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spk04: and welcome to the Trimass Fourth Quarter and Full Year 2020 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Sherry Lauterbach. Please go ahead.
spk06: Thank you, and welcome to the Trimass Corporation's Fourth Quarter and Full Year 2020 Earnings Call. Participating on the call today are Tom Amato, Trimass' President and CEO, and Bob Zalewski, our Chief Financial Officer. After our prepared remarks on our results and our outlook, we will open the call up for your questions. In order to assist with review of our results, we have included the press release and PowerPoint presentation on our company website at www.trimaskorp.com under the Investor section. In addition, a replay of this call will be available later today by calling 888-203-1112 with a replay code of 6413483. Before we get started, I would like to remind everyone that our comments today, which are intended to supplement your understanding of TriMAS, may contain forward-looking statements that are inherently subject to a number of risks and uncertainties, including impacts from COVID-19. Please refer to our Form 10-K and our 10-K that will be filed later today for a list of factors that could cause our results to differ from those anticipated in any forward-looking statements. Also, we undertake no obligation to publicly update or revise any forward-looking statements except as required by law. We would also direct your attention to our website where considerably more information may be found. In addition, we would like to refer you to the appendix in our press release issued this morning or included as part of this presentation for the reconciliations between GAAP and non-GAAP financial measures used today during this conference call. The discussion on the call regarding our financial results will be on an adjusted basis, excluding the impact of special items. With that, I'll turn the call over to Tom Amato, TriMass' president and CEO. Tom?
spk03: Good morning, and welcome to TriMass' fourth quarter earnings call. As discussed over the past few quarters, we have all learned to endure changes to our daily routines to protect the health and safety of individuals in the communities where we live and work. At TriMass, we continue to take steps in each of our facilities to enhance social distancing and increase awareness of cleanliness and personal hygiene. It remains our hope that in the coming months, as vaccine availability increases, our employees choose to get vaccinated. We also look forward to a time when COVID-19 is fully treatable or better yet, eradicated, and when air travel and the related hotel and entertainment industries revert to pre-pandemic activity levels. This will not only benefit society, but we believe will benefit our company and our shareholders as TriMass is well positioned for a broader economic recovery in a number of product areas. As I have said on earlier calls, I extend my deepest appreciation to our employees around the world for their commitment and dedication during these challenging times. Let's turn to slide three. As we reflect on 2020, we were able to continue our momentum toward executing against TriMass' overarching strategy. Of course, we started the year newly repositioned as we successfully exited the vast majority of our activity in oil and gas-related product lines in December of 2019 and thereby created a natural leveraging of TriMass' packaging business on TriMass. While this was in line with our strategy, we didn't recognize how important it would be to TriMass until later in the year. Thanks to robust demand in our product lines, which support personal hygiene and cleaning to help fight the spread of germs, Performance and TriMass' packaging group overcame weak demand in TriMass' aerospace and specialty product segments to deliver solid sales, earnings, and cash flow results. When disruption from the pandemic set in now one year ago, we relied on our TriMass business model to immediately address the rapid changes we were anticipating and seeing across our multi-industry businesses. I won't recap the many actions we took along the way, but I can report that our leadership team worked tirelessly throughout the year to support customer demands and also take steps to adjust and protect our longer range plans. During 2020, we also completed three bolt-on acquisitions, RSA Engineer Products, Afaba and Ferrari, and Raypak, as we continue to make progress against our strategy to build out our packaging and aerospace platforms. We look forward to the contributions these businesses will make to TriMass in the coming years. Additionally, we repurchased about 3.6% of our shares outstanding, which we continue to view as an efficient way to enhance value for our shareholders. Finally, As we closed out the year, we launched our inaugural sustainability report. We have always been committed to improving TriMAS with a keen focus on the environments in which we operate, so it is exciting to start to share more of this data. We look forward to updating our progress on these ESG initiatives as we go forward. Let's turn to slide four. As a reminder, 63% of TriMAS' revenues are reported in our