LXFR - Earnings call transcript Q1 2019

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Operator

Good morning. My name is Brandy, and I will be your conference operator today. Welcome to Luxfer’s 2019 First Quarter Earnings Conference Call. [Operator Instructions] Now I will turn the call over to Doug Fox, Luxfer’s Director of Investor Relations. Doug, please go ahead.

Doug Fox

welcome. and Brandy you, Thank With me Harding, CEO Heather Maskara, are CFO. Alok Luxfer’s our and today

First, a Heather’s found can will then is remarks first Alok accompanied provide financial on return will quarter. the quarter’s slide comments. be Luxfer’s Alok’s for first by some website. followed Today’s Alok a be by performance. review closing the brief of will overview webcast of which presentation,

reconciled to these to slides throughout the remarks. presentation. prepared the references are refer our non-GAAP Any financials will in of appendix We

prepared Before we Please any for time subject the financial begin, X details. please remind answers. remarks, and uncertainties. you questions our presentation are to refer let company’s we forward-looking that me today’s have to results and further of about reserved statements risks Slide future made for expected After

Now call let Alok, ahead. to please go Alok. me the over turn

Alok Maskara

everyone. Doug. XXXX. remains that turn for underlying markets Slide favorable. X Please to Good the for the our even face solid related growth Thanks, We consolidations. quarter in today. of ongoing for morning, some joining results of execution us end show to first performance quarter’s setbacks first summary planned Thank the momentum you maintained our Luxfer’s of

Business drive performance to and excellence, commercial continuing BEST, are We which on manufacturing. Toolkit through Excellence our high known Luxfer Standard focused Luxfer development as new lean product

of up from X.X% sales million, a $XXX.X reported Luxfer ago. quarter, the For year

FX by FX, were related to movements higher consolidations. EBITDA a interest of X.X%, earnings per for up Excluding offset the taxes. of down depreciation, created inefficiencies was to and Adjusted in share, quarter $X.XX was growth million as was volume temporary planned headwind unfavorable from driven X% Quarterly diluted by $XX.X lower $X.X the ongoing X.X%. adjusted million and benefit

approximately a and needs higher higher transformation in an seasonal contributed decreased spending ago $XX net million from or track X% Momentum businesses payouts. capital, end million previously to year These before results cash goal on activities to savings cash $XX for XXXX. outflow working by bonus QX remains million our cost financing growth our we activities year XXXX. increased earnings confidence and increase in XXXX net favorable, are due of XX% of and deliver our full from achieving higher total Our debt announced $XX on year give us to across

a please part and French our environment growth. sales moving and on in turn auto catalyst relief some expected of fuel cylinder around drove chemicals An our a cylinders disaster of as in Now zirconium-based Europe gasoline-based which by U.S. in and ongoing towards Slide of closure at X as sales to favorable by is our facility, applications partially were sales color strike for new gas sales offset increased our alternative decline impact products zirconium in the products. macro growth the vehicles transformation and supported the plan. focus Robust were and industrial Strong

is targeted standard In gas that new are addition, matter in a opportunity auto to to using of solutions our meet This the field significant catalysis within auto emissions growth is in zirconium-based particulate globally. expertise offer filtration. we catalysis particulate

cylinders, cylinders, gas value-added bus which European drove bus The assembly growth. year manufactures. higher fuel alternative For that expanded operation was volume system last assembly systems operations the incorporate for and from builds controls instrumentations

our in more share focused continue innovative adding sharper, through execution. products U.S. recover sales the for to also We by and cylinder new customers

customers of activity customers our segment, are by impacted We are sales ventures recently potential In of optimistic our future the about and adding we dissolvable SoluMag, our Elektron gas and of were timing joint product growth remain for on service key ahead, SoluMag flat in Looking of oil products as were new SoluMag through transportation higher M&A partners. QX, also modules. bullish our working offerings. through broadening our sales The driving existing and streamlined gas which long-term inventory. includes the customers

for please X to Now turn consolidation project. on an Page update our footprint transformative

