Luxfer PLC(LXFR) - 2022 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company achieved over 10% year-over-year sales growth in Q2 2022, continuing the double-digit gains from Q1 [5][6] - Q2 adjusted diluted earnings per share (EPS) was $0.36, aligning with the full-year guidance of $1.35 to $1.50 [5][7] - Consolidated adjusted EBITDA for Q2 was $16.9 million, a decrease of 2.3% from the prior year, impacted by cost inflation and supply chain disruptions [16][17] Business Line Data and Key Metrics Changes - The Elektron segment reported revenues of $63.4 million, up 20.8% year-over-year, driven by strong demand in aerospace and automotive markets [17] - Transportation sales increased by 26.1% in Q2, benefiting from recovery in aerospace and automotive demand [13] - Sales in the General Industrial end market rose by 13.8%, supported by growth in electronic games and commercial categories [15] Market Data and Key Metrics Changes - Revenue in transportation markets grew by over 25%, while industrial end markets saw a 14% increase [6] - Demand for hydrogen systems in Europe is increasing, indicating a positive long-term growth outlook in alternative fuels [8][14] - The defense and first response segment experienced a 4.8% decline due to lower replenishment orders for flameless ration heaters [12] Company Strategy and Development Direction - The company is focusing on growth opportunities in clean energy, light weighting, and safety, health, and technology [25][26] - A balanced approach to capital allocation is emphasized, with reinvestment in organic growth and shareholder returns [22] - The management aims to enhance internal operating models to support growth strategies [25] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving the 2022 adjusted diluted EPS guidance, despite potential softness in defense-related sales [19][20] - The company is well-positioned to handle evolving macroeconomic conditions due to its diversified portfolio and strong balance sheet [10][11] - Supply chain conditions remain uneven, but improvements in raw material price increases have been noted [9] Other Important Information - The company reported a net debt to EBITDA ratio of 1.2 times, indicating a solid capital position [18] - Free cash flow generation returned to positive territory with $0.6 million in Q2, improving from a $10.3 million outflow in Q1 [18] - The company plans to address cost inflation through price adjustments and expects significant improvements in free cash flow conversion in the second half of the year [20] Q&A Session Summary Question: Order growth versus backlog growth - Management indicated strong order intake in Q2, with a higher order backlog compared to the end of Q1 and the same time last year, despite some weakness in specific areas [30] Question: Revenue growth guidance and volume assumptions - The revenue growth guidance remains at 12% to 20%, with expectations for stronger volumes as supply chain issues improve [31] Question: Cost pass-throughs on gas cylinders - Management is passing through material cost increases to customers where contracts allow, with further cost pass-throughs planned for the second half of the year [32] Question: Second half expectations for Elektron - Management expects a weak mix in Elektron for Q3, with significant orders weighted towards Q4, but overall order strength remains solid [36] Question: Pension contributions and restructuring payments - The company does not anticipate further pension contributions this year and expects restructuring payments to be around $10 million total for the year [39][41] Question: Supply chain and raw material availability - Supply chain conditions have improved, but challenges remain, particularly with magnesium and certain fibers [44] Question: Long-term product pipeline and growth focus - Management is optimistic about long-term growth opportunities in clean energy and hydrogen systems, with several customers entering low volume production [46][47]