Dropping Coverage

Woah… Why were aerospace margins so strong this quarter?

What’s in management’s recipe for margin enhancement?

New CFO Appointment: What does it signal?

Virtual & In-person Roadshows / Conferences

Channelchek Premium. Access more at no cost. 

The site "channelcheck" is opened on the phone

Join the Channelchek Investor Community. Your name, email, zip, and investor type is all it takes to open the door to research reports, favorites tracking, and virtual and in-person roadshows / conferences. Even exclusive investment opps.

Take it to the next level. It doesn’t cost a penny.

Click “Log In” to agree to Channelchek.com <a href="#">Terms of Use</a> and acknowledge that Channelchek.com <a href="#">Privacy Policy</a> applies to you.

Welcome to the Channelchek Investor Community

Informed investors make more money. And it’s all about timing. Get it when it happens.

Inbox Intel from Channelchek.

Consumer Cyclical

Manufacturing - Apparel & Accessories

Albany International Corporation

Fourth Quarter Results
Consolidated fourth quarter revenue of $251.6 million essentially met our estimates of $251.5 million, and was an 11% increase over Q4 last year. Net sales in the quarter were decreased by $4.9 million due to the adoption of the accounting standard ASC 606 and decreased by $3.2 million due to changes in currency translation rates. Excluding the impact of ASC 606 and currency translation effects, Q4 2018 revenue was $259.7 million. Consolidated adjusted EBITDA in Q4 was $57.7 million representing a 33% increase over fourth quarter 2017. Adjusted net income also improved bringing in $82.9 million compared to $33.1 million last year.
AIN also made several notable improvements on the balance sheet during the quarter. Cash balances increased about $37 million and total debt was reduced by a little over $5 million for a net debt reduction of roughly $42 million during Q4 to end the year with a total net debt of $327 million. Additionally, $13 million of Canadian pension liabilities were transferred an insurance company resulting a pension settlement charge of about $2 million. By extinguishing this liability AIN was able to make progress toward de-risking its global defined benefit pension plan. Improvements in working capital efficiency, especially in the AEC Segment, played a key role in driving strong cash flow in during Q4.
Machine Clothing (MC)
<ul>
<li>Excluding the impact of ASC 606 and currency translation effects, MC fourth quarter revenue represented a 4% increase over fourth quarter 2017 revenue. Gross and adjusted EBITDA margins of 48.6% and 34.0% were also an improvement over Q4 2017 gross and adjusted EBITDA margins of 45.0% and 29.9% respectively. These improvements can be attributed to higher sales volume, improved utilization,&nbsp;process productivity improvements, and other cost reduction initiatives.</li>
</ul>
Albany Engineered Composites (AEC) 
<ul>
<li>Excluding the impact of ASC 606 and currency translation effects, AEC Q4 revenue increased to $102.7 million a 34% increase. This strong sales growth was largely driven by the LEAP jet engine program. In fact, sales of cases, fan blades, and spacers for the LEAP engine accounted 44% of all sales in the AEC Segment. AIN content on the CH-53K, F-35 and Boeing 787 platforms were also major growth drivers during the quarter. Adjusted EBITDA margins in AEC also improved during the quarter to 17.9%, which compares to 14.1% this time last year. In addition to higher sales volume, this enhancement in efficiency can be attributed to productivity improvements from the deployment of a disciplined standardized operational system across AEC plants and improvements in working capital efficiency.&nbsp;</li>
</ul>
 
Full Year 2018 Results
2018 was a year of both top line growth and enhanced profitability with strong performance and execution in both the Engineered Composites and Machine Clothing Segments. Earlier in the year, management provided the guidance of&nbsp;20% to 30% revenue growth in AEC and adjusted EBITDA of $180 to $195 in MC. The full year results show that AIN meaningfully exceeded these target ranges&nbsp;with 36% revenue growth in the AEC Segment and MC adjusted EBITDA of $217.1 for the full year. The impressive performance this year can be attributed to a number of unique factors driving each Segment:
Machine Clothing (MC) 
<ul>
<li>Excluding the impact of ASC 606 and currency translation effects, MC revenue for the full year 2018 grew 3% over 2017 reflecting increases in all major paper grades. 2018 also yielded a sharp increase in adjusted EBITDA growing to $212.1 million compared to $194.8 million last year. Profitability enhancements during the year were derived from a number of sources including internal factors like improved utilization,&nbsp;process productivity improvements, slightly higher sales volumes, and cost reduction initiatives as well as some external factors such as a favorable currency environment and stable macroeconomic conditions.&nbsp;</li>
</ul>
Albany Engineered Composites (AEC) 
<ul>
<li>In AEC, net sales grew sequentially throughout the year to end with a full year revenue of $370.6 million up from $273.4 million last year. This sharp increase in revenue was primarily driven by AIN&#8217;s ability to capture sales growth related to the unprecedented steep ramp-up of the LEAP engine program. Higher sales from the Boeing 787, F-35, and CH-53K platforms also contributed meaningfully to revenue growth in 2018. Profitability in AEC also grew throughout the year ending with Q4 adjusted EBITDA margins of 17.9% nearly achieving the low end of the company&#8217;s 2020 target range of 18% to 20%. The $63.2 million in full year adjusted EBITDA was achieved via a combination of executing on the ramp-up of several major programs, while simultaneously putting productivity programs in place.</li>
</ul>
In addition to the segment specific factors above, the company also benefited from various company-wide management driven productivity initiatives implemented by the newly appointed CEO, Oliver Jarrault. Mr. Jarrault joined AIN in March 2018 bringing extensive aerospace experience&nbsp;most recently serving as EVP and Group President of Engineered Products and Solutions at Alcoa where he became known for improving productivity at existing operations.
 