packaging segment. where we again outperformed our expectations given what we believe has emerged as a secular global trend, resulting from a heightened awareness of hand washing, improved personal hygiene, and overall cleanliness. TriMass's aerospace segment represents about 22% of our annual sales, where we supply engineered fasteners and fabricated products and assemblies into commercial, business jet, and military defense applications. Our businesses in this segment have been severely impacted by the effects of the pandemic given the reduced aircraft production build rates. The balance of TriMass' business, or 15%, is in our specialty product segment where we predominantly supply steel cylinders and natural gas engines and compressors into the welding and HVAC, military and defense, and oil and gas end markets. While volume in our specialty product segment has been weak due to the pandemic, Through swift realignment efforts, this segment is also positively contributing to TriMass' overall earnings and cash flow generation. Moreover, we anticipate our specialty product segment, particularly our Norris Cylinder business, will begin to recover first when the effects from the pandemic begin to subside. Driven by the exceptional performance of TriMass' packaging group, and favorable tax planning actions, our consolidated fourth quarter results were better than expected. Net sales for the quarter were $188.2 million, up 10.1% as compared to prior year period, and up 2.7% net of currency and acquisitions. Consolidated operating profit for the quarter was $21.1 million, or 11.2% of sales, essentially flat as compared to the prior year quarter, where conversion on higher sales in our packaging segment was more than offset by weak demand in our aerospace segment and the impact the fall-off of demand had on aerospace's profitability. Net income was $16.5 million, or $0.38 per share, an increase of 22.6% as compared to $0.31 per share in the prior year period, driven by lower Q4 2020 tax rate, which is aided by tax planning actions. As noted, despite challenges from the pandemic, we performed well for the year. Net sales were $770 million, up 6.4% as compared to the prior year period, and up 0.5% net of currency and acquisitions. Consolidated operating profit for the year was $100.2 million, or 13% of sales, up 4.1% as the benefit of higher sales was partially offset by demand-related production inefficiencies and higher non-cash DNA in stock comp. Net income was $68.9 million, or $1.57 per share, up nearly 8.3% as compared to $1.45 per share in 2019. Let's turn to slide five. While in the fourth quarter of last year, we had surplus cash from a recent divestiture, we also finished 2020 with a strong balance sheet even after stock buybacks and completing three acquisitions during the year. Net debt was $272 million and our leverage was 1.7 times. We have ample liquidity with cash and availability under our credit agreement in excess of $300 million. We also finished the year by continuing to increase our momentum in LTM EBITDA, which was $156.8 million at the end of the year as compared to $154.1 million at the end of Q3 in 2020. So again, we are very pleased with these results for the quarter and the year, and thank the wider TriMass team for their dedication and commitment. I will now turn the call over to Bob, who will take us through our segment results.
spk02: Bob? Thank you, Tom. If we turn to slide seven, I would like to begin my comments with a review of our packaging segment. I would first like to highlight that TriMass' packaging group reported record quarterly sales and operating profit for its fourth fiscal quarter. This represents the third consecutive quarter of record quarterly results, and this accomplishment is a testimony to the hard work and dedication of all of our packaging team members globally who achieved these outcomes despite the unprecedented nature of the pandemic and its many impacts. Fourth quarter net sales of 124.3 million increased more than 30 million, or 30.5%, net of foreign currency compared to the year-ago period. Organically, we achieved robust sales growth of $23.5 million, up 25%. Acquisitions contributed an incremental $5.2 million in sales, and the impact of foreign currency translation added $1.6 million. Sales of our dispensing products, used in beauty and personal care and home care applications that help fight the spread of germs, led the way, increasing approximately $19.8 million. Reiki continues to experience robust demand due to the COVID-19 pandemic. I should also note that the level of this increase was greater than we anticipated heading into the fourth quarter. We believe that customers bought ahead of the Chinese New Year to ensure availability of supply, which we believe will also have a dampening effect on first quarter 2021 sales levels that Tom will speak to later. Sales of products used in food and beverage applications were also higher, increasing approximately $8.4 million. Sales of dispensers, caps, and closures used in food and beverage applications improved approximately $3.9 million versus the prior year's quarter, while sales of our recently acquired bag-in-box product line contributed $4.5 