HAYN - Earnings call transcript Q1 2019 | Haynes International Inc

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Operator

Good day, ladies and gentlemen, and welcome to the Haynes International First Quarter Fiscal 2019 Earnings Call. All lines have been placed on a listen-only mode. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host, David Van Bibber, Controller and Chief Accounting Officer. The floor is yours.

David Van Bibber

Thank you very much for joining us today. Mike Maudlin, and financial Vice are International; of Officer. today Dan and President me Shor, CEO President Haynes With and Chief

anticipate, brief The Litigation that of forward-looking Exchange are and Before to are within Section the plan statements. I XXE started, the forward-looking words Act conference cautionary Private Act intended of of a and Securities This statements we and forward-looking Reform expressions note of the identify contains would call believe, Securities meaning XXXX. regarding and get similar read to like XXXX statements.

intentions Although, in that we subject believe expectations such detail expectations will plans, uncertainties, discussed and Many in year new company let Mike. XX-K obligation forward-looking the with suggested events our are Exchange and turn statements risks plans, Form or by revise statements of as such for the intentions these statements, are or reasonable, The With otherwise. or to XXXX. future we of particular me such risks achieved. call XX, any whether fiscal are Commission, and forward-looking in be a the undertakes can publicly over assurance September update result or no and Securities information, of Company’s number a the to to filings that, regarding no provide ended

Mike Shor

bright upgrade our us call. We’ve the of on now furnace Dave. you, joining Kokomo planned and morning, Good rebuild the for Thank within facility. and thanks everyone, completed our annealing

piece puzzle was planned our flats to for complete was and processed XX.X in the capacity previously XX expand need was and was XXXX the cold per of furnace The a that last It the from expensive discussed, year. rebuild. work weeks. was to pounds XX finish million initially required in installed million required was As of

XX. to and in but complications, January. January expected it running did we up had ready material to production early the process run on have furnace We We into

have reduce the finally now cold to to flat this excited business pursue the lead incremental high-value, product. our finish in capability We’re begin to have times to and capability differentiated

the Company’s with shipment on quarter fiscal last in the holiday levels significant on financial discussed As XXXX. this normal outage, first period, results the had over impact of the lower call, a the combined

the As to below profitability guided, caused revenue quarter. volume, breakeven be reduced and us the for

below was volume goal overall to pounds, Our per million X was our million exceed well which but expected X.X quarter. pounds general

growth XXXX. in are that Now one increases of cold rebuild over to the balance of the and fiscal sales revenue profitability expected complete, the furnace flat the be is incremental strengthening to drivers finish key

With in our the first margin. quarter and we recent continuing us, the behind gross steady the on improvement planned equipment outage focus are

As apples and to accounting gross Dan gross margin have are cost non-service of sequential we will of income. a I comparing to sure implementation moves to periods quick mentioning all sales make new operating made of pension note, related of history margin method restatement below to When this to the I’m apples. percentages, the in regulation out a accounting expense. a explain This costs pension side moment

margins our back X.X%, quarter: recent each ago the XX.X%, on to XXXX. out bottomed X% and XX.X%, at in We improvement XX.X%, then in quarter sequential the gross seven So XX.X% steady following achieved margin. of in gross and quarters fourth

outage sequential these We’re But results. well and with our I increases. given of trend reporting pleased the today, planned am XX.X% upgrade, breaking documented

throughout is clear moving and Our forward basis a discussed focus company. daily remains on our

capacity should in expansion. to with This the pursuing be continue in our required to cold due margin. part now improvement are first incremental gross production large possible finished initiatives We incremental flat complete

volumes higher Second, plate. of

allows that plate and lower us turns end to of is lower products most a true profitability our quarter, while – are it’s that product base utilization last importantly, impact of product the should business As that our have at absorption. a the are quickly, steady noted and

but recent this continue early of stages seen have the some at success. to be We effort,

future. Third, project positive our special volumes are foreseeable for the outlook and improving remains the

fifth, focus delivery volumes Louisiana reductions. our price product in XXXX excellent have this last pricing high area the we While related make cost volumes gross with levels are performance, levels. increased in we margin in to led rates that aerospace Arcadia, and watermarks tubular increases the and incremental have a bottom progress, to manufacturing in increase operations on to finally, year’s And costs, we’re our Fourth, in and improving don’t production related efforts profitability. from seeing beginning and XXXX line

the Now the first quarter. of results moving to

quarter, outage planned recall The earnings you felt we gain. now see short-term earnings mean the begin but for quarter, was the last As pain to from would I pain gains. this mentioned expect to long-term at

