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TriMas Beats on Q3 Earnings and Revenues, Updates View

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TriMas Corporation (TRS - Free Report) reported third-quarter 2015 adjusted earnings of 39 cents per share, which came ahead of the Zacks Consensus Estimate of 30 cents and rose 34% year over year.

On a reported basis, including special items, TriMas posted earnings of 26 cents per share in the reported quarter, an 8% increase from 24 cents per share in the year-ago quarter.
 

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Total revenues remained flat year over year at $222 million in the third quarter and surpassed the Zacks Consensus Estimate of $221 million. Benefits from acquisitions and organic initiatives were offset by impact of lower oil prices, macroeconomic uncertainty and $3.6 million of unfavorable currency exchange, primarily in Packaging and Energy.

Cost and Margins

Cost of sales decreased to $160 million from $162 million in the year-ago quarter. Gross profit increased 4% year over year to $62.5 million. Consequently, gross margin in the reported quarter expanded 120 basis points (bps) to 28%.

Selling, general and administrative expenses increased 4% year over year to $41 million. Adjusted operating profit went up 28% to $30 million from $23 million in the year-ago quarter. Adjusted operating margin increased 300 bps year over year to 13.5% aided by improvements in Packaging, Aerospace and Energy, and a reduction in corporate expenses compared with the prior-year quarter.

Segment Performance

Packaging: Net sales fell 2% to $88 million, due to unfavorable currency exchange, partially offset by increased specialty systems product sales due to the acquisition of Lion Holdings in the third quarter of 2014. Adjusted operating profit increased 4% to $22 million thanks to reductions in certain acquisition-related liabilities, lower material costs, a favorable shift in product mix and lower selling, general and administrative costs, partially offset by continued investment in global capabilities and unfavorable currency exchange.

Energy: Net sales increased 3% year over year to $51.6 million, primarily due to higher sales in North America, primarily related to higher levels of engineering and construction activity which helped offset reduced demand levels from upstream customers related to lower oil prices, lower sales in China and Brazil due to restructuring activities in those regions, and the impact of unfavorable currency exchange. Adjusted operating profit for the segment was $2.3 million, a substantial improvement from $980 million in the year-ago quarter. This was driven by higher sales levels, a more favorable product sales mix, improved manufacturing efficiencies and reduced selling, general and administrative costs.

Aerospace: Net sales increased 66% to $45.4 million from $27.4 million in the prior-year quarter. The growth was primarily driven by the Allfast acquisition and higher demand from OE customers, partially offset by lower sales to large distribution customers. The segment reported operating profit of $8.2 million, up 113% from $3.9 million in the year-earlier quarter. Higher sales levels and related operating leverage, continued productivity initiatives and a more favorable product mix, partially offset by increased selling, general and administrative costs, related to the acquisition led to the improvement.

Engineered Components: The segment reported revenues of $27.3 million, declining from $55.3 million in the prior-year quarter. Reduced sales of engines and compressors due to lower oil prices, as well as decreased sales of industrial cylinders related to weaker demand in industrial end markets and lower levels of export sales due to the strong U.S. dollar led to the year-over-year decline. Operating profit plunged 45% to $4.5 million, as a result of lower sales and lower fixed cost absorption related to engine and compression products, which were partially offset by cost reductions and productivity initiatives.

Financial Performance

TriMas had cash and cash equivalents of $22.5 million at the end of the third quarter, down from $24.4 million as of 2014-end. The company generated cash flow from operations of $28.7 million in the first nine months of 2015 compared with $52.6 million in the prior-year period. Total debt was $459 million as of Sep 30, 2015 compared with $638 million as of Dec 31, 2014.

On Jun 30, 2015, TriMas completed the spin-off of its Cequent businesses, comprising Cequent Americas and Cequent APEA reportable segments, into a new independent publicly-traded company, Horizon Global Corporation. It was brought into effect through the distribution of 100% of the company's interest in Horizon Global to holders of TriMas common shares.

Outlook

Due to headwinds related to continued low levels of oil activity, lower macroeconomic growth and weakness in industrial end markets, TriMas expects sales in 2015 to be relatively flat on a year-over-year basis. The company is however increasing its earnings per share outlook to a new range of $1.25 to $1.30, from $1.15 to $1.25, reflecting the third-quarter earnings beat and the modest impact of the Financial Improvement Plan expected in the fourth quarter of 2015.

TriMas has also increased its free cash flow outlook for 2015, which is expected to be between $50 million and $60 million, as compared to the prior guidance range of $30 million to $40 million.

TriMas has started implementing its previously announced broadly-focused Financial Improvement Plan. The plan targeted at cost actions are expected to yield approximately $15 million of annual savings, and improve the company’s profitability, cash flow conversion and operational efficiency.

At present, TriMas carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the same industry include NSK Ltd. , Norsk Hydro ASA (NHYDY - Free Report) and Worthington Industries, Inc. (WOR - Free Report) . While NSK Ltd sports a Zacks Rank #1 (Strong Buy), Norsk Hydro ASA and Worthington carry a Zacks Rank #2 (Buy).

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