TriMas Corp (TRS) 2014 Q1 法說會逐字稿

Good day, everyone and welcome to the first-quarter 2014 TriMas earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Sherry Lauderback. Please go ahead, ma'am.

Thank you and welcome to the TriMas Corporation first-quarter 2014 earnings call. Participating on the call today are Dave Wathen, TriMas' President and CEO and Mark Zeffiro, our Executive Vice President and Chief Financial Officer. Dave and Mark will review TriMas' first-quarter 2014 results, as well as provide details on our 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 6663958.

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 a 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 Dave Wathen, TriMas' President and CEO. Dave?

Thanks, Sherry. For all of you listening, good morning and we appreciate your support and involvement with TriMas. We are off to a very good start for 2014 with record level first-quarter results for revenue and operating profit and sequential improvement in many of our key metrics. Revenue increased 9% and operating profit, excluding special items, increased more than 13% versus first quarter 2013. And our Q1 earnings per share of $0.43 is in sync with our full-year guidance.

While our businesses generated more operating profit during the quarter, we faced two headwinds impacting our EPS. Our effective tax rate was higher at 31% in the quarter compared to 14% a year ago and we had more than 13% higher weighted average shares outstanding in first quarter 2014 as compared to first quarter 2013.

On slides 5 and 6, I'd like to update you on our top initiatives across TriMas grouped as either a growth or margin initiative and all of which aligned with TriMas' strategic aspirations. Of course, many of our initiatives are designed to grow revenue and increase margins. Those have the highest priority and get the most resources. The two segments we plan to grow the fastest, packaging and aerospace, combined grew more than 16% through organic and acquisition efforts. It is also worth noting that engineered components grew 20% resulting from our Q4 Cylinder acquisition and the moderate recovery and multiple actions in our Arrow Engine business.

Both of our energy-related businesses, Lamons and Arrow, showed recovery versus the challenging second half of 2013 through the execution of a long list of improvement plans and some market bounceback. The management teams at both Lamons and Arrow have done very well reconfiguring for the market changes. You heard me discuss before seeking bright spots for growth to offset the lack of tailwinds, particularly in the US and European economies. Two comments. First, I am gaining a little optimism as we are seeing glimmers of overall economic growth. And second, we continue to have a long list of growth projects that I am proud of our TriMas team for identifying and implementing.

Let me comment on a few highlights. Our second packaging dispenser plant in China is ramping up to support our expanding sales in country and it eliminates the extra duties we have been paying. While China and Brazil are growing slower than previous forecasts, both are still in the high-growth category. As the quarter progressed, our energy business returned to near normal order rates. Customer plant turnarounds are still slow, but our acquisitions, other growth activities in new products and new applications are helping to offset this.

We knew our recent Mac Fasteners aerospace acquisition had sales upside through capacity additions that we have been implementing. In addition, our efforts to sell higher spec fasteners are raising average selling prices. Arrow Engine continues to add products for their target markets, including a new line of higher horsepower engines. Norris Cylinder is quite successfully moving equipment and volume into their Huntsville, Alabama small cylinder plant from the asset acquisition we made from Worthington last year. I was at Huntsville two weeks ago and was proud of our people there for leveraging this new volume to margin levels that rival our large cylinder business in Longview, Texas. I also visited our new Cequent plant in Reynosa, Mexico. It is quite impressive and is attracting significant customer interest in Mexico where a growing middle class is attractive to several TriMas businesses.

As I mentioned earlier, many of these growth programs also have a positive impact on our margins. And I do want to highlight a few of our cost-out and margin improvement activities. Mark and I just finished operating reviews and can report that our ongoing productivity projects are yielding results as expected. We have been focused on getting out of lower margin activities such that we can turn more of our resources towards the bright spots we identified. You saw us sell our rings and levers business in Italy last year. We have recently taken actions to exit a less profitable energy branch, deemphasize our defense business in aerospace and defense, reverse an unsuccessful attempt to lease and service compressors in Arrow and of course, Cequent's big move of manufacturing from Goshen, Indiana to Reynosa. You will see more of these kind of margin improvement activities going forward.

So overall, I am happy with TriMas' performance in first quarter. Each of our businesses shows positive trends and we just may be seeing some glimmers of hope in some markets. Now I'd like to have Mark share more details of TriMas' financial performance.

Thank you, Dave and good morning. Before we move onto the financial results, I would like to reflect on our start to the year as there are some themes that are important to note. First, Q1 represents another quarter of high single digit sales growth in line with our strategic aspirations. Many of our businesses are showing organic growth offsetting some market headwinds and our bolt-on acquisitions are adding volume, albeit at lower margins. We acquire them because we know we can improve the business to add incremental sales, generate operating synergies, better support our customers and create more value for all of our stakeholders.

