Business Overview and History
Ampco-Pittsburgh Corporation (NYSE: AP) is a leading manufacturer of highly engineered, high-performance specialty metal products and customized equipment. The company operates in two key business segments: Forged and Cast Engineered Products (FCEP) and Air and Liquid Processing (ALP). Ampco-Pittsburgh's diverse product portfolio and strategic market positioning have enabled the company to navigate the challenges of the past few years, positioning it for potential future growth.
Ampco-Pittsburgh was founded in 1929 as a manufacturer of steel rolls and engineered products for the steel industry. The company's initial focus was on producing forged steel rolls for cold rolling mills used by steel producers in North America and Europe. Over the decades, Ampco-Pittsburgh has strategically expanded its operations, both organically and through targeted acquisitions, to become a diversified manufacturer serving a variety of industries.
In the 1970s and 1980s, facing challenges from a downturn in the steel industry, Ampco-Pittsburgh diversified into the air and liquid processing markets through acquisitions. This strategic move allowed the company to broaden its customer base beyond the steel industry. Key acquisitions during this period included Aerofin, a producer of custom-engineered finned tube heat exchange coils, and Buffalo Pumps, a manufacturer of centrifugal pumps.
Throughout the 1990s and 2000s, Ampco-Pittsburgh continued its growth trajectory, expanding its global footprint by establishing manufacturing operations in the UK, Sweden, and Slovenia to better serve its European customers. The company also formed joint venture partnerships in China to capitalize on opportunities in the Asian market.
The 2010s presented significant challenges for Ampco-Pittsburgh, including the impact of the global financial crisis, overcapacity in the steel industry, and rising costs of key raw materials and energy. These factors, combined with legacy asbestos-related liabilities, put significant strain on the company's financial performance. In response, Ampco-Pittsburgh undertook restructuring efforts and divested certain non-core business units to improve its profitability and financial position.
In 2020, the company undertook a significant rights offering, raising capital to fund its strategic initiatives and strengthen its balance sheet. This capital raise was a crucial step in Ampco-Pittsburgh's efforts to navigate the challenges posed by the COVID-19 pandemic and position the company for long-term success.
Forged and Cast Engineered Products Segment
Ampco-Pittsburgh's Forged and Cast Engineered Products (FCEP) segment is a leading producer of forged hardened steel rolls, cast rolls, and forged engineered products. These specialized products are primarily used in the steel, aluminum, and other metal industries, with applications ranging from cold rolling mills to hot and cold strip mills. The segment's operations are located in the United States, England, Sweden, and Slovenia, with additional equity interests in three joint venture companies in China.
During 2024, the FCEP segment faced headwinds in the form of lower customer demand and reduced surcharge pass-throughs. However, the segment's focus on operational efficiency and pricing strategies helped mitigate these challenges. The recent completion of a strategic capital investment program has also improved the segment's operational capabilities and positioned it to capitalize on any market recovery.
For the three months ended September 30, 2024, the FCEP segment reported net sales of $67.2 million, a decrease of $6.4 million compared to the same period in the prior year. This decline was primarily due to lower volume and changes in product mix for roll sales, lower volume of forged engineered products shipments, and lower variable-index surcharges passed through to customers, partially offset by increases in exchange rates. Despite these challenges, income from operations for the FCEP segment increased by $1 million for the three months ended September 30, 2024, primarily due to improved pricing and manufacturing costs, and improved manufacturing absorption, partially offset by higher selling and administrative costs, lower shipment volume, and the impact of the Foreign Energy Credit received in the prior year period.
The segment's backlog increased to $252.1 million at September 30, 2024, up from $247.6 million at December 31, 2023, due to an increase in mill roll orders and higher exchange rates. Looking ahead, Ampco-Pittsburgh expects low to mid-single-digit volume growth in 2025 for the FCEP segment, driven by increased backlog and higher order intake for mill rolls.
Air and Liquid Processing Segment
The Air and Liquid Processing (ALP) segment, which includes Aerofin, Buffalo Air Handling, and Buffalo Pumps, has demonstrated resilience and growth potential. This segment produces custom-engineered finned tube heat exchange coils, large custom-designed air handling systems, and centrifugal pumps for a variety of industries.
In 2024, the ALP segment reported consistent revenue performance in the third quarter compared to the prior year, with year-to-date revenue increasing by 13%. This growth was primarily driven by increased shipments of custom air handling units, bolstered by the additional manufacturing capacity gained through the opening of a new facility in Virginia during 2023.
