Q1 2025 Albany International Corp Earnings Call
[music].
Thank you for standing by my name is Pam and I will be your conference operator today at this time I would like to welcome everyone to the album International's first quarter 'twenty 25 earnings call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If he would like to withdraw your question Press Star one again. Thank you.
Speaker Change: I would now like to turn the conference over to JC shut nanny, VP Investor Relations and Treasurer you may begin.
Speaker Change: Thank you Pam and good morning, everyone welcome to Albany Internationals first quarter 2025 earnings conference call.
Speaker Change: As a reminder for those listening on the call. Please refer to our press release issued last night.
Speaker Change: Killing our quarterly financial results.
Speaker Change: And in the text of the release is a notice regarding forward looking statements and the use of certain non-GAAP financial measures and their reconciliation to GAAP.
Speaker Change: For the purposes of this conference call those same statements apply to our remarks this morning.
Speaker Change: Today, we will make statements that are forward looking and contains a number of risks and uncertainties, which.
Speaker Change: Which could cause actual results to differ from those expressed or implied.
Speaker Change: For a full discussion of these risks and uncertainties. Please refer to both our earnings release of April totaled <unk> 35.
Speaker Change: As well as our SEC filings, including our first quarter Form 10-Q, 284 Form 10-Q.
Speaker Change: Now I will turn the call it would've been arguing Linda our president and CEO will provide opening remarks.
Linda: Thank you Jason and thank you for joining us as we review our first quarter 2025 results.
Linda: Overall I am pleased to report that our businesses are executing to the plan that we laid out at the start of this transition year.
Linda: Our new business segment leaders are performing well and they restructure as they restructure and strengthen their respective operations.
Linda: While we see uncertainty in the markets, we were not affected by tariffs or other disruptions in the first quarter.
Linda: Due to our mostly regional setup for both suppliers and customers. The overall direct impact of tariffs as they currently stand is not expected to materially impact our financial our operational performance.
Linda: Machine clothing continues to deliver consistent strong results and the integration of Heimbach is proceeding to plan.
Linda: Expect to see the benefits of the heimbach integration efforts accelerate into the second half of this year as our actions take effect.
Linda: AAC is executing well on its current portfolio of programs and the segment continues to win new business.
Linda: The team is making progress on process improvements on our CH 53, K and Gulfstream programs, and we had lower EAC adjustments in the quarter, which we will discuss in more detail later.
Linda: For the quarter, we reported revenues of $289 million and overall adjusted EBITA margin of 19, 3% and adjusted diluted EPS of <unk> 73.
Linda: Free cash flow was ahead of plan and we expect 2025 to be another strong free cash flow year.
Linda: We returned capital to our shareholders with both our regular quarterly dividend and our re initiated share repurchase program in the first quarter, we repurchased 69 million worth of shares. We currently have $193 million of capacity remaining under our latest share repurchase authorization.
Linda: $250 million.
Linda: Okay.
Linda: Turning to our individual businesses for the quarter machine clothing reported revenues of 175 million and an adjusted EBITDA margin of 28, 4% in terms of great secular trends in packaging remained strong tissue pulp and engineered fabrics remained stable.
Linda: North America had a slight decline in deliveries in the first quarter, but strong order flow show strength in the market Europe is showing signs of recovery.
Linda: With good deliveries and strong orders, making us cautiously optimistic for the region.
Finally, Asia is mixed with some weakness in China.
Linda: Our global M&A order backlog is strong with order to sales ratio above.
Linda: One, giving us confidence in our outlook for the year.
Linda: At <unk>, we continued to make good progress on our integration plans, which is focused on footprint rationalization and operational efficiency. As a reminder, since the acquisition. We are close to out of the new facilities sold one harm by business and close to <unk> facilities.
Linda: We have also restructured operations that the remaining ironbark facilities endurance.
Chester Burgos: Chester Burgos and <unk>.
Chester Burgos: These consolidation activities are strengthening our operational and production efficiencies and enhancing the regionalization of our business.
Chester Burgos: The synergy benefits of these actions accrue over time, we expect the run rate on our synergies to be particularly strong as we exit 2025, and we remain confident of hitting our original synergy targets with a three 5% to four times the effective purchase multiple.
Chester Burgos: Turning to tariffs, we're monitoring and assessing the fluctuation in the tariff landscape as they occur our current fee is based on tariffs as they currently stand.
Chester Burgos: The situation is dynamic and our teams are vigilantly addressing both challenges and opportunities and we continue to adapt as the situation develops.
Chester Burgos: As it relates specifically to our MSC business. It should be noted that most of our sales and sourcing as regional and therefore generally insulated from tariffs for example in North America that transaction among our facilities in Mexico U S and Canada are covered by the U S. MCA.
Chester Burgos: With the acquisition.
Chester Burgos: Excuse me.
Chester Burgos: With the acquisition of Heimbach, our EMEA sales and supply chain is strengthened regionally by local trade treaties.
Chester Burgos: <unk> finally in Asia were also supplying our customers from within the region.
Chester Burgos: However, we have some potential exposure to sole source supply materials and certain highly engineered products manufactured by us only in the U S or the U K.
Chester Burgos: To mitigate any impact we are assessing and using trade mechanisms looking at cost controls as well as considering other actions.
Chester Burgos: Turning to our engineered composites segment revenues for the quarter were $114 million with an adjusted EBITA margin of 13, 5%.
Chester Burgos: We keep making progress in our AUC operations, and we recorded total EAC adjustments of $7 million for the quarter half of this is driven by <unk> and Gulfstream.
Chester Burgos: With the balance across a mix of programs.
Chester Burgos: The frontline leader coaching operator training and progress in planning and supply chain are driving the expected improvements as well as setting the sites up for the future growth.
Chester Burgos: On leap as you may recall last quarter, we took a conservative approach as we projected lower volumes, both at leap as well as our other Boeing programs.
