RICHMOND, Va.–(BUSINESS WIRE)–Tredegar Corporation (NYSE:TG, also the “Company” or “Tredegar”) today reported second quarter financial results for the period ended June 30, 2024.
Second quarter 2024 net income (loss) was $8.8 million ($0.26 per diluted share) compared to $(18.9) million ($(0.56) per diluted share) in the second quarter of 2023. Net income (loss) from ongoing operations, which excludes special items, was $10.3 million ($0.30 per diluted share) in the second quarter of 2024 compared with $(2.0) million ($(0.06) per diluted share) in the second quarter of 2023. A reconciliation of net income (loss), a financial measure calculated in accordance with U.S. generally accepted accounting principles (“GAAP”), to net income (loss) from ongoing operations, a non-GAAP financial measure, for the three and six months ended June 30, 2024 and 2023, is provided in Note (a) to the Financial Tables in this press release.
Second Quarter Financial Results Highlights
-
Earnings before interest, taxes, depreciation and amortization (“EBITDA”) from ongoing operations for Aluminum Extrusions was $12.9 million in the second quarter of 2024 versus $10.2 million in the second quarter of last year and $12.5 million in the first quarter of 2024.
- Sales volume was 34.9 million pounds in the second quarter of 2024 versus 35.5 million pounds in the second quarter of last year and 33.8 million pounds in the first quarter of 2024.
- Open orders at the end of the second quarter of 2024 were approximately 14 million pounds (versus 20 million pounds in the second quarter of 2023 and 15 million pounds at the end of the first quarter of 2024). Net new orders increased 17% in the second quarter of 2024 versus the second quarter of 2023 and were relatively flat versus the first quarter of 2024.
- EBITDA from ongoing operations for PE Films was $10.1 million in the second quarter of 2024 versus $0.8 million in the second quarter of 2023 and $6.9 million in the first quarter of 2024. Sales volume was 10.5 million pounds in the second quarter of 2024 versus 6.2 million pounds in the second quarter of 2023 and 10.0 million pounds in the first quarter of 2024.
- EBITDA from ongoing operations for Flexible Packaging Films (also referred to as “Terphane”) was $3.2 million during the second quarter of 2024 versus $0.2 million in the second quarter of 2023 and $2.0 million during the first quarter of 2024. Sales volume was 25.1 million pounds in the second quarter of 2024 versus 23.7 million pounds in the second quarter 2023 and 22.0 million pounds in the first quarter of 2024. See the “Status of Agreement to Sell Terphane” section below for information on the sale of Terphane.
John Steitz, Tredegar’s president and chief executive officer, said, “For the second quarter in a row we recognized a meaningful profit from ongoing operations after suffering a period of losses that began with the second quarter of last year. In addition, results in the most recent quarter improved sequentially.”
Mr. Steitz further stated, “We continue to view the bottom of the recent severe down cycle at Bonnell Aluminum as occurring in the third quarter of 2023, which we believe was a residual impact of the pandemic starting in the second half of 2022. Net new orders and sales volume have increased since the apparent bottom. Through the second quarter of 2024, we have yet to see a significant improvement in our orders from the favorable preliminary determinations of duties on imports that were made in March and May by U.S. authorities. However, data available on U.S. import trends of aluminum extrusions appear to indicate the onset of a purchasing shift back to U.S. producers.”
Mr. Steitz continued, “At PE Films, EBITDA during the first half of 2024 has been exceptional at $17.0 million compared with moderate results of $8.6 million during the last six months of 2023. Terphane’s profitability showed improvement from depressed levels for the fourth straight quarter while the review process of our agreement to sell it to Oben Group continues to reside with competition authorities in Brazil with a maximum deadline of November 18, 2024. Meanwhile, the rebound at our business units is having a favorable impact on overall operating results and net financial leverage, which we believe peaked at 3.9x Credit EBITDA at the end of the fourth quarter of 2023 and was 3.8x and 2.5x at the end of the first and second quarters of this year, respectively. The liquidity available under our new asset-based lending facility has more than met our expectations. We continue to focus on prudently managing costs, working capital and capital spending.”
