Tredegar Corporation — Q1 2024 Form 10-Q
Business context and reporting period. Tredegar is an industrial manufacturer with three segments: Aluminum Extrusions, PE Films and Flexible Packaging Films (Terphane). This unaudited filing covers the three months ended March 31, 2024, compared with the same 2023 period. Segment results use a 13-week quarter for Aluminum Extrusions; management says the timing difference is not material to consolidated results.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Sales | $175.7 million | $191.1 million |
| Net income (loss) | $3.3 million | $(1.0) million |
| Diluted earnings (loss) per share | $0.10 | $(0.03) |
| Gross profit margin | 15.4% | 13.4% |
| Net cash used in operating activities | $7.7 million | $9.1 million |
| Capital expenditures | $2.5 million | $9.0 million |
| Interest expense | $3.5 million | $2.3 million |
Sales less freight (“net sales,” the segment revenue measure) were $169.1 million, down from $185.1 million. EBITDA from ongoing operations, a non-GAAP segment measure, totaled $21.4 million across the three segments: Aluminum Extrusions $12.5 million, PE Films $6.9 million and Flexible Packaging Films $2.0 million.
Balance sheet and liquidity at March 31, 2024
- Cash, cash equivalents and restricted cash totaled $4.8 million, including $3.5 million of cash and cash equivalents and $1.3 million of restricted cash.
- ABL borrowings were $128.3 million; the separate Terphane Brazil loan was $20.0 million. Total debt was therefore approximately $148.3 million. ABL debt is classified as current; the Brazil loan is long-term.
- ABL availability was $32.2 million before the $10.0 million minimum-liquidity covenant, or $22.2 million in excess of that covenant. The company reported compliance with its debt covenants.
- Total shareholders’ equity was $156.8 million. The company used $7.7 million of operating cash, with working-capital movements still weighing on cash generation.
Material changes versus Q1 2023
- Consolidated sales fell $15.4 million, largely reflecting lower Aluminum Extrusions volume and lower metal-cost pass-through. Aluminum Extrusions net sales declined 14.4% and volume declined 9.9%; its ongoing-operations EBITDA fell to $12.5 million from $14.6 million.
- PE Films improved substantially: net sales rose 22.6%, volume rose 36.2%, and ongoing-operations EBITDA increased to $6.9 million from $1.8 million. Management attributed the improvement to stronger surface-protection film volume, pricing, efficiencies and cost savings.
- Flexible Packaging Films volume rose 10.7%, but net sales declined 4.5% amid lower selling prices and unfavorable mix. EBITDA increased to $2.0 million from $1.4 million, supported by lower raw-material and fixed costs and higher volume.
- Gross margin improved to 15.4% from 13.4%. Lower pension expense following completion of the pension-plan termination in 2023 helped results; the prior-year quarter included $3.4 million of pension and postretirement expense. Higher average debt and interest rates increased interest expense by $1.1 million.
- Operating cash use improved by $1.4 million year over year, while investing cash use fell to $2.4 million from $8.8 million, primarily because of lower capital spending. No dividends were paid in Q1 2024; the company’s credit agreement restricts dividends and share repurchases.
Outlook, developments and risks
- Terphane sale: The proposed sale to Oben Group remains subject to customary closing conditions and Brazilian competition approval. Colombian approval was obtained in early February 2024; Brazil’s review was ongoing, with a stated maximum deadline of November 18, 2024. Management estimates after-tax, net-debt-free proceeds of $85 million, subject to change. Terphane remains reported as a continuing operation.
- Credit facility: The $180 million ABL facility matures June 30, 2026 and is scheduled to reduce to $125 million on the earlier of the Terphane sale proceeds or the ABL Adjustment Date. An April 16, 2024 amendment, after quarter-end, moved that date from March 31 to September 30, 2025 and requires weekly borrowing-base covenant reporting. Cash dominion was in effect. Before the adjustment date, the facility requires minimum Credit EBITDA and $10 million minimum liquidity; the scheduled monthly Credit EBITDA threshold rises over time.
- Management outlook: No consolidated earnings guidance is provided. Management said Aluminum Extrusions’ downturn appears to have bottomed in Q3 2023, with orders and volume improving sequentially, while noting orders remain below pre-pandemic levels. Management viewed the consumer-electronics market as recovering and described PE Films’ Q1 results as exceptional. The company expects 2024 capital expenditures of approximately $15 million across the segments ($9 million Aluminum Extrusions, $2 million PE Films and $4 million Flexible Packaging Films) and says current cash, borrowing availability and operating cash flow should meet near-term needs for at least 12 months.
- Other notable items and risks: PE Films ceased activity at its Richmond technical center by quarter-end, recording approximately $0.2 million of closure costs and a $0.3 million non-cash lease-abandonment loss. Aluminum Extrusions recorded a $1.2 million adverse FIFO aluminum-cost timing effect, compared with a $1.7 million benefit in Q1 2023. Key exposures include interest rates, raw-material and energy prices, foreign exchange, competition and import pressure, manufacturing disruptions, and meeting credit-facility requirements. The company reported disclosure controls were effective and no material update to previously disclosed risk factors.
Important facts for investors to verify
- Progress and timing of Brazilian approval for the Terphane sale, and the final net proceeds and debt repayment implications.
- ABL borrowing availability, covenant headroom and compliance as required Credit EBITDA thresholds rise; assess the effect of the post-quarter amendment and scheduled commitment reduction.
- Whether Aluminum Extrusions’ order and volume recovery continues, including the outcome and timing of the aluminum-import trade case.
- Whether PE Films’ unusually strong Q1 performance is sustainable and whether Flexible Packaging Films can withstand pricing pressure and foreign-exchange effects.
- Working-capital trends and the company’s ability to convert operating earnings into positive cash flow while managing debt and planned capital expenditures.