This industrial company is ripe for a turnaround, with a new CEO, restructuring, and a spinoff.
TriMas Corporation (TRS)
From The Turnaround Letter
TriMas Corporation (TRS) is an industrial conglomerate with four primary businesses: packaging (39% of sales), aerospace (20%), energy (22%) and engineered components/cylinders (19%). Formed in 1990 from a collection of small businesses owned by Masco and later acquired by MascoTech in 1998, TriMas returned to public ownership in 2007.
Like its predecessors, TriMas has leaned on acquisitions to help boost its revenues. The chairman is legendary Detroit venture capitalist Sam Valenti, widely recognized for his impressive business leadership skills.
In recent years, TriMas’ acquisition-driven growth has masked internal difficulties and external headwinds. Its large and expensive $383 million purchase of Allfast Fastening Systems in 2014 along with its smaller 2015 acquisition of a Parker Hannifin facility in Arizona, have not met profit expectations. The depression in the energy industry and weak overall industrial demand have dragged down revenues in nearly half of its operations. And, Boeing’s moves to bring more of its supply chain in-house have exposed operational weaknesses in TriMas’ aerospace business.
These problems, combined with the strong dollar (14% sales are outside the U.S.) look to shrink the company’s revenues by 4-7% this year, after a 3% decline in 2015. Operating earnings declined 18% last year, excluding a sizeable $76 million write off.
Management began taking steps to right the ship last year. It instituted a “Financial Improvement Plan” that included restructuring its energy business, moving some plants to cheaper locations and consolidating and closing others and taking other steps to reduce overhead costs. The company also spun off its towing and hitch business, Horizon Global.
While these steps are showing promise, the Board of Directors felt that more significant changes were needed. To jump-start the company’s recovery, the Board hired Thomas Amato as the new CEO in July. Amato brings considerable industrial leadership experience as well as integration capabilities. Many of the problems at TriMas seem to be execution oriented, and so Amato’s experience as a private equity “fix-it” man make it likely that he will make aggressive corrections and improvements to basic operations.
Although the healthy airliner build cycle provides a valuable tailwind, conditions in other end markets will likely take some time to improve. Yet there are plenty of self-help opportunities: Better operations would foster market share gains, more R&D should create new
products and simpler, more efficient operations will increase the chances that future acquisitions are integrated smoothly.
TriMas is a quality company, with typically the #1 or #2 position in its markets, and it is backed by a reasonably solid balance sheet. Valuation is attractive at 13.6x next year’s earnings and 9x 2017 EBITDA. With a renewed focus on blocking and tackling, TriMas’ future appears headed toward clearer skies.
We recommend buying shares of TriMas up to 31.
George Putnam III, The Turnaround Letter, www.turnaroundletter.com, 617-573- 9550, September 2016