Q3 2022 TriMas Corp Earnings Call

October 27, 2022

Yeah.

Good day and welcome to the third.

Third quarter 2022 earnings Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Sherry Lauderback. Please go ahead.

Thank you and welcome to try not corporations third quarter 2022 earnings call participating on the call today are Thomas Amato, China, Who's President and CEO and Scott <unk>, Our Chief Financial Officer will provide our prepared remarks on our third quarter results and outlook.

And then we will open up the call for your questions.

In order to assist with the result.

And maybe you we have included in today's press release, and Powerpoint presentation on our company website at China up Corp, Dot com under the investors section.

In addition, a replay of this call will be available later today by calling 8882031112 with a replay code of 39065 to seven.

Before we get started I would like to remind everyone that our comments today may contain forward looking statements.

And are inherently subject to a number of risks and uncertainties.

Please refer to our Form 10-K, and our third quarter 10-Q that will be filed later today for.

For a list of factors that could cause our results to differ from those anticipated any forward looking statement also we undertake no obligation to publicly update or revise 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 addition, we would like to refer you to the appendix in our press release or presentation for the reconciliations between GAAP and non-GAAP financial measures used during this call.

Today, the discussion on the call regarding our financial results will be on an adjusted basis.

Excluding the impact of special items.

With that I will turn the call over to Tom Amato, <unk>, President and CEO Tom.

Thank you Sherry.

Good morning, and welcome to our third quarter earnings call.

On our prior earnings call, we spoke about some of the challenges we were facing in certain of our submarkets as well as our expectation that we would see improvements begin to take hold as we move through the third quarter and into the fourth quarter, particularly within <unk> packaging.

That period inquiry.

Leasing inflationary and energy costs quickly spread to weakening consumer confidence.

This turn into an abrupt impact in <unk>.

Demand in some of our key consumer goods and end markets and several of our top packaging customers. This.

And to bring their inventories into better balance for an uncertain period.

This had a compounding effect as it began to emerge at the beginning of our normally our normal holiday season pipeline fill period, which starts in late August and ramps up through November .

While we believe the demand impact we are experiencing within <unk> packaging in the second half of 2022 is largely related to our customers deferring demand due to overstock inventories try math is well positioned to navigate through this or any uncertain period. Moreover, we have several sub mark.

What's that are showing signs of strengthening which we believe will translate to longer term growth.

Let's turn to slide three where I'll take a few extra minutes to better describe some of the changes we are seeing in our geographic regions and primary markets.

As a reminder, <unk> primary markets served include consumer products, which represents nearly 49% of our year to date sales.

Aerospace and defense, representing 20% of our year to date sales and.

And general industrial representing 31% of our year to date sales.

All of our sales into the consumer products market and a portion of our sales into the general industrial markets are captured within our packaging segment, which represents approximately 60% of our overall revenues.

Within North America, we are experiencing the onset of a robust recovery within the aerospace and defense market, which is ahead of our expectations and continued strong order intake within certain of our general industrial markets.

We are also experiencing as everyone on this call is well aware the highest inflationary rates in for decades. This effect along with continued new cycles mentioning a pending recession is indeed, creating a cautious planning environment, which we are most acutely seeing within products sold into personal.

<unk> applications.

For example for example.

All of our largest consumer goods customers are faced with higher dispenser stocks than normal and have therefore decided to take a much more conservative approach to increasing stock in anticipation of their seasonal selling period.

Scott will go into further details on some of the specific product lines that are that are.

Off our planned sales rates. However, it is important to note that each of the products, where we are experiencing softer sales are consumable and we do expect demand to recover as we move into and through 2023.

To unpack this a bit further our <unk> specialty products group had strong sales for the quarter up 14, 5% and with the current order book backlog that remains strong.

Operating profit conversion was slightly lower than last year, primarily due to higher cost for steel and less favorable product mix, but overall at solid performance levels.

Our Trimas Aerospace group sales were slightly down by two 3% from the prior year quarter. However, when normalized for the 2021 special stocking orders organic sales were actually up eight 5%.

It is also important to note that we are experiencing a robust order intake rate within <unk> aerospace, which has driven our backlog higher as compared to the prior year quarter.

While this is great long term news the high demand re create some temporary near term production Jeff challenges.

For example, we continue to navigate supply chain and labor constraints, which we expect will continue through the fourth quarter.

Therefore, our conversion was negatively impacted.

With that said the <unk> team successfully unleashed in earnings and cash generating generating real estate divestiture project, which helped offset some of the period efficiency issues.

Within our packaging group sales of certain dispenser products for hand soap and sanitizer and lotion dispensing applications were significantly lower as compared to the prior year quarter for the reasons I previously noted.