As consolidated facilities, in plan $X XXXX. transformation net our the successfully we savings cost X recap, X delivered has have years, and over a in million past

quarter, our we the that local Throughout This our ensuring in limited higher The overtime More focused inefficiencies believe we QX of reached for Illinois. track reduction existing and inefficiencies are following should $XX substantially facility satisfy the continue we and manufacturing already More customer Gerzat, additional in with arts customers to The to customers. recently, backlog. best pending in of project strike consolidation cylinder that customers ramping serve to on track yet in and cost needs. facility unfavorable, faced in XXXX. our team production is the and running that activities at Findlay, the the of inefficiency on remain consolidation Gerzat order site. freight, our a in our U.S. the impact gas agreement net ensure from announcement properly the close late XXXX, remains customer by interest graphic in remains and on shifts are to our a our quarter. second strike In The faced project the air move project, sites it closure UK is production the has related in now the of with sites. approval of approximately as facility June In and we up cost complicated incurred fulfilling both facilities. which operations to authorities. to disruption our our related met in $X for the global Madison, a and graphic our fourth orders. facility, remain our of Gerzat, These The France QX we and post manufacturing was of the million cost stabilized were the have our scrap and we temporary difficult, relocation the to some in to resulted we arts recently, employees, temporary by site the we mutual business, close is we difficulties shareholders. we resulted net delivering we location Ohio inefficiencies manufacturing quarter, start-up products end Overall, in QX behind we for from us million be reductions Madison at serve our following high-quality our other manufacturing will faced early

moves. increased leadership In to our addition, manufacturing we minimize during disruptions have future talent

for and turn turn Heather please X, quarter. first call Slide over review performance a Now deeper let the for financial to of the the to me

Heather Harding

morning Thanks, Alok everyone. and good

we offset as in FX alternative changes in were The impact volume zirconium-based strong offerings, with price quarter cylinders. of In and innovative catalysis in chemicals up volume First the sales negative $XXX.X X.X% gas to both our primarily growth translation. came growth million auto application. areas, maintained zirconium, and fuel and two industrial

use we from for natural reduce requiring gas totaled and X.X% Consolidated $XX.X adjusted $XXX,XXX clean-burning city the of alternative For year. in cities cylinders, gas prior the from efforts quarter, to down million EBITDA European or benefited others fuel compressed pollution in centers. the

a approximately of inflation, for as contribution benefits For $X.X reduction and the quarter, Alok million by FX impact pricing $X cost million. of EBITDA Unfavorable offset inefficiencies quarter. noted million. And the positive of higher a net volume temporary offset $X.X $X.X reduced million in material cost made the

for segment performance. review Elektron Slide of to X Now a please turn our

currency segment of our chemicals Also had the the for Elektron First sales though disaster by remained increased even million volumes Segment less first $XX hurricane in zirconium-based Pricing quarter, increased approximately than segment X.X% for Despite more XXX increased lower FX shipments needs through $X.X cost million. lower SoluMag reduced activity segment volumes net also quarter similar rates of $X.X quarter primarily have of second this we of headwind, $X strength inflation. offset offset activity. the from on results, level will sales flat. sales million material Changes disaster of basis $XXX,XXX by products, benefited exceptional in in relief XXXX. XXXX from a replenishment impact in million relief $XXX,XXX as pricing. sales the reduced related replenishment Sales headwinds. for first also hurricane reflecting reductions inefficiencies higher level or of points. the or on and X%. half $XXX,XXX of following the quarter extended The EBITDA This improved to

facility to look price our adjusted reduced $X.X aluminum our France the alternative advanced and growth on in we $X.X facility, segment $X Net X.X% X. points. Slide for $X.X down million million, gas gas quarter. sales cylinders, French of combined interruptions million and basis the closing XX% temporary estimate reduced fuel as the at for the EBITDA or were sales cylinder substantially cost due cost quarter. outweighed performance by Volume shipments let’s declined growth FX for a Sales cylinder largely in in segment and which XXX production relocating by composite due declined to Now to notably reductions. high million Quarterly $XX.X approximately million in to cylinders.

