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AP

AMPCO PITTSBURGH CORP (AP)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 delivered at the high end of prior guidance with clear sequential recovery: net sales $111.0M, operating income $5.0M, and diluted EPS $0.10, driven by higher net roll pricing and Air & Liquid strength; operating income rose 53% YoY despite a $1.9M energy credit in the prior year period .
  • Segment mix constructive: Air & Liquid posted record quarterly revenue and bookings (+19% YoY sales), while Forged & Cast margin improved on pricing/productivity; European cast rolls remain loss-making amid excess capacity .
  • Backlog firmed sequentially to $360.4M; liquidity improved post-quarter (revolver availability $27.2M on July 9 vs $20.5M at 6/30), supporting working capital and capex needs .
  • Near-term watch items: seasonal Q3 slow period (planned outages) may temper momentum; Air & Liquid’s older low‑margin backlog should mostly roll off in 2H, improving mix; full-quarter run rate from new U.S. forged equipment should continue to aid productivity .

What Went Well and What Went Wrong

  • What Went Well

    • Operating leverage and pricing: “Q2 results came in at the high end” of guidance as higher net roll pricing lifted operating income to $5.0M (+53% YoY) and EPS to $0.10; no unusual items impacted the quarter .
    • Air & Liquid records: Record quarterly revenue and bookings; backlog increased on strong Pharmaceutical and U.S. Navy demand; Q/Q operating income up 60% on better mix .
    • Capital program benefits: “First full quarter of all the new machinery running in our U.S. forged plants” supported efficiency and margins; management sees further productivity as assets ramp to full capabilities .

  • What Went Wrong

    • European headwinds: Ongoing losses in European cast rolls due to excess capacity; the market for forged engineered products remains weak .
    • Interest burden: Q2 interest expense rose to $3.0M on higher equipment financing, higher revolver borrowings, and higher floating rates, partially offsetting operating gains .
    • Mix drag in Air & Liquid (still easing): Unfavorable heat exchanger and pump mix (older lower‑margin orders) limited operating income; management expects majority to roll off in 2H24 .

Financial Results

Sequential trend (oldest → newest)

MetricQ4 2023Q1 2024Q2 2024
Revenue ($USD Millions)$108.1 $110.2 $111.0
Operating Income ($USD Millions)$(41.6) (asbestos charge) $0.1 $5.043
Operating Margin %(38.5)% (−41.6/108.1) 0.1% (0.1/110.2) 4.5% (5.043/110.988)
Net Income Attributable to AP ($USD Millions)$(41.8) $(2.7) $2.012
Diluted EPS ($)$(2.12) $(0.14) $0.10

Q2 year-over-year comparison

MetricQ2 2023Q2 2024YoY Change
Revenue ($USD Millions)$107.2 $111.0 +3.5%
Operating Income ($USD Millions)$3.288 (includes $1.9M energy credit) $5.043 +53% headline; larger underlying improvement ex-credit
Net Income Attributable to AP ($USD Millions)$0.423 $2.012 +$1.589M
Diluted EPS ($)$0.02 $0.10 +$0.08

Segment breakdown

SegmentQ2 2023 Net Sales ($M)Q2 2024 Net Sales ($M)YoYQ2 2023 Op Inc ($M)Q2 2024 Op Inc ($M)YoY
Forged & Cast Engineered Products (FCEP)$77.6 $75.7 −2.4% $3.9 $5.361 +37%
Air & Liquid Processing (ALP)$29.6 $35.3 +19% $3.0 $3.174 +7%
Corporate costs———$(3.593) $(3.492) —
Consolidated$107.2 $111.0 +3.5% $3.288 $5.043 +53%

KPIs and balance sheet/lcash flow (oldest → newest)

KPIQ4 2023Q1 2024Q2 2024
Total Backlog ($M)$378.9 $348.8 $360.4
Cash on Hand ($M)$7.3 $10.8 $7.9
Revolver Availability ($M)$25.1 $23.2 $20.5 (6/30); $27.2 (7/9 update)
Operating Cash Flow ($M)$6.6 (Q4) $4.5 $(5.3)
Capital Expenditures ($M)$6.3 (Q4) $2.8 $2.7
Interest Expense ($M)—$2.8 $3.017

Guidance Changes

MetricPeriodPrevious Guidance (as of 7/10/24)Current/ActualChange
Net SalesQ2 2024$107–$112M $111.0M At high end
Income from OperationsQ2 2024$3.8–$4.8M $5.043M Slightly above top end
Net IncomeQ2 2024$1.1–$2.1M $2.012M At high end
Diluted EPSQ2 2024$0.05–$0.10 $0.10 At high end
CapEx2H 2024—“Remainder of year approximately stable with Q2 run rate” New qualitative color
Q3 SeasonalityQ3 2024—Expect weaker seasonally due to planned shutdowns in Europe and shorter U.S. outage; efficiencies to continue New qualitative color
Mix Headwind (ALP)2H 2024—Majority of older low-margin orders to roll off in 2H New qualitative color
LiquidityJuly 2024—Cash ~$8.6M; Availability $27.2M (7/9/24) Improved vs 6/30

