LDL - Earnings call transcript Q2 2019

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Operator

Good day and welcome to the Lydall Conference Call and Webcast. [Operator instructions] Please note, this event is being recorded. I would now like to turn the conference over to Brendan Moynihan. Please go ahead.

Brendan Moynihan

Thank you, Chantal. welcome second and conference XXXX everyone, call. morning to quarter Lydall's earnings Good

today's Barnhart, Chief are Executive me call Joining on Dale Randy Executive Officer; Gonzales, President Vice-President Officer. and Financial and Chief and

are an the start strategy about progress our with Dale current making as business will executing provide call in well of the comments continued we overview as long-term conditions.

by the our a performance our release and for key was drivers Randy remarks, Yesterday, financial discuss of filed. end open our will segment. review follow quarterly the of was line our with questions. issued we'll At Form the earnings and XX-Q

relations So QX follow XXXX along can can that call conference today's investor presentation, which you lydall.com call, section. the earnings at be please reference found with the in

slide defined any this presentation, laws. on the noted further Lydall's available comments constitute statements Form this information. as of XX-Q call for Please conference refer concerning to the are two provision in within on pursuant Harbor forward-looking cautionary statements made may note that to forward-looking securities also Safe made the As

referring referenced. non-GAAP In the will be of in be GAAP I conference financials reconciliation to addition, can found this financial measures presentation appendix the call. we A just during to

With Dale. turn call that, I'll over to the

Dale Barnhart

you, our us. everyone, recently Thank Brendan. the and outlines quarter. morning, joining Slide published for three Good thanks for second financial results

$XXX XX.X% $XX or of increased million same million sales XXXX. net period the XXXX in quarter Second from

drivers. Technical with every for key higher up China million. were sales sales organic were and and segment sales Nonwovens Filtration in consolidated Materials Filtration X.X% Products Industrial rate Performance Organically, $X a of and or in

was The sales in consolidated revenue in lesser offset were the reducing by million X.X on $X lower sales, dollar Thermal foreign Europe, part China. domestically to or and a Acoustic a our degree, In stronger by points. Solutions, partially percentage sales stronger headwind organic

sealing end $XX year. line given in earlier general market in the the added with million sales, that inorganic acquisition the Interface softness our expectations almost began in The of which is

XX.X% compared from margin Interface, to quarter The for EBITDA second EBITDA high primarily adjusted which year, the million from prior million up added of $X.X prior year. through was the of $XX.X sales

improving Nonwovens, margins. productivity be operational challenges Acoustic Thermal headwind, will from business immediately. and Thermal these cost European Solution’s issues segment restructuring Higher Acoustic by in Solutions enhanced driven were Technical address In benefits working pricing, a and the to teams

Notably, was XX.X% of XXXX. associated including XXXX, adjusted approximately up $X.XX of by of with amortization margin from quarter consolidated Interface of $X.XX share, basis from were incremental the $X.XX first earnings XXX the sequentially second points per down quarter EBITDA Adjusted the acquisition.

cash strong quarter XXXX of capital, enabling $XX million credit debt investments. continue our $XX generation organic of capital was us down Finally, of by half $XX for improvements in in led the and on to the facility pay first fund million working million to and

long-term activity, to and Turning a development, which growth to strategy, management small respect includes of our M&A four With expansion four. geographic M&A. active two product process. This Slide is part new portfolio Six long-term Sigma, an Lean we as of our transactions drivers; announced overview

the sale quarter funded gasket Performance in On Texel Interface our segment. business of & produced Canada, installs small the in materials products last Materials announced Hollingsworth in Geosol a which Later of of our portfolio segment adding call, we business cash the by from we Texel. geosynthetic to this Vose, discussed acquisition second year, also book of of

business. allows a lower-margin focus seasonal the continue business to team to strategically The value agreement. we purchaser the on to the production This Texel material the while provide in long-term Texel geosynthetic the installation will supply material under divesting

team. and Thermal product fibers launch of the sowing benefits one is consolidation to a Acoustic I'd highlight Solutions metals of global the which new also in the like our business segment, under

