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TriMas Corporation (NASDAQ:TRS)

Q4 2012 Results Earnings Call

February 26, 2013 10:00 AM ET

Executives

Sherry Lauderback - VP, Investor Relations and Communications

Dave Wathen - President and CEO

Mark Zeffiro - Chief Financial Officer

Analysts

Joe Bess - Roth Capital Partners

Robert Kosowsky - Sidoti

Scott Graham - Jefferies

Steve Barger - KeyBanc Capital Markets

Operator

Please standby. Good day. And welcome to the TriMas Corporation’s Fourth Quarter and Fully Year 2012 Earnings Conference Call. Today’s conference is being recorded.

At this time, it is my pleasure to turn the conference over to your host today, Ms. Sherry Lauderback. Please go ahead, ma’am.

Sherry Lauderback

Thank you. And welcome to the TriMas Corporation fourth quarter and full year 2012 earnings call. Participating on the call today are Dave Wathen, TriMas’s President and CEO; and Mark Zeffiro, our Chief Financial Officer. Dave and Mark will review TriMas’s fourth quarter and full year 2012 results, as well as provide our 2013 outlook. After our prepared remarks, we will then open the call up to your questions.

In order to assist with your review of our results we have included a press release and PowerPoint presentation on our company website www.trimascorp.com under the Investors section. In addition, a replay of this call will be available later today by calling 888-203-1112, with a replay code of 2416665.

Before we get started, I would like to remind everyone that our comments today may which are intended to supplement your understanding of TriMas may contain forward-looking statements that are inherently subject to a number of risks and uncertainties. Please refer to our Form 10-K for a list of factors that could cause our results to differ from those anticipated in any such forward-looking statements.

Also we undertake no obligation to publicly update or revise any forward-looking statement except as required by law. We would also direct your attention to our website, where considerably more information maybe found.

At this point, I would like to turn the call over to Dave Wathen, TriMas President and CEO. Dave?

Dave Wathen

Thanks, Sherry, and good morning to everyone on the call. A special thanks to the TriMas people on the call. 2012 was a year of accomplishment and milestone to TriMas. It’s always a team effort with all of us working together to achieve our objectives. Our company is significantly stronger and more capable now than it was in the past.

Our agenda today is that I’ll provide an overview of 2012 in the current environment, then Mark will discuss financial metrics and some details by segment, and I’ll finish by discussing our 2013 outlook. Then we’re glad to take your questions. You’d likely seen our press release this morning, discussing our fourth quarter and full year results.

Let me start with some highlights on slide four. TriMas achieved many positive results in 2012. Revenue increased 17% compared to 2011, for a three-year revenue CAGR of approximately 18%. EPS excluding special items was up 16% on a 9% increase in shares, for a three-year EPS CAGR of more than 60%.

Interest costs were reset down to competitive levels. We established five new factories which are already delivering growth and productivity benefits, and our seven bolt-on acquisitions are all performing well.

We spent more cash both in CapEx and working capital on revenue growth and acquisitions then we had originally planned, but we believe these investment decisions will definitely payoff.

Our few businesses experienced some growing pains, with incremental revenue requiring extra costs, which should produce and to serve our customers, but we all learned and improved from these experiences.

My own goal is to get better at the timely decisions between revenue growth and capacity additions. TriMas is in businesses where capacity adds should always come after the revenue growth is confirmed, the science isn’t shrinking the time and cost spreads.

I hear plenty of questions about how the slow growth choppy business environment is affecting a diversified industrial company like TriMas. So I’ll address that in a couple of ways.

First with our strategic aspiration chart on slide five. Our results continue to confirm our ability to outgrow the economy and to deliver earnings growth through leverage and cost reduction. We’ve invested in growth in Brazil, Thailand, China and South Africa.

We’ve deleverage our balance sheet and earned much improve financing costs, and we work hard to communicate growth, involve and reward the people who work here, including giving TriMas stock into more and more employees hands. I believe that we achieved our strategic aspirations in 2012 and we’ll continue with these goals in 2013.

Next, I will address a few specifics on the current environment on slide six. On the positive side, we’ve continued to benefit from increasing aircraft build rates, ongoing investments in petrochemical plants and refineries, growth in the construction and agriculture end markets, although slower market growth then we’d like, relatively stable currencies and globalization by our customers, who are looking for global suppliers with local plants.

