This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk01: Welcome to the AMCO Pittsburgh Corporation first quarter 2023 earnings results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw a question, please press star, then two. Please note this event is being recorded. I'd now like to turn the conference over to Kim Knox, Corporate Secretary. Please go ahead.
spk00: Thank you, Vaishnavi, and good morning to everyone joining us on today's first quarter 2023 conference call. Joining me today are Brett McBurr, our Chief Executive Officer, and Mike McCauley, Senior Vice President and Chief Financial Officer. Also joining us on the call today are Sam Lyon, President of Union Electric Steel Corporation, and Dave Anderson, President of Air and Liquid Systems Corporation. Before we begin, I would like to remind everyone that participants on this call may make statements or comments that are forward-looking and may include financial projections or other statements of the corporation's plans, objectives, expectations, or intentions. These matters involve certain risks and uncertainties. many of which are outside the corporation's control. The corporation's actual results may differ significantly from those projected or suggested in any forward-looking statement due to various risk factors, including those discussed in the corporation's most recently filed Form 10-K and subsequent filings with the Securities and Exchange Commission. We do not undertake any obligation to update or otherwise release publicly any revision to our forward-looking statements. A replay of this call will be posted on our website later today. To access the earnings release or the webcast replay, please consult the investor section of our website at amcopgh.com. With that, I will turn the call over to Brett McBrayer, AMCO Pittsburgh CEO. Brett?
spk05: Thank you, Kim. Good morning, and thank you for joining our call. As shared in yesterday's press release, AMCO Pittsburgh achieved a net income of of $.7 million, or 3 cents per share, in Quarter 1 of 2023. Sales were up 11 percent versus the prior year and 12 percent over the prior quarter. We experienced backlog growth in both our Forged and Cast Engineer products and air and liquid processing segments, with total backlog up 16 percent versus the prior year and 3 percent over the prior quarter. Our air and liquid processing segment has now seen five consecutive quarters of record backlog. We continue to see strong demand for our products in North America, with softness continuing in Europe. The recent announced blast furnace restarts, however, in Europe indicate demand may be recovering. Our pricing actions and expanded surcharges continue to improve the performance of our forged and cast-engineered product segment. Our U.S. equipment modernization program remains on track, with completion expected in the fourth quarter of this year. From a health and safety perspective, our company had a solid quarter as we continue to focus on our goal of zero injuries in the workplace. David Anderson, president of Air and Liquid Systems, will now discuss his segment's performance in more detail.
spk04: Thank you, Brett. Good morning. In the first quarter of 2023, we continued to see the positive results of our strategic growth plan. One of our initiatives was to strengthen our sales force, both internally and for our third-party representative network. The results of this quarter show the tremendous progress we have made with our sales teams. Sales increased 42% versus prior year, as all three divisions achieved double-digit sales growth. Q1 sales of 28 million was the highest for any quarter in the last 10 years. Even with the higher sales level, our backlog grew once again to a new record this quarter as order activity continues to be very strong. This means we have now achieved a new record backlog for five consecutive quarters. As our sales have continued to grow, we have also addressed our manufacturing capacity to make sure our production capabilities allow our sales growth plans to continue forward. On April 1st, we leased 61,000 square feet of additional manufacturing space in Lynchburg, Virginia that was needed as a direct result of the sales growth we are seeing at both our Aerofin and Buffalo Air handling businesses. Operating income for Q1 was $3 million versus an income of $2.7 million in the prior year. The prior year income included $0.7 million in income for a one-time employee benefit policy adjustment. Excluding the one-time adjustment shows operating income growth of 50% versus prior year. With a record backlog, quarterly revenue at the highest level in more than a decade, and increased manufacturing capabilities, Air and Liquid is well-positioned to continue forward with our growth plans in the quarters ahead. Thank you, Dave.
spk05: I will now turn the call over to Sam Lyon, President of Forging Cast Engineer Products Segment.
