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01/10 16:33
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call summary and Q&A reveal mixed results with a negative bias. While there is record order intake and some positive growth in specific segments, overall financial performance shows a decline in adjusted EBITDA and a net loss due to the U.K. plant closure. The Q&A highlights uncertainties in the roll market and potential revenue declines from the U.K. exit. Despite some positive aspects, such as tariff resolution and strategic focus on nuclear power, the financial health and guidance issues suggest a negative stock price reaction.
Adjusted EBITDA $8 million for Q2 2025, a decline of $2.1 million year-over-year. The decline was due to lower margins in the Forged and Cast Engineered Products segment, unfavorable manufacturing costs relative to pricing and surcharge pass-throughs, a lower volume of roll shipments, and lower production rates leading to reduced absorption of manufacturing overhead costs. However, this was partly offset by higher profitability in the Air & Liquid Processing segment due to a better sales mix.
Net Sales $113.1 million for Q2 2025, a 2% increase year-over-year. The increase was driven by higher sales of Forged Engineered Products and favorable FX translation, which offset lower roll demand.
Air & Liquid Processing Segment Adjusted EBITDA $3.9 million for Q2 2025, a 15% increase year-over-year. The increase was driven by a better product mix. Year-to-date adjusted EBITDA for this segment was $7.7 million, a 36% increase year-over-year.
Forged and Cast Engineered Products Segment Net Sales $77.9 million for Q2 2025, a 3% increase year-over-year. The increase was due to improved product mix and higher pricing on certain product lines, despite lower work roll demand caused by elevated customer inventory positions and a fluid tariff environment.
Forged and Cast Engineered Products Segment Adjusted EBITDA $6.8 million for Q2 2025, down $1.5 million from Q1 2025. The decline was due to lower plant utilization, reduced revenue and margins from forged work rolls, and lower demand caused by elevated customer inventory positions and tariff-related uncertainties.
U.K. Exit Charge $6.8 million in Q2 2025, including $5.9 million in employee severance costs and $0.7 million in accelerated depreciation. This charge is expected to result in a $5 million annualized improvement in operating income after the U.K. cast roll plant closure.
Net Loss $7.3 million for Q2 2025, including $6.8 million related to the U.K. exit charge. This equates to a loss of $0.36 per share.
Liquidity Position At June 30, 2025, the corporation had $9.9 million in cash on hand and $34.2 million in undrawn availability on its revolving credit facility.
New manufacturing equipment: New equipment funded by the U.S. Navy, worth approximately $2 million, is expected to arrive at the Buffalo manufacturing location by the end of 2025. This equipment will support growth in the military market.
Military market growth: Revenue for pumps increased due to positive results from the military market. Strong demand from the U.S. Navy is expected to continue.
Nuclear market growth: Orders for heat exchangers in the nuclear market have already exceeded any prior full year, with shipments expected to reach record levels in 2025.
Pharmaceutical market demand: Strong demand for custom air handlers driven by increased research and manufacturing capabilities in the U.S.
U.K. cast roll facility wind-down: Progress on winding down the U.K. cast roll facility is expected to improve operating income by at least $5 million annually once completed. The current backlog extends through Q1 2026.
Air & Liquid Processing segment performance: Adjusted EBITDA increased by 15% in Q2 2025 compared to the prior year, marking the highest year-to-date adjusted EBITDA in the segment's history.
Forged and Cast Engineered Products segment performance: Net sales increased by 3% compared to Q2 2024, but adjusted EBITDA decreased due to lower plant utilization and weaker margins.
Tariff impact and pricing strategy: Tariffs have caused short-term demand reductions in North America, but pricing discipline and cost control measures have mitigated impacts. Tariff costs are being passed on to customers.
Reshoring opportunities: Strategic positioning to capture reshoring opportunities in tool steel, distribution bar, and block products.
Pause in customer orders due to tariff uncertainty: The company experienced a pause in customer orders as customers awaited clarity on tariffs, leading to a shutdown in production for the Forged and Cast Engineered Products group to adjust working capital.
