Greetings, and welcome to the TriMas Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Sherry Lauderback, Vice President of Investor Relations. Thank you. You may begin.

Thank you, and welcome to TriMas Corporation's second quarter 2024 earnings call. Participating on the call today are Thomas Amato, TriMas' President and CEO; and Scott Mell, our Chief Financial Officer. We will provide our prepared remarks on our second quarter results and outlook, and then we will open up the call for questions. In order to assist with the review of our results, we have included today's press release and presentation on our company website at trimas.com, under the Investors section. In addition, a replay of this call will be available later today by calling 877-660-6853 with a meeting ID of 13747794. Before we get started, I would like to remind everyone that our comments today 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 Form 10-Q to be filed later 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 or our presentation for the reconciliations between GAAP and non-GAAP financial measures used during this 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 will turn the call over to Tom Amato, TriMas' President and CEO. Tom?

Thank you, Sherry. Good morning, and thank you for joining us on our second quarter earnings call. Let's turn to Slide 3. As I'm certain you have seen from our earnings release this morning, while the resiliency of TriMas's Packaging and Aerospace businesses have become more evident, our businesses within the Specialty Products industrial markets have not yet seen the demand recovery we anticipated would have occurred by this point in the year. However, as we reflect on the quarter and the first half of the year, we experienced a number of positive developments which we believe will translate into long-term opportunities for value creation, despite encountering some discrete challenges. I'll provide one example from our largest group, TriMas Packaging. When demand pulled back last year, we were tempted to deeply cut costs. While we flexed some variable costs, we instead leaned into reengineering our commercial approach to drive long-term growth. We invested in a new customer relationship management application and we also invested in reorganizing our commercial model, replicating an 80-20 approach. Although these initiatives are still in the early stages of integration, we believe these internal changes, coupled with a natural market recovery, are now contributing to the strong core growth rates we are experiencing in our Packaging group today. Given the foundational growth in revenue, I remain very excited about TriMas Packaging's potential and I'm confident we will improve upon conversion rates as we move forward. Next, I would like to provide an example for our TriMas Aerospace group. When I compare the second quarter of last year to this most recent quarter, the dynamics couldn't be more different. In the second quarter of last year, we faced a snapback of demand from our aerospace customers, compounded by supply and labor constraints, as well as several voluntary…

Thanks, Tom. Let's turn to Slide 6, and I will begin my review of our segment results starting with TriMas Packaging. Net sales in the quarter were $132 million as compared to $117 million for the prior-year quarter, an increase of more than 12%. This year-over-year increase was primarily driven by organic growth for our dispensing and closure products, which served the beauty and personal care and industrial end markets, which increased on an organic basis 24% and 19%, respectively. It is great to see demand recovery in these important end markets. On a sequential quarter-over-quarter basis, net sales increased by approximately 4%. Operating profit for the quarter was $18.5 million, or 14% of sales, which on a margin basis is essentially flat versus Q1 of 2024, but down 470 basis points versus the prior-year period. This year-over-year decline is primarily related to period-specific operating costs associated with increased demand for certain dispensing products, IT allocation costs of $1.1 million, which were accounted for within corporate costs in the prior-year period, and a $2.6 million commercial settlement in Q2 of 2023 which did not repeat. Considering the impact of these items, pro-forma Q2 adjusted operating profit would have been flat when compared to the prior-year period at approximately 15.5%. Adjusted EBITDA was $26.7 million, or 20.2% of net sales, a nominal increase of $500,000 when compared to Q1 of 2024. We remain very pleased with the sales momentum, within TriMas Packaging with year-to-date organic sales up close to 10% and expect our conversion rates to improve as we move through the second half of 2024 as we work through operational pinch points created by significantly higher customer orders. Accordingly, we are increasing our full year sales guidance for TriMas Packaging to 9% to 10% and tightening our full year guidance…