OPERATIONS REVIEW
Aluminum Extrusions
Aluminum Extrusions (also referred to as “Bonnell Aluminum”) produces high-quality, soft-alloy and medium-strength custom fabricated and finished aluminum extrusions primarily for the following markets: building and construction (“B&C”), automotive and specialty (which consists of consumer durables, machinery and equipment, electrical and renewable energy, and distribution end-use products). A summary of results for Aluminum Extrusions is provided below:
|
|
Three Months Ended |
|
Favorable/ |
|
Six Months Ended |
|
Favorable/ |
||||||||||||
|
(In thousands, except percentages) |
June 30, |
|
June 30, |
|
|||||||||||||||
|
|
2024 |
|
|
|
2023 |
|
|
|
2024 |
|
|
|
2023 |
|
|
||||
|
Sales volume (lbs) |
|
34,906 |
|
|
|
35,492 |
|
|
(1.7)% |
|
|
68,747 |
|
|
|
73,054 |
|
|
(5.9)% |
|
Net sales |
$ |
119,413 |
|
|
$ |
121,827 |
|
|
(2.0)% |
|
$ |
233,636 |
|
|
$ |
255,197 |
|
|
(8.4)% |
|
Ongoing operations: |
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
EBITDA |
$ |
12,907 |
|
|
$ |
10,217 |
|
|
26.3% |
|
$ |
25,447 |
|
|
$ |
24,855 |
|
|
2.4% |
|
Depreciation & amortization |
|
(4,446 |
) |
|
|
(4,158 |
) |
|
(6.9)% |
|
|
(8,988 |
) |
|
|
(8,569 |
) |
|
(4.9)% |
|
EBIT* |
$ |
8,461 |
|
|
$ |
6,059 |
|
|
39.6% |
|
$ |
16,459 |
|
|
$ |
16,286 |
|
|
1.1% |
|
Capital expenditures |
$ |
1,463 |
|
|
$ |
5,631 |
|
|
|
|
$ |
3,012 |
|
|
$ |
13,373 |
|
|
|
|
* For a reconciliation of this non-GAAP measure to the most directly comparable measure calculated in accordance with GAAP, see the EBITDA from ongoing operations by segment statements in the Financial Tables in this press release. |
|||||||||||||||||||
The following table presents the sales volume by end use market for the three and six months ended June 30, 2024 and 2023, and the three months ended March 31, 2023.
|
|
|
Three Months |
|
Favorable/ |
|
Three Months |
|
Favorable/ |
|
Six Months |
|
Favorable/ |
|||||||
|
(In millions of lbs) |
|
June 30, |
|
(Unfavorable) |
|
March 31, |
|
(Unfavorable) |
|
June 30, |
|
(Unfavorable) |
|||||||
|
|
2024 |
|
2023 |
|
% Change |
|
2024 |
|
% Change |
|
2024 |
|
2023 |
|
% Change |
||||
|
Sales volume by end-use market: |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Non-residential B&C |
|
20.3 |
|
19.7 |
|
3.0 |
% |
|
20.1 |
|
1.0 |
% |
|
40.4 |
|
42.0 |
|
(3.8 |
)% |
|
Residential B&C |
|
2.2 |
|
2.1 |
|
4.8 |
% |
|
1.6 |
|
37.5 |
% |
|
3.8 |
|
4.6 |
|
(17.4 |
)% |
|
Automotive |
|
2.9 |
|
3.3 |
|
(12.1 |
)% |
|
3.2 |
|
(9.4 |
)% |
|
6.1 |
|
6.7 |
|
(9.0 |
)% |
|
Specialty products |
|
9.5 |
|
10.4 |
|
(8.7 |
)% |
|
8.9 |
|
6.7 |
% |
|
18.4 |
|
19.8 |
|
(7.1 |
)% |
|
Total |
|
34.9 |
|
35.5 |
|
(1.7 |
)% |
|
33.8 |
|
3.3 |
% |
|
68.7 |
|
73.1 |
|
(5.9 |
)% |
Second Quarter 2024 Results vs. Second Quarter 2023 Results
Net sales (sales less freight) in the second quarter of 2024 decreased 2.0% versus the second quarter of 2023 primarily due to lower sales volume, the pass-through of slightly lower metal costs and pricing pressure. Sales volume in the second quarter of 2024 decreased 1.7% versus the second quarter of 2023 but increased 3.3% versus the first quarter 2024.
