Ampco-Pittsburgh Corporation Q1 2023 Earnings Call
Speaker 1: And.
Speaker 1: And and.
Speaker 2: Welcome to the AMCO Pittsburgh Corporation First Quarter 2023 Earnings Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. Thank you for listening to today's presentation.
Speaker 2: there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw a question, please press star then 2. Please note this event is being recorded. I'd now like to turn the conference over to Kim Knox, Secretary. Please go ahead.
Speaker 3: Thank you, Vaishnavi, and good morning to everyone joining us on today's first quarter 2023 conference call. Joining me today are Brett McBrayer, our Chief Executive Officer, and Mike McCauley, Senior Vice President and Chief Financial Officer. Also joining us on the call today...
Speaker 3: Sam Lyon, President of Union Electric Steel Corporation, and Dave Anderson, President of Air and Liquid Systems Corporation.
Speaker 3: 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 Corporation's plan, objectives, expectations, or intentions.
Speaker 3: These matters involve certain risks and uncertainties, many of which are outside 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 risk factors, including those discussed in the corporation's most recently filed Form 10-K and subsequent filings with the secure Bolivia.
Speaker 3: the investor section of our website at amcopgh.com.
Speaker 4: With that, I will turn the call over to Brett McBrayer, AMCO Pittsburgh CEO . Brett? Thank you, Kim. Good morning and thank you for joining our call. As shared in yesterday's press release, AMCO Pittsburgh achieved a net income of $0.7 million or 3 cents per share in quarter one of 2023.
Speaker 4: Sales were up 11% versus the prior year and 12% over the prior quarter. We experienced backlog growth in both our force and cast engine products and air and liquid processing segments.
Speaker 4: with total backlog up 16% versus the prior year and 3% over the prior quarter.
Speaker 4: Our air and liquid processing segment has now seen five consecutive quarters of record backlog.
Speaker 4: We continue to see strong demand for our products in North America with softness continuing in Europe .
Speaker 4: The recent announced blast harness restarts however in Europe indicate demand may be recovering.
Speaker 4: Our pricing actions and expanded surcharges continue to improve the performance of our Forged and Cast Engineer product segment. Our US equipment modernization program remains on track with completion expected in the fourth quarter of this year. From a health and safety perspective, our company had a solid quarter as we continue to focus on our goal of zero injuries in the workplace.
Speaker 4: David Anderson, President of Air and Liquid System, will now discuss his segment's performance in more detail.
Speaker 4: Thank you, Brett. Good morning.
Speaker 4: In the first quarter of 2023, we continued to see the positive results of our strategic growth plan.
Speaker 4: for our third-party representative network. The results of this quarter show the tremendous progress we have made with our sales teams.
Speaker 5: Sales increased 42% versus prior year as all three divisions achieved double-digit sales growth.
Speaker 5: Q1 sales of 28 million was the highest for any quarter in the last 10 years. Even with the higher sales level, our backlog grew once again to a new record this quarter as order activity continues to be very strong. This means we have now achieved a new record backlog for five consecutive quarters.
Speaker 5: As our sales have continued to grow, we have also addressed our manufacturing capacity to make sure our production capabilities allow our sales growth plans to continue forward.
Speaker 5: On April 1st, we leased 61,000 square feet of additional manufacturing space in Lynchburg, Virginia. It was needed as a direct result of the sales growth we are seeing at both our Aerofin and Buffalo Air Handling businesses. Operating income for Q1 was $3 million versus an income of $2.7 million in the prior year.
Speaker 5: The prior year income included $0.7 million in income for a one-time employee benefit policy adjustment.
Speaker 5: Excluding the one-time adjustment shows operating income growth of 50% versus prior year. With a record backlog, quarterly revenue at the highest level in more than a decade, and increased manufacturing capabilities, Air and Liquid is well positioned to continue forward with our growth plans in the quarters ahead.
Speaker 4: Thank you, Dave. I will now turn the call over to Sam Lyon, President of FORGE and CAFTS into your product segment.
Speaker 6: Thanks Brett, and good morning. We have a strong first quarter with an operating income of $2.2 million versus a loss of $0.4 million in Q1 of 2022.
