Good day and welcome to the TriMas Fourth Quarter and Full Year 2020 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 fourth quarter and full year 2020 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 results and our outlook, we will open the call up for your questions. In order to assist with review of our results, we have included the press release and PowerPoint presentation on our company website at 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 6413483. 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, including impacts from COVID-19. Please refer to our Form 10-K and our 10-K that will 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 issued this morning or included as part of this presentation for the reconciliations between GAAP and non-GAAP financial measures used today during this conference call. 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?

Good morning and welcome to TriMas’ fourth quarter earnings call. As discussed over the past few quarters, we have all learned to endure changes to our daily routines to protect the health and safety of individuals in the communities where we live and work. At TriMas, we continue to take steps in each of our facilities to enhance social distancing and increase awareness of cleanliness and personal hygiene. It remains our hope that in the coming months, as vaccine availability increases, our employees choose to get vaccinated. We also look forward to a time when COVID-19 is fully treatable or better yet eradicated and when air travel and the related hotel and entertainment industries revert to pre-pandemic activity levels. This will not only benefit society, but we believe will benefit our company and our shareholders as TriMas is well positioned for a broader economic recovery in a number of product areas. As I have said on earlier calls, I extend my deepest appreciation to our employees around the world for their commitment and dedication during these challenging times. Let’s turn to Slide 3. As we reflect on 2020, we were able to continue our momentum toward executing against TriMas’ overarching strategy. Of course, we started the year newly repositioned as we successfully exited the vast majority of our activity in oil and gas-related product lines in December of 2019 and thereby created a natural leveraging of TriMas’ packaging business on TriMas. While this was in line with our strategy, we didn’t recognize how important it would be to TriMas until later in the year. Thanks to robust demand in our product lines, which support personal hygiene and cleaning to help fight the spread of germs, performance in TriMas’ packaging group overcame weak demand in TriMas’ aerospace and Specialty Products segments…

Thank you, Tom. If we turn to Slide 7, I would like to begin my comments with a review of our packaging segment. I would first like to highlight that TriMas’ Packaging group reported record quarterly sales and operating profit for its fourth fiscal quarter. This represents the third consecutive quarter of record quarterly results, and this accomplishment is a testimony to the hard work and dedication of all of our packaging team members globally who achieved these outcomes despite the unprecedented nature of the pandemic and its many impacts. Fourth quarter net sales of $124.3 million increased more than $30 million or 30.5%, net of foreign currency compared to the year ago period. Organically, we achieved robust sales growth of $23.5 million, up 25%. Acquisitions contributed an incremental $5.2 million in sales and the impact of foreign currency translation added $1.6 million. Sales of our dispensing products used in beauty and personal care and home care applications that help fight the spread of germs, led the way, increasing approximately $19.8 million. Rieke continues to experience robust demand due to the COVID-19 pandemic. I should also note that the level of this increase was greater than we anticipated heading into the fourth quarter. We believe that customers bought ahead of the Chinese New Year to ensure availability of supply, which we believe will also have a dampening effect on first quarter 2021 sales levels that Tom will speak to later. Sales of products used in food and beverage applications were also higher, increasing approximately $8.4 million. Sales of dispensers, caps and closures used in food and beverage applications improved approximately $3.9 million versus the prior year’s quarter, while sales of our recently acquired bag and box product line contributed $4.5 million as well. Operating profit increased $4.7 to $24.2 million,…

Thank you, Bob. In turning to Slide 11 given that we continue to operate in this pandemic period with a great deal of uncertainty, which makes it challenging to forecast demand levels in our end markets, we are only providing Q1 outlook at this time, along with some broader views on the full year. We plan to reassess returning to full year guidance when we announce first quarter results at which time we hope to have better information on overall market dynamics. We would note that in Q1 of last year, we did not start to feel the effects of the pandemic until later in the quarter in our packaging segment, and there were no meaningful impacts yet in our Aerospace and Specialty Products segments. For Q1, we expect consolidated sales to be 4% to 9% higher as compared to the same quarter last year, driven by TriMas’ packaging group, which we anticipate will be up 18% to 23%. We expect about half of the growth to come from acquisitions and the remainder to be driven by increases in sales of products used in personal hygiene and cleaning applications. With respect to our Aerospace and Specialty Products segments, we anticipate our sales to be lower than in the prior year quarter, due primarily to the impact of the pandemic as we were comparing to a prior year quarter that had not yet been impacted by the pandemic. We do anticipate earnings per share will be in the $0.34 to $0.39 range as compared to $0.34 for the prior year quarter. As we consider the full year for TriMas in our businesses, we expect our packaging group to deliver higher sales than in 2020, driven primarily by acquisitions. As of now, however, when we consider the second quarter of 2021 through…

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

Thank you. [Operator Instructions] And our first question comes from Brendan Popson with CJS Securities. Please go ahead.