million as well. Operating profit increased $4.7 million to $24.2 million, driven by the sales increase. Operating margin of 19.4% was 130 basis points lower versus the same period a year ago. The decline was due primarily to a less favorable product sales mix and the dilutive impact of recent acquisitions, primarily Raypak, which was below breakeven in Q4, given demand challenges in one of its primary markets, the quick-serve restaurant industry, that has been severely impacted by the pandemic. We are currently restructuring rate tax footprint as we carve out and integrate this business in the throes of the pandemic and expect meaningful improvement as we progress through 2021. Adjusted EPA DA increased 5.1 million in the quarter or approximately 20% to 30.2 million versus the prior quarter of 25.2 million. As we exit Q4, I wanted to highlight a couple of trends likely to impact our packaging group's 2021 performance. First, while we continue to experience solid order intake for many of our beauty and personal care and home care products, we are beginning to see some customers push out orders as they assess market demand and order planning levels for our products in light of COVID-19 vaccines becoming more widely available. Secondly, during Q4, we noted increases in the cost of resin that have only accelerated into the first quarter of this year. For example, the cost of polypropylene resin, Wanariki's key input cost, has increased more than 50% in the United States since November 2020, and is currently forecasted to remain at these levels or higher into the second quarter of this year. While pricing mechanisms in our contracts allow for the pass-through of material cost increases, This occurs on a lag basis, which will present an operating margin headwind that we anticipate will persist at least through the end of second quarter. Turning to slide eight, I will now update you on our Trimass Aerospace Group. Net sales for the quarter declined approximately 11 million, or 23.5%, to 37 million. Sales of core fastener products and machine components declined approximately 17 million, or 36%, compared to the year-ago period, as a result of continued low travel demand and related reductions in aircraft build rates due to the global pandemic. Sales of fasteners were also lower as compared to Q4 2019 due to the 737 MAX grounding, which we had expected. RSA Engineer products acquired in February 2020 contributed 5.9 million of sales, which helped offset a portion of the organic sales decline. Operating profit declined 7.2 million to just half a million for the quarter due to significantly lower sales volume and a less favorable sales mix. Operating profit margin was 1.3%, down from 15.8% in Q4 a year ago as a result of lower absorption of fixed costs on the sales volume decline and ongoing production inefficiencies associated with the impacts of the pandemic. However, TriMap Aerospace was still able to achieve adjusted EBITDA for the quarter of 13.5% as we do carry a significant amount of non-cash depreciation and intangible amortization in this segment. While we anticipate the run rate experience during the second half of 2020, an approximate 35% decline in organic volume from 2019 will persist into 2021, this segment will benefit from a full year of sales at RSA and ramp up of a more recent new business award, albeit at significantly lower volumes than originally expected at the time the programs were awarded. The TriMAS Aerospace Leadership Team continues to evaluate additional practical steps to further align our manufacturing footprint and related cost structure with current demand levels, while balancing its priority of investing in new and innovative products to support its global customers and positioning itself for future business opportunities. Moving to slide 9, I will now review our specialty product section. Net sales in the fourth quarter declined 1.6 million, or approximately 6%, compared to the same period a year ago. Higher sales of steel cylinders used in construction and HVAC end markets were more than offset by lower sales of engines and compressors used in upstream oil and gas applications, each for the North American market. as industrial economic activity and oil and gas pricing continue to be impacted by the effects of the global pandemic. Operating profit for the quarter was $3.5 million, or 13% of sales, as compared to $2.5 million and 8.7% in the year-ago period. Operating margin improved in the current year's quarter as a result of a more favorable product mix and also benefited from prior cost realignment actions in response to the pandemic-reduced end-market demand. Adjusted EBITDA of 4.5 million or 16.7% of sales was significantly better than the prior's quarter of 3.4 million or 11.9% of sales, a 480 basis point improvement on a year-over-year basis. We will continue to closely monitor end market demand impacted by the effects of the pandemic as we believe these businesses are well positioned for early wins in an industrial end market recovery with increased operating leverage as a result of the 2020 realignment actions. With that, I will turn the call back over to Tom to discuss outlook and his concluding remarks. Tom?