In total our net sales for growth for North America is up 5% overall, however, when adjusted for currency and acquisitions were off the prior year quarter by 2% so to sum up the results we are experiencing with the North America overall are mixed.

Within Europe , not surprisingly the effects on consumers from the geopolitical fallout is even more profound our sales within Europe are off the prior year quarter adjusted for currency by 5% all of which is within our <unk> packaging group and the vast majority of which is within our dispenser related.

Product lines. Additionally.

Additionally, within Europe , one of the most what are the main issues as it related to energy and fuel for the quarter higher utility expenses within Europe cost <unk>, just over <unk> <unk> per share and which has impacted us by nearly <unk> <unk> per share on a year to date basis, and we anticipate that will grow to about 11%.

<unk> 11 for the full year.

We are actively taking a number of steps to identify ways to reduce energy consumption, such as accelerating our shift to more efficient manufacturing equipment.

Additionally, we are seeing certain governments begin offering subsidies to assist their manufacturing base through this uncertain time.

I remain hopeful that a careful resolution to the conflict between Russia, and Ukraine will occur in the nearer term benefiting the people in this part of the world as well as the European and global economies generally.

Within Asia, and more specifically, China, the zero Covid policy will continue to suppress regional economic growth.

While our sales in the region are only approximately 5% of our total this important region of the world for <unk> is off nearly one third as compared to the prior year quarter, all of which is within <unk> packaging within our <unk> packaging group.

As a result of these very dynamic global market conditions, we are reporting earnings per share of <unk> 40.

The main unfavorable drivers of which are predominantly volumetric sales and mix.

Related under absorbed structural costs and energy costs.

While we're not pleased with this result, our global team continues to work diligently to navigate each of our businesses through this uncertain period, while still executing our long term strategy.

Let's turn to slide four while we're all further summarize our financial results for the quarter.

Sales were 208, $218 5 million down one 7% from the prior year quarter, driven by a decrease in organic sales of four 8% and unfavorable foreign currency exchange of two 7% offset by acquisition sales, which contributed five 8%.

Adjusted operating profit for the quarter was $21 6 million or just under 10% of sales for the quarter, our margin, which was lower than the prior year quarter, mainly due to the lower demand and related under absorption of both fixed and SG&A costs in the period mix and energy costs. Additionally.

Additionally, we experienced certain production inefficiencies predominantly within our Trimas Aerospace group largely offset by a property divestiture also within <unk> aerospace as I noted earlier.

Adjusted EBITDA was $37 6 million or 17, 2% of sales certainly below our longer term target. However, I expect to return to a higher rate as we make operating leverage gains in the future with increasing order intake and shipments.

At this point I will turn the call over to Scott, who will take us through our balance sheet and segment results Scott.

Thanks, Tom let's turn to slide five.

<unk> continues to maintain a strong balance sheet and liquidity profile.

We believe positions us well to successfully navigate any short term or even long term market disruption, while continuing to invest in our business for long term growth.

As of September 30, we maintained 378 million of unrestricted cash and availability under our credit facilities and had net leverage of one nine times, even after investing $131 million of cash year to date for acquisitions capital expenditures.

<unk> dividends and share repurchases.

During the quarter, we generated $15 4 million of free cash flow below prior year, primarily due to continued investment in search and critical inventories as we continue to ensure continuity of supply for our customers and manage through a volatile global supply chain.

In addition, while not considered as free cash flow as we and most others define it we did generate an additional $26 million of pretax cash proceeds during the quarter from the exit of our existing cross currency swaps.

Given the historical strength of the U S dollar versus the euro in the current macroeconomic environment. We made the strategic decision to monetize these instruments to further bolster our liquidity position.

The exit of these swaps did not impact our net income or EPS.

Finally, we are actively taking additional steps to further bolster our balance sheet.

As Tom mentioned previously the <unk> Aerospace team completed an earnings and cash generating real estate divestiture project during the quarter.

And we have recently completed an additional property divestiture, which through the use of kaizen and rebalancing of our manufacturing footprint resulted in the monetization of another real estate asset.

Together these transactions should yield approximately $20 million of after tax cash proceeds in earnings.

We will continue to assess additional opportunities to strengthen our balance sheet as they become available.

Now, let's turn to slide six and I will begin my review of our segment results starting with <unk> packaging.

Net sales of $129 7 million decreased $8 3 million or 6% as compared to the year ago period.

Acquisitions contributed $11 $5 million of sales during the quarter, while the impact of unfavorable foreign currency translation reduced sales by $6 1 million or four 4%.