Chester Burgos: The drop in revenue in the first quarter is in line with our forecast we stand ready to meet the France production schedule as the demand at Boeing and Airbus recovers and have ample capacity to meet any upside to the demand.
Chester Burgos: Yes.
Chester Burgos: With respect to our other programs, we are seeing growth in advanced air mobility wed expected ramp to build through the course of 2025.
Chester Burgos: Our new program wins, we recently announced a long term agreement with Bell on the 5% to five program.
Speaker Change: Jassem, we added to our current backlog and are working on the new multi year contract as these awards translate into purchase orders they will be added to our existing AUC backlog, which at quarter end was $1 3 billion. As a reminder, this is backlog that does not include leap volumes beyond the current calendar year and only relates to our <unk>.
Speaker Change: Other ADC platforms. This backlog provides us with visibility and confidence into our business performance in 2025 and beyond.
Speaker Change: Finally, as it relates to tariff for AUC, our sourcing and production in Mexico, Canada and USA is again currently protected under the U S. MCA.
Speaker Change: The direct impact of our earnings from tariffs that AUC is currently expect <unk> expect it to be negligible.
Speaker Change: We're tracking how second order tariff impact play out, particularly from suppliers that they made as they may be impacted in their own value chain. Similarly, we are monitoring the impact of demand at our end customers. At this point, we are not aware of any changes from our customers or suppliers.
Speaker Change: We begin to see impact we have assessed and prepared mitigating actions and we will address these challenges as needed.
Speaker Change: In the current macro and geopolitical environment, we believe the ongoing titanium shortages and extended lead times. We will continue this creates even more opportunity for our engineered materials, especially in three D woven composite parts, which can be a superior alternative to titanium in terms of strength.
Speaker Change: Weight and cost.
Speaker Change: As our product offering gains more acceptance among our customers our competitive advantage will be a catalyst for additional long term growth.
Speaker Change: We have proven our industrialization of this technology with the leap fan blades in case Triple 709, ex fan case as well as parts for landing gears.
Speaker Change: Our solution can be delivered at a fraction of the lead time with readily available materials and production capacity are proven to deliver 100% on time, which is in Stark contrast to the current and historical titanium supply issues.
Speaker Change: Okay.
Speaker Change: Finally, we continued to streamline our operations and are upgrading our SAP system with S. Four hana across the entire company with a go live scheduled for next week. This will improve our systems and operational efficiencies and deliver enhanced analytics to improve our business agility.
Speaker Change: With that I will now hand, it over to Rob to provide more details on the quarter.
Rob: Good morning, everyone I will review, our first quarter results and then provide our outlook for 2025.
Rob: As a reminder, please note that starting last year, we allocated our Gis costs to our operating segments to better reflect the true underlying performance.
Rob: Consolidated net sales were in line with our plan of 289 million down seven 8% from $313 million in the first quarter of last year.
Rob: Machine clothing, net sales of $175 million decreased five 7% versus the first quarter of the prior year due to targeted product line divestitures and lower sales to a large <unk> customer.
<unk> net sales of $114 million or lower by 11% versus the first quarter of 2024, primarily due to a $7 million negative top line impact from the EAC adjustments during the quarter.
Rob: This was coupled with lower lead sales as well as expected.
Rob: We were able to partially offset the sales decline with growth in our advanced air mobility, and CH 53 K platforms.
Rob: Consolidated gross profit was $96 million or 33, 4% of sales down from $109 million in the prior year or 34, 7% of sales.
Rob: Machine clothing gross profit of $80 million decrease from $85 million in the prior year, while gross margin percentages remained constant at 45, 7%.
Rob: This performance reflects improved operating efficiencies as we continue with our integration efforts.
Rob: <unk> gross profit of $17 million decrease by up from $24 million, largely reflecting the impact of the cumulative EAC adjustment for the quarter.
Rob: Of the $7 million of EAC charges for the quarter $2 million related to the CH 50 <unk> program.
Rob: $7 million related to Gulfstream with the balance spread across multiple other programs.
Rob: Net R&D expense at 4% of revenue remained relatively flat in the first quarter versus the prior year, our consistent investment in R&D underscores our strategy of using material science as a competitive advantage.
Rob: Consolidated SG&A expenses were $54 million for the quarter down slightly versus the $55 million in the prior year.
Rob: The effective tax rate for the quarter was 26, 6%.
Rob: Versus 29, 2% excuse me in the prior year the lower rate is mainly due to favorable discrete tax adjustments primarily related to a decrease in our valuation allowance on foreign tax credits.
Rob: GAAP net income attributable to the company for the quarter was $17 million compared to $27 million last year.
Rob: GAAP diluted EPS of <unk> 66 per share in the quarter versus 87 in the same period last year.
Rob: After adjustments primarily relating to FX revaluation and restructuring costs as detailed in our non-GAAP reconciliation.
Rob: The adjusted diluted EPS was <unk> 73 versus <unk> 90 in the same period last year.
Rob: Consolidated adjusted EBITDA was $56 million for the first quarter versus $65 million in the prior year period.
Rob: Machine clothing, adjusted EBITDA was $50 million versus $52 million in the prior year.
Rob: Adjusted EBITDA margin was up slightly to 28, 4% versus 28, 2% prior year, reflecting improved operational efficiencies.
Rob: AUC adjusted EBITDA was $15 million as compared to $21 million in the prior year period.
Rob: Reflecting the effect of the EAC adjustments.
Rob: Adjusted EBITDA margin.
Rob: <unk> was 13, 5% of sales versus 16, 6% in the prior year.
Rob: Once again, reflecting the current period EAC cumulative catch up adjustments as well as the effect of the EAC charges, which were recorded in the second half of last year.
Rob: During the quarter free cash flow was negative $13 million versus a negative $17 million in the prior year.
Rob: We remain on track to deliver another strong cash flow performance this year.
