TriMas Corp (TRS) 2012 Q4 法說會逐字稿

Good day and welcome to the TriMas Corporation's fourth quarter and full-year 2012 earnings conference call. Today's conference is being recorded. At this time, it is my pleasure to turn the conference over to your host today, Ms. Sherry Lauderback. Please go ahead, ma'am.

Thank you and welcome to the TriMas Corporation's fourth quarter and full-year 2012 earnings call. Participating on the call today are Dave Wathen, TriMas' President and CEO and Mark Zeffiro, our Chief Financial Officer. Dave and Mark will review TriMas' fourth quarter and full-year 2012 results, as well as provide a 2013 outlook. After our prepared remarks, we will then open the call up to your questions.

In order to assist with your review of our results, we have included the press release and PowerPoint presentation on our Company website, www.trimascorp.com, under the Investors section. In addition, a replay of this call will be available later today by calling 888-203-1112, with a replay code of 2416665.

Before we get started, I would 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 a number of risks and uncertainties. Please to refer to our form 10K for a list of factors that could cause our results to differ from those anticipated in any such forward-looking statements. Also, we undertake no obligations to publicly update or revise any forward-looking statements except than those required by law. We would also direct your attention to our website where considerably more information may be found. At this point, I would like to turn the call over to Dave Wathen, TriMas' President and CEO. Dave?

Thanks, Sherry, and good morning to everyone on the call. A special thanks to the TriMas people on the call. 2012 was a year of accomplishment and milestones for TriMas. It's always a team effort, with all of us working together to achieve our objectives. Our Company is significantly stronger and more capable now than it was in the past.

Our agenda today is that I'll provide an overview of 2012, and the current environment. Then Mark will discuss financial metrics and some details by segment, and I'll finish by discussing our 2013 outlook. Then we'll gladly take your questions.

You've likely seen our press release this morning discussing our fourth quarter and full-year results. Let me start with some highlights on Slide 4. TriMas achieved many positive results in 2012. Revenue increased 17% compared to 2011, for a three-year revenue CAGR of approximately 18%. EPS, excluding special items was up 16% on a 9% increase in shares, for a three-year EPS CAGR of more than 60%. Interest costs were reset down to competitive levels. We established five new factories, which are already delivering growth and productivity benefits, and our seven bolt-on acquisitions are performing well. We spent more cash, both in CapEx and working capital, on revenue growth and acquisitions than we had originally planned, but we believe these investment decisions will definitely pay off.

A few businesses experienced some growing pains, with incremental revenue requiring extra costs to produce and to serve our customers. But we all learned and improved from these experiences. My own goal is to get better at the timing decisions between revenue growth and capacity additions. TriMas is in businesses where capacity adds should always come after the revenue growth is confirmed; the science isn't shrinking the time and cost spreads.

I hear plenty of questions about how the slow growth, choppy business environment is affecting a diversified industrial company like TriMas. So I will address that in a couple of ways. First, with our strategic aspiration chart on Slide 5. Our results continue to confirm our ability to outgrow the economy and to deliver earnings growth through leverage and cost reduction. We've invested in growth in Brazil, Thailand, China, and South Africa. We've deleveraged our balance sheet and earned much improved financing costs. And we work hard to communicate with, involve, and reward the people who work here, including getting TriMas stock into more employees' hands. I believe that we achieved our strategic aspirations in 2012 and will continue with these goals in 2013.

Next, I will address a few specifics on the current environment on Slide 6. On the positive side, we continue to benefit from increasing aircraft build rates, ongoing investments in petrochemical plants and refineries, growth in the construction and agriculture in-markets -- although slower market growth than we'd like -- relatively stable currencies and globalization by our customers who are looking for global suppliers with local plants. Markets in Brazil and China are still growing -- also a little slower than we'd like. Industrial activity in the US has stabilized some, following the ups and downs around fourth quarter elections, the fiscal cliff and tax changes. Head winds still include the European downturn, inflation in China, rising plastic resin prices, and a slowing of natural gas drilling. Although there is some uncertainty in the global economy, we at TriMas keep focused on the bright spots and strive to react fast to both risks and opportunities.

Overall, TriMas had another strong year in 2012. We are financially and operationally stronger than ever and well-prepared to continue to achieve our strategy aspirations. Before I turn it over to Mark, I want to comment on two recent acquisitions that took place this January and are in clear support of our strategic aspirations. First, Martinic Engineering is exactly the type of business we look for when adding to our portfolio -- a well-run business with products that are highly engineered and difficult to manufacture. This acquisition complements our growth strategies for our Aerospace & Defense segment while providing additional OE and after market opportunities. This will also gives us the ability to offer a broader product portfolio and provides a platform for future growth with current and new customers. The owner of Martinic saw these same opportunities in combining with Monogram and was willing to conclude this transaction at a multiple that was quite attractive for us both.