Net new orders, which remain low compared to pre-pandemic levels, increased 17% in the second quarter of 2024 versus the second quarter of 2023 and were relatively flat compared to the first quarter of 2024. Since January 2021, net new orders for the Company’s aluminum extruded products have generally tracked the ISM® Manufacturing PMI®. The Company believes that net new orders continue to be below pre-pandemic levels due to higher interest rates, tighter lender requirements and the increase in remote working, which particularly impacts the non-residential B&C end-use market. In addition, data indicates that aluminum extrusion imports have increased significantly in recent years, especially during the pandemic, and some of Bonnell Aluminum’s customers have increased their sourcing of aluminum extrusions from producers outside of the U.S.
Open orders at the end of the second quarter of 2024 were 14 million pounds (versus 15 million pounds at the end of the first quarter of 2024 and 20 million pounds at the end of the second quarter of 2023). This level is below the quarterly range of 21 to 27 million pounds in 2019 before pandemic-related disruptions (particularly starting in early 2021 with the re-opening of markets following the rollout of vaccines) that resulted in long lead times, driving a peak in open orders of approximately 100 million pounds during the first quarter of 2022.
The Company is part of a coalition of members of the Aluminum Extruders Council who have filed a trade case with the Department of Commerce (“DOC”) and the U.S. International Trade Commission (“ITC”) against 15 countries in response to alleged large and increasing volumes of unfairly priced imports of aluminum extrusions since 2019. In November 2023, the ITC found that there is a reasonable indication that the American aluminum extrusions industry is materially injured or threatened with injury due to imports from 14 countries, including China. The ITC’s preliminary determination found that subject import volumes were significant and increasing, and that with regard to pricing, subject imports predominantly undersold the domestic product by volume in each year of the period of investigation. On May 2, 2024, the DOC announced its preliminarily determination that aluminum extrusion producers and exporters in 14 countries, including China, sold aluminum extrusions at less-than-fair value in the U.S. Final determinations, which are expected by the end of the third quarter of 2024, should provide an additional opportunity for Bonnell Aluminum to regain market share. The Company’s analysis of recent U.S. import data of aluminum extrusions indicates that the preliminary determinations of duties are starting to have the desired behavioral impact of shifting related customer purchases back to U.S. producers.
EBITDA from ongoing operations in the second quarter of 2024 increased $2.7 million versus the second quarter of 2023 primarily due to:
- Higher net pricing after the pass-through of metal cost changes and mix ($1.3 million), manufacturing cost improvements, including lower supply expense ($2.0 million) and lower freight rates ($0.5 million), partially offset by lower volume ($0.1 million), higher labor and employee-related costs ($0.8 million), higher utility expense ($0.4 million), and higher selling, general and administrative (“SG&A”) expenses, including other employee-related compensation ($2.0 million); and
- The timing of the flow-through under the first-in first-out (“FIFO”) method of aluminum raw material costs, which were previously acquired at lower prices in a quickly changing commodity pricing environment and passed through to customers, resulted in a benefit of $1.2 million in the second quarter of 2024 versus a charge of $1.3 million in the second quarter of 2023.
First Six Months of 2024 Results vs. First Six Months of 2023 Results
Net sales in the first six months of 2024 decreased 8.4% versus the first six months of 2023 primarily due to lower sales volume and the pass-through of lower metal costs. Sales volume in the first six months of 2024 decreased 5.9% versus the first six months of 2023.