spk03: Thank you, Bob. In turning to slide 11, given that we continue to operate in this pandemic period with a great deal of uncertainty, which makes it challenging to forecast demand levels in our end markets, we are only providing Q1 outlook at this time, along with some broader views on the full year. We plan to reassess returning to full year guidance when we announce first quarter results, at which time we hope to have better information on overall market dynamics. We would note that in Q1 of last year, we did not start to feel the effects of the pandemic until later in the quarter in our packaging segment, and there were no meaningful impacts yet in our aerospace and specialty product segments. For Q1, we expect consolidated sales to be 4% to 9% higher as compared to the same quarter last year, driven by Trimass' packaging group, which we anticipate will be up 18% to 23%. We expect about half of the growth to come from acquisitions and the remainder to be driven by increases in sales of products used in personal hygiene and cleaning applications. With respect to our aerospace and specialty product segments, We anticipate our sales to be lower than in the prior year quarter due primarily to the impact of the pandemic as we are comparing to a prior year quarter that had not yet been impacted by the pandemic. We do anticipate earnings per share will be in the 34 to 39 cent range as compared to 34 cents for the prior year quarter. As we consider the full year for TriMass in our businesses, we expect our packaging group to deliver higher sales than in 2020, driven primarily by acquisitions. As of now, however, when we consider the second quarter of 21 through the fourth quarter of 21, we are anticipating lower organic sales as compared to the comparable quarters in 2020. This is a result of our expectation that some of the unusually high activity of pandemic-related sales partially will recede, and also customers adjusting their overall purchase planning levels. I would also like to note that we have entered into a new multi-year contract with one of our largest packaging retail customers that commits us to relocate production of existing purchases of certain dispenser products into North America versus what is currently imported. This specific onshoring project will require one-time capital spending of an incremental $20 million above our normalized capital spending levels, but spread out over the next few years. We also anticipate our aerospace segment to be up versus 2020, driven by both a full year of acquisition sales and meaningful stocking orders of specialized fasteners from a few distributors that begins in Q1, which we certainly welcome for what will otherwise be another challenging year until new aircraft build rates begin to recover. With respect to our specialty product segment, we are planning for an essentially flat sales year. However, we continue to believe our specialty product segment will benefit first from a market recovery. Let's turn to slide 12. Overall, we are pleased with the progress we have made in focusing TriMass' portfolio of businesses over the past two years, particularly with our higher concentration in packaging. As we continue to advance TriMass' packaging group, we believe TriMass is uniquely positioned to increase shareholder value once specialty products and then our aerospace businesses start to recover. In turning to slide 13, Trimass will continue executing against our capital allocation strategy, ensuring that we operate our businesses in a culture of Kaizen and built upon a foundation of operational excellence. Utilizing our Trimass business model to track and measure our near-term performance and proactively adjust as markets change. Reinvesting our cash flow first to improve and grow our businesses organically and to also ensure net debt remains in check to protect our shareholders. and deploying capital to enhance organic growth through M&A, and also returning value to shareholders through treasury actions such as share buybacks. We continue to believe Trimax is an exciting company to invest in, and with that, I'll turn the call back to Sherry. Sherry?
spk06: Thanks, Tom. At this point, we would like to open the call up to your questions.
spk04: Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question, and we'll pause for just a moment to allow everyone an opportunity to signal.
spk05: And our first question comes from Brendan Popson with CJS Securities.
spk04: Please go ahead.
spk00: Good morning. I just wanted to start off with just looking at the packaging segment. it seems like obviously there's some potential headwinds maybe in pharma or beauty. But I really want to get into the home care. Just from looking at some of what the CPGs are saying, it seems like at least some of them feel there's a potential for just elevated levels of clean supply purchases as a result of the pandemic even beyond the pandemic and certainly, you know, the, you know, your, your guidance makes sense and that, you know, it's hard to tell at this point. And, and obviously, like you said, you know, those customers are holding off on purchasing. So clearly they're trying to be conservative, you know, which again makes sense. But do you see that as a possibility? Could you, is it possible that, that this, you know, that can grow even at this, this higher level if, if, you know, some of the behaviors around cleaning, you know, cleaning shared spaces and homes, you know, maintained itself beyond just 2020.
spk03: Hey, Brendan. Good morning and thank you for the question. It's really a great question. You know, currently for our packaging business, home care is a smaller percentage of our revenue. That being said, it's an important part of our business. And we had really an outstanding year last year in that product line. And what we define in that product line would be caps and closures, push-pull caps, as well as some trigger sprayers and some other products. But certainly, when we look at that product line, we do expect to see continued activity going forward. you know, more potentially for the longer term, more uplift opportunities. So, yeah, we expect to expand our presence in that area. We did an acquisition actually a little over a year ago that landed us in that product line. So that was timed quite well. So we're pretty pleased with that product line, and we do expect that to continue to grow.