Second, Gasket Vedacoes, or GBT, further expands our global footprint and product portfolio in Brazil serving the rapidly growing energy market. GBT is a recognized and approved manufacturer and supplier of wind type joint gaskets for the onshore and offshore drilling markets. And distributor of additional gasket types for the refining and petrochemical markets. During the 2012 we acquired CIFAL in Brazil, a manufacturer and supplier of specialty fasteners and bolts. GBT now allows us to broaden our product offering, in country, to include gaskets and offers additional opportunities for continued growth while expanding our portfolio in Brazil to be closer to customers.

A comment on acquisitions in 2013. We have a good pipeline of potential acquisitions that we are pursuing. We are staying on course with our acquisition strategy of small to mid-size friendly transactions that bolt on to our existing businesses and that our management teams understand well. Now, we'll turn it over to Mark to provide more details about our financial results. Then I'll be back to share our 2013 outlook for TriMas. Mark?

Thank you, Dave, and good morning. Let's start with a brief summary of our fourth quarter results on Slide 9. Our fourth quarter sales were $301 million, a 16% increase compared to the fourth quarter of 2011. With growth in five of our six segments. This was our 11th consecutive quarter of double-digit year-over-year sales increases. Our organic growth efforts focused on new products, growing end markets and market share gains represent more than 40% of our growth. In addition, our recent bolt-on acquisitions are performing. Across the Company, we are successfully executing on our growth strategies. We are making disciplined decisions today to invest in opportunities for future long-term growth and productivity.

Fourth quarter 2012 income from continuing operations attributable to TriMas, would have been $13 million excluding special items related to our debt extinguishment costs, restructuring costs associated with Cequent manufacturing footprint optimization, and tax restructuring. This represents an increase of almost 49% compared to Q4 2011. Fourth quarter margins were tempered by recent acquisitions, investments in growth and temporary costs and inefficiencies driven by our long-term productivity effort. We have plans in place to enhance these margin levels and continue to be committed to productivity and lean initiatives.

For the quarter, we achieved a diluted EPS of $0.33, excluding special items, an increase of 32% compared to Q4 2011, while absorbing the effect of 13% more shares as a result of our May equity offering. We remain focused on cash flow and our results reflect our increases CapEx and decisions to carry more working capital, as a result of acquisitions, actions to support our customers, new product inventory levels and geographic expansion.

Moving on to Slide 10 -- 2012 full-year results. Overall, we are pleased with our 2012 performance, with 17% sales growth and 27% income growth, excluding special items. We achieved record sales in 2012 with growth in five of our six segments. Our organic growth rate was in the high single digit range, in line with our strategic aspirations. 2012 operating profit was $139 million, a record level for TriMas. Our efforts to grow and improve Company performance in the long-term come with costs in the short terms, which compressed margins in 2012, including acquisition costs, acquisition margin rates, and our restructuring efforts.

2012 income and EPS, both excluding special items, increased 27% and 17% respectively, primarily due to increased sales levels and lower interest expense and taxes. Income from continuing operations would have been $70 million. A $1.84 per share or 16.5% EPS growth, which was at the high end our previously provided EPS outlook range of $1.75 to $1.85. This increase in EPS includes the impact of more than 9% higher weighted average shares outstanding, compared to 2011. And the incremental costs associated with seven acquisitions during the year, including purchasing accounting adjustments related to the transactions.

In regard to free cash flow, 2012 was a year where we committed substantial funding to capital expenditures and other investments in support of growth, including working capital investments, supporting our customers in new markets and new programs. With free cash flow of $27 million, we spent approximately $90 million on acquisitions, $46 million on CapEx, primarily in support of future growth and productivity opportunities, and reduced debt by more than $47 million. We expect higher levels of cash flow in 2013.

On Slide 11 -- capitalization. We ended the year with approximately $422 million in total debt, a 10% decrease from December 31, 2011. As a result, we ended the year with a leverage ratio of 2.3 times compared to 2.67 times at December 31, 2011. We remain disciplined in our balance of growth and indebtedness and liquidity as we ended the year with $251 million in cash and aggregate availability.

We also continued to make significant improvements in our capital structure, as evidenced by our refinance during the fourth quarter in which we retired all remaining 9.75 senior notes and amended our credit facilities to reduce our borrowing rates, extend maturities and enhance our flexibility. We reduced interest expense by $8.7 million in 2012 as compared to 2011. As a result of the refinance and reduction in borrowing rates, we estimate annual cash interest savings of approximately $14 million on a pro forma basis. As with all aspects of our business, we are focused on continuous improvement while working to improve our profitability and drive value.

At this point I would like to review our business performance by segment beginning with our Packaging segment on Slide 13. 2012 packaging sales grew 48% compared to 2011, with a 54% sales growth in the fourth quarter, primarily as result of our Arminak and Innovating Molding acquisitions. These acquisitions added almost $90 million in sales to the year and our performing better than expected.

