Q3 2024 Ampco-Pittsburgh Corporation Earnings Call
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Speaker Change: Good day and welcome to the AMCO Pittsburgh Corporation 3rd Quarter 2024 Earnings Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.
Speaker Change: To ask a question, you may press star then 1 on your telephone keypad. And to withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Ms. Kim Knox, Corporate Secretary. Please go ahead, ma'am.
Speaker Change: Thank you and good morning to everyone joining us on today's third quarter 2024 conference call.
Kim Knox: Joining me today are Brett McBrayer, our Chief Executive Officer, and Mike McAuley.
Kim Knox: Senior Vice President, Chief Financial Officer, and Treasurer. Also joining us on the call today are Sam Lyon, President of Union Electric Steel Corporation, and Dave Anderson, President of Air and Liquid Systems Corporation.
Kim Knox: 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 plans, objectives, expectations, or intentions.
Kim Knox: 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 in subsequent filings with the Securities and Exchange Commission.
Kim Knox: We do not undertake any obligation to update or otherwise release publicly any revision to our forward-looking statements.
Speaker Change: With that, I would now like to turn the call over to Brett McBrayer, AMCO Pittsburgh CEO. Brett?
Brett Mcbrayer: Thank you, Kim. Good morning, and thank you, everyone, for joining our call. As stated in our press release this morning, AMCO Pittsburgh reported operating income
Brett Mcbrayer: for the three and nine month period of 2024 of $1.9 and $7 million. Our third quarter performance includes the impact of our seasonal plant shutdowns.
Brett Mcbrayer: improved margins and operating efficiencies directly related to our recent capital investments in the forge and cast engineer product segments.
Brett Mcbrayer: continues to offset weaker cast roll demand. Additionally, backlog increased for the quarter with recent additions of row orders for our 2025 order book.
Brett Mcbrayer: We continue to be encouraged by the growth prospects available in our air and liquid segment as we improve efficiencies to capture these future opportunities.
Speaker Change: I will now turn the call over to David Anderson, president of our Air and Liquid segment, for further comments on the quarter's results.
Thank you, Brett. Good morning.
David Anderson: Air and Liquid Q3 revenue was consistent with prior year, while year-to-date revenue increased 13% versus prior year. The year-to-date increase was primarily due to increased shipments of custom air handling units.
David Anderson: The increase was driven by the additional manufacturing capacity achieved by opening the new Virginia facility in mid-2023.
David Anderson: Backlog increased in the quarter due to a significant order for air handlers that was received from the pharmaceutical market.
David Anderson: Operating income for Air and Liquid was slightly lower in the quarter versus prior year. The lower income was mainly due to a 0.2 million asbestos credit that was received in the prior year.
David Anderson: The production equipment that was purchased with the $1.6 million funding provided by the U.S. Navy was installed and began to operate in Q3.
David Anderson: We are also pleased to announce that Air and Liquid has been approved by the U.S. Navy to receive additional funding to purchase more equipment.
David Anderson: This additional funding of $4 million will be used to further modernize our production equipment in our Buffalo facility.
David Anderson: The equipment from this second funding is expected to arrive in our facility in late 2025, and along with the recently installed equipment, will significantly upgrade our manufacturing capabilities.
David Anderson: We continue to see positive signs in many of the markets we serve. Recent announcements to reopen two decommissioned U.S. nuclear plants seem to show that the U.S. power generation market is increasingly embracing nuclear power as an answer for capacity issues. This is a key market for our heat exchanger product line.
David Anderson: We also recently received our first request to quote a heat exchanger for a small modular reactor. While the modular reactor market is still being developed, there is good potential for these reactors to also add to the future growth in the nuclear market.
David Anderson: The U.S. Navy continues to move forward with long-term plans to expand the size of the Navy fleet.
David Anderson: The funding the Navy is doing to increase the U.S. industrial base is a clear indicator that they want and need more manufacturing capacity to achieve the fleet expansion goals.
Speaker Change: and the U.S. pharmaceutical market continues to expand production capabilities. Air handling orders received from this market in 2024 have already exceeded any prior full year order activity. We expect to continue to see strong demand in this market over the next several years.
