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

Thank you, and welcome to the TriMas Corporation's Third 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 third quarter results and outlook, 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 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 6138233. 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 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 our third quarter earnings call. During this quarter, we have taken some meaningful strategic steps to better position TriMas for long-term value creation. Despite experiencing some end market choppiness impacting certain of our product lines, we are strategically staying the course to increase TriMas' concentration in the Packaging and Aerospace segments. If we turn to Slide 3, this morning, we announced that we have entered into an agreement to sell our Lamons business for $135 million. I'll cover more on this important transaction and what it means to TriMas shortly. We also announced that we increased our share repurchase authorization to $150 million. Since May of 2018, we have retired about 2.6% of our shares outstanding and with this increased authorization level and our strong balance sheet, we are able to continue our momentum in returning capital to our shareholders through reducing shares outstanding. Additionally, we have a robust pipeline of bolt-on packaging and aerospace acquisitions, certain of which we would anticipate adding to our businesses in 2020, subject to our normal due diligence and transactional negotiations. With that strategic backdrop, our overall performance this quarter was not as planned. Like other companies, we have experienced both direct and indirect tariff-related pressures. While we have managed tariff recovery well, the indirect impacts include general economic slowing in certain of our end markets, such as in our North American industrial packaging and steel cylinder markets and increased competition on applications where we have yet to install domestic capacity. Additionally, sales and resulting operating profits remain significantly challenged with one of our businesses that serves the North American oil and natural gas extraction end market. And finally, where we have had steady end market activity, we have had delays in bringing additional capacity online and…

Thank you, Tom. I will begin my remarks today on Slide 9 and briefly comment on free cash flow for the quarter and the strength of our balance sheet. We generated $25.7 million of free cash flow in the third quarter, just slightly below the prior year's quarterly amount of $27.4 million. Free cash flow conversion approximated 129% of net income for the quarter and 70% on a year-to-date basis. As expected, year-to-date free cash flow of approximately $45 million was lower than the comparable period a year ago, due primarily to the timing of cash tax payments and a higher investment in working capital. We expect to monetize working capital over the remainder of 2019 as higher inventories, which help manage the impact of tariffs and planned factory floor improvements continue to normalize, and we expect our free cash flow conversion for the year to be greater than 100% of net income, consistent with our previously provided guidance. We ended the quarter with $58 million of cash on book after funding $5.7 million within the quarter to repurchase 196,000 shares of our stock. Year-to-date, we've invested $67 million in 2 acquisitions and spent $21 million to repurchase almost 725,000 shares or approximately 1.6% of our outstanding common stock. In addition, as Tom noted earlier, we are doubling the level of our existing share repurchase authorization from $75 million to $150 million. Given cumulative share repurchases of $33 million under the program since May 2018, we now have approximately $117 million remaining under the revised authorization. We ended the quarter with net debt of $236.5 million and a leverage ratio of 1.5x, significantly below our stated target of 2x. LTM adjusted EBITDA for the period ended September 30, 2019, improved to $170.1 million, an increase of slightly more than 4%…

Thank you, Bob. Turning to Slide 14. With respect to TriMas' full year outlook, given some of the specific items noted, we are tempering our organic sales growth to 1.5% to 2.5% from what we forecasted previously of the lower end of the 3% to 5% range. With respect to earnings per share, we are reducing our range to $1.75 to $1.80 per share for the year. When normalizing our updated outlook to remove the direct operating results of Lamons, which will be reported in discontinued operations in the fourth quarter, we are forecasting an EPS range of $1.40 to $1.45 per share. Core to TriMas' growth model is our focus on generating exceptional cash flow, and as such, we are reaffirming our cash flow generation of greater than 100% of net income. Turning to Slide 15. While we have updated our outlook to reflect some of the macroeconomic items facing our businesses, we remain excited about the important strategic strides we are taking in 2019 and look forward to delivering long-term value creation for our shareholders. For example, we continue to leverage the TriMas business model and operate under a culture of Kaizen to drive continuous improvement. In a few weeks, we have our annual TriMas Kaizen challenge where almost every TriMas operating facility globally selected one of their top Kaizen projects and submitted it into a company-wide competition where we will in turn select the top project from a set of finalists. This is our second formative year for the TriMas Kaizen Challenge, and we had nearly 30 high-quality submissions. So we are excited with the level of engagement from all of our facilities as we continue to operate TriMas in a culture of Kaizen. We also continue to invest in new product innovation. In fact, we are currently investing in molding capacity to validate a new dispenser design, which uses a single polymer and which we believe may be of interest to certain customers that are seeking to promote ease of recyclability. As noted previously, we have a robust pipeline of potential bolt-on transactions as we use programmatic M&A as an approach to grow TriMas in the Packaging and Aerospace segments. Finally, we will continue to shape TriMas by investing in our highest return product lines and businesses to drive long-term value for our shareholders. With that, I'll turn the call back over to Sherry.