Our specialty systems product sales, unrelated to the acquisitions, increased due to additional demand from our North American dispensing customers, which more than offset a decline in European dispensing sales. Industrial product sales also declined in Europe. Packaging operating profit increased during the year and quarter, primarily result of higher sales and ongoing productivity initiatives. While the Innovative and Arminak acquisitions historically have lower margins, we are achieving the synergies and our improvement plans are being implemented. Purchase accounting adjustments also had a negative impact on margins.

We are in production at our new Ohio facility, built in 2012, with full production expected next quarter. Our sales efforts in Asia continue to gain traction. The combination of Rieke, Arminak and Innovative that enabled us to enhance our targeted growth initiatives more quickly and we continue to receive positive customer responses. We believe in the end market growth prospects for this segment and continue to support the launch of new dispensing and closer products.

On Slide 14 -- Energy. Energy sales increased approximately 14% for Q4 and 2012, compared to a year ago. The sales growth was the result of multiple growth initiatives, including market share wins totaling almost $9 million within our highly engineered bolt product line. Our July acquisition of CIFAL in Brazil and incremental sales from new branches to support [laymans] global customers. We continue to leverage CIFAL and are executing on plans to further support customers in Brazil, given the expected growth in the region's energy sector.

Energy's operating profit decreased in both periods, as the impact of higher sales was more than offset by a less favorable product sales mix, costs related to the branch build up and the acquisitions, and the impact of purchase accounting adjustments. In support of customers, we will continue to expand the engineering product line and our global footprint in support of customers. As demonstrated by our newer branches in Spain and Singapore and the January acquisition of GBT adding gasket capability in Brazil. We're focused improving margins in this segment over time and will continue to maximize our supply chain and operational efficiencies for improved costs and delivery.

On Slide 15 -- Aerospace & Defense. Sales increased approximately 12% in the fourth quarter and was relatively flat for the year compared to 2011. As improved demand for our blind bolts and temporary fasteners from our aerospace customers offset the sales decline in defense business. Monogram, our aerospace business, continues to show positive sales momentum with a double-digit increase in sales to both prior periods, including new sales into Asia. We continue to experience higher order activity which resulted in record backlog at year-end.

2012 continued to be a trend of increasing operating profit by 12% and a 280 basis point improvement, compared to 2011, primarily due to the increased sales levels in aerospace. This improvement absorbs incremental costs for long-term growth in the segment, including associated start-up costs for the new Tempe, Arizona facility where we will manufacture new products for our key customers, installations of new equipment in 2012 for planned productivity gains, diligence costs related to the Martinic acquisition in January 2013. We are excited about the addition of Martinic to aerospace product portfolio. We expect this business to show revenue growth as a result of increasing aircraft build rates, our efforts to obtain new product qualifications, and our expanded geographic coverage.

Moving on to Slide 16 -- Engineered Components. Both businesses in this segment, Arrow Engine and Norris Cylinder, experienced continued growth for the year with 2012 segment sales up 14%, primarily due to improved demand for engines, compressors, and other well-site products. Increased oil drilling activity and new products benefited Arrow Engine with sales up $17 million compared to 2011.

Sales in our industrial gas cylinders business increased $7 million in 2012, primarily due to market share gains which we believe are partially aided May 2012 imposition of anti-dumping duties on imported high pressure steel cylinders. Both businesses experienced some softness in the fourth quarter as Arrow was impacted by a reduced number of natural gas well completions and Norris had some customers delay orders until 2013.

Operating profit in both periods was impacted by a less favorable product sales mix and fixed cost absorption in our engine business and continued investment in growth initiatives. Surpassing $200 million in revenue in 2012, Engineered Components has almost doubled its sales levels of 2010 and continues to focus on maintaining it's mid-teen margin level despite natural cyclicality in aero business. We continue to develop new products and expand our international sales efforts in this segment.

On Slide 17, we show the performance of Cequent split into two segments. Overall, Cequent America sales increased approximately 4% in 2012 and the fourth quarter, as a result of higher sales levels from the auto OE, industrial, and after market channels. We continue to outperform the economy as a result of market share gains, new product introductions, and the July acquisition in Brazil. Cequent America operating profit and margin remained at solid levels increasing in 2012, even while incurring incremental costs related to acquisitions and investments in growth.

As evidenced by our continued footprint optimization, we remain focused on making these businesses more efficient. As we mentioned on last quarter's call, we made the decision to close our Cequent Performance Products facility in Goshen, Indiana and relocate these manufacturing operations to a Cequent Performance Products facility in Reynosa, Mexico during 2013. We are pleased to report the Company and labor union have signed and executed a plant closure agreement that contains a joint stipulation agreement to dismiss the pending arbitration. This move will drive productivity in the business.

Also in 2012, Cequent Americas acquired Engetran, a Brazilian manufacturer of towing products, which will is allowing us to leverage our full line of products in this rapidly growing market, as well as better serving our global customers. We also added to our product lines during 2012 in the retail channel.

