Q1 2022 Ampco-Pittsburgh Corp Earnings Call
Good morning, and welcome to the Ampco Pittsburgh's first quarter 2022 earnings results Conference call all participants will be in a listen only mode.
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Thank you Joe and good morning to everyone. Joining us on today's first quarter 2022 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.
Didn't 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 out.
Side 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 revisions.
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 Ampco 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 recorded a net income of $1 $6 million in our first quarter of 2022.
Execution of price increases and expanded surcharges in our forged and cast engineered products segment was instrumental in helping ampco Pittsburgh returned to profitability.
From a top line perspective, our sales increased by 9% from the prior year.
Demand remains strong for our products, our backlog increased 36% versus the prior year period, and 12% versus the prior quarter.
Spot the challenges we continue to face from an inflationary and supply chain standpoint, we will continue to focus on areas of the business. We can control to further improve our performance.
The transformation of our North American fixed assets in our forged and cast engineered products segment is on track.
Installation of the first pieces of our new capital equipment begins late in the second half of this year.
With an expected continued ramp up in working capital and related ongoing inflationary pressure. We recently announced we are exploring options to obtain incremental capital to better enable us to capture topline growth opportunities.
And position ourselves for higher profitability, while we manage through the heavier capex spending phase of equipment modernization.
From a safety and health perspective, we saw positive progress in our injury rates during the quarter. We will continue to drive further improvements as we remain focused on zero injuries in our workplace.
I will now turn the call over to David Anderson, President of Air and liquid systems for comments on the segments performance, Dave. Thank you Brad good morning, everyone.
Air and liquid systems backlog ended the first quarter at a historic high with backlog levels, increasing 50% over the past six months achieving levels, 27% higher than the prior quarter.
And our Buffalo Air handling business, receiving its most significant order in decades.
Sales declined for the quarter, primarily due to lower shipments of centrifugal pumps and custom air handling units.
We continue to experience supply chain related issues, including extended lead times on materials and customer requested deferrals.
While these supply chain issues have impacted our business. They are short term in nature and do not impact our long term strategic direction of the business.
Operating income increased compared to the prior year, primarily due to an employee benefit change.
Lower sales were partially offset by favorable margins and product mix.
As we move forward all three business units continue to implement new growth strategies, and we are seeing positive momentum in sales quotes and orders in the majority of the markets we serve.
Dave I will now turn the call over to Sam Lyon, President of our forged and cast engineered products segment Sam.
Thank you Brett and good morning, the segments backlog increased seven 5% from the first quarter of 2022 is that our highest level. Since February of 2020 backlog has increased approximately 30% from the pandemic trough in March of 2021.
Data on our last call. The first quarter was very strong for our non rolled product line.
We also anticipate an improved rural sales mix with increased large forged rolls sales starting in Q3 of 2022 and continuing into 2023 <unk>.
Inflation continued to impact operations in Q1, 2022 materials and energy prices have remained elevated and energy prices in Europe continued to be volatile.
We have seen the natural gas day ahead pricing in the U K fall from a high of $85 per Mcf in March to under $10 per Mcf today.
This is compared to historic typical levels of $11 per Mcf in 2020 and $19 per Mcf in 2021.
Futures for Q3, and Q4 is still elevated at near $30 per Mcf.
States natural gas has remained elevated at more than double the previous levels from around the midpoint of 2021.
While we have seen an increase in fuel costs at our plant in Sweden. The overall energy costs is still less than half of our UK plant.
Key alloys inputs, such as ferrochrome scrap and nickel have increased over 100% in the quarter due to the conflict between Ukraine and Russia.
All other costs remain elevated as I have discussed before our surcharge mechanism has some lag compared to actual costs are modified surcharge mechanisms to address the energy and transportation costs are now in place for most of our customers. In addition to surcharge expansion based pricing has been increased to address other general inflationary pressures with a typical increase.
Ranging from 5% to 7% over 2021 based pricing.
We continue to monitor developments in cost daily and react where possible to minimize the effects on our business.
As Brett stated our expansion and modernization programs for our U S plant assets continue on schedule and we're excited about these investments as they will provide a lower cost structure and our roll business and further growth in the non <unk> business, which is currently at capacity.
The oil patch continues to be strong and we expect our shipments to remain solid in this market. We expect to complete our Capex program by the Middle of 2023, I will now now I'll turn it back over to Brett.
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.
<unk> net sales for the first quarter of 2022 were $94 4 million, an increase of approximately 9% as compared to net sales for the first quarter of 2021, primarily due to growth of 18% in the forged and cast engineered products segment.
Net sales for the air and liquid processing segment in the first quarter of 2022 were 16% lower than the prior year period due to supply chain issues impacting the availability of components for production and customer delivery timing.
Income from operations for the first quarter of 2022 was $1 $2 million.
This compares to income from operations in the prior year quarter of $9 million.
The current your current quarter's results include a $1 $4 million benefit from a change in certain employee benefits most of which benefited SG&A expense.
Yeah.
Unfortunately cast engineered products segments operating results declined slightly for the first quarter of 2022 compared to prior year, primarily due to a lower volume of mill roll shipments, though this was partly offset by the favorable impact of the employee benefit change in the current quarter.
While the segment continues to experience inflationary pressures a significant portion of cost increases was recovered by surcharges and higher pricing.
Air and liquid processing segment operating income.
Improved slightly for the first quarter of 2022 compared to prior year. Despite the lower volume of shipments for the reasons Dave described.
Other income expense net increase for the first quarter of 2022, when compared to the prior year quarter, primarily due to changes in foreign exchange.
