Name: LUXFER HOLDINGS PLC Q3 2023 Earnings Call
Start: 2023-10-26T12:31:00.000Z

Executive Summary

Q3 results were weak: revenue $97.4M (-2.8% YoY) and adjusted EPS $0.04, with GAAP diluted EPS from continuing ops at a loss of $0.06; adjusted EBITDA fell to $6.0M as Graphic Arts and general industrial softness plus higher magnesium costs compressed margins .
Guidance cut: Q4 adjusted EPS guided to $0.00–$0.05, implying FY23 adjusted EPS of $0.51–$0.56 vs prior $0.88–$1.00; the 2025 $2.00 adjusted EPS goal was withdrawn. A comprehensive strategic review was initiated with a global investment bank .
Mix pockets of strength (Defense/First Response/Healthcare +20% YoY; Gas Cylinders pricing traction) were more than offset by Elektron headwinds (Graphic Arts price/cost, volume) and FX; free cash flow was solid at $8.9M and net debt improved to $78.7M (1.7x) .
Stock catalysts: strategic review outcomes, progress on magnesium sourcing and Graphic Arts turnaround, and trajectory of Gas Cylinders pricing/productivity. Near term, the guidance reset and general industrial weakness are likely overhangs .

What Went Well and What Went Wrong

What Went Well
- Defense/First Response/Healthcare grew 20% YoY on strong SCBA cylinders and chemical kits/pharma contributions .
- Gas Cylinders delivered pricing gains and cost pass-through; management expects better segment performance in Q4 and noted improvement into October .
- Strong cash generation: free cash flow $8.9M; net debt reduced by $6.1M to $78.7M; net debt/EBITDA at 1.7x; $70.6M of revolver headroom .
- Quote: “We generated strong free cash flow in the quarter and reduced debt, further strengthening our balance sheet.” — CEO Andy Butcher .
What Went Wrong
- Elektron/Graphic Arts: competitive pricing pressure and higher magnesium input costs drove steep adjusted EBITDA decline (Elektron $3.2M vs $12.7M YoY) and YoY sales decline (Elektron $52.7M vs $56.8M) .
- General industrial end markets fell sharply (-30% YoY), with photoengraving plates, commercial magnesium powders, and industrial zirconium accounting for ~~87% (~~$10M) of the YoY decline in that end-market .
- Consolidated profitability compression: adjusted EBITDA $6.0M (down $10.1M YoY), hurt by inflation, adverse mix, FX (-$0.9M), and higher legal costs; GAAP diluted EPS from continuing ops swung to a $(0.06) loss .
- Analyst concern: durability of Graphic Arts margins given competitive pressures even if U.S. magnesium supply normalizes; mgmt indicated Graphic Arts is under review as part of the strategic process .

Financial Results

Metric	Q1 2023	Q2 2023	Q3 2023
Revenue ($M)	$101.3	$110.4	$97.4
GAAP Diluted EPS – Continuing Ops ($)	$0.02	$0.18	$(0.06)
Adjusted Diluted EPS ($)	$0.20	$0.27	$0.04
Adjusted EBITDA ($M)	$11.3	$14.4	$6.0
Gross Profit ($M)	$21.1	$24.2	$14.6
Gross Margin (%)	20.8% (computed from revenue and gross profit)	21.9% (computed)	15.0% (computed)
YoY Revenue Growth (%)	+4.4%	+0.8%	-2.8%

Segment performance

Segment	Q1 2023 Net Sales ($M)	Q1 2023 Adj. EBITDA ($M)	Q2 2023 Net Sales ($M)	Q2 2023 Adj. EBITDA ($M)	Q3 2023 Net Sales ($M)	Q3 2023 Adj. EBITDA ($M)
Gas Cylinders	41.5	2.5	48.5	4.9	44.7	2.8
Elektron	59.8	8.8	61.9	9.5	52.7	3.2
Total	101.3	11.3	110.4	14.4	97.4	6.0

KPIs and balance sheet

KPI	Q1 2023	Q2 2023	Q3 2023
Free Cash Flow ($M)	$(16.4) outflow	$10.2 inflow	$8.9 inflow
Net Debt ($M)	$89.6	$84.5	$78.7
Net Debt / EBITDA (x)	1.5x	1.5x	1.7x
Dividend per share ($)	$0.13 (paid)	$0.13 (paid)	$0.13 (declared)

Notes:

Consolidated YoY revenue and adjusted metrics per company disclosures; gross margin percentages computed from reported net sales and gross profit (see citations).
Q3 FX impact reduced adjusted EBITDA by $0.9M .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Adjusted EPS	FY 2023	$0.88–$1.00 (as of Q2)	$0.51–$0.56 (implied from Q4 guide)	Lowered
Adjusted EPS	Q4 2023	N/A	$0.00–$0.05	New
Long-term Adjusted EPS Goal	FY 2025	$2.00 goal	Withdrawn	Withdrawn
Revenue (YoY)	FY 2023	N/A	Down 5%–7% YoY	New
Capex	FY 2023	N/A	Up to $11M	New
Dividend	Q3 2023	$0.13 per share	$0.13 per share declared	Maintained

