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TriMas (TRS): Navigating Challenges and Positioning for Long-Term Growth
Published on September 24, 2024 | Ticker: TRS

TriMas Corporation (TRS) is a diversified industrial manufacturer that designs, engineers, and produces innovative products for customers primarily in the consumer products, aerospace & defense, and industrial markets. The company operates through three reportable segments: Packaging, Aerospace, and Specialty Products.

Financials

In the fiscal year 2023, TriMas reported annual net income of $40.36 million, annual revenue of $893.55 million, annual operating cash flow of $88.16 million, and annual free cash flow of $33.97 million. The company's second quarter 2024 results showcase its ability to navigate through a dynamic market environment, with both successes and challenges across its business segments.

TriMas Packaging: Driving Organic Growth and Operational Improvements

TriMas' Packaging segment, which accounts for over 55% of the company's total revenue, experienced a 12.5% year-over-year increase in net sales during the second quarter of 2024. This growth was primarily driven by a 13.0% organic increase in sales of dispensing and closure products used in personal care, home care, and industrial applications. The segment's operating profit margin was 13.7%, down from 14.7% in the prior-year quarter, due to increased input costs, including expedited freight, production inefficiencies, and the absence of a $2.6 million commercial settlement that benefited the prior-year period.

Despite these short-term headwinds, TriMas Packaging remains a key growth driver for the company. The segment is focused on improving its conversion rates by addressing operational pinch points created by higher customer demand. The company expects Packaging's full-year 2024 sales growth to be in the 9% to 10% range, with adjusted EBITDA margins of 21% to 23%.

TriMas Aerospace: Capitalizing on Market Recovery

The Aerospace segment, which accounts for 31% of TriMas' total revenue, reported a 30.0% year-over-year increase in net sales during the second quarter of 2024. This growth was driven by a 27.6% organic increase, as well as a 2.4% contribution from the company's April 2023 acquisition of Weldmac. The segment's operating profit margin improved to 13.4%, up from 4.4% in the prior-year quarter, due to higher sales, improved fixed-cost absorption, reduced material availability constraints, and a more favorable product sales mix.

TriMas Aerospace is benefiting from the recovery in the aerospace and defense market, with the segment's last twelve months' sales now exceeding pre-COVID levels, excluding the impact of post-2019 acquisitions. The company has increased its full-year 2024 sales growth guidance for the Aerospace segment to 18% to 22%, with adjusted EBITDA margins of 18% to 19%.

Specialty Products: Navigating a Cyclical Demand Trough

The Specialty Products segment, which represents approximately 14% of TriMas' total revenue, experienced a 45.0% year-over-year decrease in net sales during the second quarter of 2024. This decline was primarily driven by lower demand for the segment's industrial cylinders and compressors used in the oil and gas industry. The segment's operating profit margin decreased to 1.9%, down from 21.6% in the prior-year quarter, due to the significant drop in sales volume and related fixed-cost deleverage.

TriMas has taken actions to address the challenges in the Specialty Products segment, including implementing further structural cost reductions within the Norris Cylinder business. The company has also engaged a consulting firm to assess and implement strategic growth and profit enhancement opportunities for the Norris Cylinder business. However, the company has revised its full-year 2024 guidance for the Specialty Products segment, now expecting a 25% to 30% sales decline and adjusted EBITDA margins of 10% to 14%.

Consolidated Performance and Outlook

On a consolidated basis, TriMas reported second quarter 2024 net sales of $240.5 million, up 3.1% year-over-year, and adjusted earnings per share of $0.43, down from $0.50 in the prior-year quarter. The company's adjusted EBITDA for the quarter was $36.6 million, or 15.2% of sales, lower than the prior-year quarter due to the challenges in the Specialty Products segment.

Given the results in the second quarter and the modified expectations for the Specialty Products segment in the second half of 2024, TriMas has revised its full-year 2024 guidance. The company now expects sales growth in the range of 4% to 6%, with adjusted earnings per share of $1.70 to $1.90. The primary driver of the revised outlook is the different demand and recovery profile for the Specialty Products businesses compared to the company's initial expectations for 2024.

Liquidity

TriMas maintains a strong balance sheet, with low-interest-bearing senior notes that do not mature until 2029. The company generated $11.4 million in free cash flow during the second quarter of 2024, in line with the prior-year period, despite the lower base of adjusted EBITDA. As of June 30, 2024, the company's leverage ratio was 2.6 times, slightly higher than the same quarter last year but in line with the first quarter of 2024.

TriMas continues to prioritize opportunistic share repurchases as part of its capital allocation strategy. During the first half of 2024, the company repurchased approximately 672,000 shares, representing a 1.3% reduction in shares outstanding. The company believes that reducing shares outstanding is a tax-efficient way to return long-term value to its shareholders and will continue to evaluate further share repurchases based on market conditions and other factors.

Positioning for Long-Term Growth

Despite the challenges faced in the Specialty Products segment, TriMas remains well-positioned for long-term growth. The company's two largest operating groups, TriMas Packaging and TriMas Aerospace, which together represent nearly 85% of the company's LTM sales, are at different stages of performance recovery and are expected to drive positive momentum into 2025 and beyond.

Furthermore, TriMas is taking steps to focus and improve its portfolio of businesses. The company has announced the planned divestiture of its Arrow Engine business, which will facilitate its exit from the oil and gas end market. Additionally, the company continues to prioritize M&A opportunities to build out its TriMas Packaging platform, with a focus on the life sciences, beauty, and food and beverage end markets, as well as strategic acquisitions to enhance its TriMas Aerospace platform.

Conclusion

TriMas has demonstrated its ability to navigate through a dynamic market environment, with both successes and challenges across its business segments. The company's Packaging and Aerospace segments are driving growth and operational improvements, while the Specialty Products segment faces a cyclical demand trough. TriMas remains committed to optimizing its portfolio, improving conversion rates, and positioning the company for long-term value creation. With a strong balance sheet, disciplined capital allocation, and a focus on strategic initiatives, TriMas is well-equipped to navigate the current market conditions and capitalize on future opportunities.

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