Markets in Brazil and China are still growing, also little slower than we’d like. Industrial activity in the U.S. has stabilized some following the ups and downs around fourth quarter elections, the fiscal cliff and tax changes.

Headwinds still include the European downturn, inflation in China, rising plastic resin prices and a slowing of natural gas drilling. Although, there is some uncertainty in the global economy, we at TriMas keep focus on the bright spots and strive to react fast to both risks and opportunities.

Overall, TriMas had another strong year in 2012. We are financially and operationally stronger than ever and well-prepared to continue to achieve our strategic aspirations. Before I turn it over to Mark, I want to comment on two recent acquisitions that took place this January and on are -- and are in clear support of our strategic aspirations.

First, Martinic Engineering is exactly the type of business we look for when adding to our portfolio, a well run business with products that are highly engineered and difficult to manufacture. This acquisition complements our growth strategies for our Aerospace and Defense segment by providing additional OE and aftermarket opportunities.

This also gives us the ability to offer a broader product portfolio and provides a platform for future growth with current and new customers. The owner of Martinic saw these same opportunities in combining with Monogram and was willing to conclude this transaction at a multiple that was quite attractive for us both.

Second, Gasket Vedações or GVT further expands our global footprint and product portfolio in Brazil, serving the rapid growing Energy market. GVT is a recognized and approved manufacturer and supplier of ring-type joint gaskets for the onshore and offshore drilling markets, and a distributor of additional gasket types for the refining and petrochemical markets.

During 2012, we acquired CIFAL in Brazil, a manufacturer and supplier of specialty fasteners and bolts. GVT now allows us to broaden our product offering in country to include gaskets and offers additional opportunities for continued growth, while expanding our footprint in Brazil to be closer to our customers.

I’ll comment on acquisition due 2013, we have a good pipeline of potential acquisitions that we are pursuing. We are staying on course with our acquisition strategy of small-to-mid size friendly transactions that bolts on to our existing businesses that our management teams understand well.

Now, we’ll turn it over to Mark to provide more details on our financial results then I’ll be back to share our 2013 outlook for TriMas. Mark?

Mark Zeffiro

Thank you, Dave and good morning. Let’s start with a brief summary of our fourth quarter results on slide nine. Our fourth quarter sales were $301 million, a 16% increase compared to the fourth quarter of 2011 with growth in five of our six segments. This was our 11th consecutive quarter of seven digit year-over-year sales increases.

Our organic growth efforts focused on new products, growing end markets and market share gains represent more than 40% of our growth. In addition, our recent bolt-on acquisitions are performing. Across the company, we are successfully executing on our growth strategy. We are making disciplined decisions today to invest in opportunities for future long-term growth and productivity.

Fourth quarter 2012, income from continuing operations attributable to TriMas would have been $13 million excluding special items related to our debt extinguishment cost, restructuring cost associated with Cequent manufacturing footprint optimization and tax restructuring.

This represents an increase of almost 49% compared to Q4 2011. Fourth quarter margins were tempered by recent acquisitions, investments and growth and temporary costs and inefficiencies driven by our long-term productivity efforts. We have plans in place to enhance these margin levels and continue to be committed to productivity and lien initiatives.

For the quarter, we achieved the diluted EPS of $0.33 excluding special items, an increase of 32% compared to Q4 2011, by observing the effects of 13% more shares as a result of our May equity offering. We remain focused on cash flow and our results reflect our increases in CapEx and decisions to carry more working capital as a result of acquisitions, actions to support our customers, new product inventory levels and geographic expansion.

Moving onto slide 10, 2012 full year results. Overall, we are pleased with our 2012 performance with 17% sales growth and 27% income growth excluding special items. We achieved record sales in 2012 with growth in five of our six segments. Our organic growth rate was in the high single digit range in line with our strategic aspirations.

2012 operating profit was $139 million, a record level for TriMas. Our efforts to grow and improve company performance in the long term come with customer short terms, which compress margins in 2012, including acquisition cost, acquisition margin rates and our restructuring efforts.

2012 income in EPS both excluding special items increased 27% and 17% respectively, primarily due to increased sales levels and lower interest expense and taxes. Income from continuing operations would have been $70 million, $1.84 a share or 16.5% EPS growth which was at the high end of our previously provided EPS outlook range of a $1.75 to $1.85.

