LXFR - Earnings call transcript Q2 2019

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Operator

Good morning. My name is Stephanie and I will be your conference operator today. Welcome to Luxfer’s 2019 Second 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 Stephanie 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 second Alok accompanied provide financial on return will quarter. the quarter’s slide remarks. be Luxfer’s Alok’s for second 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. structure the turn for successfully cost Slide and X Please Good business. for the lowering of operating impact Thanks, increasing quarter our today. of for morning, joining results leverage us our demonstrate to second performance quarter second summary Thank the of you the our Luxfer of

while X%, reduced shipments products of increased basis fracking was sales and decline. lower quarter in mitigate our The headwinds face impact gas as EBITDA and destocking sales Superform transformation the also actions decline. lower magnesium FX were of continue the our XX plan the alloy activity. of to million decline share sales of result the as and customers We to unchanged largely the SoluMag earnings contributed savings margin product oil was sales of per achieved $X.XX. during the For points, at sales $X.X quarter, cost down in we accelerated

for As payments site. to expected, French related closure restructuring mostly for user quarter, cylinder were of manufacturing cash our we the of the net a

point our transformation year-over-year balance to million made and strong invested on better improvement a deliver basis capital a progress to net net X.Xx in modest XX.X%. sheet delivered cost ratio on than plan at by maintained $XX a savings XXX return with we We XXXX. So, cost debt-to-EBITDA in excellent

quarter, the our U.S. the we and successfully the of in to location transferred and our facility production UK During in completed closure France

addition, share Czech Achieving our are gas we that will operations oil and journey magnesium our were we flat Overall, In major excellence. despite and we divested in challenges milestones operations. simplified future these maintain our significant recycling earnings able towards per commercial market. further adjusted to enable lean end pleased

Slide revenue to quarter. color drivers the the X some Now for on please for turn

continued the catalyst quarter, growth product line. During saw we Zirconium in our

the inroads and gain with exhaust compressed cities In for adopt our the strong clean innovative leadership quality extending sales and addition pleased buses continue partnership and truck hydrogen as made the fuel application, gas we cylinders, new further Europe, alternate natural benefit order of we also burning to ongoing are particulate share In momentum. filtration into catalyst On auto with gas in solutions. growth we Luxfer area ongoing when high-growth pollution. a X a CNG-based their for we market air diesel in heavy-duty ourselves In orientation U.S.A., new replacement customer-first cylinders and is Type with to heavy this to with its reputation. gas reduce our a reestablish for customer application.

powertrain, partner Our which building in U.K.’s June. role our was as expertise an important past a announced played selection this in the hydrogen first

customer long-term lightweight specialty in remain destocking we fracking we is geographies. strong. medical is in in Pipeline but are good quarter also products potential for products also new to continues, cylinder, our anticipating SoluMag applications. cylinders, gas applications growth Sales the cylinders ECLIPSE the optimistic for doors in SoluMag were Within opening and lower for where as

this impacted last lower year’s relief sales lower hurricanes disaster quarter. Also quarter, decline programs. As as second of to exit continue relative products we margin post the to shipments in expected, negatively restocking Superform XXXX

of in this second expect continue the to trend half year. the We

turn projects. Now Slide consolidation please our for to X transformative an update on footprint

our and to cost, on drive footprint increase lower excellence. We scale efficiencies manufacturing have made lean progress solid simplifying

we positioned difficult facility closure best everyone the thank wish of is This interest and the U.K. our Gerzat the factory completed of customers. in existing production in quarter, to to transferred and and to was U.S. close gas France manufacturing both customers the business clearly shareholders for cylinder cylinder The long-term and complicated, serve global strategically move to sites project I our involved. global and successfully success. and The

for quarter first our Ohio during consolidation post the Findlay, operations facility our following location. from issues arts mentioned business call, Madison related graphic move our we our As start-up encountered some of

continue in QX now are behind for approximately We now [weakened] late sell deliver site levels, to able reducing XXXX. backlog in and successfully positive reduction normal $X us, in faced The cost and year a order $X.X to to with net million QX, net Findlay reduction QX. make to of for we’re the progress are in achieved inefficiencies we in expect million the we cost substantially

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

Heather Harding

and Alok, good everyone. Thanks, morning,

substantially or by $X.X the million, Second Favorable Consolidated pricing adjusted a decline million. quarter from EBITDA prior $X was $XX.X the X.X% well year. headwind approximately sales a X.X% declined FX. million as down million to $X.X for quarter the million reduction on as volume, from of offset partially $XXX.X in

