Q1 2023 TriMas Corporation Earnings Call
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Sherry Lauderback. Thank you you may begin.
Thank you and welcome to <unk> Corporation's first quarter 2023 earnings call participating on the call today are Thomas Amato, Trimas, as president and CEO and Scott <unk>, Our Chief Financial Officer, We will provide our prepared remarks on our results and on our 2000.
And in 'twenty three outlook and then we will open up the call to your question in.
In order to assist with the review of our results. We have included today's press release and Powerpoint presentation on our company website at try them out Corp. Dot com under the investors section. In addition, a replay of this call will be available later today by calling 8776606853.
With the meeting I D of 13737667.
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 before or to our Form 10-K that would be.
Bayou later today actually Form 10-Q filed later today as a list of factors that could be caused our results to differ from those anticipated in 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.
Really 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 today on the call.
The discussion on the call regarding our financial results will be on an adjusted basis, excluding the impact of special items and with that I'll turn the call over to Tom Amato Trimas, as President and CEO Tom Thank.
Thank you Sherry good morning, and welcome to our first quarter earnings call.
As I begin today's call I am pleased to report that we have closed on the acquisition of wood Mac manufacturer.
<unk> as we discussed in our prior earnings call. It's a U S based manufacturer of complex metal fabricated components and assemblies for aerospace defense and industrial applications.
This business, which will report into our Tri mix Aerospace group is highly complementary to RSA engineered products in Martinique engineering.
And is expected to add more than $30 million in annualized revenues.
So today I would like to publicly welcome the woodmac team to try masses family of businesses.
We are also well along in the process of integrating art packaging into our packaging group.
As a reminder, art packaging, which we acquired earlier in the year is a premier manufacturer of packaging products for the beauty food and medical end markets.
In fact, we are leveraging our Earth's packaging brand and featuring for the first time ever try mass packaging. It looks back 2023, which is a luxury beauty and brands trade show next month.
Additionally, I am pleased to report that we will soon be posting our third annual primary a sustainability report through our web site.
We are excited to share with our investors. The continued progress <unk> is making and the overall area of sustainability and look forward to continuing our momentum over the coming year.
I would like to now pivot to today's call to refresh what we discussed on our prior earnings call, specifically demand levels within <unk> packaging consumer products and certain of our industrial end markets.
These end markets continue to exhibit variability as expected compared to prior year booking levels with that said, we are experiencing an increased level of global quoting activity, particularly with some of our larger CPG packaging customers.
And while we recognize quoting is not in bookings or even forecasted sales. We view this activity as a potential leading indicator to demand needs expected later in the year and even into next.
As stated previously we will continue to closely monitor market activity looking for green shoots to point to a return to more normalized demand levels. Additionally.
Additionally, we are proactively implementing steps to streamline certain infrastructure costs during this period.
We may capitalize.
On future operating leverage gains as demand levels recover we.
We will cover more of these specific actions as we move through the year and into 2024.
With respect to try mass aerospace demand remains strong as the aerospace market continues to recover.
With that said.
Secondary effect of the high demand rate is strain in certain areas a subset of our sub supply base, particularly with aerospace grade stainless steel wire.
Given longer lead times for these engineered materials, we are working collaboratively with our sub suppliers and customers as we continue to balance supply chain constraints we.
We do estimate that our sales would have been a few million higher in the quarter and with improved conversion rates at our manufacturing operations had the appropriate quantities and grades of material aligned with our higher demand levels. Again. This will be an area that we will continue to focus on through the year.
Finally, before going through our quarterly results, we continue to make progress against reducing our overall shares outstanding which we view as a long term and tax efficient way to return capital to our shareholders. We acquired about 350000 shares reducing net shares outstanding by approximately.
<unk>, 5% in the first quarter of 2023 alone. In addition to retiring the shares paying a dividend and funding an acquisition in the quarter our balance sheet remains strong and we have ample liquidity to execute against near term streamlining actions and our long term strategy.