Speaker Change: Over the last three years we have seen significant sales growth due to increasing our production capacity and investing in our sales force. These steps have also positioned Air and Liquid to be able to respond to the future market growth in the years ahead.
David Anderson: Thank you, David. Sam Lyon, President of Forge and Casting is your product segment. We'll now share more detail regarding his group's performance.
Thank you, Brett. Good morning, everyone.
Speaker Change: For the three months ending September 30, 2024, net sales for the FCEP segment were $67.2 million, down from $73.6 million in the same period last year, primarily due to lower rule volumes, reduced FEP shipments, and lower surcharge pass-throughs.
Speaker Change: Segment income from operations for Q3 increased $2.5 million compared to $1.4 million in Q3 of 2023, reflecting the benefits of improved pricing and improved efficiencies, which have more than offset the reduction in volume.
Speaker Change: At the end of the quarter, the segment backlog increased by approximately 4.5 million from December 31, 2023, driven primarily by higher order intake for mill rules.
Speaker Change: Our backlog and indicated allocations from our largest customers are positioning us for low to mid-single-digit volume growth in 2025. Our recent investments in capital equipment are already contributing to improved operational efficiencies and positioning us well to take advantage of any market recovery.
Speaker Change: Market conditions remained stable during the third quarter. The rule market in North America and Europe over the last quarter was essentially flat due to end customer demand.
Speaker Change: The following two quarters will be lighter in volume for our forage rolls, somewhat offset by improved demand in our cast roll facilities.
Speaker Change: While we continue to experience market stability, European and North American steel producers still operate below pre-pandemic levels due to economic uncertainties and increased imports of low-priced products from China.
Speaker Change: Our customers in the U.S. have issued petitions for trade action against these imports, and we expect the situation to improve soon.
Speaker Change: In summary, although we face ongoing headwinds related to competitive pressures in Europe and muted on customer demand, our pricing strategy, operational improvements through our recently completed capital upgrades.
Speaker Change: and increased market share in key areas are mitigating these impacts. As stated, we are seeing improved demand for 2025. We are confident that our continued focus on operational efficiency and customer satisfaction will position us well for future growth and value creation.
Speaker Change: Thanks, Sam. I'll now turn the call over to Mike McAuley, our Chief Financial Officer, for more detail regarding our financial performance for the quarter.
Mike Mcauley: Thank you, Brett. As indicated in our Form 10-Q and in our press release issued this morning,
Mike Mcauley: Ampo's consolidated net sales for the third quarter of 2024 were $96.2 million, a decline of 5.9% compared to net sales for the third quarter of 2023.
Mike Mcauley: due primarily to lower shipping volumes and lower surcharge pass-through revenues in the Forged and Cast Engineered Products segment. Air and Liquid Processing segment sales were about flat prior year for the quarter.
Mike Mcauley: Income from operations for the third quarter of 2024 was 1.9 million dollars, slightly higher than the prior year quarter, which included a point two million dollar insurance recovery.
Mike Mcauley: The underlying improvement was principally higher pricing net of surcharges and improved manufacturing cost absorption in the forced and cast engineered product segment.
Mike Mcauley: The sequential decline in Q3 2024 operating income versus Q2 2024 was due mainly to lower sales volume and the seasonal plant shutdowns taken in Q3 2024 in the Forged and Cast engineered product segment.
Speaker Change: I would also remind listeners that results for the nine months ended September 30 of 2024-2023 included a 1.9 million dollar foreign energy credit.
Speaker Change: So, the underlying improvement for the nine-month end of September 30, 2024, is actually greater than as reported results.
Speaker Change: Corporations total selling and administrative expenses increased for Q3 2024 compared to Q3 2023, primarily due to higher employee related expense and increase in exchange rates used to translate the SG&A of our foreign subsidiaries and higher professional fees.
Speaker Change: Interest expense of approximately $3 million for the quarter increased by $0.5 million compared to prior year.
Speaker Change: primarily due to higher equipment financing debt balance for the new machinery in the U.S. forge business, which was completed and converted to term notes earlier this year.
Speaker Change: as well as higher average revolving credit facility borrowings to support working capital growth.