in facility manufacturer was outer Franco-German for new acoustical Saint-Nazaire acoustic tunnels OEM European panels. application a and a France dash supercar a for customer product awarded and major Our

a marries with providing properties. are acoustical material acoustical retardant application shield made French of The facility. of -- outer tunnel of custom fire retardant acoustic and are in punch and dash metal while a cut provide thermal formed The nonwoven shielding nonwoven-coated also mix both material thermal fibers and panels our a to needle made

base Europe the The and example extension expanding talents an of acoustical early business is Acoustic in the of consolidated Solutions the acoustical shield leverages business the fiber of Thermal globally.

monitor global four underlying of impact business to conditions. with remains believe we we our respect fundamentals governmental to Overall, Slide to trade the that regulations. Turning actions but continue business steady,

on side business. saw our Solutions This issues Index quarter, in the sheet was LME aluminum of supply the the the we trade as products global drove second XX% by steep which primarily Thermal was driven the year-on-year almost Acoustic tailwind On cost by a last emergence down nice year. price, of used increases

but America, favorability We mitigated see cost by conversion pressure premium. the Midwest the these continue to upward in in were North on

for LME mid-$X.XX of outlook Our pricing the the remain Midwest and first XXXX. cost aluminum range the to conversion in half remain at second base of premium, will levels the half the and in anticipates per seen

closely supply on Technical and Materials. certain fibers in Engineering and aramid continue Nonwovens to Filtration pricing, across polyester monitor and applications in input a to We Performance & specialty Materials prices constraints business input and for see gasket segments fiber continues meta key applications higher

demand be expected in with year for and year light -- at levels side, to be $XX.X production domestic last the flat units, production flat. Despite me, X.X% period On June year. excuse million the for volumes seasonally domestic European vehicle million essentially essentially same to down the the vehicle automotive are was the rate light XX.X levels adjusted

projections decline Chinese year. have in in the the Given downward approximately market full been year-over-year the half, first market large the declines X% revised to for

on platforms mix We our portfolio. and our expect the applications outpace a volume product due market basis to of slightly in to

in North for America Materials products we Looking and Filtration filtration favorable through in softness our businesses, with & see market in to Europe Engineering China. continue conditions

market, term. in of which We're half regions level in to closely monitoring across short the be all this first the with year, weakness sealing saw consistent in the demand expect and conditions the

Filtration American uncertainty in demand markets healthy on the is Industrial European demand North Nonwovens, but and remains Brexit. Technical In of the some impact stable, remain

The geosynthetics expect Materials higher outside markets applications North remain America consistent we in in of sales automotive prior seasonally and also end healthy, Advanced with years.

With that, Randy. now call the over turn to I will

Randy Gonzales

you, morning, Thank Dale, and good everyone.

briefly operating to six, cover our consolidated provide then an of I'll Turning results. Slide results and our segment overview

financial As numbers reconciliations presentation. are a and adjusted release adjusted metrics, by EBITDA a comparable in and segment. be earnings GAAP will to press reminder, including Details we discussing provided

that plan in resulting the pension the noncash prior like completed highlighting $XX.X start I'd quarter. charge The by second of we favorable to planned this slightly pre-tax was our our for guidance. to settlement Lydall million,

P&L. booked charge The in income in is the non-operating

impact did gross will discussion. be noted in income, margin or quarterly it our while does and impact it the operating significantly tax rate, So not which results, EBITDA earnings

second up As up from basis quarter sales from in quarter $XXX Dale basis XXX gross prior million X.X% consolidated in were -- the spending. year, $XX.X was mentioned, and second X% lower tailwind points already including Reported XX points restructuring XX.X%, million, margin organically. a

by gains business Acoustical Sequentially, segment from in we the Nonwovens gross basis points partially Thermal and the saw labor segment. adjusted margin offset and Technical and the Interface margins first from in quarter costs Materials overhead expand sales Solutions XXXX. high gross pricing productivity were in Performance XXX Incremental

continued on margin discipline was expenses. SG&A supplemented gross by in Improvement

the expenses Interface, addition down Excluding lower amortization restructuring, of initiatives, strategic and SG&A salaries $XXX,XXX on benefit and were expenses. principally

in $XX.X consolidated the a million resulting plan, was noncash quarter by the EBITDA of in of Second impacted Lydall charge margin X.X%, the legacy settlement planned domestic pension quarter.

