TRS - TriMas: Packaging Player With Growing Ambitions

Summary

• Shares of TriMas have been trading range bound for a long time now.
• The company has been unable to show sustainable growth, although 2022 has seen growth amidst inflation and bolt-on dealmaking.
• Despite a non-demanding valuation I am cautious given the long term underperformance, albeit that some momentum appears evident (at least in sales) as of recently.

Shares of TriMas ( TRS ) have been trading in a relatively tight range between $20 and $40 per share over the past decade, leaving investors with uninspired returns over the long haul, easily explained as the operating conditions have been coming in at stable levels as well.

Stable operations, better said stagnation, has been uninspiring as TriMas has not been able to show consistent growth, or even growth on a per-share basis, even as 2022 has been a year of sales growth and bolt-on dealmaking has been embarked upon.

The Overview

TriMas essentially is a mini-conglomerate which reports results across three divisions. The company relies largely on its TriMas Packaging unit, responsible for about 60% of sales. This is complemented by an almost equally large aerospace segment and specialty products. The company is still largely focused on North America, a region in which it generates about 80% of sales, complemented by a 15% revenue contribution from Europe while Asia is just a minor contributor.

In March of last year, TriMas announced its 2021 results, which revealed an 11% increase in full year sales to $857 million, largely driven by organic growth (amidst easier comparables in 2020 in the aerospace business), complemented by small contributions from dealmaking as well.

Effective cost control made that the company posted an operating profit of $95 million, which translates into GAAP earnings of $1.33 per share based on 43 million shares outstanding. Adjusted for amortization charges, debt financing costs and restructuring costs, earnings came in at $2.24 per share, as the reconciliation looks quite clean.

Net debt was reported at $253 million, translating into a leverage position of less than 2 times. The company guided for a solid 8-11% increase in 2022 sales, yet adjusted earnings were only seen between $2.25-$2.35 per share, hinting towards some margin pressure.

At the same day, TriMas announced the purchase of Intertech, a specific packaging applications, which is set to add $32 million in sales, adding about 4% to pro forma sales growth going forward, with a meaningful contribution expected in 2022 already.

With shares trading at $33 at the time of the 2021 results release, valuations were very reasonable at 14–15 times adjusted earnings, which looked fair, as leverage seemed controllable. That said, growth was needed as a 0.5% dividend yield was not too compelling for many investors.

2022 - A Tough Year

In April, TriMas announced an 8.5% increase in first quarter sales with adjusted earnings per share up a penny to $0.50 per share. Revenues grew a similar 8.5% in the second quarter, but with inflation trending higher, adjusted earnings per share fell two cents to $0.60 per share, although the company reiterated the full year guidance.

Inflationary pressure and the Intertech contribution made that third quarter sales rose 14.5%, yet inflation was the driver behind this, as adjusted earnings fell seventeen cents to $0.40 per share, prompting the company to cut the midpoint of the earnings guidance to $2.14 per share, a sixteen cent cut. The fact that the reduction in the full year guidance is equivalent to the earnings shortfall in the third quarter suggests that the shortfall might be isolated to the third quarter. Net debt of $314 million came down to a 2.0 times leverage ratio, due to some buybacks executed upon.

With sales now trending close to a billion a year, TriMas announced a bolt-on deal at the start of 2023. The company announced the purchase of Dutch-based Aarts Packaging, a player in the beauty, food, medical and pharmaceutical end markets, set to add EUR 23 million in sales, adding about 2% to pro forma sales, or actually a bit more. No financial details on the purchase have been announced, but it seems safe to say that the deal likely runs in the tens of million, hardly making a huge dent to the overall operations.

With earnings now trending at $2.14 per share, valuation multiples are largely intact at $31, as a 15 times earnings multiple look quite reasonable. With a current market valuation of around $1.3 billion, and $1.6 billion enterprise valuation, valuation multiples and leverage ratios remain quite reasonable, as TriMas looks like an interesting play at first hand.

Getting My Head Around This

While the valuation discussion above shows that the situation is quite compelling, the reality is that the historical performance has not been too impressive. After all, the company has posted sales between $700 million and $900 million in each of the years over the past decade, with (GAAP) operating margins quite stable around 10% as the share count hast been quite flat as well and dividends have not been too meaningful.

This shows why the company is likely not be able to fetch a market multiple, as lack of structural growth (either in the operations, or on a per-share basis) has not been achieved, nor seems achievable. This observation limits my enthusiasm on the lower valuation, as a strategy of greater focus is likely welcomed here, as TriMas is an interesting business, but for me is a show-me first story.

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