TriMas (US:TRS)2021-07-29 15:17markdown Part I. Financial Information [Item 1. Consolidated Financial Statements](index=5&type=section&id=Item%201.%20Consolidated%20Financial%20Statements) TriMas Corporation's unaudited consolidated financial statements for Q2 and H1 2021 detail financial position, operations, and cash flows [Consolidated Balance Sheet](index=5&type=section&id=Consolidated%20Balance%20Sheet) Consolidated Balance Sheet Highlights (unaudited) | Account | June 30, 2021 ($ thousands) | December 31, 2020 ($ thousands) | Change | | :--- | :--- | :--- | :--- | | **Total Assets** | **1,244,950** | **1,193,880** | **+4.3%** | | Cash and cash equivalents | 117,410 | 73,950 | +58.8% | | Total current assets | 422,460 | 351,830 | +20.1% | | Goodwill | 301,430 | 303,970 | -0.8% | | **Total Liabilities** | **647,350** | **609,630** | **+6.2%** | | Long-term debt, net | 393,370 | 346,290 | +13.6% | | **Total Shareholders' Equity** | **597,600** | **584,250** | **+2.3%** | [Consolidated Statement of Operations](index=6&type=section&id=Consolidated%20Statement%20of%20Operations) Statement of Operations Summary (unaudited) | Metric ($ thousands, except EPS) | Q2 2021 | Q2 2020 | YoY Change | H1 2021 | H1 2020 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Net Sales** | **218,990** | **199,550** | **+9.7%** | **425,720** | **382,340** | **+11.3%** | | Gross Profit | 58,030 | 37,230 | +55.9% | 109,360 | 83,600 | +30.8% | | Operating Profit (Loss) | 25,570 | (18,150) | N/A | 46,680 | 1,680 | +2678.6% | | **Net Income (Loss)** | **11,840** | **(15,700)** | **N/A** | **24,900** | **(2,580)** | **N/A** | | Diluted EPS | **$0.27** | **$(0.36)** | N/A | **$0.57** | **$(0.06)** | N/A | - The significant improvement in operating and net income in Q2 and H1 2021 was largely driven by higher sales and the absence of significant realignment and asbestos-related charges that impacted 2020. However, Q2 2021 results were impacted by **$10.3 million** in debt financing expenses related to the redemption of senior notes[19](index=19&type=chunk)[109](index=109&type=chunk)[110](index=110&type=chunk) [Consolidated Statement of Cash Flows](index=8&type=section&id=Consolidated%20Statement%20of%20Cash%20Flows) Cash Flow Summary for Six Months Ended June 30 (unaudited) | Activity ($ thousands) | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | 42,670 | 30,840 | +38.4% | | Net cash used for investing activities | (18,190) | (102,300) | -82.2% | | Net cash provided by (used for) financing activities | 18,980 | (35,760) | N/A | | **Increase (decrease) in Cash** | **43,460** | **(107,220)** | N/A | - The increase in operating cash flow was driven by higher net income. Investing activities were significantly lower in 2021 due to the absence of major acquisitions, which totaled **$95.2 million** in H1 2020. Financing activities in 2021 reflect the net positive impact of debt refinancing, compared to cash used for share repurchases in 2020[25](index=25&type=chunk)[177](index=177&type=chunk) [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Net Sales by Primary Market (Six Months Ended June 30, $ thousands) | Customer Market | 2021 | 2020 | YoY Change | | :--- | :--- | :--- | :--- | | Consumer Products | 218,020 | 183,590 | +18.8% | | Aerospace & Defense | 89,170 | 91,530 | -2.6% | | Industrial | 118,530 | 107,220 | +10.5% | | **Total net sales** | **425,720** | **382,340** | **+11.3%** | - In March 2021, the company issued **$400.0 million** of **4.125%** Senior Notes due 2029. Proceeds were used to redeem the outstanding **$300.0 million** **4.875%** Senior Notes due 2025, pay related fees and premiums, and repay revolving credit facility borrowings[46](index=46&type=chunk) - As of June 30, 2021, the company had **4,725 pending asbestos-related claims**. In Q2 2020, the company changed its accounting method for asbestos-related defense costs, resulting in a one-time pre-tax charge of **$23.4 million**. The total asbestos-related liability was **$27.3 million** as of June 30, 2021[73](index=73&type=chunk)[78](index=78&type=chunk)[79](index=79&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q2 and H1 2021 financial performance, highlighting sales growth, operating profit turnaround, and liquidity [Results of Operations](index=32&type=section&id=Results%20of%20Operations) The company's results improved significantly in Q2 and H1 2021, driven by sales growth and reduced charges, despite debt refinancing costs and material inflation - Q2 2021 net sales increased **9.7%** YoY to **$219.0 million**, with acquisitions contributing **$9.9 million**, favorable currency exchange adding **$4.6 million**, and organic sales growing by **$4.9 million**[133](index=133&type=chunk) - Operating profit increased by **$43.7 million** in Q2 2021 compared to Q2 2020. This was primarily due to a **$23.4 million** non-cash asbestos-related charge and **$14.3 million** in higher realignment costs recorded in Q2 2020 that did not repeat[135](index=135&type=chunk) - Rising material costs, primarily for resin, negatively impacted gross profit by an estimated **$4 million** in Q2 2021 and **$6 million** in H1 2021 due to the time lag in passing costs to customers[113](index=113&type=chunk)[134](index=134&type=chunk)[155](index=155&type=chunk) - The company incurred **$10.3 million** in debt financing and related expenses in Q2 2021 for the redemption of