FX, partially net mix. profit XX.X% partly margin offset transformation cost For the we our unfavorable gross on XX.X%, the from volume Price success and of improved increasing quarter, reductions inflation to plan. and

cumulative in for million of million. second year amount reduction first half the the $X.X is approximately cost $X.X in quarter, the the the With

where to turn Elektron X, our Slide summary of performance. Now will see please you a segment

declined relief to shipments or quarter $XX.X SoluMag in disaster offset and Segment our XX.X%, Second and XX.X%. chemicals. segment, EBITDA declined million $X.X million primarily of partially the for by million on $XX.X sales sales Elektron products reduction higher zirconium

the well the as as the operation volume price partially FX decline quarter. inflation cost quarter, headwinds. in recycling For of and our of sale of the end the and favorable reductions Completion occurred offset net magnesium at

favorable EBITDA X, you cylinders. you offset an Superform fuel million remains turn offset Overall, in were our for will FX revenue. decline cylinder segment sales XX% $X.X for volume the decline, firm performance. segment in price. X.X% as mix Cylinders if alternative offset second than the in and reductions Cylinders to Net Now to quarter and increased inflationary business cost as summary sales price, headwinds. sales activity to more movements Despite a and FX growth unfavorable adjusted Gas of up $XX.X the see Gas improvement Slide million Strong in

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

to supporting funding million $X terminated future funds related the included growth. needs transaction, As approximately for and expected, our closure the French Neo in infrastructure, investments

a operation of Findlay As outflow proceeds before of and activities million, a we the from recycling the cash net facility. $X.X the financing of sale Czech $X.X had net result, million in

capital from of second same the the positive remain XXXX. the XXX% committed to return and Working was at the to second period up goal delivering end in the XXXX of company. expect our on cash to in of $X half conversion million quarter for generation cash We around

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

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

Alok Maskara

Heather. Thanks,

Let’s XX. to turn Slide

In we Directors. quarter Trimberger pleased addition announce earnings, Lisa of to second addition Board to to announcing Luxfer are of the the

there a Luxfer’s fund. Board. M&A experience Audit including in pleased to and managing roles, With significant and to and & professional Lisa Lisa Lisa’s Capital Luxfer’s spans Luxfer. over for Her will also Upon Deloitte She’s will of member Committee partner Lisa Committee. the valuable investment having years. experience very Mack career talent to audit strong member strong and strengthen broad Board’s Compensation worked the industries, be add multiple advisory manufacturing joining with will now owner are become experience. Board, after already of Board. Her early-stage a of XX further an We retired a is Investments, a Touche, background

With the company X have added experience. public directors months, complete. and XX Luxfer addition independent now past of were transformation the Lisa, Board significant U.S. the all X the X of is in

to an turn outlook. our on XX please earnings update Now Slide for

adjusted $X.XX versus XXXX, XXXX, per relative share are growth. prior X% a earnings we within now projecting range to expectation EPS minus X% For of or of plus

gas, total We concerned of and are about the for including and industrial, oil one-third that around sales. outlook is our

half continue orders We customers as destocking of XXXX. are SoluMag industrial of and expecting expect we our expected second cautious to levels. large broadly, More become noticing sentiments, are softness and more of are the many through themselves weaker with inventory the to

total defense transportation, in positive as which vehicle experience remain of sales than are auto, to Core to share by the sales is applications, and Passenger time, of our resilience be and space. same less in as buses sales going fuel expect the of momentum also expected is we majority that gains. due to continued At robust rest is in business new the applications heavy-duty trucks resiliency up economic continue well. to big are per aerospace any defense in we continue and slowdown. and Within Alternate showing not sales, in impacted our remained robust XX% our and to our transportation. content

about to reduce with exit businesses business of second our $XX from negatively half, of sales line expected half and second would recycling by approximately for $X impact with magnesium The As the million. million $XX Czech million, plan, of the but XX-month transformation sale part lower-margin bottom zero products a by impact. the revenue impact is

Superform in revenue revenues half decline another will million. Additionally, $X second reduce by

reductions. For in expect about million cost $X to deliver the we year, net

million As a we achieved reminder, for XXXX. reduction cost in $X

million the by XXXX. on total towards our $XX end will be way well full this So approximately our is cumulative recognizing of which $XX million year, the by

ago. turn plan have XX. substantially launched please XX delivered the on Slide we just we months that Overall, Now to transformation

July Let structure our FPI moment a few XXXX. On joined to me of eliminated a highlight we after these X status the accomplishments. year, this our XXXX, in ADR shares and Russell take

have pay X.X net to today. debt-to-EBITDA XXXX annual continuing in to from dividends, million ratio in While over we our $XX X.X reduced

X XXXX have fewer facilities ROIC in to have from We adjusted X.X% our now. and XX.X% doubled

turn Please Slide to XX.

