Ampco-Pittsburgh Corporation — Q1 2021 Form 10-Q Summary
Reporting period: Three months ended March 31, 2021. The unaudited results cover two segments: Forged and Cast Engineered Products (FCEP) and Air and Liquid Processing. The company manufactures specialty metal products, engineered equipment, heat exchangers, air-handling systems, and pumps.
Key Financial Metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net sales | $86.8 million | $91.1 million | Down $4.3 million, or 4.7% |
| Income from operations | $0.9 million | $4.4 million | Down $3.4 million |
| Operating margin | 1.0% | 4.8% | Down 3.8 percentage points |
| Net income | $0.3 million | $4.6 million | Down $4.3 million |
| Net income attributable to Ampco-Pittsburgh | $0.2 million | $4.1 million | Down $4.0 million |
| Basic and diluted EPS | $0.01 | $0.33 | Down $0.32 |
| Operating cash flow | $1.9 million | $12.6 million | Down $10.7 million |
| Capital expenditures | $2.4 million | $1.9 million | Up $0.5 million |
Margins and earnings: Costs of products sold, excluding depreciation and amortization, increased to 80.2% of sales from 77.0%. Management attributed the deterioration primarily to lower production and cost absorption in FCEP, lower mill-roll shipments, higher raw-material costs, unfavorable product mix, and the absence of a $0.8 million business-interruption insurance recovery recorded in Q1 2020. Selling and administrative expense was relatively stable at $11.6 million versus $11.8 million.
Other income, taxes, and unusual items: Net other expense improved to $0.2 million from $2.5 million, driven by lower foreign-exchange losses, improved investment results, and higher pension income. The Q1 2020 tax benefit included a $3.5 million CARES Act benefit; Q1 2021 included a $0.4 million tax provision. Q1 2020 earnings also benefited from the $0.8 million business-interruption insurance recovery. Management reported adjusted operating income of $0.9 million in Q1 2021 versus $3.6 million in Q1 2020 excluding that recovery.
Liquidity, Cash Flow, and Debt
- Cash and cash equivalents were $18.3 million at March 31, 2021, compared with $16.8 million at December 31, 2020. The filing states that most cash was held by foreign operations.
- Operating cash flow was $1.9 million, while investing activities used $2.3 million and financing activities provided $2.2 million. Financing cash flow included $3.1 million from warrant exercises.
- Total borrowings were $36.5 million, consisting primarily of $5.6 million under the revolving facility, $20.1 million of sale-and-leaseback financing, and $9.2 million of industrial revenue bonds. Current debt was $14.6 million and long-term debt was $21.9 million.
- The revolving credit facility provides for borrowings of up to $92.5 million and had approximately $46.8 million of remaining availability, net of reserves. The company was in compliance with applicable covenants at quarter-end.
- The revolving facility matures May 20, 2022. Management intended to negotiate a longer-term arrangement before maturity and was exploring financing alternatives for planned capital investments.
- Capital expenditure commitments were approximately $3.7 million over the following 12–18 months. Management also described a significant FCEP capital program of approximately $25 million to $30 million over three years.
Segment Performance and Changes Versus Prior Period
| Segment | Q1 2021 Sales | Q1 2020 Sales | Q1 2021 Operating Income | Q1 2020 Operating Income |
|---|---|---|---|---|
| FCEP | $63.4 million | $68.8 million | $1.8 million | $4.6 million |
| Air and Liquid Processing | $23.4 million | $22.3 million | $2.3 million | $2.6 million |
- FCEP sales declined 7.9%, primarily because mill-roll shipments fell by approximately $8.8 million as customers remained affected by the pandemic. Higher forged-engineered-product shipments added approximately $2.7 million, and foreign-exchange translation added approximately $3.1 million.
- FCEP operating income declined by $2.7 million. Lower production and cost absorption, lower shipment volume, higher raw-material costs, and unfavorable product mix more than offset lower selling and administrative expense and favorable foreign-exchange effects.
- Air and Liquid Processing sales increased 5.2%. Pump sales benefited from shipments to U.S. Navy shipbuilders, while heat-exchange-coil sales declined and air-handling sales were relatively stable. Operating income declined modestly because of product mix.
- Consolidated backlog was $240.2 million at March 31, 2021, versus $246.1 million at December 31, 2020. FCEP backlog declined to $182.2 million from $191.9 million, while Air and Liquid Processing backlog increased to $58.1 million from $54.2 million.
Outlook, Risks, and Contingencies
- Management stated that FCEP roll-market conditions were improving but remained below pre-pandemic levels. Assuming no significant virus resurgence or new variants, management expected sales-order activity to return to pre-COVID levels in the latter part of 2021, with shipments improving in 2022. This was commentary rather than formal quantitative guidance.
- The company continued to experience temporary FCEP idling, employee furloughs, customer delivery delays, and potential order cancellations related to COVID-19. Future effects remained uncertain and could include supply-chain disruption, higher receivable write-offs, and asset impairments.
- Material risks include cyclical demand, excess global steel capacity, foreign-exchange and commodity-price volatility, COVID-19, trade restrictions and Brexit-related burdens, operational restructuring, capital availability, equipment failures, labor actions, cybersecurity events, and asbestos litigation.
- Asbestos liabilities were $176.9 million at March 31, 2021, with related insurance receivables of $115.9 million. The company had approximately 5,964 total pending claims, including 3,077 active claims under its revised presentation. Actual costs and insurance recoveries could differ materially from estimates because of claim trends, settlement costs, defense costs, insurer solvency, policy limits, and litigation developments.
- Gross asbestos settlement and defense costs paid during the quarter were $3.3 million, of which insurers paid $2.1 million. The company stated that a substantial majority of the costs reported were paid by insurers.
- Environmental remediation and compliance exposure was estimated at approximately $0.1 million. Outstanding letters of credit were $14.4 million, and surety bonds approximated $4.0 million.
Investor Verification Priorities
- Verify whether FCEP order activity and mill-roll shipments recover as projected and whether backlog converts to revenue without further pandemic-related delays.
- Monitor gross margin and cost absorption, particularly raw-material costs, production utilization, product mix, and any further temporary facility idling.
- Assess refinancing progress for the revolving credit facility before its May 2022 maturity and the funding plan for the $25 million to $30 million FCEP capital program.
- Reconcile cash availability with the fact that much of the company’s cash is held by foreign operations and domestic cash is used to reduce revolving borrowings.
- Track asbestos claim counts, settlement and defense costs, reserve changes, insurance recoveries, insurer credit quality, and any developments involving Howden’s access to shared insurance coverage.
- Separate recurring operating performance from the Q1 2020 CARES Act tax benefit and business-interruption insurance recovery when comparing future results.