EnPro Industries, Inc. (NPO) Q4 2020 Earnings Report, Transcript and Summary

Greetings. And welcome to the EnPro Industries Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. It’s now my pleasure to turn the call over to Jerry Johnson, Senior Vice President, Strategy, Corporate Development and Investor Relations. Please go ahead sir.

Thank you. Good morning, and welcome to EnPro's quarterly conference call. I’ll remind you that our call is also being webcast at enproindustries.com, where you will find the presentation that accompanies the call. With me today are Marvin Riley, our CEO; and Milt Childress, our CFO. We are holding our call virtually and are dialed in from different locations, so we ask for your understanding should we encounter any technical issues as we coordinate our responses during Q&A. Before we begin our discussion, a friendly reminder that we will be making statements on this call that are not historical facts and that are considered forward-looking in nature. These statements involve a number of risk and uncertainties, including impacts from the COVID-19 pandemic and related governmental responses and their impacts on the general economy, as well as other risks and uncertainties that are described in our filings with the SEC, including our most recent Form 10-K and Form 10-Q. We do not undertake to update any of these forward-looking statements. Also during the call, we will reference a number of non-GAAP financial measures. Tables reconciling these measures to comparable GAAP measures are included in the appendix to the presentation materials. I’ll also note that during this call we will be providing full year guidance which excludes changes in the number of shares outstanding, impacts from future acquisitions, dispositions and related transaction costs. Restructuring cost, incremental impacts of tariffs and trade tensions on market demand and cost subsequent to the end of the fourth quarter. The impact of foreign exchange rate changes subsequent to the end of the fourth quarter impacts from further spread of COVID-19 and environmental and litigation charges. I also want to remind you that as a result of the sale of Fairbanks Morse in January 2020, the former Power Systems segment is accounted for as discontinued operations in our financial statements for both the current year and prior year periods. Unless otherwise noted, all of our comments today will refer to continuing operations. Also, as of this fourth quarters financial results, the company is updating its reported adjusted EPS to exclude the after tax effect of acquisition related intangible amortization. The company believes reporting adjusted EPS in this manner better reflects the core operating results and offers a more meaningful measure for comparison against prior periods. A full reconciliation between GAAP and adjusted EPS is included in the appendix at the end of the accompanying presentation. As communicated in its February 4, 2021 press release, the company changed its segment reporting structure effective with the fourth quarter of 2020. Our new reporting segments are Sealing Technologies, Advanced Surface Technologies and Engineered Materials. Current and prior year quarters and full year financial metrics have been recast to reflect the new segment structure. Historical data for the new reporting structure is available at the investor relations section of EnPro’s company website. We are pleased to announce that EnPro is planning to host a virtual Investor Day on Thursday, May 27. Marvin Riley, President and Chief Executive Officer, Milt Childress Executive Vice President and Chief Financial Officer and other members of EnPro’s executive management team will provide an overview and update of the company's long term vision, growth strategy, business segments and operational and financial objectives. Registration information for this virtual event will be forthcoming. And we hope you will mark your calendars for what we believe would be an informative and exciting meeting on the direction of our company. And now I'll turn the call over to Marvin.

