TriMas Corp (TRS) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the TriMas first-quarter earnings 2007 conference call.

At this time all participants are in a listen-only mode. Later, there will be a question-and-answer session and instructions will follow at that time. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded.

I would now like to introduce your host for today's conference, Mr. Skip Autry. Sir, you may begin your conference.

Thank you, Adrianna. Welcome to the first-quarter 2007 TriMas Corporation earnings call.

Our President and CEO, Grant Beard, and I will review TriMas' first-quarter results. To facilitate the review, we have provided a press release and PowerPoint presentation on our company Web site, TriMasCorp.com. After our prepared remarks, we will have a Q&A session for the audience. Also present with us today from TriMas is Bob Zalupski, our Vice President of Finance and Treasurer, and David Mosteller, our Director of Financial Operations.

A replay of this call will be available later today by calling 866-837-8032 with reservation number 1080509.

Before we get started, I'd like to remind everyone that our comments today, which are intended to supplement your understanding of TriMas, may contain forward-looking statements that are inherently subject to uncertainties. We caution everyone to be guided in their analysis of TriMas by referring to our Form 10-Q for a list of factors that could cause our results to differ from those anticipated in any such forward-looking statements. Also, we undertake the obligation to publicly update or revise any forward-looking statements except as required by law. We would also direct your attention to our Web site, where considerably more information can be found.

At this point, I would like to turn the call over to Grant Beard, our President and CEO.

Thank you, Skip. Welcome everyone to the TriMas Corporation first-quarter 2007 earnings call. Today, we will profile our company's period performance, overview our operating highlights, and then open the forum up for Q&A. For those following along our slide deck, please turn to Slide 3.

Skip and I are very pleased to report TriMas posted a record revenue quarter for the first quarter of '07 with $286.6 million of sales. TriMas increased both its revenues and operating profits within four of our five reporting segments.

For the quarter, TriMas' operating profit was $33.4 million or an increase of 16.3% over prior period. Accordingly, our adjusted EBITDA within the quarter was $42 million, representing an increase of 11.2%. Our earnings per share was $0.40, which represented an increase over last year of 66.7%.

The many investment initiatives made across TriMas in our operating systems, structural makeup, product lines and people have been evidenced by our strong earnings momentum which began in late 2005. These initiatives continue to drive earnings performance. This can be seen in our first-quarter results with gross margins increasing by 3% and operating cash flow reaching $26.9 million. Our company is committed to its strategic initiatives in combination with strengthening our balance sheet. TriMas paid down $11 million of debt within the quarter.

Now, let's briefly discuss the operating highlights within our five reporting segments. First, within our Packaging Systems group, on Slide 5, you can see revenues for the group increased by 5.2%. This is somewhat moderated by our construction market exposure for our laminate products. That said, our many new product initiatives within specialty closures and dispensing continue. Our new airless, high-viscosity dispensing system was launched this quarter in Scandinavia with great support from customers such as Schering-Plough. The group has also seen solid opportunities for specialty closure products within the high-end consumer beverage market.

Turning to Slide 6, our Energy Products group revenue increased by 4.1%. We experienced very strong demand for our products sold into refinery locations. Well-side products saw growth temper with the Canadian icefield breakups. Backlog for these well-side products, however, are now increasing. Our product expansion initiatives into compressors are successfully underway. Our products are in the field with full-scale commercialization expected in late 2007. The group's plans to expand into Southeast Asia and Europe are also underway and on-schedule.

Turning to Slide 7, our Industrial Specialties group saw revenues increase by 18.9%. This growth was primarily driven by market-share gains within our aerospace and cylinder product lines. Our backlogs within this group are very strong. Our initiatives for this group remain -- increase our medical and Aerospace market exposure and continue to expand our group's product offerings into international markets.

Turning to Slide 8, our RV & Trailer group was our only segment that experienced a decline in revenue. Our group is expanding its market share, and we believe its aggregate-served markets were down approximately 10% versus our 4.4%. Demand within the recreational vehicle, marine and agricultural trailery markets are expected to remain soft in North America for the remainder of the year. The group's expansion into Thailand continues with new revenue program attainment ahead of plan. The served markets via Thailand are expected to produce strong growth. We believe this to be a key strategic value driver for this group in the future.