pleased are now have to of terms local The on approval reached an the agreement and requires agreement closure. timing authorities. the We from

net some Slide X. reported Let’s look QX changes income impacting on the at other

associated higher in relates X the areas For the expenses the with cost most The French undertaking first are the expenses share-based restructuring, and substantially related and This charges M&A primarily XXXX, the of costs our of restructuring, plan. compensation. quarter facility closure. decommissioning. complex multiyear are largest of severance we and to transformation employee million project incurred is we $X under namely, consolidations the site to On

of the the the related Most termination for relates million compensation a addition the expenses costs charges For strong outlaid LTIP to and $X.X quarter the performance. up quarter, compensation to Neo’s by incurred incurred for million in this million fourth $X.X $X.X Share-based are transaction-related in of including expenses payouts million reimbursing for driven related the quarter, transaction. to to in of vesting agreement. These cash of XXXX second of last expenses quarter these increase XXXX transaction, year. will for This million executive Neo $X.X occur Neo we to million total the $X.X terminated $X.X for in mutual in from increased year. the charges the

million of million covered, prior few these spending capital year and In impairments in years reduced increases addition lower due to the asset project. I with is than level to depreciation a past restructuring to $X.X due $X.X

the first balance items Slide on the $XX.X end the at XX. a Now cash quarter XXXX. million year of end key at at $XX.X flow and million of and $XX.X of debt Net up the from million, last down let’s from sheet look totaled take

had advance our of potential In in an addition working increase to Brexit. in capital funding transformation, we

also employee related quarter bonuses, typically greater for first cash items. The needs has taxes and

As cash of financing outflow $XX activities million. a we before a result, had net

operating be used For debt flat as net cash XXXX, we to needs. to to remain prior transformation expect currently will year, fund

of goal cash the XXX% cash requires multiyear do our plan. for largest outlay to As on XXXX the diminish our results transformation not a our for commitment conversion reminder, company. delivering These

We quarter the of Even year-end, of expect the at return second half period a to cash of this sales positive of working generation was end XXXX. increase end the capital at first form in to in same the percent year. below the the still our performance with as

addition, basis XX-month significantly from earnings was trailing to ROIC XX.X% a XX%. on up In adjusted from

me Alok. let call turn back over to Now, the

Alok Maskara

turn Luxfer Thank, Heather. strategy. for Please on to update an XX Slide

on X years. three the Over growth has come the X% expect to XX% strategic X over This progress plan next its transformation and to from past Luxfer generating continue earnings years, initiatives. growth we earning made would significant

due million deliver lower even to the though to million cost plant remaining net inefficiencies $XX out savings related we reductions total will in the of temporary in will XXXX the $XX be relocations. First,

are We our on French achieve the to operation actions goal of following completion with consolidation. planned this other track well

leading drive training Luxfer productivity and managers new on higher the continuous BEST deliver who operating will XX to improvement. recruitment through progress X culture performance of leaders manufacturing. for plant implementing through expertise system and in BEST Luxfer we higher the top company’s Second, growth have includes our Recent and lean

optimizing continue portfolio to our capital will effectively and maximize deploying shareholder we Third, value.

making are good to divestiture progress announce our We operation expect of recycling a on magnesium the soon. and transaction

confident refreshening in M&A our and are that process place currently pipeline. we are good have a We

second the products in We and by systems. turn zirconium to of across innovative serving incremental Slide share of quarter filtration growth first products lead the systems, our to for eliminate and pressure this our of our much of please innovative gas favorable same we the XX. our alternate XXXX, position. In are business, momentum businesses plus high market Now bus GDP line. to need At Equally fuel ECLIPSE we cylinder through SCBA such long-term gain and as time, cultural important, making will continue customers’ will particulate for continue to margin businesses our sustained half such experienced year, we good our more bottom company. footprint that other the to progress strengthen and will on transformation product negative improve as

our are consolidation, experienced talent also we enhancing addition most manufacturing. recently, several are with footprint of trained who plant Beyond and lean base, managers, new the in

key All our is XX of deliver strategy to higher serve support Please Slide Luxfer. a delivering industrial in shareholders. of greater the value macro outlook underlying recap gives our our engineered for of investment a markets end Overall, results. We ability us turn favorable attractive developing this for to to with manufacturing high-performance a technology confidence and culture proprietary our and continue trends processes. considerations materials using highly for

are demonstrated transformation conversion Luxfer there launched The successes, of creation at a plan track XX still remaining have ahead solid balance strong for on of and value we The is has sheet and Luxfer disciplined strong cash record significant believe ago are continued We allocation. and months days Luxfer. us. opportunities best a of early and capital track

employees commitment for to want Luxfer. you the thank I Lastly, for hard all to continuous and around improvement Thank work drive our listening. world their at

will take We questions. now

Operator

floor is Chris from The Moore for of open now first And Instructions] you. Securities. your questions. Thank question [Operator CJS is

