TriMas Corporation — 2014 Q1 Form 10-Q Summary
Reporting period: Three months ended March 31, 2014. TriMas is a global manufacturer and distributor serving commercial, industrial and consumer markets through Packaging, Energy, Aerospace & Defense, Engineered Components, Cequent APEA and Cequent Americas.
Key Financial Metrics
| Metric | Q1 2014 | Q1 2013 | Change |
|---|---|---|---|
| Net sales | $367.7 million | $337.8 million | +8.9% |
| Gross profit | $96.6 million | $83.4 million | +15.8% |
| Gross margin | 26.3% | 24.7% | +160 bps |
| Operating profit | $32.6 million | $23.7 million | +37.3% |
| Operating margin | 8.9% | 7.0% | +190 bps |
| Net income | $19.4 million | $14.0 million | +38.0% |
| Net income attributable to TriMas | $18.6 million | $13.2 million | +40.9% |
| Diluted EPS | $0.41 | $0.33 | +24.2% |
| Cash used in operating activities | $24.7 million | $37.9 million | Use decreased $13.3 million |
| Capital expenditures | $9.0 million | $14.0 million | Decrease |
Balance Sheet, Debt and Liquidity
- Cash and cash equivalents were $31.8 million at March 31, 2014, compared with $27.0 million at December 31, 2013.
- Total debt was $398.2 million, including $14.0 million of current maturities, versus $305.7 million at year-end 2013. Approximate debt less cash was $366.4 million.
- Receivables increased to $226.4 million from $180.2 million at year-end, while inventories were broadly stable at $269.9 million.
- The company had $155.7 million outstanding under its revolving credit facility and $63.7 million outstanding under its accounts receivable facility.
- After leverage restrictions, borrowing capacity available for general corporate purposes was $320.6 million, compared with $360.3 million at December 31, 2013.
- Actual leverage was 1.99x versus a 3.50x covenant limit; actual interest coverage was 13.90x versus a 3.00x minimum. The company was in compliance with its covenants.
Material Changes Versus the Prior Comparable Period
- Sales growth was driven by 2013 acquisitions, international expansion, new customers and strength in Packaging, Aerospace & Defense and Engineered Components. Acquisitions contributed approximately $28.1 million of the sales increase.
- Energy sales declined 3.9% because of delayed refinery and petrochemical turnaround activity, weaker engineering and construction activity, and lower OEM demand.
- Cequent Americas sales were essentially flat, but operating profit increased to $5.7 million from $0.7 million. The improvement primarily reflected reduced costs associated with the Goshen facility closure and production relocation, productivity gains and vendor cost reductions.
- Packaging operating profit rose to $18.4 million from $14.6 million, supported by sales growth, favorable mix, productivity and automation.
- Energy operating profit declined to $2.6 million from $5.9 million, reflecting lower volume, weaker mix and higher costs associated with acquisitions.
- Cequent APEA operating profit declined to $2.5 million from $3.2 million as acquired businesses generated lower margins and incurred integration and ongoing selling, general and administrative costs.
- Interest expense decreased to $3.5 million from $5.2 million following the 2013 refinancing, lower interest rates and lower average variable-rate borrowings.
- The effective tax rate increased to 31.0% from 13.9%. The 2013 rate benefited from discrete tax benefits and releases of unrecognized tax liabilities that did not recur.
- Operating cash flow remained negative because receivables used $45.0 million of cash, partly offset by a $1.8 million reduction in inventory investment and lower working-capital uses than in 2013.
Unusual Items, Transactions and Outlook
- On March 11, 2014, TriMas acquired the remaining 30% interest in Arminak for $51.0 million in cash, eliminating the related redeemable noncontrolling interest. Additional contingent consideration of up to $7.0 million was recorded at an estimated $3.1 million fair value, with expected payment in the second quarter of 2016.
- No acquisitions were completed during the quarter; Q1 2013 included approximately $28.2 million of acquisition spending.
- The Goshen facility closure and related production relocation were substantially completed in 2013. Remaining severance payments were expected by mid-2014.
- Management expects 2014 demand to remain choppy with limited overall economic growth, particularly in the Energy end markets. Management expects continued margin improvement as acquisitions are integrated and productivity and volume efficiencies are realized.
- Management identified continued integration of ten 2013 acquisitions, improving Cequent Americas efficiency and optimizing supply-chain logistics as key 2014 priorities.
- Material risks include cyclical and competitive end markets, consumer sentiment in Cequent businesses, raw-material inflation and supply disruptions, foreign-currency fluctuations, acquisition integration, variable interest rates and asbestos litigation.
- At March 31, 2014, 1,082 asbestos cases involving 7,985 claimants were pending. The company stated that it does not believe the cases will have a material adverse effect, although future claims, settlement costs and a potential gap before excess insurance coverage remain uncertainties.
- In April 2014, TriMas amended its accounts receivable facility to reduce usage and unused-capacity fees and extend maturity from October 2017 to October 2018. It also entered into approximately $7 million of Thai baht forward contracts for forecast inventory purchases.
Important Facts for Investors to Verify
- Whether receivables growth and the increase in days sales outstanding to 55 days are temporary or indicate higher working-capital pressure.
- Progress toward integrating the 2013 acquisitions and restoring acquired-business margins to historical TriMas levels.
- Energy-market demand, refinery turnaround activity and the effect on Energy segment margins.
- Realization of additional productivity and logistics savings following the Goshen relocation.
- Debt reduction, revolving-facility utilization and compliance with leverage and interest-coverage covenants.
- The ultimate amount and timing of Arminak contingent consideration of up to $7.0 million.
- Future asbestos claim volume, defense and settlement costs, insurance coverage and any effect on liquidity.
- Exposure to variable interest rates, foreign currencies and raw-material prices.