Now I'll turn to slide four where I'll summarize our financial results for the quarter.
Bill for the quarter were $215 5 million as compared to 224 million for the prior year quarter. As a result of reduced demand as previously discussed and unfavorable currency, which were only partially offset by acquisition sales.
<unk> will cover the specific effects in more detail when he reviews each of our segments results.
Operating profit for the quarter was $15 5 million as compared to the prior year quarter of $26 2 million.
EBITDA for the quarter was $31 7 million or 14, 7% of sales as compared to the prior year quarter, which was at a rate of 18, 9% of sales.
While this is significantly below our longer term consolidated target percent EBITDA level, we do expect to improve through the year, particularly in the second half and anticipate converting well as demand levels return and <unk> packaging and supply constraints ease in <unk> aerospace.
Earnings per share for the quarter was 30, which was slightly better than our expected expectations for the quarter.
And now at this point I'll turn the call over to Scott, who will take us through the balance sheet and the segment results Scott.
Thanks, Tom and good morning, let's now turn to slide five and I'll.
Briefly cover our balance sheet.
We finished another quarter with a strong balance sheet net debt after funding the <unk> packaging acquisition paying a dividend and completed share repurchases was 343 million with a net leverage ratio of two times.
While we did draw approximately $40 million on our revolving line of credit to fund the April acquisition of <unk>, We expect to repay this outstanding balance by the end of the year with cash flows generated from operating activities.
Furthermore, we continue to have ample liquidity to continue to invest in our businesses takes.
Take streamlining actions, where appropriate buyback shares pay dividends and complete future strategic acquisitions as opportunities present themselves.
Now, let's turn to slide six and I will begin my review of our segment results starting with <unk> packaging.
First quarter net sales were $116 million, a decrease of approximately 16% when compared to the year ago period.
Acquisitions contributed $9 5 million of sales during the quarter.
While the impact of unfavorable foreign currency translation reduced sales by $2 4 million or one 7%.
As expected organic sales, excluding currency decreased by 21% during the quarter when compared to the previous year period.
This decline is primarily attributable to lower demand, most notably for consumable products with applications in the personal care food and beverage and industrial Submarkets.
During the quarter many of our customers continue to work through elevated inventory positions and closely managed orders given the continuing uncertainty around future consumer sentiment sentiment, which we believe is a result of the current high inflationary environment.
As mentioned on previous earnings calls.
Continue to believe that the current demand environment is temporary and we expect to see a return to normalized demand levels. During the second half of the year.
However, we are closely monitoring the commercial environment and as Tom indicated we will take as necessary certain streamlining actions as a hedge against our market recovery assumptions.
Operating profit in the quarter decreased by $8 6 million to $15 2 million.
Primarily on the account of <unk>.
Primarily on account of the impact of lower sales.
Operating margin was 13, 1% of net sales, while adjusted EBITDA was $22 6 million or 19, 4% of sales.
Finally, as we consider the full year for China packaging again, we do not expect to return to more normalized levels of operating profit and EBITDA margin within <unk> packaging in the second half of 2023 as demand begins to revert we execute at historical conversion.
Rates on open capacity and we benefit from the impact of ongoing infrastructure cost reductions just to be clear, we do expect to return to more normalized levels of operating profit I believe I may have said, we do not.
Turning to slide seven I will now provide an update on our <unk> aerospace segment.
Net sales for the core the increased by $5 5 million or 12, 3% when compared to the same period a year ago. As we continued to see strong order intake for many of our aerospace products as general Aerospace volumes continue to recover ahead of market expectations.
Operating profit for the quarter was $1 4 million or two 9% of net sales as compared to $2 4 million or five 4% in the prior year.
<unk> year over year decline is primarily related to the impact of continuing supply chain constraints for certain raw materials skilled labor availability both of those contributing to production inefficiencies and persisting inflationary pressure all of which are not unique to try mass aerospace.
Adjusted EBITDA for the quarter was $6 2 million or 12, 4% of net sales.
