TriMas Corp (TRS) 2013 Q3 法說會逐字稿

Good day, and welcome to the TriMas earnings conference call. Today's conference is being recorded. At this time, I'd like to turn the call over to Ms. Sherry Lauderback. Please go ahead ma'am.

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

In order to assist you with your review of our results, we have included the press release and PowerPoint presentation on the company website, www.TriMasCorp.com, under the investor section. In addition, a replay of this call will be available later today by calling 888-203-1112, with a replay code of 8271871.

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 refer to our Form 10-K for the list of factors that could cause our results to differ from those anticipated in any such forward-looking statements. Also, we undertake no obligation to publicly update or revise any forward-looking statements except as 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 David Wathen, TriMas President and CEO. Dave.

Thanks, Sherry. Good morning. Thanks for your attention and interest and, in particular, thanks to all of you who supported TriMas as we issued to new equity in September. We take our responsibilities seriously to invest this money well and to achieve the gains you expect. I will comment later on our upcoming actions and views.

Third quarter was another good quarter for TriMas, with revenue up 6% and an EPS of $0.64 per share, excluding special items, an increase of more than 25% compared to third quarter of 2012. Within these results we had many moving pieces with actions focused on fine-tuning our business portfolio via acquisitions and divestiture, improving the balance sheet, reducing interest costs and tax rates, multiple plant moves, integration the past acquisitions, and spending on several potential acquisitions. As usual, Mark will lay out the pluses and minuses of these actions.

Now on slide 5, I'll share a snapshot of our current activities in the environment we see in our diversified markets. Mark and I just completed operating reviews with each business, and I am quite encouraged by the continuous improvements that are businesses are achieving. Our high-margin businesses are going fast we have multiple activities underway to improve our lower margin businesses. We have all become used to the current market environment -- 1% to 2% overall growth, industrial markets flat, energy market still soft, and many short cycle changes. So we continue to pursue the bright spots for growth. We see sales in China continue to ramp up, and we now have a second dispensing plant in China nearing production for in-country sales. Eastern US sales of food closures have achieved the level to justify installing capacity for this product in our Hamilton, Indiana facility.

At Monogram, September revenue was an all-time record. New higher-capacity equipment is improving on-time deliveries nicely. Tempe is now producing two sizes of collars for Boeing and faster shipments to China have evolved from occasional events to ongoing flow. Productivity is occurring on two tracks. One is our capital investments in new plants and new equipment. The Cequent Reynosa and Juarez plants continue to ramp up according to plan and the Melbourne Cequent plant is in full production with a higher capacity paint line, so we now have freed up the former plant for sale. Rieke's number one dispenser plant is achieving productivity from automating formally manual processes such that the workforce has decreased 20%. Monogram has installed three banks of new twin spindle machining centers, and throughput and yield metrics show positive results.

We are also seeing productivity from our people's efforts in lean sourcing activities and redesigns. I just saw a Green Belt team in Huntsville, Alabama, who changed a press set-up process that took machine uptime from 60% to 85%. Our Longview, Texas facility is using two newly approved steel suppliers with lower prices and consigned inventory. Our global services organization is successfully consolidating our freight lanes and vendors for both speed and cost improvements. We are actively working on other productivity projects to continue to both fund our growth activities and improve profit margins.

The combination of our equity raise and debt refinancing gives TriMas the opportunity to continue grow -- pursue its growth activities. We have just announced our acquisition of Mac Fasteners, which is in line with our goal of growing our aircraft content in products we understand. We are pursuing some other equally strategic opportunities.

And our emphasis on training, career opportunities, clear communication, and making TriMas a desirable place to work continues. A company success from comes from its people, and we are dedicated to attracting, retaining, motivating, and rewarding the people who choose to work here.

I'm going to turn the call over to Mark, but first, a snapshot on Mac Fasteners on slide 6 to help you see what a great strategic fit this is for us. Mac Fasteners is a leader in the manufacture and distribution of stainless steel aerospace fasteners and is globally utilized by OEMs, aftermarket repair companies, and commercial and military aircraft producers. This acquisition will enhance our product offering and that content for the growing airspace aerospace industry. It complements our growth strategies for this market, diversifies our distribution channels, and provides a more flexible manufacturing footprint with its additional production locations. In addition, Lamons recently acquired Basrur, a manufacturer of high-quality sheet joining located in Bangalore, India. We are excited to further extend our footprint in this region with an experienced team and state-of-the-art equipment. Now, Mark will discuss our financial and segment results. Mark.

Thank you, Dave, and good morning. During the third quarter, we were active on many fronts. First, we continue to face a challenging macroeconomic environment with industrial-focused businesses experiencing more pressure. While these pressures are temporary in nature, the impact focused on volume mix challenges across our energy end market. Despite these challenges, we remain focused on delivering on what we can control and capitalizing on our growth initiatives, as well as securing several new global customer wins delivering enterprise-level growth.

