Business Overview: A Legacy of Innovation
Ampco-Pittsburgh Corporation is a Pennsylvania-based company with a rich history in manufacturing highly engineered, high-performance specialty metal products and customized equipment for industries worldwide. The company's operations are divided into two primary business segments: the Forged and Cast Engineered Products (FCEP) segment and the Air and Liquid Processing (ALP) segment.
The FCEP segment is a cornerstone of Ampco-Pittsburgh's business, producing forged hardened steel rolls, cast rolls, and forged engineered products (FEP). These products are critical components used primarily in cold rolling mills by producers of steel, aluminum, and other metals. The segment's global footprint includes operations in the United States, England, Sweden, and Slovenia, as well as equity interests in three joint venture companies in China, allowing it to serve a diverse international customer base.
The ALP segment comprises three key divisions of Air Liquid Systems Corporation, a wholly-owned subsidiary of Ampco-Pittsburgh. Aerofin specializes in producing custom-engineered finned tube heat exchange coils and related heat transfer products. Buffalo Air Handling focuses on manufacturing large custom-designed air handling systems, while Buffalo Pumps is dedicated to the production of centrifugal pumps. With operations in Virginia and New York, the ALP segment caters to a wide range of industries and applications.
In recent years, Ampco-Pittsburgh has faced and overcome significant challenges. In 2019, the company recorded a $10.08 million impairment charge related to capital assets, reflecting its commitment to maintaining a robust and efficient asset base. The following year, the COVID-19 pandemic presented unprecedented obstacles, causing the company's net sales to decline from $328.54 million in 2019 to $328.54 million in 2020.
In response to these challenges, Ampco-Pittsburgh initiated a strategic capital program in 2021 to upgrade existing equipment at several of its FCEP locations. This forward-thinking initiative, completed in the first half of 2024, has already yielded tangible benefits in terms of improved operational efficiency and equipment reliability.
To further strengthen its financial position and support growth initiatives, Ampco-Pittsburgh successfully completed an equity rights offering in 2020. This capital raise resulted in the issuance of 5.51 million shares of common stock and 12.34 million Series A warrants to existing shareholders, providing the company with additional resources to invest in its operations and pursue strategic opportunities.
Navigating Challenges with Resilience
Ampco-Pittsburgh's recent performance has been marked by both successes and challenges. In the third quarter of 2024, the company reported net sales of $96.2 million, a 5.9% decline compared to the same period in the previous year. This decrease was primarily attributable to lower sales volumes and reduced surcharge pass-throughs in the FCEP segment, which were partially offset by stronger performance in the ALP segment.
Despite the top-line pressures, Ampco-Pittsburgh's operating income for the quarter stood at $1.9 million, slightly higher than the prior-year period. This improvement was largely driven by enhanced pricing and manufacturing efficiencies in the FCEP segment, which more than offset the impact of seasonal plant shutdowns and higher selling and administrative costs across the organization.
The company's year-to-date operating income for the nine months ended September 30, 2024, amounted to $7.0 million, on par with the same period in 2023. This performance was achieved despite the absence of certain one-time benefits, such as the $1.9 million foreign energy credit and the $191,000 asbestos-related insurance recovery recorded in the prior-year period.
Financials and Liquidity
Ampco-Pittsburgh's financial position has remained a key focus area for the management team. For the fiscal year 2023, the company reported revenue of $422.34 million and a net loss of $39.93 million. Operating cash flow for 2023 was negative $3.69 million, while free cash flow stood at negative $24.13 million.
In the most recent quarter (Q3 2024), Ampco-Pittsburgh reported revenue of $96.17 million, a net loss of $1.96 million, operating cash flow of $10.58 million, and free cash flow of $8.42 million. The year-over-year revenue decline of 5.9% in Q3 2024 compared to Q3 2023 was primarily due to lower shipment volumes and reduced surcharge pass-through revenues in the FCEP segment.
As of September 30, 2024, the company's cash and cash equivalents stood at $11.84 million, up from $7.3 million at the end of 2023. This improvement was driven by stronger operating cash flows, which more than offset the company's capital expenditure requirements.
The company's total debt level stood at $130.3 million as of September 30, 2024, compared to $128.7 million at the end of 2023. Ampco-Pittsburgh maintains a revolving credit facility with a syndicate of banks, providing access to additional liquidity as needed. As of the end of the third quarter, the company had $20.51 million in undrawn availability under this facility, net of standard availability reserves. The revolving credit facility has a maturity date of June 29, 2026.
Key financial ratios as of September 30, 2024: - Debt/Equity ratio: 2.12 - Current ratio: 1.99 - Quick ratio: 0.98
These metrics indicate that while the company has a relatively high level of debt compared to equity, it maintains adequate liquidity to meet its short-term obligations.
