Yahoo Finance Albany International Corp. (NYSE:AIN) Q1 2024 Earnings Call Transcript
Albany International Corp. (NYSE:AIN) Q1 2024 Earnings Call Transcript April 30, 2024
Albany International Corp. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and thank you for standing by. Welcome to the Albany International First Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, JC Chetnani, VP of Investor Relations and Treasurer.
JC Chetnani: Thank you, operator, and good morning, everyone. Welcome to Albany International's first quarter 2024 earnings conference call. As a reminder for those listening on the call, please refer to our press release issued last night detailing our quarterly financial results. Contained in the text of the release is a notice regarding our forward-looking statements and the use of certain non-GAAP financial measures and their reconciliation to GAAP. For the purposes of this conference call, those same statements apply to our verbal remarks this morning. Today, we will make statements that are forward-looking and contain a number of risks and uncertainties, which could cause actual results to differ from those expressed or implied.
For a full discussion of these risks and uncertainties, please refer to both our earnings release of April 29, 2024, as well as our SEC filings, including our 10-K. Now, I will turn the call over to Gunnar Kleveland, our President and CEO, who will provide opening remarks. Gunnar?
Gunnar Kleveland: Thank you, JC. Good morning, and welcome, everyone. Thank you for joining our first quarter earnings call. I'll provide an overview of our business performance, and Rob will later discuss our financial results in detail. We had another good quarter as our businesses delivered solid results and are executing to their plans. Machine Clothing grew year-over-year, primarily driven by our Heimbach acquisition, offset by lower organic demand, primarily in Europe. North America remains strong, and our global order backlog has improved from the beginning of the year, which provides us confidence in our full year guide. Integration at Heimbach is making excellent progress. We implemented a two brand strategy, which has been well received by the market.
Procurement and supply chain continued to see savings and we have been integrating functions across both our organizations. We continuously assess our global manufacturing capacity and footprint. And recently, we announced that we are closing our South Korea facility and transferring capacity to other sites. We also sold a non-manufacturing location in Sweden, further optimizing our footprint. We will continue to evaluate other opportunities as the year progresses with the integration actions occurring in late 2024 and into 2025. We expect meaningful margin expansion as the integration progresses. Moving to our Engineered Composites segment. We are pleased to see continued ramp-up on our programs, especially on the commercial side, including space and other emerging platforms.
On the defense side, for the year, we see growth on our CH-53K and JASSM platforms, offset by relative weakness on our Joint Strike Fighter program. Overall, we are reporting growth of over 10% in revenue versus the prior year on a constant currency basis. Additionally, our profitability continues to improve with adjusted EBITDA margins of 19.4%, up 120 basis points versus the prior year. This reflects our long-term strategy of winning newer programs with higher profit margins. Turning to the LEAP program. We've been working closely with Safran to set the 2024 production plan in light of the situation at Boeing. We anticipate LEAP revenue to be relatively flat with the prior year. As a reminder, the LEAP engine is used on both Boeing and Airbus aircraft, both of whom have multiyear backlogs.
Finally, for AEC, we continue to develop a healthy business development pipeline with continued wins across various platforms. In the quarter, Sikorsky awarded Albany a long-term agreement for future CH-53K lots on all our legacy content, similar in duration to the previously announced Aft Transition LTA. This represents the largest contract award in AEC history next to our LEAP program. Given that our expertise in research and technology is critical to the success of Albany, we have created a new role of Senior Vice President and Chief Technology Officer of Albany International reporting directly to me. We have promoted Rob Hansen from his prior role as Senior VP of Research and Development at Machine Clothing to this role. By aligning closely with the leadership team, we have the opportunity to leverage our unique competitive technological capabilities to accelerate impactful innovation across our businesses.
And with that, I'll hand it over to Rob to provide more details on the quarter. Rob?
Robert Starr: Thank you, Gunnar, and good morning, everyone. I will review our first quarter results of 2024 and then provide our outlook for the balance of the year. During the quarter, our businesses executed to their plans. Consolidated net sales came in at $313 million, up 16.4% from the first quarter of last year. The growth was driven by a combination of the contribution from Heimbach and organic growth at Engineered Composites. Machine Clothing net sales increased 20.9% versus the first quarter of the prior year, driven by Heimbach, partially offset by a 2.8% decline in organic sales, which was largely concentrated in publication grades. Market conditions remain largely unchanged with North American markets remaining strong, European markets continuing to be soft and Asian market showing signs of slow recovery.
AEC sales of $128 million increased 10.6% from the first quarter of 2023. Our growth was driven by our commercial programs, especially on our 787 space and emerging platforms. This growth was slightly offset by our defense programs, much of the first quarter drop in defense related to the rolling off of one-time revenue related to standing up the CH-53K Aft Transition production line in 2023. However, we can see continued ramp-up of recurring CH-53K production for the balance of 2024. Consolidated gross profit was $109 million, up $9 million or 9.4% from the same period last year. Machine Clothing gross margin decreased from 50.8% in the first quarter of 2023 to 45.7% in 2024, with the reduction primarily driven by the inclusion of Heimbach.
Excluding Heimbach, Machine Clothing gross margins increased to 52.1%, reflecting favorable mix and cost controls. AEC gross margin also grew with margins at 18.8%, up 30 basis points versus the same period last year. This reflects our strategy of pursuing higher margin programs and the resulting improvement in product mix. Note that for the quarter, we recognized a net unfavorable change in the estimated profitability on our long-term contracts of $0.9 million, in line with a net unfavorable change of $0.7 million in the first quarter of last year. Net R&D expenses were generally in line with the prior year and represent approximately 4% of our revenues. This represents our continued investment in research and development to further differentiate our products.
SG&A expenses for the quarter increased by 13.1%, but this was due to the Heimbach acquisition. As a percentage of revenue, SG&A decreased from 18% to 17.5% as we benefit from increased scale. Corporate expenses increased $0.5 million, primarily due to acquisition and integration related expenses. However, adjusted corporate expenses decreased by $1.5 million versus the prior year. Our effective tax rate for the quarter was 29.2% versus 28.2% in the prior year and generally in line with our long-term guide of 30%. GAAP net income attributable to the company for the quarter was $27.3 million compared to $26.9 million last year. GAAP diluted EPS was $0.87 per share in this quarter versus $0.86 in the same period last year. After adjustments primarily related to the Heimbach acquisition, as detailed in our non-GAAP reconciliation, the adjusted EPS on a diluted basis was $0.90 compared to $0.91 in the same period last year.
Consolidated adjusted EBITDA of $65 million for the first quarter increased 8% from the prior year period. Machine Clothing adjusted EBITDA, including Heimbach was at $55.5 million and was generally in line with the prior year of $55.7 million. Adjusted EBITDA margins were 30% versus 36.4% of the prior year, with the decrease driven by the inclusion of Heimbach. AEC adjusted EBITDA was $24.8 million, a 17.9% improvement over the prior year. Adjusted margins at AEC were 19.4% of sales, a 120 basis point improvement over the prior year period. During the first quarter, free cash flow was a use of $17 million with positive operating cash flow of $10 million, offset by capital expenditures of $27 million. We further strengthened our balance sheet and paid down over $17 million of debt and are focused on repatriating our non-U.S. cash to help minimize our outstanding debt.
Our balance sheet remains strong with a cash balance of over $125 million and over $370 million of borrowing capacity under our committed credit facility. Our net leverage at the end of the quarter was 1.2 times. Turning to our outlook for the balance of 2024, we are reaffirming our guide for the year. Our Q1 performance was in line with our plan, and we are confident that we will meet our full year guide. Now I'd like to turn the call over for questions. Operator?
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