Second, we demonstrated margin improvement in our core businesses and delivered on our plan to improve acquisitions through operating efforts. This is all despite an end-market challenge in the energy segment pressuring enterprise-level margins.

Third, we are seeing sequential improvement in our energy-related businesses. The combination of our margin expansion actions and some end-market recovery are driving improved performance. We have plans in place to continue to capitalize on this trend.

Finally, we have increased our focus on productivity and lean initiatives and have plans in place to continue to optimize our footprint and improve margins. We continue to gain momentum on this front across the Company.

Let's continue with a summary of our first-quarter results on slide 8. Our record first-quarter sales were $368 million, a 9% increase compared to first quarter 2013. Our recent bolt-on acquisitions contributed significantly with the remainder of the sales increase driven by our expansion in international markets and new customer wins. These increases were partially offset by the impact of a $4 million decrease related to the sale of our Italian rings and levers business and packaging in Q3 of 2013, a decline of more than $4 million due to the delay in turnaround activity in energy and nearly a $4 million effect of unfavorable currency exchange. We are pleased that our growth initiatives were able to substantially offset these headwinds in the quarter.

Operating profit for the quarter was $34 million, excluding special items, with a related margin percentage of 9.1%, an increase of 30 basis points compared to the prior-year period. Operating profit margin increased due to our productivity and cost initiatives, partially offset by the impact of lower initial margins of our recent acquisitions and thus demonstrating core business unit and run rate margins exceeding the total enterprise margin rate improvement.

First-quarter 2014 net income attributable to TriMas would have been $19 million, excluding special items, an increase of 11% compared to Q1 2013. We achieved a Q1 EPS, excluding special items, of $0.43, down a penny from Q1 2013. The benefits of higher operating profit and lower interest expense were offset by more than 13% higher weighted average shares outstanding and a higher effective tax rate in Q1 2014 as compared to Q1 2013. This expected 2014 tax headwind is due primarily to the timing of tax laws related to the fiscal cliff extenders. We expect to remain within our previously provided tax estimate of 27% to 29% for the full year.

First-quarter 2014 free cash flow and working capital were in line with expectations. During Q1 2014, we used $18 million less cash than in Q1 2013, a 35% improvement. These results continue to reflect our seasonal increases in working capital, as well as a result of acquisitions, actions to support our customers, new product inventory levels and geographic expansion.

Moving on to slide 9 on capitalization, we have enhanced our capital structure significantly over the past several years and continue to see the benefits of (inaudible) rates, expanded maturities and enhanced flexibility. The higher debt level as compared to year-end was due to the seasonality of working capital to support our businesses, as well as the use of $51 million in cash to acquire the remaining 30% interest in Arminak in our packaging business. We ended the quarter with $398 million in total debt, a 21% improvement from a year ago, a leverage ratio of 1.99 times and more than $352 million of cash and aggregate availability under our credit facilities.

Our October 2013 refinance actions enabled us to reduce interest expense by $1.7 million or more than 30% in Q1 2014 as compared to Q1 2013. The effective weighted average rate on variable-rate borrowings decreased 100 basis points to approximately 1.8% as compared to Q1 2013. Interest expense further declined due to a $123 million decrease in our weighted average variable rate borrowings over the same period. In addition, in April 2014, we amended the accounts receivable facility to lower our rates and extend maturity until October 2018.

At this point, I would like to share a few highlights of our segments beginning with packaging on slide 11. Packaging sales increased 9.5% for the quarter, driven by increases in specialty systems product sales in North America, Europe and Asia. Industrial closure sales also increased if you remove the impact of divestiture of our non-core ring and levers business in Italy. On a comparable basis of business, packaging sales would have increased more than 15% in Q1 2014 as compared to Q1 2013. Our sales efforts in Asia continue to ramp up and we are completing our second manufacturing facility in China to provide an additional low-cost facility and support local commercial expansion in this market.

Packaging's operating profit margin increased approximately 280 basis points year over year, driven by the higher sales savings from ongoing productivity and automation initiatives, a more favorable product mix and an improvement in profitability of our acquired businesses. Packaging remains focused on sustainable operating profit margins in the mid-20% range. End-market growth prospects remain positive for this segment and we will continue to support the launch of new dispensing and closure products.