Chris Moore

like are sounds review how Maybe think of point Thanks facility the this Hey, time it many how savings? many X of for areas kind in consolidated key any million in and that And kind at quick taking the is provide total update of just cost a kind elements in other could morning, driving – few a this savings? to-date, I you the questions. $XX key good of guys. of

Alok Maskara

Sure, Chris.

think think overall plan, and we facilities I so G&A. transformation consolidation to So, of related improvement or our that and comes XX% on comes from margin XX% from

million $X to XXXX, have achieved have we X the From in the a facility $XX in million we we far, listed so So PowerPoint. consolidation, go.

but are announce track are of is remaining gets on of reduction our continued to on France and overall to not we progress XX% any cost of at same Findlay, are further ready the us you time, that X, we obviously look facilities, going is kind good to sort on and look which which well, At then at projects. like about making G&A underway the If the and solidly reduction. as just improvements

feel we we on QX. So, good cost are to we despite the temporary in on have where additional incur

Chris Moore

ability as of close in issues plans other have France, be pushback? could won’t of to same kind that smoothly Got kind without the it. but scope similar Any terms some of

Alok Maskara

as don’t think that to I circumstances I obviously, well that is ensuring looking the think what but obviously, do we of itself, France, the these that anything this complex Board in mean, there’s different the laws I We well. that’s different no, one now look current challenges better, so. in to learned the most there better environment don’t is think with the given deal again, are at as labor all I And mean, France have future handling and there we and we team some quite the safety at like regulatory and stocks, well. and on so, at as do with we in planning, in and better opportunities Moorefield and as can more Jeff else there. of look clearly, lessons have we

Chris Moore

Got it, helpful.

talk focus at about in zirconium more it’s been big this I but know, about the even it always the little just a opportunity opportunity, into – like a side, you On time. auto-catalysis you there? becoming Can bit talked sounds has point

Alok Maskara

big has And opportunity, Sure. you are it been right. a

– auto vehicles to one while is well. the Europe thing all the vehicles and are down, are essentially helping that’s doing is example, environment, just sales where think gasoline-based diesel-based I limited macro decline in for

our near in of XXX% exposure vehicles. is like gasoline-based We are fortunate that

in of macro helping as working global against gasoline kind vehicles is us environment the not So, share and diesel. fact gain versus

with commercial we shares in a our in new particulate applications Second, our like past out customers lost solid relationships key the products look recovering as effort we’ve some for progress the at there. on based gas new filtration, and excellence made

makes forward. So, pollution those more I both auto-catalysis going us of think

Chris Moore

for Got there said Is question, can more Last on divestitures, just it’s provide there? QX. specifics track the any – on it. still recycling you. any Thank magnesium you

Alok Maskara

we we our our you at end this of of before We it’s going an the optimistic it I course, through about small teams and activities. neutral. the of is to bit get mean, having the steps. It’s a we working From an quarter. a can EBITDA use management we remain our quarter, focused, probably about divestiture cautiously at towards the perspective, and like be of EBITDA the are have No, as cash know. that transformation that final near due agreement more like stage more closing end the tail diligence

Chris Moore

it. Got

back Let I line. jump in guys. appreciate me it

Alok Maskara

Chris. Thanks,

Operator

next [Operator Capital. KeyBanc of Instructions] from question comes Your Gibbs Phil

Phil Gibbs

everyone. Hi, good morning,

Alok Maskara

Good morning, Phil.

