Ascent Industries Co. (NASDAQ:ACNT) is a diversified industrials company focused on the production of specialty chemicals and industrial tubular products. With a history dating back to 1945, the company has weathered numerous economic cycles and emerged as a key player in its core markets. However, the current macroeconomic environment has presented its fair share of challenges, requiring the Ascent team to employ strategic initiatives to stabilize and position the business for long-term success.
Business Overview and History
Ascent Industries Co. was incorporated in 1958 as the successor to a chemical manufacturing business founded in 1945 known as Blackman Uhler Industries Inc. The company has a long history in the specialty chemicals and industrial tubular products industries. In its early years, Ascent focused on the production of specialty chemicals for the pulp and paper, coatings, adhesives, and textile industries. Over time, the company expanded its product offerings and customer base, serving markets through pipe and tube production for customers in industries like appliance, automotive, and oil and gas.
The company faced some challenges in the late 2000s and early 2010s, including the impact of the Great Recession and increasing competition. In 2019, Ascent acquired American Stainless, which expanded their tubular products capabilities. However, this acquisition also added significant debt to the company’s balance sheet.
In 2020, Ascent made the strategic decision to permanently cease operations at their Munhall facility as part of an effort to consolidate manufacturing and improve profitability. This resulted in asset impairment charges and other restructuring costs. Later that year, Ascent divested their Specialty Pipe Tube subsidiary, which had been part of the Tubular Products segment. The divestiture provided cash proceeds to help pay down debt.
Today, the company’s operations are divided into two reportable segments: Specialty Chemicals and Tubular Products. The Specialty Chemicals segment produces a variety of specialty products for industries such as pulp and paper, coatings, adhesives, sealants and elastomers (CASE), textile, automotive, household, industrial and institutional (HII), agricultural, water and waste-water treatment, construction, oil and gas, and others. The Tubular Products segment serves markets through pipe and tube production, catering to customers in the appliance, architectural, automotive and commercial transportation, brewery, chemical, petrochemical, pulp and paper, mining, power generation (including nuclear), water and waste-water treatment, liquid natural gas (LNG), food processing, pharmaceutical, oil and gas, and other industries.
Financial Performance and Ratios
Financials
Ascent’s financial performance has been marked by both periods of growth and challenges in recent years. For the fiscal year ended December 31, 2023, the company reported annual revenue of $261.99 million, annual net income of $22.07 million, annual operating cash flow of $19.05 million, and annual free cash flow of $17.56 million.
In the most recent quarter (Q3 2024), Ascent reported revenue of $42.90 million, a decrease of 8.2% year-over-year, primarily driven by a 7.3% decrease in average selling prices and a 2% decrease in pounds shipped. The net income improved from a loss of $17.93 million in Q3 2023 to a loss of $6.15 million in Q3 2024, primarily due to a 117% increase in gross profit. The increase in gross profit was attributable to improved strategic sourcing initiatives and product line management resulting in lower raw material costs as well as labor and overhead improvements. Operating cash flow for Q3 2024 was $5.02 million, with free cash flow of $4.50 million.
Liquidity
As of September 30, 2024, Ascent’s liquidity position remained strong. The company had $8.55 million in cash and $57.50 million available under its revolving credit facility, which was extended through 2027. The current ratio stood at 3.77, and the quick ratio was 1.81, indicating a strong ability to meet short-term obligations. The debt-to-equity ratio was 0.006768, suggesting a conservative approach to financing.
Navigating Macroeconomic Headwinds
The ongoing macroeconomic and inflationary pressures have had a notable impact on Ascent’s performance in recent quarters. Despite these challenges, Ascent’s management team has remained focused on implementing strategic initiatives to stabilize the business. In the third quarter of 2024, the company was able to increase its consolidated gross profit by 116.5% to $6.5 million, or 15.1% of sales, compared to $3.0 million, or 6.4% of sales, in the prior-year period. This improvement was largely attributable to the company’s efforts in strategic sourcing, product line management, and operational efficiency improvements.