Cequent Asia-Pacific sales increased 36% when compared to 2011, primarily due to almost $20 million in higher sales in Thailand as a result of new customer program awards. Sales also benefited from acquisitions in New Zealand in July and South Africa in Q4 2011. This significant increase in business volume combined with our transition to new facilities caused temporary production inefficiencies affecting the margins during the year, given higher than expected customer demand. We expect this will be mitigated going forward as we digest the new level of business volume and enhance productivity in the new facilities. We remain focused on productivity, product leverage, and regional expansion in the Cequent segments. We are focused on achieving both cost and sales synergies from the recent acquisitions in New Zealand and Brazil.

At this point, I would like to summarize 2012 on Slide 18. During 2012 we invested in growth and took advantage of areas where we saw real opportunities to capture share or launch new products. We are nimble, reacting with speed to better support our customers' needs. These actions are benefiting us now, most notably in the top line, and will continue to do so, plus generate margin improvement in the future. In addition to our organic growth, we completed several bolt-on acquisitions during the year to expand our geographic footprint and product line. We have a track record of targeting, acquiring, and integrating complementary businesses that increase stakeholder value. We remain focused on productivity and lean initiatives and we have plans in place to optimize our footprint and improve margins over time.

Through two strategic moves the issuance of 4 million shares and a debt refinancing, we have substantially improved the long-term capital structure of TriMas. We have greater operational and strategic flexibility at significantly lower cost. Finally, we have established a track record of consistent performance with 11 consecutive quarters of double-digit sales and income growth. That concludes my remarks. Dave will now provide some comments on our 2013 outlook. Dave?

Thanks, Mark. First, let me share a summary of our current play book for 2013 on Slide 20. There are several ongoing strategic drivers that are common across many of our businesses. Globalization, emphasis on the environment, and the growing middle class. We are making sure we capitalize on every opportunity. Let me share some examples.

Globalization is a positive driver in each of our segments. In Packaging, global customers are shrinking their number of suppliers and need a partner around the world who has local capabilities. They are also common-izing dispensing designs globally, with the biggest positive for us, so far, in Asia. In Energy, we have multiple global contract and continue to build out our branch network to support our customers in close proximity to their plants and refineries. In Aerospace & Defense, aircraft usage climbs with globalization, a trend that promotes aircraft build rates and usage of our products with both current and new manufacturers. At Norris Cylinder, our ability to meet global specifications helps the export side of the business. At Cequent, globalization of our customers means our customers build the same pickup trucks in Thailand, South Africa, Mexico and Brazil and need our products globally.

Another strategic driver is environmental concerns, which also affects each of our segments. In Packaging, environmental concerns are driving product designs to allow for recycling and less waste. Customers are looking for partners to aid them in developing innovative dispensers and green solutions. For example, when they get a request to replace steel springs in plastic dispensers to assist with recycling. In Energy, plentiful natural gas means customer plants are converting from oil to gas as feed stock, and concerns about leakage or environmental hazards help increase sales of higher spec seals, gaskets, and fasteners. In Aerospace & Defense, environmental concerns for fuel economy drive new aircraft designs, redesigns of existing platforms, and substitution of lighter weight fasteners and parts. All areas we focus on.

Norris cylinders are used in environmental applications. Arrow engines and compressors are seeing more fracing than shale gas applications. And a future growth driver will be an environmental-driven retro fits to existing engines. And the environmentally driven downsizing of vehicles for fuel economy is expanding our new product opportunities in Cequent.

A third strategic driver is the growing middle class in emerging economies like China, Thailand, Brazil and others, which affects our Packaging, Aerospace and Defense, and Cequent segments. In Packaging, the growing markets for pharmaceuticals and cosmetics in markets we focus on, grow with middle class expansion. Growing middle class populations tends to fly more, too. Cequent's products also go to the middle class consumer.

My priorities for TriMas in 2013 are listed here as well. Certainly, ongoing growth of revenue and earnings is number one. We used to be a highly leveraged turn-around story. Now we are fully committed to sustained growth. Our margins declined in 2012, mostly due to acquisitions and investments in growth and we are committed to improvement in 2013. Two weeks ago, I attended the report out sessions from the group meeting of all of our business unit manufacturing leaders and I can assure you, we have action plans in each business for margin improvements.

Balancing spending on capacity versus timing and location is a new priority. Getting it right will also deliver higher margins and improve customer fulfillment. Cash management is an ingrained priority at TriMas. What's new with our more normal balance sheet, is using our ability to use working capital and cash as competitive weapons. And maybe most importantly, how we involve, train, communicate with, and compensate, and treat our people is always a high priority.

