TriMas Corporation

Good day and welcome to the Trimus Third Quarter 2022 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Sherry Lauderback. Please go ahead.

Thank you and welcome to Trimus Corporation's Third Quarter 2022 Earnings Call. Participating on the call today are Thomas Amato, Trimus' President and CEO, and Scott Mell, our Chief Financial Officer. We will provide our prepared remarks on our Third Quarter results and outlook, and then we will open up the call for your questions. In order to assist with the results and review, we have included today's press release and PowerPoint presentation on our company website at trimascorp.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 3906527. Before we get started, I would like to remind everyone that our comments today may contain forward-looking statements that are inherently subject to a number of risks and uncertainties. Please refer to our Form 10-K and our Third Quarter 10-Q 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 or our presentation for the reconciliations between GAAP and non-GAAP financial measures used during this call. Today, the discussion in the call regarding our financial results will be on an adjusted basis, excluding the impact of special items. With that, I will turn the call over to Tom Amato, TriMass' president and CEO. Tom?

Thank you, Sherry. Good morning, and welcome to our third quarter earnings call. On our prior earnings call, we spoke about some of the challenges we were facing in certain of our submarkets, as well as our expectation that we would see improvements begin to take hold as we move through the third quarter and into the fourth quarter, particularly within TriMass Packaging. Since that period, increasing inflationary and energy costs quickly spread to weakening consumer confidence. This turned into an abrupt impact in demand in some of our key consumer goods and markets as several of our top packaging customers decided to bring their inventories into better balance for an uncertain period. This had compounding effect as it began to emerge at the beginning of our normal holiday season pipeline fill period, which starts in late August and ramps up through November. While we believe the demand impact we are experiencing within TriMet's packaging in the second half of 2022 is largely related to our customers deferring demand due to overstock inventories, TriMAS is well positioned to navigate through this or any uncertain period. Moreover, we have several sub-markets that are showing signs of strengthening, which we believe will translate to longer-term growth. Let's turn to slide three, where I'll take a few extra minutes to better describe some of the changes we are seeing in our geographic regions and primary markets. As a reminder, Trimass' primary markets served include consumer products, which represents nearly 49% of our year-to-date sales, aerospace and defense, representing 20% of our year-to-date sales, and general industrial, representing 31% of our year-to-date sales. All of our sales into the consumer products market and a portion of our sales into the general industrial markets are captured within our packaging segment which represents approximately 60% of our overall revenues. Within North America, we are experiencing the onset of a robust recovery within the aerospace and defense market, which is ahead of our expectations, and continued strong order intake within certain of our general industrial markets. We are also experiencing, as everyone on this call is well aware, the highest inflationary rates in four decades. This effect, along with continued news cycles mentioning a pending recession, is indeed creating a cautious planning environment which we are most acutely seeing within products sold into personal care applications. For example, several of our largest consumer goods customers are faced with higher dispenser stocks than normal, and have therefore decided to take a much more conservative approach to increasing stock in anticipation of their seasonal selling period. Scott will go into further details on some of the specific product lines that are off our planned sales rates. However, it is important to note that each of the products where we are experiencing softer sales are consumable and we do expect demand to recover as we move into and through 2023. To unpack this a bit further, our TriMass Specialty Products Group had strong sales for the quarter, up 14.5%, and with a current order backlog that remains strong. Operating profit conversion was slightly lower than last year, primarily due to higher costs for steel and less favorable product mix, but overall at solid performance levels. Our TriMass Aerospace Group sales were slightly down by 2.3% from the prior year quarter, However, when normalized for the 2021 special stocking orders, organic sales were actually up 8.5%. It is also important to note that we are experiencing a robust order intake rate within TriMass Aerospace, which has driven our backlog higher as compared to the prior year quarter. While this is great long-term news, the high demand rate creates some temporary near-term production challenges. For example, we continue to navigate supply chain and labor constraints, which we expect will continue through the fourth quarter. Therefore, our conversion was negatively impacted. With that said, the TriMAS team successfully unleashed an earnings and cash generating real estate divestiture project, which helped offset some of the period efficiency issues. Within our TriMass packaging group, sales of certain dispenser products for hand soap, sanitizer, and lotion dispensing applications were significantly lower as compared to the prior year quarter for the reasons I previously noted. In total, our net sales for growth for North America is up 5% overall. However, when adjusted for currency and acquisitions, we are off the prior year quarter by 2%. So to sum up, the results we are experiencing with the North America overall are mixed. Within Europe, not surprisingly, the effects on consumers from the geopolitical fallout is even more profound. Our sales within Europe are off the prior year quarter, adjusted for currency by 5%, all of which is within our trimass packaging group, and the vast majority of which is within our dispenser-related product lines. Additionally, within Europe, one of the main issues is related to energy and fuel. For the quarter, higher utility expenses within Europe cost TriMet just over 3 cents per share, and which has impacted us by nearly 9 cents per share on a year-to-date basis, and we anticipate that will grow to about 11 cents for the full year. We are actively taking a number of steps to identify ways to reduce energy consumption such as accelerating our shift to more efficient manufacturing equipment. Additionally, we are seeing certain governments begin offering subsidies to assist their manufacturing base through this uncertain time. I remain hopeful that a careful resolution to the conflict between Russia and Ukraine will occur in the nearer term, benefiting the people in this part of the world as well as the European and global economies generally. Within Asia, and more specifically China, the zero COVID policy will continue to suppress regional economic growth. While our sales in the region are only approximately 5% of our total, this important region of the world for TriMAS is off nearly one-third as compared to the prior year quarter, all of which is within our TriMAS packaging group. As a result of these very dynamic global market conditions, we are reporting earnings per share of 40 cents, the main unfavorable drivers of which are predominantly volumetric sales and mix, related underabsorbed structural costs, and energy costs. While we are not pleased with this result, our global team continues to work diligently to navigate each of our businesses through this uncertain period while still executing our long-term strategy. Let's turn to slide four, where I'll further summarize our financial results for the quarter. Sales were $218.5 million, down 1.7% from the prior year quarter, driven by a decrease in organic sales of 4.8%, and unfavorable foreign currency exchange of 2.7%, offset by acquisition sales, which contributed 5.8%. Adjusted operating profit for the quarter was $21.6 million, or just under 10% of sales for the quarter, a margin which was lower than the prior year quarter, mainly due to the lower demand and related under-absorption of both fixed and SG&A costs in the period, mixed and energy costs. Additionally, we experienced certain production inefficiencies, predominantly within our TriMass Aerospace Group, largely offset by a property divestiture, also within TriMass Aerospace, as I noted earlier. Adjusted EBITDA was $37.6 million, or 17.2% of sales, certainly below our longer-term target. However, I expect to return to a higher rate as we make operating leverage gains in the future with increasing order intake and shipments. At this point, I'll turn the call over to Scott, who will take us through our balance sheet and segment results. Scott?