Value Line has initiated coverage of TriMas Corporation (TRS) in its flagship product, The Value Line Investment Survey. The company is a global designer, manufacturer, and distributor of applied products for commercial, industrial, and consumer markets. It has six reportable segments: the Packaging division (23% of 2013 sales) produces highly-engineered closure and dispensing systems for various end markets; Energy (15%) is a manufacturer and distributor of gaskets, bolts, and fasteners for petroleum, petrochemical, oil field and industrial markets; Engineered Components (13%) manufactures high- and low-pressure cylinders for handling compressed gases as well as engines, compressors, and chemical pumps for use in natural gas production; and Cequent APEA (11%) & Cequent Americas (31%) manufacture towing, trailer, and cargo management products, and Aerospace and Defense (7%) manufactures aerospace fasteners and military munitions components.
Trimas began trading on the NASDAQ in 2007. Since 2009, when a new management team was implemented, the company has been highly acquisitive. Last year alone, 10 bolt-on acquisitions were completed. Management believes there is significant room for growth through further strategic acquisitions. These types of acquisitions ought to continue, so the company can obtain adjacent product lines that supplement its core businesses and provide synergistic benefits so it gains new customers, new end markets, and expands its geographic footprint in high growth markets.
Today, the company employs about 6,000 people. Of that, approximately 58% are international employees. Even so, international sales consisted of only about 20.7% of revenues in 2013. We think this percentage will rise in years to come, as international businesses’ undersized contributions are already being boosted; eight of the 10 aforementioned purchases in 2013 were international. We think the majority of acquisitions in the future will occur outside of the U.S., as well. Meanwhile, organic growth initiatives include product innovations and enhancing market penetration.
While Cequent Americas takes in the lion’s share of revenues, its margins are much lower. Therefore, the company is proceeding with consolidating projects within the Cequent reportable segments with the objective of moving to more efficient facilities in countries with lower production costs. Most recently, TriMas closed an Indiana based manufacturing facility and moved the work to Mexico. This effectively shifted the majority of manufacturing capacity within Cequent Americas segment to non-U.S. operations. Manufacturing efficiencies will remain a priority of management going forward. Margins are below historical norms lately, yet it is probable that once expected efficiencies and synergies are attained, and distribution networks consolidated, margins will rise.
While fueling growth mainly through acquisitions, the company has clearly done work to address its debt over the same span. Indeed, its leverage is substantially less than has been the case in the past, and interest expenses were cut in half last year. Also aiding its financial position was a secondary offering in 2013. The company issued almost 5.2 million shares of common stock resulting in net proceeds of about $175 million. However, the added share count has kept per-share earnings growth muted.
Even though debt has been greatly reduced, there remains some work to be done on the balance sheet. Much of this bears interest at variable rates. Should rates rise, TriMas could incur additional interest expenses. A significant amount of cash flow from operations will be dedicated to payment of interest and principal on its indebtedness. Its ability to service debt effectively is dependent on its operating performance, which is subject to the inherent cyclicality of some of its customers. In addition, since the company intends to pursue international growth aggressively, it would then be more subjected to the risks of various political and economic climates. The company is also exposed to volatility in raw material prices, particularly steel. As there is no dividend paid, acquisitions and balance sheet improvements figure to remain primary uses of cash.
All told, subscribers interested in TriMas are advised to consult Value Line’s quarterly reports, as well as any supplemental reports and relevant articles as important news items arise.
At the time of this article’s writing, the author did not have any positions in any of the companies mentioned.