Moving on to slide 12, energy. First-quarter sales decreased 3.9% compared to the year-ago period, primarily due to the significant slowdown and postponement of turnaround activity and maintenance spend at refining and petrochemical customers that started during the back half of 2013. This weaker shutdown activity resulted in a less favorable product mix for standard gaskets and bolts. Q1 demonstrated a sequential improvement in both businesses' profit conversion related to multiple actions taken as well as order rate improvement. We continue to focus on items we can control, improving the cost structure and optimizing our expanded geographic footprint and expect that these efforts will continue to contribute to improvement for Lamons throughout 2014.

On slide 13, aerospace and defense sales for the first quarter increased 40.9% as compared to the year-ago period. This increase was primarily due to the acquisition of Mac Fasteners in October 2013 and Martinic Engineering in January 2013 and improved demand for core monogram products, including blind bolts and one-sided insulation products. We experienced continued higher order activity as aircraft build rates remain strong. Our backlog remains at record levels and we continue to ramp up our new collar facility in Tempe, Arizona. We expect this business to continue to grow as a result of good end-market dynamics and our efforts to obtain new product qualifications and lastly, our expanded geographic coverage.

Q1 operating profit increased due to higher sales levels, but operating profit margin declined primarily due to a less favorable sales mix within our productline and as a result of lower profit margins associated with our acquisitions. We expect the overall margins of this segment to continue to increase as we improve the margins and leadtimes of our acquired businesses and continue to leverage our investments in the facilities and equipment.

Moving onto slide 14, engineered components. First-quarter sales increased 19.8% compared to a year-ago period, primarily due to a large order for our compressor fleet by a significant customer and some stability in the end-market demand in the aero business. Sales of industrial cylinders also increased due to the asset acquisition from Worthington in November 2013. First-quarter operating profit and the related margin percent increased compared to the prior-year period primarily due to increased sales level with margin improvement resulting from continued productivity and cost-reduction initiatives. Operating profit margin increased 190 basis points year on year due to price increases, cost reductions and favorable product sales mix shift.

On slide 15, we show the performance of Cequent split into two segments. Overall, Cequent Americas sales were relatively flat compared to a year-ago period as increased sales within the retail channel were offset by a decrease in year-over-year sales in the aftermarket channel. In Q1 2013, Cequent experienced higher sales levels of custom-built safety stock in anticipation of the move of production to Mexico. While our production move to Reynosa, Mexico was completed as we entered 2014, we continue to ramp up the productivity and efficiency of this facility, including efforts to optimize a new production supply chain and distribution processes for this business. At this point, the production levels have matched the former facility production levels and we remain focused on making these facilities more efficient.

Cequent APEA, representing our business in Asia-Pacific, Europe and Africa, sales increased 23% compared to a year-ago period primarily due to the 2013 April acquisition of C.P. Witter and our July 2013 acquisition of towing assets in Germany, partially offset by negative impact of currency exchange.

First-quarter operating profit and margin decreased primarily as the impact of higher sales was more than offset by incremental costs related to the acquisitions. Cequent continues to leverage its whole full productline, commercial relationships and strong brands around the world. We expect to capitalize on new lower cost structures around the world with margins improving over time.

In summary, Q1 was a solid quarter with many of our growth in margin improvement program showing results. We are focused on continuous improvement on many fronts, including margins, global footprint optimization, working capital efficiency and enhancements within our acquisitions. These are a few of the focused investment priorities with other efforts spanning functional elements of the Company as well. We remain committed to making TriMas a better and more efficient enterprise and expect that the remainder of 2014 will provide further opportunities for the Company to leverage our many operating improvement initiatives across each of our businesses. That concludes my remarks. Now Dave will provide some comments on our outlook. Dave?

Thanks, Mark. Now I would like to look forward, share some updates on our planning processes and strategic aspirations and then comment specifically on 2014. I am a fan of consistent, easily understood processes. We all know that standardizing and commonizing as much as possible in a business provides more time to concentrate on the uncontrolled variables that come its way. We have had the same planning processes and strategic aspirations for five years at TriMas. We have modified and tweaked them periodically and I will point out some recent updates.

Our planning process on slide 17 lays out our ongoing cycle of strategic planning, people plans for implementing those strategies, operating plans for shorter-term metrics and incentive plans to reward success. The update is an increased emphasis on risk mitigation. All successful companies evaluate risks and all successful companies take on risk. The differentiator is both risk identification and preplanned mitigations at set trigger points. TriMas' Board reviews these risk mitigations and certainly holds me responsible for overall risk management.

On slide 18, strategic aspirations, we have modified the bullets slightly as highlighted. The change is an increased emphasis on margin enhancement. While we previously looked at margin in the background while growing revenue and EPS, this change acknowledges our need to enhance focus on margin improvement in our strategic aspirations as we make choices on programs, investments and operating plans. We are working on the quantification of some longer-term goals with specific metrics that will measure success in achieving these aspirations. Stay tuned for future earnings call or better yet join our Investor Analyst Day on May 14 where each of our division presidents will share their plans for increasing TriMas' value.

