, but the base sorry, the surcharge mechanism will not recover labor so its more a question of.
For the customers that don't allow a full surcharge mechanism you'll have a larger base price increase for those customers that do allow.
The full surcharge mechanism right.
Yes, that's accurate so yes, there is a smaller base price increase when theres, a surcharge mechanism a larger base price increase when theres no surcharge mechanism correct, Okay, and then to the extent that certain inflationary forces are hard to recover.
Where would those be would that be more labor oriented or any.
Clarification, there would be helpful.
More on the supply side, so you're refractories or your tooling that youre purchasing.
Boxes, those kinds of things, but again those are those are lesser I mean by far labor.
Labour would end up in base pricing, but the energy and natural gas are and transportation are much bigger portion of our costs.
And the supply side.
Okay, and then maybe one clarification question.
A question on the Capex project, just help me understand the difference between the finished machines in the intermediate machines.
In terms of the key pieces of Capex equipment I'm not sure I followed there.
Well the way we will briefly the way the process works is we forged roll so it's a rough forged blank.
Then it goes to what we call an intermediate machine or rubbing machine. So that's to make the rough general shape for thermal processing that once the materials thermal processed at Harmon Creek. It goes to a finishing plant where the real fine details Doug. So the finishing finishing machines are doing the post heat treat work that makes the final product that the customer sees.
Ruffing equipment is just to get the material.
For heat treatment.
Got it so it's the second and third stages in the production process, where the Capex is addressing and those are aware.
You'll be able to meaningful expand capacity to address limitations or bottlenecks.
Correct correct got it thank you.
I think just in more significantly as as well as take costs.
Process, if you look at.
We state this before but these are multi purpose machines, we're replacing multiple machines with one new one.
Which really accelerates the velocity through the manufacturing process as well as takes it takes out cost so.
Pretty excited about the opportunities we have here with this new capital.
Great. Thank you guys.
Again, if you have a question. Please press Star then one.
This concludes our question and answer session I would like to turn the conference back over to Mr. Brett Mcbrayer for any closing remarks. Please go ahead.
Just before we get to the closing remarks, just for the record I wanted to respond to the question about forged engineered product sales product for the fourth quarter.
Just to get it in the record.
There were $7 $7 million in the quarter.
And for the full year of $25 3 million.
And the change year over year is about $7 5 million for Q4 versus prior year David.
Great. Thank you Mike.
Yes.
Despite the challenges we faced in the second half of 2021, I am encouraged by our progress over the past year toward our near term goal of $450 million in revenue and double digit EBITDA margins.
I want to thank our employees for their hard work and dedication as we continue to transform ampco Pittsburgh.
Also wanted to thank our shareholders. Our board for your continued support of our turnaround efforts. We remain confident in the actions, we're taking and our expectations for much improved performance in our businesses as we conclude our capital improvement initiatives.
Thank you for joining our call this morning.
The conference has now concluded.
You for attending today's presentation you may now disconnect.
Okay.
Okay.
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