As we consider the balance of the year, which includes the expected impact of the <unk> acquisition, we expect order intake to remain robust. We also expect that our accelerated operational and supply chain actions will provide for improvements in our capacity and production rates and ulta.
Emily improving margin performance over the course of the year.
Now on slide eight let's review our specialty products segment.
Net sales in the first quarter increase increased by 8 million to $49 3 million.
More than 19% increase when compared to the same period a year ago.
This is now eight consecutive quarters of double digit growth for our specialty products segment.
Demand for steel cylinders, and remote power generation units and related spare parts each for the North American region remains robust with moderately high levels of backlog for both businesses.
Operating profit in the quarter was $9 8 million or 19, 8% of net sales as compared to $7 2 million in the previous year period.
Operating margins improved as higher sales and pricing actions more than offset inflationary cost increases.
Adjusted EBITDA for the quarter was $10 8 million or 21, 9% of net sales.
While both north cylinders and Aero engines order books remain strong, which we believe is indicative of continuing resilience in certain end markets for which they sell into.
We will continue to closely monitor order changes in input costs and take appropriate actions if necessary.
Finally, with respect to our specialty products segment for the full year, we expect order intake will remain solid and we will convert well through 2023.
At this point I'd like to turn the call back over to Tom to discuss our consolidated 2023 outlook and for some closing remarks.
Tom.
Scott, Let's now turn to slide nine.
With the first quarter concluded we continue to model and assess various potential scenarios for 2023, especially given some of the uncertainty and a few of our end markets.
As noted and as noted in our earnings release, we are reaffirming our full year outlook for 2023, we.
We do anticipate as we experienced in the first quarter of 2023, a lower quarterly sales and operating profit as compared to the second quarter of 2022, largely since the second quarter of last year was a more normalized quarter for <unk> packaging.
Additionally, we are expecting that the second quarter for <unk> Aerospace will now remain challenged as we continue to work through supply constraints. While we anticipate continued strong performance from our specialty products group.
We also continue to forecast our full year free cash flow to be greater than 100% of net income.
Let's turn to slide 10.
I would I would like to again, thank our investors for their ongoing support as we navigate through this period with that said I will conclude our prepared remarks by providing just a few examples of why we remain excited about the long term prospects for <unk>.
First while we are experiencing some lower demand for certain 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 sustainable product solutions in the pipeline and coming to market in the future.
We also have growing confidence in a sustained recovery within the commercial aerospace end market, we expect to ultimately work through the supply in any remains skilled labor constraints and take advantage of long term operating leverage gains as commercial jet production continues to strengthen and demand in defense applications remains strong.
Within <unk> specialty products group, we expect demand to remain robust given our strong order backlog with our Norris cylinder business and our arrow engine business and as we have always done we will continue to assess <unk> overall portfolio of businesses to ensure we are focusing our resources and are best positioned to create the highest.
Long term value for our shareholders.
While we continue to.
Reinvest in our businesses for long term growth. We also anticipate continuing to return capital to our shareholders, both through dividends and share buybacks.
In addition, our leadership team remains committed to operating <unk> in a responsible way to positively contribute to society, particularly in the communities, where we live and work.
Again, we continue to believe <unk> is an 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 up the call for your questions.
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Yeah.
Yes.
Our first question comes from the line of Ken Newman with Keybanc capital markets. Please proceed with your question.
Hi, everyone. This is Katie on for Ken today.
Hi, Katy.
I wanted to start with the packaging segment I know you said that you would go into more.
A more detailed throughout the year on need.
Streamlining actions that youre going to take.
Hedge against any.
Market uncertainty I was wondering if you could provide just a little more detail on that maybe anything specific on uncertain costs or initiatives that you're targeting.
Sure well, let me let me.
<unk> mentioned, a few items or at least one item that.
We are actioning upon right now and I could talk about it on this call. We currently have two manufacturing locations.
In China, one in high <unk> and one in Hangzhou.