The next slide provides our 2014 outlook for sales, EPS and cash flow. For now, we are leaving these ranges the same as we previously communicated in February. While I am optimistic due to our many programs achieving positive results and the recent indications that the energy markets are stabilizing, it is too early to make any significant changes in our outlook. As Mark mentioned, we face headwinds in our tax rate year over year. As always, we will update you on outlook next quarter.

I will close with a reminder of our TriMas value proposition. I suggest that our balanced portfolio is providing stability, productivity is helping drive enhanced margins and our ongoing concentration on bright spots for both growth and margin, successful acquisition integrations and a pipeline of potential new acquisitions will keep our growth rate in high single digits. Thanks again for your attention and now we will gladly take your questions.

(Operator Instructions). Scott Graham, Jefferies.

Good morning. Nice quarter. So my question is one of the things you talked about last quarter was, and in fact, I asked the question about it, was this really using -- really whittling down the number of initiatives that the Company was undertaking in 2014 versus that in 2013. And you don't stop that on a dime, so I guess my question is as you now we are sort of two months later, we are four months into the year, maybe what are some of the larger things, and I know you've pointed out a couple of them in your handouts here, but maybe more on the productivity and the acquisition side some of the larger things in some of the bigger businesses that you are focusing on and how has the team kind of responded to, hey, we are still expecting this much EBIT from your business unit, but we are just looking for you to do fewer things to get there. Is there kind of like a collective sigh of relief and maybe more focus on realizing more larger numbers from fewer programs or talk about that transition and maybe some of the examples behind what you are focusing on the most?

Scott, I would -- well, first off, you are right; you listen well. We are -- like always, we've been trying to prioritize what makes the top of the list and more importantly therefore what do you put on the back burner and not work on. That is easy to say and as you know, culturally, it is a little bit difficult to implement. One lever that affects all this is where do you spend, where do you put investment money, whether it be CapEx or increased spending on development work. We are not really researchers; we are more developers of new products.

And that is the lever that Mark and I have the most influence on and what we are choosing to spend on and we have -- I hate to say it is all that much different, but I will admit we've got a much higher attention level on the programs that get us growth and margin rather than just growth programs and that is -- in some of the acquisitions, we are -- Mac Fasteners I mentioned on purpose. The crew running that place is doing a great job. They had been kind of held back on investments in the business. We right away started adding capacity, but it is specifically for products that grow and increase margin. And I even -- you probably heard me comment -- average -- one thing we are tracking is average selling price and that is not (technical difficulty) price increase average selling price, although there's a little of that; it is more about going after the higher tech, higher spec therefore more expensive products that we tend to make a little higher margins on too.

So that is kind of going on across all the businesses. We are definitely seeing the -- I'll just run through the business. Packaging continues to see high demand in Asia by our big global customers who want higher-end products and you could probably sit in a whole lot of strategic reviews and hear the premise that middle class is growing in X, China, India or whatever and here is how we are going after it and it tends to be higher spec products. That is certainly -- in energy, we've got a heavy emphasis -- Kurt told me about running all new training programs for some of the products that have been introduced recently that are -- they solve a problem for a customer. They tend to be higher price and higher margins and so, again, easy to say, but we have just got an emphasis on those kinds of things and I'd say letting some of the other programs drop to the back.

I have a concern that I don't want the pendulum to swing too far because we will get away from organic growth and only concentrate on margins. So part of Mark's and my job is and everybody's job is to keep that in balance. I mean that is kind of a long-winded answer to say I think it's prioritization and the levers are -- I am willing to spend CapEx and I am willing to put more people on very attractive programs, so we are doing it. And I think -- I believe we are starting to see the results in the numbers.

I would just say this that at your analyst meeting, would it be fair to expect that, and this is something you might not be able to answer, but forever you guys have had this high single digit top-line growth aspiration and that of course includes acquisitions, which as we all know are impossible to know their timing and realization. So I guess my follow-up question would simply be, as we look out over a three-year horizon, would it be maybe more -- would it be fair to say that you guys are maybe targeting a little bit slower organic growth, let's say organic growth equivalent to 1 or 2 points above market growth, which would I guess put you somewhere in the 4% to 5% range as opposed to kind of -- I am not saying that you are chasing high single digit, but since that includes acquisitions, that is always a tougher one to zero in on. So would it be -- could we expect when you talk in your meeting in a couple week's time that maybe the organic is a little bit lower, even more in favor more of more profitable organic?