spk00: Okay, great. And then going off that, I guess where within packaging would you see maybe more of a headwind? I know a competitor of yours called out pharmaceuticals as being a tougher comp this year because of just the reduction in cold and flu this year. Is that an impact on you guys as well, or are you – Do you play in different areas as well there?
spk03: Yeah, we're largely in different areas of pharmaceutical and nutraceutical. And, again, as we look at that business, it was impacted negatively last year. And so as we look at it this year, you know, we're going to keep our eye on it, but we don't see a particular undercurrent we're worried about. To be specific, when we look – our sales in 2020 – were inordinately high in the areas of lotion pumps and foamer pumps. And you can imagine that's what's used to dispense sanitizers, soap, and then as hands get dry, lotion as well. Those are the product lines that we expect might pull back a little bit, and we're planning that they'll pull back a little bit into 2021. But when we look across most of our other product lines, We didn't see as much of an uptick in 2020 as we did with those product lines, and that's why we're, at least from a planning level, being very cautious on those product lines in 2021. Okay, great. Thank you. Appreciate it.
spk00: Thank you.
spk04: Thank you. And once again, if you would like to ask a question, please press star 1. We'll now take our next question from Steve Barger with KeyBank Capital Markets. Please go ahead.
spk01: Hey, good morning, everybody. This is Ken Newman on for Steve.
spk03: Morning, Ken.
spk01: Hi, Ken. Morning. I was just curious if you could talk a little bit more about some of the margin expectations across the various segments, particularly for Arrow in the first quarter. Obviously, you're guiding revenue up sequentially from fourth quarter. Maybe just talk a little bit about, you know, how much of the margin impact that you saw this fourth quarter was from just lower cost absorption and just whether or not you think you can get back to the high single, low double digit type of margin profile for the year.
spk02: Yeah, Ken, thank you. You know, I think the absorption question is one that is most challenging because we did take, you know, sizable cost actions as we move through 2020 in response to the impacts of the pandemic. And, you know, the balance we're trying to strike there is to reduce costs to the greatest extent possible, but at the same time not to jeopardize our ability to continue to serve these customers longer term because, frankly, in the aerospace business, we're playing for the long game. And, you know, Tom mentioned the fairly significant distributor stocking orders we received for certain of our higher-end fastener products. And, you know, that's a great example where if we had just taken a machete through the garden and chopped heads indiscriminately, we might not be in a position to, A, have secured that order, B, let alone fulfill it. And so we're cautiously optimistic as the volumes of that ramp up. We will see better absorption. But again, you know, as we move into the year, I think the counterbalance to that good news is, you know, we're sort of further removed or down the supply chain, and it's hard for us to see what level of inventory the stocking may continue to occur in 2021, which, of course, goes against the volumes in our, what I'll call our core products. So, you know, that's sort of the balance we're trying to strike. And as we look out at this point in time, we're trying to be conservative in the sense of how much of that stocking might hit us until we move further through the year and have evidence that it's either more or less of a headwind versus what we planned for.
spk01: Right. So if I think about that kind of in the context of, Obviously, I think everybody took some costs out, both structurally and temporary, at the height of the pandemic. As I think about just the idea of improving margins potentially on better absorption, should we be aware of any of the temporary costs kind of coming back in, or how should we think about the timing of flow through those temporary costs reentering the enterprise? Sure.
spk02: I think they'll only reenter to the extent volume upticks justify adding those costs back. They're variable, and in that sense, we'll scale or conversely not, depending on how volume of production goes.
spk03: And I'll just sort of offer up as well, Ken, maybe not specifically related to your question, but what we're trying to do during this period of low demand is make some structural changes to our manufacturing footprint, which frankly we could not have even come close to in 2019 given the high demand and pull rates in many of our facilities. So the benefit of that, prospectively, we believe as the markets start to recover ultimately in the future, is gaining some nice operating leverage out of our aerospace business. Now, That's not this year. It's probably a few years out, but we're positioning our business for that type of gain and to take advantage of some early wins as markets recover.