EBITDA from ongoing operations in the first six months of 2024 increased $0.6 million in comparison to the first six months of 2023 primarily due to:
- Higher net pricing after the pass-through of metal cost changes and mix ($3.3 million), manufacturing cost improvements, including lower supply expense ($2.6 million) and lower freight rates ($0.7 million), partially offset by lower volume ($3.4 million), higher labor and employee-related costs ($0.2 million), and higher SG&A, including other employee-related compensation ($1.7 million); and
- The timing of the flow-through under the FIFO method of aluminum raw material costs, which were previously acquired at lower prices in a quickly changing commodity pricing environment and passed through to customers, resulted in a charge of $0.1 million in the first six months of 2024 versus a benefit of $0.4 million in the first six months of 2023.
Refer to Item 3. Quantitative and Qualitative Disclosures About Market Risk in the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2024 (“Second Quarter Form 10-Q”) for additional information on aluminum price trends.
Projected Capital Expenditures and Depreciation & Amortization
Capital expenditures for Bonnell Aluminum are projected to be $9 million in 2024, including $4 million for productivity projects and $5 million for capital expenditures required to support continuity of operations. The projected spending reflects stringent spending measures that the Company has implemented to control its financial leverage (See “Total Debt, Financial Leverage and Debt Covenants” section below for more information). The multi-year implementation of new enterprise resource planning and manufacturing execution systems (“ERP/MES”) has been reorganized with an extended implementation period. As a result, the earliest “go-live” date for the net ERP/MES is 2025. The ERP/MES project commenced in 2022, with spending to-date of approximately $21 million. Depreciation expense is projected to be $16 million in 2024. Amortization expense is projected to be $2 million in 2024.
PE Films
PE Films produces surface protection films, polyethylene overwrap and polypropylene films for other markets. A summary of results for PE Films is provided below:
|
|
Three Months Ended |
|
Favorable/ |
|
Six Months Ended |
|
Favorable/ |
||||||||||||
|
(In thousands, except percentages) |
June 30, |
|
June 30, |
|
|||||||||||||||
|
|
2024 |
|
|
|
2023 |
|
|
|
2024 |
|
|
|
2023 |
|
|
||||
|
Sales volume (lbs) |
|
10,548 |
|
|
|
6,245 |
|
|
68.9% |
|
|
20,583 |
|
|
|
13,613 |
|
|
51.2% |
|
Net sales |
$ |
29,197 |
|
|
$ |
15,918 |
|
|
83.4% |
|
$ |
53,932 |
|
|
$ |
36,099 |
|
|
49.4% |
|
Ongoing operations: |
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
EBITDA |
$ |
10,133 |
|
|
$ |
814 |
|
|
NM** |
|
$ |
17,037 |
|
|
$ |
2,663 |
|
|
NM** |
|
Depreciation & amortization |
|
(1,317 |
) |
|
|
(1,552 |
) |
|
15.1% |
|
|
(2,645 |
) |
|
|
(3,195 |
) |
|
17.2% |
|
EBIT* |
$ |
8,816 |
|
|
$ |
(738 |
) |
|
NM** |
|
$ |
14,392 |
|
|
$ |
(532 |
) |
|
NM** |
|
Capital expenditures |
$ |
216 |
|
|
$ |
360 |
|
|
|
|
$ |
610 |
|
|
$ |
1,075 |
|
|
|
|
* For a reconciliation of this non-GAAP measure to the most directly comparable measure calculated in accordance with GAAP, see the EBITDA from ongoing operations by segment statements in the Financial Tables in this press release. **Not meaningful (“NM”) |
|||||||||||||||||||
Second Quarter 2024 Results vs. Second Quarter 2023 Results
Net sales in the second quarter of 2024 were 83.4% higher compared to the second quarter of 2023, with volume increases in Surface Protection. Surface Protection sales volume in the second quarter of 2024 increased 123% versus the second quarter of 2023 (which reflected weak market conditions in consumer electronics) and 14% versus the first quarter of 2024.
EBITDA from ongoing operations during the second quarter of 2024 of $10.1 million was exceptional, primarily due to the restocking of Surface Protection customer inventories, which were abnormally low. While market indicators and recent volume improvements indicate a positive outlook for the consumer electronics market, EBITDA from ongoing operations performance is expected to moderate in the third quarter of 2024 as customer inventories and the Company’s sales volume stabilize. There have been significant cyclical swings in the sales volume and EBITDA from ongoing operations for PE Films in the past 2.5 years, largely due to the unprecedented downturn in the display industry during the second half of 2022 and first half of 2023. EBITDA from ongoing operations for the first half of 2024, the second and first halves of 2023 and the second and first halves of 2022 were $17.0 million, $8.6 million, $2.7 million, $(2.2) million and $14.1 million, respectively, which averages approximately $4 million per quarter.
