Highlights
- Volume of 147.5 million pounds, an
increase of 16.9% year-over-year;
- Net income and diluted earnings per
common share increased $5.3 million to $21.0 million and $0.23 per
share to $0.94 per share, respectively;
- Second quarter 2018 earnings include
Alumet, while 2017 earnings include $4.4 million related to
recovery of insurance proceeds;
- Adjusted EBITDA increased $2.8 million
to $39.6 million year-over-year;
- Adjusted diluted earnings per common
share increased to $0.97 from $0.80 in the prior year period;
- The Company declares a quarterly
dividend of $0.09 per share, a 50% increase from its previous $0.06
per share rate;
- The Company enacts a $35 million share
repurchase program; and
- The Company reaffirms 2018 full-year
guidance.
Today, Global Brass and Copper Holdings, Inc. (NYSE:BRSS) (“GBC”
or the “Company”) reported results for the second quarter ended
June 30, 2018 and announced a quarterly dividend of $0.09 per
share.
Second Quarter Operating Results
Volume for the second quarter of 2018 increased by 21.3 million
pounds, or 16.9%, to 147.5 million pounds compared to 126.2 million
pounds in the second quarter of 2017. The increase in volumes
includes 15.4 million pounds of incremental volume from A.J.
Oster’s acquisition of Alumet. In addition, A.J. Oster grew base
volumes in the automotive and electronics / electrical components
markets. Olin Brass experienced increased demand in the munitions,
automotive and coinage markets. Chase Brass’s electronics /
electrical components market volumes increased, but were more than
offset by volume declines in the industrial and machinery equipment
and building and housing markets.
“Global Brass and Copper’s business continues to strengthen and
we are pleased with our second quarter operating results. Our
supply chain initiatives, continued focus on driving profitable
growth, and the advancement of our strategic initiatives helped
drive our strong second quarter results. Olin Brass benefitted from
favorable metal mix and sourcing and is continuing to improve
profitability through effective product pricing and operational
cost management. A.J. Oster results benefited from the integration
of the Alumet business and improved service metrics. Despite some
operational challenges, Chase Brass improved financial performance
with better metal margins and improved raw material sourcing. We
refinanced our term loan debt during the second quarter, which
reduced our interest rate by 75 basis points, and are utilizing our
strong cash position to return value to our shareholders by
increasing our quarterly dividend and initiating a $35.0 million
share repurchase program,” said John Wasz, GBC's President and
Chief Executive Officer.
Net sales for the second quarter of 2018 increased to $459.4
million from $374.8 million in the second quarter of 2017. The
increase was primarily attributable to increased commodity prices,
the addition of Alumet, and increased volumes. Adjusted sales, our
non-GAAP financial measure that reflects the value-added premium
over metal replacement cost recovery, increased $30.2 million
compared to the prior year, primarily due to our Alumet acquisition
($16.4 million), organic volume increases, and favorable metal mix
and sourcing along with improved metal margins. A reconciliation of
net sales to adjusted sales is provided later in this press
release.
Net income attributable to Global Brass and Copper Holdings,
Inc. for the second quarter was $21.0 million in 2018, or $0.94 per
diluted share, compared to $15.7 million, or $0.71 per diluted
share, in 2017. The increase can be attributed to the net of the
following:
- favorable metal mix and sourcing along
with improved metal margins ($5.1 million);
- favorable fluctuations in unrealized
gains / losses on derivative contracts of $2.4 million;
- $2.1 million of income generated from
Alumet, a business we acquired in November 2017;
- favorable lower of cost or market
adjustment to inventory of $0.9 million;
- a decrease in tax expense of $0.8
million, driven by a reduction in the effective tax rate from 35.8%
to 27.5%;
- a decrease in interest expense of $0.4
million;
- a decrease in share based compensation
expense of $0.4 million;
- refinancing costs of $1.6 million
associated with our May 2018 debt refinancing;
- increased depreciation expense of $0.7
million; and
- the absence of a $4.4 million benefit
recorded in the prior year related to the recovery of insurance
proceeds associated with our 2016 production outage.
