TriMas Corporation — Q3 2020 Form 10-Q Summary
Business context and reporting period
TriMas designs and manufactures products serving consumer products, aerospace and defense, and industrial markets through its Packaging, Aerospace, and Specialty Products segments. The filing covers the quarter and nine months ended September 30, 2020, compared with the corresponding 2019 periods. Lamons, sold in December 2019, is presented as discontinued operations for prior periods.
Key financial metrics
| Metric | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 |
|---|---|---|---|---|
| Net sales | $199.5 million | $188.4 million | $581.8 million | $552.6 million |
| Gross profit | $51.9 million | $49.0 million | $135.5 million | $149.6 million |
| Gross margin | 26.0% | 26.0% | 23.3% | 27.1% |
| Operating profit (loss) | $(108.3) million | $23.6 million | $(106.6) million | $70.4 million |
| Operating margin | (54.3)% | 12.5% | (18.3)% | 12.7% |
| Net income (loss) | $(100.9) million | $19.1 million | $(103.5) million | $60.2 million |
| Diluted EPS | $(2.32) | $0.42 | $(2.37) | $1.32 |
- Q3 sales increased 5.9%; nine-month sales increased 5.3%. Packaging growth and acquisitions more than offset declines in Aerospace and Specialty Products.
- Q3 Packaging sales rose 28.1% to $135.1 million, with operating profit of $28.0 million and a 20.7% operating margin. Aerospace sales fell 22.6% to $39.1 million and generated a $133.5 million operating loss, including impairment charges. Specialty Products sales declined 22.1% to $25.2 million, with operating profit of $3.4 million.
- For the nine months, Packaging sales increased 22.0% to $364.0 million, while Aerospace sales decreased 10.3% to $130.7 million and Specialty Products sales decreased 19.8% to $87.1 million.
- Operating cash flow from continuing operations was $79.1 million for the nine months, compared with $60.6 million in 2019. Capital expenditures were $17.7 million and acquisition spending was $95.2 million.
- Cash and cash equivalents were $99.7 million at September 30, 2020, including $10.5 million restricted as collateral for letters of credit, versus $172.5 million at December 31, 2019.
- Debt consisted primarily of $300.0 million of 4.875% senior notes due October 2025, reported at $295.6 million net of issuance costs. No revolving credit borrowings were outstanding, and approximately $300.0 million was available under the revolving facility.
- The company reported compliance with debt covenants. Actual total net leverage was 1.44x versus a 4.00x covenant limit, and interest coverage was 12.79x versus a 3.00x minimum.
Material changes versus the prior comparable period
- TriMas recorded $134.6 million of non-cash impairment charges in Q3, consisting of $126.8 million of Aerospace goodwill impairment and $7.8 million of Aerospace indefinite-lived intangible asset impairment. Aerospace Fasteners retained $62.9 million of goodwill; Aerospace Engineered Products had no remaining goodwill.
- The impairment assessment reflected materially reduced aerospace forecasts and uncertainty regarding the duration and severity of COVID-19 effects on air travel, aircraft production, and customer demand. A 1% change in the discount rate would have changed the goodwill impairment by approximately $20 million.
- TriMas recorded a $23.4 million non-cash asbestos-related charge in Q2 after changing its accounting method to recognize estimated future defense costs for known and unknown claims. Total asbestos-related liability was $29.4 million at September 30, 2020.
- 2020 realignment actions generated approximately $19.1 million of operating charges during the nine months, including inventory reductions, equipment write-offs, and severance. Approximately $16.4 million of the related charges were included in cost of sales and $2.7 million in SG&A.
- RSA Engineered Products was acquired in February for approximately $83.7 million and contributed approximately $4.7 million of Q3 sales. Rapak was acquired in April for approximately $11.4 million and contributed approximately $4.9 million of Q3 sales, but operated below break-even because of COVID-19-related demand weakness.
- The company repurchased 1.4 million shares for approximately $36.0 million during the nine months and had approximately $165.1 million remaining under its $250 million authorization.
Guidance, outlook, risks, and unusual items
Management did not provide specific quantitative full-year earnings or sales guidance. It expects Packaging demand, particularly for dispensing and closure products used in hygiene and cleaning applications, to remain comparatively strong. Aerospace sales are expected to decline further as aircraft manufacturers reduce production, while Specialty Products sales are expected to remain below 2019 levels unless industrial activity recovers.
- COVID-19 may continue to affect customer demand, facility operations, employee availability, supply chains, credit losses, liquidity, asset values, cybersecurity, and access to financing.
- Management may incur additional cash and non-cash charges for further realignment actions, uncollectible accounts, excess inventory, idle equipment, or additional impairment. The amount cannot currently be estimated.
- Aerospace goodwill remains sensitive to recovery assumptions for air travel, aircraft builds, customer orders, margins, discount rates, and terminal growth rates. Further impairment is possible if results or forecasts deteriorate.
- Asbestos exposure includes 374 pending cases involving 4,693 claims at September 30, 2020. The actuarial estimate of future liability ranged from $31.5 million to $43.3 million; the company recorded liability at the low end and stated that it does not expect the cases to materially affect financial position or cash flows.
- On October 27, 2020, TriMas agreed to acquire Affaba & Ferrari Srl for approximately €84 million. The transaction was expected to close before year-end 2020 and would be reported in Packaging.
Important facts for investors to verify
- Whether aerospace demand and cash flows recover in line with management’s impairment-test assumptions and whether additional impairment charges are required.
- The sustainability of Packaging’s pandemic-related demand and the profitability trajectory of Rapak.
- Actual cash conversion after acquisitions, share repurchases, restructuring payments, and working-capital requirements.
- Compliance with the 2022 revolving-credit maturity, covenant requirements, and liquidity needs under prolonged COVID-19 weakness.
- The evolution of asbestos claims, defense costs, settlements, insurance coverage, and the adequacy of the $29.4 million recorded liability.
- The closing terms, financing, integration requirements, and expected contribution of the Affaba & Ferrari acquisition.