Organic sales decreased by nine 9% as demand for our products, primarily for dispensing products with applications in the beauty and personal and home care end markets was negatively impacted as a result of the fact factors highlighted in the opening of our call.

As a result sales for these two end markets again beauty and personal and home care were down more than 20% during the quarter when compared to the year ago period.

However, based on our order intake and backlog, we do believe the earning patterns. We are experiencing during the second half of 2022 are temporal and expect these customers to have stocks rebalanced sometime during the first half of 2023.

On a more positive note during the third quarter of 2022 and consistent with the previous two quarters of the year. We continued to experience positive organic growth for products used in both food and beverage and pharma and neutral applications.

Operating profit decreased by $9 2 million to $18 1 million as the impact of lower sales was further exacerbated by a less favorable sales mix, increasing inflationary pressure on input costs, including approximately $2 million of additional energy costs in Europe , which continues to be.

Meaningfully impacted by the ongoing hostilities in Ukraine, as well as currency exchange rates.

Operating margin was 13, 9%, while adjusted EBITDA was $26 1 million or 21% of net sales.

As we start to look forward to 2023 and beyond I'd like to highlight a few items.

First <unk> packaging is currently in process of launching our first fully recyclable.

Injection blow molding jar for a strategic global CPG customer.

This is a new technology for <unk> packaging in response to increasing market demands for lighter weights and greater flexibility.

This new product offering initially targeted for personal care applications, such as hair care also aligns with <unk> packaging sustainability and circular economy goals, which we believe are the future for the global packaging industry.

Next we remain committed to expanding our offering of our.

A fully recyclable dispensing product lines.

With additional sales expected to ramp up in late 2023 in early 2024, as we continued to see strong interest in these products from our global CPG customers.

Finally, we are pleased to announce the launch of our advanced manufacturing facility in New Albany, Ohio, which is a corner store pardon me cornerstone piece of our commitment to our customers to increase manufacturing capacity onshore in North America.

This new highly automated plant is targeted to produce foaming and traditional dispensers for the beauty and personal care end markets as well as some of the some of the <unk> packaging latest innovative products all in support of customers in the local market.

Turning to slide seven I will now provide an update on our <unk> aerospace segment.

Net sales for the quarter decreased $2 8 million or two 3% when compared to the same period a year ago.

Acquisitions contributed $1 $3 million of year over year sales.

As we've mentioned previously sales and operating profit for <unk> aerospace throughout 2021 were positively impacted by $30 million of stocking orders for highly profitable specialized fasteners from one end customer.

Adjusting for the impact of these stocking orders in Q3 of 2021, Q3, 2020 organic sales were up eight 5% year over year.

As we continue to see order intake and backlog for certain products trending above our initial internal plans for 2022.

Operating profit for the quarter was $4 8 million or 10, 5% of sales as compared to $4 6 million or nine 8% in the prior year.

This year over year improvement in operating profit is primarily attributable to a $4 $8 million gain from a strategic divestiture of our property mentioned earlier, which offset the loss of margin related to the prior period special stocking orders as.

As well as the impact of continuing supply chain and labor inefficiencies and rising inflationary pressures.

Combine these manufacturing inefficiencies and input price increases contributed approximately 2 million of incremental costs during the quarter.

Adjusted EBITDA for the quarter was $9 6 million or 21, 1% of sales.

As I mentioned earlier in this call order intake remains robust within <unk> aerospace and we do expect to see organic sales growth accelerate as we exit 2022.

As the production challenges experienced this year begin to ease on account of improved manufacturing efficiencies.

Finally, I would like to highlight that our <unk> aerospace team will begin initial low rate production of components for the new Boeing seven a trainer jet during the fourth quarter of 2022.

As we announced previously Boeing's T <unk> Red Hawk is an all new advanced pilot training system for the U S Air Force.

Now on slide eight let's review our specialty products segment.

Net sales in the third quarter increased $5 five to $43 4 million or 14% pardon me, a 14, 5% increase when compared to the same period a year ago.

This is now five consecutive quarters of double digit growth for our specialty products segment.

Demand for steel cylinders and engines, providing supplemental power each for the North American region remains robust with moderately high levels of backlog for both businesses.

Operating profit in the quarter was $6 8 million or 15, 6% of sales as compared to $6 7 million in the previous year period.

Operating margins were lower when compared to the prior year period as higher sales volumes were more than offset primarily by higher material costs.

Adjusted EBITDA for the quarter was $7 7 million or 17, 8% of sales.

While both north cylinders in Aero engines order books remained strong, which we believe is indicative of recent recoveries in certain end markets for which they sell into we.

We will continue to closely monitor order changes and input cost and take appropriate actions if necessary.