Our intact. outlook long-term firmly remains

to confident over in growth are the earnings cycle. X% XX% delivering We

and improving as generate positioned net in through by are cost markets in with well to by we our commercial share delivering aiming generate new excellence. X% of customers our products to are productivity We million sales and $XX end GDP-plus growth X% to through manufacturing savings leader net automation. XXXX, After annual providing served a lean

Now XX. turn Slide to please

up markets we with that serve proprietary wrap Let and products by recapping attractive technology. me niche end

history with We cash of have strong balance sheet a a solid demonstrated conversion.

best deploy the for We capital generate shareholders. risk-adjusted our our to will continue return to

all I years. listening. of is Our continue to drive continuous plan to plenty the we’ll positive still first. thank results, the transformation transformation for deploying growth Luxfer hard for their we and improvement value plan making couple plan Thank meaningful impact our has runway productivity. have for want in BEST by transformation for progress around of more next After delivered putting shareholder world generate creation the our you our employees work on always and customer in and to complete,

take will We questions. now

Operator

first the [Operator Instructions] Securities. from is question CJS of line with Your Chris Moore

Chris Moore

guys. morning Good Hey.

Heather Harding

Hi. Chris

Chris Moore

Maybe side. on savings cost just start the

‘XX? balance in prior kind any this, in going $X between million that terms in It’s relative ‘XX $X or to happen and just million $X of the timing what’s So $X accelerate of had to million ‘XX. ‘XX, ‘XX thoughts in million in the been ‘XX. and ‘XX in now Is

Heather Harding

Hey could good action market see in we as within where to morning certainly accelerate looked we Yes, market of some the quarter. as can were the performance we at when quarter, look and Chris. second sentiments going, in and see whatever – we indicators the our

to little if a I year is So for to would had bit, that the full we QX you we say. the go year, balance ‘XX ‘XX, increased the have really and of and relative what kind think of our back said I and between timing guidance

We’re still committed to the XXXX. $XX million by

Alok Maskara

it, another that next the I remaining $X and XXXX. would still Chris, is we expect million way year think about to in one think then

Chris Moore

good of terms the for of about walk in picture cash XXXX, you’re commitment to that. Okay. talking through can I sure That’s you spend just make that helpful. and then just – the a And the have to XXXX balance

Heather Harding

you’re assume respect with the restructuring I Chris? to And referring program,

Chris Moore

Yes, exactly.

Heather Harding

French pretty had spend timing, a in a be payments in And because we would And those the year did said July. restructuring. perspective. that from spend heavy QX So XXXX a were we actually portion on of cash extended are significant always some of

substantial spend there’s perspective, are But out I’d portion more So, certainly about here specifically, cash say, come in the – we done. some QX think to in the a we a could back from in halfway half. ‘XX.

perspective, through reported that restructuring have half of expected So the June extended we’ve ‘XX dollars about been cash that in we spent, a from results. the

will And so, half a second of the similar amount. be

Chris Moore

new inventory just to question, from market, coming respect there are little sounds SoluMag, what of it competitors a Just Or that that that the space? last is levels you’re Is on going kind that a it up side? of with there purely any you’re seeing kind a bit. in against and of like are oil demand prices matter down – the overall just in

Alok Maskara

inventory are have last dynamics. the things. and the activity, impact for, seen brackish products We in in applied who new lower customers difficult any of year. change horizontal We not It’s fracking or overall have any X think water simply competition especially it’s excess our upstream the where built-in in

excess the double stocking levels. of that to needs slowing the work So a through see and bit whammy as they demand the we slowdown, customer inventory of expect

Chris Moore

right. it Got

Let me guys. back line. Appreciate it in jump

Operator

[Operator Phil the Instructions] from line with KeyBanc Markets. comes Gibbs next Your question of Capital

Phil Gibbs

Hey, it’s are Gibbs. How Phil you?

Alok Maskara

are How Phil. Good morning. Good, you?