Speaker Change: and higher average interest rates on our floating rate instruments due to interest rate market movements.
Speaker Change: Other income net declined, primarily due to foreign exchange transaction losses recorded in Q3 2024 versus gains recorded in Q3 2023.
Speaker Change: The income tax provision for both the 3 and 9 months ended September 30, 2024, increased compared to the prior year periods, primarily due to the establishment of a valuation allowance on the net deferred tax assets of our UK operations at December 31, 2024.
Speaker Change: given its cumulative three-year loss history due to continued castrol market weakness and the corporation shift of certain castrol production to its more energy-efficient plant in Sweden.
Speaker Change: As a result, the income tax provision in 2024 does not include any benefit for the operating losses of the UK facility.
Speaker Change: By comparison, the tax provision for the three and nine months ended September 30, 2023 included income tax benefits of $0.6 million and $1.2 million, respectively, for the operating losses of the UK.
Speaker Change: The income tax provisions are otherwise comparable with slight differences for income mixed by jurisdictions not under evaluation analysis.
Speaker Change: As a result, net loss for Q3 2024 equaled $2 million, or $0.10 per diluted share, compared to net income of $0.8 million, or $0.04 per diluted share, for Q3 2023.
Speaker Change: Net income and earnings per share for the three months ended September 30, 2023 included an after-tax benefit of $0.2 million, or one cent, for the asbestos-related credit.
Speaker Change: Please note that the net income and basic earnings per share for the nine months ended September 30 of 2023 included after-tax benefits of 2.1 million dollars or 11 million or 11 cents per share associated with the asbestos related insurance credit and the foreign energy credit.
Speaker Change: Total backlog at September 30, 2024 of $383.6 million increased approximately $4.6 million from December 31, 2023.
Speaker Change: primarily in the foraging cast engineered product segment due to an increase in backlog from mill roll orders and to a lesser extent a higher foreign exchange translation effect.
Speaker Change: Net cash flows provided by operating activities was 10.6 million dollars for the nine months ended September 30 of 2024, which compares to a use of 10.3 million dollars for the nine months ended September 30 of 2023.
Speaker Change: The primary change item is lower changes in working capital investment between the periods, which more than offset higher pension contributions in the current year period.
capital expenditures for the second quarter
Speaker Change: for the third quarter of 2024 were $2.9 million or a $2.4 million, $2.4 million net of government grant funding.
Speaker Change: We expect full year 2024 CapEx net of grant funding in the range of 9 to 10 million dollars.
Speaker Change: At September 30, 2024, the September's liquidity position included cash on hand of $11.8 million and undrawn availability on a revolving credit facility of $20.5 million.
Speaker Change: Operator, at this time we would now like to open the line for questions. Thank you. We will now begin the question and answer session.
Speaker Change: To ask a question, you may press star then 1 on your touch tone phone.
Speaker Change: If 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, please press star, then two. And at this time, we'll pause momentarily to assemble our roster.
Speaker Change: And the first question will come from Greg Vinnett, investor. Please go ahead.
Thank you all.
I'm sorry, I didn't ask a question. Excuse me.
Speaker Change: The next question will come from David Wright with Henry Investment Trust. Please go ahead.
Hey, good morning, everyone.
Good morning.
Speaker Change: Hey, Brett, it's continued slow progress. It's a big shift to turn around.
Speaker Change: Kind of a big-picture question for you. When the company did the rights offering four years ago, you would have had a plan in mind.
Speaker Change: certain things that you hope to happen by certain times and you can only control so much for sure.
Speaker Change: but four years into it now, when you look forward do you have maybe I'll say a better visibility on you know where you want to get to and when you're going to be able to get there?
David Anderson: David, you know, I believe so. We have some, you know, targeted actions, I think, further from a restructuring standpoint that we are focused on for the corporation. You know, those continue to progress, I think.
David Anderson: Our shareholders had hoped they would, but they're still clearly in our focus. There's actions that we obviously are taking.
