Luxfer Holdings plc — Q1 2021 Form 10-Q
Reporting period: 13-week quarter ended March 28, 2021; comparison is with the quarter ended March 29, 2020. Luxfer manufactures engineered materials and products through its Gas Cylinders and Elektron segments. Unless stated otherwise, financial amounts are in U.S. dollars.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Continuing-operations sales | $85.2 million | $88.4 million |
| Gross profit / margin | $25.2 million / 29.6% | $24.1 million / 27.3% |
| Operating income / margin | $11.1 million / 13.0% | $9.0 million / 10.2% |
| Continuing-operations net income | $8.6 million | $7.2 million |
| Adjusted EBITDA | $17.7 million | $15.8 million |
| Adjusted diluted EPS | $0.39 | $0.34 |
| Operating cash flow | $15.2 million | $(4.5) million |
Reported total net income was $14.5 million, or diluted EPS of $0.52, versus $6.2 million, or $0.22, a year earlier. Q1 2021 included a $7.5 million after-tax gain on disposal of the U.S. aluminum cylinder business; discontinued operations also recorded a $1.6 million loss. Adjusted measures are non-GAAP.
Cash was $31.8 million at quarter end, versus $1.5 million at December 31, 2020. Total debt was $73.0 million, up from $53.4 million; management reported net debt of $41.2 million and net debt to EBITDA of 0.7x. The $150 million committed revolving facility had $23.6 million drawn and $126.4 million undrawn. The company reported compliance with debt covenants.
- Gas Cylinders: sales of $36.2 million, down 2.7%; adjusted EBITDA of $6.0 million, up 42.9%. Sales softness in SCBA and medical oxygen cylinders was partly offset by alternative-fuel products.
- Elektron: sales of $49.0 million, down 4.3%; adjusted EBITDA of $11.7 million, up 0.9%. Lower oil and gas, photoengraving, and chemical catalysis sales were partly offset by growth in defense-related products and magnesium aerospace alloys.
Changes and notable items
- Continuing-operations sales fell 3.6%, but gross margin improved 2.3 percentage points. Management attributed improved profitability primarily to cost-reduction measures, including actions taken in response to COVID-19, with adverse product mix a partial offset.
- On March 15, Luxfer acquired Structural Composites Industries for $19.3 million cash. The acquisition is intended to strengthen composite cylinders and alternative-fuel capabilities; purchase-price allocation remained provisional. Its results were not material to consolidated results.
- The company sold its U.S. aluminum gas-cylinder business for $21.0 million cash, recognizing a $7.5 million after-tax gain. It continued to classify the Superform businesses as held for sale and expected their sale in 2021.
- Q1 included $1.4 million of restructuring charges and a $1.1 million charge to settle a class-action matter concerning an alleged historic California labor-code violation. The company expected the settlement cash payment during 2021, with no further income-statement charge.
Outlook, liquidity, and risks
The filing gives no specific earnings or revenue guidance. Management said most product lines were returning to sequential growth, all facilities were operating, and it expected 2021 capital expenditures of approximately $10–$12 million. Operating priorities include integrating SCI, divesting non-strategic aluminum businesses, pursuing productivity and growth, and maintaining cash generation. A $0.125-per-share interim dividend was declared after quarter end, payable May 5, 2021.
Management said COVID-19, uncertain demand, potential supply constraints, raw-material and utility costs, currency movements, competition, acquisition integration, indebtedness, and product-liability claims could affect results. It stated that stress testing had identified no liquidity concerns, but noted that future cash generation depends on demand and successful product development. Two disclosed claims involve a 2014 cylinder rupture and a 2018 third-party waste-site explosion; management said it did not believe the company was liable and did not expect either matter to have a material impact. No material subsequent events or changes in risk factors were reported.
Important facts for investors to verify
- Whether sales recovery and margin gains persist, particularly in general industrial, transportation, and oil-and-gas end markets.
- SCI integration progress and the completion, timing, and proceeds of the planned Superform divestiture.
- Cash conversion and working-capital needs, alongside debt levels, facility availability, covenant compliance, and the stated capital-spending plan.
- The final purchase-price allocation for SCI and any developments in the labor settlement or disclosed litigation.
- The effect of COVID-19, supply constraints, foreign exchange, and product mix on future operating results.