We're in the process of consolidating those operations into one facility and heightening so.
It's an opportunity to take out some infrastructure cost will relocate some of the product for which we export out of China into other parts of the World, India and other parts of Europe and in North America.
So in addition to that given the slower demand period as we have done with our other operations. During these types of periods.
We're looking at our manufacturing footprint.
As you probably can imagine it's very difficult when demand is high too.
Restructure and streamline your manufacturing footprint. So these opportunities present are.
Are these time sort of present good opportunities to take advantage of that so we're looking at some of our manufacturing operations.
Not only in North America, but in Europe , where we might be able to.
Reduce some infrastructure costs I can't go into more detail now because we're still doing some analytics on that front, but my expectation as we go perhaps into <unk>.
Report on our second quarter or into our third quarter will be a little bit more specific.
Okay alright. Thanks.
And then continuing in the packaging segment.
I know you are anticipating a more normal return to performance in the second half of the Eric can you just talk about what gives you confidence.
And the fact that your customers are going to start returning to a more normal level of demand and what's the risk there.
If this restocking doesn't actually take place.
Yes look I think that's a good question, it's an important question.
<unk>.
Based on the intelligence that we have in interacting engaging heavily with our customers.
We expect that the.
Over inventory position that existed at the end of this year or end of last year and remember.
What was particularly challenging for us last year was.
The seasonal selling period.
<unk> essentially was missed last year.
We believe that they are working through those inventory levels.
And arc and we're seeing a level of quoting activity that would suggest.
That they are preparing for placing orders.
As I mentioned in my.
Prepared remarks.
Quoting is not something that we could forecast or its not in bookings, but it's certainly an indicator that in our experience should translate to.
And improved <unk>.
Selling rate.
At some point in the future.
And our expectations when we look at sort of the normalized selling season, which starts to occur in the towards the end of Q3.
That will be in position to to gain some sales and I'll also point out that that one of the biggest drags to this quarter.
Probably the the vast majority of the drag that this quarter has been volume related so as that volume returns, we would expect to convert very well.
Okay, and then I guess just.
Going off that a little bit more so.
If you were to.
I see a smaller return too.
More normalized inventory levels than you expected.
Youre really going to rely more on those.
And streamlining processes that you discussed before.
The hedge against any of that.
That's exactly that's exactly.
The point, we were trying to make is we don't want to.
Wait and hope that things return back to a normalized level. So we're taking actions today that if things if the market comes back but not to.
A level thats more normalized that will still have the conversion rates that we've enjoyed historically or at least close to historical rates.
Okay.
Okay. That's helpful.
And then pivoting here to the Aero business. So I know you just closed on the ball back acquisition, but can you talk about any opportunities you see for synergy realization as a result of that deal.
And do you see any upside to expanding our margin.
You've got that.
All integrated.
Well certainly.
Yes, I mean, it's.
It's a reasonably.
Performing business today.
We think there's significant opportunities when we look at the commercial side of <unk>.
Bringing <unk> into a larger aerospace enterprise, but we can go to our customers and actually.
We can go to some of the customers that <unk> has we don't have.
With a larger suite of engineered CIS.
Systems types of components for aerospace was different than our fastener business. So.
The strongest fit for us is with our RSA and our Martinique businesses.
<unk> build out that aspect of aerospace for <unk> Aerospace group. In addition to fasteners the largest I believe sort of looking forward opportunity for us in the aerospace segment is.
Working through supply constraints, and that's not that's not anything unique to <unk>.
<unk> aerospace as I am sure you are very well aware this is plaguing many company.
Companies in the aerospace sector right now.
But my belief is that as we start to work through and ease some of those constraints, which might take a couple of quarters or so that we will enjoy much better conversion rates that we're experiencing today.
And when we look at sort of the order book for our largest commercial commercial jet customers.
We see strength not only into 'twenty, four but well beyond so we're working very very hard on some of the factory floor improvements that need to be made there I would point to <unk> specialty products.