Thank you, Scott. Let's turn to Slide 9. Given the results in the second quarter and modified expectations related to our Specialty Products segments for the second half, we are revising our sales and EPS outlook for 2024. We now expect sales to be in the 4% to 6% range, with the center point slightly lower than originally planned. We are also revising our EPS range $1.70 to $1.90 as compared to $1.95 to $2.15 as we anticipated to begin the year. If we turn our attention to the summary bridge on the right of Slide 9, you can see the discrete drivers of the change in our outlook. We do not show TriMas Packaging on this bridge because we continue to estimate that this group will remain within our internal planning ranges for the year. With respect to TriMas Aerospace, this group is currently trending above our internal planning ranges for the year and we continue to anticipate it will remain on track for the second half. While we now believe higher interest rates will be an undercurrent to our EPS forecast for the year, the main driver to our revised outlook is a different demand and recovery profile for our Specialty Products businesses than we anticipated for 2024. Before moving to Q&A, I'll conclude our prepared remarks by refreshing the near- and long-term value-creating opportunity set for TriMas. First, our two largest operating groups, TriMas Packaging and TriMas Aerospace, which together represent nearly 85% of our LTM sales, are at different stages of performance recovery after a very challenged 2023. We anticipate that the positive momentum of these high-quality business lines will carry into 2025 and well beyond. Next, while our Specialty Products businesses have experienced significant challenges in this period, we have already completed many actions that are not yet financially benefiting the group, but which we expect to do so as we move through 2024 and into 2025. Moreover, as we expect to experience demand reversion, when it occurs we should convert well in our Specialty Products businesses. Finally, we continue to take steps to focus and improve our portfolio of businesses. We have already announced the planned divestiture of our Arrow Engine business, which would facilitate TriMas' exit of our presence in the oil and gas end market. We also place a priority on building out our TriMas Packaging platform through M&A with a focus on the life sciences, beauty, and food and beverage end markets, and secondarily building out our TriMas Aerospace platform through strategic acquisitions to enhance its long-term value. I would like to again thank our investors for their continued interest and support, and will now turn the call back to Sherry. Sherry?

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

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Ken Newman with KeyBanc Capital Markets. Please proceed with your question.

Hey, good morning, guys.

Good morning, Ken.

Good morning. So maybe just to start off, I mean, I think one of your investors has been a bit more vocal about trying to advocate for portfolio changes to improve the performance of the overall company. Obviously, the performance at Specialty this quarter was disappointing, but I'm curious if that performance this quarter has changed your way of thinking around what the ultimate portfolio could look like longer term.

Well, thank you for the question. We are very well aware of public statements made by Barrington and their investment in the company and certainly, we appreciate all constructive feedback from all of our investors. I wouldn't say it necessarily changed our thinking strategically related to this quarter specifically. What occurred this quarter has changed our actions and some of the focus that we placed within our Specialty Products businesses. But if you think about Specialty Products generally today one of the businesses in that group is already being marketed for sale and we're working through that process and that'll be one step in focusing our portfolio. But at this moment, our sort of what's moved up in terms of the priority list operationally is ensuring we turn around our Norris Cylinder business, which as I mentioned, we know at this base rate of sales we can perform much better.

Right. Just, I guess, as a clarification question, I think a quarter or two quarters ago you had mentioned this expectation to fold in Norris into the Packaging segment. Is that still your intention, or is that no longer the case, given how dilutive it would be?

Yeah, I would say that's on hold given the developments of Norris Cylinder this quarter.

Yeah. Okay. And then, for my follow-up here, just on Norris Cylinder, I understand the visibility is limited, but I'm just curious what your customers are saying from an inventory perspective. Where are days inventory? And just how do you view the visibility within that channel and get comfortable with the recovery in that market?

Yeah, it's a good question. It's obviously one we've spending a lot of time on certainly over the past several weeks. And it's -- although we've experienced this in each of our businesses, right, over the course of the past few years, we believe what's occurred at Norris is a little bit more unique. And when we look at our largest set of customers, some have clearly in overstocked position and some of that related to -- much of that related to buying patterns in 2023, when there was -- it was very difficult to get material and any steel goods, and we saw this in our Aerospace business as well. We were the ones that were securing all the raw material we could. Another larger customer of ours is in a channel where it's government-related, and the spending allocation, we think is delayed, possibly because of the election, possibly because of other factors. We still think the demand will be there, but we don't expect that demand probably to start to occur until later in the year and into next year. But we do expect that demand to revert. And then, another large customer of ours certainly has been shopping for different price point products, and while they may not be in the complete overstock position, we're working to get more share of that customer back. But it's a long-term customer, and what tends to happen in our Norris Cylinder business is share movement from time to time based on market pricing. It's a little bit like something you might see with chemical companies.

Understood. If you don't mind, maybe I could just squeeze one last one in here on Packaging.

Yes, please.