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

[Operator Instructions]. And we will take our first question, and that is from Andy Casey with Wells Fargo.

I think you said this, Tom, but I just want to make sure, does the updated $1.75 to $1.80 guidance exclude Lamons for the last 2 months?

No. No, that updated guidance, Andy, would be reflective as if Lamons was still part of TriMas because it won't move into discontinued operations until Q4. And so that's why we provided the, what I'll call, the pro forma adjusted guidance of $1...

$1.40 to $1.45.

$1.40 to $1.45 separate of the direct operating impact to Lamons.

Okay, okay. And then on the divestiture strategy or rather the strategy to focus the business and grow the Packaging and Aerospace segments, should we expect you to entertain further disposals from some of the other areas?

At this time, we're not -- we don't have any sale processes pending.

[Operator Instructions]. We'll take our next question, and that is from Steve Barger with KeyBanc Capital Markets.

For Packaging, can you tell us what the magnitude of the organic decline was for the industrial business in North America?

It is pretty significant. We're seeing end customers down double digit, in some cases, through the year and as we look at Q4. We had expected a rebound to occur, it has not occurred. And at this point, we're not expecting that it will occur into -- before the end of the year. And largely, we believe it's driven by our end customers and, in some cases, their customers, global shipments of goods, either in drums or pails even outside of the U.S.

Got it. So when I think about that mix relative to beauty & home care, should we expect flat organic growth and lower margins at least through the first half of next year, would you expect?

We haven't looked at how we think sales will flow in the first half of next year. But certainly, over the remainder of this year, we would expect the trend to continue.

Yes. Okay. And just thinking about M&A going forward, would you do acquisitions in Packaging that are margin dilutive or that would swing mix around because of growth rates? Or are you trying to do things that are margin accretive in general?

Well, we are looking at acquisitions that would be below the historical run rate of the TriMas Packaging segment. With that being said, however, those acquisitions that we're looking at we see a -- in many cases, a direct line for them to be contributors to not only overall absolute EBITDA of the group, but also on a margin basis as well. So long way to say, we might buy something below our run rate with the eye towards bringing it up.

Yes, I got it. And the reason I ask is, if I go back to Slide 5, are you concerned at all about the amount of EBIT concentration in Packaging, given what the impact would be if we get into a situation like this where demand or mix or an operational challenge can result in lower margins?

As we've studied the segments that we were in and looked at historically businesses that are more focused in packaging, we have tended to see they've been less volatile companies, less swings in terms of performance and they have commanded somewhat of a lower beta. So that's been an appeal to us. So even -- I don't want to say recession proof, but there tends to be a mitigation -- some type of mitigate against softer markets. So we're comfortable being more concentrated in Packaging and even taking that up further going forward.

[Operator Instructions]. And we do have a follow-up question, and that is from Steve Barger with KeyBanc Capital Markets.

Yes, just kind of a housekeeping issue. How do you expect that The Street is going to go on a basis level for the Q4 number? Do you expect that people are going to model this or put out a number that's based on the full year, including Lamons or -- and then exclude that for 2020? I'm just trying to get a sense for how you think The Street will react to this? Or what you would want...

Well, I would say that -- I mean there's -- look, we announced the acquisition this morning. There's obviously a lot of work that will go into fine-tuning what I'll call the impacts ultimately to what our guidance range is for both the full year as well as 2020. That said, we've indicated what the direct impacts are subject to impacts of any potential corporate allocations as a way to hopefully help guide folks in terms of how to think about the company ex Lamons.

Yes. And I would just add to that, that we've tried to be what I would say is a little more transparent than not in terms of sharing the data on Lamons peeling it outside of the Specialty Products segment. And hopefully, we'll see The Street recognize that the segment EBITDA that we referenced on Slide 5, I think it looks like about $172 million net of Lamons is largely driven by businesses that trade in, in some spaces, it's a pretty fantastic multiple. So hopefully, that will be recognized.

[Operator Instructions]. At this time, there are no questions, and I'll turn the conference back over to Tom.

Thank you, everyone, for joining us on our earnings call, and we look forward to updating you again next quarter. Have a great day.

Ladies and gentlemen, thank you for joining today's conference call. The call has now concluded. Please disconnect your lines, and have a great day.