its 2025 Senior Notes[136](index=136&type=chunk) [Segment Analysis](index=30&type=section&id=Segment%20Analysis) Segment sales grew across Packaging, Aerospace, and Specialty Products, with improved operating profit largely due to non-recurring 2020 charges Net Sales by Segment (Q2, $ thousands) | Segment | Q2 2021 | Q2 2020 | YoY Change | | :--- | :--- | :--- | :--- | | Packaging | 139,630 | 128,830 | +8.4% | | Aerospace | 44,560 | 42,610 | +4.6% | | Specialty Products | 34,800 | 28,110 | +23.8% | Operating Profit (Loss) by Segment (Q2, $ thousands) | Segment | Q2 2021 | Q2 2020 | Change | | :--- | :--- | :--- | :--- | | Packaging | 27,850 | 24,040 | +$3,810 | | Aerospace | 2,120 | (4,210) | +$6,330 | | Specialty Products | 6,010 | (5,940) | +$11,950 | - Packaging sales growth was primarily driven by the **$9.9 million** contribution from the Affaba & Ferrari acquisition. Sales of products for fighting germs decreased by **$4.7 million** from peak levels in Q2 2020[141](index=141&type=chunk) - Aerospace sales were boosted by **$7.9 million** in stocking orders for specialized fasteners, which offset a decline in overall market demand due to reduced air travel[145](index=145&type=chunk) [Liquidity and Capital Resources](index=40&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains a strong liquidity position, with increased operating cash flow and a strengthened capital structure following debt refinancing - Cash flow from operations for the first six months of 2021 was **$42.7 million**, an increase from **$30.8 million** in the same period of 2020[177](index=177&type=chunk) - The company completed a major debt refinancing in Q1/Q2 2021, issuing new **4.125%** Senior Notes due 2029 and redeeming its **4.875%** Senior Notes due 2025[179](index=179&type=chunk) - As of June 30, 2021, the company had no amounts outstanding under its **$300.0 million** revolving credit facility and was in compliance with all financial covenants[186](index=186&type=chunk)[191](index=191&type=chunk) - During the first six months of 2021, the company purchased **440,218 shares** of its common stock for approximately **$14.2 million**[92](index=92&type=chunk)[178](index=178&type=chunk) [Outlook](index=46&type=section&id=Outlook) Management expects continued uncertainty, with mixed segment outlooks, but a strong capital structure provides sufficient liquidity for future obligations - Sales in the Packaging segment related to hygiene products are expected to remain strong but have declined from peak levels seen in Q2 2020[206](index=206&type=chunk) - The Aerospace segment sales are expected to be lower than historical levels for an indefinite period due to low new commercial aircraft builds[206](index=206&type=chunk) - The company believes its capital structure is strong following the 2021 debt refinancing, with sufficient liquidity to meet future obligations[210](index=210&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=47&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company discusses its exposure to foreign currency and interest rate risks, and its use of derivatives to manage these exposures - The company is exposed to market risk from changes in foreign currency exchange rates and interest rates[215](index=215&type=chunk) - To mitigate currency risk, the company uses derivative instruments. As of June 30, 2021, it held foreign exchange forward and swap contracts with notional values of approximately **$126.5 million**[202](index=202&type=chunk) [Item 4. Controls and Procedures](index=47&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2021, with no material changes to internal controls - Based on an evaluation as of June 30, 2021, the CEO and CFO concluded that the company's disclosure controls and procedures are effective at a reasonable assurance level[217](index=217&type=chunk) - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2021, that have materially affected, or are reasonably likely to materially affect, the company's internal controls[218](index=218&type=chunk) Part II. Other Information [Item 1. Legal Proceedings](index=48&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 13 of the financial statements for details on ongoing legal proceedings, primarily asbestos-related litigation - For details on legal proceedings, the report refers to Note 13, "Commitments and Contingencies," in the Notes to Consolidated Financial Statements[221](index=221&type=chunk) [Item 1A. Risk Factors](index=48&type=section&id=Item%201A.%20Risk%20Factors) The company reports no significant changes to the risk factors previously disclosed in its 2020 Annual Report on Form 10-K - There have been no significant changes in risk factors from those disclosed in the 2020 Annual Report on Form 10-K[222](index=222&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=48&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company details Q2 2021 share repurchases, including volume, average price, and remaining authorization Share Repurchases for Q2 2021 | Period (2021) | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April | 52,204 | **$30.92** | | May | 228,475 | **$32.78** | | June | 77,368 | **$31.96** | | **Total Q2** | **358,047** | **$32.33** | - As of the end of Q2 2021, approximately **$147.5 million** remained available for future repurchases under the company's publicly announced program[227](index=227&type=chunk)