Tredegar (TG) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements This section presents Tredegar Corporation's unaudited condensed consolidated financial statements, including balance sheets, income statements, comprehensive income statements, cash flow statements, and statements of shareholders' equity, along with detailed notes explaining significant accounting policies, segment information, debt, and discontinued operations Condensed Consolidated Balance Sheets (unaudited) Condensed Consolidated Balance Sheet Highlights (In Thousands) | Metric | June 30, 2025 | December 31, 2024 | Change | | :-------------------------------- | :-------------- | :---------------- | :----- | | Total Assets | $371,585 | $356,357 | $15,228 | | Total Liabilities | $177,479 | $175,389 | $2,090 | | Total Shareholders' Equity | $194,106 | $180,968 | $13,138 | | Cash and cash equivalents | $9,795 | $7,062 | $2,733 | | Accounts and other receivables, net | $78,833 | $64,817 | $14,016 | | Inventories | $66,648 | $51,381 | $15,267 | Condensed Consolidated Statements of Income (Loss) (unaudited) Condensed Consolidated Statements of Income (Loss) Highlights (In Thousands, Except Per Share Data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change | | :-------------------------------- | :------------------------------- | :------------------------------- | :----- | | Sales | $179,116 | $153,940 | $25,176 | | Net income (loss) from continuing operations | $1,828 | $9,170 | $(7,342) | | Net income (loss) | $1,731 | $8,792 | $(7,061) | | Basic earnings (loss) per share | $0.05 | $0.26 | $(0.21) | | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :----- | | Sales | $343,853 | $297,912 | $45,941 | | Net income (loss) from continuing operations | $2,500 | $11,774 | $(9,274) | | Net income (loss) | $11,832 | $12,080 | $(248) | | Basic earnings (loss) per share | $0.34 | $0.35 | $(0.01) | Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) Condensed Consolidated Statements of Comprehensive Income (Loss) Highlights (In Thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change | | :---------------------- | :------------------------------- | :------------------------------- | :----- | | Net income (loss) | $1,731 | $8,792 | $(7,061) | | Other comprehensive income (loss) | $595 | $(6,177) | $6,772 | | Comprehensive income (loss) | $2,326 | $2,615 | $(289) | | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change | | :---------------------- | :----------------------------- | :----------------------------- | :----- | | Net income (loss) | $11,832 | $12,080 | $(248) | | Other comprehensive income (loss) | $335 | $(8,656) | $8,991 | | Comprehensive income (loss) | $12,167 | $3,424 | $8,743 | Condensed Consolidated Statements of Cash Flows (unaudited) Condensed Consolidated Statements of Cash Flows Highlights (In Thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change | | :------------------------------------ | :----------------------------- | :----------------------------- | :----- | | Net cash provided by (used in) operating activities | $(2,852) | $7,329 | $(10,181) | | Net cash provided by (used in) investing activities | $6,101 | $(4,555) | $10,656 | | Net cash provided by (used in) financing activities | $(569) | $(4,909) | $4,340 | | Increase (decrease) in cash and cash equivalents | $2,733 | $(4,786) | $7,519 | | Cash and cash equivalents at end of period | $9,795 | $8,669 | $1,126 | - Proceeds from the sale of Terphane contributed $9,835 thousand to investing activities in the first six months of 2025[15] Condensed Consolidated Statements of Shareholders' Equity (unaudited) Total Shareholders' Equity (In Thousands) | Date | Amount | | :---------------- | :------- | | June 30, 2025 | $194,106 | | January 1, 2025 | $180,968 | | June 30, 2024 | $159,964 | | January 1, 2024 | $155,653 | - For the six months ended June 30, 2025, net income was $11,832 thousand, foreign currency translation adjustment was $75 thousand, and derivative financial instruments adjustment was $398 thousand[17] Notes to the Condensed Consolidated Financial Statements (unaudited) 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - The sale of the flexible packaging films business (Terphane) was completed on November 1, 2024, with all historical results presented as discontinued operations from the fourth quarter of 2024[24] - The PE Films technical center in Richmond, VA, was closed by the end of the first quarter of 2024, with R&D activities relocated to Pottsville, PA[25] - ASU 2023-09, effective for annual periods beginning after December 15, 2024, will require improved income tax disclosures, including disaggregation by federal, state, and foreign taxes[27][28] 2. ACCOUNTS AND OTHER RECEIVABLES Accounts and Other