spk01: Understood. Just one more for me and then I'll jump back into the queue. Obviously, the balance sheet still looks like it's in really good shape despite a lot of expenditures for acquisitions and obviously still under your two times leverage portfolio or target, I'm sorry. Can you just talk a little bit to the M&A pipeline and where you're seeing opportunities? Are there still deals out there for a packet that are more packaging focused? Are you seeing any assets on the Aero side that are looking a bit more appealing?
spk03: Yeah, look, last year was tough, right? Because there was certainly a number of months where folks hunkered down and deals were pulled or anyone even thinking about a deal just had to focus on their business first. So we're glad that period's behind us. What we're starting to anticipate are some deals that traded about three or so years ago that are in the hands of private equity right now. And by definition, private equity is temporary capital. So our expectation is that we could start to see some assets come back to market as operating in the pandemic becomes a little bit more stabilized and predictable that were acquired a short period ago. So we're keeping our eyes open on some of those assets as well as some more niche plays that you know, we're aware of and that would augment our current product line. On the aerospace side, again, a little bit, still a little bit challenging, but yeah, there's a number of smaller companies. We're looking for some bull-time type acquisitions there that we're working on, but the challenge is, as you can imagine, owners of those businesses are coming to grips with different valuations given performance levels. So it's a process. We're working on it. It's part of what we call programmatic M&A to grow TriMAS for the long run. And we expect over the coming few years to continue to remain active, especially, as you said, with our balance sheet. Great, Keller.
spk05: Thanks.
spk04: Thanks, Ken. Thank you. And as a reminder to our audience, you may ask a question by pressing star 1.
spk05: And we have another question here. Please go ahead.
spk01: Hey, thanks again. This is Ken Newman. One more follow-up here. I just wanted to ask a little bit about the longer-term margin profile for packaging. Obviously, you'd already talked at length about the headwinds that you expect from an organic perspective within that business. And now you've got potential headwinds from – the lag in price increases or the material pass-through. But as I kind of think about that and weigh it against maybe a more normalizing mix back towards your industrial side of your business, then of course the impact of acquisitions from Afaba, which I think were still pretty good from a margin perspective. Is there any way that you can kind of help us think about, you know, year-end margins being either up or down or even flat year over year, just given all the moving pieces?
spk02: Yeah, I would think, you know, we're going to be pretty consistent with the margins that we have been performing at in that business. I mean, you do have, as you point out, the higher margin business associated with Saab and Ferrari. At the same time, you know, that's counterbalanced with lower margins in Ray-Pack. And then, again, as we look at the full year of what I'll call our core packaging Reiki business, we're not counting necessarily on big recovery in industrial markets. Now, if that happens, that will certainly be favorable to margins. But as long as we're more heavily weighted to the home, beauty, and personal care side of the mix, I think the margins are going to be kind of in that low 20%, 21% range.
spk01: Got it. And then last one from me, you know, I guess switching back to the specialty product segment, obviously you've taken out a lot of costs there and the margin profile has been pretty good despite how volatile that market has been. Is, you know, even with the revenue down sequentially into the first quarter that you're guiding, is low double digit margins kind of the new baseline for that segment and just, you know, How much more work is there to do in that segment from a cost-out perspective, and how do you see the margin progression?
spk03: So if nothing changes, that's a reasonable assumption. But I would say that with modest progress, in the markets where our aero engine, although it's a small part of our revenue base, especially products, and even trimass overall, with a small uptick in those end markets, our margin profile will change rapidly because those are very profitable markets. It's a very profitable business, and it is sort of weighing down the margin as well. That plus activities that we have underway within our Norris Cylinder business, you know, we expect to drive margin in the future as well. So if nothing changes and we sort of stay at the area, you know, the area we were in terms of sales activity for a prolonged period, you know, then we'll continue to do some cost management automation to, to move the needle a bit, but the major changes will come with higher revenue activity.
spk01: Got it. That's very helpful. Thanks again. Thanks again.
spk04: And we have no additional questions at this time.
spk03: Okay, I'd like to thank you for joining us on our earnings call, and we look forward to updating you again next quarter. Continue to wash your hands, ideally with a TriMass dispensing product, and stay safe and healthy. And this concludes today's call. Thank you all for your participation.
spk04: You may now disconnect.
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