At this point I'd like to turn the call back over to Tom to discuss our outlook and for some closing remarks Tom.

Thank you Scott, let's turn to slide nine.

As we look to the balance of the year and given the now persistent impact from the situation in eastern Europe derivative energy cost and global inflationary and consumer sentiment effects, we are anticipating a softer fourth quarter.

We expect <unk> specialty products will continue to convert well and robust demand and <unk> aerospace will make meaningful strides against balancing increasing demand to get into a much better conversion position in the first quarter of 2023.

With respect to <unk> packaging, we are taking a cautious approach to balancing our support infrastructure against what we believe is a temporal demand effect within certain of our product lines.

We will continue to assess regional actions as necessary when we gain more visibility into the first quarter 2023 demand.

Additionally, we expect to benefit from an approximately approximate $17 million after tax gain due to a corporate led property divestiture project in the fourth quarter, providing both cash and earnings benefit and which will help offset some of the temporary market disruptions, we are continuing to navigate.

Given our results today and what we anticipate for the fourth quarter. We are now expecting to achieve an EPS range for the year and the $2 10 to $2 18 range, which is the center point of about 7% from our prior estimate.

We also are updating our free cash flow outlook to be greater than 80% of net income.

As a result of the inflationary and other margin pressures further investment in key inventory items, given supply chain constraints as well as maintaining our planned capex spending to allow for future growth.

In addition to free cash flow as we define it is important to note that we also expect to generate approximately 55 million and gross cash proceeds related to the two property divestitures and the settlement of the currency swaps. So in total we expect to exit 2010.

Two with a strong balance sheet.

Turn to slide 10.

While I do not know if we're already in or will enter into a recessionary period I do know that we have worked carefully over the prior years to ensure our operating model can withstand this type of condition.

While our sales and earnings are not currently trending to what we envisioned for 2020 to our overall cash earnings rate relatively low capital expenditure profile and strong balance sheet with low cash interest expense positions <unk> well to navigate through almost any uncertain period with that said I will close out our prepared remarks.

<unk> by providing just a few examples of why we remain optimistic about the long term prospects for <unk>.

First we are now starting to experience a demand recovery within the aerospace and defense market. We are working diligently to position <unk> aerospace to take advantage of the long term operating leverage gains in effect, we delivered with within our specialty products group as commercial jet production continues to strengthen and ended.

Defense applications remained strong.

Within our specialty products group, we expect demand to remain robust given our strong order backlog within our Norris cylinder business and which we are now also experiencing within our arrow engine business, particularly given higher natural gas and crude pricing.

Both of these businesses are currently poised well for continued growth.

While we are experiencing some lower period demand certain specific product lines within <unk> packaging. We continue to believe there are attractive long term characteristics. In this segment through our multiple end markets and we have many innovative product solutions coming to market and underway.

We also expect to continue to make progress on accelerating growth in our packaging group through acquisitions. This is an area, where we are now experiencing increased market activity with bolt on sized deals.

While we continue to reinvest in our business businesses for long term growth. We also anticipate continuing to return capital to our capital to our shareholders through dividends and share buybacks. In addition, our leadership team remains committed to operating <unk> in a responsible way to positively contribute to <unk>.

<unk>, particularly in the communities, where we live and work.

Again, we continue to believe <unk> is.

Exciting company to invest in and with that I'll turn the call back to Sherry Sherry.

Thanks, Tom at this point, we would like to open the call up to your question.

If you wish to ask a question at this time, please signal by pressing star one on your telephone keypad Chief insurance function on your telephone is switched off to allow your signal to reach our equipment.

Please press star one to ask a question.

And we'll take our first question is from Ken Newman of Keybanc.

Please go ahead.

Hi, everyone. This is Katie fleischer on for Ken He was unable to join today.

Hi, Katy.

Hi.

I wanted to start off on the packaging segment, how much visibility do.

Do you have on the customer inventories here and do.

Do you have any idea of when you're expecting.

These conditions to stabilize.

Demand continues at the current state.

Yes, great Great question It really is.

Something that we've had two campaign all of our top customers to get a better handle on so it is it varies by customer and actually by region and product line.

<unk>.

The point I wanted the key point to understand is.

<unk>.

The period of.

High volume supply for US occurs during the four month period, we're sort of in right now and that's not occurring that being said, we do expect that this is that the inventory that's in the pipeline probably bleeds out.

Through Q1, possibly a bit into Q2 of next year and we're back at a stabilized level. That's the best we can tell probably on the conservative end.

It bleeds into Q2, a bit on the more optimistic and it.

Is towards the mid to late part of Q1, that's the best we can tell and it does vary by customer.

Okay.

