Ampco-Pittsburgh Corporation (NYSE: AP) is a diversified manufacturer of highly engineered, high-performance specialty metal products and customized equipment. The company operates in two business segments: Forged and Cast Engineered Products (FCEP) and Air and Liquid Processing (ALP). Despite facing headwinds in the first quarter of 2024, Ampco-Pittsburgh is strategically positioning itself to capitalize on emerging opportunities in its key markets.

Financial Overview

For the full year 2023, Ampco-Pittsburgh reported annual net income of -$39,928,000, annual revenue of $422,340,000, annual operating cash flow of -$3,686,000, and annual free cash flow of -$24,134,000. In the first quarter of 2024, the company's net sales increased by 5.4% to $110.2 million, compared to $104.8 million in the same period of the prior year. However, income from operations declined to $0.1 million, down from $2.0 million in the first quarter of 2023, primarily due to temporary issues such as a fire at one of the company's European cast roll facilities and an unfavorable product mix in the ALP segment.

Forged and Cast Engineered Products (FCEP) Segment

The FCEP segment, which produces forged hardened steel rolls, cast rolls, and forged engineered products, reported net sales of $77.2 million in the first quarter of 2024, a slight increase from $76.8 million in the same period of the prior year. Income from operations for the FCEP segment was $1.6 million, down from $2.2 million in the first quarter of 2023, primarily due to the unplanned downtime and repair costs at the company's Sweden plant, partially offset by improved productivity in the U.S. and strong performance at the Slovenia forged plant and China joint venture.

The forged roll market in North America has been flat, but the company expects order intake to improve in the second half of 2024 for delivery in 2025. The cast roll market remains weak, particularly in Europe, due to economic uncertainty and competition from low-priced products from China. The forged engineered products (FEP) market continues to be challenged by increased imports and high inventory levels at bar distributors.

Air and Liquid Processing (ALP) Segment

The ALP segment, which includes Aerofin, Buffalo Air Handling, and Buffalo Pumps, reported a 18% increase in net sales to $33.0 million in the first quarter of 2024, compared to $28.0 million in the same period of the prior year. However, operating income for the ALP segment declined due to an unfavorable product mix in the heat exchanger product line and higher selling, general, and administrative (SG&A) costs associated with the expansion of the sales force and higher commission expenses.

The ALP segment is benefiting from steady demand and increased market share, but it is facing increasing production costs and supply chain issues as a result of the lingering effects of the post-pandemic environment. The segment has been implementing price increases for certain products to help mitigate these inflationary effects.

Outlook and Strategic Initiatives

Ampco-Pittsburgh is actively monitoring the lingering effects of the post-pandemic environment, geopolitical and economic conditions, and other developments that may impact its business. The company is focused on maintaining a strong position in the roll market and improving operational efficiencies and reliability at its domestic forge facilities to increase capacity for the manufacturing of its FEP products.

In the ALP segment, the company's primary focus is to grow revenues, strengthen engineering and manufacturing capabilities to keep pace with growth opportunities, and continue to improve its sales distribution network. The segment has substantially increased its manufacturing capacity in the last two years, yet it continues to sell out that capacity, indicating strong demand for its products.

Regarding the FCEP segment, the company is encouraged by the strong indications from several of its top customers regarding increased needs for forged and cast rolls in 2025, due to more robust demand in both North America and Europe. Additionally, one of the company's competitors has exited the large cast backup roll market, which Ampco-Pittsburgh expects to benefit from.

Liquidity and Capital Structure

As of March 31, 2024, Ampco-Pittsburgh had cash and cash equivalents of $10.8 million and remaining availability under its revolving credit facility of $23.2 million, providing the company with sufficient liquidity to finance its operational requirements and debt service costs. The company's capital expenditures for the first quarter of 2024 were $2.8 million, primarily in the FCEP segment.

Risks and Challenges

Ampco-Pittsburgh faces several risks and challenges, including economic downturns, cyclical demand for its products, excess global capacity in the steel industry, fluctuations in the value of the U.S. dollar relative to other currencies, increases in commodity prices, and the liability of its subsidiaries for claims alleging personal injury from exposure to asbestos-containing components historically used in certain products.

Conclusion

Despite the temporary headwinds faced in the first quarter of 2024, Ampco-Pittsburgh is well-positioned to navigate the challenges and capitalize on the emerging opportunities in its key markets. The company's strategic initiatives, including improving operational efficiencies, expanding manufacturing capacity, and strengthening its sales distribution network, are expected to drive long-term growth and enhance shareholder value.