Thanks, Jerry. And good morning, everyone. Thank you for joining us today. I hope you and your families continue to remain safe and healthy. As vaccines become available, we're hopeful that the severe impacts of the global COVID-19 pandemic will begin to subside. Our organization continues to remain vigilant about enhancing safety protocols, updating operating processes, and adapting to new ways of working. Together, we are exemplifying EnPro’s core values of safety, excellence and respect for all people, while continuing to excel at delivering quality products and services to our customers. We have remained steadfast in our commitment to these core values, and to all of our team members which has been demonstrated through our public stance against discrimination and social injustice. Human Capital Management, including diversity and inclusion has enabled EnPro to achieve success. Over the last year, we have made progress in our commitment to our employees and society, including establishing our charitable foundation with an initial commitment of $1 million in support of education, equality, diversity, and the preservation of human dignity, as announced in our February 11 press release. Developing are working together from anywhere initiatives to enable our global workforce to collaborate in new ways, increasing the number of females and minorities on our senior leadership team to 35%, creating and filling a diversity and inclusion leadership position to further strengthen our commitment to equality for everyone and developing a platform for small groups to talk openly about biases, belief systems and the importance of valuing different perspectives. Moving on to our fourth quarter highlights, I'd like to discuss three key things reflected in our results. First, I am pleased to report better than expected fourth quarter results, despite the continued challenges created by the pandemic and further lockdown across much of Europe. Our fourth quarter adjusted EBITDA margin expanded 230 basis points 17.4% with adjusted EBITDA of $48.1 million, an increase of 11% year-over-year. The strong performance was the result of actions taken to reshape our portfolio, including the acquisition of Alluxa and several strategic divestitures as well as our quick and decisive cost mitigation initiatives in response to COVID. Second, we maintain a disciplined approach to capital allocation and a strong balance sheet as we drive long-term shareholder returns. With approximately $230 million of cash on the balance sheet at the end of the quarter, and untap revolver, and our relentless focus on cash generation, we're well positioned to consider additional bolt-on acquisition opportunities. And third, we have made significant progress over the last 18 months stabilizing our financial results and evolving our portfolio towards more profitable businesses and higher growth markets to improve cash flow return on investment. With the successful acquisitions of LeanTeq, the Aseptic Group, during 2019 and the most recent acquisition of Alluxa, we have a solid foundation for our organic and inorganic strategies to drive profitable growth. Turning to slide five, as we look back over the year, we have adjusted successfully to pandemic conditions, and are now in the final stage of our COVID pandemic response plan. As a consequence of the pandemic, we fundamentally changed several aspects of our business. We developed a number of enhanced safety practices during the pandemic that we will continue to use even after the pandemic has subsided; we have established appropriate inventories of PPE and a full loop system to test, trace and monitor employee health. We hold the safety of our team members to the highest standards, while they continue to deliver the exceptional level of service that EnPro customers expect. We are committed to maintaining the advantages of our working together from anywhere initiatives for salaried employees where it makes sense on a permanent basis. Our IT team has put new tools and cyber protocols in place to allow us to enhance connectivity, engage collaboratively, and work productively across our businesses and geographies. Our reimagined way of working has provided a new lens through which to think about how we can take advantage of the unique talents of colleagues across our global organization. The new way of working has allowed us to experiment and as a result has provided us with insight on how we might connect in a more meaningful way with our customers. Our supply chain team remains a notable strength, as we have had no significant supply chain disruptions during the pandemic. We fortified our supply base in 2020 by establishing strategic secondary sources for critical raw materials. We work with reliable suppliers in multiple geographic regions to mitigate a broad spectrum of risks and promote supply continuity. Our transportation agreements with multiple ocean over the road and small parcel carriers allow to work flexibility in how we optimize inbound and outbound movement of goods. Our nimble response to the COVID pandemic and robust cost mitigation initiatives together with our portfolio reshaping actions enabled our company to achieve last year-over-year adjusted EBITDA, despite a nearly 11% decline in sales during 2020. This represents an adjusted EBITDA margin expansion of 170 basis points for the full year, a tremendous feat for the input team and mid 2020 macroeconomic challenges. Our strategy has remained clear and consistent .We're focused on four areas first; reshaping our portfolio to accelerate growth in niche, high margin materials science related businesses with strong cash flow. Second, maintaining our high aftermarket exposure and increasing our exposure to faster growth businesses. Third, leveraging the EnPro capability center to increase margins and cash flow return on investment, and fourth, maximizing long term shareholder returns through a commitment to disciplined capital allocation. Through the capability center, we leverage continuous improvement methods across the company to improve productivity, efficiency, pricing and Salesforce effectiveness to drive increased margins and increased cash flow. Since its inception, the capability center has utilized industry best practices, and a collaborative approach to problem solving to drive improvement throughout our businesses. The capability center methods and tools are fully integrated in our company, serving both existing and newly acquired businesses and reaching from the C-suite all the way to the shop floor. We look forward to talking more about the capability Center at our upcoming investor day. We continued our actions to reshape our portfolio during the fourth quarter by closing the acquisition of Alluxa in late October, completing the sale of STEMCO’s Air Springs business in November and completing the sale of GGB’s bushing block business at the beginning of December. The Air Springs and bushing blocks divestiture will allow us to refocus their respective businesses on higher margin product lines. Specifically, the sale of STEMCO’s Air Springs business marks the completion of our efforts to reduce our heavy duty truck market exposure. Our remaining STEMCO heavy duty truck business will now be focused on high margin, wheel and ceiling systems and suspension components. With these actions, we anticipate our heavy-duty truck business annual sales will range from $125 million to $175 million, reducing the percentage of our total sales in trucking from the mid-20s to the mid-teens. On February 4th, we issued a press release announcing the re-segmentation of our business into three reporting segments. The re-segmentation aligns our technical and operational expertise, improves performance management decision making and enhances transparency for investors. Our new segments are; first, Sealing Technologies, which is comprised of Garlock, STEMCO and Technetics Sealing businesses. These businesses are focused on safeguarding critical environment. Second, Advanced Surface Technologies, which is composed of Alluxa and our semiconductor business including LeanTeq. These businesses are focused on advancing precision, services and solutions, and third, engineered materials, which is composed of GGB and CPI. These businesses are focused on enabling high performance polymer applications. Let me now highlight the success of our recent acquisitions. The three acquisitions made within the last year and a half are great examples of investments we're making to execute our profitable growth strategy. The Aseptic Group acquisition closed in July 2019, followed by LeanTeq which closed in September of that year and Alluxa which closed in October 2020. These acquisitions expand our reach into the attractive semiconductor aftermarket, pharmaceutical, biopharmaceutical, and life sciences industry. All these companies have strong competitive positions in high growth markets, excellent margins, robust cash flow, and serve markets with secular trends supporting long term growth. These acquisitions also align with our capabilities and growth strategies, due to their technical expertise, niche market leadership, mission critical applications and recurring revenue models. The Aseptic Group, which designs, manufactures and distributes Aseptic Fluid Transfer products to support manufacturing of next generation biopharmaceutical by the world's largest pharma companies has performed well since 2010 and has been integrated into the Sealing Technologies segments. During this integration, our growth initiative is focused on geographic and product range expansion. By leveraging our resources in the capability center, we move quickly to bring in talent, increase warehouse capacity, and implement new supply chain policies to improve response time to our customers. This resulted in a 30% increase in backlog mainly driven by an increased order flow from heightened demand for Sealing [ph] services. LeanTeq, which provides cleaning services for critical components used in leading edge semiconductor equipment, has been a very successful acquisition. Over the past year, the business has maintained its high profit margins, while increasing revenue approximately 40% driven by continued demand for advanced node semiconductor chips. To manage the tremendous growth we're experiencing, we are opening new capacity in a different facility in Taiwan that is specifically designed to increase our capabilities in five and three nanometre applications. We're also in the midst of increasing capacity utilization within LeanTeq’s Milpitas California facility to support next generation wafer fab equipment development. And finally, Alluxa, which provides precision optical, filters, and thin film coatings for the industrial technology, Life Sciences and semiconductor markets. While we're still in the early stages of integrating this business, its potential contribution is every bit as promising as LeanTeq's. Our integration approach is very balanced, focusing on utilizing the EnPro capability center, while being careful not to disrupt day-to-day business. Even in the early innings, the capability center has already identified ways to reduce logistics costs, and is currently working to enhance the quality system at Alluxa. Our goal is to allow the experience management teams to the successful businesses, the latitude to continue to run their operations effectively and efficiently, while providing them with info resources in the form of capital, talent, functional and organizational support. With Alluxa, we anticipate a strong first quarter, given their order intake momentum, and backlog heading into the year, which gives us great confidence in the initial stages of the acquisition. We have been very pleased with the overall performance of these acquisitions to date. And as we enter 2021 we're focused on capturing the full benefits of these acquisitions to drive further value creation for shareholders. Now, I will turn the call over to Mil for a deeper dive into financial results for the quarter Milton?