Adjusted EBITDA, our non-GAAP measure of consolidated
profitability, was $39.6 million for the second quarter of 2018. As
compared to the prior year's second quarter and excluding the $4.4
million of income related to the recovery of insurance proceeds,
our Adjusted EBITDA increased by $7.2 million as we had favorable
metal mix and sourcing along with improved metal margins of $5.1
million and generated $2.1 million from our Alumet acquisition.
Adjusted diluted earnings per common share, another non-GAAP
measure, was $0.97 for the second quarter of 2018 compared to $0.80
in the prior year. A reconciliation of diluted net income
attributable to GBC per common share to adjusted diluted earnings
per common share is provided later in this press release. Adjusted
diluted earnings per share fluctuated for reasons similar to the
fluctuation in Adjusted EBITDA, in addition to a decrease in tax
and interest expense, partially offset by an increase in
depreciation expense.
Cash Flow and Leverage
For the six months ended June 30, 2018, we generated $55.3
million of cash from operating activities largely due to cash from
earnings.
We ended the quarter with cash of $91.1 million, $314.4 million
outstanding under our term loan facility, and $195.4 million
available under our asset-based revolving loan facility.
2018 Guidance
We affirm our full-year 2018 guidance and expect:
- Shipment volumes to range from 570
million pounds to 610 million pounds; and
- Adjusted EBITDA to range from $127
million to $137 million.
Due to the forward looking nature of Adjusted EBITDA guidance,
we are unable to reconcile this non-GAAP financial measure to the
most directly comparable GAAP financial measure, as we are unable
to project certain reconciling items, in particular unrealized
gains / losses on derivative contracts, LIFO liquidation gains /
losses and lower of cost or market adjustments to inventory, for
future periods due to market volatility.
Quarterly Dividend
On August 2, 2018, our Board of Directors declared an increase
in the quarterly cash dividend from $0.06 per share to $0.09 per
share on the Company’s common stock for the second quarter of 2018,
an increase of 50%. The dividend will be paid on August 22, 2018 to
stockholders of record on the close of business on August 13,
2018.
Stock Repurchase Program
On July 31, 2018, the Company’s Board of Directors authorized a
share repurchase program (the “2018 Share Repurchase Program”),
whereby we may repurchase up to $35.0 million of our common stock
through September 30, 2020.
Conference Call
The Company will host a teleconference and webcast at 9:00 a.m.
(Central Time) on Friday, August 3, 2018 to review the
results. To listen to the live call, individuals can access the
webcast approximately 10 minutes before the scheduled start time at
the investor relations portion of the Company's website at
http://ir.gbcholdings.com, or by dialing 855-878-0250, passcode
#1549886. For those who cannot listen to the live webcast, replays
will be available shortly after the call on the Company’s
website.
About Global Brass and Copper
Global Brass and Copper Holdings, Inc. is a leading, value-added
converter, fabricator, processor, and distributor of specialized
non-ferrous products in North America. We engage in metal melting
and casting, rolling, drawing, extruding, welding, stamping, and
coating to fabricate finished and semi-finished alloy products from
processed scrap, virgin metals, and other refined metals. Our
products include a wide range of sheet, strip, foil, rod, tube,
painted and fabricated metal component products. Our products are
used in a variety of applications across diversified markets,
including the building and housing, munitions, automotive,
transportation, coinage, electronics / electrical components,
industrial machinery and equipment, and general consumer
markets.
Global Brass and
Copper Holdings, Inc.
Consolidated Statements of Operations (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30, (In millions, except per share
data)
2018 2017 2018 2017
Net sales $ 459.4 $ 374.8 $ 931.2 $ 794.3 Cost of sales (401.5 )
(330.6 ) (824.3 ) (699.5 ) Gross profit 57.9 44.2 106.9 94.8
Selling, general and administrative expenses (23.1 ) (19.3 ) (46.5
) (42.2 ) Operating income 34.8 24.9 60.4 52.6 Interest expense
(4.3 ) (4.8 ) (8.6 ) (9.5 ) Loss on extinguishment of debt (0.5 ) —
(0.5 ) — Other (expense) income, net (0.9 ) 4.5 (1.0 ) 4.2
Income before provision for income taxes 29.1 24.6 50.3 47.3
Provision for income taxes (8.0 ) (8.8 ) (13.3 ) (13.8 ) Net income
21.1 15.8 37.0 33.5 Net income attributable to noncontrolling
interest (0.1 ) (0.1 ) (0.2 ) (0.3 )
Net income attributable to Global Brass
and Copper Holdings, Inc.
