Ampco-Pittsburgh Corporation — Q1 2022 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 unaudited report covers the three months ended March 31, 2022, compared with the same period in 2021. The company operates globally and reported 19.2 million common shares outstanding as of May 3, 2022.
Financial Performance and Position
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total net sales | $94.4 million | $86.8 million | +$7.6 million, approximately 8.8% |
| Income from operations | $1.2 million | $0.9 million | +$0.3 million |
| Operating margin | 1.3% | 1.0% | Improved |
| Net income | $1.6 million | $0.3 million | +$1.3 million |
| Net income attributable to Ampco-Pittsburgh | $1.6 million | $0.2 million | +$1.5 million |
| Basic earnings per share | $0.09 | $0.01 | Improved |
| Cash flow from operations | $(16.3) million | $1.9 million | $(18.1) million |
| Capital expenditures | $3.4 million | $2.4 million | +$1.0 million |
FCEP sales increased to $74.8 million from $63.4 million, driven by pricing and surcharges, higher forged engineered product shipments, and stronger demand. FCEP operating income declined to $1.3 million from $1.8 million because of lower mill-roll shipment volume and higher input costs. ALP sales declined to $19.7 million from $23.4 million, primarily because supply-chain delays reduced pump and air-handling shipments; operating income nevertheless increased to $2.7 million from $2.3 million.
Costs of products sold rose to 83.5% of sales from 80.2%, reflecting higher raw material, energy, transportation and labor costs. Selling and administrative expense decreased by $1.7 million, partly because of a one-time Change in Employee Benefit Policy. Reported operating income included a $1.4 million benefit from that policy change; adjusted operating income was a loss of $0.2 million versus reported operating income of $0.9 million in Q1 2021.
At March 31, 2022, cash and cash equivalents were $6.8 million, down from $10.3 million at year-end 2021. Total assets were $502.6 million and shareholders’ equity was $91.9 million. Inventories increased to $97.9 million from $88.2 million, and receivables increased to $81.8 million from $68.8 million, contributing to the operating cash outflow.
Total debt was $77.9 million at March 31, 2022, compared with $60.9 million at December 31, 2021. Revolving credit borrowings were $45.5 million, and remaining availability under the $100 million secured facility was approximately $33 million after reserves. The facility matures June 29, 2026. The company was in compliance with applicable covenants at quarter-end.
Material Changes Versus the Prior Comparable Period
- Sales increased approximately 8.8%, led by FCEP, while ALP sales declined because of supply-chain and customer-delivery timing issues.
- Reported earnings benefited materially from the Change in Employee Benefit Policy, which increased after-tax attributable earnings by approximately $1.4 million, or $0.07 per share.
- Operating cash flow deteriorated by $18.1 million because of increased working-capital investment, higher inventories and receivables, inflation and supply-chain disruptions.
- Debt increased by approximately $17.0 million, primarily through additional revolving-credit borrowings and a minority shareholder loan.
- Backlog rose to $327.5 million from $292.6 million at December 31, 2021. Approximately 17% was expected to be released after 2022.
- Accumulated other comprehensive loss attributable to Ampco-Pittsburgh increased to $56.9 million, largely because of foreign-currency translation losses.
Outlook, Commentary, Risks and Unusual Items
Management reported that roll-market conditions had recovered to pre-pandemic levels and that forged engineered product demand strengthened with activity in steel distribution and oil and gas markets. Price increases and commodity surcharges recovered a significant portion, but not all, of higher costs and did so with a lag. Approximately 75% of customer orders included a commodity surcharge.
Management expects continued effects from COVID-19 and the Russia-Ukraine conflict, including global supply-chain disruption, inflation, transportation delays, commodity-price volatility and potential effects on suppliers, customers, liquidity and the workforce. The filing does not provide formal full-year revenue or earnings guidance.
The company has undertaken an approximately $27 million FCEP capital program expected to occur over 18 months. Capital expenditure commitments were approximately $25 million at March 31, 2022, and management was exploring longer-term financing for these commitments.
Asbestos litigation remains a significant contingency. The asbestos liability was $177.3 million at March 31, 2022, partly offset by an asbestos insurance receivable of $119.7 million. There were 3,439 active claims at quarter-end. Management stated that future adjustments could be material, and insurance recoveries are subject to policy limits, insurer solvency, claim trends and other uncertainties.
Other risks include cyclical demand, excess steel-industry capacity, foreign-exchange movements, commodity and energy costs, liquidity constraints, equipment reliability, labor actions, regulatory changes, cybersecurity and the ability to maintain exchange listing requirements. No material changes were reported to the risk factors in the 2021 Form 10-K.
Important Facts for Investors to Verify
- Whether pricing actions and surcharges can offset inflationary raw material, energy, labor and transportation costs without further margin compression.
- The sustainability of earnings excluding the approximately $1.4 million after-tax benefit from the Change in Employee Benefit Policy.
- Working-capital trends, operating cash flow and the company’s ability to fund approximately $25 million of committed capital expenditures.
- Revolving-credit availability, borrowing-base changes, covenant compliance and refinancing plans before the June 2026 maturity.
- Backlog conversion, shipment timing and the effect of supply-chain constraints on FCEP and ALP operations.
- Updates to asbestos claims, liability estimates, insurance recoveries and insurer creditworthiness.
- The effects of foreign-exchange movements, commodity prices, natural gas and electricity commitments, and the Russia-Ukraine conflict.