Second, we continue to acquire both businesses that add revenue to our new products, geographies, or customers. We continue to improve the acquired businesses and have a track record of targeting, acquiring, and integrating complementary businesses that value over time. Value creation opportunities remain available.

Third, we remain focused on productivity and lean initiatives, some big and some small that will optimize our footprints and improve margins. These programs continue to gain momentum across the enterprise. We enhanced our capital structure providing even more liquidity and flexibility for our future initiatives.

Let's continue with a brief summary on our third-quarter results on Friday. Our record third-quarter sales were $356 million, a 6% increase compared to third quarter 2012 with growth in five of our six segments. Our bolt-on acquisitions contributed significantly and as expected to the top-line with remainder of the sales increasing primarily due to the expansion in international markets and new customer wins partially offset by unfavorable currency exchange.

Operating profits for the quarter was $40 million excluding special items with a related margin percentage of 11.3%, a decrease of 20 basis points as compared to the prior-year period. The next slide, slide 9 provides an operating profit bridge excluding special items and corporate expense. Our productivity savings continue to offset economics, investment and growth, and short-term manufacturing inefficiencies within the businesses resulting in rapid and continued growth. We see continued opportunities for our lean enterprise. The market downturn at Arrow Engine continues to have a negative effect on margins in the short-term.

Third-quarter margins were also tempered by our recent acquisitions. Some of these costs are temporary in nature, and as we integrate these businesses, we will see real margin re-improvement. We have plans in place to enhance these levels and are committed to driving synergies including growth, productivity, and lean initiatives.

Going back to the third-quarter summary on slide 8, third-quarter 2013 income from continuing operations attributable to TriMas would have been $26 million, excluding special items related to the restructuring costs associated with the Cequent manufacturing footprint optimization tax restructuring and release of historical translation-related adjustments as a result as of the sale of Rieke Italia. This represents an increase of almost 30% compared to Q3 2012. We achieved a GAAP quarterly diluted EPS of $0.70 and $0.64, excluding special items. This is an increase of 26% compared to the $0.51 in Q3 2012, while absorbing the effect of more shares resulting from our September 2013 equity offering. We also had a bargain purchase gain of approximately $3 million on the acquisition of AL-KO towing assets for Cequent APEA. Demonstrating we continue to be selective with our acquisitions, negotiating deals at to maximize future returns and minimize the cash paid relative to value. We remain focused on cash flow, and our results today are in line with our expectations and ahead of 2012. During Q3, we generated $18.5 million in free cash flow compared to $10.5 million in Q3 2012. We plan to generate $40 million to $50 million in free cash flow for the year.

We ended the quarter with approximately $480 million in total debt, after consideration of $209 million in cash on the balance sheet as of September 30, 2013. Net debt was $270 million as compared to $402 million as of December 31, 2012. TriMas ended the third quarter with $460 million of cash and aggregate availability under its revolving credit and accounts receivable facilities with a leverage ratio of 2.47 times. We continue to target a leverage ratio of between 1.75 and 1.5 times for long term.

Moving on to slide 10, we have enhanced our capital structure significantly over the past several years and continue to do so during the past couple of months, starting with the September issue of issuance of equities to support our strategic initiatives. Due to the support of our existing and new shareholders, we upsized transactions, issuing 5.175 million shares of common stock at a price of $35.40. Net proceeds of hundred $175 million are to be used for general corporate purposes including future acquisitions, capital expenditures, and working capital requirements. This will provide some headwind for our full-year 2013 EPS of approximately $0.08, and approximately 13% dilution for 2014 due to the incremental share count. Dave will address specific outlook in his closing comments.

Due to attractive credit markets, the Company's strong financial performance, we also refinanced our credit facilities with terms better than our existing facility. We expect TriMas to benefit from the extended credit facility maturities, enhanced liquidity from capital structure flexibility provided to best position the Company for future growth. This refinance will generate approximately $4 million in annual cash interest savings on a pro forma basis. We thank both our existing and new stakeholders for their substantial support on these initiatives. At this point, I would like to share a few highlights on the segments beginning with packaging on slide 12.

Q3 packaging sales increased 6% compared to Q3 2012, driven primarily by increases in specialty system product sales in North America, Europe, and Asia. Industrial closure sales decreased during the quarter, a portion of which is related to the divestiture of our rings and levers business in Italy. Europe overall appears to have stabilized, although we have yet to see any significant improvement. Our Ohio Beauty Park facility and our efforts in Asia continue to ramp up. During the quarter, we decided to proceed with a second manufacturing facility in China to provide an additional low-cost facility and additional manufacturing flexibility across the packaging businesses and support local commercial expansion in this market.

The business remains focused on sustainable operating profit margins in the mid-20% range. Thin market growth prospects remain positive for the segment and will continue to continue to support the launch of new dispensing and closure products.

