ALBANY INTERNATIONAL CORP /DE/ Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Gunnar Kleveland noted overall business performance, strong results at Machine Clothing, $78 million year-to-date free cash flow, and a healthy balance sheet. Addressed EAC adjustments at the Salt Lake facility, progress on Heimbach integration. Mentioned Machine Clothing revenues growth, Engineered Fabrics growth, and industry trends (secular growth in packaging, tissue, pulp). Discussed defense business growth, LEAP program monitoring, and new leadership appointments.
• Rob Starr reviewed financial results: consolidated net sales $298 million, up 6.1% year-over-year; gross profit $90 million, down due to EAC adjustments; GAAP net income $18 million, down from $27 million prior year. Provided outlook, tightened guidance for 2024, and discussed adjusted EPS and free cash flow.

Segment Performance

• Machine Clothing: Net sales were $183 million, up 9.9% year-over-year. Driven by the Heimbach acquisition, but offset by weakness in publication grade globally and packaging in Europe. Organic sales declined 1% year-over-year due to SAP implementation delays. Gross margin increased to 48.6% from 47.6% in the prior year, with margin excluding Heimbach at 53.4%.
• Engineered Composites (AEC): Revenues were $115 million, largely flat year-over-year. Impacted by EAC adjustments. Gross margin decreased to 1.3% from 19.7% in the prior year. Excluding EAC adjustments, the margin would be 18.2%.

Guidance

• Tightened guidance for the balance of 2024, narrowing revenue guidance for segments while slightly higher consolidated adjusted EBITDA guidance. Midpoint of adjusted EPS guidance at $3.20, a $0.05 increase from prior guide. Plan to provide 2025 guidance when announcing year-end results and will host an Investor Day in spring 2025 for longer-term guidance.

Risks

• Impact of SAP implementation delays at Heimbach affecting sales. Weakness in European and Chinese markets. Near-term reduction in the Joint Strike Fighter program. Uncertainties related to the LEAP program and early-stage aerospace programs impacting cash flow.

Question and Answer

• Q: Peter Arment asked about Gulfstream contract progress and defense classified work revenue.

A: No real change on Gulfstream contract, active in defense with backlog buildup over last three quarters.

• Q: Michael Ciarmoli asked about AEC EBITDA step-up and longer-term margins.

A: High confidence in guide, growth in higher margin areas, focus on execution to maintain margins.

• Q: Jordan Lyonnais asked about free cash flow conversion and AEC cash usage.

A: Strong cash flow generation expected, AEC managing working capital but early-stage programs may be cash users.

• Q: Jack Ayers asked about LEAP production and F-35 delivery.

A: LEAP production adjusted incrementally, F-35 softness expected to recover next year with long-term fundamentals intact