Tredegar Corporation (TG): A Turnaround Story in the Making

Published on September 24, 2024 | Ticker: TG

Tredegar Corporation (NYSE: TG) is a diversified industrial manufacturer with a diverse portfolio of businesses spanning custom aluminum extrusions, surface protection films, and specialized polyester films. Despite facing headwinds in recent years, the company's latest financial results and strategic initiatives suggest a potential turnaround is underway.

Financials

In the fiscal year 2023, Tredegar reported annual revenue of $704.8 million, a decrease of 8.2% compared to the previous year. The company's net income for the year was a loss of $105.9 million, primarily due to one-time charges related to the termination of its defined benefit pension plan. However, the company's annual operating cash flow was $24.0 million, and its free cash flow was a negative $2.5 million, indicating the potential for improved financial performance going forward.

In the first quarter of 2024, Tredegar reported revenue of $175.7 million, a decrease compared to the same period in the prior year. The company's net income for the quarter was a loss of $3.3 million, or $0.10 per diluted share. Despite the quarterly loss, the company's EBITDA from ongoing operations was $13.1 million, an increase of 24.7% compared to the first quarter of 2023.

Business Overview

Tredegar operates in three primary business segments: Aluminum Extrusions, PE Films, and Flexible Packaging Films.

Aluminum Extrusions

The Aluminum Extrusions segment reported net sales of $114.2 million in the first quarter of 2024, a decrease of 14.4% compared to the same period in the prior year. The segment's EBITDA from ongoing operations was $12.5 million, a decrease of 14.3% compared to the first quarter of 2023. The decline in sales and EBITDA was primarily due to lower sales volume and the pass-through of lower metal costs.

PE Films

The PE Films segment reported net sales of $24.7 million in the first quarter of 2024, an increase of 22.6% compared to the same period in the prior year. The segment's EBITDA from ongoing operations was $6.9 million, an increase of 273.4% compared to the first quarter of 2023. The improvement in sales and EBITDA was primarily due to higher volume in the Surface Protection and overwrap films product lines, as well as favorable pricing and cost savings.

Flexible Packaging Films

The Flexible Packaging Films segment reported net sales of $30.1 million in the first quarter of 2024, a decrease of 4.5% compared to the same period in the prior year. The segment's EBITDA from ongoing operations was $2.0 million, an increase of 45.4% compared to the first quarter of 2023. The decrease in sales was primarily due to lower selling prices, which the company believes are driven by excess global capacity and stronger competition in Brazil, Latin America, and the U.S. The increase in EBITDA was primarily due to lower raw material costs, lower fixed costs, and higher sales volume.

Geographic Breakdown

Tredegar's revenue is primarily generated in the United States, which accounted for 78.4% of total revenue in the first quarter of 2024. The company also generates revenue from exports from the U.S. to Asia, Latin America, Canada, and Europe, as well as from operations outside the U.S., primarily in Brazil.

Liquidity

As of March 31, 2024, Tredegar had cash, cash equivalents, and restricted cash of $4.8 million, and availability under its ABL Facility of $22.2 million. The company's net cash used in operating activities was $7.7 million in the first quarter of 2024, compared to $9.1 million in the same period of the prior year. The company's net cash used in investing activities was $2.4 million in the first quarter of 2024, compared to $8.8 million in the same period of the prior year, primarily due to lower capital expenditures.

Outlook

Tredegar has not provided specific financial guidance for the full year 2024. However, the company has stated that it is focused on prudently managing costs, working capital, and capital spending to improve its financial performance.

Risks and Challenges

Tredegar faces several risks and challenges, including volatility in raw material and energy prices, competition from foreign producers, and the potential impact of macroeconomic factors such as inflation and interest rates. The company is also in the process of completing the sale of its Flexible Packaging Films business, which is subject to regulatory approvals and other closing conditions.

Recent Developments

Tredegar is in the process of completing the sale of its Flexible Packaging Films business, which is subject to regulatory approvals and other closing conditions. This strategic move could impact the company's future financial performance and business structure.

Conclusion

Despite the challenges faced by Tredegar in recent years, the company's latest financial results and strategic initiatives suggest a potential turnaround is underway. The company's focus on cost management, working capital optimization, and capital discipline, coupled with improvements in its PE Films and Flexible Packaging Films segments, could position Tredegar for a stronger financial performance in the coming years.

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