A month has gone by since the last earnings report for TriMas (TRS - Free Report) . Shares have added about 0.5% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is TriMas due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
TriMas Misses Q3 Earnings Estimates, Trims '19 View
TriMas Corporation reported adjusted earnings of 44 cents per share in third-quarter 2019, which missed the Zacks Consensus Estimate of 50 cents. The figure also declined 8% from 48 cents reported in the prior-year quarter. This can be attributed to rising freight costs, higher effective tax rate and weak end-market conditions that impacted certain of its product lines.
On a reported basis, the company’s earnings per share of 42 cents exhibits a 14% drop from the year-ago figure of 49 cents.
The company’s revenues of $237 million missed the Zacks Consensus Estimate of $243 million. However, the top line improved 6.4% year over year as sales increased across all segments. Organic and acquisition-related sales growth were somewhat negated by impact of unfavorable currency exchange. Continued strength of the aerospace fastener business was offset by weakness in North American industrial and oil and gas extraction end-markets.
Cost and Margins
Cost of sales rose 8% year over year to $176 million in the reported quarter. Gross profit dropped 0.8% year over year to $61.2 million. Gross margin contracted 170 bps to 25.9%.
Selling, general and administrative expenses rose 2% year over year to $33 million. Adjusted operating profit declined 1% year over year to $29.8 million as impact of higher sales were offset by a less favorable sales mix and higher input and freight costs. Adjusted operating margin contracted 90 bps year over year to 12.6% in the reported quarter.
Packaging: Net sales improved 11% year over year to $106 million as a result of higher sales of health, beauty and home care products related to new product introductions and contributions from the acquisitions of Plastic Srl and Taplast. However, lower sales of food and beverage products as well as industrial products, and the impact of unfavorable currency exchange somewhat dampened sales. Adjusted operating profit was $20.1 million in the reported quarter, down from $22.1 million in the prior-year quarter.
Aerospace: Net sales increased 6% year over year to $43.1 million from $40.9 million in the year-earlier quarter. This can be attributed to steady demand levels for fasteners and improved production throughput. The segment reported adjusted operating profit of $8.2 million, up 7.2% year over year on higher sales levels.
Specialty Products: The segment’s revenues inched up 1% year over year to $88.2 million as higher sales levels in the sealing and fastener product lines were offset by lower sales of engines and compressors utilized in oil and gas upstream applications, industrial high pressure cylinders and machined components. Adjusted operating profit declined 2% year over year to $8.4 million.
TriMas reported cash and cash equivalents of $57.9 million as of Sep 30, 2019, lower than $108 million as of Dec 31, 2018. The company generated $64 million of cash from operating activities during nine-month period ended Sep 30, 2019 compared with $83 million reported in the prior-year comparable period. At the end of third-quarter 2019, net debt was approximately $237 million, up from $185 million as of Dec 31, 2018.
In the nine-month period ended Sept 30, 2019 TriMas repurchased 723,528 of its shares for $21.1 million. At the end of the third quarter, TriMas had $41.8 million remaining under its existing share repurchase authorization. The company’s board of directors has approved an increase in the company's share repurchase program authorization. This will enable the company to purchase up to $150 million of its outstanding shares.
TriMas also announced that it has entered into an agreement to sell Lamons business to First Reserve for approximately $135 million. Lamons, which is currently a part of TriMas’ Specialty Products segment, generated approximately $186 million in net sales for the 12 months ended Sep 30, 2019.
The company lowered earnings per share guidance to $1.75-$1.80 from the prior range of $1.85 and $1.95. This reflects expectations of continued lower-end market demand and less favorable product mix in certain businesses. TriMas guides organic sales growth at 1.5%-2.5% in 2019, lower than the 3-5% guided earlier. Free cash flow in 2019 is anticipated to be greater than 100% of net income.
Through 2019, TriMas will continue to focus on the TriMas Business Model, and strive to pursue growth through innovation, and capitalize on market opportunities.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -13.48% due to these changes.
Currently, TriMas has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise TriMas has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.