Rob: Our balance sheet remains strong with a cash balance of over $119 million and $384 million of borrowing capacity under our committed credit facility.
Rob: Based on our analysis of tariff impacts and given our first quarter's performance, which was in line with our plan we are reaffirming our full year guide.
Rob: In terms of earnings cadence, we still expect the second half to be stronger than the first half due to the rapid AUC combined with the acceleration of heimbach synergies.
Rob: Now I'd like to open the call for questions operator.
Rob: Thank you we will now begin the question and answer session.
Rob: Have dialed in and I would like to ask a question. Please press star one on your telephone keypad.
Rob: Go ahead in China, if you would like to withdraw your question.
Rob: Please press star one again.
Rob: Called upon to ask a question in or listening via loud speaker in your device. Please pickup your handset and ensure that your phone is not on mute.
Rob: Asking your question and.
Speaker Change: And your first question comes from the line of Peter Arment with Bank.
Speaker Change: Please go ahead.
Speaker Change: Yes, good morning, Jason.
Speaker Change: Okay got it.
Speaker Change: You talked about kind of the ability to kind of step up for to meet safran scheduled if rates increase could you just kind of remind us I know that there was probably some inventory that they were burning through but where things stand regarding leap and kind of how things are progressing there.
Speaker Change: Alright.
Peter: Good morning, Peter.
Speaker Change: Right now.
Speaker Change: There is some.
Speaker Change: Use of inventory.
Speaker Change: We expect to be in and as Ive mentioned before we have a requirement to sit on certain inventory for.
Speaker Change: First of all from so as we get through this first half of the year, we expect to be at that level.
Speaker Change: <unk>.
Speaker Change: We are monitoring how they are pulling we're continuing to meet with regularly.
Speaker Change: So I would say there is upside to the to the back half of the year. The way. It is looking right now but as of now we are staying staying with the plan.
Speaker Change: Got it and then just on you mentioned the <unk>.
Speaker Change: Other programs at $1 $3 billion backlog that talks to the rest of the programs and mix just wondering youre seeing about new opportunities in terms of I know, there's probably a lot you can talk about in terms of the classified world, whether it's hypersonic or other things, but there is a lot of funding dollars coming with through the supplemental and other areas.
Speaker Change: Are you seeing new opportunities to grow that.
Speaker Change: I do.
Speaker Change: I am seeing opportunities and.
And we have.
Speaker Change: We have the benefit actually now picking and choosing a little bit what we what we want to go after.
Speaker Change: Our focus is on our technology, whether its three D woven braiding or other.
Speaker Change: <unk>.
Speaker Change: Capacity is that we have and where we have we are competitive to have a competitive advantage.
Speaker Change: But there is definitely opportunity out there I would say the opportunity is in space and in some of the missile programs.
Speaker Change: As well as <unk>.
Speaker Change: As we ramp up now across both Boeing and Airbus engines as a priority.
Speaker Change: Okay. That's helpful and just lastly, just maybe on.
Speaker Change: Less lower.
Speaker Change: Ics this quarter, maybe just CH 53 case, such a huge program for you guys, maybe just give a little more color on how that program is going.
Speaker Change: Yes.
Speaker Change: Ed.
Speaker Change: Our plan is working theater.
Speaker Change: The team is progressing we have the right people in place we still have.
Speaker Change: Have to hire more people, which always introduce some risks.
Speaker Change: But.
Speaker Change: I would say we are better at Onboarding, we're better at training and we have better frontline leadership.
Speaker Change: Sure.
Speaker Change: People in and so I'm optimistic about continued improvement.
Speaker Change: On the CH 53 K.
Speaker Change: We also closed several programs.
Speaker Change: In the first quarter, which is which was part of the EAC adjustments. So.
Speaker Change: As new programs are coming on.
Speaker Change: We're well situated.
Speaker Change: Well prepared.
Speaker Change: So very positive.
Speaker Change: I appreciate the color I'll jump back in queue. Thanks, guys.
Speaker Change: Thanks.
Michael <unk>: Your next question comes from Michael <unk> with <unk> Securities. Please go ahead.
Speaker Change: Hey, good morning, guys. Thanks for taking the question Michael.
Speaker Change: Maybe Rob just to stay with Peter's last are the last line of questioning there on new programs can you give us more color on this.
Speaker Change: Seven year contract with Bell and I mean.
Speaker Change: I guess, just thinking of it specifically from a a risk or margin profile kind of all been conditioned to think that structure sure challenging business, how do we get comfortable with what you're potentially going to be working on delivering there.
Speaker Change: Yes so.
Speaker Change: I'm very excited that we do have a contract with bell now we've been working with them, it's a situation where one of their suppliers.
Speaker Change: Failed, which as we have seen before and we took on some some rather complex.
Speaker Change: Parts from.
Speaker Change: 5% to five.
Speaker Change: Tail boom specific.
Speaker Change: I would say, there's an opportunity for us to show our capability those parts.
Speaker Change: Our in our Bernie.
Speaker Change: <unk> right now and we are delivering.
And supporting Bell as they are ramping up on the 5% to five I think I think I believe in the 5% to five program I think it's a good program going forward and we are.
Speaker Change: But it's really a catalyst to get us in with Bell and show our capabilities and let's.
Speaker Change: See what else, we can do for them as far as.
Speaker Change: And our returns.
Speaker Change: Since we do have a choice of the work that is coming towards US we are being picky about the work that we're taking and we're getting the returns that we have projected.
Speaker Change: In the high teens for AAC.
Speaker Change: Okay. Okay.
Speaker Change: Yes, I guess the last time, we saw you just said he took over from a challenge supplier I guess that was the Gulfstream and that proved to be a little bit risky.
Speaker Change: Okay, I guess, just sticking with <unk>.
Speaker Change: And kind of trying to dig a little deeper.
