ParkOhio(PKOH) - 2019 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Consolidated net sales for Q4 2019 were $380 million, down 7% from $406 million in Q4 2018, driven by lower volumes in Supply Technologies and Assembly Components segments [24] - Gross margin for Q4 was 16.4%, with an improvement in the second half of 2019 to 16.5% compared to 16.1% in the first half, indicating the effectiveness of margin improvement initiatives [25] - Operating income for Q4 was $17.5 million, down from $23.2 million a year ago, attributed to lower sales levels [26] - GAAP EPS and adjusted EPS were $0.61 and $0.65, respectively, reflecting a decline in earnings [26] - Operating cash flow in Q4 was $30.2 million, and free cash flow was $21.7 million, with free cash flow for the second half of 2019 totaling $41 million, a 25% increase over the same period in 2018 [26][40] Business Line Data and Key Metrics Changes - In Supply Technologies, Q4 sales totaled $136 million, down from $155 million in the same period in 2018, with full-year sales at $612 million, a 4% decline year-over-year [27] - Assembly Components segment reported Q4 sales of $129 million, down 3% from $134 million in Q4 2018, with full-year sales at $540 million, down from $578 million in 2018 [32] - Engineered Products segment sales in Q4 were $114 million, compared to $118 million in Q4 2018, with full-year sales increasing 5% to $467 million [35][36] Market Data and Key Metrics Changes - The company experienced a significant slowdown in its Mainland China business, impacting new business opportunities, although this market is not a major part of its revenue profile [12] - Demand in the oil and gas market has softened, affecting the Engineered Products segment, while the aerospace and defense market showed growth [12][29] Company Strategy and Development Direction - The company launched two new production facilities and expanded one in engineered products, enhancing strategic positioning and cost competitiveness [6] - Efforts to combat tariff impacts included supply chain adjustments and price increases, alongside margin enhancement initiatives that improved gross margins [8] - The company aims to increase earnings year-over-year and improve consolidated operating margins through various initiatives [41] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges posed by the coronavirus outbreak and its potential impact on business, particularly in the oil and gas end markets [10][13] - Despite the uncertainties, management expressed confidence in the company's liquidity position and ability to weather economic downturns due to its diverse business model [14][40] - The company is focused on expense control and margin improvement while remaining optimistic about future growth opportunities [96][98] Other Important Information - The company amended its bank credit facility to extend its term to 2024 and improve pricing on borrowings [22] - A strategic acquisition of Erie Press, a supplier to the aerospace industry, was completed, with its results included in the Engineered Products segment [22] Q&A Session Summary Question: Impact of coronavirus on operations - Management noted no customer disruptions or failures to meet shipments, but acknowledged a softening in the oil and gas market and challenges in the Chinese market [50][52] Question: CapEx expectations - Management indicated that CapEx would be significantly lower than the previous two years, with a normal run rate expected to be between $25 million and $30 million [72] Question: Supply chain disruptions - Management stated that they have not been notified of any major disruptions in the automotive supply chain, although some OEMs are paying premium freight to secure parts [78] Question: Growth expectations for Supply Tech and Assembly - Management expressed cautious optimism for growth in Assembly Components due to new product launches, while acknowledging challenges in the heavy-duty truck market for Supply Technologies [88][89] Question: M&A environment - Management indicated that the current market volatility is affecting M&A valuations and that due diligence efforts are increasing [101]