For the three months ended September 30, 2024, the ALP segment had net sales of $29 million, an increase of $0.4 million compared to the same period in the prior year. The increase was primarily due to higher net sales of heat exchange coils and centrifugal pumps, partially offset by slightly lower net sales of air handling systems. Income from operations for the ALP segment decreased by $0.3 million for the three months ended September 30, 2024, primarily due to higher selling and administrative costs, the impact of the Asbestos-Related Credit received in the prior year period, and higher depreciation costs, partially offset by higher shipment volume.
The ALP segment's backlog remained relatively stable at $131.4 million as of September 30, 2024, compared to $131.3 million as of December 31, 2023. Ampco-Pittsburgh expects to continue seeing strong demand in the U.S. pharmaceutical market, with air handling orders in 2024 already exceeding any prior full year order activity. Additionally, the company has received an additional $4 million in funding from the U.S. Navy to further modernize production equipment in the Buffalo facility, which is expected to arrive in late 2025.
Financial Performance
Ampco-Pittsburgh reported net sales of $96.2 million and $317.4 million for the three and nine months ended September 30, 2024, respectively, compared to $102.2 million and $314.2 million for the same periods in the prior year. The decline in net sales for the third quarter of 2024 was primarily attributable to lower volumes and reduced surcharge pass-throughs in the FCEP segment.
Despite the topline challenges, the company's focus on operational efficiency and pricing strategies helped drive improved margins. Income from operations for the third quarter of 2024 was $1.9 million, slightly higher than the prior year period, which included a $0.2 million insurance recovery. For the nine-month period, income from operations was $7.0 million, on par with the prior year.
The company reported a net loss of $2 million for the third quarter of 2024, compared to net income in the same period of 2023. This shift was primarily due to higher interest expense and the establishment of a valuation allowance on the UK operations' deferred tax assets.
For the most recent fiscal year (2023), Ampco-Pittsburgh reported revenue of $422.3 million, a net loss of $39.9 million, operating cash flow of -$3.7 million, and free cash flow of -$24.1 million.
Liquidity
Ampco-Pittsburgh's liquidity position remained stable, with cash and cash equivalents of $11.8 million and undrawn availability on its revolving credit facility of $20.5 million as of September 30, 2024. The company's net cash flows provided by operating activities were $10.6 million for the nine-month period, an improvement over the $10.3 million used in the prior year period, primarily due to lower changes in working capital.
As of September 30, 2024, Ampco-Pittsburgh's debt-to-equity ratio stood at 2.2. The company had $57.2 million outstanding on its revolving credit facility, $45.2 million in sale and leaseback financing obligations, $17.3 million in equipment financing, and $9.2 million in industrial revenue bonds. Total debt was $130.3 million, with $14.3 million classified as current.
The company's current ratio was 2.0, and its quick ratio was 1.0 as of September 30, 2024, indicating a stable short-term liquidity position. Ampco-Pittsburgh plans to focus on lowering its debt position and executing further restructuring actions to improve shareholder returns in the next 12-24 months.
Challenges and Opportunities
Ampco-Pittsburgh has faced several challenges in recent years, including the impact of the COVID-19 pandemic, geopolitical tensions, and supply chain disruptions. The company's FCEP segment has been particularly affected by fluctuations in customer demand and pricing pressures. However, the company's strategic initiatives, such as the completion of its capital investment program and its focus on operational efficiency, have helped mitigate these challenges.
Looking ahead, Ampco-Pittsburgh sees opportunities for growth in both its FCEP and ALP segments. In the FCEP segment, the company expects to benefit from a recovery in customer demand, particularly in the mill roll market, as well as increased market share with its largest customers. In the ALP segment, the company is well-positioned to capitalize on the growing demand for its custom air handling systems and heat exchange coils, particularly in the pharmaceutical and power generation industries.
Furthermore, Ampco-Pittsburgh's strong liquidity position and continued focus on cost management and operational excellence position the company to navigate ongoing market volatility and pursue strategic initiatives to drive long-term shareholder value.
Conclusion
Ampco-Pittsburgh has demonstrated resilience in the face of significant challenges, leveraging its diversified product portfolio, strategic market positioning, and operational initiatives to navigate uncertain times. The company's focus on efficiency, pricing, and strategic investments has helped mitigate the impact of market fluctuations, positioning Ampco-Pittsburgh for potential future growth opportunities. As the company continues to execute its strategic plan, it remains well-equipped to capitalize on emerging trends and create value for its shareholders.
The third quarter performance of 2024 was impacted by seasonal plant shutdowns, but improved margins and operating efficiencies from recent capital investments in the FCEP segment helped offset weaker cast roll demand. With an increasing backlog and recent additions of new orders for the 2025 order book, Ampco-Pittsburgh is cautiously optimistic about its future prospects. The company's plans to lower its debt position and execute further restructuring actions in the coming 12-24 months demonstrate a commitment to improving financial performance and enhancing shareholder value.