Obviously, the growth in the order rates sounds pretty positive here. Maybe if you could just help us think about, you've got a tough comp this next quarter and then maybe a seasonally easier quarter in the fourth quarter. Just help us think about the cadence there? And then longer term, how do you think about the longer-term EBIT margin potential for that segment, given all the moving pieces?

Well, I'm going to take -- I'll take the second part of that question and then Scott will look at the quarterly comps and jump in. We know we are not performing at the rate -- conversion rate that is our true potential. And we know the reasons why. Interestingly, what we saw in aerospace across the board, we do have some of those hotspots within our Packaging business. Specifically, there are some products that we're supplying where very important customers are pulling above our capacity rates. And when that happens, you run overtime, you have expedited freight. There's a lot of off-standard costs that are impacting your business. Now, we saw this coming. We have capacity that is coming online towards the end of the year, and that will relieve some of that pressure, probably all of that pressure, and allow us to improve our performance as we move into 2025 and beyond. But when I look at the business and I look at sort of the profile and the full opportunity set, I mean, we're at least in the nearer term, sort of into 2025, we're at least 200 bps below where our potential should be in the nearer term. Scott, I'll let you answer some quarterly questions if you want.

Yeah, Ken, hi. Was that question on Aerospace or Packaging? I was...

Packaging.

Packaging.

Packaging.

Yeah. Look, I think we expect to see similar quarterly year-over-year growth for the second half of the year. I mean, if you look at the guidance for the full year, you can kind of back into what we're anticipating for the second half of the year. It's going to be in that same range, around 10% year-over-year sales growth is what we're anticipating for the second half of the year.

Yeah, that's helpful. I appreciate it.

Okay. Thank you, Ken.

Our next question comes from Hamed Khorsand with BWS Financial. Please proceed with your question.

Hi, good morning. So, the first question I have was related to Packaging. You guys last year emphasized capacity being taken off. Now you're saying that you're hitting capacity bottlenecks and issues. So, why did that happen? What's different from that -- what you did last year to what's being ordered this year? And why are you now talking about bringing on capacity? It just seems like everything's going around.

Yeah, Hamed, that's a good question. It's a fair question. We did not take capacity out last year. We repositioned capacity. So specifically, what you're referring to is operational changes we made in a very low-demand market to reposition physical assets into -- in a more concentrated location for our caps and closure product line. So that's a very different product line where we're experiencing pinch points today, which were -- which are predominantly in our dispenser product line. So, these are different movements of capacity for different product lines. So, what's affecting us this quarter, which is in a strange way high-class problem, because we have -- we've experienced most of 2023, a significant reduction in demand in our dispenser product line, predominantly related to overstocked positions and now that demand is coming back in a robust way, and that's where we have pinch points. But what we referred to last year related to movement of assets, and we closed a plant in California and moved those assets into the Midwest on a closure product line. So, very different products.

That's helpful. And then, as far as the guidance is concerned for Packaging and lining it up with what's been reported and what you're saying, it seems like second half revenue or sales would be down modestly versus first half sales. And I'm just trying to understand what the seasonality is. Again, what -- why doesn't that coordinate with the commentary that business is doing well in Packaging?

Yeah, I think that's primarily related just naturally to the cyclicality of our business, specifically as it relates to the fourth quarter of the year. We tend to see a bit lower order pattern as we get toward the holiday season. But back to my point to Ken, we still expect the second half of the year on a year-over-year basis to be up relative to the prior year. So nothing surprising there other than just the natural order pattern cyclicality of our business.

Got it. And my last question is on Aerospace. What's your exposure, if anything, to what's going on with Boeing and Airbus, and anything about inventory and production lines being delayed?

Okay. Well, look, both Boeing and Airbus are collectively very important and large customers, both directly through distribution and through Tier 1s. So, naturally, we're tied very much to their success. What I would say about some of the announcements related to this year specifically, we don't expect that to have much of an impact on us because we're already booked into next year, and we have a backlog we're still working through. So, we're -- what's on our build schedule is it's very likely to change at all as we line up our production planning for the balance of the year.

Great. I appreciate it. Thank you.

Thank you, Hamed.

It appears there are no further questions at this time. I would now like to turn the floor back over to management for closing comments.

Okay, operator, is it turn back to us?

Yes, it appears that there are no further questions at this time.

Okay, great. Thank you for joining us on our earnings call. We look forward to updating you again next quarter.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.