spk02: Thanks, Brett, and good morning. We had a strong first quarter with an operating income of $2.2 million versus a loss of $0.4 million in Q1 of 2022. The significant improvement in operating results year-over-year primarily reflects our pricing strategy initiated in January of 22, implementing surcharges for energy and transportation and base price increases. In 2022, the world faced unprecedented inflationary headwinds fueled by post-pandemic demand issues supply chain restrictions, the Russian-Ukraine conflict, and the ensuing Europe energy crisis. In Q1 of 2022, sales pricing initiatives lagged our increased costs, particularly for raw materials, energy, transportation, and supplies. By June of 2022, inflation hit a 41-year high of approximately 9 percent before moderating. Counter to the instability of 2022, the first quarter of 2023 benefited from the tailwind associated with deflation and positive surcharge recovery as higher-cost inventory was sold through. In the forged engineered products area, referred to as FEP, a softening of the energy market, particularly in the U.S., lowered overall demand. Lower demand for oil and gas, higher inventory levels at our customers, and increased imports have resulted in an approximately 70% decrease in the backlog for the FEP product year over year. In the last month, we are seeing an increase in quoting activity for both oil and gas and distribution bar and anticipate improved shipments in the second half of 2023. The World Steel Association estimates that the global steel demand, excluding China, will increase by 2.3 percent in 2023. Our customer base states similar sentiments as evidenced by the restart of seven blast furnaces, the modernization of two additional blast furnaces, and investments in new aluminum rolling mills in the United States. Our forage rule backlog is robust, showing a 26 percent year-over-year increase and is reflective of a positive North American steel industry outlook driven by increased demand from the automotive industry. Our total backlog was $258 million at the end of Q1, the third quarter of sequential growth and the highest of the last eight quarters. For 2024, the World Steel Association estimates the demand to increase by another 2.5 percent in the U.S., with Europe growing by a robust 5.6 percent. Pricing negotiations are complete for 2024 for many of our larger rule customers. We are continuing to see a robust demand for our forged rules and steady demand for our cast rules made in Europe. The ability to increase pricing has remained strong as the market recovers and our customers desire to purchase locally to protect their supply security. In our Bergestown facility, we have installed the first of five new machining centers as part of our capital expansion and improvement program in the U.S. We are currently in the testing phase of the equipment, and the preliminary results are in line with our expectations. We are excited about the forthcoming positive impact on our operating results as we achieve the commissioning of the first machining tool. The remaining four machine centers and the new furnaces are scheduled to be commissioned by year-end.
spk05: Thank you, Sam. At this time, Mike McCauley, our Chief Financial Officer, will share more detail regarding our financial performance for the quarter.
spk03: Thank you, Brett. As shared in the press release and shown in the Corporations Form 10-Q filed last week, AMCO Pittsburgh recorded net income in the first quarter of 2023 of $0.7 million, or $0.03 per diluted share. This compares to an approximate break-even position in the prior year. AMCO's net sales for the first quarter of 2023 were $104.8 million, an increase of approximately 11% to net sales for the first quarter of 2022. Net sales in the air and liquid processing segment grew 42% year over year, driven primarily by higher shipments of heat exchange coils and air handling units. Net sales for the forged and cast engineered product segment in the first quarter of 2023 were approximately 3% higher than the prior year period, primarily due to higher roll pricing and shipment volume, offset in part by a decline in shipments of other forged engineered products and an unfavorable foreign exchange translation effect. Income from operations for the first quarter of 2023 was $2 million. This compares to a loss from operations in the prior year quarter of half a million dollars. Higher pricing and overall shipment volumes were the primary drivers for the improvement, despite the impact of lower manufacturing overhead cost absorption due to higher plant downtime this year in the forged and cast engineered product segment. In addition, the prior year quarter included a $1.4 million benefit for a change in an employee benefit policy, which reduced SG&A as well as cost of sales in Q1 of last year. Therefore, the underlying improvement in operating results versus prior year was even larger on a non-GAAP basis. Interest expense for the quarter increased compared to prior year due to a rise in both total debt and interest rates. Backlog at March 31, 2023 of $380.6 million increased approximately 3% sequentially and rose 16% from a year ago. Backlog for the FortuneCast Engineer product Product segment increased approximately 2% sequentially and approximately 7% year-over-year, while backlog for the air and liquid processing segment continues to be at record highs, up 5% sequentially and up 40% versus prior year. Net cash flows used in operating activities was approximately $4.3 million for Q1 2023, primarily in support of working capital. This represents a significant improvement from Q1 of 2022 due to improved operating results and lower investment in overall working capital in the current year quarter. Capital expenditures for the first quarter of 2023 were $3.7 million, primarily for the Forged and Cast Engineer product segment. At March 31, 2023, the corporation's balance sheet and liquidity position included cash on hand of $6.1 million and undrawn availability on our revolving credit facility of approximately $31 million. Operator, at this time, we would now like to open the line for questions.