Speaker 6: The significant improvement in operating results year-over-year primarily reflects our pricing strategy initiated in January of 2022, implementing surcharges for energy and transportation and base price increases.
Speaker 6: In 2022, the world faced unprecedented inflationary headwinds fueled by post-pandemic demand issues, supply chain restrictions, the Russian-Ukraine conflict, and the ensuing Europe energy crisis.
Speaker 6: In Q1 of 2022, sales pricing initiatives lagged our increased costs, particularly for raw materials, energy, transportation and supplies.
Speaker 6: By June of 2022, inflation hit a 41-year high of approximately 9 percent before moderating. Counter to the instability of 2022, the first quarter of 2023 benefited from the tailwind associated with deflation and positive surcharge recovery as higher cost inventory was sold through.
Speaker 6: In the forged engineered products area, referred to as FEP, a softening of the energy market, particularly in the US, lowered overall demand.
Speaker 6: lower demand for oil and gas,
Speaker 6: High U.R. and inventory levels at our customers and increased imports have resulted in an approximately 70% decrease in the backlog for the FEP product year over year.
Speaker 6: In the last month, we are seeing an increase in quoting activity for both oil and gas and distribution bar and anticipate improved shipments in the second half of 2023.
Speaker 6: The World Steel Association estimates that the global steel demand, excluding China, will increase by 2.3% in 2023.
Speaker 6: Our customer base states similar sediments as evidenced by the restart of seven blast furnaces, the modernization of two additional blast furnaces, and investments in new aluminum rolling mills in the United States. Our forged roll backlog is robust, showing a 26% year-over-year increase.
Speaker 6: and is reflective of a positive North American steel industry outlook driven by increased demand from the automotive industry.
Speaker 6: Our total backlog was $258 million at the end of Q1, the third quarter of sequential growth, and the highest of the last eight quarters.
Speaker 6: For 2024, the World Steel Association estimates the demand to increase by another 2.5% in the US, with Europe growing by a robust 5.6%.
Speaker 6: Pricing negotiations are complete for 2024 for many of our larger rural customers. We are continuing to see a robust demand for our forged rules and steady demand for our caste rules made in Europe .
Speaker 6: The ability to increase pricing has remained strong as the market recovers and our customers desire to purchase locally to protect their supply security.
Speaker 6: In our Burgersstam facility, we have installed the first of five new machining centers as part of our Capital Expansion and Improvement Program in the US.
Speaker 6: We are currently in the testing phase of the equipment and the preliminary results are in line with our expectations.
Speaker 6: We are excited about the forthcoming positive impact on our operating results as we achieve the commissioning of the first machine tool.
Speaker 4: The remaining four machine centers and the new furnaces are scheduled to be commissioned by year-end. Thank you, Sam. At this time, Matt McCauley, our Chief Financial Officer, will share more detail regarding our financial performance for the quarter.
Speaker 4: centers and the new furnaces are scheduled to be commissioned by year end. Thank you, Sam. At this time, Mike McCauley, our Chief Financial Officer, will share more detail regarding our financial performance for the quarter. Thank you, Brett.
Speaker 6: As shared in the press release and shown in the corporation's Form 10-Q filed last week, AMCO Pittsburgh recorded net income in the first quarter of 2023 of $0.7 million or 3 cents per diluted share. This compares to an approximate breakeven position in the prior year.
Speaker 4: AMCO's net sales for the first quarter of 2023 were $104.8 million, an increase of approximately 11% to net sales for the first quarter of 2022.
Speaker 6: Net sales in the air and liquid processing segment grew 42% year over year, driven primarily by higher shipments of heat exchange coils and air handling units.
Speaker 4: Net sales for the forged and cast engineered products segment in the first quarter of 2023 were approximately 3% higher than the prior year period, primarily due to higher roll pricing and shipment volume, offset in part by a decline in shipments of other forged engineered products and an unfavorable foreign exchange translation effect.
Speaker 6: Income from operations for the first quarter of 2023 was $2 million.
Speaker 7: This compares to a loss from operations in the prior year quarter of half a million dollars.
Speaker 7: Higher pricing and overall shipment volumes were the primary drivers for the improvement.