Company Guidance
On the Q4 conference call, management provided the following goals and guidance:
<ul>
<li>MC 2019 revenue growth rate similar to 2018</li>
<li>MC 2019 adjusted EBITDA of $195 to $205 million</li>
<li>AEC 2019 revenue growth of 20% to 25%</li>
<li>AEC 2020 goal of $500 to $550 million in annual revenue for AEC</li>
<li>AEC 2020 goal of 18% to 20% adjusted EBITDA margins for AEC</li>
<li>2019 Capital expenditures in the $20 to $25 million range</li>
</ul>
 
Outlook: Updating Estimates
With this report we are updating our 2019 and 2020 estimates to reflect these recent developments.
Machine Clothing (MC)&nbsp; 
<ul>
<li>Company guidance indicates&nbsp;MC adjusted EBITDA of $195 to $205 million, which is higher than the segments historical range yet lower than the $212.1 million that was achieved in 2018. 2018 was an exceptionally strong year for the MC Segment due to a combination of internal and external factors. 2019 MC performance may not be as strong as 2018 for a few possible reasons including: political uncertainties, a slowing Chinese economy, unfavorable currency environments, unfavorable product mix, uncertainty regarding repeat orders, and more. Taking these risks into account, we are forecasting 2019 revenue to exhibit modest growth rates a bit lower than 2018, and adjusted EBITDA at roughly the midpoint of the guidance range.</li>
</ul>
Albany Engineered Composites (AEC)&nbsp; 
<ul>
<li>Company guidance for the AEC Segment in 2019 suggests another year of strong revenue growth though lower than the 36% of growth that was achieved this year. We expect the LEAP engine program to continue to support sales growth in 2019, however we expect growth from this platform to modestly decelerate and maintain a proportion of total segment revenue in the 40% to 45% range similar to the 44% that it contributed this quarter. We expect AIN content on the&nbsp;CH-53K, F-35 and Boeing 787 to continue to support growth as well. Additionally, R&amp;D efforts invested in improving existing technologies and creating new and derivative technologies have the potential to enhance profitability and grow revenues. For these reasons, we are forecasting AEC revenue of $460 million in 2019 and revenue of $540 million in 2020 reflecting growth near the high end of the guidance ranges for both years.</li>
</ul>
Overall, the company showed strong performance in 2018, and we believe AIN is well on its way to achieving or even exceeding its 2020 goals.
Investment Appraisal
Strong MC adjusted EBITDA margins of 34.7% in full year 2018 shows that the business has stabilized from its previous years of decline, and that the segment is well positioned to deliver similarly strong cash flow going forward. Robust revenue growth of 36% for full year 2018 in the AEC Segment demonstrates the value of AIN&#8217;s composite technology and its ability to capture market share and growth in aerospace markets. Together, the two sides of the business make a compelling investment proposition.
At market close yesterday, shares were trading at $73.52. This reflects an EV to Forward EBITDA of roughly 9.7 times based on our 2019 estimates and assumes no meaningful change to current net debt of $327 million, which we determine to be fairly valued based on peer multiples.&nbsp;Nevertheless, we find Albany International to be a quality small cap company that&nbsp;combines the cash generation of a value stock with the revenue potential of a growth stock.

Albany International Corporation (AIN)

Grand Finale to a Stellar Year

Fundamental Analysis:

Rating: Log in to view

Dropping Coverage (AIN)

Woah… Why were aerospace margins so strong this quarter? (AIN)

What’s in management’s recipe for margin enhancement? (AIN)

New CFO Appointment: What does it signal? (AIN)

Inbox Intel from Channelchek.