spk01: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Justin Bergner with Gabily Funds. Please go ahead.
spk07: Oh, hi, Brett, Mike, and the rest of the team.
spk06: Hey, Justin. Justin.
spk07: A couple of just clarifying questions. So I guess to start, I thought I heard you talking about 2024 pricing contracts on the forged and engineered product side of the business. Did I hear that correctly, that you're entering into contracts for 2024, or was that just the consummation of 2023 contracts?
spk02: Justin, this is Sam. Yes, so all the big customers, ArcelorMittal, U.S. Steel, Cleveland Cliffs, people like that. So we are currently in negotiations for 2024, and many of those are allocations and pricing are established.
spk07: And is that earlier than normal to begin at this stage in the year?
spk02: No, it's actually a little earlier than last year just because lead times are going out, but it's typically done around this time of the year or even a little earlier sometimes.
spk07: Okay, great. And then the comment I think you made about the projected demand increase in the U.S. and Europe, those were 2024 numbers as well?
spk02: Correct.
spk07: Okay. Switching to sort of more general financial questions, the CapEx number, did I hear it was $23 million, or did I hear too high of a number? And what is the current sort of anticipation for the 2023 year?
spk03: For the current quarter, I think we quoted it's $3.7 million for Q1. Okay, thank you. Yeah, that was total CapEx. And then for the full year, we are projecting in the range of $22 million or so.
spk07: Okay.
spk03: So it's going to be stepping up in the next couple quarters, coincident with the delivery of the machining assets that Sam described.
spk07: Okay, yeah, and I want to turn my attention to those. If all the machining assets are delivered by year end, you know, how many quarters thereafter should one expect those assets to be operating, you know, at normal efficiencies or run rate efficiencies?
spk02: You know, probably six weeks to three months, kind of, yeah, roughly a quarter to get them up and running fully.
spk07: Oh, so the full operating efficiency benefit, you know, should be sort of in the numbers sort of by the second quarter or the mid part of 2024? Yes. Okay. Great. Thank you.
spk05: Thanks, Justin.
spk01: Again, if you have a question, please press star, then 1 to be joined into the queue. The next question comes from David Wright with Henry Investment Trust. Please go ahead.
spk06: Hi, good morning. One for Dave. On the additional space in Lynchburg, will you have much CapEx to get that up and going?
spk04: David, no. There's not a lot of CapEx involved in it. Basically putting in a crane is all we need to do. Everything else is really minor. So there's not a lot of CapEx for it.
spk06: And how about labor to staff? Is that Is that going to be much of an issue?
spk04: No, we already have a good bit of the labor. They've been training in recent weeks, so we expect we'll hit the ground running pretty quickly. That's great.
spk06: Sam, I wanted to ask on storage and engineered products, the drop in revenue in the first quarter is noticeable. And thanks for your commentary about, you know, the causes. I wondered, you know, What could we be thinking about for the entire year? Could we get to 2022 numbers or even 2021 numbers, or could it remain muted down here?