Speaker Change: What were revenues.
Speaker Change: What was the growth year over year.
Speaker Change: So you've got GE and safran talking about 15% to 20% increase this year, but it sounds like there will be continued destock as they manage that inventory.
Speaker Change: Have you changed your view at all from from being down slightly for the year or how should we think about.
Speaker Change: Let me address the <unk>.
Speaker Change: Supplier furnished with bell chose to get out of the business. So that's why available is in trouble.
Speaker Change: These are much simpler.
Speaker Change: Composite parts done what we have with Gulfstream. So we've already made delivery of all of the parts. So im up self worried there.
Speaker Change: But there are complex parts, because we argue that complex parts as far as late this concern right now.
Speaker Change: We're keeping the plan for the year, but as I mentioned to Peter earlier, I think there is upside for the year, it's very positive to see where Boeing is out there ramp up on seven.
Speaker Change: 737, and with Airbus. So so as the year progresses, we will we will incrementally grow our output with the demand.
Speaker Change: Okay do you have the leap revenue number for the quarter.
Speaker Change: Yes, we haven't disclosed that specifically, but Michael if you look in the in the Q. There was a reference to the percentage of revenues on that okay, but I mean, I would expect Q1 to be pretty much the low point for the year just based on our full year projection.
Speaker Change: Okay.
Speaker Change: Got it.
Speaker Change: And then just last one for me and I'll get out of the way just shifting to MSC.
Speaker Change: I guess I'm back.
Speaker Change: Comment on a couple of years and I think the original plan was to take EBITDA from kind of that $50 million to $60 million, maybe triple it the margins down in AMC. This year is that still the trajectory for the overall integration youre working on should we be thinking about.
Speaker Change: Kind of those high <unk> EBITDA margins are getting to that $45 million plus rate.
Speaker Change: I think I think what you should expect all ironbark are what you see right now is in effect all of the actions that we're taking on I did I did repeat that just too.
Speaker Change: Remind us on everybody that we are taking significant actions to.
Speaker Change: Densify, our operations and make our efficiencies better.
Speaker Change: And as we're doing that there is there is some some challenges with all the moving parts.
Speaker Change: So youre not seeing it right now, but you'll see that accelerate.
Speaker Change: You'll see it accelerate through the year.
Speaker Change: And so yes, we are confident that we will continue to see that growth.
Speaker Change: Thanks, Brad.
Jordan Linemen: Your next question comes from Jordan Linemen with Bank of America.
Speaker Change: Please go ahead.
Jordan Linemen: Hey, good morning.
Speaker Change: Good morning, Good morning, Gary.
Speaker Change: Could you just talk about how you're looking at the ramp for <unk>, and then triple seven X going into the rest of the year.
Speaker Change: So 787, we believe to be just growing very very.
Speaker Change: Slowly through the year and then accelerating next year. So we have a relatively.
Speaker Change:
Speaker Change: I would say a cautious outlook for $787 for this year, but better next year.
Speaker Change: Triple seven it's all about the certification.
Speaker Change: And we're building parts.
Speaker Change: To support that certification.
Speaker Change: Cool and then on the tariff impacts for the direct one I know you guys said you were mitigated.
Speaker Change: Where are you guys looking at the second derivative impacts.
Speaker Change: Yes.
Speaker Change: Listening to the.
Speaker Change: No.
Speaker Change: International paper, we're looking at listening to whether it's GE or so fraud on our Boeing.
Speaker Change: Yeah.
Speaker Change: If we're going to have to monitor that and also see what happens with the tariff landscape as it seems to change every week so.
Speaker Change: Right now it is looking.
Speaker Change: Relatively.
Speaker Change: Flat for us.
Speaker Change: Got it thank you so much.
Speaker Change: Sure. Thanks, John.
Speaker Change: Again, if you would like to ask a question Press Star then the number one on your telephone keypad. Your next question comes from Steve Tusa with Jpmorgan. Please go ahead.
Stephen: Hi, This is Stephen if I could go on for Steve. Thanks for taking my question.
Speaker Change: So I'm going to ask on the MSC side.
Speaker Change: Organic growth was maybe worse than expected and you kept the full year guidance.
Speaker Change: That's like an acceleration through the year.
Speaker Change: On tougher comps in an uncertain macro, but what gives you confidence on that.
Speaker Change: Just any color on what youre seeing in the macro.
Speaker Change: Yes.
Speaker Change: So.
Speaker Change: She'd give us I have to also remind you that it is down because of divestitures both of the company.
Speaker Change: Our cars that we sold in Italy, as well as some lines that we.
Speaker Change: That we stopped because of poor.
Speaker Change: For economics, just simple as that.
Speaker Change: We're a little below organically in the first quarter.
Speaker Change: But our backlog and our orders are very strong so.
Speaker Change: Yeah.
Speaker Change: With the current outlook.
Speaker Change: Second and third quarter is looking looking healthy.
Speaker Change: Okay, Great and then did you see any signs of pull forward orders during the quarter or is it hard to tell.
Speaker Change: No we've seen no pulled orders.
Speaker Change: Okay, great. Thank you.
Speaker Change: Portfolio pulled forward or port.
Speaker Change: Either.
Speaker Change: We haven't seen that.
Speaker Change: Yes.
Speaker Change: I mentioned that we do make some parts some.
Speaker Change: M C.
Speaker Change: Product here in the U S.
Speaker Change: It goes to the whole world. So we're monitoring that.
Speaker Change: The volume is relatively low outside U S and Europe.
Speaker Change: Okay, great. Thanks.
Speaker Change: As there are no more questions I will now turn the conference back over to garner Cleveland for closing remarks.
Speaker Change: Okay. Thank you everyone for joining us on the call today and we appreciate your continued interest in Albany International. Thank you and have a good day.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: [music].
Pam: Thank you for standing by my name is Pam now it'll be a conference operator today.