Receivables, Net (In Thousands) | Component | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :---------------- | | Customer receivables | $78,646 | $64,094 | | Other receivables | $459 | $952 | | Less: Allowance for bad debts | $(272) | $(229) | | Total accounts and other receivables, net | $78,833 | $64,817 | 3. INVENTORIES Components of Inventories (In Thousands) | Component | June 30, 2025 | December 31, 2024 | | :-------------------- | :-------------- | :---------------- | | Finished goods | $14,852 | $15,051 | | Work-in-process | $5,321 | $2,986 | | Raw materials | $22,856 | $12,158 | | Stores, supplies and other | $23,619 | $21,186 | | Total | $66,648 | $51,381 | 4. PENSION AND OTHER POSTRETIREMENT BENEFITS - The termination and settlement process for the frozen defined benefit pension plan was completed on November 3, 2023, with the remaining obligation transferred to Massachusetts Mutual Life Insurance Company[32] - A pre-tax pension settlement loss of $92.3 million was recognized in 2023[32] Net Periodic Benefit Cost for Pension Benefits (In Thousands) | Component | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------------------------- | :----------------------------- | :----------------------------- | | Service cost | $0 | $0 | | Interest cost | $39 | $38 | | Amortization of prior service costs, (gains) losses and net transition asset | $10 | $11 | | Net periodic benefit cost | $49 | $49 | 5. EARNINGS PER SHARE Shares Used to Compute Earnings (Loss) Per Share (In Thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Weighted average shares outstanding (basic) | 34,775 | 34,378 | 34,694 | 34,350 | | Incremental dilutive shares attributable to stock options and restricted stock | — | — | — | — | | Shares used to compute diluted earnings per share | 34,775 | 34,378 | 34,694 | 34,350 | - Average out-of-the-money options excluded from diluted EPS calculation were 1,245,367 for the three months and 1,285,628 for the six months ended June 30, 2025[36] 6. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Total Accumulated Other Comprehensive Income (Loss) (In Thousands) | Date | Amount | | :---------------- | :------- | | June 30, 2025 | $6,534 | | January 1, 2025 | $6,199 | | June 30, 2024 | $(90,353) | | January 1, 2024 | $(81,697) | - For the six months ended June 30, 2025, other comprehensive income (loss) components included a $75 thousand increase from foreign currency translation and a $398 thousand increase from derivative financial instruments, offset by a $(138) thousand decrease from pension and other postretirement benefit adjustments[39] 7. DERIVATIVES - Tredegar uses aluminum futures contracts as cash flow hedges to manage margin exposure from fixed-price forward sales contracts in its Aluminum Extrusions segment[43] Notional Amount of Aluminum Futures Contracts (In Millions) | Date | Amount | | :---------------- | :------- | | June 30, 2025 | $7.9 | | December 31, 2024 | $4.3 | - The net asset value of aluminum futures contracts increased from $115 thousand at December 31, 2024, to $857 thousand at June 30, 2025[45] - The Company expects $0.6 million of unrealized after-tax gains on aluminum derivative instruments to be reclassified to earnings within the next 12 months[46] 8. INCOME TAXES - The effective tax rate for the first six months of 2025 was 38.4%, significantly higher than 16.6% in the first six months of 2024, primarily due to taxable discrete items (e.g., stock-based compensation) and lower book income[47] - New U.S. tax legislation (the "One Big Beautiful Bill Act" or "OBBBA") was signed on July 4, 2025, making permanent many 2017 tax provisions and changing corporate tax provisions, but is not expected to have a material impact on results of operations[48] 9. BUSINESS SEGMENTS - Tredegar operates two business segments: Aluminum Extrusions (Bonnell Aluminum) and PE Films, producing custom aluminum extrusions and surface protection films, respectively[49] - EBITDA from ongoing operations is the key profitability measure used by the chief operating decision maker (CODM) for assessing financial performance and allocating resources[50][51] Segment Net Sales and EBITDA from Ongoing Operations (Three Months Ended June 30, In Thousands) | Segment | Net Sales 2025 | Net Sales 2024 | EBITDA 2025 | EBITDA 2024 | | :------------------ | :------------- | :------------- | :---------- | :---------- | | Aluminum Extrusions | $148,367 | $119,413 | $9,283 | $12,907 | | PE Films | $24,596 | $29,197 | $6,711 | $10,133 | | Total | $172,963 | $148,610 | $15,994 | $23,040 | Segment Net Sales and EBITDA from Ongoing Operations (Six Months Ended June 30, In Thousands) | Segment | Net Sales 2025 | Net Sales 2024 | EBITDA 2025 | EBITDA 2024 | | :------------------ | :------------- | :------------- | :---------- | :---------- | | Aluminum Extrusions | $281,999 | $233,636 | $18,441 | $25,447 | | PE Films | $50,134 | $53,932 | $14,233 | $17,037 | | Total | $332,133 | $287,568 | $32,674 | $42,484 | Identifiable Assets by Segment (In Thousands) | Segment | June 30, 2025 | December 31, 2024 | | :------------------ | :-------------- | :---------------- | | Aluminum Extrusions | $266,886 | $247,205 | | PE Films | $54,905 | $55,081 | | General corporate | $39,999 | $46,883 | | Cash and cash equivalents | $9,795 | $7,062 | | Total | $371,585 | $356,357 | 10. DEBT - Amendment No. 5 to the ABL Facility, entered in May 2025, extended the maturity date of the $125 million senior secured asset-based revolving credit facility to May 6, 2030[66] - As of June 30, 2025, funds available to borrow under the ABL Facility were $50.6 million, representing 40.5% of the aggregate commitment[66] - The PE Films Guangzhou business had a 9.5 million Chinese Yuan revolving loan that matured on July 3, 2025, with an interest rate of 2.90% as of June 30, 2025, secured by the factory building[75] - The Company was in compliance with all debt covenants as of June 30, 2025[74] 11. DISCONTINUED OPERATIONS - The sale of the Terphane flexible packaging films business was completed on November 1, 2024, for a net cash-free and debt-free base consideration of $116 million[76][77] - Tredegar received $60 million in cash at closing and an additional $9.8 million from post-closing settlement in February 2025[77] - A pre-tax loss of $74.9 million was recognized for the year ended December 31, 2024, related to the sale, including the realization of $102.3 million in other comprehensive losses on foreign currency translation adjustments[78] Income (Loss) from Discontinued Operations, Net of Tax (In Thousands) | Period | 2025 | 2024 | | :----------------------------- | :--- | :--- | | Three Months Ended June 30, | $(97) | $(378) | | Six Months Ended June 30, | $9,332 | $306 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Tredegar's financial condition and operational results, analyzing performance for the second quarter and first six months of 2025 compared to 2024, highlighting segment-specific drivers, and discussing liquidity and capital resources Forward-looking and Cautionary Statements - The report contains forward-looking statements, identified by words like "believe," "estimate," "anticipate," and "expect," which are subject to risks and uncertainties that could cause actual results to differ materially[85] - Key risk factors include macroeconomic conditions (inflation, interest rates), increased operating costs, noncompliance with debt covenants, labor shortages, IT failures, international business risks, and the impact of tariffs[89] - The Company expressly disclaims any duty to update forward-looking statements, except as required by applicable law[87] Critical Accounting Policies and Estimates - There have been no material changes in the Company's critical accounting policies or estimates since December 31, 2024[91] Business Overview - Tredegar Corporation is an industrial manufacturer with two primary businesses: Aluminum Extrusions (custom aluminum extrusions for B&C, automotive, and specialty markets in the U.S.) and PE Films (surface protection films for high-technology applications globally)[93] - The Company employs approximately 1,600 people and operates manufacturing facilities in the U.S. and China[93] - EBITDA from ongoing operations is the key profitability measure used by management to assess financial performance and allocate resources[94] Second Quarter Financial Results Highlights - Net income (loss) from continuing operations for Q2 2025 was $1.8 million ($0.05 per diluted share), down from $9.2 million ($0.27 per diluted share) in Q2 2024[96] Segment EBITDA from Ongoing Operations (Q2, In Millions) | Segment | Q2 2025 | Q2 2024 | | :------------------ | :------ | :------ | | Aluminum Extrusions | $9.3 | $12.9 | | PE Films | $6.7 | $10.1 | - Aluminum Extrusions sales volume increased to 40.7 million pounds in Q2 2025 from 34.9 million pounds in Q2 2024, with net new orders up 21% YoY but down 11% QoQ[97] - PE Films sales volume decreased to 9.8 million pounds in Q2 2025 from 10.5 million pounds in Q2 2024[97] Results of Operations Second Quarter of 2025 Compared with the Second Quarter of 2024 Results - Sales increased by $25.2 million in Q2 2025 compared to Q2 2024, driven by Aluminum Extrusions' higher volume and metal cost pass-through, partially offset by lower PE Films sales[100] - Consolidated gross profit margin decreased from 19.2% in Q2 2024 to 13.6% in Q2 2025, primarily due to higher variable manufacturing costs, unfavorable labor productivity, and