This increase in EPS includes the impact of more than 9% higher weighted average shares outstanding compared to 2011 and incremental cost associated with seven acquisitions during the year, including purchase accounting adjustments related to the transactions. In regard to free cash flow 2012 was a year where we committed substantial funding to capital expenditures and other investment in support of growth, including working capital investments, supporting our customers in new markets and new programs.

With free cash flow of $27 million, we spent approximately $90 million on acquisition, $46 million on CapEx, primarily in support of future growth and productivity opportunities and reduced debt by more than $47 million. We expect higher level of cash flow in 2013.

On slide 11, capitalization. We ended the year with approximately $422 million in total debt, a 10% increase from December 31, 2011. As a result, we ended the year with a leverage ratio of 2.3 times, compared to 2.67 times at December 31, 2011. We remained disciplined in our balance of growth, indebtedness and liquidity as we ended the year with $251 million of cash and aggregate availability.

We also continue to make significant improvements in our capital structure as evidenced by our refinance during the fourth quarter, in which we retired all remaining 9¾% senior notes and amended our credit facilities to reduce our borrowing rates, extend maturities and enhance our flexibility. We reduced interest expense by $8.7 million in 2012 as compared to 2011.

As a result of the refinancing reduction in borrowing rates, we estimate annual cash interest savings of approximately $14 million on a pro forma basis as with all aspects of our business, we are focused on continuous improvement, while working to improve our profitability and drive value.

At this point, I would like to review our business performance by segment beginning with our Packaging segment on slide 13. 2012 Packaging sales grew 48% compared to 2011 with a 54% sales growth in the fourth quarter, primarily as a result of Arminak and the Innovative Molding acquisition. These acquisitions added almost $90 million in sales to the year and are performing better than expected.

Our specialty systems product sales unrelated to the acquisitions increased due to additional demand from our North American dispensing customers, which more than offset a decline in European dispensing sales. Industrial product sales also declined in Europe.

Packaging operating profit increased during the year in quarter primarily as a result of higher sales and ongoing productivity initiatives. While the Innovative and Arminak acquisitions historically have lower margin, we are achieving the synergies and our improvement plans are being implemented. Purchase accounting adjustments also had a negative impact on margins.

We are in production at our new Ohio facility built in 2012 with full production expected next quarter. Our sales efforts in Asia continue to gain tractions, a combination of Rieke, Arminak and Innovative has enabled us to advance our targeted growth initiatives more quickly and we continue to receive positive customer responses. We believe in the end market growth prospects for this segment and continue to support the launch of new dispensing and closure products.

On slide 14, Energy. Energy sales increased approximately 40% for Q4 and 2012 compared to a year ago. The sales growth was the result of multiple growth initiatives, including market share when totaling almost 9 million within our highly engineered bolts product line, our July acquisition of CIFAL in Brazil and incremental sales from new branches to support Lamons global customers.

We continue to leverage CIFAL and our executing on plans to further support customers in Brazil given the expected growth in the regions Energy sector. Energy’s operating profit decreased in both periods as a result of higher sales as the impact of higher sales was more than offset by less favorable product sales mix, cost related to the branch build out and acquisitions and the impact of purchase accounting adjustments.

In support of customers, we will continue to expand the engineering product line and our global footprint in support of customers, as demonstrated by our newer branches in Spain and Singapore and the January of acquisition of GVT, adding gasket capability in Brazil. We are focused on improving margins in this segment over time and we will continue to maximize our supply chain and operational efficiencies for improved cost and delivery.

On slide 15, Aerospace & Defense sales increased approximately, 12% in the fourth quarter and was relatively flat for the year compared to 2011. As improved demand for our blind bolts and temporary fasteners from aerospace customers offset the sales decline in the Defense business.

Monogram, our aerospace businesses, continues to show positive sales momentum with a double-digit increase in sales to both prior periods, including new sales into Asia. We continued to experienced higher order activity, which resulted in record backlog at year end.

2012 continued to be a trend of increasing operating profit by 12% and a 280 basis point improvement compared to 2011, primarily due to the increased sales levels in Aerospace. This improvement absorbs incremental costs for long-term growth in the segment, including associated start-up costs for the new Tempe, Arizona facility where we will manufacture new products for our key customers.