related In addition, of related $XXX,XXX strategic restructuring of we expenses corporate to and incurred to $XXX,XXX expenses activities. initiatives

items, points XXXX. of to prior from XX.X%, of first quarter for margin XXXX Adjusting year EBITDA basis the second sequential the in with these XXX expansion quarter essentially was flat

$X.X The EBITDA settlement. contributed XX.X% XXXX benefit $X.X tax million $XX.X The with or quarter pension up was second included $XX.X plan million of the tax Adjusted million EBITDA the from incremental in the period. the a of benefit $X.X business associated for reported period. million Interface million, quarter of

the settlement earnings. rate plan in of was XXXX, planned XX.X%. a by rate tax quarter XX.X% mix the of This charge, and second to reported favorably the quarter pension discretionary XXXX of Excluding effective geographical compares was deductibility for contributions impacted second which

be to the XX%. For the XXXX, anticipate we rate range in to XX% consolidated of to tax ordinary continue

$X.XX earnings quarter a $X.XX to share prior per was of of loss compared earnings Second in year. the

impacted $X.XX of delivered adjusted includes EPS amortization $X.XX. adjusting per by The of initiatives, EPS and for a And or down net second compared quarter of earnings in approximately sale incremental tax expenses This of $X.X per $X.XX on gain of million Geosol, $X.XX pension the to $X.XX were of restructuring XXXX. strategic settlement $X.XX share. the adjusted share

the driven at year, improvement in improvements capital. Cash the year by flows from in second for million million $XX.X $XX.X of operations strong the $XX.X and last of first provided were half by quarter an working primarily million

quarter, in million, line total to Cash in was of were $XX the pay the $XX in million with resulting million $XX million used by range in $XX down a projected reduction to quarter our debt million. Capital capital in spend second expenditures year-to-date. full-year of $XX

cash working look key are pay-down. and previously areas focus generation As we debt accelerate communicated, reduction to in capital as XXXX

strong. remains Our liquidity

end $XXX was a facility credit of second leverage X.X XXXX, ratio $XX EBITDA. of Total ended quarter net outstanding of adjusted cash approximately at second the the debt for the from At million quarter million. times

Acoustical Solutions with statement. our discuss I'll starting seven. Slide to Moving Thermal segment results, our

innovative providing underbody, thermal our This acoustical engineered underhood, vehicle and solutions automotive specializes and applications. in powertrain that global for exhaust is business

by which sales were sales million to year, Second volumes organically. supplier led favorably up America, X.X% issue. forward related $XX.X a part XXXX up were higher second reduced quarter million impacted by of quarter this sales Net driven in in by the sales North from lower million, $X.X in prior were business $XX.X

net were platforms. of exchange, single Europe selected by Sales up in on digits led gains low volume foreign

X% and foreign China driven mix our the the in market seen of auto has in by declines production, volume down platforms. of only customer part net China double-digit While were sales exchange

but sales expectations. modestly $X.X half down of of $X.X for with were line million in up year, first in the million quarter the the Tooling

growth euro, Foreign XXX by exchange, primarily basis points. reduced the sales

improvement in commodity operations, Solutions domestic European our Thermal the facilities. higher in by prices favorably impacted in by Profitability offset costs Acoustical segment was lower and

EBITDA sales. XXX lower scrap was from year. Index rates basis In combined higher scrap largely prior by with of the in margin LME was offset pricing on XX.X% points down prices quarter, year-over-year decline the

a were in points. Higher facility headwind time of Hamptonville our labor and basis XX rates approximately over

operations of delivery and European our requirements. freight and product by labor, XX experienced Finally, driven costs basis outsourcing points mix OEM higher

will expansion gross We these for North half continue improvement the see of they second operational but positive a American working in our in into the Europe sequential parts operations On we quarter. mitigate margin issues consecutive note, with to actively are expect to third persist XXXX.