David Anderson: being very mindful of our current debt position and trying to make sure that you know our focus as we move forward is continue to lower our debt position and don't want to
Speaker Change: and Pete on that those efforts but yeah I believe the answer to your question is yes and you know my my hope my our focus is within the next you know 12 to 24 months we'll be able to execute on some of these final quote-unquote
Speaker Change: solutions that we think are going to be pretty significant for for AMCO moving forward.
Speaker Change: That's helpful. When you talk about restructuring and you talk about debt, are you working on things that would result in a reduction in the debt, taking a slug out of it?
Speaker Change: Yes, yes, that's clearly in our focus and on our radar, Dave.
Speaker Change: Yeah, yeah, well that's super, that's super, because obviously the interest expense and sort of...
you know it's hard to kind of overcome that.
Thank you.
Thank you.
So that's great. A question for Sam.
Origin engineered products you had hoped
Speaker Change: that it would maybe be a larger business than it has been lately. Is that really because of fracking? Is that really the major market that would increase revenues in that segment?
Speaker Change: David, it's really two things. The fracking business is, I'll say, one half or a big portion, and then the other is just general industrial distribution markets.
Speaker Change: Both are down significantly, so we're seeing stable orders. We think next year the distribution markets will increase. We did actually just receive our first small frac block order within the last two weeks for delivery in Q1.
Speaker Change: which is good. It's lower volumes but we have it at an order for
Speaker Change: over 18 months probably. But those are the two big ones. It's really just the distribution market and then the fracking.
Speaker Change: Okay. Well, I commend you. It's really great to see, you know, consistent operating profit come from your unit. I know it's been a long slog to get there, so that's great. Well done.
Two for Dave. Dave, good morning. Good morning, David.
Thank you. Thank you. Thank you.
Okay Kent, can you, can you...
quantify like what?
Speaker Change: What would a heat exchanger on an SMR be? Is that, you know, a $5,000 item, a $25,000 item?
Speaker Change: It will vary, and we're learning that as we go, but no, it would be significantly more than that. Selling a heat exchanger into the nuclear market, you're talking at least a six-figure unit, typically.
even on an SMR.
Speaker Change: We don't know for sure because it's so new but still they are not inexpensive anytime you're doing something in the nuclear market.
There's a lot more involved in it.
Did you know that SMRs, if and when they happen,
Speaker Change: You know, they're going to be building more of them a year than they build nuclear reactors in a year. Do you have any production capacity constraints for that product?
Speaker Change: Not too much. It's mostly welding and things, which we can add more welders. We have the space to do that. So we can ramp up fairly easily to address that, and that's a problem that I would love to have, honestly. I think it's a good market potential for us.
Speaker Change: Yeah, well, thanks for sharing that opportunity with the call. And then the other question, this kind of below-market contract that you've been working off over the course of the year, you've kind of previously...
Speaker Change: said that the last effects of that will be gone by the fourth quarter of this year. Is that still your thinking?
Speaker Change: Yes, I mean there may be a few minimal ones that carry forward but the bulk of this issue is going through to the end of this year and then there won't be much left after that.
Speaker Change: And what's the, can you quantify what the impact of that has been on your on your operating results?
Speaker Change: Great, okay. Mike, I don't have anything for you today, but good morning anyway, and thanks very much.
Well, thank you, David.
Speaker Change: Again, if you have a question, please press star, then 1. Our next question will come from Justin Bergner with Gabbiella Funds. Please go ahead.
Hi, good morning, Brett. Good morning, Michael. Good morning.
Speaker Change: Good morning. Could you just review again the cash flow sort of dynamic year to date, how much have you gotten from working capital, is that mostly exhausted or is there more inflows from reducing working capital yet to come?
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Speaker Change: So in terms of the cash flow statement in the 10-Q, if we peel apart the cash flow from operating activities, we did see a release of working capital in the quarter, in the quarter and year to date.
Speaker Change: So that has been part of the story for net cash flow from operating activities, Justin, for sure.
Speaker Change: One thing we did mention, or we talked about on the prepared remarks, is that we have made pension contributions in the current year, which have taken a little away from that, but we're still positive about 10.6.
cash flow from operating activities for the
year-to-date period.
Okay, gotcha. Our second question was...