Thank you, Marvin and good morning everyone. In the fourth quarter, sales of $276 million decreased 3.7% year-over-year, reflecting weakness in oil and gas, general industrial and aerospace markets. This was offset in part by positive momentum in the semiconductor, food and pharma, automotive, power generation and heavy duty truck markets, as well as the contribution from the acquisition of Alluxa. While demand increased in the heavy duty truck market, revenues declined as a result of portfolio reshaping actions. Excluding the impact of foreign exchange translation, and sales from acquired and divested businesses, sales for the quarter declined 1.6% compared to the fourth quarter of 2019. As Marvin indicated, our fourth quarter performance was significantly better than our expectations at the time of last quarter’s conference call. On a sequential basis, sales in the fourth quarter increased 2.9% over the third quarter. End markets where we saw the greatest sequential sales improvement included general industrial, automotive power generation including pharma. Sequential sales also benefited from the Alluxa acquisition. Gross profit margin of 37.5% increased 330 basis points versus the prior year period, driven by the benefit of divesting low margin businesses, as well as initiatives supported by the EnPro capability center, including supply chain and other company wide cost reduction programs. Year-over-year improvement in gross profit margin was achieved despite a $3 million amortization of acquisition related inventory right up in the fourth quarter of 2020. Adjusted EBITDA of $48.1 million increased to 11.1% over the prior year period as a result of strategic acquisition and previously announced cost reductions taken across the company in response to COVID. Adjusted EBITDA margin of 17.4% increased approximately 230 basis points, compared to the fourth quarter of 2019. Corporate expenses for the quarter were $10.6 million, a decline of 2.8% compared to the prior year period. Adjusted income from continuing operations attributable to EnPro Industries was $25.4 million, an increase of 27% compared to the fourth quarter of 2019. Adjusted diluted earnings per share of $1 24 increased 27.8% compared to the prior year period. As noted in our earnings release, and mentioned by Jerry, commencing with the fourth quarter of 2020, we are changing adjusted EPS from the previous presentation of this non-GAAP measure, to one that excludes after tax acquisition related intangible amortization. We believe presenting adjusted EPS in this manner better reflects core operating results and offers a more meaningful measure for comparison against prior periods. Amortization of acquisition related intangible assets in the fourth quarter was $10.9 million, compared to $11.1 million in the prior year period. We've also updated our estimated normalized tax rate used in determining adjusted net income and adjusted earnings per share to 30% from the previously used normalized rate of 33%. This update is driven largely by our portfolio reshaping those that have resulted in a greater percentage of earnings and lower tax rate jurisdictions, such as the U.S. and Taiwan. In the fourth quarter, we recognize environmental charges of $22 million, which led to our GAAP net loss in the fourth quarter. These charges were principally for reserved increases associated with estimated remediation costs for two legacy environmental matters, where we did not have sufficient information to estimate certain remediation costs until the fourth quarter. The responsibility for these matters was contributed to EnPro at the time of the 2002 spinoff from Goodrich Corporation. One of these matters involves the eight uranium mines in Arizona operated by corporate processor in the 1950s that had been closed for decades. The second matter involves the clean-up underneath the plant at the Water Valley Mississippi site owned by a third party, which is incremental to the remediation work at other areas at Water Valley on-going for some time. We booked reserves to reflect our baseline estimate of the remediation costs for the sites. based on information on potential remediation plans that developed in the quarter. We separately recorded an asset of $3.8 million related to an expected recovery from the U.S. government associated with the uranium mine remediation, which is included in other non-current assets. We now have established baseline reserves for all sites where we had known environmental remediation obligations. Adjustments to these reserves may be required in the future as remediation plans further develop or to reflect changes in estimated costs to implement these plans. We are not aware of any need to make any such adjustments at this time. Cash outlays for all environmental matters were $33.8 million in 2020. For 2021, we expect the environmental cash payments to decline to approximately $13 million. Beyond 2021, we anticipate annual cash payments for the next four to five years to decline to low single digits, reflecting the significant progress we have made over the past two years in addressing and resolving our most significant legacy environmental liabilities. Let's take a look at Segment Performance. Sealing Technologies, which includes Garlock, STEMCO and Technetics Sealing business has sales of $154.7 million in the fourth quarter. The year-over-year decline of 11.3% was due to softer demand and general industrial and aerospace markets, offset in part by stronger performance in food and pharma and heavy-duty truck markets. The sales decline was impacted meaningfully by the divestiture of STEMCO’s Air Springs manufacturing business in late November and the sale of STEMCO’s Motor Wheel Crewson businesses during the third quarter. Excluding the impact of foreign exchange translation and sales from acquired and divested businesses, sales decreased 2.9% versus the prior-year period. On a sequential basis, sales in the fourth quarter decreased 2% and excluding portfolio reshaping activities, sales growth would have been in the high single digits. For the fourth quarter, adjusted segment EBITDA increased 5.4% to $34.9 million despite the decline in sales, and adjusted segment EBITDA margin expanded 360 basis points to 22.6%. Improved margin was driven primarily by production and operational cost reduction initiatives, and about portfolio reshaping in