And then I guess, just kind of going off of that.

If demand were to continue in.

And just kind of weak state that youre seeing now what are some of the things that you would adjust.

To account for that.

Yeah.

Another very good question and that's an area where.

We're making assessments right now.

By geographic region and in some cases by facility and by product line. So.

We have not taking taken any flexing actions that we normally would and should if we felt that the peers.

Period that we're in with.

<unk>.

Demand falloff, the temporary demand falloff would be would be more prolonged I mean, so we're not flexing any structural costs and to some extent even on the variable side. This was such an abrupt change in demand that occurred to us that we've only taken minimal variable variable flexing actions.

Okay got it.

And then one more for me and then I'll jump back in the queue.

Why it was lower volumes versus price mix impact within that packaging segment do you have any visibility into that.

Mostly volume.

Obviously volume Okay, yes.

Yes.

We had some slight uptick with price.

But to Tom's point, mostly volume degradation.

Yes.

Got you.

Okay I'll get back in the queue in case, there is anyone else.

Okay.

As a reminder, it is.

To ask a question at this time.

We'll take a follow up.

Question from Ken.

Keybanc capital markets.

Okay.

Okay. Thanks.

So we've seen a bit of a pullback and both steel and resin prices lately. So I was wondering I know we talked about this on the last call, but how should we think about the near term impacts to margins.

The three segments from a price cost perspective.

So.

Let me address generally steel if we if we defined steel as both steel and other metals. It is a little bit mix youre right on the steel side, we're seeing current.

Market trends that are a bit lower versus where we started the year and exited 2021.

It's not really rolling through our numbers yet because.

And I'm not sure how material it really will be but but it just has to do with the inventory that we have in our system and our forward buying contracts with our suppliers.

On the steel front on the metal front. So we use a number of other metals ranging from exotic to aluminum.

Stainless steel et cetera.

Different trends there those prices tend to be.

Between stable and increasing.

And Thats.

That impacts both the our aerospace business on the resin side, you're right as well.

There has been a very modest pullback almost I would say stable to flat, which is great news.

We could use a an additional pullback certainly as we go into next year that would be helpful. But it is in our numbers today.

And it's giving us eight 8%.

A minor benefit.

Okay. Thanks.

That pretty much covers everything I was interested in there.

In terms of the aerospace segment can you talk about the supply chain visibility I know you've been having some.

Some difficulties there and any sense of what the inventory looks like.

Going forward.

So when you talk about <unk> is your question related to supply inventories to us or our customer inventories.

I guess, if you could touch on both that would probably be helpful.

Okay. So on the customer inventory side, depending on the product line I would say that the.

The inventory levels. When we were independencia that we knew were building.

Our.

Some cases depleted now because the production rates have come back up.

We're seeing our order our order book is up 30% from where it was last quarter Im sorry last year the last prior year quarter.

We're booking business out a bit booking business now almost into into mid 2023.

There is really a surge in demand, which is like I said, great news because from a long term effect, that's really what we wanted to see I expected to see that by the way in 2023, and we're seeing it in the second half the challenging side is the supply base because it was so stressed during the pandemic.

<unk>.

<unk> on the labor front.

Was not ready for the step back.

So we have.

Our sub suppliers in certain of our important input materials.

Our tight and I know other companies and aerospace <unk> Aerospace World are seeing the same thing as we as we sort of check around.

Where we have tighter.

Constraints, we're seeing what we can in source or what we can.

Source from other vendors that might we might be able to quickly qualify in some cases as I mentioned, we have pulled in production of certain sub sourced with previously sub source material.

Because we wanted to stabilize our supply so I would say on the on the sub supplier market to us.

It's constrained and there's not a lot of material that's in the market available for us.

Okay. Thanks, and then I guess going off of that any visibility into the margins for the Aero segment and the out year do you see opportunities to expand those a bit maybe.

Back to like 2021 2020 levels.

Well, certainly we hope to expand our margins above the 2020 and 2021 levels. The area that we have in the back of our mind is 2019 and.

Our hope as we restructured that business through the pandemic too.

Get back to that pre Covid right.

That being said what's changed since then our inflation that is set in and some other constraints, but we will go into that I think at our next earnings calls we give guidance for the next year, but certainly I do expect to get some operating leverage as we convert.

Our order book that is.

In our books now and.

Free up capacity from some of the labor supply constraints that we're experiencing today.

Okay makes sense and then just two more questions from me here I wanted to pivot towards M&A.

I know you discussed this a bit in the deck, but can you just talk about what your pipeline looks like going forward, maybe what you're targeting when you think about M&A in the future.