The tools and tactics we employ aren't new or unique. We do believe that we execute well, measure and understand our performance, and continuously improve all we do. Our productivity and lean initiatives continue to gain traction. All of these factors lead us to our outlook for 2013 on Slide 21. We expect revenue to grow in high single-digits, despite expected slow economic growth. We project 2013 EPS to be between $2.15 to $2.25 per share with a mid-point representing a 19% EPS growth, all in more average shares outstanding compared to 2012.

A reminder on first quarter EPS expectations, this is the last quarter where we face a significantly higher share count versus 2012, as a result of our May 2012 equity offering. Therefore, we expect relatively flat EPS for Q1 compared to the prior year and greater lift in second through fourth quarters. For 2013, free cash flow looks like $40 million to $50 million, even with CapEx spending for capacity being up in 2013 at approximately 4% of sales overall.

I'll close my comments with a reminder of our value proposition on Slide 22 to reinforce how all of us at TriMas intend to keep increasing the value of our enterprise. Thanks again for all your support. And now we'll gladly take your questions.

Thank you.

(Operator Instructions)

Our first question will come from Joe Bess with Roth Capital Partners.

Good morning.

Good morning, Joe.

In your opening remarks you mentioned the process to penetrate markets like Brazil take a bit of time. Can you walk me through some of what the key remaining steps are over the next couple of years to get to the point of having meaningful customer relationships there?

Two things. There are some new customers, particularly the drilling companies who are putting in a lot of infrastructure and use our kinds of products. We have to get ourselves qualified and accepted by them. That is going on. Certainly the acquisition we made in January was partly about acquiring a set of approvals -- that because the specs are just different enough we decided we were better off acquiring the approvals. There's a set of getting the approvals from new customers that we haven't been dealing with. The other customers, I'll say current customers that we deal with globally, is a more normal process for us. It's just a matter of having a site close geographically and convincing that site that we are the supplier of choice. We're used to that. It takes a little while. The advantage in Brazil, in particular, is the ramp-up of the industry is so fast, that we do get a leg up.

So we're seeing pretty decent growth rates. It was an important ingredient to get that acquisition done in January though, to get some approvals into our camp. And it makes it easier now for us to start bringing in the rest of our product line for those customers. Other than that, it's a global-feeling market. Customers in Brazil are similar to customers everyplace else. So you'll see pretty decent -- and the Cequent business, that was also really about approvals, in country, so that we have products that meet the local specs, and importantly, meet the approval agencies' requirements. So we're seeing that ramp pretty nice, too.

Thank you for that insight. And then think about the leverage ratio, Mark -- are we still sort of targeting a 1.6 times leverage ratio, or how should we start to think of that now with the debt levels where they are and the growth initiatives you really have to increase EBITDA going forward?

Thank you for the question, Joe. The goal of the Company is still to continue our relative leverage ratio, sub-2 is exactly where we're headed. The 1.5 to 1.75 level is what feels where we should be as a company, long-term. There's obviously the opportunistic view toward acquisitions we've had, so I think we will continue to prioritize cash use with high shareholder, stakeholder value accretive to these acquisitions, at least for the immediate term.

Okay. And then thinking about inventory levels, is a little higher this quarter on a percent of sales basis, should we think about that as being some of the redundancies with some of the facilities that you are consolidating? Or what sort of a level?

You are right on. That's the big driver.

We should see that come down?

That's -- yes. That's part of the check list as you're moving facilities around that you -- to take care of your customers, you make sure you've got a -- I don't like the word bank of inventory, but it's descriptive.

I would add one thing there, there's obviously pushes and pulls with everything in business. With the gain of certain regional and global customer opportunities, we've added inventory in those spaces but we also knew we had, if you will, transitions to new facilities and the like, that had temporary effects associated with inventory. So there's going consideration in terms of customers needs and then there is obviously the temporary considerations associated with continued investment in our footprint optimization.

Okay. And then last question, and then I'll get back in the queue. Thinking about the Martinic acquisition, is there opportunities for us to penetrate existing programs that you guys already have or is this a function of getting new customers in new programs like with customers in Europe and stuff?

It's -- it's important to know, Martinic's main customers are not the first tier aircraft manufacturers.

Okay.

It's the, call it OEM suppliers, who make big sub-assemblies for the aircraft manufacturers. Martinic machines titanium parts. Exactly what we're used to. But they're used more in the customer channel of this big suppliers, and so it gives us that opportunity to go into those people that we haven't served as much. Conversely, though, it allows us to take their products to the customers we know best. This is one of those pretty neat two-way synergies. We're happy to have made a connection with them.

All right. Thank you for that.

Thank you. We'll take our next question from Robert Kosowsky with Sidoti.

Hello. Good morning, guys and Sherry. How are you doing?

How are you, Rob?

I'm pretty good. Mark, I was wondering, if you look year-over-year -- or for full-year, the operating margin was down 130 basis points, 140 basis points. And I was wondering if you could bucket that into acquisition accounting impacts, product mix, inefficiencies from all these new plants going on, other growth initiatives -- just to kind of give us a little more clarity into what the margin degradation was?