Good morning. I just wanted to start off with – just looking at the Packaging segment. It seems like, obviously, there is some potential headwinds and maybe in pharma or beauty. But I really want to get into the Home Care, just from looking at some of what the CPG’s are saying, it seems like at least some of them feel there is a potential for just elevated levels of cleaning supply purchases beyond – as a result of the pandemic even beyond the pandemic. And certainly, the – your guidance makes sense and that it’s hard to tell at this point. And like you said, those customers are holding off on purchasing. So clearly, they are trying to be conservative, which again makes sense. But do you see that as a possibility? Could you – is it possible that this could then grow even at this higher level if some of the behaviors around cleaning shared spaces and homes maintained itself beyond just 2020?

Hey, Brain. Good morning and thank you for the question. It’s really a great question. Currently, for our packaging business, Home Care is a smaller percentage of our revenue. That being said, it’s an important part of our business. And we had really an outstanding year last year in that product line. And what we define in that product line would be caps and closures, push-pull caps as well as some trigger sprayers and some other products. But certainly, when we look at that product line, we do expect to see continued activity going forward, more potentially for the longer-term, more uplift opportunity. So yes, we expect to expand our presence in that area. We did an acquisition, actually a little over a year ago that landed us in that product line. So that was timed quite well. So we are pretty pleased with that product line, and we do expect that to continue to grow.

Okay, great. And then going off that, I guess, where within packaging, would you see maybe more of a headwind? I know a competitor of yours called out pharmaceuticals as being a tougher comp this year because of just the reduction in cold and flu this year. Is that an impact on you guys as well, or is your – are you – do you play in the different areas as well there?

Yes. We’re largely in different areas of pharmaceutical and nutraceutical. And again, as we look at that business, it was impacted negatively last year. And so as we look at it this year, we’re going to keep our eye on it, but we don’t see a particular undercurrent we’re worried about it. To be specific, when we look – our sales in 2020 were inordinately high in the areas of lotion pumps and foamer pumps. And you can imagine that’s what’s used to dispense sanitizers, soap and then as hands get dry lotion as well. Those are the product lines that we expect might pull back a little bit, and we’re planning that they will pull back a little bit into 2021. But when we look across most of our other product lines, we don’t see – we didn’t see as much of an uptick in 2020 as we did with those product lines. And that’s why we’re, at least from a planning level, being very cautious on those product lines in 2021.

Okay, great. Thank you. Appreciate it.

Thank you.

Thank you. [Operator Instructions] We’ll now take our next question from Steve Barger with KeyBanc Capital Markets. Please go ahead.

Hey, good morning everybody. This is Ken Newman on for Steve.

Good morning, Ken.

Hi, Ken.

Morning. I was just curious if you could talk a little bit more about some of the margin expectations across the various segments, particularly for Arrow in the first quarter. Obviously, you’re guiding revenue up sequentially from fourth quarter. Maybe just talk a little bit about how much of the margin impact that you saw this fourth quarter was from just lower cost absorption and just whether or not you think you can get back to the high single, low double-digit type of margin profile for the year?

Yes, Ken, thank you. I think the absorption question is one that is most challenging because we did take sizable cost actions as we moved through 2020 in response to the impacts of the pandemic. And the balance we’re trying to strike there is to reduce cost to the greatest extent possible. But at the same time, not to jeopardize our ability to continue to serve these customers longer term because, frankly, in the Aerospace business, we’re playing for the long game. And Tom mentioned the fairly significant distributor stocking orders we received for certain of our higher-end fastener products. And that’s a great example where if we had just taken a machete through the garden and chopped heads indiscriminately, we might not be in a position to, a), have secured that order, b), let alone fulfill it. And so we’re cautiously optimistic as the volumes of that ramp up, we will see better absorption. But again, as we move into the year, I think the counterbalance to that good news is we’re sort of further removed or down the supply chain, and it’s hard for us to see what level of inventory destocking may continue to occur in 2021, which, of course, goes against the volumes in our, well, we’ll call it our core products. So that’s sort of the balance we’re trying to strike, and we look out at this point in time, we’re trying to be conservative in the sense of how much of that destocking might hit us until we move further through the year and have evidence that it’s either more or less of a headwind versus what we plan for.

Right. So if I think about that kind of in the context of, obviously, I think everybody did put some costs out, both structurally and temporary at the height of the pandemic. As I think about just the idea of improving margins potentially is on better absorption. Should we be aware of any of the temporary costs kind of coming back in? Or how should we think about the timing of flow-through of those temporary costs reentering the enterprise?

I think they will only reenter to the extent volume upticks justify adding those costs back. And they are variable. And in that sense, we’ll scale or conversely not depending on how volume of production goes.