Segment Performance
Specialty Chemicals Segment
In the third quarter of 2024, the Specialty Chemicals segment generated net sales of $20.88 million, an increase of 4.1% compared to the prior year period. Gross profit for the segment increased to $3.10 million, or 15.0% of sales, compared to $1.90 million, or 9.3% of sales, in the third quarter of 2023. The increase in gross profit was primarily attributable to strategic sourcing initiatives and product line management resulting in lower raw material costs, as well as labor and overhead improvements.
Operating income for the Specialty Chemicals segment increased to $0.40 million in the third quarter of 2024, compared to an operating loss of $11.50 million in the prior year period, primarily due to the increase in gross profit and reduction in goodwill impairment charges recognized in 2023.
For the first nine months of 2024, the Specialty Chemicals segment reported net sales of $62.64 million, a decrease of 3.9% compared to the first nine months of 2023. Gross profit increased to $7.60 million, or 12.1% of sales, from $5.70 million, or 8.8% of sales, in the prior year period. The segment’s operating loss decreased to $0.60 million in the first nine months of 2024, compared to an operating loss of $10.90 million in the prior year period.
Tubular Products Segment
In the third quarter of 2024, the Tubular Products segment reported net sales of $22.00 million, a decrease of 17.5% compared to the third quarter of 2023. This was primarily driven by a 17.2% decrease in average selling prices and a 1.0% decrease in pounds shipped. Gross profit for the segment increased 177.6% to $3.50 million, or 15.7% of sales, compared to $1.20 million, or 4.7% of sales, in the prior year quarter. The increase was primarily attributable to strategic sourcing measures and product line management resulting in lower raw material costs, as well as labor and overhead improvements.
Operating income for the Tubular Products segment increased to $1.70 million in the third quarter of 2024, compared to an operating loss of $0.60 million in the prior-year period. The actions taken to maximize the value of the segment’s current asset base have proven effective, even in the face of challenging market conditions.
For the first nine months of 2024, the Tubular Products segment reported net sales of $74.60 million, a decrease of 14.1% compared to the first nine months of 2023. Gross profit increased 592.1% to $7.60 million, or 10.2% of sales, from a gross loss of $1.60 million, or -1.8% of sales, in the prior year period. Operating income for the Tubular Products segment increased to $1.00 million in the first nine months of 2024, compared to an operating loss of $7.20 million in the prior year period.
Ascent’s Focus on Shareholder Value
Ascent’s management team has demonstrated a commitment to driving shareholder value through prudent capital allocation. During the third quarter of 2024, the company repurchased a total of 42,623 shares for approximately $0.4 million through its share repurchase program. The company remains committed to evaluating avenues to repurchase shares as long as the stock trades below their expectation of the company’s intrinsic value.
Looking Ahead
While the macroeconomic environment has presented headwinds, Ascent’s management team remains optimistic about the company’s future. The stabilization efforts undertaken across the organization have laid the foundation for continued improvement, and the company is poised to capitalize on growth opportunities as market conditions evolve.
In recent quarters, Ascent has seen successive improvement in its financial results and has exceeded the expectations of its Board. The company has achieved significant improvements in its financial performance, including a 117% increase in gross profit from continuing operations in Q3 2024 compared to Q3 2023, and a significant improvement in adjusted EBITDA, from negative $1.5 million in Q3 2023 to $2.5 million in Q3 2024.
While the company has not provided specific quantitative guidance for the future, management has expressed that they are “just getting started” and have “a lot of work to do to reinvigorate revenue growth.” The company is focused on “capturing every dollar possible to reinvest for growth” and plans to “ramp up our efforts to deploy capital to high conviction and accretive areas.”
Ascent’s diversified business model, coupled with its focus on operational excellence and strategic capital deployment, positions the company well to navigate the current challenges and deliver long-term value for its shareholders. The company’s improved liquidity position, with $8.5 million in cash and $57.5 million in available borrowing capacity, provides a solid foundation for future growth initiatives and strategic investments.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.