$ 21.0 $ 15.7 $ 36.8 $ 33.2 Net
income attributable to Global Brass and Copper Holdings, Inc. per
common share: Basic $ 0.95 $ 0.72 $ 1.68 $ 1.54 Diluted $ 0.94 $
0.71 $ 1.66 $ 1.50 Weighted average common shares outstanding:
Basic 22.0 21.8 21.9 21.6 Diluted 22.3 22.1 22.2 22.1
Supplemental
Non-GAAP Reconciliation
Net sales $ 459.4 $ 374.8 $ 931.2 $ 794.3 Metal component of net
sales (297.6 ) (243.2 ) (616.1 ) (523.6 ) Adjusted sales $ 161.8
$ 131.6 $ 315.1 $ 270.7 Diluted
net income attributable to Global Brass and Copper Holdings, Inc.
per common share, as reported $ 0.94 $ 0.71 $ 1.66 $ 1.50
Unrealized loss (gain) on derivative contracts (0.08 ) 0.03 0.03
0.06 Refinancing costs 0.07 — 0.07 — Lower of cost or market
adjustment to inventory (0.01 ) 0.03 (0.05 ) — Share-based
compensation expense 0.06 0.09 0.14 0.20 Step-up costs from
acquisition accounting — — 0.01 — Tax impact on above adjustments
(a) (0.01 ) (0.06 ) (0.05 ) (0.23 ) Adjusted diluted earnings per
common share $ 0.97 $ 0.80 $ 1.81 $ 1.53
(a) Calculated based on our estimated tax rate,
including tax benefits related to the vesting of share awards and
option exercises.
Global Brass and
Copper Holdings, Inc.
Adjusted EBITDA Reconciliation Three Months
Ended Six Months Ended June 30, June 30,
(in millions)
2018 2017 2018
2017 Net income attributable to Global Brass and Copper
Holdings, Inc. $ 21.0 $ 15.7 $ 36.8 $ 33.2 Interest expense, net
4.3 4.7 8.6 9.4 Provision for income taxes 8.0 8.8 13.3 13.8
Depreciation expense 5.2 4.5 10.3 9.0 Amortization expense 0.1 —
0.2 — Unrealized loss (gain) on derivative contracts (1.8 ) 0.6 0.6
1.4 Refinancing costs 1.6 — 1.6 — Lower of cost or market
adjustment to inventory (0.2 ) 0.7 (1.1 ) (0.1 ) Share-based
compensation expense 1.4 1.8 3.1 4.3 Step-up costs from acquisition
accounting — — 0.2 — Adjusted EBITDA $
39.6 $ 36.8 $ 73.6 $ 71.0
Segment Results of Operations
Three Months Ended Change June
30, 2018 vs. 2017 (in millions)
2018
2017 Amount Percent Pounds shipped (a)
Olin Brass 68.8 63.4 5.4 8.5 % Chase Brass 54.0 54.5 (0.5 ) (0.9 )%
A.J. Oster 35.1 18.9 16.2 85.7 % Corporate and other (b) (10.4 )
(10.6 ) 0.2 1.9 % Total 147.5 126.2 21.3
16.9 % Net sales Olin Brass $ 198.2 $ 178.8 $ 19.4 10.9 %
Chase Brass 159.5 141.1 18.4 13.0 % A.J. Oster 124.2 75.0 49.2 65.6
% Corporate and other (b) (22.5 ) (20.1 ) (2.4 ) (11.9 )% Total $
459.4 $ 374.8 $ 84.6 22.6 % Adjusted EBITDA
Olin Brass $ 20.1 $ 14.4 $ 5.7 39.6 % Chase Brass 18.4 17.9 0.5 2.8
% A.J. Oster 6.1 4.3 1.8 41.9 % Total Adjusted
EBITDA of operating segments $ 44.6 $ 36.6 $ 8.0 21.9 % Corporate
and other (c) (5.0 ) 0.2 (5.2 ) N/M Total consolidated
Adjusted EBITDA $ 39.6 $ 36.8 $ 2.8 7.6 %
Six Months Ended Change June 30,
2018 vs. 2017 (in millions)
2018 2017
Amount Percent Pounds shipped (a) Olin Brass 132.1
130.3 1.8 1.4 % Chase Brass 111.1 114.0 (2.9 ) (2.5 )% A.J. Oster
68.9 37.1 31.8 85.7 % Corporate and other (b) (20.8 ) (21.2 ) 0.4
1.9 % Total 291.3 260.2 31.1 12.0 % Net
sales Olin Brass $ 398.3 $ 393.6 $ 4.7 1.2 % Chase Brass 331.1
295.2 35.9 12.2 % A.J. Oster 245.7 149.7 96.0 64.1 % Corporate and
other (b) (43.9 ) (44.2 ) 0.3 0.7 % Total $ 931.2 $
794.3 $ 136.9 17.2 % Adjusted EBITDA Olin Brass $
34.1 $ 26.9 $ 7.2 26.8 % Chase Brass 37.0 38.3 (1.3 ) (3.4 )% A.J.