Moving up to slide 13, energy. Energy sales increased 5% for Q3 2013 compared to a year ago. This growth was the result of multiple initiatives, including our recent acquisitions in Brazil, United Kingdom, and Thailand and incremental sales from our European locations as we gain new customer orders and share in these markets. These increases were partially offset by a reduction in normal customer shutdown activity at refineries and petrochemical plants. This weaker shutdown activity resulted in a less favorable product mix for standard gaskets and bolts, which have lower margins than the highly engineered products. We continue to focus on margins in the segment and are pleased that our foreign start-up locations are improving in profitability.

On slide 14, aerospace and defense sales increased 27% in the third quarter, as we expanded our content on an aircraft with a January acquisition of Martinic Engineering. We continue to experience higher order activity as aircraft build rates remain strong. Backlogs remain at record levels. And we are proceeding with a ramp up of our new facility in Tempe, Arizona. We've also been installing new, more efficient equipment for planned productivity and capacity gains. We expect this business to continue to grow as a result of good end-market dynamics and our efforts to obtain new product qualification, as well as expanded geographic coverage.

Our acquisition of Mac Fasteners announced today will expand aerospace product offering and provide content for the MRO of this market. In addition, commercial synergies and future product expansion make this an excellent addition to TriMas.

Moving up to slide 15, engineered components. Q3 sales decreased 8%, primarily due to the lower demand for engines, compressors, and other well-fed projects as result of reduced levels of drilling and well completion. This temporary value stress pressured margins in the quarter. Sales in our industrial cylinders business increased in the quarter, primarily due to market share gains both domestically and internationally as well as new product successes.

On slide 16, we show the performance of Cequent split into two segments. Overall Cequent America's sales increased approximately 8% in the third quarter as a result of higher sales levels from the auto, OE, and retail channels. We continue to outperform the economy as a result of market share gains and new products. Our production move to Reynosa, Mexico, is on track, and we expect it to be substantially complete as we enter 2014.

As evidenced by our continued footprint optimization, we remain focused on making these businesses more efficient and are pleased with our results to date. Cequent APEA, representing her businesses in Asia-Pacific, Europe, and Africa, sales increased 9% when compared to Q3 2012 due to the recent acquisitions. Our acquisition of Witter Towbars in the UK and AL-KO Towing businesses in Germany and Finland allows Cequent to leverage its full product line, commercial relationships, and strong brands around the world. At this point, I'll summarize our year-to-date progress on slide 17.

We are continuing to investing growth and productivity and we are realizing positive momentum. In addition to our organic growth, we have concluded seven bolt-on acquisitions through September to expand our geographic footprint, product line, and customers. While these acquisitions come with incremental costs in the beginning. We have consistently proven that we will drive value over time from these acquisitions. As of quarter end, TriMas had over $400 million in cash and available liquidity as we are well equipped to achieve our strategic aspirations.

We are focused on continuous improvements on all fronts. Lean is the enabler to target and achieve productivity programs ranging from margin improvements to working capital efficiencies to capital structure enhancements to tax initiatives. We continue to make TriMas better and more efficient. That concludes my remarks. Now, Dave will provide some comments on the outlook. Dave.

Thanks, Mark. Now, I will share our updated 2013 outlook on slide 19. In summary, we are still on track for a record year. As reminder, we've consistently held outlook on our last three earnings calls. Now, as we have issued additional shares and closer to the end of 2013, we are increasing our sales outlook by 2% to an increase of 8% to 10% versus 2012, based on strength in several businesses and continued success of our bolt-on acquisitions.

On EPS, we've bridged the effects of increased shares and the divestiture of Rieke Italia, combined to reduce 2013 annual EPS about $0.10, then tighten the range and increase the midpoint so that our updated full-year EPS outlook is $2.10 to $2.15 per share. Free cash flow remains at $40 million to $50 million. This is all in sync with our ongoing consistent strategic aspirations. Turning to slide 20, our current look at try mass 2014 is positive, certainly meeting or exceeding our strategic aspirations. Our 2014 outlook will depend on our potential acquisitions in the next few months. We have solid tailwinds going into 2014 with most markets improving, attractive product programs, several high-value plant and manufacturing cost improvements, a real push on margin improvement from acquisition integration to productivity projects, and process improvements via enhanced siop with sales inventory operations planning, information technology, and dozens of six Sigma projects.

There are always some headwinds but it's a shorter list for sure. In summary, another good quarter and we intend to keep improving and delivering results that justify the trust you put in us. Thanks. And now we will gladly take your questions.

(Operator Instructions) Joe Bess, ROTH Capital Partners

Good morning, everyone. First, on Rieke Italia, can you give us a bit of the rationale behind the divestiture and what you think -- how do you feel about the business in Europe at this point in time?