Turning to Slide 9, our final group, Recreational Accessories, posted revenue growth of 4.2%. This group continues to see market acceptance for both our brands and product breadth. Our growth within the group is due to market share gains as the broader-served market is believed to be down again approximately 10%. That said, our investment initiatives and product lines are driving both revenue and margin expansion. Our team within this group has done an outstanding job.

Now, I would ask Skip to profile our financial performance and conclude our formal remarks. Skip?

Thank you, Grant.

Turning to Page 10, sales of $287 million is a record for TriMas. As you can see, our Industrial Specialties segment led the way with 19% growth. This growth rate was driven by our aerospace, industrial cylinder and defense business.

Packaging and Energy were up as expected with a minor bit of explanation needed. In Energy, our engine business was down due to reduced drilling activity in Canada. This increase was more than offset by our refinery and petrochemical gasket business. Recreational accessories was up due to sales gains in our retail business, which offset lower end-market demand. RV & Trailer Products were (technical difficulty) reduced end-market demand and as Grant mentioned, we believe the end markets for recreational accessories and RV & Trailer Products were down about 10% in the quarter.

Total operating profit and EBITDA increased with our sales increase, higher gross margins and lower G&A spending. Packaging Systems' increased profitability is the result of improved material margins and higher sales levels. Energy Products' improvement was primarily sales and material-margin related. Industrial Specialties' profitability increase was due to a higher sales level, a better mix, and operational improvements. RV & Trailer's performance was down due to lower sales levels and applicative cost related to our Australian business. Recreational Accessories' improved EBITDA and operating profit is the result of incremental sales and continued product sourcing initiatives. That leaves us with improved EBITDA of 4.2 million on 13.6 million of incremental sales or roughly a 31% conversion.

Turning to Page 11, we lowered debt over year-ago levels by $11 million as we continue to focus on debt reduction. Additionally, we have just under $90 million in availability.

On Page 12, as we continue in 2007, it's important to note that our restructuring and integration actions are essentially complete. Our focus has shifted to growth through product extensions of our engineered product line, selling to new geographic markets, and bundling different products to satisfy our diverse customer needs. As you know, we are in the registration process and can't really say anything about our status.

Turning to Page 13, to wrap up our prepared comments, Q1 was a record sales quarter for TriMas. Margins improved and debt was paid down. Our focus now turns to growth, and we are very excited about our prospects.

This conclude our prepared comments. Adrianna, you can now open up the call for a Q&A session.

(OPERATOR INSTRUCTIONS). Tom Klamka, Credit Suisse.

Can you talk -- on the packaging aside, it looks like you had some revenue growth but not a lot of operating leverage there as far as margins. Any particular weakness in that business somewhere, or higher input prices?

No, not really, Tom. I would just tell you that, in all of our segments, we continue to invest in growth. This segment is really made up, as you know, of the two businesses, one a true packaging business and the other one a laminates business, which is -- it's more impacted by the construction industry. So I wouldn't say the operating profit was up 10%, sales were up 5%. You know, that's pretty much as we expected.

Yes, on an EBITDA basis, it's sort of plus 5, plus 5 (multiple speakers) all the way down.

Yes.

That's it, Tom. This is a business that we are investing in sales and product engineering and putting a little bit more muscle capability into Western Europe and Southeast Asia, where we believe both markets represent a lot of growth. So, we are investing into the cost aside of our business.

Okay. Then on RVT, the top line is expected to be weak; it is weak, and the earnings followed. At what point do you think that the benefits from some of this outsourcing will outweigh part of that decline in the top line?

Well, Tom, I think, on our last quarter call, we said that obviously we've got to begin to go through the selling season in this business. So we really don't expect to see marked improvement as a result of the sourcing program until we start to sell through the season, so that's through the middle of the year.

So we should expect the same sort of trends in Q2, it would sound like, and really it's Q3 before we see any kind of a, say, flattening of (multiple speakers).

Yes, that's right, probably a little improvement in Q2, depending of course on the sales line.

Right, okay. How much of an impact was in the quarter from this, from the launch costs in Australia?

It was less than $1 million.

This last one on the energy, it sort of sounds like engine down, refining up. Do you expect that same trend going forward?

No, I would think, actually, that the refining spend would probably moderate, and I think the strength in CapEx or capital spending out in the field will probably return. So, I think it's going to sort of flip itself back around.

Okay, thank you.

Steve Barger, KeyBanc Capital.