Additional note: Earlier in 2023, guidance stood at $1.15–$1.35 adjusted EPS (Q1 update) before being reduced at Q2 to $0.88–$1.00 .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1–Q2 2023)	Current Period (Q3 2023)	Trend
Magnesium supply chain and input costs	Macro softening noted; supply chain pressures; U.S. magnesium outage referenced in Q2 as an ongoing impact	Sourcing challenges persisted; higher-priced magnesium hurting volumes and margins (esp. Graphic Arts); alternative sources identified and cycling through high-cost inventory	Worsening in Q3; potential improvement in 2024 as sourcing normalizes
Graphic Arts profitability	“Lower sales in certain end markets” (Q2); softness building	Competitive pressure from low-cost Asian materials; price/cost headwinds; turnaround underway; business included in strategic review	Deteriorated; under strategic scrutiny
Defense/First Response/Healthcare	Growth cited; chemical kits/healthcare strength in Q1; broad-based uplift in Q2	+20% YoY in Q3; strong SCBA cylinders and chemical kits/pharma	Improving
Gas Cylinders pricing/productivity	Q2: pricing and EBITDA improved YoY; cost pass-through	Pricing traction continues; early-quarter productivity issues now resolved; expecting better Q4	Improving into Q4
Alternative fuels (CNG/H2)	Not specifically highlighted in Q1–Q2 press release text	CNG outlook strong (Cummins 15L CNG engine, low gas prices); hydrogen timing choppy; U.S. H2 hubs funding a longer-term tailwind	CNG improving; H2 delayed
Strategic review	Not present	Accelerated/expanded; global IB engaged; comprehensive portfolio and capital structure review	New (potential catalyst)

Management Commentary

“Third quarter performance… reflects the challenging macro environment and related weakening demand, as well as continued supply chain issues.” — CEO Andy Butcher .
“We continue to take significant proactive actions to reduce costs and drive profitability… especially related to the disruption in our U.S. domestic magnesium supply.” — CEO .
“Defense, First Response & Healthcare… grew revenues compared to last year, while General Industrial faced meaningful headwinds.” — CEO .
“We are accelerating and expanding our annual strategic review process… evaluating all of Luxfer’s businesses, its capital structure, and available alternatives to unlock and maximize value.” — CEO .
“We forecast that increased revenue and profitability in Gas Cylinders is offset by continued weakness in Elektron… adjusted EPS will be in the range of $0 to $0.05 [for Q4].” — CFO Steve Webster .

Q&A Highlights

Graphic Arts outlook and portfolio fit: Mgmt acknowledged difficult trading conditions (higher material costs vs EU competitors using Chinese magnesium), near-term product improvements, potential lower-cost magnesium in 2024, and confirmed Graphic Arts is within the strategic review; would consider divestiture if value-maximizing .
Transportation/alternative fuels outlook: Positive on CNG (regulatory support, new Cummins 15L multi-fuel engine trials), but hydrogen remains choppy despite U.S. hub funding; expect CNG tailwinds into 2024 .
Gas Cylinders margins vs pricing: Pricing recovery progressing; earlier quarter productivity issues (labor/equipment) weighed on margins but improved in September/October; expecting better Q4 performance .

Estimates Context

S&P Global (Capital IQ) consensus for Q3 2023 revenue and EPS was not available at the time of analysis due to data access limits; therefore, we are unable to present beat/miss versus consensus for this quarter. Management preannounced Q3 revenue of ~$97M and adjusted EPS of ~$0.04, broadly consistent with the reported results .
Guidance implies FY23 adjusted EPS of $0.51–$0.56 versus prior $0.88–$1.00, indicating a meaningful reset that likely drives downward estimate revisions into Q4 and FY23 .

Key Takeaways for Investors

Guidance reset and strategic review reframe the narrative: near-term numbers step down, but portfolio actions could unlock value; monitor any decisions on Graphic Arts and broader portfolio structure .
Elektron/Graphic Arts is the key swing factor: magnesium sourcing normalization and pricing discipline are needed to stabilize margins; 2024 sourcing plans are a potential inflection .
Gas Cylinders shows resilient pricing power with improving productivity; segment should drive sequential improvement in Q4, partially offsetting Elektron weakness .
End-market mix matters: Defense/First Response/Healthcare strength is durable; general industrial exposure remains a headwind into Q4 .
Balance sheet is a support: positive FCF and lower net debt provide flexibility through the downturn (1.7x net debt/EBITDA; $70.6M revolver headroom) .
Trading setup: Near-term overhang from guidance cut and macro-sensitive general industrial; potential upside catalysts include strategic review outcomes, CNG adoption momentum, and magnesium cost normalization .

Other Relevant Press Releases (Q3 2023)

Preliminary Q3 results (Oct 11): signaled revenue ~$97M and adjusted EPS ~$0.04; cited macro headwinds and domestic magnesium disruption; announced accelerated strategic review .
Dividend (Oct 2): declared $0.13 per ordinary share, payable Nov 1, 2023 (record date Oct 13, 2023) .

LUXFER HOLDINGS PLC (LXFR)·Q3 2023 Earnings Summary