Good day, and welcome to the TriMas Second Quarter 2019 Earnings Conference Call. Today's conference is being recorded. And at this time, I would now like to turn the conference over to Ms. Sherry Lauderback. Please go ahead, ma'am.

Thank you, and welcome to the TriMas Corporation's Second Quarter 2019 Earnings Call. Participating on the call today are Tom Amato, TriMas' President and CEO; and Bob Zalupski, our Chief Financial Officer. After our prepared remarks on our second quarter results, we'll open the call up for your questions. In order to assist with the review of our results, we've included the press release and PowerPoint presentation on our company website, www.trimascorp.com, 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 5451030. 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 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. I would also like to refer you to the appendix in our press release issued this morning or included as part of this presentation, which is available on our website 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. At this point, I would like to turn the call over to Tom Amato, TriMas' President and CEO. Tom?

Good morning, and thank you for joining us on our second quarter earnings call. If we turn to Slide 3, as a brief reminder, TriMas operates businesses with strong brand names in the specific end markets we serve. On an LTM basis, we achieved $896 million in net sales, a 19% EBITDA margin, and we are capitalized, with a strong balance sheet and with leverage, nicely below our overarching target of under 2x. We operate our businesses in 3 segments: Packaging, Aerospace and Specialty Products. And we seek to provide solutions to our customers in the health, beauty and home care, food and beverage, Aerospace, general industrial, petrochemical and oil and gas end markets. While in any period, we may experience cyclical effects in any of our end markets, by design, our end market diversity, coupled with our sound capital structure, provides the platform for TriMas to generate reliable cash flows, which we in turn reallocate in a disciplined way for our investors. For example, in this quarter, we closed on the transaction of Taplast, a dispenser and closure company, with a strong brand name, particularly in Europe. We have known this company for many years, and we're pleased to add Taplast to our Packaging group. In addition to broadening our offering of lotion -- of liquid and lotion dispensers and closures, Taplast expands our design and engineering capabilities, provides us with additional production capacity in Europe and adds TriMas' first production facility in Eastern Europe, which we hope to build upon in the future. In addition to this acquisition, we acquired about 1% of our total shares outstanding. We are pleased to return capital to our investors through this type of treasury action, which we believe in the long run will help drive shareholder value. Let's turn our attention…

Thank you, Tom. I will begin by remarks today on Slide 10 with comments on our second quarter year-to-date results. Overall, net sales increased approximately $18.7 million or 4.2% to $460.7 million as compared to the 6 months ended June 30, 2018. Consistent with the quarter, each segment achieved organic growth resulting in higher sales of approximately $10.4 million or an organic growth rate of 2.4% for the company overall during the first half of the year. In addition, the acquisitions of Taplast, in April and Plastic in January, contributed approximately $12.5 million of sales during the period. However, on a year-to-date basis, our sales were negatively impacted by $4.2 million of net unfavorable currency exchange. Operating profit increased slightly to $60.5 million from $60.2 million in the prior year period. However, operating margin declined 50 basis points to 13.1% as the impact of higher sales levels was offset by a less favorable product mix across much of our business and the incremental sales of our acquisitions, which have lower margins. We also experienced increased input and freight costs, primarily in our Specialty Products segment. Notably, volume adjusted freight spend increased approximately 8% compared to the prior year period, which impacted operating margins approximately 20 basis points on a year-to-date basis compared to the year ago period. Earnings per share for the first half of the year was $0.96 an increase of 7.9% compared to EPS of $0.89 for the same period a year ago, as net income was positively impacted by a lower effective tax rate, reduced interest expense and an increase in gains on foreign currency denominated transactions. As Tom noted, we are pleased with our consolidated results for the first half of the year overall, which were largely consistent with our plan. Turning to Slide 11, I…

Thank you, Bob. With respect to the TriMas' full year outlook, we are reaffirming organic sales growth of 3% to 5%, although we believe it may trend toward the lower end of the range given segment items discussed. However, we are increasing our EPS outlook to $1.85 to $1.95 per share up from $1.82 to $1.92 per share and are reaffirming our cash flow generation of greater than 100% of net income. Given the progress, we have made strategically and financially and our momentum as Bob just noted, we remain excited about the long-term prospects and many opportunities for TriMas in each of our businesses. With that, I'll turn the call back over to Sherry.

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

[Operator Instructions]. Our first question will be from Steve Barger with KeyBanc Capital Markets.

It's actually Ken Newman on for Steve this morning. Just wanted to touch up on the back half for Packaging sales growth. Just curious if you could provide any more color on the visibility of that ramp up. Is that more just a function of timing? Or are there still orders that you need to secure to get to the top end of your guidance?

Well, there is two drivers. The first driver, our launch of new products and that is just timing. Clearly, we don't control when our customers launch, but our lines are in place, we're ready to go, so it's just a function of filling the pipeline, and when that officially kicks off is -- at this point, we expect it to be in the second half, but we can't pick precisely the date. And then we did see some orders in the first half that we expect -- were lower than normal that we expect to come in the second half. So those are the two drivers to the pickup in the second half.

