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TriMas (TRS) Rides on Strong Product Pipeline, Costs High
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On Jan 8, we issued an updated research report on TriMas Corporation (TRS - Free Report) . Although the company will gain from strong pipeline of product and process innovation in the long haul, the current weakness in industrial and upstream oil and gas end markets will weigh on the top line in the near term. Higher freight costs and commodity costs are likely to impact margins. Nevertheless, the TriMas Business Model aimed at improving management and performance of businesses will drive results.
Weaker-Than-Expected Q3
TriMas reported adjusted earnings of 44 cents per share in third-quarter 2019, which missed the Zacks Consensus Estimate of 50 cents and also declined 8% from the prior-year quarter. This can be attributed to rising freight costs, higher effective tax rate and weak end-market conditions that impacted certain product lines.
Sluggish Markets to Impact 2019 Results
During the third-quarter conference call, the company lowered earnings per share guidance to $1.75-$1.80 from the prior $1.85-$1.95. This reflects expectations of continued lower-end market demand and less favorable product mix in certain businesses. Considering the impact of Lamons sale, TriMas anticipates full-year 2019 adjusted diluted earnings per share to be in the range of $1.40 to $1.45. The company is scheduled to report fourth-quarter and fiscal 2019 results on Feb 27.
Demand levels in many of TriMas’ end markets are being impacted by uncertainties related to the U.S-China trade war. This along with the ongoing weakness in the North American industrial markets will weigh on the Packaging segment’s top line. Moreover, higher freight and logistic costs will continue to limit margins in the days ahead. The company projects organic sales growth guidance for the segment at 0-1% (down from the prior guidance of 3-5%) while operating margin is anticipated in the range at 20-21% (down from the prior 21-22%).
Persistent soft demand in the upstream oil and gas end market as a result of lower oil and gas extraction activity in the United States and Canada, and reduced demand for large high-pressure steel cylinders thanks to the softer industrial end markets will continue to weigh on the Specialty Products segment’s sales. Higher freight costs will deter margins. The company expects the segment’s sales to grow 3-4%, down from the prior projection of 4-6%. The segment’s margin is now projected at 9-11%, down from its prior expectation of 11-13%.
However, the Aerospace segment is expected to fare better in 2019 backed by strong quoting activity, order intake and new business wins. For 2019, the company anticipates achieving sales growth of 4-5% while operating margins are envisioned in the band of 16% to 17%.
Initiatives to Counter Cost Inflation in Place
The company’s results are being impacted by higher commodity costs, particularly steel, aluminum and oil based commodities. It also has to contend with increased tariffs on imported goods.
TriMas plans to counter the impact of higher commodity costs and the impact of tariffs through commercial actions, supply chain management, leveraging global manufacturing footprint and continued management of businesses under the TriMas Business Model.
Other Growth Drivers
TriMas will continue to focus on leveraging the TriMas Business Model, which was implemented in late 2016 to improve management and performance of businesses. Its innovative solutions through product, process or service, and extensive resources will help enhance business performance. The company also has a strong pipeline of both product and process innovation that will sustain long-term growth and position its businesses to capitalize on market opportunities and minimize market disruptions.
TriMas has divested Lamons business, which is in sync with its strategy to streamline businesses. This will reduce the company’s exposure to the energy-related end market and allow it to focus on the Packaging and Aerospace reportable segments. The net proceeds will be utilized for investing in business, and mergers and acquisitions (M&A). Notably, the divestment supports TriMas’ effort to restructure portfolio by investing in innovation. Further, it will enable M&A to accelerate long-term growth, primarily in the Packaging and Aerospace segments.
Even after acquisitions and share repurchases, the company’s leverage ratio was at 1.5x at third quarter 2019-end, below the target of 2.0x. The company ended third-quarter 2019 with cash and available liquidity of $342 million. For 2019, TriMas anticipates free cash flow to be higher than 100% of net income. Its strong balance sheet and track record of strong cash flow generation poise it well and provides both ample capacity and flexibility to fund capital allocation priorities.
Share Price Performance
Shares of TriMas have gained 16.4% over the past year, compared with the industry’s rally of 11.4%.
Lawson Products has an expected earnings growth rate of 59% for the current year. The stock has surged 83% over the past year.
Hickok has a projected earnings growth rate of 12.2% for 2020. The company’s shares have gained 77% over the past year.
DXP Enterprises has an estimated earnings growth rate of 10.5% for the ongoing year. In a year’s time, the company’s shares have appreciated 21%.
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This outperformance has not just been a recent phenomenon. From 2000 – Q3 2019, while the S&P averaged +5.6% per year, our top strategies averaged up to +54.1% per year.
