Ampco-Pittsburgh Corporation: Q1 2024 Form 10-Q Summary
Business context and reporting period
Ampco-Pittsburgh manufactures engineered specialty metal products and customized equipment through two segments: Forged and Cast Engineered Products (FCEP) and Air and Liquid Processing (ALP). The filing covers the three months ended March 31, 2024, compared with the same period in 2023. The unaudited results are not necessarily indicative of full-year performance.
Key financial metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total net sales | $110.2 million | $104.8 million | +$5.4 million |
| Gross profit, excluding depreciation and amortization | $17.7 million | $18.4 million | Down $0.7 million |
| Operating income | $0.1 million | $2.0 million | Down $1.9 million |
| Income before income taxes | $(1.8) million | $1.3 million | Down $3.1 million |
| Net loss attributable to Ampco-Pittsburgh | $(2.7) million | $0.7 million income | Decline of $3.4 million |
| Diluted earnings per share | $(0.14) | $0.03 | Down $0.17 |
| Operating margin | 0.1% | 1.9% | Down 1.8 percentage points |
| Net margin attributable to Ampco-Pittsburgh | (2.5%) | 0.6% | Down 3.1 percentage points |
| Operating cash flow | $4.5 million | $(4.4) million | Improved $8.9 million |
| Capital expenditures | $2.8 million | $3.6 million | Down $0.8 million |
| Cash and cash equivalents | $10.8 million | $6.1 million at March 31, 2023 | Up $4.8 million year over year |
Costs of products sold, excluding depreciation and amortization, increased to 83.9% of sales from 82.4%. Selling and administrative expense increased to $13.0 million from $12.2 million. Interest expense increased to $2.8 million from $2.1 million, primarily due to higher borrowings, higher interest rates, and increased sale-and-leaseback and equipment-financing costs.
Total debt was $131.0 million at March 31, 2024, including $58.0 million under the revolving credit facility, $44.7 million of sale-and-leaseback financing obligations, $17.7 million under the equipment financing facility, and $9.2 million of industrial revenue bonds. Revolver availability was approximately $23.2 million, and the company reported compliance with applicable debt covenants. Total shareholders’ equity was $67.2 million, compared with $71.6 million at December 31, 2023.
Material changes versus the prior comparable period
- Sales increased 5.2%, driven by a $5.0 million increase in ALP revenue and a $0.4 million increase in FCEP revenue.
- ALP sales rose to $33.0 million from $28.0 million, but segment operating income declined to $2.0 million from $3.0 million because of unfavorable product mix, higher manufacturing costs, commissions, employee-related costs, and lease costs for an additional facility.
- FCEP sales increased modestly to $77.2 million from $76.8 million, while operating income declined to $1.6 million from $2.2 million. The decline included approximately $0.9 million of repairs, maintenance, and unabsorbed costs related to a fire at a cast-roll facility.
- Consolidated operating income declined despite higher sales because of lower margins, higher selling and administrative costs, and the absence of the prior-year gain on asset disposals.
- Operating cash flow improved substantially, principally because of lower investment in trade working capital, partially offset by higher asbestos-related payments.
- Backlog declined to $348.8 million from $378.9 million at December 31, 2023. FCEP backlog declined to $224.1 million and ALP backlog declined to $124.7 million.
- Other comprehensive loss was $2.5 million, largely reflecting a $2.4 million unfavorable foreign-currency translation adjustment.
Guidance, outlook, risks, contingencies, and unusual items
No quantitative full-year earnings or revenue guidance was provided. Management expects FCEP forged-roll order intake to improve in the second half of 2024 for delivery in 2025, but expects 2024 shipment volume to decline. The cast-roll market remains weak because of European economic uncertainty and low-priced Chinese imports. FEP demand is challenged by increased imports and elevated distributor inventories.
Management expects ALP demand and market share to remain steady, while production costs and supply-chain issues continue to pressure results. Price increases are being implemented for certain products. The FCEP strategic capital program is substantially complete, with the final asset expected to be placed in service in the second quarter of 2024. Remaining capital expenditure commitments were approximately $3.3 million, expected over the next 12 to 15 months.
Asbestos liability was $231.8 million at March 31, 2024, compared with an asbestos insurance receivable of $157.0 million, before the applicable allowance. The company paid $6.9 million of gross asbestos settlement and defense costs during the quarter, while insurers paid $3.3 million. Management states that actual liability and insurance recoveries could differ materially from recorded estimates because of claim trends, litigation outcomes, policy limits, insurer solvency, and other assumptions. The company recorded a significant increase in its estimated asbestos liability in the fourth quarter of 2023.
Other risks include cyclical and insufficient demand, excess global steel capacity, liquidity and refinancing needs, variable interest rates, foreign exchange, commodity and energy prices, supply-chain disruptions, equipment reliability, labor disruptions, geopolitical conditions, cybersecurity, environmental matters, and exchange-listing requirements. The filing states that there were no material changes to the risk factors disclosed in the 2023 Form 10-K.
The company maintains valuation allowances against most deferred tax assets. Management believes there is a reasonable possibility that some Swedish valuation allowance could be released within the next 12 months if sufficient profitability is achieved, but the timing and amount are uncertain.
Most important facts for investors to verify
- Whether ALP revenue growth translates into improved profitability after the current unfavorable product mix and elevated operating costs.
- Progress on restoring FCEP margins following the cast-roll facility fire and completion of the strategic capital program.
- Backlog conversion, new order intake, and the expected timing of FCEP orders in the second half of 2024.
- Revolver availability, covenant compliance, variable-rate debt costs, and the company’s ability to fund operations and capital expenditures.
- Future asbestos claim activity, settlement and defense costs, insurance recoveries, insurer creditworthiness, and changes in liability assumptions.
- Whether operating cash flow remains positive while asbestos payments and debt service continue.
- Potential release of deferred tax valuation allowances and the resulting effect on future tax expense.