So, this is a strategic call in the sense of product that didn't initially match the long-term strategic aspirations of the packaging company at large. It was a nonintellectual property driven property line. We had already extracted benefits of this acquisition that was made more the 15 years ago this point and otherwise potted it in the business. So, this was something that was an improvement of the long-term aspirations for the packaging business.

Okay. Great. And then switching over to the Mac Fasteners acquisition. Could you talk a little bit about the margins that it has and whether it will have a positive or a negative effect on the aerospace and defense margins?

This is Dave. It's a -- margins are similar to Monogram's, maybe a little lower. Also, significantly, it's substantially a distribution business whereas Monogram, it is substantially an OEM business. That's never pure but substantially that its channel, so there's some advantages for us in -- call it cross-selling. But you'll see -- you won't feel that any margin damage in that segment. We wouldn't do it if it wasn't real clear to us.

And when you say cross-selling opportunities, can you give some examples of which aircraft you could see this benefiting you?

Both businesses are on every platform you can make. But again the titanium fasteners out of Monogram tend to be used by OE; stainless steel tends to be used in the rebuild industry and that sort of thing or on the less technically intense aircraft. But I think what really matters to us is -- we haven't traditionally pursued distribution, per se. We use distribution but that's what the customer specifies -- the end customer. This open up the opportunity for us to pursue that. Folks in Mac Fasteners understand it inside out. They will bring a lot of horsepower to TriMas.

Joe, the other reality here is that the margins we will report had a lower level as compared to our highest margin products within Monogram. But most importantly, this actually diversifies us just from being just OE-related framing to MRO activities. So, it expands our participation in the overall cycle per outfit.

Okay. That's helpful. And then on acquisitions front you mentioned you continue to see a robust pipeline. Can you give us an update on what you are strategically seeing as most imperative, whether it be geographic expansion, product scope expansion or distribution channel support?

Number one, we always pursue strategic acquisitions in packaging and aerospace. We would like as we know we would like another, call it leg, in the packaging business. Innovative taught us how attractive food markets are. And they tend to be noncyclical and all that, so we can keep after that kind of thing. We've had two in Monogram, recently, and while I would never say never, we need some digesting time in that segment for a while. So, the top of the list has to be in packaging. That said, we've still got some geographic work to do in the energy segment, and there's a few product enhancements in engineered components that could be quite attractive to us. So it's, strategically, packaging and aerospace, opportunistically when we find the right ones in the other segments.

Okay. Great. Thank you. And then, are you able to break down revenue growth in the quarter by acquisitions and legacy businesses?

Yes, it was predominantly acquisitions as we offset some of the end-market pressures that we felt in the energy end-markets. So it's 80 plus percent related to acquisitions.

Okay. Great. Thank you.

Robert Kosowsky, Sidoti.

I just got a question about the adjustment to get to the adjusted operating income. So, basically to get to that $40.2 million, it looks like you're adding back, say, $2.5 million of the gain line item. Is that correct?

That's correct. There's the pieces there, Rob. For clarity for everyone is that the basic currency translation adjustment that from a GAAP perspective, we special item to pull out as $1 million. But there is an operational gain on the sale of the business as well and that's $2.5 million.

Okay. So that's $2.5 million (multiple speakers)

Correct. That stays in the results; the currency translation has been out-boarded from a special item perspective.

Okay. Did you mention there was another $3 million bargain gain in the numbers, too?

Absolutely. In the acquisition of AL-KO -- and you'll see that in other expense -- AL-KO it was a bargain purchase, if you remember. Those are pretty hard to come by, but we did a great job in terms of the negotiation and identification of asset. That's about $2.9 million offset in the other expense line by about $600,000 worth of currency pressure.

Okay. That make sense. And then otherwise you mentioned, as far as Mac, you mentioned a flexible manufacturing footprint. I was wondering what that means. Could you bring some other products that you making into their plans? Is that kind of something you're seeing?

Well, we could. We are landlocked and building-locked box in Monogram. We keep doing things to try to expand there, but we need more capacity footprint. We also have some ongoing pressure from the big OEMs who would prefer we have production in multiple sites because of the risk -- you call it, whatever, an earthquake in California or something. So this -- and we've had that is an issue for a while. This kind of conveniently close that loop for us and gives us another footprint in an area of the country that's got quite a bit of this kind of manufacturing. It's good for us from that standpoint.

Okay. And I was wondering if you drive a little bit more into the sequential weakness and energy on revenue and margins. And I know you mentioned product mix and weak turnaround times. Is that pretty much it? And maybe kind of parse out how some of the international markets doing as well.