Speaker 7: despite the impact of lower manufacturing overhead cost absorption due to higher plant downtime this year in the Forged and Cast Engineered Product segment.
Speaker 7: In addition, the prior year quarter included a $1.4 million benefit for a change in an employee benefit policy, which reduced SG&A as well as cost of sales in Q1 of last year.
Speaker 7: Therefore, the underlying improvement in operating results versus prior year was even larger on a non-CAP basis.
Speaker 7: Interest expense for the quarter increased compared to prior year due to a rise in both total debt and interest rates.
Speaker 7: Backlog at March 31, 2023 of $380.6 million increased approximately 3% sequentially and rose 16% from a year ago.
Speaker 7: Backlog for the force and cast engineer product segment increased approximately 2% sequentially and approximately 7% year over year, while backlog for the air and liquid processing segment continues to be at record highs, up 5% sequentially and up 40% versus prior year.
Speaker 7: Net cash flows used in operating activities was approximately $4.3 million for Q1 2023, primarily in support of working capital.
Speaker 7: This represents a significant improvement from Q1 of 2022 due to improved operating results and lower investment and overall working capital in the current year quarter.
Speaker 7: Capital expenditures for the first quarter of 2023 were $3.7 million, primarily for the force and cast engineered product segment.
Speaker 7: At March 31, 2023, the Corporation's balance sheet and liquidity position included cash on hand of $6.1 million and undrawn availability on our revolving credit facility of approximately $31 million.
Speaker 7: Operator, at this time we would now like to open the line for questions.
Speaker 2: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question.
Speaker 2: Press star then 2. At this time we will pause momentarily to assemble our roster.
Speaker 2: Our first question comes from Justin Bergner with Gabbily Funds. Please go ahead.
Speaker 8: Oh, hi, Brett, Mike, and the rest of the team.
Speaker 4: Justin, Justin.
Speaker 8: A couple of just clarifying questions.
Speaker 8: I guess to start, I thought I heard you talking about 2024.
Speaker 8: Pricing contracts on the forged and engineered product side of the business. Did I hear that correctly that you're entering into contracts for 2024? Or was that just the consummation of 2023 contracts?
Speaker 6: Hi Justin, this is Sam. Yes, so all the big...
Speaker 6: customers, ArcelorMittal, US Steel, Cleveland Cliffs, people like that. So we are currently in negotiations for 2024 and many of those are allocations and pricing are established.
Speaker 8: And is that earlier than normal to begin it at this stage in the year?
Speaker 6: No, it's actually, it's a little earlier than last year just because lead times are going out, but it's typically done around this time of the year or even a little earlier sometimes.
Speaker 8: Okay, great. And then the comment I think you made about...
Speaker 8: The projected demand increase in the US and Europe those were 2024 numbers as well
Speaker 8: Correct. Okay. Switching to sort of more general financial questions,
Speaker 8: The CapEx number, did I hear it was 23 million or did I hear too high of a number? What is the project current sort of anticipation for the 2023 year?
Speaker 7: For the current quarter, I think we quoted $3.7 million for Q1.
Speaker 7: Okay, thank you. Yeah, that was total catbacks. And then for the full year,
Speaker 7: We are projecting in the range of 22 million dollars or so
Speaker 7: Okay. I was going to be stepping up in the next couple of quarters, coincident with the delivery of the?
Speaker 7: of the machining assets that Sam described.
Speaker 8: Okay, yeah, and I wanted to turn my attention to those. If all the machining assets are delivered by year end, you know, how many quarters thereafter should one expect?
Speaker 8: And I want to turn my attention to those. If all the machining assets are delivered by year end, how many quarters thereafter should one expect those assets to be operating?
Speaker 8: at normal efficiencies or run rate efficiencies.
Speaker 6: probably six weeks to three months, roughly a quarter to get them up and running fully.
Speaker 8: Oh, so the full operating efficiency benefit should be sort of...
Speaker 8: in the numbers sort of by the second quarter or the mid part of 2024? Yes.
Speaker 8: sort of by the second quarter or the mid part of 2024? Yes. Okay.
Speaker 8: second quarter or the mid part of 2024? Yes.