After a few years.
Of intense factory floor improvement you can see what we've been able to do in that segment, bringing it to the highest some of the highest levels of conversion rates that we've enjoyed historically.
And our expectation is we will be moving down that path with <unk> aerospace overtime as well.
Okay and that kind of at least one for my next question. So just going back on the.
Supply constraints that you discussed.
Guide for operating margin for the Aero segment.
Obviously it implies.
A better and improving margin performance in the second half of the year.
The coming quarter. So can you kind of help me bridge, how we get there from the operating margin right now is that just.
And assumption that these constrained supply chain constraints are going to improve.
Are you anticipating better mix, just kind of help me get from that.
3% margin in this quarter to that 5% to 8% guide that you provided.
Yes.
That's exactly right I mean, there is some mixed component to it but the biggest benefit will be.
Our conversion rates on.
Factory better balancing on a factory floor.
Through our production flow I would I would say that if I just look at at this particular quarter.
As I mentioned again in my prepared remarks, we probably would have had close to $2 million or even slightly higher than that of additional sales in the quarter. We have it in our order book.
And we would have converted better so.
The opportunity is in our order book.
Our plants I have to say generally speaking are running.
You know pretty well there are certainly things that we can do to improve every day everywhere around the world.
I will never be satisfied with that but.
Had we had the right material stage, when we ordered it as expected to come in.
We would have performed better in the quarter I mean, so we're actually seeing order thats.
Raw materials that are supposed to come in at certain levels for which we ordered not coming in or in partial orders and thats very disruptive to production operations.
Okay, and do you see that does that mean.
No one has a crystal ball, but do you imagine that.
Some of those constraints will start to come off more towards the end of the year.
What kind of items are you assuming for that.
I see it.
Starting to occur.
More in the in the third quarter at this point.
Being very close to her personally engaging on some of the actions personally to <unk>.
Try to to try to accelerate that so we could take advantage of this period of time.
Okay, Alright, thanks that was all very helpful I'll jump back in the queue.
Yeah.
Thank you once again, if you'd like to ask a question. Please press star one on your telephone keypad for participants using speaker.
Eric Whitman, who may be necessary to pick up your handset before pressing the star one moment. Please poll for.
Two more questions.
Our next question is a follow up from Ken Newman with Keybanc capital markets. Please proceed with your question.
Thanks, I just have one last question here, so last quarter, we talked about M&A and how you were really prioritizing expansion within our life Sciences business.
Can you talk a little bit more about that if that's still the main priority.
And what the deal environment looks like right.
Right now.
Yep, Thanks, Katie for that.
I would just expand that too also beauty.
We are very excited and pleased with the acquisition, we made in arts packaging and we see nice potential for the beauty space as we look forward I think we've talked about this on.
On prior calls where.
What we call beauty and personal care beauty aspect, what we what limited applications. We currently have in beauty are holding up pretty well and we see a nice potential there. So we would prioritize life sciences and beauty.
Somewhat equally.
That being said we are for the for the size of deals that fit well with within our model within our balance sheet and for our company.
We have some prospects that are that are percolating.
My hope is that we can.
Bring at least one more business in one of those those end markets into try masked by the end of the year.
And the teams are working very hard.
To not only identify opportunities but also.
CT sellers as you know often we're dealing with.
Entrepreneurs are family owned businesses and they have they can make decisions on who they bring who they sell their business too and that's been something where <unk> has been.
Viewed favorably in some of those types of auction or negotiated sale processes. So.
Just to wrap up.
Your question Life Science is a high priority and packaging beauty is a high priority in packaging and that's where a lot of our focus is today.
Okay great.
Thanks for all the questions and see you guys at our conference next month. Thank.
Thank you Katie.
Thank you there are no further questions at this time I'd like to turn the call back over to Mr. Amato for any closing remarks.
Okay, there being no more questions I'd like to thank you again for joining us on our earnings call and we look forward to updating you again next quarter.
Thank you.
Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.