Speaker Change: regarding the comment about low- to mid-single-digit volume growth for forged and cast engineered products next year. Is that sort of what you think the market's going to do? Is that what you think you're going to do outgrowing the market? Any further color you can provide on that view?
Speaker Change: Yeah, Justin, Sam. We're seeing a recovery in the cash side of the business, so UK and Sweden. Two dynamics. One, just the market.
who was very depressed last year or in 2024.
Speaker Change: Secondly, I think I mentioned on the last call that WEMCO had gotten out of the large cast role, static cast role business, and so we're seeing increased orders due to that.
Speaker Change: And with two of our largest customers, actually our two largest customers, we've increased share by several points in the latest negotiations.
Gotcha, those would be U.S. or international customers.
by U.S. Okay.
Speaker Change: And are you still poised to get upside and is it meaningful from sort of the new aluminum rolling mills in the U.S.?
We continue to do to do well there.
Speaker Change: 15 percentage points or so come from aluminum, and that's continuing to grow. The new steel dynamics mill will be online, coming online next year, aluminum dynamics, as well as others. So we continue to do well there.
Speaker Change: Okay, and then lastly, any update to the, you know, efficiency gains from the equipment that's been installed in your forged and cast engineer product segment?
Speaker Change: Yeah, that's been one of the drivers as to why we're performing better this year. And it does operate more efficiently, but more importantly, it operates when you want it to. Our equipment was very old and reliability was becoming an issue.
Speaker Change: We're seeing, I'd say, compared to what we thought we would get out of the equipment, we're doing much better than what we had anticipated. And we still need the staff.
Speaker Change: One shift on on two of the pieces of equipment just due to some Attrition that we had so there's some potential future gains that we can get on top of where we're already at
Got it. Thank you.
Thanks Justin. This concludes our question and answer session.
Speaker Change: I'm sorry, we actually have one question that came in that will come from John Bear with Ascend Wealth Advisors. Please go ahead
Thank you. Thank you.
John Bear: Thank you. Good morning. I appreciate getting in here at the last minute.
Speaker Change: With the change of the administration after this election, I'm wondering how you see a potential improvement for your
Speaker Change: presence there that might you might see some benefit if that comes to pass and you did reference something about I didn't quite catch it about the frack equipment or whatever so just wondering if you can kind of broadly
Speaker Change: address that and what your thoughts or hopes are in that regard. Thanks a lot.
Speaker Change: I think John in the short term I don't think we'll see much of an effect because it takes a long time to build any additional liquefied natural gas facilities and things like that. I think where we would see a benefit is
on any tariffs preventing floods, blocks flowing in from
other countries, even including...
One of our main competitors is in Mexico.
and so there could be a potential...
benefit from that, I think we'll see a bigger benefit.
Speaker Change: on the the rural side of the business than on the energy side of the business in the near term.
just due to the fact that
Speaker Change: imports have increased, you know, don't quote me exactly, but greater than five percentage points.
Speaker Change: going on in the U.S. to prevent that, which will increase domestic steel production.
and then we would see, be a direct beneficiary of...
Utilization rates increasing domestically.
Okay.
Speaker Change: And then do you sense that this trend towards on-shoring will benefit you in any meaningful way?
Speaker Change: It already has, and so our market share with our largest U.S. customers has definitely increased.
increased in the last 18 months due to that.
Speaker Change: So we think that that'll continue to occur The wild card it would be nice if Europe would do something But so far they haven't but it domestically here in the u.s. Yes, we We'll see I think that that'll that'll help us help protect our share
Thank you. Bye.
All right, very good. Thank you for taking my questions.
Thank you. Thank you.
This concludes our question and answer session.
Speaker Change: I would like to turn the conference back over to management for any closing remarks. Please go ahead.
Speaker Change: Thank you Chuck. We continue to take required actions to drive improvements in segment performance and capture future growth opportunities.
Speaker Change: We are focused on lowering our debt position and further restructuring actions to improve shareholder returns. I want to recognize the tremendous work of our employees across the globe. I also want to thank our shareholders and the Board of Directors for your continued support. Thank you for joining our call.
Speaker Change: This concludes today's conference call. Thank you for your participation. You may now disconnect.