the segment. Excluding the impact of foreign exchange translation, acquisitions and divestitures, adjusted segment EBITDA increased 10.6% compared to the prior year period. Turning now to Advanced Surface Technologies, which includes Alluxa and our semiconductor business. Fourth quarter sales of $49.9 million increased 27.3% driven primarily by the acquisition of Alluxa and continued strength and the balance of the segment. LeanTeq is showing strength as the five nanometre platform is ramping quickly. And we are responding to demand with agility by expanding our capacity in both Taiwan and the U.S. And in addition, demand for Alluxa’s products remain remains robust with strong performance across its end markets, and solid order intake and backlog heading into 2021. Excluding the impact of foreign exchange, translation and sales from acquired businesses, sales increased 10.7% versus the prior year period. On a sequential basis, fourth quarter sales increased by approximately 12% from the third quarter driven by the acquisition of Alluxa at the end of October. For the fourth quarter, adjusted segment, EBITDA increased 57.1% to $15.4 million and adjusted segment EBITDA margin expanded 590 basis points to 30.9% driven primarily by the Alluxa acquisition and growth in the balance of the segment. Excluding the impact of acquisitions, divestitures, and foreign exchange translation, adjusted segment EBITDA increased 10.2% compared to the prior year period. In Engineered Materials, which consists of GGB and CPI, fourth quarter sales of $73.6 million decreased 2.5% compared to the prior year, primarily due to weakness in oil and gas and general industrial petrochemical markets, partially offset by strength in the automotive and power generation markets. Excluding the impact of foreign exchange translation, sales for the quarter decreased to 5.6%. Sequentially, sales increased approximately 9% as we saw demand rebound in automotive and general industrial markets. For the fourth quarter, adjusted segment EBITDA decreased 2.6% and adjusted segment EBITDA margin of 15.5% was flat versus the prior year period. This was driven primarily by sales declines, partially offset by cost reduction initiatives that include the decreases in headcount and discretionary spending. Excluding the impact of foreign exchange translation, adjusted segment EBITDA decreased 7.7% compared to the prior year period. Now, let's turn to our financial position. Our balance sheet remained strong. We ended the quarter with cash of $230 million and had full availability of our $400 million revolver, plus $11 million in outstanding letters of credit. At the end of December, our net-debt-to adjusted EBITDA ratio was approximately 1.6 times. During the fourth quarter, we financed the Alluxa acquisition through a combination of $238 million of cash and rollover equity from Alluxa executives equating to 7% of the acquisition price. When taking this transaction into account, as well as divestitures and exits since December 31, 2019 our pro forma and net debt to adjusted EBITDA leverage ratio would be comparable to the year and reported level. Other than nominal amortization of our term loan, we have no debt coming due until 2024 subject to applicable reinvestment requirements related to the Fairbanks Morse and other divestitures. We have largely met these requirements as a result of the Alluxa acquisition. And in January, we obtained an amendment to waive that requirement under our credit facility. For our senior notes we have until April 25 to satisfy any remaining outstanding reinvestment requirements, which can be satisfied if needed by paying down a portion of the term loan under the credit facility. 2020 free cash flow of $39.3 million was down from $109.2 million in the prior year, primarily driven by higher 2020 payments related to environmental settlements, and a third quarter legal settlement, both of which we discussed on our third quarter earnings call, as well as significantly higher year-over-year tax payments, resulting largely from the gain on the sale of Fairbanks Morse. Excluding environmental and legal settlements, as well as tax payments in both years, free cash flow increased to 12% from the prior year. During the fourth quarter, we paid a $0.26 per share quarterly dividend totaling $5.5 million. Last week, our board of directors approved a 4% increase in the quarterly dividend from $0.26 per share to $0.27 per share. We continue to prioritize investments in organic and inorganic growth and have not made any repurchases under the two years share repurchase authorization announced last quarter. Under this authorization, we may repurchase up to $50 million in shares, providing us with the flexibility to return capital to shareholders subject to balance sheet in gross investment considerations. Now I want to provide a high level look at the impact of our portfolio, reshaping on sales, adjusted EBITDA, and adjusted EBITDA margins. Slide 14 provides results for 2020 as if acquisitions and divestitures completed in 2020 had closed effective January 1, 2020. As shown on the slide, on a full year basis, our 2020 pro forma sales are $983 million, or 8.5% lower than reported sales. 2020 pro forma adjusted EBITDA is $167.5 million, or relatively flat with reported adjusted EBITDA, resulting in a net adjusted EBITDA margin increase of approximately 130 basis points to 17%. This information shows the trailing effect of portfolio changes, and we expect our strategic actions to enhance sales growth and margin improvement in the years ahead. Moving now to 2021 guidance, taking into consideration all the factors that we know at this moment, including the on-going global economic recovery from the COVID pandemic, we expect 2021 adjusted EBITDA to be in the range of $178 million to $188 million on sales growth of 6% to 10% over 2020 performance sales of $983 million. We expect adjusted diluted earnings per share from continuing operations to be in the range of $4.32 to $4.66. The table and the earnings call presentation provides additional assumptions to help bridge from adjusted EBITDA to adjusted EPS. We currently anticipate slightly less than half of our full year adjusted EBITDA and adjusted EPS guidance to be realized in the first half of 2021 with acceleration as the first half progresses. Now I'll turn the call back to Marvin for closing comments.

