Investors Stirred by Turnaround for Trimas
A turnaround strategy by diversified holding company TriMas Corp. is paying off on Wall Street, according to Crain’s Detroit Business.
Debt has fallen, analyst consensus is climbing, share prices hit another all-time high of $24.52 a few weeks ago, and several investment fund and pension plan managers are buying up large stakes in the Bloomfield Hills, Mich., company – even as many of its traditional major holders are selling. Trimas is parent to Cequent Performance Products, a Plymouth, Mich.-based trailer and recreational vehicle accessory division.
Moody’s Investors Service this month slightly upgraded TriMas’ corporate family rating, a measure of its ability to cover debt obligations – improving its outlook from stable to positive.
Why the newfound confidence? Analysts generally are convinced that a turnaround strategy carried out after David Wathen became CEO in 2009 has worked. It included streamlining management, changing incentive criteria for executives, refinancing debt, building sales in developing global markets and improving its new product pipeline.
Also helping TriMas, and its competitors, is a stronger financial market and overseas opportunities for U.S. manufacturers.
Some threats linger too, like rising oil and commodity prices and U.S. currency exchange rates. But Wathen, 58, is convinced the holding company’s mix of manufacturing businesses is well-positioned for the risks.
“I felt coming in, and I’m even more convinced now, that TriMas had been under-investing in two things,” he said.
“One is what I call the “front end’ — automating functions like a computer system (for purchase orders) that’s more accessible to customers, which meant fewer people devoted to clerical work and greater resources for intellectual work. The other area was investment in product.”
Two years ago, TriMas’ stock price reached a low of around $1, its debt-to-EBITDA ratio was more than 5 to 1, and the company reported a $136.2 million net loss for 2008 on revenue of $1.01 billion. Revenue fell further in 2009, but grew in 2010 to $942 million and is expected to surpass $1 billion this year – with a profit.
The company first closed plants and cut more than 10% of its 4,000-plus workforce, eliminated one group of executives to streamline management and developed an incentive system for more than 75 remaining executives. A new incentive system tied performance to a mix of sales, new product development, earnings per share and other criteria.
Since then sales have advanced heavily in new products and new global markets such as Brazil, Thailand and India. Wathen said non-U.S. sales in 2011 should account for more than 28% of the top line.
TriMas even started hiring again in mid-2010, a trend that accelerated into the first quarter. The headcount is now around 3,900, and Wathen estimates total new hires are around half of the previous job cuts. Debt is down almost $25 million since last spring, and the debt-to-EBITDA ratio is now about 3 to 1.
Richard Hoss, research analyst at Roth Capital Partners in Newport Beach, Calif., said TriMas is faring better than some in its peer group, and he maintains a “buy” rating for its stock.
He also said energy and materials prices remain a risk for its high-margin packaging business segment as well as Cequent, its largest by revenue.
“As far as oil prices, the majority of the hit comes on the raw materials side that affects their packaging segment. And they’ve been able so far to push nearly 50% of the material costs along to customers,” Hoss said.