And I’ll just sort of offer up as well, Ken, maybe not specifically related to your question. But what we’re trying to do during this period of low demand are – make some structural changes to our manufacturing footprint, which, frankly, we could not have even come close to in 2019 given the high demand and pull rates in many of our facilities. So the benefit of that, prospectively, we believe, as the markets start to recover ultimately in the future is gaining some nice operating leverage out of our Aerospace business. Now that’s not this year. It’s probably a few years out, but our business for that type of gain and to take advantage of some early wins as markets recover.

Understood. Just one more for me and then I’ll jump back into the queue. Obviously, the balance sheet still looks like it’s in really good shape despite a lot of expenditures for acquisitions and obviously, still under your 2x leverage portfolio, or target, I’m sorry. Can you just talk a little bit to the M&A pipeline and where you’re seeing opportunities? Are there still deals out there for PAC that are more packaging focused? Are you seeing any assets on the Aero side that are looking a bit more appealing?

Yes. Look, last year was tough, right, because there was certainly a number of months where folks hunkered down and deals were pulled or anyone even thinking about a deal, just had to focus on their business first. So we’re glad that period is behind us. What we’re starting to anticipate are some deals that were – that traded about 3 or so years ago that are in the hands of private equity right now. And by definition, private equity is temporary capital. So our expectation is that we could start to see some assets come back to market as the pandemic – as operating in the pandemic becomes a little bit more stabilized and predictable that were acquired a short period ago. So we’re keeping our eyes open on some of those assets as well as some more niche plays that we’re aware of and that would be – that would augment our current product line. On the Aerospace side, again, a little bit – still a little bit challenging, but yes, we are – there is a number of smaller companies. We’re looking for some bolt-on type acquisitions there that we’re working on. But the challenge is, as you can imagine, owners of those businesses are coming to grips with different valuations given performance levels. So it’s a process. We’re working on it. It’s part of what we call programmatic M&A to grow TriMas for the long run, and we expect, over the coming few years, to continue to remain active, especially as you said, with our balance sheet.

Great color. Thanks.

Thanks, Ken.

Thank you. [Operator Instructions] And we have another question here. Please go ahead.

Hey, thanks again. This is Ken Newman. One more follow-up here. I just wanted to ask a little bit about the longer term margin profile for packaging. Obviously, you’d already talked at length about the headwinds that you expect from an organic perspective within that business. And now you’ve got potential headwinds from the lag in price increases for the material pass through. But as I kind of think about that and weigh it against maybe a more normalizing mix back towards your industrial side of your business, then, of course, the impact of acquisitions from Affaba, which I think were still pretty good from a margin perspective. Is there any way you can kind of help us think about year-end margins being either up or down or even flat year-over-year, just given all the moving pieces?

Yes. I would think we’re going to be pretty consistent with the margins that we have been performing at in that business. I mean you do have, as you point out, the higher-margin business associated with Affaba & Ferrari. At the same time, that’s counterbalanced with lower margins in Rapak. And then again, as we look at the full year of what I’ll call our core packaging Reiki business, we’re not counting necessarily on a big recovery in industrial markets. Now if that happens, that will certainly be favorable to margins. But as long as we’re more heavily weighted to the Home, Beauty & Personal Care side of the mix, I think the margins are going to be kind of in that low 20%, 21% range.

Got it. And then last one for me. I guess switching back to the Specialty Products segment. Obviously, you’ve taken out a lot of cost there. And the margin profile has been pretty good despite how volatile that market has been, is – even with the revenue down sequentially into the first quarter that you’re guiding, is low double-digit margins, kind of the new baseline for that segment? And just how do you see – how much more work is there to do in that segment from a cost-out perspective? And how do you see the margin progression?

So if nothing changes, that’s a reasonable assumption. But I would say that with modest uptick in the markets where our Arrow Engine, although it’s a small part of our revenue base and specialty products and even TriMas overall, with a small uptick in those end markets, our margin profile will change rapidly because those are very profitable – it’s a very profitable business, and it is sort of weighing down the margin as well that plus activities that we have underway within our Norris cylinder business, we expect to drive margin in the future as well. So if nothing changes and we sort of stay at the area, the area we were in terms of sales activity for a prolonged period, then we’ll continue to do some cost management, automation to move the needle a bit. But the major changes will come with higher revenue activity.

Got it. It’s very helpful. Thanks again.

Thanks, Ken.

And we have no additional questions at this time.

Okay. I’d like to thank you for joining us on our earnings call, and we look forward to updating you again next quarter. Continue to wash your hands ideally with a TriMas dispensing product and stay safe and healthy.

And this concludes today’s call. Thank you all for your participation. You may now disconnect.