Thanks, Mil. I'm extremely proud of the progress you've made during 2020 in transforming and grow into a leading industrial technology company, using material science to push boundaries in semiconductor, Life Sciences and other technology enabled sectors. Our strategic achievements during 2020 has built a solid foundation for profitable growth in 2021 and beyond. Our teams have adapted remarkably well during the COVID-19 pandemic and we're now positioned to capture growth as our markets recover. Our current order trends are strong to pass in what we saw in January 2019. We're encouraged by what we're seeing and hearing from our customers, particularly in the semiconductor heavy duty trucks and automotive markets. We're expecting year-over-year improvement in most of the markets and geographies we serve. We continue to focus on driving operational excellence by leveraging the EnPro capability center to reduce costs, improve productivity, and maintain high quality control across all our businesses, including those recently acquired. EnPro’s success will be determined by our adherence and commitment to our profitable growth strategy, our experienced leadership team, our increasingly diverse and dedicated workforce, our strong financial position, and our focus on driving long term shareholder value. And before we open the line for questions, I'd like to share that both Technetics and GGB supplied parts used in the Mars landing of the Perseverance rover last Thursday. GGB provided metal polymer bushings in the suspension components for drill spindle, attached to a robotic arm that drills and breaks rocks to collect samples for analysis. Technetics provided Edge-welded metal bellows that are a part of the sample collection system and function as vacuum and ducting for this system to support the goal of returning the cleanest sample possible from Mars. We are happy and proud to be suppliers to such a historic mission. Thank you again for joining us on the call today. Let's open the line for questions.