and markets cover industries globally. I and segment, solutions provides Performance our eight. a will of Slide sealing Materials which filtration engineered to end to Moving variety specialty

$XX.X year, Sales up sales. of including to million XXX compared acquisition. basis FX of $XX.X a of in of driven higher sales organic $XX.X million quarter the were by Interface prior or million the points with growth filtration headwind resulting was the XXX% X% primarily from

from margins half unfavorably expenses. This Second gross ramp legacy quarter filtration XX down prior on impacted EBITDA costs spending air trial the from by and partially by margin Filtration XX.X% with with second start-up lower incremental purchased basis lower the to primarily SG&A of assets the business in was output of offset is mix XXXX. year associated Precision points in product

the While the gross the in was accretive EBITDA incremental Performance quarter. business expected, delivered to Interface was lower the $X.X and Materials the of portfolio than million sales from contribution margin

million of $X XXXX. that the which amortization include Note quarter continue second will levels for results remainder through similar of at Interface

Interface Technical We our covers continue gross to accretive Nonwovens in segment. and EBITDA to margin, Slide XXXX. to expect cash Lydall X be margin

as medical, as as This segment produces and for applications industrial use commercial among such media others. products automotive, in engineered filtration and well other various air liquid geosynthetics,

consolidation XXX Sales FX the million, translation due were in were year net up of impacted slight Filtration as volumes sales second in organically, unfavorably period but China, FX with in of which quarter Industrial basis points. disruption of were XXXX driven up down by net to activity. X.X% X.X% the associated X.X% $XX.X prior headwinds of reported higher

down installation driven divestiture remains business sales Thermal Canada in X.X% Acoustical Sales and all felts segment. needle regions Materials in by Solutions the healthy. Advanced Geosol Backlog of to of lower Texel's were for the

was profitability, XXXX. second more In EBITDA offset segment than of costs from pricing and This higher XX.X% that by material of improvements. up primarily XXX productivity points margin terms adjusted quarter actions basis driven was

area an have meta As but cost to aramid see generally previously discussed, fibers pressures, stabilized. be continue where we these

points XXXX, periods second a XXX adjusted XXXX. in quarter EBITDA or for As second restructuring and segment margins in in points EBITDA by reminder, accounts XX quarter expenses basis which or both basis $XXX,XXX $XXX,XXX impacted of

the concludes review quarter That second our of results.

for in sales off margin incremental saw we three start organic sales from quarter. expansion segments growth to first While and all the business were slower-than-expected Interface, a

our well focus Looking the to integration Thermal acquisition mitigating Performance forward, European will portfolio. as Solutions we continue in of the into Acoustical costs on Materials higher Interface the operations as

Finally, healthy we drive will to cash flow continue our capital efforts management generation. working on

call With the begin that, I to back turn our question-and-answer operator to will the session.

Operator

Thank you.

not begin Your Moore, first from Securities. [Operator Instructions] question comes please. answer Go will Chris session. We CJS the and ahead question

Stefanos Crist

Hi. calling Crist Moore. This Stefanos for is Good in Chris morning.

Dale Barnhart

morning. Good

Stefanos Crist

First, in costs you're more recover you TAS about operating talk what specifically? mentioned in the because you initiatives lower taking higher Europe. were margins, Can those they to of margins

Dale Barnhart

saw equivalent year-over-year seeing. actually margin. it's North over year sort you margin improvement America, at look gross In and China, year a Yes. TAS, sequentially. we In When saw that sequential sequential we gross margin in of are improvement in we gross mix geographic

Europe, And cities tale now. a right is two it's of so the mix in and issue

than Our has to has German operation lower than more led which our anticipated and volume anticipated, operation has volume expedited outsourcing. French and freight

immediately Saint-Nazaire So Meinerzhagen, then we of is that's facility, what help now to improve from actually facility overtime some the throughput are of do the things volume of and at And can the from the to the freight. mitigate so operations. one immediate to moving be German addition we'll we're to doing right some that, the to -- French both expedited in looking in we

Stefanos Crist

by of you And the these half recover it. they cost until Should Got XXXX? would said persist second XXXX.