It is a matter of degrees. I hope it doesn't swing too far that way, but, yes, I have for some time clearly been willing to trade some margin for growth because it is the toughest thing to grow in my view and we all know how to go after more margins and that might include slowing down some programs that are not at the higher margins. But that said, you are going to see division presidents talk through some mighty impressive programs and they may be different than you've seen in the past because the world changes, but there are some great programs and we won't back off on getting organic growth. I want TriMas to be known -- I want us to be -- you all to see us as an industrial company that knows how to grow and we will do the things that makes that happen. So I want everything, Scott.

Thanks.

As do most of us.

Walter Liptak, Global Hunter.

Hi, thanks. Good morning, guys. I wanted to ask about the engineered segment and you talked in the presentation about compressor sales picking up. I wonder if you could kind of quantify the order that you got and provide a little bit of color around what is happening at the well site.

The compressor event was we, seven or eight months ago, started leasing compressors with service. We bought some pickup trucks and trained some people and while that is clearly an attractive business, I would say we didn't realize how negatively some of our customers who buy compressors and that have their own service fleets would see us doing that. I was clearly a part of that decision; in fact I was a big fan of it. We reversed course. I give the management team at Arrow, Len and crew, great credit for not just reversing course; they found a way to actually sell the fleet that we had already leased at a decent price and so that is in the numbers. So we sold it and they sold it normal sorts of profitability.

Now that said, so therefore that is kind of a timing thing and it made first quarter look pretty strong for Arrow. Underneath all that, the compressor business still continues to be good. We have got some pretty neat activities in nontraditional markets outside the US that are using the same technologies that we are used to, both compressors and engines. There is -- I mentioned a line of higher horsepower. We tend to kind of slowly creep up in a controlled way, expand our productline. These aren't products that you can have any kind of issues with. They have to run 24/7 almost forever. So we have been carefully continuing to add new products and they fit what Scott asked about; I mean they are new sales. We are careful going in that we are going to get decent margins and then we concentrate on those.

The other thing in the engineered segment that you see is the fact that you know we bought a small compressor business out of a semi-competitor in fourth quarter and I was at Huntsville and it really is as straightforward as adding some people in Huntsville, adding a second shift, bringing some equipment out of that plant and you get great leverage in those -- those are rare situations to have something that attractive to go after. And it makes sense for both parties. And so you jump on those when you find them. And this is not one of those that I am going to have to sort of apologize for, hey, we made an acquisition, the margin is low, but we are going to get there. This is one that is hitting the ground running as you would expect when you put it in an existing well-run plant and just add volume and bring in some equipment that in spots is more productive than what we had. So good all around. So that is why you saw the positives. The one unusual was the sale of the compressor fleet. (multiple speakers).

Walt, that is a pre-existing customer, so it is somebody that we will have ongoing commercial relationships with. So we are -- the business team obviously is focused on servicing them as a customer over the long haul. Just one point of clarity, the acquisition from Worthington was in the cylinder segment of this business. I'll tell you, this is one where Jerry Van Auken and the team, they did a great job with the Taylor-Wharton acquisition and the integration and this is just another example where that business came through and a fantastic job.

Okay. Just so we could back out the event, the leasing event, what was -- can you quantify that number for us?

It will be in the Q, but it is circa $5 million. And to that end, this is just a matter of when during the year that kind of activity was going to happen. So I don't see this as a one-time event. It is a matter of --.

It's a timing thing.

This is that customer wanted this particular well site equipment and it just so happens that they were able to secure the number of packages necessary by doing this with us.

Okay. If we back that out, your kind of high single digit revenue growth, is that sustainable throughout the year?

Well, you'd have to -- the other positive is the fold in of the acquisitions. So I wouldn't count on -- well, they've got a lot of positive things going on, but I am cautious about energy in total and while the short-term order rates are sort of encouraging, I am staying pretty cautious in energy. The cylinders business in total is a pretty -- they do -- it's a GDP plus a little kind of a business and the ups and downs have more to do with events like an acquisition or big export orders, which we of course pursue actively.

Okay. All right, thanks for the color, guys.

Robert Kosowsky, Sidoti.

Good morning, Dave, Mark, and Sherry. How are you doing? Yes, I was looking on the aerospace side, can you perhaps due an operating income bridge with fourth quarter because the margin did come down a pretty considerable amount? And I am wondering -- trying to get a handle on how much was mix versus any extra Tempe cost versus anything else that impacted the margin?