In the US in particular we would normally see a lot -- we would say we would normally see a lot of refiners go off-line and do major rebuilds. And those are good for us from the product demand, and they tend to be a lot of the engineered product that is higher margins. A lot of those of been delayed which is -- it's their own decisions, but you have to believe this it's partly because there they are running pretty hard. And they make choices about can they delay it a certain amount of time. So you could call that -- it just deferred something for us. International there's really no soft spots. The expensive spot for us is Brazil, but we've known that. That still a place that is building out, and it is not maintenance yet. And of course we make more money in maintenance too. But we'll ride that for a while. Other than that, Europe is okay where we're at -- Spain and the North Sea and around the northern coast of Europe. And the places we continue to build out in Asia are good for us to. So no danger spots there. There's a lot of acquisition integration going on, which you know we'd always rather get it done fast and spend the money upfront. So that will continue to put pressure on the margins of that business. You know in the background, there's some good stuff going on. We been doing some vertical integration. The Basrur acquisition is really about making something we used to have to buy. And we've got that going on in several places. We've got India versus China going on over the cost. So in the background of our costs, we've got longer-term things other good for that business. You know, I've said it many times. I kind of grit my teeth with the short-term margins of that business as we build it out, but long term that continues to be a business that I like a whole lot. And especially, with now we've got the work going on to improve the full supply chain margins.

Okay. And then finally, when should we start to see expect to see some more potent operating leverage from a consolidated basis? Is that kind of a 2014 event? What are we thinking, how much longer?

You see some in 2014. We've got a lot of activity underway about margins in the lower margin businesses. Again, it's never quite this simple, but our operating premise is we grow the high-margin businesses or work more on growth in them. And we been working the margins in the businesses are a little low margin. The special case is the engines business within Engineered Components. That's just soft drilling and really well completions in the US and in Mexico. The single customer Pemex, even though we don't serve them directly, we go through equipment builders and provide components of them, has been soft. And, again, that will come, but it's just not this year, and it makes the margins look bad. I don't think of it as a cyclical issue right now. It is more of a timing thing.

Okay. Thank you very much.

Steve Barger, KeyBanc Capital Markets

One more, or two more Mac questions. Are the products typically specced in or are they sole-sourced for any of the applications they serve?

They're not specced and sole-sourced like Monogram is. It's more of -- again, never say never -- it's more of a generic product. It's about availability. It meets a spec, but it does have to compete.

What's the size of the market opportunity for that products set or is there anything you can do going that business to help it grow faster than the markets? Do you have line of sight on that opportunity?

It's a very large market. I would say this is a business that has been somewhat constrained on its growth rate to due to its investment levels and type of equipment it runs. It's got a lot of processes we use to do heading processes, machining processes. In fact, Tom Aepelbacher, my headquarters manufacturing guy, is there today. We will both add -- we will add capacity and some capability for some more precision parts to the business. And too early to put numbers around it, but I'm pretty encouraged by what could happen there. And plus, it's a stainless steel business, and there's a case for putting some titanium machining into it.

Got it. I know we will get 2014 guidance in the next call, and I'm not trying to get there too much. But just a conceptual question, if 2014 revenue grows at your aspirational rate of a percent to 8% to 10% and as you look forward to what you can control in terms of price mix, productivity, the integration that you going through for some of the deals -- is a reasonable to think that free cash flow can improve from the $40 million to $50 million rate this year?

Hey, Steve, the answer is yes. With the ability that we have to generate additional cash in 2014 should be pretty obvious. The one thing we're not going to do though is not we're going to slow down investments in more productive facilities whereby capital opportunities are there to make a business more healthy for our customers in the long haul. So what I would say is operationally you see more cash coming out. You see better overall profit. At this point, I think we're pretty happy with the investment behind CapEx right now and leave it at that.

You are asking the right question. You are seeing have spending on the new plants in Mexico, the new plant in Australia and all of that, heavier this year than are currently planned for next year. So the numbers will -- that heavy spending will be displaced more by savings. That's what we try to do. That said, we are ramping up a plant, China Rieke. And that is not cheap.

Right. You're looking at deals -- I mean you've lot of firepower, obviously, in terms of acquisitions. You highlighted packaging, aerospace, and energy as the growth areas. Is it reasonable to think you can deploy that $200 million in cash at EBIT margins that are above the corporate run rate of 10% to 11% just broadly speaking as you look at deals?

Sure. Yes. The caveat being we will have acquisition costs and integration costs for months, but yes.

Sure. But just run rate (multiple speakers).

I am very interested in being accretive and driving our margins higher.

So depending on just some basic assumptions you know that would suggest that you have maybe a $0.35 to $0.50 of potential accretion or balance sheet of optionality when that $200 million is deployed over whatever timeframe that happens. Is that how you think about it or is it reasonable for us to think about it that way?

Steve, that's a great modeling question. What I will tell you is that as we're buying better businesses, margin rates of those better businesses are initially available and initially available to us. We're not in place whereby when you think about a multiple of EBIT or EBITDA probably more importantly in terms of what we pay to give you a more specified guidance there. But your thought around should operating margins be accretive in the acquisitions in which we buy, the answer should be yes and probably even more importantly in some respects, EBITDA levels should be definitely be accretive. Obviously, you can't necessarily pick the intangible number that you would otherwise have to amortize.