Speaker Change: This time I would like to welcome everyone to the album International's first quarter 'twenty 25 earnings call.
Speaker Change: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If he would like to withdraw your question Press Star one again.
Speaker Change:
Speaker Change: I would now like to turn the conference over to JC shut nanny, VP Investor Relations and Treasurer you may begin.
Speaker Change: Thank you Pam and good morning, everyone welcome to Albany Internationals first quarter 2025 earnings conference call.
Speaker Change: As a reminder for those listening on the call. Please refer to our press release issued last night detailing our quarterly financial results.
Speaker Change: Contained in the text of the release is a notice regarding forward looking statements and the use of certain non-GAAP financial measures and their reconciliation to GAAP.
Speaker Change: For the purposes of this conference call those same statements apply to our remarks this morning.
Speaker Change: Today, we will make statements that are forward looking and contain a number of risks and uncertainties.
Speaker Change: Which could cause actual results to differ from those expressed or implied.
Speaker Change: For a full discussion of these risks and uncertainties. Please refer to both our earnings release of April totaled 285.
Speaker Change: As well as our SEC filings, including our first quarter Form 10-Q tranquility for Form 10-Q.
Speaker Change: Now I will turn the call would have been arguing Linda <unk>, President and CEO will provide opening remarks. Good luck. Thank you J T and thank you for joining us as we review our first quarter 2025 results.
Speaker Change: Overall I am pleased to report that our businesses are executing to the plan that we laid out at the start of this transition year.
Speaker Change: Our new business segment leaders are performing well and they restructure as they restructure and strengthen their respective operations.
Speaker Change: While we see uncertainty in the markets, we were not affected by tariffs or other disruptions in the first quarter.
Speaker Change: Due to our mostly regional setup for both suppliers and customers. The overall direct impact of tariffs as they currently stand is not expected to materially impact our financial our operational performance.
Speaker Change: Machine clothing continues to deliver consistent strong results and the integration of <unk> is proceeding to plan.
Speaker Change: Expect to see the benefits of the Heinbach integration efforts accelerate into the second half of this year as our actions take effect.
Speaker Change: AAC is executing well on its current portfolio of programs and the segment continues to win new business.
Speaker Change: The team is making progress on process improvements on our CH 53, K and Gulfstream programs, and we had lower EAC adjustments in the quarter, which we will discuss in more detail later.
Speaker Change: For the quarter, we reported revenues of $289 million and overall adjusted EBITA margin of 19, 3% and then adjusted diluted EPS of <unk> 73 for.
Speaker Change: Free cash flow was ahead of plan and we expect 2025 to be another strong free cash flow year.
Speaker Change: We returned capital to our shareholders with both our regular quarterly dividend and our re initiated share repurchase program in the first quarter, we repurchased 69 million worth of shares. We currently have $193 million of capacity remaining under our latest share repurchase authorization of 200.
Speaker Change: $50 million.
Speaker Change: Okay.
Speaker Change: Turning to our individual businesses for the quarter machine clothing reported revenues of $175 million and an adjusted EBITDA margin of 28, 4% in terms of grades secular trends in packaging remains strong tissue pulp and engineered fabrics remained stable.
Speaker Change: North America had a slight decline in deliveries in the first quarter, but strong order flow show strength in the market Europe is showing signs of recovery with good deliveries and strong orders, making us cautiously optimistic for the region. Finally Asia is mixed with some weakness in China.
Speaker Change: Our global empty order backlog is strong with order to sales ratio above one, giving us confidence in our outlook for the year.
Speaker Change: At <unk>, we continued to make good progress on our integration plans, which is focused on footprint rationalization and operational efficiency. As a reminder, since the acquisition. We are close to Albania facilities sold one harm by business and close to <unk> facilities.
Speaker Change: We have also restructured operations that the remaining heimbach facilities endurance, Manchester Burgos and <unk>.
Speaker Change: These consolidation activities are strengthening our operational and production efficiencies and enhancing the regionalization of our business.
Speaker Change: The synergy benefits of these actions accrue over time, we expect the run rate on our synergies to be particularly strong as we exit 2025, and we remain confident of hitting our original synergy targets with a three 5% to four times the effective purchase multiple.
Speaker Change: Turning to tariffs, we're monitoring and assessing the fluctuation in the tariff landscape as they occur our current fee is based on tariffs as they currently stand.
Speaker Change: The situation is dynamic and our teams are vigilantly addressing both challenges and opportunities and we continue to adapt as the situation develops.
Speaker Change: As it relates specifically to our MSC business. It should be noted that most of our sales and sourcing as regional and therefore generally insulated from tariffs for example in North America that transaction among our facilities in Mexico U S and Canada are covered by the U S. MCA.
With the acquisition.
Speaker Change: Excuse me.
Speaker Change: With the acquisition of Heimbach, our EMEA sales and supply chain is strengthened regionally by local trade treaties.
Speaker Change: <unk> finally in Asia were also supplying our customers from within the region.
Speaker Change: However, we have some potential exposure to sole source supply materials and certain highly engineered products manufactured by us only in the U S or the U K.
Speaker Change: To mitigate any impact we are assessing and using trade mechanisms looking at cost controls as well as considering other actions.
Speaker Change: Turning to our engineered composite segment revenues for the quarter were $114 million with an adjusted EBITA margin of 13, 5%.
Speaker Change: We keep making progress in our AUC operations, and we recorded total EAC adjustments of $7 million for the quarter half of this is driven by <unk> and Gulfstream.
With a balanced across a mix of programs.
Speaker Change: The frontline leader coaching operator training and progress in planning and supply chain are driving the expected improvements as well as setting the sites up for future growth.
Speaker Change: On leap as you may recall last quarter, we took a conservative approach as we projected lower volumes, both at leap as well as our other Boeing programs.