Losses at U.K. cash roll facility: The U.K. cash roll facility continues to experience significant losses, necessitating a wind-down of operations. This has resulted in $6.8 million in exit charges, including severance and accelerated depreciation costs.
Lower plant utilization and demand for forged work rolls: U.S. Forged plant utilization was 10% lower than Q2 2024 and 14% lower than Q1 2025 due to reduced work roll demand caused by elevated customer inventory levels and tariff-related uncertainties.
Tariff-related short-term demand fluctuations: Tariffs have caused hesitation in North American demand for rolls, leading to a temporary shortfall in the second half of 2025. Copper tariffs are also expected to impact costs for heat exchangers.
Unfavorable manufacturing costs and lower margins: Lower margins in the Forged and Cast Engineered Products segment were driven by unfavorable manufacturing costs, lower roll shipment volumes, and weaker margin mix.
Supply chain adjustments due to tariffs: Tariffs on copper and other materials are causing short-term supply chain adjustments, which may lead to fluctuations in costs and demand.
Closure of U.K. operations: The closure of the U.K. cast roll plant has led to significant costs, including severance and professional fees, but is expected to improve operating income by $5 million annually once completed.
Revenue and Market Trends: The company anticipates a return to more normal roll ordering patterns over the next five years, supported by mid-single-digit growth in construction spending, automotive production, and cansheet demand. Long-term fundamentals remain strong despite short-term tariff-related challenges.
U.K. Facility Closure: The wind-down of the U.K. cast roll plant is expected to improve operating income by at least $5 million annually. The current backlog extends through Q1 2026, and the company is reallocating products across its global network to ensure customer supply.
Air & Liquid Processing Segment: The segment's backlog increased by 8% year-to-date, with strong demand from the nuclear, military, and pharmaceutical markets. Record levels of orders and shipments are expected for the nuclear market, driven by the restart of legacy plants and new small modular reactors. The U.S. Navy's funding for new manufacturing equipment will support growth in this segment.
Tariff Impacts: Tariffs, including a recent copper tariff, are expected to cause short-term fluctuations but are anticipated to drive increased U.S. manufacturing in the long term, benefiting the company's products.
Financial Projections: The company expects a full order book for 2026 at its cast roll plant in Sweden. Pricing discipline, cost control measures, and expanding Forged Engineered Product volumes are expected to support confidence going into 2026.
The selected topic was not discussed during the call.
The earnings call highlighted strong financial metrics, such as a 35% increase in EBITDA and a significant rise in EPS, which are positive indicators. However, the closure of the U.K. facility and related restructuring costs introduce uncertainties. The Q&A session revealed management's evasiveness on certain financial impacts, adding to the uncertainty. Despite positive long-term projections, short-term tariff impacts and operational risks balance out the positive financial performance, leading to a neutral outlook.
The earnings call summary and Q&A reveal mixed results with a negative bias. While there is record order intake and some positive growth in specific segments, overall financial performance shows a decline in adjusted EBITDA and a net loss due to the U.K. plant closure. The Q&A highlights uncertainties in the roll market and potential revenue declines from the U.K. exit. Despite some positive aspects, such as tariff resolution and strategic focus on nuclear power, the financial health and guidance issues suggest a negative stock price reaction.
The earnings call reveals mixed signals: improved EPS and EBITDA indicate operational efficiency, yet declining net sales and no shareholder return plan dampen enthusiasm. The record order intake and backlog increase are positives, but the tariff impact and supply chain challenges pose risks. With no new guidance or shareholder return initiatives, the sentiment remains neutral, suggesting a stock price movement between -2% to 2%.
Despite strong EPS and record sales in certain segments, the company faces significant challenges, including lower revenues, operational and regulatory risks, and uncertainties about the UK operations. The share buyback is positive, but concerns about debt levels and unclear management responses in the Q&A section further contribute to a negative sentiment. The lack of guidance on the UK plant and potential operational impacts suggest a cautious outlook, likely leading to a negative stock price reaction.
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