FIFO timing issues in Aluminum Extrusions, and lower contribution margin in PE Films[101] - Interest expense increased to $1.8 million in Q2 2025 from $1.1 million in Q2 2024, mainly due to a $0.8 million write-off of deferred financing fees related to the ABL Facility amendment[103] - The effective tax rate for continuing operations was 35.0% in Q2 2025, compared to (0.4)% in Q2 2024, impacted by taxable discrete items and lower book income[104] First Six Months of 2025 Compared with the First Six Months of 2024 Results - Sales increased by $45.9 million in the first six months of 2025 compared to 2024, primarily due to higher sales volume and metal cost pass-through in Aluminum Extrusions, partially offset by decreased PE Films sales[110] - Consolidated gross profit margin decreased from 17.9% in H1 2024 to 13.9% in H1 2025, attributed to lower spread, higher variable manufacturing costs, and increased fixed costs in Aluminum Extrusions, and lower volume in PE Films[111] - Interest expense increased to $2.8 million in H1 2025 from $2.3 million in H1 2024, mainly due to a $0.8 million write-off of deferred financing fees[113] - The effective tax rate for continuing operations was 38.4% in H1 2025, compared to 16.6% in H1 2024, influenced by taxable discrete items and lower book income[114] Segment Operations Review Aluminum Extrusions Aluminum Extrusions Performance (In Thousands, Except Percentages) | Metric | Q2 2025 | Q2 2024 | % Change | H1 2025 | H1 2024 | % Change | | :-------------------------- | :------ | :------ | :------- | :------ | :------ | :------- | | Sales volume (lbs) | 40,690 | 34,906 | 16.6% | 78,608 | 68,747 | 14.3% | | Net sales | $148,367 | $119,413 | 24.2% | $281,999 | $233,636 | 20.7% | | EBITDA from ongoing operations | $9,283 | $12,907 | (28.1)% | $18,441 | $25,447 | (27.5)% | | Capital expenditures | $2,386 | $1,463 | - | $4,757 | $3,012 | - | - Net new orders increased 21% in Q2 2025 versus Q2 2024, but declined 11% versus Q1 2025, marking the first quarterly decline after 10 consecutive increases[121] - The increase in Section 232 tariffs to 50% (effective June 4, 2025) led to a 20% decline in net new orders, attributed to lower demand and customer evaluation of tariff permanency[123][124] - EBITDA from ongoing operations decreased due to higher variable manufacturing costs (material yield, labor rates, productivity), higher fixed costs, increased SG&A, and higher employee-related medical costs[128][129] - Projected capital expenditures for Bonnell Aluminum in 2025 are $17 million[131] PE Films PE Films Performance (In Thousands, Except Percentages) | Metric | Q2 2025 | Q2 2024 | % Change | H1 2025 | H1 2024 | % Change | | :-------------------------- | :------ | :------ | :------- | :------ | :------ | :------- | | Sales volume (lbs) | 9,798 | 10,548 | (7.1)% | 19,437 | 20,583 | (5.6)% | | Net sales | $24,596 | $29,197 | (15.8)% | $50,134 | $53,932 | (7.0)% | | EBITDA from ongoing operations | $6,711 | $10,133 | (33.8)% | $14,233 | $17,037 | (16.5)% | | Capital expenditures | $295 | $216 | - | $882 | $610 | - | - Surface protection films volume decreased 18.2% in Q2 2025 versus Q2 2024, while overwrap films volume increased 6.1%[133] - EBITDA from ongoing operations decreased primarily due to a $3.1 million decrease in contribution margin in Q2 2025, mainly from lower surface protection volume, partially offset by cost improvements[134][135] - Projected capital expenditures for PE Films in 2025 are $2 million[138] Corporate Expenses - Corporate expenses, net, increased by $2.6 million in the first six months of 2025 compared to 2024[139] - This increase was driven by higher professional fees for business development ($3.5 million), increased employee incentive compensation ($1.1 million), and higher stock-based compensation ($0.6 million)[139] - Offsetting factors included a gain on the sale of corporate-owned land ($1.5 million), lower external and internal audit fees ($0.7 million), and reduced professional fees for internal control remediation ($0.4 million)[139] Reconciliation of Net Sales and EBITDA from Ongoing Operations by Segment Reconciliation of Net Sales (In Thousands) | Segment | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------------ | :------ | :------ | :------ | :------ | | Aluminum Extrusions | $148,367 | $119,413 | $281,999 | $233,636 | | PE Films | $24,596 | $29,197 | $50,134 | $53,932 | | Total net sales | $172,963 | $148,610 | $332,133 | $287,568 | | Add back freight | $6,153 | $5,330 | $11,720 | $10,344 | | Sales (consolidated) | $179,116 | $153,940 | $343,853 | $297,912 | Reconciliation of EBITDA from Ongoing Operations (In Thousands) | Segment | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :-------------------------------------------------- | :------ | :------ | :------ | :------ | | Aluminum Extrusions EBITDA | $9,283 | $12,907 | $18,441 | $25,447 | | PE Films EBITDA | $6,711 | $10,133 | $14,233 | $17,037 | | Total EBITDA from Ongoing Operations | $15,994 | $23,040 | $32,674 | $42,484 | | Income (loss) from continuing operations before income taxes | $2,812 | $9,132 | $4,060 | $14,120 | Liquidity and Capital Resources - Net cash used in operating activities was $2.9 million in H1 2025, a decrease from $7.3 million provided in H1 2024, primarily due to higher working capital and lower segment EBITDA[147] - Net cash provided by investing activities was $6.1 million in H1 2025, compared to $4.6 million used in H1 2024, driven by $9.8 million from the Terphane sale settlement and $1.9 million from corporate land sale[148] - Net cash used in financing activities decreased to $0.6 million in H1 2025 from $4.9 million in H1 2024, mainly due to lower debt principal payments[149] - Cash and cash equivalents stood at $9.8 million as of June 30, 2025, including $1.8 million held outside the U.S[150] - The Company believes existing borrowing availability, current cash balances, and cash flow from operations will be sufficient to satisfy short-term material cash requirements for at least the next 12 months[160] Debt and Credit Agreements - The ABL Facility's maturity was extended to May 6, 2030, with $50.6 million available for borrowing as of June 30, 2025[152] - The financial covenant requires a minimum fixed charge coverage ratio of 1.00:1.00, triggered if availability falls below certain thresholds[153] - The Company was in compliance with all debt covenants as of June 30, 2025[154] Credit EBITDA and Fixed Charge Coverage Ratio (Twelve Months Ended June 30, 2025, In Thousands) | Metric | Amount | | :-------------------------- | :------- | | Credit EBITDA | $41,950 | | Unfinanced capital expenditures | $13,873 | | Fixed charges | $5,716 | | Fixed charge coverage ratio | 4.91 | Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details Tredegar's exposure to various market risks, including interest rate fluctuations, raw material price volatility (aluminum, polyethylene, polypropylene resin), energy costs, and foreign currency exchange rates, outlining strategies to manage these exposures - Tredegar is exposed to market risks from interest rates, polyethylene and polypropylene resin prices, aluminum ingot and scrap prices, energy prices (natural gas), and foreign currencies (Chinese Yuan)[161] - Aluminum Extrusions hedges its exposure to aluminum price volatility for fixed-price forward sales contracts (generally no longer than 12 months) using forward purchase commitments and futures contracts[163] - PE Films utilizes index-based raw material cost pass-through arrangements with customers, with some agreements having a 90-day lag for resin price changes, and implemented a quarterly resin cost pass-through for Surface Protection effective July 1, 2021[173] - Foreign currency changes had an unfavorable impact of $0.1 million on PE Films' EBITDA from ongoing operations for both the second quarter and first six months of 2025 compared to the same periods in 2024[175] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the quarter Evaluation of Disclosure Controls and Procedures - The Company's Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of June 30, 2025[182] Changes in Internal Control Over Financial Reporting - There has been no material change in the Company's internal control over financial reporting during the quarter ended June 30, 2025[184] PART II - OTHER INFORMATION Item 1A. Risk Factors This section refers to the previously disclosed risk factors in the 2024 Form 10-K, stating that there are no material updates or changes - There are no material updates or changes to the risk factors previously disclosed in the 2024 Form 10-K[185] Item 5. Other Information This section reports that no director or officer engaged in or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the second quarter of 2025 - No director or officer adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the three months ended June 30, 2025[186] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including key credit agreement amendments and certifications - Exhibit 10.1 is Amendment No. 5, dated May 6, 2025, to the Second Amended and Restated Credit Agreement[187] - Exhibits 31.1 and 31.2 are certifications of the President and CEO and Executive Vice President and CFO, respectively, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002[187] - Exhibits 32.1 and 32.2 are certifications of the President and CEO and Executive Vice President and CFO, respectively, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002[187]