There's a couple things that affect it. Obviously, the acquisition in terms of rolling into first quarter, there is still step-up in terms of purchase accounting-related activities that will flow through. So there is a degree to which the amount in Q4 versus the amount in Q1 has a full effect in terms of within the quarter. That is number one. Number two, when you think about the implications around Tempe, we first got rolling with fill orders out of the Tempe facility in Q4. I'll tell you that run rate is a little lower on a run rate basis quarter on quarter as we filled -- you fill necessary orders in Q4 as we first started getting rolling. That -- the margin rate of that is a pretty sizable uptick for this business and those are the major drivers to the stepdown in rate on a quarter-on-quarter basis.

Okay. So as far as Tempe, it is like you had the initial stocking order in the December quarter and --

Exactly.

-- inventory was still at the customer, so you didn't have as high a throughput?

Exactly. And in particular, Boeing is going to -- we directly fill min/max programs on all that. So a new product, you get a big bump in quarter number one.

Okay. And then how did the core -- the margin profile of the core business trend in the quarter versus fourth quarter?

The aerospace business?

Yes.

It is all positives. The order rates continue as you -- you can just read any industry report and tell what is going on with order rates. Our backlog continues to build across -- we really run -- we've really got three aerospace-related businesses now. They all report into David, but they are all seeing the ramp in the industry.

Yes, if you look at the legacy business, if you want to use that term or the core business of Monogram, margin rates were basically flattish year on year. No increase, so it is really a discussion of mix of the business in terms of year-on-year comp of the acquisitions. The second element obviously, as Dave pointed out, was the stocking orders out of the Tempe facility.

Okay, then we should probably expect sequential margin expansion in this business as you get further past some of those acquisition-related costs and perhaps a more normalized Tempe production rate?

That's correct.

Okay. And then also on Cequent North America, with the facility move complete, could you quantify or say how the core margins looked versus your plan? And it seems like you have some other cost headwinds from higher distribution and maybe moving some higher cost inventory. Is there any way to quantify that or at least tell us when those are going to subside?

The core product margins, if anything, are slightly better than call it plan. I've been at this a long time. That said, I went through the plant. The plant is running at the same line rates that Goshen used to run at. That is stupendous. But I also know that it's not yet running small lots very well, so there is work to do there. That will hit it going forward, but that is time and a lot of work to get it there. The team is at it. The only delay in when you'll see it a lot in the numbers is of course we had pretty big stocking inventory for safety stocks, both our sales and some of our customers. We also are still working the supply chain, both incoming still qualifying some steel suppliers that are in the South rather than the North. We have still got a warehouse system that is close, but not quite there. So it is going to take -- and this is no change. I have told you before this is going to take till the middle of the year until you see it starting to kick in in the numbers of the business.

And I don't want to -- this is normal, I would say, but I don't want to minimize the amount of work. This team has done a stupendous job of doing all this and I loved going to the plant and seeing all the folk and of course the receiving end of this kind of a move, you have got some pretty fired up people because this is a lot of business and a lot of production and training welders and all that. So it is all first class. I am proud of the crew. They are doing a nice job.

Okay, thank you very much. Good luck.

Samuel Eisner, Goldman Sachs.

Yes, good morning, everyone. Just going back into the questions on engineered components, it sounded as though the top-line benefit was about $5 million from the compressor order. Can you maybe hash out what the EBIT benefit was within the segment?

Yes, I will tell you that it's circa about 20% operating profit.

Understood. That is helpful there. And then again not to maybe preview what you guys are going to discuss at your analyst event, but it sounds as though you are focusing more on margin enhancements. Maybe just talking about it at the high level, I mean obviously there are some big -- there are some restructuring that is going on within energy as well as engineered components. Maybe you can talk a little bit about some of the repositioning that you guys have done that you indicated on the fourth quarter, how that has been flowing through and kind of what the expectations are for 2014.

It would be better to let Kurt and the crew there talk about it, but you have seen what I said, the start of a few moves. You saw we closed a branch that decided -- we are at the point that I've talked about before. We have built out our branch network. We just finished the strategic planning process. We will continue to have a handful of branches in Lamons in the geographies that we need them and the team can tell you where those are at, but the work -- the pendulum has swung towards margin improvement. It is all the things I've talked about before, some vertical integration and we've now got production going. We've consolidated a couple facilities that we got by acquisition in India so that we've got something we can count on there.

And I don't want to preannounce anything, but we are hard at work on what are the next moves that improve that business in margins. I still -- I love the business and what it serves and what you can count on and our ability to bring new products through a channel. All those are great for the top line, but we have also got a whole series of events going. So I don't want to preview too much and I don't want to get ahead of the team. My style sometimes is to share my opinion about what we might ought to do, but then ask the team to put together their plans and put the numbers around it and we are looking at that. We are in that stage.