Oster 11.8 6.8 5.0 73.5 % Total Adjusted
EBITDA of operating segments $ 82.9 $ 72.0 $ 10.9 15.1 % Corporate
and other (c) (9.3 ) (1.0 ) (8.3 ) N/M Total consolidated Adjusted
EBITDA $ 73.6 $ 71.0 $ 2.6 3.7 % (a)
Amounts exclude quantity of unprocessed metal sold. (b) Amounts
represent intercompany eliminations.
(c) The three and six months ended June
30, 2017 includes $4.4 million and $7.4 million, respectively, of
insurance proceeds relating to a production outage in 2016.
N/M - not meaningful
Global Brass and
Copper Holdings, Inc.
Consolidated Balance Sheets (Unaudited) As of
(In millions, except share and par value data)
June 30, 2018
December 31, 2017 Assets Current assets: Cash
and cash equivalents $ 91.1 $ 59.0 Accounts receivable (net of
allowance of $1.0 for both periods) 197.0 197.8 Inventories 235.9
208.1 Prepaid expenses and other current assets 9.4 11.7 Income tax
receivable — 3.6 Total current assets 533.4 480.2
Property, plant and equipment, net 142.1 142.9 Goodwill 4.5 4.5
Intangible assets, net 1.8 2.0 Deferred income taxes 14.5 16.1
Other noncurrent assets 5.8 6.5 Total assets $ 702.1
$ 652.2
Liabilities and equity Current
liabilities: Current portion of debt $ 5.0 $ 5.0 Accounts payable
138.8 117.1 Accrued liabilities 30.6 36.0 Accrued interest 0.2 0.2
Income tax payable 1.3 0.5 Total current liabilities
175.9 158.8 Noncurrent portion of debt 307.1 309.0 Other noncurrent
liabilities 37.9 37.1 Total liabilities 520.9
504.9 Commitments and contingencies Global Brass and Copper
Holdings, Inc. stockholders' equity: Common stock - $0.01 par
value; 80,000,000 shares authorized; 22,515,822 and 22,133,764
shares issued, respectively 0.2 0.2 Additional paid-in capital 58.3
54.5 Retained earnings 131.5 97.3 Treasury stock - 341,678 and
226,576 shares, respectively (10.0 ) (6.6 ) Accumulated other
comprehensive loss (3.7 ) (2.9 ) Total Global Brass and Copper
Holdings, Inc. stockholders' equity 176.3 142.5 Noncontrolling
interest 4.9 4.8 Total equity 181.2 147.3
Total liabilities and equity $ 702.1 $ 652.2
Global Brass and
Copper Holdings, Inc.