[Operator Instructions] Our first question today is coming from Jeff Hammond from KeyBanc Capital Markets. Your line is now live.

Hey good morning guys. How are you?

Good morning, Jeff.

Good morning, Jeff.

So just I know a lot of moving pieces. But I think Mil you mentioned this 6% to 10% growth from a pro forma standpoint? Is that kind of the way to think about core sales? Or can you can you give us kind of a core sales range? Kind of adjusting for Alluxa coming in and some of the businesses coming out and any FX in there?

Yes, that's a that's a good question, Jeff especially given all the changes that we had in our in our business over the past year. The best way to look at us for the baseline going into 2021 is exactly what you pointed to. And that was the pro forma information that are provided. And you see a slide summarizing that in the presentation that accompanies this call. And so that that will give you a pretty good idea. So we're going into 2021 on a pro forma basis, because this assumes that the Alluxa acquisition happened at the first of 2020, as well as the divestitures and heavy-duty truck that move in and do some GGB that all those things happened at the first of 2020. That was the purpose of putting the pro forma together. So you see what that shows in terms of the sales change versus reported the margin change versus reported? And I think that addresses your question, but anything else, please jump back in?

And as you look at the three segments, do you think the growth rates within each of those on an organic basis, are going to be similar? Or is there outsize growth? Because I know certainly, AST is kind of a long term higher grower, but certainly you got some cyclical juice and the other two.

Yes. And that's another good question. And Marvin, if you want to have a little bit of color, that might help you a little bit. Think about it in terms of pro forma. And then Marvin if you want to comment on growth rates, because there certainly are some differences among segments when it comes to growth. But with if you look at it ceiling, and you break down the 8.5% delta between reported and pro forma sales in total. You don't find most of that declines and Sealing obviously, because that's where we had a good bit of our divestiture activity on the heavy duty truck side, it's all in that segment. And so on a pro forma basis versus reported Sealing would be down about 17% as a result of those moves. Advanced Surface Technologies, would be up about 16% on a pro forma basis versus actual and engineered relatively flat down, a few percentage points. Dues was a fairly small business, but call it down 4% or so. And then on the margin front on a pro forma basis and Sealing, as a result of the moves, we had an expansion of around 150 basis points and margin, once again reported versus pro forma Advanced Sealing, Advance Surface Technologies, nice expansion reported versus pro forma of 250 basis points or so, and then engineering materials, a small a small increase, because the dues operation was operating essentially, at a slight loss at the EBITDA level. So, less than 100 basis points, improvement in engineered materials recorded versus pro forma. And Marvin, if you want to feel the…