Understood. And then just on the Asia-Pacific business and Cequent, I mean on a quarterly basis, this is some of the lowest margins that you guys have seen in the last four years or so. So just curious are you seeing a point where profitability should improve in that business? Is that more structural? Is that FX-driven? Just trying to understand -- again, I realize it is not a huge portion of EBIT, but it does matter. So just curious, any additional color there would be great.

There's a few things that are a drag. We made an acquisition in Germany, which got us designs and a production point that allows us to serve some customers. Serving the customers is going well. The orders are occurring at all, but we knew going in it was an acquisition out of another company that they sold us their plant, but they left some of their stuff in it. That actually isn't -- their stuff isn't moving out until July. So we have still got some drags like that and so we are trying to ramp up production at a little bit of a disadvantage. But, again, we knew all that and it is just a matter of getting through that.

I would say the rampup of a couple of customers in South Africa has been a little slower than they had forecast. Other than that, Australia itself is kind of in its season and probably -- they are opposite seasons from us and all looks good in the home markets. We have done quite a bit of work on the aftermarket retail sales part. We have had some of the retail crew out of the US who are very good at that, different packaging and all have been in Australia and vice versa. So we have got a lot of that kind of stuff going on. I think you are just seeing effects of change in the business. Like I said, yes, it isn't a big enough part that we can't allow it to go through those changes and spend some money, so you are seeing the effects of that.

All right, great. Thanks so much. I will hop back in queue.

Karen Lau, Deutsche Bank.

Thanks, good morning. So just going back to engineered components real quick, so it looks like if we back out the $1 million of EBIT from the compressor sales, the EBIT margins would be running at 12.4% in the first quarter. Is that the run rate that we should expect for the rest of the year?

I think you are going to see continued improvement in the Norris side of the business as they make their way through the acquisition integration. So there is positive tailwind there and I would tell you that the Arrow business sequentially showed a nice improvement Q4 to Q1 in terms of planning margin rates. So I'll tell you it is too early to call an uptick in that market, but they have done the right things structurally to have a good stable margin across the year.

Okay. So --.

Yes, Arrow is a somewhat seasonal business; remember that. I mean if you talk to the folks in Tulsa, they can tell you what the frost level is in Canada in the fields and when do they start shipping and that is only recent some of that turns on. So we do get the uptick that comes from better weather.

Got it. And then on Cequent APEA, could you quantify how much of the margin drag was from acquisition? Are there any one-time integration costs that does not recur for the rest of the year because sales were up quite a bit, but the absolute OP dollars were down?

Yes, if you look at the effects associated with the acquisitions, you can actually hang largely the entire step-down in terms of the effects and the acquisition in terms of full-year effect. So that is what you are seeing. You are seeing the Alco assets that we purchased, as well as the stepup in terms of SG&A associated with both of those businesses affecting the relative profitability of that segment at this point. And then as Dave made mention, they really wouldn't get behind in terms of timeline here in terms of their South Africa implementation of some commercial programs. So we should see that obviously coming more online towards the end of the year.

Okay, thanks. And then on Arminak, so I don't think your original guidance assumed acquiring the remaining 30% of Arminak and by my math, that should add about $0.08 to $0.10 of EPS for the year and maybe, Mark, you can confirm that math. But is the reason that you don't change your range at this point, is it because it was too early, you're trying to be conservative or are there any offsets that we should think about to the Arminak contribution?

The number of $0.08 is far too high because when you think about the noncontrolling interest, that is kind of an after-tax effect, so make sure that you are thinking about it in that context. There is a reason why we gave a range around things that we know within the year. That's what we were targeting to do. We clearly already had the right, if you will, to capture 10% of that business. It was opportunistic that we were able to get the full amount.

Okay. And just a quick follow-up on that. The rationale that you accelerated the acquisition of Arminak, does it speak to maybe the absence of M&A opportunities elsewhere and maybe you can give us an update of the M&A pipeline and the environment?

There are some pretty decent acquisition possibilities in the pipeline. You know that we have been saying that the Board keeps asking us to look at bigger, better, higher margin kind of acquisitions. I get the pleasure of explaining to the Board that that means higher prices and we discussed that. So far, they have been very supportive of those. So I am, Bob and crew and the division presidents are finding some pretty decent acquisitions in the pipeline. Arminak was more about -- it's clearly a great business; it has been very good for us. The 10% a year, calculating that, making projections, how the incentives work, it was getting cumbersome. The owners came to us and said let's just strike a deal for the rest of it. We looked at it and it winded up being a partly financial, partly simpler and easier and partly, as we go forward with where the production is going to be and what products do we put where, we don't get into having to be -- separate an acquisition. After a few years, it all blends and we were in a situation where we were going to have to keep it more separate [then] makes sense. Now it is totally full speed ahead. So it is just easier.