Got it. And one last question and I think if answer this to some degree already. But free cash flow in 2010 and 2011 was more than hundred percent of net income. Last year, there was around 40%, this year maybe will be at 65% or so. But it's a reasonable to think that as you go into 2014 and beyond you have a good line of sight on getting that conversion rate back up to more historical levels?

As you'll remember, Steve, is we had and underinvested enterprise for the better part of a decade that Dave inherited here. So, what we're doing is we're making our way through that additional CapEx money here, as well as growth in places in which we don't operate today. That requires working capital that we haven't had historically. So the answer is we're going to continue to improve. I mean 40% to 60%, the question becomes how good can we get and how quickly can we get back to that 100% conversion level?

Got it. And since you brought up working capital, I'll ask one more. Are there any other businesses that are really out of line relative to where you think they should be right now? Or does anyone segment have a lot of opportunity to unlock a lot of working capital going forward, more so than the others?

Yes. There's always some improvement opportunities. That's what guys like us do, right? Just the downturn in sales in Arrow has made the terms number look pretty bad. That said, it's got a big parts business; it has gotten a lot more complex. That business has quite a bit of opportunity. In the segment, though, you've got the opposite going on in Norris, where the terms are very high and unlikely to improve. So it gets a little disguised by that in the segment reports, but Arrow has some opportunity. Lamons runs more working capital than I'd like. I understand exactly why. It has do with the supply chain. It has to do with the changing sales points, deeper inventory, the work underway in that business remodeling. I mentioned siop because it gets my attention -- sales inventory operations planning, the techniques for that, how to run it in the Lean manner. We've got a lot of upside in that. We -- a combination of -- part of it is aided by systems but it's mostly the practices and the tools that you use in running. So, yes we've got working capital improvements to do and they are in Arrow and they're in Lamons are the bigger ones.

The only one I would add, Dave, would be Cequent at large.

Cequent at large could be better. Again, somewhat -- we are still running multiple warehouses in North America as the footprint changes and that will not wash out until the middle of next year.

Exactly right. If you think that the changes that both the Asian businesses as well as North America businesses are going undergoing, Steve, you probably have higher operating working capital right now on a steady-state basis than they ultimately need.

Got it. Thanks. I'll get back in line.

Walt Liptak, Global Hunter Securities

I wanted to ask a couple of them. On the energy business, you mentioned that there is been some delayed downtime which is putting up some of the maintenance. Is there an expectation that that revenue would come through in the fourth quarter or is it 2014?

It's more next year. We can see a quarter ahead on the shutdowns; they have to schedule them. It will come. They have to do rebuilds, but they have some flexibility in when they do it.

Okay. And this is just delays. This has to come through at some point.

If you dive into one of those reports about refineries and petrochemical plants and how many are online and how many changed hands and all of that, you can kind of see it going on in the background. It's making the ones that are running have to keep running.

Okay. Got it. I wonder if we can get some color on the Arrow business. How much did it decline? Was there a loss during the quarter? And I guess I'm wondering about what the outlook for that business is for next year, because will energy-related spending is down pretty good.

Yes, I would go down this path. While obviously down within the businesses, you're down -- let's call it about $5 million or so in the Arrow business. In terms of whether or not it is making money or otherwise is not something that we typically talk about at that level of detail on an SPU. But it still generating positive cash and it's going to generate positive cash for the remainder of the year.

There's a lot of change going on in that industry. You've got Lufkin being bought you got a lot who are on our customer list and it just changes things over the short term. But I mentioned Pemex as going slow on their investments, and a lot of their fields use pump jack kind of pumps. And so, again, that will come. The energy business going through a lot of change -- the industry is. And we're scrambling to get ourselves configured correctly for it.

Okay. So is there an expectation of the starts coming back 2014 or --?

Sure. Yes. It's not a business I'm in the mood to say, things are awful, and let's cut it in half. It's not a cyclical downturn as much as a set of changes that we've got to keep fine-tuning products in channel and all that for.

Okay. So you not going to ask to do have to do a restructuring?

We've done what we needed. That sized it for what we're seeing.

We already resized the overhead of the business to allow to a large extent, including the effects associated with production level. So that's already been done, Walt. The broader issue is, as Dave made mention, is, are we going to do something drastic with product lines or something like that? The answer is, no.

Okay. Okay, good. And then on acquisition I wonder if you could help us with -- I didn't hear any comment, maybe I missed it on accretion from the deal or what the EBITDA level is.

To that end, Walt, our typical process is we that expect it to be EPS accretive as well as cash flow accretive in the first year, so that guidance and thought process around our strategies and around acquisitions remains the same. In terms of the devaluation in terms of what was paid, this is at the higher end of the multiples of what we have paid for things in the past. And that's kind of where we are.