EBITDA from ongoing operations in the second quarter of 2024 increased $9.3 million versus the second quarter of 2023, primarily due to:
- A $9.6 million increase in Surface Protection primarily due to higher contribution margin associated with substantially higher volume ($6.4 million), favorable pricing ($0.2 million), operating efficiencies and manufacturing costs savings ($2.3 million), lower fixed costs ($0.2 million) and lower SG&A ($0.6 million, including $0.8 million associated with the closure of the Richmond Technical Center in 2023);
- A foreign currency transaction gain of $0.1 million in the second quarter of 2024 versus a gain of $0.5 million in the second quarter of 2023; and
- A $0.1 million increase in overwrap films.
First Six Months of 2024 Results vs. First Six Months of 2023 Results
Net sales in the first six months of 2024 increased 49.4% compared to the first six months of 2023 primarily due to an increase in sales volume in Surface Protection, as a result of factors noted above. Sales volume increased 77% in Surface Protection in the first six months of 2024 versus the first six months of 2023.
EBITDA from ongoing operations in the first six months of 2024 increased by $14.4 million versus the first six months of 2023, primarily due to:
- A $14.1 million increase in Surface Protection primarily due to higher contribution margin associated with substantially higher volume ($7.4 million), favorable pricing ($0.5 million), operating efficiencies and manufacturing costs savings ($4.2 million), lower fixed costs ($0.6 million) and lower SG&A ($1.4 million, which was associated with the closure of the Richmond Technical Center in 2023);
- A foreign currency transaction gain of $0.1 million in the first six months of 2024 versus a gain of $0.4 million in the first six months of 2023;
- The pass-through lag associated with resin costs (a charge of $0.4 million in the first six months of 2024 versus a charge of $0.2 million in the first six months of 2023); and
- A $0.8 million increase from overwrap films primarily due to cost improvements.
Refer to Item 3. Quantitative and Qualitative Disclosures About Market Risk in the Second Quarter Form 10-Q for additional information on resin price trends.
Projected Capital Expenditures and Depreciation & Amortization
Capital expenditures for PE Films are projected to be $2 million in 2024, including $1 million for productivity projects and $1 million for capital expenditures required to support continuity of current operations. Depreciation expense is projected to be $5 million in 2024. There is no amortization expense for PE Films.
Flexible Packaging Films
Flexible Packaging Films produces polyester-based films for use in packaging applications that have specialized properties, such as heat resistance, strength, barrier protection and the ability to accept high-quality print graphics. A summary of results for Flexible Packaging Films is provided below:
|
|
Three Months Ended |
|
Favorable/ |
|
Six Months Ended |
|
Favorable/ |
||||||||||||
|
(In thousands, except percentages) |
June 30, |
|
June 30, |
|
|||||||||||||||
|
|
2024 |
|
|
|
2023 |
|
|
|
2024 |
|
|
|
2023 |
|
|
||||
|
Sales volume (lbs) |
|
25,074 |
|
|
|
23,724 |
|
|
5.7% |
|
|
47,047 |
|
|
|
43,569 |
|
|
8.0% |
|
Net sales |
$ |
34,543 |
|
|
$ |
33,223 |
|
|
4.0% |
|
$ |
64,655 |
|
|
$ |
64,750 |
|
|
(0.1)% |
|
Ongoing operations: |
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
EBITDA |
$ |
3,204 |
|
|
$ |
249 |
|
|
NM** |
|
$ |
5,167 |
|
|
$ |
1,599 |
|
|
NM** |
|
Depreciation & amortization |
|
(732 |
) |
|
|
(711 |
) |
|
(3.0)% |
|
|
(1,483 |
) |
|
|
(1,411 |
) |
|
(5.1)% |
|
EBIT* |
$ |
2,472 |
|
|
$ |
(462 |
) |
|
NM** |
|
$ |
3,684 |
|
|
$ |
188 |
|
|
NM** |
|
Capital expenditures |
$ |
642 |
|
|
$ |
878 |
|
|
|
|
$ |
1,160 |
|
|
$ |
1,483 |
|
|
|
|
* For a reconciliation of this non-GAAP measure to the most directly comparable measure calculated in accordance with GAAP, see the EBITDA from ongoing operations by segment statements in the Financial Tables in this press release. **Not meaningful (“NM”) |
|||||||||||||||||||
Second Quarter 2024 Results vs. Second Quarter 2023 Results
Net sales in the second quarter of 2024 increased 4.0% compared to the second quarter of 2023 primarily due to higher sales volume and favorable product mix, partially offset by lower selling prices that the Company believes are driven by excess global capacity and strong competition in Brazil, Latin America and the U.S.