Yes, in terms of growth rate, Jeff, I think the best way to think about it is, Sealing has a lot of our legacy businesses that that are really strong, resilient businesses that, are GDP plus kind of businesses, we might see a little bit more growth this year, just because of the kind of year that we're coming out of, industrial production for this year is, roughly 4.5%. And so that, a lot of the businesses there is industrial production, and then you've got, heavy duty truck, which you might have some outsize growth this year, just because of what's happening in the market is a rebound there, if you look at FDR, truck builds or trailer builds are going to be up over 30% ton of miles are going to be up over 5%. So it might be a little bit more growth, in STEMCO this year, and then we would typically see. So that gives you a little bit of color on what's going on in Sealing and then you know, AST our new segment that's a double digit grower just because of what's in there and the markets that they serve. So that's, that's what you should anticipate there. And then, in Engineered, I think you've got another unique situation going into 2021 where we should, experience a rebound, in automotive. If you look at automotive from a, like vehicle production perspective on a global basis, that's up around 14%, sort of an aggregate, so we'll see a little bit more lift this year than we typically see. But, our other business and engineered is CPT [ph]. And that's impacted on the downside by the oil and gas. So, it's hard to give you exact numbers, right. We’ve given you a good full year forecast, but we were going to see some strength in some pockets that, depending on our ability to meet demand, and the resiliency of the demand that we're seeing, we could have some stronger growth areas than normal, particularly heavy-duty truck, semiconductor and automotive.

Okay and then just last one, so your pro forma EBITDA margin for in your slide at 17%. I think the guidance is just above that, like low 17s. I guess on kind of robust growth, I would have thought, the incremental margins would have would have given them a bigger lift, then kind of flattish or slightly up EBITDA margins.

Yes, that's, Jeff, it's a good observation. If we, if we do get robust sales, we're, we're expecting to, be able to at least perform at the same level as we had on a pro forma basis. Once again, pro forma, it's still a nice increase year-over-year. Part of what we have is, we're, we're planning on some of the costs that we took out, and we talked about this earlier, in the year or, or, or last year on previous calls, some of the costs that that we took out in 2020, as a result of COVID coming back into our system. And so that's part of part of the reason, as you've observed, and our guidance, we're not showing more margin expansion initially.

[Indiscernible] capacity of coming back?

We estimate that that we were able to take out roughly 30 million as a result of the initiatives that we put in place last year. And I would say that, that those plans were put in place to have a middle of middle of the second quarter last year, and we estimate about $15 million would be coming back. So 15 will be able to hold on to 15 coming back. And then obviously we have year-over-year cost increases that, we're managing that are offset against permanent reductions.

Okay, very helpful. Thanks, guys.

[Operator Instructions] Our next question today is coming from Justin Bergner from G. Research. Your line is now live.

Good morning, Marvin, good morning Mil, good morning Jerry.

Good morning, Justin, how are you doing?

Going into 2020, just had one quick follow up question on this sort of growth guys, or I guess, two sort of follow up questions there. What currency tailwind are you assuming in the revenue guide? And outside of the sort of faster growth and Advanced Surface Technologies that you described, versus the business as a whole, are there any other material mix issues affecting sort of the margin outlook, as you look into 2021, the rest of 2021?

Hey, Justin, this is Mil. Let me take the first question. On currency, when we provide guidance or outlook, and this, this is true throughout the year, we're always doing it with the perspective of, of where we are currently at the time. And so, if you look at our biggest currency exposure, it would be the euro. And I think it was $1.20, $21 or so at the end of the year, it stayed at about that level since the end of the year. And so, our guidance is, is based on right, so we're not we don't we don't project, what might happen to currency. So, yes, the currency, moves it could be at the dollar continues to weaken, or if it reverses and strengthens, that'll have some impact on our guidance, and we'll comment on that as the year progresses. Marvin, do you want to take the second question on cost?

Yes, I’ll add a little color on the sort of mix piece and the cost piece. So Justin, as you know, we've been through a couple of these downturns before and have some history in terms of what typically happens, right. So coming out of these downturns we typically get, nice, really nice rebounds in all the end markets that we serve. We're seeing that today, minus aerospace in oil and gas, everything else is really rock solid. But we also see commodity prices start to take off as well. Right. So on the cost side, what we're managing right now is increases in steel pricing increases in bronze pricing; we're pretty well positioned with PTFE, which is the largest commodity that we've purchased. But, some of the mix issues that we'll see this year that impacts our cost basis is we do have, strong recover in automotive but, we also have steel and bronze powder increases that will impact our automotive businesses a little bit, as well as the STEMCO business. So we're, we're real thoughtful, in how we thought about the full year taking those things into consideration. Obviously, we price and price aggressively, we put some good processes in place during the downturn, to really link the supply chain group commercial group a little bit tighter, so that we can pass on price increases immediately as you start to see them and we've already started that process. But I think it's mindful, we're mindful that, we have to manage a sort of an increasing cost exposure, particularly with our commodities.

Great, thanks. That's helpful. Maybe with respect to just the portfolio reshaping I guess, your comments on the call, use the words for bolt-on’s describe your current M&A focus, the press release, just sort of spoke to [Indiscernible] inorganic growth, as we look forward from the recent, more material sized acquisitions that sort of add new legs to the business. Are you thinking of additional edge to business? Or are we sort of more bolting on to the new platforms that EnPro has added over the last two years?