Phil Gibbs

the Pretty half pretty Are good. case Good be the half that you in as the second to year? the first well? morning. expecting Spreads of neutral in were

Alok Maskara

Yes, be at look half I we very when second spreads. we similar expect to think

Phil Gibbs

to And think, I the $XX filing Germany to? tied in What reading million I half, $XX million. last down specifically from substantially sales pretty the was XX-Q and night, that was first were

Alok Maskara

bit in we Very shutdown QX, factory and tied significant phase, so QX to out of through, shutdown French to early as specifically half. the know, a we recover part little other in in expect there like was in that second of our disruption you as move

Phil Gibbs

reiterate terms you the of of year-to-date half? about think Heather? what you operating piece cash in to what mentioned And the in expect that. And you’ve said the spending of restructuring, then I just there, some I second wanted

Heather Harding

Right.

some million basis total it’s capital that but small year-to-date quarters, for if amount. at cash fairly a spent on And clear, is just of a we $XX to that’s on be in look restructuring. So both you under there expenditures,

So for again, second as half. for a to in be cash expenditures. opposed to it’s the towards capital that the year, we weighted expect would amount similar more heavily restructuring And

Phil Gibbs

Okay.

thinking cash and half, or something restructuring of that So half for $XX close the thinking like something CapEx fair? – then couple to something second so in million million a Is and about for first similar?

Heather Harding

that. less than it’s – capital than It’s Yes. less

for is maybe think the So $XX capital. total, about million million-ish $X

Phil Gibbs

million, million expect in for Also like $XX million or half like second and you $XX $X $X million then the something and and that.

Heather Harding

restructuring yes, – like not is it Something but more heavily capital. for cash, weighted

Phil Gibbs

Okay. be Or more feels Are And end of restructuring given XXXX? some same number to macro It was just higher? you little still restructuring these the net it weaker the of like anticipating those the at bit there’s the forward of going a pull of debt – be is at outlook? that bit to level spend. some a

Heather Harding

goal, conversion year. prior debt XXX% net to it will our would cash intention with our hold Again that flat we be

Phil Gibbs

you. Thank

Operator

FBR. Sarkis of line the from Sherbetchyan is question with next Your B. Riley

Sarkis Sherbetchyan

morning Doug. Heather, Hey good Alok,

Alok Maskara

Sarkis. Yes

Sarkis Sherbetchyan

Hey, my taking question. thanks for

markets. concerned kind the of So here industrial some it end on of like sounds you’re

I think gas. out and are specifically oil you calling

remind Just sales it’s X/X of you the say metric? me, did

Alok Maskara

includes in Yes. Total report way Total it. industrial. only is we sales, industrial Oil X% total effect of and of oil gas our total. gas, X/X and are but total is sales industrial the

Sarkis Sherbetchyan

it. Got

about out I the what in of then transportation. fuel of talk called can maybe alternative guess, maybe the in some category. defense you defense some resilience of you aerospace, and in and And Okay. kind seeing growth you’re

weakness of some called out offset a Just growth the on some the given enough the business, you’ve – other of the components other is divestitures? that like-for-like in to

Alok Maskara

areas the have margin especially were will be the separately, some experiencing. and on clearly oil are think the the excluding and shown I higher business that as side fuel much divestitures, XXXX, gas growth alternate the we which is challenge a we margin when Yes, of than that other

see very So been current environment, that’s downturn. a being in to economic overall, defense the our reliable take steady outlook business and always the we in very But reason and we had has even down. perspective trend from that

public feel pretty thinking And So new confident spending as the mostly. alternate I doing builds continues steady something That’s think both grow, in else aerospace by uniform. of that’s to we remains everything fuel are bus driven well. And about. and Europe,

I happen going the industrial. the what’s around some just to to think of is broader uncertainty

concerned change we in any markets. seen get XX about their ISM falls haven’t like to we start While in others do XX, that talking rate, and and from order softness close large end close to customers to XM

Sarkis Sherbetchyan

guess just of helpful. And And I line questioning. kind wrap that’s of up to Understood. my

year-to-date? XXXX you products your out? I year’s new does expect were management of where about new last with to speak from think XX% And products. shake traction your Can sales mix team

Alok Maskara

would same destocking. I year our back products, SoluMag tone number, we a and taken of of at probably was this because end the think that’s backward part because year and that’s new

number would this stage, But in I that XX% of we confidence up probably the we is number we earlier, long the So end year. have flat – to at that remain in would of at have that number expected the to sales. to term, likely say grow. getting still But

Sarkis Sherbetchyan

Thank for that. you Good.

Operator

[Operator are conference additional to to There the at remarks. Fox I like for back Instructions] turn no would questions time. over Doug closing this

Doug Fox

with for good us questions additional Alok We have. will a that around much our you November. will day. Thank forward third be quarter of morning. at I be beginning very which might you this you look would for report, again and to Heather, talking the after very joining Have

Alok Maskara

Bye. everybody. Thanks,

Operator

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

Luxfer (LXFR) 4 Aug 192019 Q2 Earnings call transcript