If you think about it, there's nearly $3 million of purchase accounting effect within the year. You've got just sub-$3 million in duplicative costs, not considered in that special items. Namely, duplicative costs in plant consolidations. And also, Rob, I will tell you, product mix was a big number for us as well. And that was more in the neighborhood of about $8 million in terms of relative margin pressure that we felt as a company.

Okay. That's very helpful. And then what did you see in the fourth quarter on the industrial closures business and how is that trending in the first quarter? Was there a dive in demand in December like we've seen with other industrials?

Yes. (laughter) If you had Lynn Brooks on the phone and the folks in that business, they would tell you that they almost attributed it to the news cycle of about fiscal cliff and all that. And it turned back on after we got through that whole mess. And it's -- it turned back on as in it went back to the rates that it was earlier in the year. But December was pretty discouraging. Europe -- Europe is still just up and down, and if you step back far enough and smooth it over a few months it's fairly level at the lower levels we've been running at. But yes, we definitely saw industrial closures. We probably some of it in the other industrial businesses, like Norris, some of it the effect of the stuff going on Washington D.C. People holding back orders, as best as you can tell.

Okay. So, given that, we should see a decent snap back in the profitability on the packaging side in the first quarter given that December might have been a pretty poor month.

There will be some improvement, but we've got a heavy load in Packaging on new product launches and we're getting going big time in Asia on capacity adds. But yes, the margin in -- I won't give you a quarter answer, but we're on the margin improvement track, actually in each of our businesses. Because we -- yes. We're on the margin improvement track for sure.

All right. Thank you very much.

Thanks, Rob.

Thank you. We'll go next to Scott Graham with Jefferies.

Good morning, Scott.

Good morning. Sorry, had to un-mute myself there. So, I kind of have the same questions as the prior question but with maybe a little bit more specifics on each segment. Could you tell us how the purchase accounting numbers parsed out between the segments -- Packaging and Energy, in particular, I guess were the larger ones?

Just for everybody, that will obviously will be in the K. The purchase accounting effects obviously affected the Packaging business most notably and the Energy business also. And I would tell you that they weren't terribly dissimilar between the two.

Okay. Okay.

$3 million is not -- it's $3 million, Scott. It's between, probably between -- just sub-$1.5 million for our friends in Packaging and the rest of it obviously is largely in Energy. There's obviously a couple other nits and nats, but the biggest effect was Packaging.

Okay. Then -- kind of similar, you were kind enough to give us the $8 million hit on mix, two questions on that. Where did you see that the most in the segments? And was any of part of that $8 million from pricing?

No. We separate pricing from mix, Scott, this terms of pure analytics. I will tell you, we saw it very much affect, obviously the Energy business, with the launch of new branches. We saw it affect Packaging business, with some of the new product launches, and Engineered Components as well in terms of some of the new products that are really most notable out of our Arrow Engine business.

Okay, that's great. Two other questions. This one maybe is more directed toward you, Dave. I know that sales spending is extremely targeted with you guys, and certainly it has worked. You pick a spot, you spend it and sales come through the next quarter or so. It looks to me like the fourth quarter there was a fair amount of that heading into 2013. I was just kind of wondering, two things on this. Number one, where was that sales spending the most and maybe identify a couple of things that you're pursuing, if you would? And secondly, on the productivity side -- the productivity is supposed to fund the sales spending. Did that happen this quarter and the decline in the margin was from these other factors? Just curious.

The last question, I would say they were in balance. The productivity did offset the spending that we took on. The targeted spending -- Brazil, was certainly -- is a focus and will continue to be. Asia in the broadest sense for Packaging and Aerospace and Cequent -- and it is paying off. The science in it is to get the capacity adds at the right time and we're trying real hard to make sure we get that right. China, I could go on and on about the dilemma in China -- of all the stuff with plants that have export duties and import duties and all that. And the Chinese government recognizing the issues and changing the rules around and us -- in our favor and us trying to find the most opportune way to do it. We think we've sorted that out and you'll see some pretty decent positives coming out of all that.

I wouldn't list any broader sales efforts than -- they really have been regional. There's a few specific things in the US by -- in a couple of businesses. Norris had a couple of special things that look like they're paying off for us. And Arrow -- Arrow has the customer complexion in Arrow because of shale and fracking and all that kind of thing is moving fast.

We've had -- quick story I'll tell is we've got one engine design in Arrow has that has proven to be extremely popular. As in way past any capacity and we've actually had air freight components and all that kind of thing and -- but it's good. And we've raised prices a couple of times, too. So we're still chasing -- when you say mix, mix isn't always bad. A lot of times it's a positive, but you're chasing it to get yourself lined up with it. We've had that kind of a year. It's the way of the world. Ever faster. And we keep getting faster to respond.

Okay. And Mark, back to you for one last one. The mix of $8 million, I forgot to ask, does that include acquisition mix or the other way?