Okay. Thanks.

Scott Graham, Jeffries

Good morning. Congratulations on Mac. That looks really, really good for you guys. My only question is really about the -- most of my questions have been answered -- about the dilution from equity deal. I think you guys said $0.13 a share on a full-year basis.

$0.08 share -- let me just make sure we've got the right numbers. $0.08 a share full-year back in 2013. 13% dilution in 2014.

Oh, 13%. I'm sorry.

I just wanted to make sure we got the right numbers.

Yes, why would be $0.08 -- because that's essentially fourth quarter. Why would it be that much?

It's largely fourth quarter, but it's obviously the weighted average number of shares outstanding that you end up having across the year.

Okay. I did actually have one other question, and it was about the energy business, which I know you guys have a very big focus on improving the margins in the business. If we looked at the margin from a year ago of 8% versus the 3% that we saw this quarter, would you could attribute all that to the mix from the refinery pushback?

For the most part, yeah. What I would tell you is that a good significant contributor to that is that and that's the effect on the margin that we had. There's clearly some effect that we have. The year-on-year equivalent of that in terms of our Brazilian operation is maybe a slight contributor as well, but that's really largely it.

So we still are to see this margin bottom out in the second quarter, and then we had this situation. That's kind of why I'm trying to isolate it. Would you expect fourth-quarter margin on year-over-year basis to be then lower again versus last year or do some of the productivity start to really run through there and boost that margin?

I would tell you that in terms of thinking about that, in terms of margin rates year on year, you're going to see some continued pressure in Q4. But sequentially, you should start to see a turn.

Okay. Very good, that's all I had. Thanks.

Rudy Hokanson, Barrington Research.

Thank you. Several questions. One I just wanted to make sure -- this is just sort of like a fact check, is Mac Fasteners the number seven acquisition?

Yes. Yes, it is.

Okay. I just wanted to make sure, since it closes in October. And then on acquisitions (multiple speakers)

Hey, Rudy, I'm sorry, if you look at, including Basrur, it's actually the eighth acquisition for the year.

Okay. Thank you. On acquisitions, would you care to maybe -- I don't know if the word speculate is right because that doesn't sound quite as guided as I would like -- but what size acquisitions do you see in the pipeline? I mean, how high up could they go? Because you make a lot of bolt-on acquisitions, but right now with the strength in the balance sheet I was wondering if it might make you braver or -- and I know braver is a strange term, as well -- but could you maybe speak about the size of acquisitions in the pipeline that you looking at?

Rudy, there are some larger ones. We left a Board meeting ago with some requests from the Board to look at ones that were maybe twice as big, not 10 times as big, a couple of times bigger. Part of that driven by my premise that we have done a lot of acquisitions of semi-broken companies and had to do a lot of fix up. We eat the cost of that as we go through it. While we could afford to continue to do that financially, we are kind of running out of what I call managed horsepower to work on those things. It's time to shift more towards a little bit better businesses and a little bit bigger. So, think of them as a couple or three times bigger, but certainly not 10 times bigger.

Okay (multiple speakers)

I don't really for foresee getting out -- I don't see us adding a segment.

Okay (multiple speakers)

I want to fit in something we understand.

Okay. Thank you. On the Engineered Components side as we looking at that, are the sales there ever such that you would be getting a maybe three- to six-month lead on requests for proposals in terms of the number of items that might be needed for a major job or planning for completions by a customer or are these much more, pretty much you get the order and ship it within the quarter?

It's more of the second. It's a fairly short cycle business. We -- the folks who run that business read all the same drilling reports and all that that all of us can get, but we tend to be -- our product is used at completion and at the time they decide to turn it on. Of course, we also watch the ratio of how many wells are completed and then not turned on because somebody's waiting for the price to change for natural gas or something like that. So the answer is it's a short cycle business. We see some longer-term strategies but most of it is we have to respond quickly and build fast for an order. Or have it in stock.

Okay. And then a question on Lamons and looking at the refineries, especially I'm thinking right now in the United States, I heard recently -- and I'm not sure if it's been done or just under review -- where because of antitrust laws the refiners have not been able to really talk to each other in the past about when they were going to go through shutdowns and maintenance work because everybody thought that would be manipulating the market. But we found in the last couple of years is that they all might go down -- not all of them -- but a significant number of them might go down at the same time because they couldn't coordinate it, and then we get spikes in gasoline prices. And that the government now -- there are people in the government who are looking at this as to how to allow the refiners to talk to each other in order for some kind of stability in the market, so that when one goes down, the other one can keep operating, and we don't get the shortages. Have you heard anything about that? And if that were the case, would that help in some of your working capital issues there?