At the bottom line. The Corporation reported net income attributable to ampco, Pittsburgh of $1 $6 million or <unk> <unk> per diluted share for the first quarter of 2022 compared to net income up $2 million or one cent per diluted share for the first quarter of 2021.
Backlog at March 31, 2022 of $327 $5 million increased.
Approximately 12% from December 31, 2021.
And increased 36% from March 31, 2021.
Backlog for the force and cast engineered products segment improved 7% sequentially.
This increase is principally a result of increased orders for forged rolls due to improved demand for the segments flat roll from the segments flat rolled steel and aluminum customers.
Backlog for the air and liquid processing segment is at a record high.
Increased 27% sequentially with backlog for each product line and improve it.
Net cash flows used in operating activities was approximately $16 $3 million for Q1 2022 due.
Due to an increase in trade working capital associated with the higher level of business activity and for inventories higher costs associated with deflation inflation and supply chain disruption.
Capital expenditures for the first quarter of 2022 were $3 $4 million, primarily for the force and cast engineered product segment.
At March 31, 2022, the corporation's balance sheet and liquidity position included cash on hand of $6 8 million and undrawn availability on our revolving credit facility of approximately $33 million.
Yeah.
Operator at this time, we would now like to open the line for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys if at anytime. Your question has been addressed and you would like to withdraw your question. Please press Star then two please.
Please limit yourself to one question and one follow up.
At this time, we will pause momentarily to assemble our roster.
Okay.
Our first question comes from Justin Bergner with Gabelli funds. Please go ahead.
Good morning, Brad Good morning, Mike.
Good morning, Jess Justin.
Couple of questions you started off.
I think in your opening comments by saying that you were.
<unk> sold out in non rolled product lines unfortunate engineered products.
I wanted to verify that and what sort of sales level does that represent and when do you expect to have the capacity to handle.
Larger sales volumes than non rolled product lines.
Hey, Jeff This is Mike.
In the quarter, we had about $15 million in sales for our forged engineered products and I think I'll I'll, let Sam comment on this but I think what we mean by being sold out as we are capacity limited.
On our heat treat.
Our asset capability, and so theres a limit to how much we can take and process.
Over time based on the limitation in heat treat but I'll, let Sam comment on that further.
That's accurate.
We expect.
D D EPA approval for construction this summer and then.
Someone will install and be on track for the middle of next year to increase that capacity.
Okay.
Okay.
And I guess that.
If I recall, you know before the <unk>.
Bush into non rolled product lines or to expand the number of product lines Youre doing about 30 million of annualized so.
Does that $15 million of sales sort of suggests that you've doubled.
That annualized pace.
But it's a little tricky because volume based we are on track to what we said, but the inflationary situations with nickel and scrap and everything else up push the surcharge mechanisms and price up.
A bit for example.
Nicole are 15, $5 74, which are used for frac blocks that raw material has gone from like $1 10 to $2.10 a pound starting materials. So the volumes on track to what we said, but the revenue is higher.
Okay. When you say the volumes on track to what you said just.
If you could remind us well the $30 million of equivalent sales back then.
That's what we're producing this years plan was higher it's at 38 million did roughly 30 last year and then it goes over $50 million last year and the old with.
Past pricing.
Okay.
Gotcha.
Alright, and then the one 4 million dollar offset.
On the employee benefit change.
Is that just sort of like a one time item is noncash or is it sustainable.
Savings.
Sure. It is a one time item Justin it was noncash it was it really has to deal with.
The policy.
We changed regarding Vega.
Vacation benefits, which in the past had been.
Earned.
As soon as the clock turns to January one of the next year.
We we amended our policy to make vacation be earned ratably throughout the year as the year progresses, rather than have it fully.
<unk>.
As soon as the new year starts.
Okay.
And then.
Sort of.
Where do you stand on price cost I noticed I think I would call do you see in the opening comments it.
A good portion of the higher costs and your forged engineered products segment was recovered.
When do you expect to sort of get to full sort of dollar for dollar.
Recovery.
That business.
Well, there's two to three month lag and so you need you need a raw material pricing to level for that period of time, and then and then we will be on par or caught up with the surcharge mechanism will be reflecting the prices for raw material, we need prices to stabilize for that to happen.
Okay.
And then sort of any update on what you're thinking in terms of.
The financing efforts.
In terms of you know what it would enable you to do.
You know assuming you go forward with some for financing that you wouldn't.
Otherwise be able to do with your balance sheet.
I can answer that Justin.
What we're thinking about is the with the confluence of the events here, where we have a ramp up in working capital to meet.
Growing demand for our products.
And inflation, which is affecting the that investment is required and the growth in working capital.
And the fact that.
Our capex.
There are capex timing is really I mean, we only spent like $3 million in the first quarter. It will be something similar in the second quarter and our plan is worth about $20 million in capex for the full year. So we our capex is going to start getting heavier in Q3 and Q4.
And while we have plenty of space on the credit line at the moment.
We were cautious of.
<unk>.
Think about allocating rationing anything having to do with taking orders and with the conflict in Ukraine and other things like that.
And the growth in our order book.
In both segments, we know theres more opportunity and we want to be able to capture that opportunity.
Okay. Thank you.
Again, if you have a question. Please press Star then one.
This will conclude our question and answer session I would now like to turn the conference back over to the Chief Executive Officer, Brett Mcbrayer for any closing remarks.
Thank you.
Courage by our progress over the past quarter and I want to thank our employees for their hard work and dedication.
Our workforce continues to be the key to our success.
I also want to thank our shareholders and our board for your continued support we are excited about the future prospects for Ampco, Pittsburgh and we're committed to driving improved performance in 2022 and beyond again. Thank you for joining our call. This morning.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.