Speaker Change: The drop in revenue in the first quarter is in line with our forecast we stand ready to meet the France production schedule as the demand at Boeing and Airbus recovers and have ample capacity to meet any upside to the demand.
Speaker Change: Okay.
Speaker Change: With respect to our other programs, we are seeing growth in advanced air mobility wed expect the drag to build through the course of 2025.
Speaker Change: Our new program wins, we recently announced a long term agreement with Bell on the 5% to five program.
Speaker Change: Jassem, we added to our current backlog and are working on the new multiyear contract as these awards translate into purchase orders they will be added to our existing AUC backlog, which at quarter end was $1 3 billion. As a reminder, this is backlog that does not include leap volumes beyond the current calendar year and only relates to our <unk>.
Speaker Change: Other ADC platforms. This backlog provides us with visibility and confidence into our business performance in 2025 and beyond.
Speaker Change: Finally, as it relates to tariffs for AUC, our sourcing and production in Mexico, Canada and the USA is again currently protected under the U S. MCA.
Speaker Change: The direct impact of our earnings from carriers that AUC is currently.
Speaker Change: I expect it to be negligible.
Speaker Change: We're tracking how second order tariff impact play out, particularly from suppliers that they made as they may be impacted and their own value chain. Similarly, we are monitoring the impact of demand at our end customers. At this point, we are not aware of any changes from our customers or suppliers. If we begin to see impact.
Speaker Change: We have assessed and prepared mitigating actions and we will address these challenges as needed.
Speaker Change: Okay.
Speaker Change: In the current macro and geopolitical environment, we believe the ongoing titanium shortages and extended lead times. We will continue this creates even more opportunity for our engineered materials, especially in three D. Woven composite parts, which can be a superior alternative to titanium in terms of strength weight and cost.
Speaker Change: As our product offering gains more acceptance among our customers our competitive advantage will be a catalyst for additional long term growth.
Speaker Change: We have proven our industrialization of this technology with the leap fan blades in case Triple 709 X fan case as well as parts for landing gears.
Speaker Change: Our solution can be delivered at a fraction of the lead time with readily available materials and production capacity are proven to deliver 100% on time, which is in Stark contrast to the current and historical titanium supply issues.
Speaker Change: Okay.
Speaker Change: Finally, we continued to streamline our operations and are upgrading our SAP system with S. Four hana across the entire company with a go live scheduled for next week. This will improve our systems and operational efficiencies and deliver enhanced analytics to improve our business agility.
Speaker Change: With that I will now hand, it over to Rob to provide more details on the quarter Rob.
Rob: Good morning, everyone I will review, our first quarter results and then provide our outlook for 2025.
Rob: As a reminder, please note that starting last year, we allocated our Gis costs to our operating segments to better reflect the true underlying performance.
Rob: Consolidated net sales were in line with our plan at 289 million down seven 8% from $313 million in the first quarter of last year.
Rob: Machine clothing, net sales of $175 million decreased five 7% versus the first quarter of the prior year due to targeted product line divestitures and lower sales to a large <unk> customer.
Rob: <unk> net sales of $114 million or lower by 11% versus the first quarter of 2024, primarily due to a $7 million negative top line impact from the EAC adjustments during the quarter.
Rob: This was coupled with lower lead sales as well as expected.
Rob: We were able to partially offset the sales decline with growth in our advanced air mobility, and CH 53 K platforms.
Rob: Consolidated gross profit was $96 million or <unk> 33, 4% of sales down from $109 million in the prior year or 34, 7% of sales.
Rob: Machine clothing gross profit of $80 million decrease from $85 million in the prior year, while gross margin percentages remained constant at 45, 7%.
Rob: This performance reflects improved operating efficiencies as we continue with our integration efforts.
Rob: <unk> gross profit of $17 million decreased by up from $24 million, largely reflecting the impact of the cumulative EAC adjustment for the quarter.
The $7 million of EAC charges for the quarter $2 million related to the CH 50, <unk> program, one 7 million related to Gulfstream with the balance spread across multiple other programs.
Rob: Net R&D expense at 4% of revenue remained relatively flat in the first quarter versus the prior year, our consistent investment in R&D underscores our strategy of using material science as a competitive advantage.
Rob: Consolidated SG&A expenses were $54 million for the quarter down slightly versus the $55 million in the prior year.
Rob: The effective tax rate for the quarter was 26, 6%.
Rob: Versus 29, 2% excuse me in the prior year the lower rate is mainly due to favorable discrete tax adjustments primarily related to a decrease in our valuation allowance on foreign tax credits.
Rob: GAAP net income attributable to the company for the quarter was $17 million compared to $27 million last year.
Rob: GAAP diluted EPS of <unk> 66 per share in the quarter versus 87 in the same period last year.
Rob: After adjustments primarily relating to FX revaluation and restructuring costs as detailed in our non-GAAP reconciliation.
Rob: The adjusted diluted EPS was <unk> 73 versus <unk> 90 in the same period last year.
Rob: Consolidated adjusted EBITDA was $56 million for the first quarter versus $65 million in the prior year period.
Rob: Machine clothing, adjusted EBITDA was $50 million versus $62 million in the prior year adjusted EBITDA margin was up slightly to 28, 4% versus 28, 2% prior year, reflecting improved operational efficiencies.
Rob: AUC adjusted EBITDA was $15 million as compared to $21 million in the prior year period, largely reflecting the effect of the EAC adjustments.
Rob: Adjusted EBITDA margin.
Rob: <unk> was 13, 5% of sales versus 16, 6% in the prior year.
Once again, reflecting the current period EAC cumulative catch up adjustments as well as the effect of EAC charges, which were recorded in the second half of last year.
Rob: During the quarter free cash flow was negative $13 million versus a negative $17 million in the prior year.
Rob: We remain on track to deliver another strong cash flow performance this year.
Rob: Our balance sheet remains strong with a cash balance of over $119 million and $384 million of borrowing capacity under our committed credit facility.