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TriMas (TRS) Rides on Strong Product Pipeline, Costs High
On Jan 8, we issued an updated research report on TriMas Corporation (TRS - Free Report) . Although the company will gain from strong pipeline of product and process innovation in the long haul, the current weakness in industrial and upstream oil and gas end markets will weigh on the top line in the near term. Higher freight costs and commodity costs are likely to impact margins. Nevertheless, the TriMas Business Model aimed at improving management and performance of businesses will drive results.
Weaker-Than-Expected Q3
TriMas reported adjusted earnings of 44 cents per share in third-quarter 2019, which missed the Zacks Consensus Estimate of 50 cents and also declined 8% from the prior-year quarter. This can be attributed to rising freight costs, higher effective tax rate and weak end-market conditions that impacted certain product lines.
Sluggish Markets to Impact 2019 Results
During the third-quarter conference call, the company lowered earnings per share guidance to $1.75-$1.80 from the prior $1.85-$1.95. This reflects expectations of continued lower-end market demand and less favorable product mix in certain businesses. Considering the impact of Lamons sale, TriMas anticipates full-year 2019 adjusted diluted earnings per share to be in the range of $1.40 to $1.45. The company is scheduled to report fourth-quarter and fiscal 2019 results on Feb 27.
Demand levels in many of TriMas’ end markets are being impacted by uncertainties related to the U.S-China trade war. This along with the ongoing weakness in the North American industrial markets will weigh on the Packaging segment’s top line. Moreover, higher freight and logistic costs will continue to limit margins in the days ahead. The company projects organic sales growth guidance for the segment at 0-1% (down from the prior guidance of 3-5%) while operating margin is anticipated in the range at 20-21% (down from the prior 21-22%).
Persistent soft demand in the upstream oil and gas end market as a result of lower oil and gas extraction activity in the United States and Canada, and reduced demand for large high-pressure steel cylinders thanks to the softer industrial end markets will continue to weigh on the Specialty Products segment’s sales. Higher freight costs will deter margins. The company expects the segment’s sales to grow 3-4%, down from the prior projection of 4-6%. The segment’s margin is now projected at 9-11%, down from its prior expectation of 11-13%.
However, the Aerospace segment is expected to fare better in 2019 backed by strong quoting activity, order intake and new business wins. For 2019, the company anticipates achieving sales growth of 4-5% while operating margins are envisioned in the band of 16% to 17%.
Initiatives to Counter Cost Inflation in Place
The company’s results are being impacted by higher commodity costs, particularly steel, aluminum and oil based commodities. It also has to contend with increased tariffs on imported goods.
TriMas plans to counter the impact of higher commodity costs and the impact of tariffs through commercial actions, supply chain management, leveraging global manufacturing footprint and continued management of businesses under the TriMas Business Model.
Other Growth Drivers
TriMas will continue to focus on leveraging the TriMas Business Model, which was implemented in late 2016 to improve management and performance of businesses. Its innovative solutions through product, process or service, and extensive resources will help enhance business performance. The company also has a strong pipeline of both product and process innovation that will sustain long-term growth and position its businesses to capitalize on market opportunities and minimize market disruptions.
TriMas has divested Lamons business, which is in sync with its strategy to streamline businesses. This will reduce the company’s exposure to the energy-related end market and allow it to focus on the Packaging and Aerospace reportable segments. The net proceeds will be utilized for investing in business, and mergers and acquisitions (M&A). Notably, the divestment supports TriMas’ effort to restructure portfolio by investing in innovation. Further, it will enable M&A to accelerate long-term growth, primarily in the Packaging and Aerospace segments.
Even after acquisitions and share repurchases, the company’s leverage ratio was at 1.5x at third quarter 2019-end, below the target of 2.0x. The company ended third-quarter 2019 with cash and available liquidity of $342 million. For 2019, TriMas anticipates free cash flow to be higher than 100% of net income. Its strong balance sheet and track record of strong cash flow generation poise it well and provides both ample capacity and flexibility to fund capital allocation priorities.
Share Price Performance
Shares of TriMas have gained 16.4% over the past year, compared with the industry’s rally of 11.4%.
Zacks Rank & Key Picks
TriMas carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Industrial Products sector are Lawson Products, Inc. , Hickok Inc. (CRAWA - Free Report) and DXP Enterprises, Inc. (DXPE - Free Report) . All of these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
Lawson Products has an expected earnings growth rate of 59% for the current year. The stock has surged 83% over the past year.
Hickok has a projected earnings growth rate of 12.2% for 2020. The company’s shares have gained 77% over the past year.
DXP Enterprises has an estimated earnings growth rate of 10.5% for the ongoing year. In a year’s time, the company’s shares have appreciated 21%.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through Q3 2019, while the S&P 500 gained +39.6%, five of our strategies returned +51.8%, +57.5%, +96.9%, +119.0%, and even +158.9%.
This outperformance has not just been a recent phenomenon. From 2000 – Q3 2019, while the S&P averaged +5.6% per year, our top strategies averaged up to +54.1% per year.
See their latest picks free >>