No. That is existing product mix.

Got it. Thank you.

You bet.

Thank you.

(Operator Instructions)

We'll go to Steve Barger with KeyBanc Capital Markets.

Hey, good morning.

Hey, Steve.

First question for Mark. How much of that 6% to 8% revenue growth is from acquisitions you completed last year? Or what are you thinking about akin terms of pure organic growth this year?

Pure organic growth. We've only got really the Martinic acquisition which will obviously add acquisition top line. GBT is not a material number, in terms of total company. And you'll have the first quarter associated with Arminak. So you put all those three things together and you're talking about $20 million -- $13 million plus another $20 million, actually more like $15 million. So about $30 million in total will be acquisition growth, Steve.

Okay. And do you expect positive organic growth in every segment in 2013, based on how you're planning the year right now?

Yes. The organic would include driven by new product programs and that sort of thing, but yes.

Sure. But right, so you don't see any areas of weak -- sorry, go ahead.

No. I mean, the -- we've got markets modeled at the, at I'd call it -- we try to do it on the low end but I still think the US is a 2% GDP in 2013. And Europe is flat, et cetera. There's some people think Europe might be up a percent, but not enough you can feel it. No. We've got -- you know us -- we've got product programs and customer programs identified and so when we give you a sales guidance, we know what it is and we've got risk factors applied to it. The trick then is to find some more to add on top.

Right. So just as you think about the various segments, I'm guessing just given on the Aerospace build rate -- A&D could have double-digit organic growth, but is there anything else in there that could approach high singles? Or are you thinking more low single digit for all the segments?

You're right about A&D because the D part has gotten small enough now, we don't have to keep making or trying to explain that. The Packaging has got some strong sales programs. The Asia part of Packaging, we keep talking about it. That is really helping and there's some kind of neat new products that are adding in Packaging. Energy will be pretty decent but it's being driven by more branches.

Right. So the margin profile may not be there but the top line is.

The top line will come through, yes.

Okay. What do you expect the impact of working cap is going to be this year?

It will be -- as we're growing and the like, we're expecting obviously to be use. We're -- we closed the year in the higher teens than what we have, historically being 12% or 13% but the reality is we're looking at about 15% of working capital as a percent of sales. So it will be a slight use.

Right. Okay. Say that again? Sorry.

In dollars, but on a percentage basis we should see a slight improvement.

Right, in use in dollars though. Yes.

Exactly right.

And CapEx looks like it's a mid-$50 million range. Can you break that out between maintenance and growth? And talk about how you're framing up your return profile expectations on the growth part?

Yes. Let me deal with the bifurcation of the two elements here. Our maintenance cap, CapEx hasn't really moved drastically all that much and it has been in the mid-teens. In terms of millions of dollars a year. The rest of it obviously, very much focused on growth and productivity for us as a Company. So there's really three pieces, right, Steve? And that is productivity, that investment has been kind of a two-year or less kind of pay back investment. And the growth capital has obviously had some shorter, some longer, but on average it's been about a two-year pay back.

If you were sitting in an operating review, you'd recognize that we have -- we are pursuing more CapEx driven productivity, which is a way to go after margins. TriMas had been pretty stark on that kind of stuff, and I could take you around and show you banks of machine tools and that sort of thing that are really paying off. And four of them sitting in Monogram that the obvious next step is eight more, so we've got some -- within the CapEx spending, we've got some of those type of things going on. And it's another one of those hidden benefits in TriMas for me, is that when it's been starved so long, the upside for turning the spigot a little bit on some of that kind of productivity CapEx is great.

We're not replacing machines that are five or ten years old, we're replacing machines that are a couple of decades old that have come a long, long way, in not just cost of running the machines, it's about throughput and quality levels and all that. We've got a whole push going on throughput and first pass yield and all that. Some of the basics, and I like it. It's -- it will do us a lot of good.

Well, I guess I'll take it one step further then, since you have these good things going on. If there's $40 million plus or minus of growth CapEx, growth and productivity, will you tell the us split between how much of that is on the productivity side, the machine investments that you're making and how much is on growth?

I don't want to get that precise on it. Because there's a little spillover between them too.

Okay. I understand.

Sometimes you've got growth investment that's also productivity, so it's kind of hard to separate those two.

Okay. Dave, you talked about waiting for confirmed revenue growth before you add capacity. Which segments are up against constraints right now and really need the expansion? And where are you maybe overcapacitized or you just don't the investment right now?

Well, we're certainly -- in Packaging are up against it on capacity and we're having to run higher costs ways of making products so we can get some things online. So Packaging definitely needs capacity adds. We are -- we have a capacity ramp going on in Monogram, as you can imagine, that we will be on for awhile, unless something changes dramatically in those markets, we'll be on a capacity ramp for awhile in that business. We have a fastener capacity issue within Energy, as in the big fasteners we make at South Texas Bolt and all that and we need more of that capacity, because we're having to outsource things and pay way more than we could manufacture for.