Rob: Based on our analysis of tariff impacts and given our first quarter's performance, which was in line with our plan we are reaffirming our full year guide.
Rob: In terms of earnings cadence, we still expect the second half to be stronger than the first half due to the rapid AUC combined with the acceleration of heimbach synergies.
Rob: Now I'd like to open the call for questions operator.
Speaker Change: Thank you we will now begin the question and answer session.
Speaker Change: Have dialed in and I would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Go ahead and join the queue. If you would like to withdraw your question.
Speaker Change: Please press star one again.
Speaker Change: Called upon to ask a question in our listening via loud speaker device. Please pickup your handset and ensure that your phone is not on mute.
Speaker Change: Asking your question and your first question comes from the line of Peter Arment with Bank.
Speaker Change: Please go ahead.
Speaker Change: Yes, good morning, Jason.
Speaker Change: Hey, Gunnar.
Speaker Change: You talked about kind of the ability to kind of step up for to meet safran schedule.
Speaker Change: Rates increase could you just kind of remind us I know that there was probably some inventory that they were burning through but where things stand regarding leap and kind of how things are progressing there.
Speaker Change: Alright.
Peter Arment: Good morning, Peter.
Speaker Change: Right now.
Speaker Change: There is some.
Speaker Change: Use of inventory.
Speaker Change: We expect to be in MSI had mentioned before we have a requirement to sit on certain inventory for.
For <unk>, so as we get through this first half of the year, we expect to be at that level.
Speaker Change: <unk>.
Speaker Change: We are monitoring how they are pulling we're continuing to meet with them regularly.
Speaker Change: So I would say there is upside to the to the back half of the year. The way. It is looking right now but as of now we are staying staying with the plan.
Speaker Change: Got it and then just you mentioned the <unk>.
Speaker Change: Other programs were $1 $3 billion backlog that talks to the rest of the programs and mix just wondering youre seeing about new opportunities in terms of I know, there's probably a lot you can talk about in terms of the classified world, whether it's hypersonic or other things, but there is a lot of funding dollars coming with through the supplemental and other areas.
Speaker Change: Are you seeing new opportunities to grow that backlog.
Speaker Change: I definitely am seeing opportunities and.
Speaker Change: And we have.
Speaker Change: We have the benefit actually now picking and choosing a little bit what we what we want to go after.
Speaker Change: Our focus is on our technology, whether its three D woven upgrading or other.
Speaker Change: <unk>.
Speaker Change: Capacity is that we have and where we have we are competitive have a competitive advantage.
Speaker Change: But there is definitely opportunity out there I would say the opportunity is in space and in some of the missile programs.
Speaker Change: As well as.
Speaker Change: As we as we ramp up now across both Boeing and Airbus engines.
Speaker Change: Alrighty.
Speaker Change: Okay. That's helpful and just lastly, just maybe on.
Speaker Change: Less lower Eac's this quarter, maybe just CH 53 case, such a huge program for you guys. Maybe just just give a little more color on how that program is going.
Speaker Change: Yes.
Speaker Change: Our plan is working better.
Speaker Change: The team is progressing we have the right people in place we still have.
Speaker Change: Have to hire more people, which always introduce some risks.
Speaker Change: But.
Speaker Change: I would say we are better at Onboarding, we're better at training and we have better frontline leadership.
Speaker Change: People.
Speaker Change: And so.
Speaker Change: Im optimistic about continued improvement.
Speaker Change: On the CH 53, okay.
Speaker Change: Also closed several programs.
Speaker Change: The first quarter, which is which was part of the EAC adjustments. So.
Speaker Change: As new programs are coming on.
Speaker Change: We're well situated.
Speaker Change: Well prepared.
Speaker Change: So very positive.
Speaker Change: I appreciate the color I'll jump back in queue. Thanks, guys.
Speaker Change: Thanks.
Speaker Change: Your next question comes from Michael Cerasoli with Chili's Securities. Please go ahead.
Speaker Change: Hey, good morning, guys. Thanks for taking the question Michael.
Speaker Change: Hey, maybe Rob just to stay with Peter's last are the last line of questioning there on new programs can you give us more color on this.
Speaker Change: Seven year contract with Bell and I mean, I guess, just thinking of it specifically from a a risk or margin profile.
Speaker Change: Kind of all been conditioned to think that structure sure challenging business, how do we get comfortable with what you were potentially going to be working on is delivering there.
Speaker Change: Yes.
Speaker Change: So I'm very excited that we do have a contract with bell now we had been working with them, it's a situation where one of their suppliers.
Speaker Change: Failed, which is.
Speaker Change: We have seen before and we took on some some rather complex.
Speaker Change: Parks from.
Speaker Change: 5% to 5%.
Tail boom specific.
Speaker Change: I would say it is an opportunity for us to show our capability those parks.
Speaker Change: In our Bernie.
Speaker Change: Facility right now and we are delivering.
Speaker Change: And supporting Bell as they are ramping up on the 5% to five I think I think I believe in the 5% to five program I think it's a good program going forward and we are but it's really a catalyst to get us in with Bell and show our capabilities and see what else we can do for them.
As far as.
Speaker Change: And our returns.
Speaker Change: Since we do have a choice of.
Speaker Change: Work that is coming towards us we are being picky about the work that we're taking and we're getting the returns that we have projected.
Speaker Change: In the high teens for AUC.
Speaker Change: Okay. Okay.
Yes, I guess the last time, we saw you you just said you took over from a challenge supplier I guess that was the Gulfstream and that proved to be a little bit risky.
Speaker Change: Okay, I guess, just sticking with with ADC and kind of trying to dig a little deeper.
Speaker Change: What were revenues.
Speaker Change: Or what was the growth year over year.
Speaker Change: I mean, so you have got GE and safran talking about 15% to 20% increase this year, but it sounds like there will be.