spk01: Let me see.
spk02: I'm just looking at a file here. One second, David. I mean, the F – go ahead, Mike.
spk03: We think that for the – For the full year of 2023, we should probably be – we should be exceeding 2022 sales for the Forging Cast Engineer Products segment for full year 23 versus 2022, David. Yes.
spk06: Right, but I was asking about FEP, which was like – Oh, FEP. Last year, yeah, just like $5 million in the first quarter of this year.
spk02: Yeah, you know, we anticipate that to increase in the second half, but that's kind of yet to be seen. The fraction beds are increasing. The inventory is diminishing. We're starting to see activity. So we would fully expect next year for sure to be higher than the 2022 number. But again, that's yet to be seen.
spk06: Right. So if we went back three or four quarters, this was kind of an important part of the turnaround in that excess capacity could be used, you know, and you were going to step up the marketing efforts. I'm wondering, as we are today with new equipment starting to come in and the role of business being stronger and, I guess, more profitable, are these forge-engineered products still as important at the margin?
spk02: Yeah, they're still in our plans because, number one, it diversifies us and allows some different market. When the rules may be down a little bit, that would be up a bit. So it's still important to us, so we're still going after it. But you are right, the increase in the forged rule, particularly the forged rule in the United States, is offset the drop in the FEP at this point in time. But we're not stopping our efforts to grow that side of the business.
spk03: But, David, we are staging our receipts of equipment and prioritizing our machine tools, our machining assets first and the furnaces later. So, you know, we acknowledge that, you know, there's been a market factor going on in oil and gas. And so what's coming in and what's going in first are the large lays and the furnaces are coming – coming later, et cetera.
spk06: Thanks. And then two for you, Mike. SG&A costs in the first quarter, is that going to be a run rate for the year?
spk03: I don't think that we have an unusual quarter in that regard. I think the only major variable would probably be any movement in foreign exchange or if we have higher commissions depending on where forged engineered products might go, depending on that last conversation we just had about that question. Those would be the variables in SG&A. Okay.
spk06: And then lastly, any sense of when the when the debt might peak, the absolute balance?
spk03: I expect the debt to peak probably by Q4 of this year, based on the capex and the timing of that. And I think it will probably be reaching a peak of 119, 118, something like that. Okay.
spk06: That's great. Thanks for answering these questions. And, hey, that black ink is great. And the progress of the list you're making, the plan is starting to show up. So continue. Good luck there.
spk03: Thanks, David. Thanks, David.
spk01: Next we have a follow-up from Justin Bergner with Gabby Lee Funds. Please go ahead.
spk07: Thank you. Given the improved profitability of of your Forged and Engineered products segment this quarter, would it be safe to say that your pricing mechanisms have caught up with your costs as it relates to some of these lagged surcharges or other pricing mechanisms that you might have put through? Or should we see further improvement on that price-cost dynamic as we get into the later quarters of this year?
spk02: I'd say it's caught up, and we don't know what's going to happen with some of these things. Right now, the energy market has been pretty stable, as has been the raw materials and scrap, some movement. But right now, it should be, I think, fairly well caught up. I agree. Okay, thank you.
spk07: Thanks, Justin.
spk02: Thanks, Justin.
spk01: If we have no further questions, I would like to turn the conference back over to Brett McSpreyer for any closing remarks.
spk05: Thank you. Our focus on improving financial performance continues with actions underway to accelerate growth and expand margins. The completion of our equipment modernization anticipated at the end of this year is a significant component of this strategy, with full benefits expected to be realized in 2024. I want to thank our employees for their continued hard work and dedication. Their relentless focus on improving our business has been impressive. I also want to thank you, our shareholders, for your continued support. Thank you for joining our call this morning.
spk01: The conference has now concluded. Thank you for your participation. You may now disconnect.
Disclaimer