Yes, let me address it in relation to our last earnings call and before that as we went into our last earnings call. The pipeline was not full and there were just a few companies out there and if we sort of go back to that period of time, what was happening was interest rates were increasing significantly so sort of the M&A market.

Just sort of took a pause that being said I mean deals have to get done for a number of reasons succession plan family succession planning and other factors and as we sit here today, we're seeing a high activity rate of some.

It looks like to us quality properties that are right in our strike zone. There are smaller in size bolt on deals.

Not likely to compete much with private equity buyers because of their size and we see a number of opportunities not only in packaging, but also aerospace so given our balance sheet.

We're looking carefully at a number of deals nothing to announce today, but certainly items that are deals that could be actionable, we're still not seeing though as you would imagine.

Larger deals in the market.

And predominantly that's because of the competition for them would be very limited because of higher interest rates right now.

Yes that makes sense.

Okay.

And then just going off of that so when you think about capital deployment.

What are you prioritizing is it M&A is it share repurchases and how do you kind of go about making that decision.

Well, Scott and I were just talking about that this morning.

And we're we're looking certainly at the $55 million of cash that we brought in and sort of said geez.

It could be like a free company through some great work that our teams did too.

To unlock and unleash.

Cash value to monetize.

So some.

Various treasury and assets that we had in our book.

That we're not earning for us and turn that into a deal. So I would say in the nearest term youre likely to see us shift a little bit of our focus.

Two.

M&A.

Okay and the other three segments is it really the packaging and the era, where youre seeing those opportunities for M&A.

Yes look.

And not that we wouldn't look at a deal within specialty products, but I want to just note a couple of things about the businesses that comprise that that group our Norris cylinder business has a ah.

Strong order backlog right now and the investments that we're making there we've been on this pace for a couple of years and we're making good progress.

Is related to <unk>.

Factory floor improvements. So we can continue to find additional capacity, we can grow our grow and expand our sales organically at that location without having to add.

Some acquisitions on that front and basically the product that we sell is pretty all inclusive so.

Unless we wanted to get into a completely new cylinder line, that's a whole different strategy that.

It's too long to go into on this call. We can talk about it what are the other 100 ones.

With respect to Aero engine, which we haven't talked about for some time, we're seeing the order book there increase significantly because as you can imagine the product set that business make makes.

<unk> goes into applications.

To extract oil and natural gas in North America, and when we look at our current rates of crude and natural gas I mean, there are some government regulation attentions that are out there, but nonetheless, our customers for Aero engine are placing orders again and that book is strengthening so we can.

Expand that revenue across the current assets without necessarily having to do.

An acquisition. So so we're looking at our specialty products group to give us some nice organic growth assuming that this.

The.

<unk>.

Any type of inflationary or potential recessionary effects don't don't impact both segments.

Okay.

Just one quick one more quick one for me on the packaging side when you think about M&A.

In that segment.

How do you kind of reconcile that with the softening demand that youre seeing there.

This quarter is it.

Is that really not even a factor because youre thinking more long term or do you see opportunities too.

To work around that by expanding maybe in different product lines within that packaging segment, yes.

Yes, Katy that's a great. That's a great question because if you take for example, one of our largest submarkets as beauty and personal care.

Almost 90% of our sales in beauty and personal care or personal care and our personal care business is is the the consumer products.

Product product lines that are most impacted by consumer sentiment and some of the issues that we're faced with today. So we have the ability to expand significantly in the beauty area and it's an area that that is high on our priority list to grow in addition to that.

Food and beverage has been relatively strong during this period in total and Thats an area, where we want to continue to grow life Sciences and there is an area that we penetrated earlier this year and we see that as a vast opportunity for growth in fact, I would like in five years' time to see life sciences to be in <unk>.

Much more material part of our <unk> packaging.

Our business. So we have a number of sub markets and product lines to add to <unk> packaging. Even in this current environment now we might take a look depending on the geographic region and risks associated with that but overall, we see a number of opportunities that can be exciting.

For us.

Okay, great that's good to hear.

That's it for me. Thanks, so much for taking all these questions.

Yeah.

As a final reminder.

Thank you wish to ask a question.

We have no further questions over the phones at this time.

Okay, there being no further questions. Thank you for joining us on our earnings call. We look forward to updating you again next quarter.

This concludes today's call. Thank you for your participation you may now disconnect.

Okay.

[music].

Yeah.

[music].

Good day and welcome to the <unk> third quarter 2022 earnings Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Sherry Lauderback. Please go ahead.

Thank you and welcome to try not corporations third quarter 2022 earnings call participating on the call today are Thomas Amato, China, Who's President and CEO and Scott <unk>, Our Chief Financial Officer, We will provide our prepared remarks on our third quarter results and outlook.