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, (in millions)
2018
2017 Cash flows from operating activities Net
income $ 37.0 $ 33.5 Adjustments to reconcile net income to net
cash provided by (used in) operating activities: Lower of cost or
market adjustment to inventory (1.1 ) (0.1 ) Unrealized (gain) loss
on derivatives 0.6 1.4 Depreciation 10.3 9.0 Amortization of
intangible assets 0.2 — Amortization of debt discount and issuance
costs 0.6 0.6 Loss on extinguishment of debt 0.5 — Share-based
compensation expense 3.1 4.3 Provision for bad debts, net of
reductions 0.4 0.4 Deferred income taxes 1.7 — Loss on disposal of
property, plant and equipment 0.1 — Change in assets and
liabilities, net of effects of business acquisition: Accounts
receivable 0.8 (38.6 ) Inventories (26.8 ) (5.2 ) Prepaid expenses
and other current assets 1.5 1.7 Accounts payable 25.4 17.6 Accrued
liabilities (4.4 ) (9.4 ) Income taxes, net 4.3 2.0 Other, net 1.1
(0.2 ) Net cash provided by (used in) operating activities
55.3 17.0
Cash flows from investing activities Capital
expenditures (12.7 ) (12.5 ) Business acquisition (1.6 ) —
Net cash used in investing activities (14.3 ) (12.5 )
Cash flows
from financing activities Borrowings on ABL Facility 0.4 0.4
Payments on ABL Facility (0.4 ) (0.4 ) Payments of debt issuance
costs (0.4 ) — Proceeds from term loan 25.4 — Payments on term loan
(27.0 ) (1.6 ) Principal payments under capital lease obligation
(0.9 ) (0.7 ) Dividends paid (2.8 ) (1.7 ) Proceeds from exercise
of stock options 0.7 0.7 Share repurchases (3.4 ) (5.0 ) Net cash
used in financing activities (8.4 ) (8.3 ) Effect of foreign
currency exchange rates (0.5 ) (0.5 ) Net increase (decrease) in
cash 32.1 (4.3 ) Cash and cash equivalents at beginning of period
59.0 88.2 Cash and cash equivalents at end of period
$ 91.1 $ 83.9
Noncash investing and financing
activities Purchases of property, plant and equipment not yet
paid $ 3.2 $ 2.3
Non-GAAP Measures
In addition to the results reported in accordance with
accounting principles generally accepted in the United States of
America (“US GAAP”), we also report “adjusted EBITDA,” “adjusted
diluted earnings per common share” and “adjusted sales,” which are
non-GAAP financial measures as defined below.
Adjusted sales, adjusted EBITDA and adjusted diluted earnings
per common share may not be comparable to similarly titled measures
presented by other companies and are not intended as alternatives
to any other measure of performance in conformity with US GAAP.
You should therefore not place undue reliance on adjusted
EBITDA, adjusted diluted earnings per common share, adjusted sales,
or any ratios calculated using them. Our US GAAP-based measures can
be found in our consolidated financial statements included
elsewhere in this press release.
Adjusted EBITDA
Net income attributable to Global Brass and Copper Holdings,
Inc. is the most directly comparable US GAAP measure to adjusted
EBITDA. Adjusted EBITDA is defined as net income attributable to
Global Brass and Copper Holdings, Inc., plus interest, taxes,
depreciation and amortization (“EBITDA”) adjusted to exclude the
following:
- unrealized gains and losses on
derivative contracts in support of our balanced book approach;
- unrealized gains and losses associated
with derivative contracts related to energy and utility costs;
- impact associated with lower of cost or
market adjustments to inventory;
- gains and losses due to the depletion
of a last-in, first out (“LIFO”) layer of metal inventory;
- share-based compensation expense;
- refinancing costs;
- restructuring and other business
transformation charges;
- inventory step-up costs related to
acquisition accounting;
- specified legal and professional
expenses; and
- certain other items.
We believe adjusted EBITDA represents a meaningful presentation
of the financial performance of our core operations because it
provides period-to-period comparisons that are more consistent and
more easily understood. We also believe it is an important
supplemental measure that is frequently used by securities
analysts, investors and other interested parties in the evaluation
of companies in our industry.
Adjusted EBITDA is the key metric used by our chief operating
decision maker (“CODM”) to evaluate segment performance in a way
that we believe reflects our core operating performance, and in
turn, incentivizes members of management and certain employees. For
example, we use adjusted EBITDA per pound in order to measure the
effectiveness of the balanced book approach in reducing the
financial impact of metal price volatility on earnings and
operating margins, and to measure the effectiveness of our business
transformation initiatives in improving earnings and operating
margins. However, our adjusted EBITDA may not be comparable to
similarly titled measures presented by other companies. In
addition, it has limitations as an analytical tool, and you should
not consider it in isolation or as a substitute for analysis of our
results as reported under US GAAP.