Okay, got it. Thank you.

(Operator Instructions). DeForest Hinman, Walthausen & Company.

My questions have been answered. Thank you.

Steve Barger, KeyBanc Capital Markets.

Hey, good morning. Dave, it was good to hear you talk about some glimmers of economic improvement. Obviously not enough to change your guidance range, but can you talk about what you are seeing that would be most relevant to you from an earnings sensitivity standpoint if that initial activity were to continue to strengthen?

Well, certainly energy, and we are not counting on a bounceback of what you would call the turnaround business in energy. The team at Lamons are beginning to -- are saying that they are running based on five-year time periods between major turnarounds and a few years ago, we would have said it was two or three years. And maybe it will come back, but we are not counting on that, but it is the broader set of partly the business they have been going after and some new products, but partly just the general uptick and I don't know maybe a silo even in energy markets because we see it in both Lamons and in Arrow. And so there are some -- that definitely improves because it was quite a drag on us in the second half of last year.

Packaging, you are seeing some new strength. We tend to talk about Asia and a little bit of strength in Europe, so that is certainly a glimmer. Norris, we can almost watch GDP and industrial production and all that. It is not that the order rates are up as much; it is that the cycle time of the orders. There were times in third and fourth quarter last year that I was hearing in operating reviews that we had plants that weren't full for the next two weeks and they are scrambling like crazy and we are doing more setups than we normally would and all that. And we are starting to see a little more backlog build and part of that is some got to be some glimmers of hope on our customers' part.

So I am going to reserve -- I am cautious about it, but there is more of those kind of indicators than we have seen in a while. I think I purposely said something on the chart about our only retail business is Cequent retail that we would sell through Home Depot and Tractor Supply and all those kinds of people. They had a pretty decent quarter and lots of people said bad weather and all that, but we -- if the weather hurt it, in spite of that, we still had a pretty decent quarter. So that is a good indicator. I sound pretty optimistic, don't I?

You do. It's nice, yes. In packaging for US and Europe, is that both industrial and consumer?

Yes, which feels good.

And I am really happy to hear about the renewed focus on margin expansion. The question is how does that flow through to your thinking in terms of free cash flow conversion? Is there a longer-term sustainable goal you have in mind there and any updated thinking in terms of when you can start to improve that?

When you think about that, Steve, there is a renewed emphasis Board down in terms of return on invested capital as well, which that talks to efficiency of assets that we otherwise have already deployed. When you think about free cash flow conversion, I think the LTM basis was in the 70%s in terms of that percentage that you look at. The reality is we are through a good portion of the CapEx investment that was needed in terms of refreshing some of these plants that have been otherwise pretty heavily used. And I would tell you that we should start to see better conversion in terms of D&A versus new CapEx as well. So we are going to see that naturally improve.

The other part of it is is that cash taxes continue to get a little better through our better and more efficient tax planning strategies. So we've seen some improvement there in terms of overall cash taxes paid as well. So there is clearly a focus. Dave doesn't want us to slow down in terms of productivity and investment in CapEx. That is obviously the lifeblood of margin creation. So we are not going to slow that, but there are some of these big events that we have been through that we are passed or we are through them so that in terms of cash flow efficiency, we should see that continue to climb.

Right. So without commenting on dollars for 2015, you would certainly expect the percentage conversion to improve year over year next year?

All things being equal, yes, that's things that we are obviously going to be looking at very closely. As Dave presses us in terms of return on invested capital, making sure that we are focused on that, one of the things that we are going to do is make sure that the CapEx we are deploying is indeed capital-efficient.

That's great. (multiple speakers)

Mark gives me too much credit for that. I think you know one of our long-term incentive metrics switched to return on invested capital. So we all feel a desire to improve return on invested capital.

(Operator Instructions). Robert Kosowsky, Sidoti.

Yes, just one quick numbers question. With this Arminak acquisition, is there anything left over in the minority interest line item on the income statement?

No.

Okay. (multiple speakers). (inaudible) it out. Okay, thank you very much.

You bet.

(Operator Instructions).

Okay, how about if I give you a final reminder. Our Investor and Analyst Day is May 14. It is in Michigan this time. We have got a new headquarters facility for Cequent that will work great for this. Obviously, it is about all of TriMas and all the division presidents will be here, but it is your chance to hear directly from them rather than listening to Mark and me. So if you are interested, contact Sherry and we will get you the information. Thanks again everybody for your attention. We sure appreciate your support. We will keep at it.

And with that, ladies and gentlemen, that does conclude today's presentation. We do thank everyone for your participation.