TriMas (TRS) Divests Lamons Business Unit for $135 Million
TriMas Corporation TRS recently completed the divesture of its Lamons division to a private equity firm, First Reserve, for cash proceeds of $135 million. The move is in sync with the company’s focus on streamlining its highest value-proposition businesses. The deal is expected to close in first-quarter 2020, subject to customary closing conditions.
On Nov 1, the company entered into an agreement to sell its Lamons business, which was part of the Specialty Products segment. Lamons is a provider of sealing and fastener products into the petrochemical and refining end markets. The division generated net sales of $186 million for the 12-month period ended Sep 30, 2019. TriMas will report Lamons' results of operations as discontinued operations, beginning in the ongoing quarter.
In fact, TriMas’ emphasis on streamlining its manufacturing and distribution footprint, and improving operational throughput has resulted in higher sales and operating performance in the Lamons business unit. First Reserve is a leading global private equity investment firm focused on the energy related end markets. First Reserve’s expertise in energy-related end markets will aid Lamons for greater development in the upcoming period.
Transaction Benefits
TriMas’ strong balance sheet, robust free cash flow and funds from the deal will help it enhance disciplined capital-allocation priorities. The net proceeds will be utilized for investing in business, and mergers and acquisitions (M&A). Notably, the divestment supports TriMas’ effort to reposition its portfolio by investing in innovation as well as M&A to accelerate long-term growth, primarily in the Packaging and Aerospace segments.
TriMas’ Acquisition Strategy to Boost Growth
TriMas’ strong pipeline of product and process innovation will sustain long-term growth, and position its businesses to capitalize on market opportunities as well as minimize market disruptions. Furthermore, the company is focused on bolt-on acquisition targets to invest and accelerate growth of its packaging platform. TriMas’ Plastic Srl and Taplast S.p.A acquisition will expand its geographic presence and product offerings. The company has a robust pipeline of packaging and aerospace acquisitions, which are expected to be completed in 2020.
Trimmed Current-Year Guidance
Nevertheless, during the third-quarter conference call, the company lowered its earnings per share guidance to $1.75-$1.80 from $1.85-$1.95. This reflects expectations of continued lower-end market demand and lesser favorable product mix in certain businesses. The company projects organic sales growth at 1.5-2.5% for the year, lower than the 3-5% guided previously. Considering the impact of the Lamons sale, TriMas expects full-year 2019 adjusted diluted earnings per share in the range of $1.40 to $1.45.
Sluggish Markets & Suppressed Margin Impacts
While soft end-market demand, due to U.S-China trade uncertainties and the ongoing weakness in the North American industrial markets, will strain the Packaging segment’s top line, the Aerospace segment is expected to fare better this year, backed by strong quoting activity, order intake and new business wins. Moreover, higher freight and logistic costs will keep curbing Packaging segment’s margins in the days ahead.
The company’s results are bearing the brunt of higher commodity costs and increased tariffs on imported goods. Consequently, TriMas plans to counter these costs and tariff charges through commercial actions, supply-chain management, leveraging global manufacturing footprint and continued management of businesses under the TriMas Business Model.
Share Price Performance
Shares of TriMas have gained 21.1% over the past year compared with the industry’s growth of 32.6%.
Zacks Rank & Stocks to Consider
TriMas currently carries a Zacks Rank #5 (Strong Sell).
Some better-ranked stocks in the Industrial Products sector are Northwest Pipe Company NWPX, Tennant Company TNC and Reliance Steel & Aluminum Co. RS. All of these stocks sport a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today's Zacks #1 Rank stocks here.
Northwest Pipe has an expected earnings growth rate of 15.8% for the current year. The stock has appreciated 43.8% over the past year.
Tennant has a projected earnings growth rate of 29.8% for 2019. The company’s shares have rallied 44.2% over the past year.
Reliance Steel & Aluminum has an estimated earnings growth rate of 7.4% for the ongoing year. In a year’s time, the company’s shares have gained 60.8%.
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