And then we will open up the call for your questions.

In order to assist with the results.

And maybe you we have included in today's press release, and Powerpoint presentation on our company website at <unk> Dot com under the investors section. In addition, a replay of this call will be available later today by calling 8882031112 with a replay code.

39065 to seven.

Before we get started I would like to remind everyone that our comments today may contain forward looking statements that are inherently subject to a number of risks and uncertainties.

Please refer to our Form 10-K, and our third quarter 10-Q that will be filed later today.

For a list of factors that could cause our results to differ from those anticipated any forward looking statements also we undertake no obligation to publicly update or revise 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 addition, we would like to refer you to the appendix in our press release or presentation for the reconciliations between GAAP and non-GAAP financial measures used during this call.

Today, the discussion on the call regarding our financial results will be on an adjusted basis.

Excluding the impact of special items.

With that I will turn the call over to Tom Amato, <unk>, President and CEO Tom.

Thank you Sherry.

Good morning, and welcome to our third quarter earnings call.

On our prior earnings call, we spoke about some of the challenges we were facing in certain of our sub markets as well as our expectation that we would see improvements begin to take hold as we move through the third quarter and into the fourth quarter, particularly within <unk> packaging.

That period, increasing.

Inflationary and energy costs quickly spread to weakening consumer confidence.

This turn into an abrupt impact in demand in some of our key consumer goods and end markets and several of our top packaging customers decided to bring their inventories into better balance for an uncertain period.

This had a compounding effect as it began to emerge at the beginning of our normally our normal holiday season pipeline fill period, which starts in late August and ramps up through November .

Showing signs of strengthening which we believe will translate to longer term growth.

Let's turn to slide three where I'll take a few extra minutes to better describe some of the changes we are seeing in our geographic regions and primary markets.

As a reminder, <unk> primary markets served include consumer products, which represents nearly 49% of our year to date sales are.

Aerospace and defense, representing 20% of our year to date sales.

And general industrial representing 31% of our year to date sales.

We are also experiencing as everyone on this call is well aware the highest inflationary rates and for decades. This effect along with continued new cycles mentioning a pending recession is indeed, creating a cautious planning environment, which we are most acutely seeing within products sold into personal.

Care applications.

For example for example.

Scott will go into further details on some of the specific product lines that are that are.

The off our planned sales rates. However, it is important to note that each of the products, where we are experiencing softer sales are consumable and we do expect demand to recover as we move into and through 2023.

To unpack this a bit further our specialty products group had strong sales for the quarter up 14, 5% and with the current order book backlog that remains strong.

Operating profit conversion was slightly lower than last year, primarily due to higher cost for steel and less favorable product mix, but overall at solid performance levels.

Our <unk> Aerospace group sales were slightly down by two 3% from the prior year quarter. However, when normalized for the 2021 special stocking orders organic sales were actually up eight 5%.

It is also important to note that we are experiencing a robust order intake rate within <unk> aerospace, which has driven our backlog higher as compared to the prior year quarter.

While this is great long term news the high demand rates create some temporary near term production Jeff challenges.

For example, we continue to navigate supply chain and labor constraints, which we expect will continue through the fourth quarter.

Therefore, our conversion was negatively impacted.

With that said the <unk> team successfully unleashed in earnings and cash generation generating real estate divestiture project, which helped offset some of the period efficiency issues.

Within our packaging group sales of certain dispenser products for Hansel sanitizer, and lotion dispensing applications were significantly lower as compared to the prior year quarter for the reasons I previously noted.

Product lines. Additionally.

Additionally, within Europe , one of the most what are the main issues is related to energy and fuel for.

For the quarter higher utility expenses within Europe cost <unk>, just over <unk> <unk> per share and which has impacted us by nearly <unk> <unk> per share on a year to date basis, and we anticipate that will grow to about 11% <unk> 11 for the full year.

We are actively taking a number of steps to identify ways to reduce energy consumption, such as accelerating our shift to more efficient manufacturing equipment.

Additionally, we are seeing certain governments begin offering subsidies to assist their manufacturing base through this uncertain time.

Within Asia, and more specifically, China, the zero Covid policy will continue to suppress regional economic growth.

While our sales in the region are only approximately 5% of our total this important region of the world for <unk> is up nearly one third as compared to the prior year quarter, all of which is within <unk> packaging within our <unk> packaging group.

As a result of these very dynamic global market conditions, we are reporting earnings per share of <unk> 40.

The main unfavorable drivers of which are predominantly volumetric sales and mix related under absorbed structural costs and energy costs.