EBITDA from ongoing operations in the second quarter of 2024 increased $3.0 million versus the second quarter of 2023, primarily due to:
- Lower raw material costs ($2.5 million), lower fixed costs ($1.1 million), favorable product mix ($1.1 million), higher sales volume ($0.5 million) and lower SG&A ($0.3 million), partially offset by lower selling prices from global excess capacity and margin pressures ($1.5 million);
- Foreign currency transaction losses ($0.2 million) in the second quarter of 2024 remained consistent with the second quarter of 2023; and
- Net unfavorable foreign currency translation of Real-denominated operating costs ($1.1 million).
First Six Months of 2024 Results vs. First Six Months of 2023 Results
Net sales in the first six months of 2024 remained consistent with the first six months of 2023 primarily due to lower selling prices that the Company believes are driven by excess global capacity and strong competition in Brazil, Latin America and the U.S, offset by higher sales volume.
EBITDA from ongoing operations in the first six months of 2024 increased $3.6 million versus the first six months of 2023 primarily due to:
- Lower raw material costs ($4.0 million), lower fixed costs ($2.8 million), higher sales volume ($1.5 million), favorable product mix ($0.8 million), and lower SG&A ($0.5 million), partially offset by lower selling prices from global excess capacity and margin pressures ($3.5 million) and higher variable costs ($0.8 million);
- Foreign currency transaction losses ($0.1 million) in the first six months of 2024 compared to foreign currency transaction losses ($0.2 million) in the first six months of 2023; and
- Net unfavorable foreign currency translation of Real-denominated operating costs ($1.9 million).
Refer to Item 3. Quantitative and Qualitative Disclosures About Market Risk in the Second Quarter Form 10-Q for additional information on polyester fiber and component price trends.
Projected Capital Expenditures and Depreciation & Amortization
Capital expenditures for Flexible Packaging Films are projected to be $4 million in 2024 for capital expenditures required to support continuity of current operations. Depreciation expense is projected to be $3 million in 2024. Amortization expense is projected to be $0.1 million in 2024.
Corporate Expenses, Interest & Taxes
Corporate expenses, net in the first six months of 2024 decreased $8.7 million compared to the first six months of 2023 primarily due to lower pension expense as a result of the pension plan termination completed in 2023 ($6.7 million), foreign currency transaction gains related to the remeasurement of intercompany receivables ($2.3 million) and lower business development activities ($1.2 million), partially offset by higher incentive compensation accruals ($1.0 million) and higher stock-based compensation ($0.6 million). Further information on gains and losses associated with special items impacting corporate expenses, net is provided in the accompanying tables.
Interest expense of $6.8 million in the first six months of 2024 increased $2.1 million compared to the first six months of 2023 due to higher average debt levels and interest rates.
The effective tax rate was 17.9% in the first six months of 2024 compared to 13.1% in the first six months of 2023. The change in effective tax rate was primarily due to pre-tax income in the first six months of 2024 versus a pre-tax loss in the first six months of 2023.
Contacts
Tredegar Corporation
Neill Bellamy, 804-330-1211
neill.bellamy@tredegar.com