That's a great, that's a really, really good question. Let me let me just take a step back, and just maybe give you a sense of you know how we think about M&A. And I think that might give you a little bit of color. But I'll start first and foremost with, what, what is what is a good fit look like for us, particularly as we think about material science. So, in its most simplistic way, we think about it, from the perspective of is the business we're looking at, does it fall into material science umbrella? Meaning does is there some kind of a substrate that you place a performance material on top of that enhances that solutions performance in a specific application, right. So whether it's a bearing where you have steel, and you layer on PTFE, or whether it's Alluxa where you have maybe a glass substrate, and you layer on some deposition material, so that you can perform better as a filter at the end of the day, that's kind of the lens that we look at it with, right? Are we putting a performance material on top of a substrate? Right. Then it's, then it's a question of, do we have the capabilities in house to enhance what that business is doing? Whether it be whether it's, from the perspective of the customer, whether it's from the perspective of from an operations perspective, and whether it's supply chain, etcetera, etcetera. We look at the customer buying patterns, do they care about technical specifications and lead time more than they care about cost? Those are the kinds of things that we look at. The science itself is a little bit more agnostic, because we think we have deep expertise within our businesses. So as we added Alluxa, for us, it's, it's really, building on skill sets and capabilities that we have in the business. So we added LeanTeq, we're building on skillsets, and capabilities that we have in the business. As we look at other acquisitions, we'd be looking at it through the same lines. So can we build on skillsets and capabilities that we have in the business is someone taking a substrate, adding some kind of performance material using some, deposition process that we know really, really well, that we can add on to the business. That's how we look at it, it keeps the aperture wide enough. But it keeps us focused enough around where we have the skillsets and capabilities to participate, right? We are like a strong management team; we like to attract the segments with strong growth. We want a strong competitive position; we want robust IP and trade secrets, right? Those are the kinds of things that we think about. So any acquisition we look at will be looked at, through that lens. And so, as we think about businesses in the future, as long as it fits those criteria, we would, we would be very, very interested. And obviously, if it's something that enhances something that we've already acquired, we'd be super, super excited about that. If we found a business that, supercharged what Alluxa is doing, we would be excited to supercharge what LeanTeq is doing. It would be exciting, if supercharged, what we're doing and Sealing Technologies, we'd be excited. Right. So that's, that's how we think about it. And I hope that's helpful.

Yes, that is very helpful. So I guess the distinction is not so much, as you said, around bolt-on versus larger, it's around the material science and performance. Okay, that's helpful. And then just lastly, I guess a lot of moving parts on the environmental and legal liabilities. I imagine the 10-K will have the specifics. That means should I think of the remaining sort of unpaid environmental liabilities to sort of be that, around 30 million thinking about that, $13 million in 2021, plus a few million, going out over the following five years, and what remains sort of on the legal side beyond, the environmental claims.

Yes, Justin, we will have a lot of disclosure in the K. So, yes, you're right, you can you can look at, at the details that we provide. They're essentially what we tried to provide or what I tried to provide on the call was just a indication of what to expect from, from like, our cash outlay over the next few years, because we've had some pretty large reserve increases this year, we had had some settlements. They were pretty big dollars, relatively speaking in 2020. But it's all in an effort to bring these larger legacy environmental matters to completion. And as you know, liabilities of this type have really long, long tails. And so the good news is after a pretty significant cash outlay year in 2020, partly because of settling some third party claims, and partly because of remediation, we're expecting that number to step down significantly, the cash payments significantly in 2021. And then to tail off, significantly after that for several years. Now, some of the, the effect of the reserves that we took for the uranium mines, for example, the actual remediation of that, could be out a number of years. And so we don't think, over the next four or five years, that the cash outlays are going to be significant. And then we just have to deal with what the final solution is. We provided the estimate in the reserves to the best of our ability. And as you know for open ended matters like this, we have estimates when we have a low end of the estimate. And it's, it's, it's no better than any other estimate in a range. That's what we accrue for. So it gives you a little bit of color, but you can expect the cash that goes out over the next few years to decline fairly dramatically from what we saw in 2020.

Okay, great. Thank you for taking my questions.

Thank you.

Thank you. We reached the end of our question-and-answer session. So I’ll turn the floor back over for any further or closing comments.

So say thank you, Kevin. And thank you all for joining us this morning. And have a great day.

Thank you, Jerry. Thank you all. That does conclude the teleconference. And you may disconnect your line at this time and have a wonderful day. We thank you for your participation today.