Speaker Change: Destock as they manage that inventory.
Speaker Change: Have you changed your view at all from from being down slightly for the year or how should we think about.
Speaker Change: Let me address the.
Speaker Change: Supplier furnished with bell chose to get out of the business. So that's why <unk> is in trouble. These are these are much simpler.
Speaker Change: Composite parts done what we have with Gulfstream so.
Speaker Change: Already made delivery of all the parts so im not worried there.
Speaker Change: But there are complex parts, because we are good at complex parts as far as leaf is concerned right now.
Speaker Change: We're keeping the plan for the year, but as I mentioned to Peter earlier, I think there is upside for the year, it's very positive to see where Boeing is that their ramp up.
Speaker Change: 137.
Speaker Change: With Airbus. So so as the year progresses, we will we will incrementally grow our output with the demand.
Speaker Change: Okay do you have the leap revenue number for the quarter.
Speaker Change: Yes, we haven't disclosed that specifically, but Michael if you look in the in the Q. There was a reference to the percentage of revenues on that okay.
Speaker Change: Okay.
Speaker Change: I mean, I would expect Q1 to be pretty much the low point for the year just based on our full year projection.
Speaker Change: Okay.
Speaker Change: Got it.
Speaker Change: And then just last one for me and I'll get out of the way just shifting to <unk>.
Speaker Change: MFC.
Speaker Change: Hi, I'm back.
Speaker Change: Comment on a couple of years and I think the original plan was to take key EBITDA from kind of that $50 million to $60 million, maybe triple it the margins down in AMC. This year is that still the trajectory for the overall integration youre working on should we be thinking about kind of those high end back EBITDA.
Speaker Change: <unk> is getting to that $45 million plus rate.
Speaker Change: I think I think what you should expect all ironbark, what you see right now is in effect.
Speaker Change: All of the actions that we're taking on I did I did repeat that just too.
Speaker Change: To remind us on everybody that we are taking significant actions to densify, our operations and make our efficiencies better.
Speaker Change: And as we're doing that there is there is some some challenges with all the moving parts.
Speaker Change: So youre not seeing it right now, but you'll see that accelerate.
Speaker Change: You'll see it accelerate through the year.
Speaker Change: And so yes, we're confident that we will continue to see that growth.
Speaker Change: Thanks, guys.
Jordan Linemen: Your next question comes from Jordan Linemen with Bank of America. Please go ahead.
Jordan Linemen: Hey, good morning.
Speaker Change: Good morning, good morning Darren.
Jordan Linemen: Okay could you.
Jordan Linemen: Talk about how you're looking at the ramp for <unk>, and then triple seven X going into the rest of the year.
Jordan Linemen: So 787, we believe to be just growing very very.
Jordan Linemen: Slowly through the year and then accelerating next year. So we have a relatively.
Jordan Linemen: I would say a cautious outlook for 787% for this year, but better next year.
Speaker Change: Seven it's all about the certification.
Jordan Linemen: And we're building parts too.
Jordan Linemen: To support that certification.
Jordan Linemen: And then on the tariff impacts for the direct one I know you guys said you were mitigated.
Jordan Linemen: Where are you guys looking at the second derivative impacts.
Jordan Linemen: Yes.
Jordan Linemen: Turning to the.
Jordan Linemen: Ill.
Jordan Linemen: International paper, we're looking at listening to whether it's GE or sell throttling or Boeing.
Jordan Linemen: Yes.
Jordan Linemen: If we're going to have to monitor that and also see what happens with the tariff landscape as it as it.
Jordan Linemen: It seems to change every week so.
Jordan Linemen: Right now it is looking.
Jordan Linemen: Relatively.
Jordan Linemen: Flat for us.
Jordan Linemen: Got it thank you so much.
Jordan Linemen: Sure. Thanks, John.
Speaker Change: Again, if you would like to ask a question Press Star then the number one on your telephone keypad. Your next question comes from Steve Tusa with Jpmorgan. Please go ahead.
Speaker Change: Hi, This is J J, if I could go on for Steve. Thanks for taking my question.
Speaker Change: Im going to ask on the NFC side.
Speaker Change: <unk> growth was maybe worse than expected and you kept the full year guidance.
Speaker Change: Like an acceleration through the year.
Speaker Change: On tougher comps in an uncertain macro, but what gives you confidence.
Speaker Change: On this and just any color on what youre seeing in the macro.
Speaker Change: Yes.
Speaker Change: So.
Speaker Change: It should give us I have to also remind you that it is down because of divestitures both of the company.
Speaker Change: <unk> that we sold in Italy, as well as some lines that we.
Speaker Change: That we stopped because of poor.
Speaker Change: For economics, just simple as that.
Speaker Change: We're a little below organically in the first quarter.
Speaker Change: But our backlog and our orders are very strong so.
Speaker Change: Yeah.
Speaker Change: With the current outlook.
Speaker Change: Second and third quarter is looking looking healthy.
Speaker Change: Okay, Great and then.
Speaker Change: You see any signs of pull forward orders during the quarter or is it hard to tell.
Speaker Change: No we've seen no pulled orders.
Speaker Change: Okay, great. Thank you.
Speaker Change: Portfolio pulled forward or pooled.
Speaker Change: Either.
Speaker Change: We haven't seen that.
Speaker Change: Yes.
Speaker Change: I mentioned that we do make some parts some.
Speaker Change: M C.
Speaker Change: Product here in the U S.
Speaker Change: It goes to the whole world. So we're monitoring that.
Speaker Change: The volume is relatively low outside U S and Europe.
Speaker Change: Okay, great. Thanks.
Speaker Change: As there are no more questions I will now turn the conference back over to garner Cleveland for closing remarks.
Garner Cleveland: Okay. Thank you everyone for joining us on the call today. We appreciate your continued interest in Albany International. Thank you and have a good day.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.