TriMas Corporation — Q2 2021 Form 10-Q Summary
Business context and reporting period
TriMas designs and manufactures engineered products for consumer products, aerospace and defense, and industrial markets through its Packaging, Aerospace, and Specialty Products segments. This filing covers the unaudited quarter and six months ended June 30, 2021, compared with the corresponding 2020 periods.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $219.0 million | $199.6 million | $425.7 million | $382.3 million |
| Gross profit / margin | $58.0 million / 26.5% | $37.2 million / 18.7% | $109.4 million / 25.7% | $83.6 million / 21.9% |
| Operating profit / margin | $25.6 million / 11.7% | $(18.2) million / (9.1)% | $46.7 million / 11.0% | $1.7 million / 0.4% |
| Net income (loss) | $11.8 million | $(15.7) million | $24.9 million | $(2.6) million |
| Diluted EPS | $0.27 | $(0.36) | $0.57 | $(0.06) |
| Operating cash flow | Not separately provided | Not separately provided | $42.7 million | $30.8 million |
At June 30, 2021, cash and cash equivalents were $117.4 million, including $11.2 million of restricted cash. Total assets were $1.245 billion and shareholders’ equity was $597.6 million. Inventories were $149.9 million and net receivables were $135.2 million.
Net debt consisted primarily of $400.0 million of 4.125% senior notes due 2029, offset by cash; the company had no revolving credit borrowings and approximately $300.0 million of revolving availability. Long-term debt, net of issuance costs, was $393.4 million. The company reported a total net leverage ratio of 1.79x versus a 4.00x covenant limit and interest coverage of 12.83x versus a 3.00x requirement.
Capital expenditures were $18.3 million in the first six months. Investing cash outflow was $18.2 million, while financing activities provided $19.0 million, including debt refinancing proceeds and repayments. The company repurchased $14.2 million of common stock during the first six months and had approximately $147.5 million remaining under its authorization.
Material changes versus the prior comparable period
- Second-quarter sales increased 9.7%; first-half sales increased 11.3%. Acquisitions contributed approximately $9.9 million of Q2 sales and $27.6 million of first-half sales, while favorable currency translation contributed approximately $4.6 million and $7.4 million, respectively.
- Packaging sales rose 8.4% in Q2 and 18.7% in the first half, primarily from the Affaba & Ferrari acquisition, currency, and stronger industrial and food and beverage demand. Pandemic-related dispensing demand declined from Q2 2020 peak levels.
- Aerospace sales increased 4.6% in Q2 but declined 2.6% for the first half. Customer stocking orders for specialized fasteners supported results, while commercial aerospace demand remained depressed.
- Specialty Products sales increased 23.8% in Q2 and 4.7% for the first half, reflecting higher North American industrial and oil-field activity.
- Gross and operating margins improved substantially because significant 2020 charges did not recur, including the $23.4 million asbestos-related accounting charge and other realignment and purchase-accounting charges. Comparability is therefore affected by unusual prior-year items.
- Operating profit was adversely affected by approximately $4 million in Q2 and $6 million in the first half from higher resin, steel, and other material costs that had not yet been fully recovered through pricing.
- In March and April 2021, TriMas issued $400 million of 4.125% senior notes due 2029, redeemed its $300 million of 2025 notes, repaid revolving borrowings, and recorded approximately $10.3 million of Q2 debt financing and related expense.
Guidance, outlook, risks, and unusual items
Management did not provide specific numerical full-year revenue or earnings guidance in the filing. Management expects Packaging demand for hygiene-related dispensing and closure products to remain above pre-pandemic levels but below the Q2 2020 peak. Specialty Products demand began to rebound, while Aerospace is expected to remain below historical levels for an indefinite period, aside from the benefit of customer stocking orders.
Management believes liquidity and capital resources are sufficient for foreseeable debt service, capital expenditures, working capital, and other obligations. The company intends to continue cost reductions, footprint optimization, pricing actions, sourcing initiatives, and continuous-improvement programs to offset inflationary pressures.
- COVID-19 remains a material uncertainty affecting demand, employee availability, production efficiency, supply chains, and potential future charges.
- Higher raw material costs may not be fully or promptly recovered through pricing. Supply constraints, tariffs, foreign exchange, and customer demand volatility remain risks.
- Aerospace recovery depends on commercial aircraft production and passenger travel. Management stated that aerospace sales would be significantly lower absent 2021 stocking orders.
- Further cash and non-cash realignment charges, excess inventory charges, idle-equipment charges, or credit-loss provisions may be required, but the filing does not quantify potential amounts.
- TriMas had 374 pending asbestos cases involving 4,725 claimants and reported $27.3 million of total asbestos-related liability at June 30, 2021. Management does not expect the cases to have a material adverse effect, but future claim and defense costs remain uncertain.
- Cross-currency swaps had $250 million of notional amounts, and foreign exchange contracts had approximately $126.5 million of notional amounts, exposing results to currency movements and counterparty-related considerations.
Important facts for investors to verify
- Whether Packaging hygiene-related demand normalizes below pandemic peaks and how quickly Aerospace production recovers.
- The pace and effectiveness of pricing actions in recovering resin, steel, energy, and other input-cost inflation.
- Whether 2021 aerospace stocking orders are nonrecurring and how much they affect reported sales and margins.
- Actual cash generation after capital expenditures, share repurchases, restructuring payments, and debt-related costs.
- Compliance with debt covenants and the availability of the $300 million revolving facility.
- The ultimate cash exposure from asbestos litigation and any additional realignment or impairment charges.
- The sustainability of reported earnings after excluding the substantial 2020 asbestos, restructuring, inventory, and purchase-accounting charges and the 2021 debt refinancing expense.