Dale Barnhart

Yes.

Stefanos Crist

one talk about segments we maybe more. which be be current to just you. likely Could the more And pipeline, then, Thank M&A in? Okay. they'd

Dale Barnhart

business. As Filtration our be is -- strategy our on we've & always focused stated, our M&A will side the Engineering of

and the at automotive organically been doing will we've successful We grow both. business

Stefanos Crist

All Thank right. you.

Dale Barnhart

of into restructuring, as is our IPM the right which synergy pipeline, Nonwovens. Materials, integrate complete Technical And to part programs XXXX focus far as the in in fully now the Performance was

that's the But active with we're pursue wXXX. to opportunities So following focus keeping going in will we be years. that stocked our well in the key in pipeline

Stefanos Crist

the it. Got in back queue. jump Thank you. I'll

Operator

Thank you.

from next Your Go question ahead, & Edward comes please. Company. Marshall, Sidoti

Edward Marshall

Randy, Dale, Good guys? you morning. Brendan, Hey, how are

Dale Barnhart

Good morning, Ed.

Randy Gonzales

morning. Good

Edward Marshall

And to in to just of unfavorable maybe areas. on some this volumes is And what's there? German maybe TAS the contract sure contract model Could in overload, So business a expect other weaknesses offsetting versus I'm then specifically, about it's Europe new Thanks. French finally a second second. discuss or kind that want you -- just I on I want issue. good talk comment see for situation you meaning operational the an follow-up an in some and you versus curious, make When issue diversification the a half XXXX just maybe to of rollouts when the Europe? you going update could some of through

Dale Barnhart

there See, them budget their not demand our major forecast over has as had and OEMs -- with XXXX. it that's what our French significantly there's has still operation, relate what contract one we our issues, us. into It's in -- real occurred for going particularly so in our an in, of issue increased

excessive the also went of so one had volume. had And that, But We keep running, had second issue of an is lines have. quarter and lines one facility. impact freight down, our out to little that -- that do make our French a there we expedited we in outsourcing we've high-volume compound of to number customers' with the bit priority the which additional of we where course, sure our and transfer

the volume as some and issues cost created as And you that's there's look then absorption labor been Germany, fixed there. fixed efficiency. far some softness just when at And in cost

the programs, benefit parts the happen we're day-to-day sure quarter. And we be and making really efficiency now from that at fourth of just doing we're then we're So the facility, to will facility in we'll French that German speak, relocating as in both in quarter that what operations. looking the overall of and sometime third some should doing the see those we some

far As as...

Edward Marshall

no, sorry, So ahead. -- go go I'm ahead. I guess

Dale Barnhart

Ed. on, Go No.

Edward Marshall

half So like areas. in year, the the about not cost commentary the of issue aluminum looks volume because there it of second absorption outlook the fixed I movement kind for three guess is the up being and with and an really all

definition recovery of Kind a points? think. to and think think, you said, talk it's the that As that margin. kind you as this your we kind recovery, XX is about recovery this this I'm is you see we to XXXX what I of into curious the -- business, the if for basis Is about just move the back in traditional define recovery margin of a fair of to auto? would

Dale Barnhart

-- where I'm an that over over should point it going improve we're improvement. in side our we've because a the American several -- the operations, doing up Well, business are assets business, running on but to really those the are getting it lot particular to actual should and several XXXX. regardless focus metal lines assets, going North got and see on be those OEs give utilizing several there an productivity of the up. improve not we focused things. improvement to yes, fully basis high-speed I'm of happens peg in are. it a wouldn't what But on. going But we will it continued getting I thermal not We're on time We're dynamics improvement, -- of new will

asset our another into we Germany significant this wall seen we there, there. so -- in improvement line that and what's we volume overall on that a have facility have quite is And another this In of high-speed dual bringing will year-over-year with last next in in of year, which the half not running where well. running products to improvement near portion in market far year anywhere we've we're gross up. see country, doing the been improve going business. fully back we've China the we're should sequentially, compared And seen improvement so That's productivity facility the And will is We're the year, down there. in French year. margin down. higher-value Despite