Phil Gibbs

a color. have question I but question little previous terms So, trying this, to and tackled the get cost maybe our inefficiencies a in of more bit

are of million of the repeat we Should headwinds? QX second somewhat $X expect terms that a quarter? So, those of we to think in hang impact into basically that, will

Alok Maskara

say intentional $X QX, but to, in it’ll million, than team of kind so QX, it’s the million. a strike to made situation, the charges, decision was is $X we’re be – it call million and less whether we between exceptional and it’s think Obviously, And $X.X would very on to less million, QX. be be difficult going $X.X that. working to whether $X those it’s we because unsure to think still to it’s $X going not have be going than million early minimizing I an million maybe focused like of in

Heather Harding

you’re so be think impact Heather, hangover some there will But QX. this you’re yes, right, right into is

Phil Gibbs

piece Any cash-related the on for give $X you Heather, of spending that the you restructuring was could us that, in Neo, cash related just we QX. help Okay. to outside restructuring the the plan expenses acquisition think should expect said million CapEx. And I then to just and

this other the CapEx pieces timing what think the around cash to be $XX flow? mistaken, I’m I number should big is if what still but year the million are not and

Heather Harding

French project anything like our cash the or on at Right, changed. the a million in France, outflow in When net – cash I with year, of on right, current that $XX so we’re yes, the the then about the regards some in think from item on current timing perspective. there a the flip and else currently expecting but between June cetera. which and return to the we payment, If QX. expecting in until range Other everything tax that, we X, this of that timing as than cash slippage for payments, for presentation, timing, the cash There’s is terms timing based positive the X business a that and X from facility talked normal and is looking – capital million, biggest not kind could usual et based $XX to more acquisition of interest else is dividends, probably timing, any in swing timing, the at QX generation that that, is cash X. based we’re plan year, nothing generation QX we to would so to the return a out that’s July we could current talked over about not of expenses French some point usual and about, still which are as phasing in

Phil Gibbs

cash I though restructuring outflow you around be the the CapEx? you the QX about we’re accrual of basically right roughly will $X $XX plus think took QX, so so then talking in and that, QX then So, million, in got million million, that $X

Heather Harding

accrual some That’s like we did took – we have QX. roughly correct restructuring in that

that’s approvals mercy obtained. on of when local we’re when are we’re – timing bit the through – again, authority, the some a push, of approvals assuming I could depends it again, so why of of on the with the it come QX, So little some all at these

Phil Gibbs

unlike and Okay. your now talk year, I the this heavy about across that customers It inventory see the comments from – kind not the maybe your ability could expect bit heavy low think to of but little a would you to seeing start what for little And sounds what new of progresses? strong could in you terms in Alok, to with completion as which if maybe gain SoluMag? landscape bit right you right that the is but general year we’re to now, you, like activity is speak

Alok Maskara

actual side, I’m Yes. low consumption it’s on I as lying the what’s know service optimistic and they our providers. right your are mean, you working oil that’s really inventory, to we that. we’ll yes, with get growth gas, around excess arms the hoping back with get the that hard to in now versus through but like indications and inventory are the All are that trends in just what’s

pleased very We of are portfolio our getting with that. like and expanding penetration products higher in

get greater with pleased at the board. And X penetration start-up just new within like months existing are on take new customers customer X looking We fully to customers. and to us

the we little So, I take back and in a don’t pulls we to keep expecting it think there’s anything was order so back that the honestly, But thought SoluMag. QX, better watching rates. of need greenhouse inherently performance

Phil Gibbs

And and question to more actually you last the you net little driven to near-term revenue? savings, much it’ll year start the see still $XX on you’ve this year from bit the green, is – right be some a that be are the so is behind by you’re the But look inefficiency, growth obviously even basically for just here. so million with cost here incremental at now that then have Thanks. just got whole, cost you of to left or going year as savings it expecting how the

Heather Harding

Yes.

is XXXX we’re our at plans. and into reduction net look our for and perspective the what temporary we outlook based building around XXXX X-ish cost we’re as on inefficiencies, expecting expecting So, for

Phil Gibbs

Thanks, Heather.

Operator

to closing are Fox further time. will questions back or any Doug There for comments. now over at additional floor the Instructions] I this no [Operator turn

Doug Fox

Thank joining today. you. for Thank us you, everybody,

additional for our will second scheduled August conference regularly have. you questions you. quarter Thank next Our and Heather great around of earnings. any day. Alok, will be for Have be call might a I beginning at Meantime, the

Operator

X available Thank recording of discusses its website the today. hours. Luxfer call. about second available conference call Luxfer XXXX conference company us August will regularly Telephone in results will this This be joining the access the scheduled recording financial for call be be when encore quarter next to on you numbers will ends The An at call. in the www.luxfer.com.

Luxfer (LXFR) 6 May 192019 Q1 Earnings call transcript