We compensate for these limitations by using adjusted EBITDA
along with other comparative tools, together with US GAAP
measurements, to assist in the evaluation of operating performance.
Such US GAAP measurements include operating income and net
income.
Adjusted diluted earnings per common share
Diluted net income attributable to Global Brass and Copper
Holdings, Inc. per common share is the most directly comparable US
GAAP measure to adjusted diluted earnings per common share.
Adjusted diluted earnings per common share is defined as diluted
net income attributable to Global Brass and Copper Holdings, Inc.
per common share adjusted to remove the per share impact of the add
backs to EBITDA in calculating adjusted EBITDA.
We believe adjusted diluted earnings per common share represents
a meaningful presentation of the financial performance of our
consolidated results because it provides period-to-period
comparisons that are more consistent and more easily understood. We
also believe it is an important supplemental measure that is
frequently used by securities analysts, investors and other
interested parties in the evaluation of companies in our
industry.
Adjusted diluted earnings per share is the key metric used by
our CODM to evaluate the Company’s performance, and in turn,
incentivize members of management and certain employees.
We believe that adjusted diluted earnings per common share
supplements our US GAAP results to provide a more complete
understanding of the results of our business, and we believe it is
useful to our investors and other parties for these same reasons.
Adjusted diluted earnings per common share may not be comparable to
similarly titled measures presented by other companies and is not a
measure of operating performance or liquidity defined by US
GAAP.
Adjusted sales
Net sales is the most directly comparable US GAAP measure to
adjusted sales, which represents the value-added premium we earn
over our conversion and fabrication costs. Adjusted sales is
defined as net sales less the metal cost of products sold. We use
adjusted sales on a consolidated basis to monitor the revenues that
are generated from our value-added conversion and fabrication
processes excluding the effects of fluctuations in metal costs. We
believe that adjusted sales supplements our US GAAP results to
provide a more complete understanding of the results of our
business, and we believe it is useful to our investors and other
parties for these same reasons.
Cautionary Statement Concerning
Forward-Looking Statements
This press release contains “forward-looking statements” that
involve risks and uncertainties. All statements the Company makes
relating to its estimated and projected earnings, margins, costs,
expenditures, cash flows, growth rates and financial results or to
its expectations regarding future industry trends are
forward-looking statements. In addition, we, through our senior
management, from time to time make or may make forward-looking
public statements concerning our expected future operations and
performance and other developments. These forward-looking
statements are subject to known and unknown risks, uncertainties
and other factors that may change at any time, and, therefore, our
actual results may differ materially from those that we expected.
Important factors that could cause actual results to differ
materially from these expectations include, among other things,
general market conditions, market demand and competitive factors,
our ability to implement business and acquisition strategies, our
ability to address unexpected operational issues, and our ability
to continue to implement our balanced book approach.
More detailed information about these and other risks and
uncertainties are contained in the Company’s filings with the
Securities and Exchange Commission, including under “Risk Factors”
and elsewhere in our Annual Report on Form 10-K filed with the
Securities and Exchange Commission and our reports filed with the
Securities and Exchange Commission from time-to-time, including
Quarterly Reports on Form 10-Q, copies of which may be obtained by
visiting the Company’s Investor Relations website at http://ir.gbcholdings.com or the SEC’s website at
www.sec.gov. All forward-looking
information in this press release is expressly qualified in its
entirety by these cautionary statements. All forward-looking
statements contained in this press release are based upon
information available to the Company on the date of this press
release.
In addition, the matters referred to in the forward-looking
statements contained in this press release may not in fact occur.
Accordingly, investors should not place undue reliance on those
statements. The Company undertakes no obligation to publicly update
or revise any forward-looking statement as a result of new
information, future events or otherwise, except as otherwise
required by law.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180802005996/en/
Christopher J. KodoskyGlobal Brass and Copper Holdings,
Inc.Chief Financial Officer(847) 240-4700orMark BarbalatoFTI
Consulting(212) 850-5707
GLOBAL BRASS & COPPER HOLDINGS, (NYSE:BRSS)
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