Luxfer Holdings PLC Q2 FY2025 earnings call

• Q2 was a very strong quarter for Luxfer with adjusted earnings per share increasing to $0.30, up 25% year-over-year and 30% sequentially, and adjusted EBITDA rising to $14 million.
• Sales growth led by Elektron segment with high demand for MREs, flares and UGR-E platforms supported by defense restocking, funding tailwinds and aerospace market.
• Completed divestiture of Graphic Arts business in early July to sharpen focus on higher-margin opportunities.
• Initiated relocation project of composite cylinders production from Pomona, California to Riverside, California to optimize footprint and generate savings of up to $4 million per annum.
• Gas cylinders saw sequential improvement with strong performance in space exploration, aerospace and First Response offsetting softness in clean energy.

Elektron: Delivered another strong quarter with sales increasing 19% year-over-year to $50.1 million. Adjusted EBITDA rose to $9.1 million, with margins expanding to 18.2%. Defense, first response and healthcare were up 43% from the prior year. Gas Cylinders: Delivered a solid sequential rebound with sales of $47 million, up 14% from the first quarter. While sales declined 6% year-over-year, improved momentum in key higher-margin segments. Adjusted EBITDA was $4.9 million, up 23.9% from the first quarter with margins improving to 10.4%. Specialty Industrial improved 4%, transportation increased 4% led by aerospace and space exploration, while defense, first response and healthcare sales declined 15% year-over-year.

• Improved full year guidance with adjusted EPS range narrowed upwards to $0.97 to $1.05 and adjusted EBITDA between $49 million and $52 million.
• Projected free cash flow of $20 million to $25 million remains unchanged, incorporating proceeds of Graphic Arts sale.
• Forecast low single-digit year-over-year sales growth, considering early signs of pressure in automotive affecting Elektron business and normal seasonality.
• Maintaining tight control over costs and driving efficiency through site optimization initiatives.

• Early signs of pressure in automotive affecting Elektron business.
• Impact of tariffs on business, though modeled in guidance with normal seasonality.

Q: I guess the surprise for me on the quarter was the nice bounce back in gas cylinders. Can you give a little bit more color on what drove the bounce back? And is that sustainable into the second half?

A: The key things in gas cylinders was the sustained demand for the first response product, good sales in the specialty gas market for aluminum cylinders and especially the further uplift in space exploration. Believes the ongoing bounce back in the Gas Cylinder business will carry forward into the second half of the year.

Q: Now with the consolidation into Riverside. We know that this is kind of an off year for the alternative fuels market, and people can look at Class 8 truck orders, it's very explainable. We think we're still bullish on where that market goes. Now you incorporate in what could be strong growth in space exploration, do you have the capacity at Riverside to meet what could be strong growth in both of those markets over the next decade?

A: Absolutely, we do have the capacity in place, not just in Riverside, but also in our Canadian facility. The consolidation to Riverside will improve cost base and there is ample capacity in Canada and Riverside to address space exploration growth and long-term clean energy opportunities.

Q: You mentioned tariffs a little bit in the commentary. We're starting to get a little more clarity around what it's looking like moving forward? Has that changed how you think it impacts your business? And is that in guidance?

A: Don't think tariffs have a significant direct impact, main impact is on general macro factors. Automotive side is modeled in guidance with lower sales, but by and large generally unaffected.

Q: Given that a major milestone, in my opinion, closing out the sale of Graphic Arts, now as you start looking forward at the 2 sides of the business, it sounds like the main thrust of cash flow will be to debt reduction. Does that change longer term what you want these 2 businesses to look like? And what cash usage might be '26, '27?

A: Pleased to have delivered on the Graphic Arts sale, enables concentration on growth opportunities in gas cylinders and Elektron. No significant change to investment needed, increased capital investment this year for growth and automation, and opportunity for debt reduction and share buyback where makes sense.