Speaker 2: Thanks Justin. Again if you have a question please press star then 1 to be joined into the queue. The next question comes from David Wright with Henry Investment Trust. Please go ahead.
Speaker 4: Hi, good morning. One for Dave. So…
Speaker 4: On the additional space in Lynchburg, will you have much CAPEX to get that up and going?
Speaker 5: David, no. There's not a lot of capex involved in it. Basically putting in a crane is all we need to do. Everything else is really minor, so there's not a lot of capex for it.
Speaker 5: And how about labor to staff? Is that going to be much of an issue?
No, we already have a good bit of the labor. They've been training in recent weeks, so we expect we'll hit the ground running pretty quickly. That's great. Sam, I wanted to ask on forage and engineered products, the drop in revenue in the first quarter is noticeable.
And thanks for your commentary about the causes. I wondered, what could we be thinking about for the entire year? Could we get to 2022 numbers, or even 2021 numbers, or could it remain muted down here?
Let me see. I'm just looking at a file here. One second.
I mean, go ahead, Mike. We think that for the full year of 2023, we should probably be exceeding 2022 sales for the Force and Cast engineered products segment for full year 23 versus 2022, David. Yes. Right, but I was asking about FEP, which was like a... Oh, FEP.
next year for sure to be.
higher than the 2022 number, but again, that's yet to be seen.
Right, so if we went back three or four quarters, this was kind of an important part of the turnaround in that excess capacity could be used, you know, and you were going to step up the marketing efforts. I'm wondering, as we are today with new equipment starting to come in, how do you see the new
and allows some different market, when the rules may be down a little bit, that would be up a bit. So it's still important to us, so we're still going after it. But you are right, the increase in the forged rule, particularly, yeah, the forged rule in the United States is offset.
the drop in the FEP at this point in time, but we're not stopping our efforts to grow that side of the business. But David, we are staging our receipts of equipment and prioritizing our machine tools, our machining assets first and the furnaces later.
So we acknowledge that there's been a market factor going on in oil and gas.
And so, what's coming in and what's going in first are the large lays and the furnaces that are coming later. That's accurate. Yes, that's accurate.
Okay, and then two for you, Mike. SG&A costs in the first quarter.
Okay, and then two for you, Mike. SG&A costs in the first quarter, is that going to be run rate for the year?
I don't think that we have an unusual quarter in that regard. I think the only major variable would probably be any movement for an exchange.
or if we have higher commissions on, depending on where forged engineered products might go, depending on that last conversation we just had about that question, those would be the variables in SG&A.
Okay. And then lastly, any sense of when the debt might peak?
the absolute balance. I expect the peak probably by Q4 of this year.
based on the, you know, the CAPEX timing of that. And I think it will probably be
Reaching a peak of 119, 118, something like that.
Okay, that's great. Thanks for answering these questions and hey, that black ink is great and the progress and the ways you're making the plan is starting to show up, so continue good luck there.
Thanks, David. Thanks, David. Next, we have a follow-up from Justin Bergner with Gabellations. Please go ahead.
Thank you. Given the improved profitability of your Forge and Engineered Products segment this quarter,
Would it be safe to say that your pricing mechanisms have caught up?
with your costs as it relates to some of these lagged surcharges or other pricing mechanisms that you might have put through, or should we see further improvement on that price cost dynamic as we get into the later quarters of this year.
I'd say it's caught up. We don't know what's going to happen with some of these things. Right now the energy market has been pretty stable.
as has been the raw materials and scrap some movement, but right now it should be...
I think fairly well caught up in the room. I agree.
I think fairly well caught up. I agree, I agree, yep. Okay, thank you.
Thanks, Justin. If we have no further questions, I would like to turn the conference back over to Brett McSpiray for any closing remarks.
Thank you. Our focus on improving financial performance continues with actions underway to accelerate growth and expand margins.
The completion of our equipment modernization anticipated at the end of this year is a significant component of this strategy with full benefits expected to be realized in 2022.
I want to thank our employees for their continued hard work and dedication. Their relentless focus on improving our business has been impressive. I also want to thank you, our shareholders, for your continued support. Thank you for joining our call this morning.