the of shipping Our pounds. quarter as pounds to volume compared previously quarter in XXXX million volume dropped as X.X mentioned first of fiscal X million fourth to our

in level pounds million first of a from fiscal improvement volume was However, the compared this last to XX.X% last the year. quarter year X.X

million last quarter $XXX.X X% quarter We’ve per quarter proprietary from the QX engine X.X last up into revenue GEXX revenue, come market revenue. the $XX.XX in over in pound shift from these XX.X% Net first aircraft & $XX.X demand approximately We’ve and up and in last year’s sales. prices million including With aerospace the engine over We revenue pound despite $XX.XX XX.X% in that, aerospace Sales million, to was backlog our X.X% $XX.XX year’s key was of market series specialty increased First markets. quarter. up specified increased new was XX.X% year’s price during last selling cold of the million. grade including quarter the the We pounds, move inclusive QX $XX.X the net per the year’s saw year’s in total involving million from price the let about per representing Average me Volume outage X XX% million. $XX.XX in pounds, engines, Average per up Whitney business aerospace, was other contract about pound. were optimistic niche market renewal. aerospace aerospace pound. up up for last our $XX.X was new from to Pratt by in as alloys sequentially driven finished for the our to by generation XXXX our remain engines. primarily X% selling new flats. contracts our regarding

from moving for last XX.X% it year’s the Our business quarter strength revenue finishing, a the aerospace chemical Net drive core from in Average processing forward. is over cold selling price pounds, market XXX,XXX our the $XX.XX Backlog pounds. XX.X% accounted from additional last year’s CPI million. per expected for was $XX.X with CPI XX.X% $XX.XX from of million, XXX,XXX quarter. And up year’s capacity us. increased profitability up was X.X% sequentially is to the revenue, for pound. $XX.X was pound, combined X.X% in per volume up last

proprietary relate see of more compared base of utilize shipments and project this much processing chemical we volumes processing has volumes specialty of our and better levels which the initiated to last We application to We’ve opportunity base year. to market. The improve plate our have to meaningfully improved that increase intended from specialty to continue materials business side chemical strategies level.

Moving to the turbine gas market. industrial

this million. just quarter the from $XX.X XXX,XXX in IGT market Our the down of for up our year’s accounted pounds XX.X% from XXX,XXX to totaled was $XX.X X.X% last last shift pounds. during quarter. sales sales X.X% million, year’s in Volume

sequentially XX.X%. per turbines pound, up in selling year’s the quarter. volume up pound. XX.X% the per price However, a was XX% gas Backlog quarter last was by and $XX.XX increased in Average pound from per $XX.XX industrial

our weakness the demand few quarters. see weakness will in frame in to clearly likely continue We We and it large turbine least continue the levels at shipping and markets. see into this medium next

in demand this As stated market. we the quarter, still last we in long-term believe

demand required is the levels. remains patience low as at However,

revenue million XX.X% Finally, $XX.X me quarter, to this our over turn for other during of up by year’s $X area a partially XX% total revenue on our million of higher This markets was in details Other increased million million. Dan it hitting in accounted last other processing. gas decrease other to With revenue. the markets financials. was offset with market roughly specialty applications and levels associated $XX.X with decline This let projects that, from for our flue $X.X desulfurization. a more related

Dan Maudlin

you, Thank Mike.

quarter as net a year, Even and $X.X million to the last with higher margin we last major the $X points, was the and both million, the lower the same generated than to cold sales revenue earnings of represents net capacity with net pain, basis consistently or with the of million it of achieved impacted pounds. XX or planned outage last $XX.X by production margins roughly million transition earnings. than gross million this XX.X to level CapEx which $XXX.X impacting QX to as revenue production estimate contributed finishing period we of by outage is XX.X% million the compared XX.X% QX our revenue but outage, in in year. levels We quarter flats now gross This XX.X% which can quarter. of million, Short-term new begin of a $XX loss we pounds of piece higher XXX cold finish push

changes compared we mentioned still lower in Mike you me retiree year. This balance expense health earnings favorable million mentioned. gross on last and the resulting of we’re this liability a update, the as previous at by pension Fist, a quarter reduction valuation care discussing recall elaborate that in million. $X.X margins, from last to approximately While let year quarter’s $XX.X our X/XX/XXXX, hitting sheet to into favorable compared translates pension

on $X.X pounds impacted MD&A of quarter, to maintenance $XXX,XXX. mostly and during related the impact, margin, expense. out non-operating calendar in non-service balance reclassification have last which sheets. in We new line Second, standard consistent million. income a the out year typical QX the and Back to In the No a P&L we includes new the their quarterly outage periods benefit just was by of year’s P&L. outages all P&L retirement and reclassified implemented requires customers Also, both gross been this income, and it in the this and reclassification net both to of benefits quarter, operating all accounting presented reclassified planned prior results. was gross X.X current costs the be to to tables. moving the margin comparable, retirement face managing shipped the the holidays normal be called million This

quarter, goal headwind X our resume shipped of margin alleviate now we from fixed-cost each million would absorption. forward, pounds which Looking the

year, This to each application last million; as specialty $X.X project sales were million. and in compares last $X.X $X.X $X.X Our year million; follows: QX million. QX, QX, QX $X.X million; quarter QX,

our forward. allowance by for last results SG&A improvement million on focused going quarter remain QX increase and decline foreign costs in special the consulting same This application fiscal combined and of costs remain the sequential year’s year, technical research is we of last quarter’s specialty solid an for applications first a it last million. account and than in driven year, are of projects this our million optimistic $XXX,XXX were from higher and about fees. We tax $XX period is outlook with $X.X debts customer QX While $X.X projects a higher from bad increasing on a XXXX. the new

We options million SG&A $XX approximately research million. that full for to but including rate not related be tax technical expect year forfeited. the item a exercised vested fiscal and was discrete X.X% stock impacted The to this XXXX by quarter $XX were of costs to

for XX% in to this a diluted share. balance $X.XX quarter, first tax item the first we per XX%. rate expect of approximate $X.X loss for Beyond the effective XXXX fiscal quarter was Net or negative discrete to the the

higher levels noted, completed upgrade, cold and $X.X to of compared line $XXX,XXX receivable of Cash Backlog the expect pounds higher trend $XX.X balance quarter. by Turning first the by markets be next Backlog quarter. growth operating net prior and expect the an activities XXXX revenue quarter working and million, Customer the by in to as a earnings during cash sequentially the in XX.X%, XXXX, the increase with increasing $X.X includes the representing income. XX, $XXX.X customer accounts as upgrade anticipate quarter finishing quarter. at first million million primarily area. the levels fiscal provided were XX, accounts increased $X.X we capital million which decreasing to than December tax or during $XX.X $X.X increase furnace inventory refund to decreasing was December which and resume expenses over Controllable million. XX.X% previously fiscal was of higher $X.X revenue in Net positive finishing fiscal in quarter. the fiscal Liquidity. Having and at cold XXXX million the all the of to quarter of the entry million delayed XXXX. was payable first $X million. order for the quarter a orders second We as production XXXX we well backlog. of XXXX due of for accrued backlog million, Outlook increased

During our by zero the but paid credit quarter, end. quarter facility, we it borrow down from to did back

Our a December balance XXXX. had zero XX, revolver at

I With million growth million. quarter an back expected Mike, profitability spending untapped In These now cost with and million. the discussion improvement at accordion $XXX pricing reductions to our execution focus accountability XXXX facility the will of to in this forward. size drive million and higher believe capital the meaningful to on $X.X Capital and at we you. continue initiatives fiscal going over forecast initiatives. for the shareholder conclusion, spending $XX We approximately first the are with was of and XXXX, drive favorable $XXX credit in to value. volumes, successfully turn to fiscal implement will

Mike Shor

cost. Thanks, from final employees our for of employees initiatives successfully improvement impressed to Singapore. taking about company. we business of Dan spirit the with ideas customers. your let’s I can this that our Asia, and our of exists that, profitably our staff’s to three focus Haynes shareholders, improve locations I very at returned we grow in are our point performance met benefit believe One our our processes, Japan in improvement With and be new opportunities focus our I light the all Together, noting, our and concerns to the continue China, worth Dan. The the talented the We heard and people company. which work for with and to open are just reviewed many questions. optimism our and our and and call of in

Operator

is Instructions] The you. question open ahead. first floor Edward from Our [Operator go Marshall questions. Sidoti now Edward, Thank with for comes Company.

Edward Marshall

you guys? and Good Mike are David. morning, How

Mike Shor

Good Ed, how are you?

Dan Maudlin

Good.

Edward Marshall

maybe also of demand might from perspective. I what I’m I’ll in – heard a kind a price raw you direction. and you. China thus from quarter that’s there far some and maybe mixed results the in on China Good. great. specifically. about Thank this Asia, mean material from Can finish – know elaborate you and that go Haynes? that slowdown where start guess are I I’ve talk impact China just for sales

Mike Shor

is on goods that thing first obviously, nickel all into China. the ship of tariff Ed, we’re the dealing China we X% with

by effect So but business that’s see strength. our have been far, obviously, across us. had a thereof, we or hurt minimal continued on In power generation the past, we’ve lack as some Company, we

Our forward the about us. and enthusiastic what’s coming demand very they is team for see

also on that As initiative plate we the to helps. focus talked continue about, we’ve

Dan Maudlin

if And at if XX-K our China, X% at back look our you year, look was sales last into about our of revenue. you

in China. expecting nice It Slightly growth China. of ahead we bit ahead very sales a off but our into plan, plan, but our of in were year. actually this We’re is last that some percentage quarter slightly off

Edward Marshall

an make impact. equipment to Are fact be that the seasonally And to in that to of of able time? of XQ month ended end would guess upgrade then, that there’ll up been from going a it almost I in in last be XQ you revenue with have that, difference assume Got and January, switching that somewhat the I quarter stronger the it. in

Mike Shor

had right start a Ed, that XX. expected caused back we first year. of variety of to to the us furnace the January end the after start really on that We issues

that. that obviously, potential of volume. the of worked one and had to They to and we here. Taking Let they out time on working throw a did plug out try me in have little night of people much their three day could I’m issues our figure furnaces, just a proud impact that that. on

days pushing up you’re for thing We’re not extra. we XX it we’re one the And on giving absorption can down hard the help but other when on quarter, obviously, that. as doesn’t is as our

Dan Maudlin

And strongest seasonally is the well, our our Ed, yes, just quarter as year. of one quarter typically, fourth reminder,

in QX. looking that keep mind So when at we’re

Edward Marshall

sorry, I’m strongest. you seasonally said

XQ seasonally weakest? meant is You

Dan Maudlin

our typically ending No, quarter is our fourth strongest. September

Edward Marshall

thinking was I you. Got December.

volume time equipment impact XQ much How of period? the the Okay. from, loss the that for say, was in

Dan Maudlin

of from point we a Yes, view, estimate, production pounds. XXX,XXX about

we’re down sales a into because it cut than could that When yields cut be it’s be like a talking to that lower going a Now pounds, and bit. service something to piece or go that. center

would we So pounds. we from had a have point produced quarter to were revenue everything just that off pound of sales bit of $XX in estimate revenue, sell a if view, down, about million. XXX,XXX we our we impact the But $X not been million of to

Edward Marshall

finally, then much backlog How what? from have line. from much Mike, been can as having less how you of was backlog, to, customers the it customers? assessment excitement it. for might And a the potentially get your increase available result know Got hey, of of of capacity We in

X of capacity added ultimately, how have just demand? You’ll in that been have pickup And from true might Q. much then,

Mike Shor

obviously, way I answer has impact Ed, only X.X shipping think backlog. million an – the best the that, We to pound on

will in I final January. also don’t we were saw strong had on November pleased December. and you January that, just order tell very, we in very numbers what entry but that with so very Obviously, we closing have However, out now we’re we

Edward Marshall

Appreciate Thanks comments. very your it. much guys. Got

David Van Bibber

Thank you.

Operator

Phil? comes Our next Gibbs KeyBanc from call Phil with Capital.

Phil Gibbs

morning. Good

Dan Maudlin

Phil. morning, Good

Phil Gibbs

what Dan, year? whatever it year, Any $X.X million. D&A are inordinately expecting think the you look was $X.X like why that I And reason for we was for reason, Last had million. low?

Dan Maudlin

items on years to expected some those I’m the years. declined even lot XX during service the and going XX a was fresh were reset XX life amortized ago, at and of back restructuring that from way XXXX to start, last assets and to our years that And it point, of were year. over Yes, you push

August fiscal at of last the that end year. So ended

lower quarter expect to depreciation. this is would So maybe than the million. a $XX full $XX around slightly year million, bit I be in less

Phil Gibbs

Mike, helpful. I GEXX you may you Okay. I the talk heard about have thought That’s things that And on that. some

I be settled or about the – do am expectations this, think that? right XXXX think that’s the you of on I those on here it’s or not shifts the but and share terms have I to on the it’s And in already, thinking linked been thing? think expert largely

Mike Shor

And on We there, the strength, specified alloys because proprietary continue XXXX higher and temperatures also educate – to engines series to PW – and alloys. mainly with series, obviously goal high alloys in GEXX. do push these XXXX proprietary of have our our is PW two and we on the temperature

Phil Gibbs

And GE, more you I, to in the something as or than current the this be that’s is know production right now. as produced going GEXX

Dan Maudlin

It’s now. production current in

So new it it’s is something GEXX. the the – of generation

on So on generation other headway engines that, specialty have as very we development well. alloys CFM as Pratt well also of Mike side LEAP some we’re good mentioned Whitney, making the some new but as & applications the

Phil Gibbs

Okay. all be the on I than out margin sales expectations we of the commentary you is balance we visibility gross to And sales to Or the because generally margin in that those basis more baseline? gross do. just at the pick lost about don’t just XXX up margin have points of want pick thinking get margins and you obviously think side, the – impacts we revenue then you Do and then expansion? outage get quarter? up effectively on I the How the impact. call should second from and that all

Mike Shor

well. different QX a QX. in seasonality other from the QX is to stronger Ed, the earlier quarters bit And to seasonally Yes. mentioned much as all I I as is then mean, obviously,

that this impacted the give be We in pushing bit on I basis quarter kind keep that we the estimated, than forward. Mike it expect would with, a margin, made up certainly in mind with XXX the us to up caveat of So – as mentioned that but later starting that expected. points you’re don’t we guidance

we quarter. have out how could could an So over the get absorption, an on impact and that that have much impact on

we executing up, very on if and that. certainly that can possibly getting focused do to hope quarter We’re this and we caught

Phil Gibbs

Thank you.

Dan Maudlin

Thank you.

Operator

with Marshall we [Operator question Company. Go Instructions] Edward. & Edward ahead, have another from Sidoti And do

Edward Marshall

one with I just more wanted follow-up CapEx. on to

the You’re did in about your quarter. where that assumes this forward, million the quarter this estimating year, What’s that for I’m with million a the you each $XX year? go? the double for going million curious of $X.X what intention most you, so – main upgrade of with in quarter there you’ll remainder does behind that here $X.X capital

Dan Maudlin

going maintain got of I’d make capital there, couple We’ve maintenance sure years call to important $XX this we wonderful will and over And all but we’ve we right we error spend. mix max in million point, all is the other the At documented what’s of equipment the as that equipment last new to have. a very be now it’s capital.

So it’s maintenance really capital.

Mike Shor

Yes.

spend be And well a Drever of very CapEx some into view. January capital of spill may the from on point the outage

keep $XX to in well. as in forecast spend struggled historically that mind yes, a as We’ve area. But million is this think So we max. I as much

So million the is I would max. $XX suggest

Edward Marshall

I something comments? discussed – about in Any may And you issues comments just it. you is now be might are think anything any been that prepared further? Got yours. any your a the that’s at know we’ll have having Do some you there know, discuss Arcadia, that behind Arcadia? mentioned talk you that can remarks. additional of you with focus I Mike, been stuff

Mike Shor

We spent $XX approximately million on capital.

increase titanium and Our tubing nickel has is capability. tubing significantly That titanium our goal plant both capability. tubing to

the Dan titanium, it. We we’re as top going back be there down are in it’s future. of understand extensive also there. take out they working where achieve the as in the I that, what our was we’re distant commitments and appropriate, time prices our management, period through blocking that inventory delivery, of but all few not months significantly board lower costs far make all increase working to to too the tackling an working volumes and and, that ago spent like and sure CapEx there across On for to to of on-time we’ll

need momentum, gaining where to So we that yet. we are not be but I’m we pleased are

Edward Marshall

get about know it. – that want up? costs capital trying it’s say you don’t that’s capital into towards, think what include maybe or that reduce what I’m things something premature efficiency upgrades? to and I When does probably further sourcing be to be might allocated like might But further and you just is

Mike Shor

not make we’re significant of trying any cost tackling we’re that as There’s to the out about What sure there. – we’re talking as about and talking competitive capital. is anybody blocking

Edward Marshall

Got it.

thanks guys. Okay,

Mike Shor

Thanks, Ed.

Operator

Thank you. I’d floor like back Mr. to over the to turn Shor.

Mike Shor

Thank forward Okay. for everyone. day. of Thank interest time to and look next Thanks Haynes. you, your for We you you again support updating today. good your quarter. Have a

Haynes International (HAYN) 1 Feb 192019 Q1 Earnings call transcript