I'd kind of put those at the top of the list. There's a few tight spots and certain kinds of cylinder sizes in Huntsville and things like that, but we know how to address them. The new plants in Reynosa for Cequent North America are -- do add some capacity, because we can see the product mix but they're driven for productivity. So we generally have enough capacity in the rest of the businesses.

I'll have a few division presidents reminding me that I had this saying about me running a press on third shift Sunday night, I get called on that once in a while.

(laughter) Last question and I'll get back in line. You talked about being up against capacity in Packaging and also in Energy. Are those the first initiatives that you're pursuing with the $40 million in growth and productivity CapEx? And do you expect those capacity constraints can be broken to some degree in the first half of the year?

Generally, yes.

So we should --

Yes, it's about margin. Again it's we -- we -- we're the kind of Company, that we can find a way to build it, but we build it at a higher cost. Or we outsource a component and that sort of thing. It's not like we're going after the revenue, it's going after the margin.

Right. Okay. Thanks so much. I'll get back in line.

Thank you.

(Operator Instructions)

We'll take a follow-up from Robert Kosowsky.

Yes. Just a couple follow-ups. First off, on Cequent North America -- are you baking in much growth in that segment given the rebound we are seeing in housing?

Yes. Housing -- the rebound in housing is driving. We see it in construction. We see it -- you might even see a secondary effect because of people's house values feeling a little better and them spending more money on the recreational side of that business. But directly in the construction part of the business, yes. We're seeing it. Housing is going to be -- we don't tend to talk housing as a driver for TriMas, but at least in that segment, it will be good for us for awhile here.

Okay. I imagine there's going to be a good amount of --

You run into a math problem because of the size of construction within Cequent and within TriMas. So it's not a huge change but, yes, it's definitely a positive. And it tends to be the heavy duty products which are higher margin for us.

Okay. Are these some of the products you moving from Goshen to Mexico? And how are you dealing with that, I guess, risk, if demand does come back?

Some of it we built inventory for. We have been -- of course you know, Goshen is a union facility. We had a lot of issues potential injunctions and things like that, which have now settled out, with us going to the employees. And agreeing on severance and that sort of thing. I always say, we -- I strongly believe in treating people well. You can't fix every problem for them, but in a time like this, we treat people well. We are doing that and they voted for what we wanted.

So now we have a situation where people know what their exit package is and all that kind of thing and we're doing okay building. There's always a chance of issues with it, but I think we got it covered with some dual capacity, with some inventory built. We've done this kind of thing before and we certainly know how. And so we got good people working on it.

Okay. That's helpful. And then --

We're not skimping. We'll show you a showplace plant in Reynosa some day.

Cool. Then you talked about the short-term [hand] that you're feeling on margins right now. I was wondering longer-term what the margin potential is you see down the road?

Are you talking in general or in a specific segment, Rob?

Just Company-wide. You mentioned a lot of short-term hand this year and I'm wondering what you see five years down the road as some margin potential targets?

Well, let's talk immediate term because obviously there's -- we recognize the pressure we saw in 2012, we did everything possible to offset those pressures in 2012. You never stand still. We're expecting to see margin expansion if 2013 as a Company. We haven't given guidance on what that expansion will look like, but you know, it not going to be all the way back, but we're going recover a good portion of it in 2013. The realities of it are -- the investments you hear us talking about this terms of Packaging, as well as our friends in Cequent are clearly going to add margin opportunity for us as a Company. You can do your own mathematics associated with that with respect to the move of the Goshen facility and get a sense of what that means to your own model.

But we will continue to expand margins because, quite frankly, as we're growing earnings faster than top line, you're going to naturally see that happen. In terms of a target here, we internally continue to think of it in terms of kind of a 15% operating target that, as a threshold for us as a Company and that's what we're running to. Now, I'm not going to say it's five years or three years, but what I will tell you is that's where we're headed.

Okay. That's helpful. And also, any thoughts about return of cash to shareholders?

You know, it's interesting, Rob, for the first time with this most recent refinance, that's not a restricted payment as under the credit agreement. It's not something immediately is ahead of us, simply because we have a robust acquisition pipeline. So I think the return on capital is there for us to continue down the path.

All right. Thank you very much, and good luck.

You bet.

Thank you.

(Operator Instructions)

It appears we have no further questions.

Okay. Well, we sure appreciate everybody's attention and interest and suggestions. We've come a long way. We got a long ways to go yet. And we understand our priorities. We know how to continuously improve. We know when we need to turn the dials heavier one direction than another. We know how to do that. In spite of kind of ugly economies and markets and that sort of thing, I think we've got bright spots identified and focused on them. And we look forward to continuing to increase the value of this place. So thank you for your support. Stay in touch.

Thank you. Ladies and gentlemen, this does conclude today's presentation. You may now disconnect.