Yes, I mean if we had them scheduled out -- yes, it would help. It would allow us to schedule it out further and do a little more staging. I can't say that we're seeing any of that for real though. I think is more of a -- they watch each other and they watch their demands and make their own short-term decisions and just keep us on the string for when it comes. Therefore, the business remains pretty short cycle even though its own supply chain is long. That's the difficulty of that business.

Okay. Those are my questions. Thank you very much.

Paul Karos, Whitebox Advisors

Thanks, guys. Just a quick question -- do have an approximate organic -- this would be at the corporatewide level -- organic growth for the third-quarter year over year versus the second-quarter year over year?

Yes, Paul. In my comment I made the reference to about 80% of the growth was related acquisitions; therefore, the remainder obviously would be organic.

And it was closer to half and half earlier in the year.

Okay. So, second quarter is more half and half?

Exactly right.

That's not the drop off it might sound like. That has more to do with quarters in the past and comparisons. But yes, you can see the acquisitions having more impact now than some times for us.

Great. Thanks.

DeForest Hinman, Walthausen & Co.

Hi, just to go further into organic growth. Could you break that down by the segments -- some of the organic growth trends you seeing within the different segments?

You can see sequential as well as continued growth that we lapped the one-year basis, and in packaging, that's probably more related to organic growth. Energy, you saw a compression in North America. Largely, the growth is coming through the acquisition activities that businesses had. Aerospace and defense is largely on the back of the Martinic acquisition. Engineered Components is a tale of two cities. It's all organic-related activities. And Cequent America's is largely organic in nature and Cequent Asia-Pacific, Europe, and Africa is largely on the back of acquisitions. It will obviously be and the key to that will be later out today. That will be available for you at that point.

Kind of on the other axis, we've got growth rates on aircraft build at Boeing and Airbus that is helping that business organically. It actually helps the traditional business and it helps Martinic.

The quarterly results for the packaging are quite good. So, we had a good organic number and we had some very good margin expansion building off of sequential number that was also very good. And I think on the last call I was wondering how the results improved sequentially so much within the packaging business. I think you had said there was some one time (multiple speakers)

If you look at it, the operational gain of the sale of Italy of $2.5 million is obviously in the operating profit that you would see in that relevant segment. If you were to just do a comparable quarter to quarter sequentially, the margins are largely the same.

Okay. Could you just say that again? Because I'm backing out that one-time item -- I'm getting a 28.5% operating profit, so this will pay off in there as well?

Yes, sir. There is two pieces associated with gain from accounting perspective. One is a currency translation adjustment that we special itemed and pulled out. That's $7.9 million, plus minus. There is also an operational gain on the sale of the business itself, namely the assets that actually reports through in terms of gain on sale of assets of the business of $2.5 million. So one a special item; the other one is not. If you are just do a comparable quarter-on-quarter basis, the margin rates are largely the same, about 25%.

About 25%, which we think of as the -- I call it optimum margin -- operating profit margin in that business. And I would say, we would like it to be there long haul -- we're in the midst of that. That said, don't count on it always being there because we've got a lot of activity in the business.

Okay. But I mean just for projecting forward, there has been some volatility in that operating profit line margin line in the past. Are we getting more towards where we can start thinking about some more consistency within that business and the kind of trending more upward over time?

Yes, what's interesting here is obviously we've digested two acquisitions and are making clearly clear improvements in those businesses. So we saw, obviously, some volatility as a result of those one-time effects associated with purchase accounting and all that kind of good stuff. That was largely the volatility. The organic business or legacy business has consistently done pretty darn well. You know the long-term view of this that we've disclosed externally is about a 25% operating profit business -- that's what we like to see the year run at, and this actually represents two quarters in a row whereby the business has actually delivered on that. So, we're continuing to make good improvements.

Okay. Thank you.

Robert Kosowsky, Sidoti

Yes, just one other quick question about the longer-term margin trajectory of the Company, if I back out that gain that was in there, I can get -- this year I'll probably be looking for about a 10% operating margin versus 12% in 2011. Is there any reason to think, given that revenue is now $300 million more, 2013 versus 2011, that you can't get back to that 12% operating margin because there's just been it seems like a ton of investing. And just we're not getting any of this operating leverage coming through?

I expect us to be able to run at that rate or a little higher. While we've tried to explain what's got us off of that but that's -- we are capable of that kind of an ongoing margin rate.

Okay and you think basically it's just the complexity of the business where something is always up and something is always down or something like that?

There's some of that in it, but we also have been doing acquisitions that needed a lot of work to pull them up. We are doing a lot of footprint changes, et cetera, et cetera. The long-term margins and versus our peer group that's important to me. And you'll see us continue to improve.

Okay. Thank you.

We have no further questions in the queue at this time.

Well, all right. We sure appreciate the attention. Thanks again for your support on our equity range. You know we intend to invest that wisely and continue to improve TriMas. So, again, thanks for all your support. We will talk to you another time. Thanks.

That concludes today's conference. Thank you for your participation.