Just a quick question on your GDP assumptions kind of internally. We saw that the numbers came in. I am wondering if you changed your internal forecast as the years progress based on what you saw in your original budget.

Well, we haven't really changed our internal forecast, Steve, since what we shared with you earlier other than our first quarter came in a little better than we thought it was going to. But kind of for the rest of the year, you know, we've expected RV&T and Recreational Accessories to kind of be down on a year-over-year basis. But we continue to gain market share in both of those segments.

Okay, great. One question on growth rates in Europe versus the U.S. -- can you give me a little more of a breakout on what you are seeing overseas?

Well, in our Packaging group, we've actually seen pretty solid sort of high-end, single-digit growth for specialty dispensing and specialty closure products into Western Europe. We think that our product portfolio has a lot of opportunity in those markets. We've actually taken technology from our Englass facility in England, commercialized it here in the United States and now we are taking it back to Western Europe, which is what we've just done with this high-viscosity dispensing product that we are selling through Schering-Plough in Scandinavia. So, there's a good market there for specialty dispensing and closures, the top-end consumer, top-end medical, and I think the broad-based market is probably about a 10% growth market, about that. Is that fair, Skip?

Yes. Right now, it's higher in Europe than it is here.

Right. Are your sales guys tell you that seems sustainable through 2007?

Well, we are just getting started. That market has been growing and we believe it will continue to grow at those rates for some time. There is a lot more -- it's about three times the size of the United States market for high-end packaging in the world of consumer products and medical.

Okay. Industrial Specialties -- can you talk a little bit about your review of the political situation vis-a-vis the warfront (inaudible) given that it hasn't passed yet? Any impact or do you have good funding visibility on your programs?

Yes, our military exposure is very small as a relative percentage to that group, and our great momentum in aerospace, while we do have exposure to military aircraft, the preponderance of our revenue is on commercial aircraft. We are, at moment, given some of our new product introductions, really taking share away from other competitors, so we are sort of growing a little bit faster than the underlying market. We see an awful lot of runway in front of our Aerospace Company.

Okay. One last one -- just looking at the companies that are for sale out there, whether you're going to be an active buyer or not, you've talked about a lot of packaging opportunities in the past but can you give us an update on moving into complementary businesses such as medical and the industrial group? What do you see out there?

Well, I think, in all of our portfolios, we are aiming our new product development into markets that have natural growth, and medical certainly fits that category. In Packaging, we are evolving our dispensing and closure capabilities into medical applications. In Industrial Specialties, we have a modest amount of exposure in the cutting tool area and we are investigating several applications for machined components, which is a big part of our heritage; we just don't simply sell that much of that type of product into medical, but we'd like to. I think you'll see us, over this year and years to follow, drive our penetration into that type of end-market.

I don't know if I'm answering your question but --.

No, I think you are giving me a good overview; that's fine. Okay, that's all I've got. Thanks.

Yilma Abebe, JPMorgan.

Thank you. Good afternoon. You know, one general question on growth for me -- as you look at your different businesses and as you look at the next 12 months, in terms of your investments for growth, are there any particular segments you think are going to require more attention, or you're going to be investing more in versus others?

Yes, Yilma, I would tell you that, in our aftermarket businesses, who are having a little bit of trouble right now in improving sales as a result of end-market decline, there is really not a lot of investment either required or needed in that business. I would say that, in our Industrial Specialties group, there are businesses inside of that group that will require more investment, but when we say "investment", we do not necessarily mean hard assets. We mean more of a focus on growth, more of a focus on selling not just here but abroad, not just on our current product lineup but additional product lineups, so we are talking about that.

Also, in our Packaging business, you know, we've invested right along in that business and we will continue to because we think it's a good place to be in the long run.

That's it for me. Thank you.

(OPERATOR INSTRUCTIONS). Gina Matsuyama, Post Advisory Group.

Good afternoon. Just a quick question -- your CapEx for the quarter, 19.5 (multiple speakers).

Yes, Gina, that was very high. Pass my regards along to Melinda.

We've got about 13 million in the quarter, relative to the buyback of assets that we've sold and leased back in our fastening business that was sold, so take 12.9 out of that number and you kind of get the recurring CapEx for the quarter.

Okay, so this is not going to occur the rest of the year (multiple speakers)?

No.

No.

Okay. All right, that's it. Thank you.

There are no further questions.

Well, if there are no further questions, we'd like to thank all of you for participating in today's call and we appreciate your support. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect.