Good day, and welcome to the TriMas Second Quarter 2021 Earnings Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Sherry Lauderback. Please go ahead, ma'am.

Thank you, and welcome to TriMas Corporation's Second Quarter 2021 Earnings Call. Participating on the call today are Tom Amato, TriMas' President and CEO; and Scott Mell, our Chief Financial Officer. We will provide our prepared remarks on our results and our outlook, and then we will open the call up for your questions. In order to assist with the review of our results, we have included the press release and PowerPoint presentation on our TriMas website under the Investors section. In addition, a replay of this call will be available later today by calling (888) 203-1112 with a replay code of seven three 0 two three 0 8. Before we get started, I would like to remind everyone that our comments today, which are intended to supplement your understanding of TriMas, may contain forward-looking statements that are inherently subject to a number of risks and uncertainties. Please refer to our Form 10-K and our second quarter 10-Q that will be filed today for a list of factors that could cause our results to differ from those anticipated in any forward-looking statements. Also, we undertake no obligation to publicly update or revise any forward-looking statements, except as required by law. We would also direct your attention to our website where considerably more information may be found. In addition, we would like to refer you to the appendix in our press release issued this morning or included as part of this presentation for the reconciliations between GAAP and non-GAAP financial measures used during this conference call. Today, the discussion on the call regarding our financial results will be on an adjusted basis, excluding the impact of special items. With that, I'll turn the call over to Tom Amato, TriMas' President and CEO. Tom?

Good morning, and welcome to TriMas's Second quarter earnings call. We are pleased to report that TriMas' positive momentum has continued through the second quarter. While there were indeed challenges that affected our ability to accurately forecast demand at the start of the year, we are reporting solid second quarter results today. Let's turn to slide three. As a reminder, in the second quarter of 2021, we are comparing results to a pandemic related demand surge in TriMas' Packaging group, which began in the second quarter of 2020. The however, we are also comparing against the effects of an abrupt demand slowdown in our Aerospace and Specialty Products businesses, which also began in the second quarter of last year. With that said, our consolidated sales were at the top end of our expectations, driving better-than-anticipated earnings. Our TriMas Packaging segment continues to outperform expectations as the pullback from the record 2020 pandemic related sales rate was less than expected. We remain optimistic that the results in our TriMas Packaging group are aligned with our thesis of a positive secular demand change given that many of our products are used in applications for cleaning or that help fight the spread of germs. We are also pleased to announce some significant investments for our future, which include commercializing innovative dispensing products, which foster our commitment to sustainability and adding capacity in North America. I will cover this more in the next slide. In addition, within our Specialty Products Group, specifically our Norris cylinder business, we successfully achieved our made in the U.S.A. designation. We have often discussed the unique position of Norris cylinder as the only high-pressure forged steel cylinder manufacturer in the United States, and we think it is only fitting that we lean into this enviable position. We believe our…

Thanks, Tom. Good morning, and I'm pleased to be with you today on my first earnings call as TriMas' CFO. I'd like to begin my comments with a review of our capital structure and strong balance sheet on slide seven. We ended the quarter with net debt of $276 million, in line with our December 2020 year-end level despite payment of refinancing fees, stepped up capital spending for our long-term growth and additional share repurchases. Given our positive momentum in adjusted EBITDA and by managing our net debt, our net leverage was 1.7 times, below our long-range target of 2.0 times. Year-to-date free cash flow was $30.9 million, a 14.4% year-over-year increase, and we have ample unrestricted cash and liquidity. As we look forward to the remainder of 2021 and beyond, we believe we have sufficient capacity to execute on our capital allocation priorities of reinvestment in our business, programmatic M&A and return of capital to our investors. Now let's turn to slide nine, and I will take us through our segment results, starting with our packaging segment. Let me start by highlighting that our packaging segment results for the second quarter included another record-setting sales performance. This is a testament to the diversification of our packaging product lines and end markets, our global footprint and the extraordinary efforts of our team members' commitment to meeting our customers' ever-changing needs during these unparalleled time. Second quarter net sales of $139.6 million increased approximately $10.8 million or 8.4% as compared to the year ago period. The Affaba & Ferrara acquisition completed in December of 2020, contributed $10 million of incremental sales, while the impact of favorable foreign currency translation added another $4.6 million. On an organic basis, as anticipated, sales decreased by 2.9% or $3.7 million. As Tom mentioned earlier in…

Thank you, Scott. Let's turn to slide 13. Although we continue to operate this pandemic period with a fair amount of uncertainty surrounding future demand, with the benefit of the first half completed, we are providing our full year outlook at this time. We anticipate full year consolidated sales to be up between 9% and 14% as compared to 2020. We expect to achieve this overall growth as a result of acquisition-related sales and a pickup in sales largely within Specialty Products. These increases are expected to more than offset any pullback from the pandemic related demand surge that we experienced in 2020 within our TriMas packaging group. As Scott noted, TriMas Aerospace has been benefiting from a stocking order of specialized fasteners by certain customers. On a year-to-date basis, these orders, which totaled approximately $14 million in sales have almost offset the decline in organic sales within Aerospace. We expect to fulfill the remainder of the stocking order, which should run at similar sales level in the second half during 2021. We anticipate full year adjusted EPS to be in the $2.15 to $2.30 range, a year-over-year increase of about 16% at the midpoint. We are also forecasting free cash flow to be above 100% of net income. Despite what we believe is a capital spending rate higher than our historical average of about 4% of sales. Let's turn to slide 14. I will close out our comments by showing just a few examples of why we remain excited about the long-term prospects for TriMas. First, through repositioning our company over the past 18 months, now nearly 2/3 of TriMas's revenues are generated from our packaging group. We believe there are long-term benefits to the overall stability and growth characteristics by focusing TriMas in the global CPG and industrial packaging markets. We also believe we have a robust and growing pipeline of innovative product solutions to augment our long-term growth. Next, we expect to have further long-term performance gains in Specialty Products and eventually in Aerospace as those markets recover, especially given previous realignment actions. Also, we have excellent cash flow and capacity to continue to augment our organic growth by building out our most desirable platforms with strategic acquisitions. While we continue to reinvest in our businesses for long-term growth, we also anticipate continuing to return capital to our shareholders. To date, we have made excellent progress in repurchasing shares, and we continue to assess our cadence of share repurchases along with other TriMas treasury actions. Finally, we work carefully to position TriMas with a strong balance sheet. As we look at our position today, we have a capital structure in place that will allow us to execute against our long-term investment and growth plan. Again, we continue to believe TriMas is an exciting company to invest in. And with that, I'll turn the call back to Sherry. Sherry?

Thanks, Tom. At this point, we would like to open the call up to your questions.

[Operator Instructions] Our first question comes from Brendan Popson, CJS Securities.

Good morning. Hi. Great quarter, great guide as well. I wanted to ask about, I guess, any indication, given that packaging has done better-than-expected on this -- on a year-over-year basis against the record levels. Is there any indication of normalized levels that in packaging? And anything you're hearing from customers that would indicate where normalized levels might be?

Great. Well, thank you for your question. We're trying to assess that. I think we're sort of looking at the rate that we're at currently. And we sort of use that as a guide for -- along with our in bookings as we forecast the rest of the year. We sort of feel like we're getting close to that level. There might be some puts and takes as we go through any particular month or quarter on that. But we sort of feel like we've achieved that. Part of the challenge we've had through the year so far is comparing to some quarters last year that were a little bit abnormal. I do think we'll start to normalize this as we get into next year and are comparing to the rates that we're at today.

Great. And then I wanted to ask about -- a little surprised to see the margin in Aerospace. Obviously, it's still a tough year, but you guys have called out some labor efficiency challenges in California. Could you just dive into that a little more and what exactly incremental costs you're facing there?

Yes. I mean it's a couple of different factors. First of all, on a comp basis, compared to the first quarter of this year, as we noted on that call, that was a particularly good quarter, predominantly related to some mix matters. As we look at the performance this year so far, we're still seeing in some of our West Coast operations. Because of the pandemic absentee levels that -- before the pandemic would suggest there was a big problem at various locations. Well, and that's not the case. That's just the current state of play in operating manufacturing operations in this current time. So with that, on a daily or weekly basis, when people are out, you have -- we call them manufacturing sort of bumping and grinding of roles and responsibilities in an operation that creates inefficiencies. And we do expect that to, again, normalize in time as we get -- go forward and get into next year and hopefully get to a period where it's even more predictable to operate into pandemic and certainly hoping that this is behind us altogether. But the biggest driver to it has just been, what I would call, efficiencies related to operating in this current environment, not anything specific, we believe, to TriMas.

Okay. And is any of that just increase -- I've been hearing from a lot of companies about labor costs going up, is some of that as well, trying to attract people? Or is it simply just absentee?

Yes. I think for us, it's probably more the latter than the former at this point. I do -- the point you're raising is one that we're certainly aware of and concerned with as we see some inflationary pressures set in. But that's not the driver to what we're seeing in our second quarter performance within Aerospace.

Great, thank you, Tom.

Thank you. Our next question comes from Steve Barger, KeyBanc Capital Markets.

Hey, good morning everyone. It's Ken Newman on for Steve. Just going back to packaging for a minute. It looks like there's some decent margin improvement implied in the second half here. I'm curious if you can just help us parse out how much of that release is from material costs starting to normalize here versus the improving mix.

Yes. It's Scott Mell. Let me respond to that. I think as we look at the second half of 2021 in our Packaging segment, we do, as I mentioned, expect resin costs to continue to stabilize over the second half of the year. We're starting to see some of that occur now. I think the other factor in play there for the second half of the year is that some of the pricing recovery that we've already instituted under our contractual agreements, there's a lag factor there. And we've seen price increasing within resins and packaging all the way through June -- last month and June. So obviously, some of that's going to kick in, and that pricing recovery is going to combine with what we believe to be stabilization on the resin side to provide some of that uptick in the operating profit that you're seeing in the second half of the year.

Okay. Can you just remind us what the typical lag from these price escalators are if resin costs continue to move against you?

Yes. I mean we think it's anywhere from 45 to 60 day lag time depending on the contractual agreement.

Got it. And then switching gear to Aero. I think we got some news in the production schedules from Boeing. I think there was some news for the 737 MAX or also subcuts to the 787 and the F-35. Just any sense of how we should think about how these changes kind of flow through to TriMas through next year as you think about some of the investments you're making to improve the operations in Aero?

Well, look, I mean, it's a little bit difficult and early for us to say on some of those changes, frankly, because as we talked about with the business overall, some goes direct, some of us are distribution. There's a little bit of inventory in the mix and a little bit of cushioning related to the demand pull versus more just-in-time related businesses. That being said, some of the pull that we expect will help. I mean, it just sort of helps in the overall outlook and when we can expect a recovery to start to occur in Aerospace. I continue to be very excited about the businesses and the brands and the innovative products that we own in our Aerospace sector. Before the pandemic hit, we really had one of our, I think, better years in a long time since -- certainly since I've been at the company. And the demand change obviously disrupted that a bit, but we took advantage of that. And I expect to see margins as we get toward a new state within Aerospace, a recovered stay within Aerospace, I expect ultimately our margins to be above where we were in 2019.

Got it. So Tom, before the -- or when the pandemic it, I should say, you saw a little bit of a lag impact to the Aero fasteners business. As we kind of think about the recovery of some of these volumes as the economy continues to open up here, would you expect that similar kind of lag? Or do you think the inventory levels here have been correctly calibrated for this expected recovery?

It's really a great question. This is something that we look at quite a bit as a management team. We do expect there will be a similar effect during the recovery period. But I look at that, frankly, Ken, as pretty temporal. I mean, we are clearly -- want to enjoy a recovery in Aerospace. And there might be a quarter where I explained why our rate is slightly below market or whatever, but it's going to be related to inventory. But we're talking about a quarter or months. I mean these are very temporary matters in the overall scheme of things.

Right. One more for me then I'll jump back in queue. I think the implied margins for Specialty in the back half are around the mid-teen range. Can you talk about the moving pieces driving that margin declining sequentially into the back half? And just how do we think about run rate margins for this segment exiting the year.

Yes. So I think some of that is material-related material costs related. And we'll sort of -- as we go through the second half, we'll update in the second quarter where we stand. I think the pretty important take away from this call, I hope that you can see. And Scott mentioned this as well in his rollout of Specialty Products' performance as the order book within our Norris cylinder business, is one of the strongest books that we've had in a long time, and I'm even considering before the pandemic hit. We're really excited about that. It means that we have -- it means that we have some work to do in terms of getting out the product to fulfill the orders. And we also have some summer months, and we have some holiday periods, things that work against that. But overall, sort of looking at our Specialty Products business, where we are today versus just six months ago. I'm really pleased that the demand has ticked up there, I think, quicker than I anticipated.

Okay. Thanks. I'll get back in line. Okay, thank you. We have no further questions in the queue at this time.

Okay. Thank you for joining us on our earnings call, and we look forward to updating you again next quarter. Please stay safe and healthy, everyone. Take care.

Thank you ladies and gentlemen. This concludes today’s teleconference. You may now disconnect.