Segmental Performance: Forged and Cast Engineered Products
The FCEP segment, which accounts for the majority of Ampco-Pittsburgh's revenues, faced a mixed performance in the third quarter of 2024. Net sales in this segment declined by 6.4% year-over-year to $67.2 million, primarily due to lower volumes and reduced surcharge pass-throughs. However, the segment's income from operations increased by $1.0 million, reaching $2.5 million, driven by improved pricing and enhanced manufacturing efficiencies.
For the nine months ended September 30, 2024, the FCEP segment reported net sales of $220.10 million, compared to $228.00 million for the same period in 2023. The decrease was primarily due to lower volume and changes in product mix for roll sales, lower volume of FEP shipments, and lower variable-index surcharges passed through to customers, partially offset by increases in exchange rates.
The segment's backlog stood at $252.1 million as of September 30, 2024, up from $247.6 million at the end of 2023. This increase was largely attributed to higher order intake for mill rolls, as the company gained market share with several of its largest customers.
Air and Liquid Processing: Steady Growth and Capacity Expansion
In contrast, the ALP segment delivered a more consistent performance, with net sales remaining relatively flat year-over-year at $28.9 million for the third quarter of 2024. The segment's year-to-date revenue increased by 11.0% compared to the same period in 2023, driven by higher shipments of custom air handling units.
For the nine months ended September 30, 2024, the ALP segment reported net sales of $97.26 million, compared to $86.23 million for the same period in 2023. The increase was primarily due to higher sales of air handling systems, heat exchange coils, and centrifugal pumps.
The ALP segment's operating income for the third quarter of 2024 was $3.1 million, a slight decrease from the prior-year period, which included a $0.2 million insurance recovery. The segment's focus on expanding its sales distribution network and opening a new manufacturing facility in Virginia during 2023 has positioned it well to capitalize on the growing demand in its target markets.
Investing in the Future: Strategic Capital Expenditures
Ampco-Pittsburgh has remained committed to investing in its operational capabilities to drive long-term growth and efficiency. In the third quarter of 2024, the company's capital expenditures, net of government grant funding, amounted to $2.9 million. For the full year 2024, the company expects net capital expenditures to be in the range of $9 million to $10 million.
These strategic investments have primarily been directed towards the FCEP segment, where the company has recently completed a comprehensive capital program to upgrade its existing equipment. The improved reliability and efficiency of the new machinery have already begun to contribute to the segment's enhanced performance.
Outlook and Future Prospects
Looking ahead, Ampco-Pittsburgh remains cautiously optimistic about its future prospects. The company expects low to mid-single-digit volume growth in its FCEP segment for 2025, driven by a recovery in the cast roll market and increased market share gains with its largest customers.
In the ALP segment, the company continues to see steady demand and increased market share, although it faces ongoing challenges related to rising production costs and supply chain disruptions. To mitigate these pressures, the ALP segment has been implementing strategic price increases for its products.
Ampco-Pittsburgh's management team is committed to further strengthening the company's financial position, with a focus on reducing its debt levels and exploring strategic restructuring initiatives. The successful execution of these plans is expected to unlock additional value for the company's shareholders.
Sam Lyon, President of the FCEP segment, expressed confidence in the company's focus on operational efficiency and customer satisfaction, which he believes will position Ampco-Pittsburgh well for future growth. David Anderson, President of the ALP segment, highlighted strong demand from the pharmaceutical and nuclear power markets, which is expected to continue over the next several years.
Additional Considerations
It's worth noting that Ampco-Pittsburgh has faced challenges related to asbestos litigation claims over the years. Claims have been asserted alleging personal injury from exposure to asbestos-containing components historically used in some products manufactured by predecessor companies of the company's Air & Liquid Systems division. To manage these liabilities, the company has entered into settlement agreements with insurance carriers.
The company's backlog, which represents firm orders on hand expected to ship within two years, stood at $383.55 million as of September 30, 2024, compared to $378.91 million as of December 31, 2023. Approximately 71% of the backlog is expected to be released after 2024, indicating a solid pipeline of future business.
Conclusion
Ampco-Pittsburgh's journey through the challenges of the past few years has been marked by resilience, innovation, and a steadfast commitment to serving its customers. As the company navigates the current market landscape, its ability to adapt, optimize its operations, and capitalize on growth opportunities will be key to unlocking long-term, sustainable value. With a diversified product portfolio, a strengthened financial position, and a talented team, Ampco-Pittsburgh appears poised to chart a resilient path forward, positioning itself as a leader in the highly engineered, high-performance specialty metal products industry.