TriMas Corporation 2019 Q2 Form 10-Q Summary
Business Context and Reporting Period
TriMas is a diversified industrial manufacturer serving consumer products, aerospace, industrial, petrochemical, refinery, and oil and gas markets through its Packaging, Aerospace, and Specialty Products segments. This filing covers the quarter and six months ended June 30, 2019, compared with the corresponding 2018 periods.
During 2019, TriMas acquired Plastic Srl and Taplast S.p.A., both included in Packaging. Machined components operations were moved from Aerospace to Specialty Products for segment reporting purposes.
Financial Performance and Key Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Net sales | $239.4 million, up 6.4% | $460.7 million, up 4.2% |
| Gross profit | $65.4 million versus $64.8 million | $125.2 million versus $125.2 million |
| Gross margin | 27.3% versus 28.8% | 27.2% versus 28.3% |
| Operating profit | $31.1 million versus $31.5 million | $57.0 million versus $66.7 million |
| Operating margin | 13.0% versus 14.0% | 12.4% versus 15.1% |
| Net income | $22.0 million versus $19.6 million | $41.1 million versus $43.9 million |
| Diluted EPS | $0.48 versus $0.42 | $0.90 versus $0.95 |
| Operating cash flow | Not separately provided | $29.3 million versus $51.6 million |
Second-quarter sales increased in all three segments. Packaging sales were $104.0 million, Aerospace sales were $42.2 million, and Specialty Products sales were $93.1 million. Six-month sales were $192.8 million, $80.6 million, and $187.3 million, respectively.
Cash and cash equivalents were $40.3 million at June 30, 2019, compared with $108.2 million at December 31, 2018. The decline primarily reflected $67.0 million of acquisition spending, $12.3 million of capital expenditures, $15.4 million of share repurchases, and working-capital uses.
Total debt was approximately $294.2 million, consisting primarily of $300.0 million of 4.875% senior notes due October 2025, net of debt issuance costs. The company had no revolving credit borrowings and approximately $285.2 million of available borrowing capacity after letters of credit. Total net leverage was 1.57x, and interest coverage was 15.35x; the company was in compliance with its debt covenants.
Material Changes Versus the Prior Comparable Period
- Acquisitions contributed approximately $9.6 million of second-quarter sales and $12.5 million of first-half sales. Their lower margins reduced Packaging’s margin by more than 100 basis points in the second quarter.
- Gross and operating margins declined due to unfavorable product mix, acquisition-related costs, foreign exchange, and the non-repeat of a $1.1 million favorable lease-obligation estimate adjustment recorded in 2018.
- Operating profit and six-month net income were pressured by the non-repeat of an approximately $8.2 million non-cash reduction in legacy corporate expenses recorded in the first quarter of 2018 after the termination of a Metaldyne-related liability.
- Second-quarter net income increased because the $2.5 million pension settlement charge recognized in 2018 did not recur and 2019 included favorable foreign-currency-related gains.
- Six-month operating cash flow decreased by $22.3 million, primarily due to lower earnings before non-cash items and a $29.1 million reduction in accounts payable and accrued liabilities.
- TriMas repurchased 502,500 shares for approximately $14.7 million in the second quarter and 527,400 shares for approximately $15.4 million in the first half. Approximately $47.4 million remained available under the repurchase authorization at June 30, 2019.
Outlook, Risks, Contingencies, and Unusual Items
Management described second-quarter results as consistent with expectations and remained cautiously optimistic about 2019 growth and earnings prospects. It did not anticipate broad end-market improvement because of economic uncertainty and potential effects from foreign trade policies. Management planned to emphasize Packaging and Aerospace growth initiatives, continuous improvement, cost reduction, supplier alternatives, and alignment of Specialty Products capacity with demand.
- Upstream oil and gas demand softened because of lower drilling investment and rig counts in the United States and Canada.
- Key exposures include raw-material costs for resins, steel, aluminum, and oil- and metal-based components; tariffs and other trade measures; foreign currency movements; supply constraints; cyclical demand; acquisitions and integration; leverage; cyber and information technology risks; litigation; and regulatory actions.
- The company reported 4,806 pending asbestos claims at June 30, 2019. Primary insurance coverage was exhausted in November 2018, although excess coverage may become available under a coverage-in-place agreement. Management did not believe the litigation would have a material adverse effect, but stated that future claims and costs could increase.
- Operating lease right-of-use assets and lease liabilities of approximately $40 million were recognized upon adoption of the new lease standard. The adoption did not affect the income statement.
- The company expects approximately $1.9 million of pension contributions for full-year 2019. No material changes to previously disclosed risk factors were reported.
Important Facts for Investors to Verify
- Whether acquired Packaging businesses achieve planned integration synergies and margin improvement.
- Packaging margin recovery and the sustainability of Aerospace production-throughput gains.
- Oil and gas demand, foreign exchange trends, tariffs, and raw-material cost recovery.
- Operating cash-flow conversion and working-capital requirements after the acquisitions.
- Liquidity, covenant compliance, refinancing considerations for the 2025 senior notes, and continued share repurchase activity.
- Developments in asbestos claims, insurance recoveries, and related defense and settlement costs.
- Management’s ability to deliver its cautiously optimistic 2019 outlook despite the absence of expected broad end-market improvement.