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’23 and Q1’24)Current Period (Q2’24)Trend
European cast rolls/headwindsExcess capacity/high costs weighed on 2023; Q1 also impacted by Sweden foundry fire (~$0.9M OI hit) “Still experiencing losses” in European cast rolls due to excess capacity Persistent headwind, but operational stabilization elsewhere
U.S. forged modernizationMajor capex finishing in Q4; training and ramp in Q1; savings to build into 2H’24/2025 “First full quarter” of new machinery; supports higher productivity/efficiency Positive execution; productivity tailwind continuing
Air & Liquid demand/capacityRecord 2023; backlog strong; new VA facility expanded capacity; Q1 mix headwind but demand robust Record bookings and record revenue; backlog up on Pharma/U.S. Navy; Q/Q OI +60% Strong demand and scaling capacity; mix normalizing
U.S. Navy/Defense initiativesAdditive manufacturing project; Navy-funded equipment arriving in Q2’24 Navy-funded CNC equipment installed early Q3; capacity/efficiency to rise Execution milestone; multi-year end-market runway
Pricing vs surchargesQ1: pricing actions offset lower volumes; surcharge dynamics neutral Higher net roll pricing main driver of YoY OI improvement Pricing power aiding margins
Liquidity/working capitalYE’23: $25.1M availability; Q1: $23.2M; plan for WC stability 6/30: $20.5M availability; 7/9: $27.2M; receipts improving Liquidity improved post-quarter

Management Commentary

  • “Our final Q2 results came in at the high end of our previous guidance range… first full quarter of all the new machinery running in our U.S. forged plants… Air and Liquid Processing segment margins [rebounded]… [but] losses in our European cast roll business due to excess capacity” — CEO Brett McBrayer .
  • “Income from operations was $5 million… 3.5x improvement [ex energy credit] reflects a full quarter of utilizing all our new equipment… and record order intake for Air and Liquid Systems. Net income… $2 million or $0.10 per diluted share” — CEO .
  • “Air & Liquid Q2 revenue increased 19%… record high… bookings also at a record high… Operating income… increased 7% vs prior year… Q/Q operating income increased 60% due to higher revenue and more favorable product mix” — ALP President .

Q&A Highlights

  • Q3 setup: Seasonal shutdowns (Europe and a shorter U.S. outage) typically make Q3 weaker; underlying efficiency improvements are expected to continue through the year .
  • Clean quarter: No unusual items in Q3 to-date at time of call; momentum in Air & Liquid continues with strong end-market demand (Pharma, U.S. Navy) .
  • FCEP margin trajectory: ~7% Q2 margin cited in Q&A; management sees potential upside with volume because of high fixed-cost base and drop-through on incremental sales .
  • ALP mix normalization: Majority of older low-margin orders should roll off in 2H24; not strictly front-loaded into Q3 vs Q4 .
  • Liquidity: Availability improved after quarter-end; working capital receipts driven improvement; availability roughly similar to July 9 update at time of Q&A .
  • SG&A: Actions include reduced agent fees ($0.3–0.4M annual) and leveraging prior investments; commissions will move with revenue .
  • Navy business runway: Multi-year demand across subs, carriers, cruisers; contracts have long-dated backlog (2–3 years) alongside shorter aftermarket .

Estimates Context

  • Wall Street consensus (S&P Global) for Q2 2024 EPS and revenue was unavailable via our data connection today; as a result, we cannot provide a vs‑consensus beat/miss view for this quarter. The company met or slightly exceeded its own pre‑announced ranges (net sales at high end; operating income slightly above top end; EPS at high end) .

Key Takeaways for Investors

  • Sequential inflection: Q2 shows tangible operating improvement from pricing and productivity; watch for seasonal Q3 dip but continued underlying efficiency gains as modernization benefits compound .
  • ALP as growth engine: Record bookings/revenue and capacity additions (VA facility, Navy-funded CNC) position ALP for sustained growth; margin mix should improve as older orders roll off in 2H .
  • FCEP margin durability: Pricing and U.S. equipment ramp improved margins despite softer cast roll volumes; incremental volume in 2025 could drive attractive drop-through given fixed cost structure .
  • European risk persists: Losses in European cast rolls remain the primary structural headwind; any signs of European utilization recovery would be a material upside catalyst .
  • Liquidity improved post-quarter: Revolver availability rose to $27.2M (7/9) from $20.5M (6/30), easing near-term balance sheet risk as working capital ebbs and flows with backlog conversion .
  • Cash discipline: CapEx guided to remain around the Q2 run rate for the balance of 2024; monitor operating cash flow (Q2 use tied to higher receivables and pension contributions) .
  • Setup into 2025: Backlog stability and announced roll program wins for 1H25 deliveries (e.g., Ternium Mexico, major European OEM) support forward visibility in FCEP; ALP demand remains robust .

Appendix: Additional Relevant Press Releases in Q2 2024

  • Preliminary Q2 ranges and liquidity update (July 10): Sales $107–$112M; op income $3.8–$4.8M; EPS $0.05–$0.10; liquidity improved to cash ~$8.6M and availability $27.2M as of July 9 .
  • Commercial wins & backlog (July 9): FCEP selected for mill roll provisioning at Ternium Mexico ($6.7M) and a major European OEM ($5.0M), both delivering 1H25; ALP order activity >50% Q/Q to a record; total backlog expected $360–$365M at 6/30 .