While we're not pleased with this result, our global team continues to work diligently to navigate each of our businesses through this uncertain period, while still executing our long term strategy.

Let's turn to slide four where I'll further summarize our financial results for the quarter.

Sales were 208 $285 million down one 7% from the prior year quarter, driven by a decrease in organic sales of four 8%.

An unfavorable foreign currency exchange of two 7% offset by acquisition sales, which contributed five 8%.

Adjusted operating profit for the quarter was $21 6 million or just under 10% of sales for the quarter, our margin, which was lower than the prior year quarter, mainly due to lower demand and related under absorption of both fixed and SG&A costs in the period mix and energy costs.

Additionally, we experienced certain production inefficiencies predominantly within our aerospace group largely offset by a property divestiture also within <unk> aerospace as I noted earlier.

At this point I'll turn the call over to Scott, who will take us through our balance sheet and segment results Scott.

Thanks, Tom let's turn to slide five.

<unk> continues to maintain a strong balance sheet and liquidity profile, which we believe positions us well to successfully navigate any short term or even long term market disruption, while continuing to invest in our business for long term growth.

<unk> dividends and share repurchases.

During the quarter, we generated $15 4 million of free cash flow below prior year, primarily due to continued investment in certain critical inventories as we continue to ensure continuity of supply for our customers and manage through a volatile global supply chain.

In addition, while not considered as free cash flow as we and most others define it we did generate an additional $26 million of pre tax cash proceeds during the quarter from the exit of our existing cross currency swaps.

Given the historical strength of the U S dollar versus the euro and the current macroeconomic environment. We made the strategic decision to monetize these instruments to further bolster our liquidity position.

The exit of these swaps did not impact our net income or EPS.

Finally, we are actively taking additional steps to further bolster our balance sheet.

As Tom mentioned previously the <unk> Aerospace team completed an earnings and cash generating real estate divestiture project during the quarter.

And we have recently completed an additional property divestiture of which through the use of kaizen and rebalancing of our manufacturing footprint resolve it in the monetization of another real estate asset.

Together these transactions should yield approximately $20 million of after tax cash proceeds in earnings.

We will continue to assess additional opportunities to strengthen our balance sheet as they become available.

Now, let's turn to slide six and I will begin my review of our segment results starting with <unk> packaging.

Net sales of $129 7 million decreased $8 3 million or 6% as compared to the year ago period.

Acquisitions contributed $11 5 million of sales during the quarter, while the impact of unfavorable foreign currency translation reduced sales by $6 1 million or four 4%.

As a result sales for these two end markets again beauty and personal and home care were down more than 20% during the quarter when compared to the year ago period.

Meaningfully impacted by the ongoing hostilities in Ukraine, as well as currency exchange rates.

Operating margin was 13, 9%, while adjusted EBITDA was $26 1 million or 21% of net sales.

As we start to look forward to 2023 and beyond I'd like to highlight a few items.

<unk> <unk> packaging is currently in process of launching our first fully recyclable.

Injection blow molding jar for a strategic global CPG customer.

This is a new technology for <unk> packaging in response to increasing market demands for lighter weights and greater flexibility.

This new product offering.

Initially targeted for personal care applications, such as hair care also aligns with <unk> packaging sustainability and circular economy goals, which we believe are the future for the global packaging industry.

Next we remain committed to expanding our offering.

Our fully recyclable dispensing product line.

With additional sales expected to ramp up in late 2023 in early 2024, as we continued to see strong interest in these products from our global CPG customers.

Turning to slide seven I will now provide an update on our <unk> aerospace segment.

Net sales for the quarter decreased $2 8 million or two 3% when compared to the same period a year ago.

Acquisitions contributed $1 $3 million of year over year sales.

Adjusting for the impact of these stocking orders in Q3 of 2021, Q3, 2020 organic sales were up eight 5% year over year.

As we continued to see order intake and backlog for certain products trending above our initial internal plans for 2022.

Operating profit for the quarter was $4 8 million or 10, 5% of sales as compared to $4 6 million or nine 8% in the prior year.

As well as the impact of continuing supply chain and labor inefficiencies and rising inflationary pressures.

Combine these manufacturing inefficiencies and input price increases contributed approximately $2 million of incremental cost during the quarter.

Adjusted EBITDA for the quarter was $9 6 million or 21, 1% of sales.

As I mentioned earlier in this call order intake remains robust within <unk> aerospace and we do expect to see organic sales growth accelerate as we exit 2022.

The production challenges experienced this year begin to ease on account of improved manufacturing efficiencies.

Finally, I'd like to highlight that our <unk> aerospace team will begin initial low rate production of components for the new Boeing seven day trainer jet during the fourth quarter of 2022.