Edward Marshall

it. Got it. Got

get get the over trying the sealing business you is upside of to owned margins we in I'm if turnaround? when quarter there event business haven't where still I gears the kind to in of of go. kind business. seen thought really switching the So, as a since what sense, sense there's understand Because I acquired to that what to business. just you clean could weakness relative could, a you've to a the a

you if when could maybe maybe where acquired they So Thanks. where comment you targets were on your are versus today?

Dale Barnhart

our revenue in line on Well, much pretty as was actually with target far business in first what the experienced the as half XXXX.

So the several to the year, in first seeing half. compared last is, there we're factors softness there's been

all, India. decline in XX% geopolitical the the first IPM revenue in drop of in and is That's in has first first come a to about First revenue half issues of where China XXXX XXXX. half the of significant due half versus

and China us to inventory behind both of of bought strong XXXX, in due of therefore, is destocking and you India, market. XXXX. a XXXX, the if that first North half referred they've distributors anticipating companies a a too first Donaldson softness, half lot softness take carried for overall is and of those replacement. seen ahead, driven who the do then the wholesale same of distribution in in feel lot thing, a the lot much that's and now. indicating the in little this trade And a maybe gasket of to that And to are with softness election the issues by we America, just Parker,

of the to the the forward, be lows, we business. expect IPM. We -- reloads hard growth, should predict, half distribution be that top can again. X% good which line will year, on very that's to margin going we year, go? these the X% business as it if a back the to And of look to then drive do But see first similar And historically, we Where expect to expansion spike expect it, there in after Ed. at typically, we

Randy Gonzales

that for though although gross the is gross much that done so thing margin met reasons in talked job line on very impact. we what -- line expected, implementing is good add, Ed, hasn't a making margin. top lean Dale many I'll They've other our The are solid quickly an programs about, with of expectations performance very

detrimental is to well. a So testament been the the the well, fact integration has is volume very that managed going which

Edward Marshall

next of Right. me back That kind the point. to brings

comment and I when conversion look are I'm out be think a your I job capital working a down you're which right capital specifically from specific initiatives direction. the curious working could we've working perspective. Or is if you've of built to done, you seem done it Interface? that what kind there a if trending in at cash in is pretty on terms bleed good of

Randy Gonzales

intense this an across year capital been on half There's first the in board. No. focus working the

in saw accounts first from quarter, the you payable. So benefits

Second quarter, receivable. seen you've benefits from accounts

inventory. we're quarter, third focusing forward, Going on

So not converting Interface. of the working just good job it's and done very It's business reduction executing a across into team cash. and capital that, the has the

Edward Marshall

see $XX Eyeballing flow cash this generated free sense to year? it, make it million plus does in

Randy Gonzales

Yes.

Edward Marshall

And if versus growth about the balance cash CapEx initiative, sheet just an the too? talk could at I but Thanks. priorities, looking debt? you is understand so,

Dale Barnhart

business. continue I priorities growth first that's would to repayment, you say year tied the in Well, it driving and seeing, what But the why to support we'll the organic debt our and to relates allocation, seeing CapEx happen so with top capital they're two that. committed that's this cash, we're as we're is we're almost see

Edward Marshall

it. guys. I appreciate Thanks, I Okay. quarter. appreciate it. Decent

Dale Barnhart

Thank you.

Randy Gonzales

Thanks Ed.

Operator

[Operator time. you. instructions] Brendan, Thank back closing yourself, questions for to at no hand further this There will are remarks. I

Brendan Moynihan

call this be sure morning. joining to you you we'll very for soon. talking you I'm Thank Thank much. the

Lydall (LDL) 3 Aug 192019 Q2 Earnings call transcript