Okay. It sounded like core margins in the Packaging segment were decently strong, I think you said 23%. I'm just curious, can you remind us any color on how you expect the Taplast margin progression to progress over the rest of the year? And when do you think that gets more closer to the legacy profile for that segment?

Well, just to be clear, when we talked about the acquisition early on, we thought it might be a challenge to get it exactly to the types of margins we have in our base business. That being said, it's -- it was appropriately valued. We do expect it to capture some incredible synergies. I mentioned 1 in my script about the plant that came with the acquisition in Eastern Europe, specifically Slovakia. And we'd like that to be our flagship location for Eastern Europe and certainly increase its size significantly over time. So that's -- there's a lot of synergies that come with the deal. It is additive from a value point of view, but on an ROS point, it might be -- it's not large in relation to TriMas overall, but it would be on the lighter side of our average.

Well, the other comment I would make is based on the synergies we planned for, which are conservatively stated, our payback on the acquisition price is still within our three year time frame.

Absolutely.

Got it. And obviously I mean the balance sheet looks pretty strong here despite having the couple of acquisitions under your belt and repurchasing shares in the market. As you think about the acquisition pipeline, any update as to how you think about targets and hurdle rates? Are there more opportunities within the Packaging segment that provide a margin profile kind of closer to what TriMas has kind of historically operated? Any margin accretive opportunities out there that you're seeing?

Okay. Well, first of all, I want to thank you for acknowledging that because we think that's a key point on the quarter and the year-to-date in that we were -- we closed on two deals. We acquired a sizeable amount of shares. And our leverage is still in check, which we think is one of the great powers of TriMas and our capitalization profile and expect that to be the thesis going forward. With respect to the pipeline, we're actively looking at a number of deals in the Packaging sector. As I've mentioned on previous calls, an ideal deal for us would be one that is more in the characterization of being bolt-on. We're certainly not pounding the pavement looking for transformative type deals. We do see them come every now and then, but we sort of like the ability to bring in a more manageable deal size, drive the synergies we expect and grow the company through this more disciplined approach. We're also looking at some deals in the -- on the Aerospace side, but particularly focused in the fastener area how we restructured this segment. With respect to sort of margin profiles, as I said -- it's been I think 3 years I've been with the company. When I came to the company, I said it was tough -- it would be tough to find deals with the margin profile that we have. They're out there, extremely expensive, tend to be a little bit larger, but there are -- we're looking more towards deals that help round out our product line, expand us geographically, add some technical capability, innovation capability, and we would not be hesitant if the margin profile's a little bit lower than where we're at today to take that on.

Right. That make sense here. And I just wanted to make sure we -- you can help us bridge the guidance you provided this morning. Obviously, it seems like you're being a little bit cautious with regard to the organic growth range. You maintained it, but you are -- kind of maintained it, but there are potential macro disruptions that could lead you towards the lower end of that range, but the EPS number is coming up. So help me kind of bridge that gap, is this really just acquisition revenue? Or do you see potential opportunities from the ramp-ups in Packaging new product sales? Or is there something else here that I'm missing?

So we don't have acquisition revenue in our top line growth. We do expect some pickup in certain of our product lines and certain of our end markets. If there was any cautious expression of the outlook, as I said in my script, there are some of the end markets that we're that are a bit challenged. And fortunately, we're in a lot of different end markets, so we can overcome that, but there are some end markets that we're in that are a little bit softer, particularly, I mentioned oil and gas extraction in Canada, which is off double digits and the industrial sector is off low-double digits and you're hearing that from folks that are closer to the front lines on the drum and pail supply position.

Right. Okay. And then just one last question for me. With regard to the free cash flow bridge, Bob I think you had mentioned getting working capital back into more in line with traditional, I guess, positioning within the cash flow statement. Is it -- is there anything else there in terms of getting the free cash back up to 100% on an adjusted basis that you guide to that we're not really thinking of? As you think, about any forward capital expenditures that we should kind of be wary of as the year progresses?

No. From a capital standpoint, both our -- our guidance contemplated all the necessary projects that we identified early on in the process in terms of both growth and productivity initiatives, which clearly are the focus, along with, to a lesser degree, the maintenance side of things. But I think really the big driver is going to be monetization of working capital and in particular, inventory. In terms of our metrics relative to day sales and AR and related to AP, pretty much in line with where we've been historically. It's really just a matter of liquidating inventory levels, which as I commented in my remarks, were really planned builds that dealt with getting ahead of tariffs, which at the time it was unclear whether there was a much larger bucket going from 10% to 25%. And then also, we had some planned upgrades to equipment and production processes, which, again, we built some inventory buffer that we expect to burn down as we move through the second half of the year. So at this point, the plans are in place to achieve that burn down, and if we do that, we'll be able to execute on our plan of 100% conversion of net income as free cash flow.

Any help with the cadence at how we should think about the free cash flow coming in between the third and fourth quarter?

Well, you'll see it accelerate in the third quarter. And then certainly, we, generally speaking, generate a lot of cash in the fourth quarter just because of the natural cycle of our businesses and they wind down a little bit in Q4, which does lead to some additional working capital liquidation.

[Operator Instructions]. And I'm showing 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. Have a great day.

Thank you.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may now disconnect.