Installations of new equipment in 2012 for plant productivity gains, diligence costs related to the Martinic acquisition in January 2013. We are excited about the addition of Martinic to our aerospace product portfolio. We expect this business to continue to grow, show revenue growth as result of increasing aircraft build rates, our efforts to obtain new product qualifications in our expanded geographic coverage.

Moving on to slide 16, Engineered Components, both businesses in this segment, Arrow Engine and Norris Cylinder experienced continued growth for the year with 2012 segment sales up 14%, primarily due to improved demand for engines, compressors and other well-site products.

Increased oil drilling activity and new products benefit Arrow Engine with sales up $17 million compared to 2011. Sales in our industrial gas cylinder business increased by $7 million in 2012, primarily due to market share gains, which we believe are partially aided by the May 2012 imposition of antidumping duties on imported high-pressure steel cylinders.

Both businesses experienced some softness in the fourth quarter as Arrow was impacted by a reduced number of natural gas well completions and Norris had some customer delayed orders until 13. Operating profit in both periods was impacted by a less favorable product sales mix and fixed cost absorption in our engine business and continues to execute growth initiatives.

Surpassing $200 million in revenue in 2012, Engineered Components has almost doubled its sales levels of 2010. It continues to focus on maintaining its mid-teen margin levels despite natural cyclicality in the Aero business. We continue to develop new products and expand our international sales efforts in this segment.

On slide 17, we show the performance of Cequent split into two segments. Overall, Cequent Americas sales increased approximately 4% in 2012 in the fourth quarter as a result of higher sales levels from the auto OE industrial and aftermarket channels. We continued to outperform the economy as a result of market share gains, new product introductions and the July acquisition in Brazil.

Cequent Americas operating profit and margin remained at solid levels, increasing in 2012, even while incurring incremental cost-related acquisitions and investments in growth. As evidenced by our continued footprint optimization, we continue -- we remain focused on making these businesses more efficient.

As we mentioned on last quarter’s call, we made the decision to close our Cequent Performance Products facility in Goshen, Indiana and to relocate these manufacturing operations to Cequent Performance Products facility in Reynosa, Mexico during 2013. We're pleased to report the company and labor union have signed and executed a plan to closure agreement that contains a joint stipulation to dismiss the pending arbitration. This move will drive productivity in the business.

Also in 2012, Cequent Americas acquired Engetran, a Brazilian manufacturing of towing products, which allows us to leverage our full line of products in this rapidly growing market, as well as better serving our global customers. We also added to our product lines during 2012 in the retail channel.

Cequent Asia Pacific sales increased 36% when compared to 2011, primarily due to almost $20 million in higher sales in Thailand, as a result of new customer program awards. Sales also benefited from the acquisitions in New Zealand in July and South Africa in Q4 2011. The significant increase in business volume combined with our transition to new facilities, while temporary production inefficiencies affecting the margins during the year given higher-than-expected customer demand.

We expect this will be mitigated going forward as we digest a new level of business volume and enhance productivity in the new facilities. We remain focused on productivity, product leverage and regional expansion in the Cequent segments. We’re focused on achieving both the cost and sales synergies from the recent acquisitions in New Zealand and Brazil.

At this point I would like to summarize 2012 on slide 18. During 2012, we invested in growth and took advantage of areas where we saw real opportunities to capture share or launch new products. We are nimble, reacting with speed to better support our customers’ needs. These actions are benefiting us now, most notably on the topline and we’ll continue to do so, plus generate margin improvement in the future.

In addition to our organic growth, we completed several bolt-on acquisitions during the year to expand our geographic footprint and product lines. We have a track record of targeting, acquiring and integrating complementary businesses that increased stakeholder value. We remained focused on productivity and lean initiatives, and we have plans in place to optimize our footprint and improve margins over time.

Through two strategic moves, issuance of 4 million shares and the debt refinancing, we have substantially improved the long-term capital structure of TriMas. With greater operational and strategic flexibility, we have significantly lower costs. And finally, we have established a track record of consistent performance with 11 consecutive quarters of double-digit sales and income growth.

That concludes my remarks. Dave will now provide some comments on our 2013 outlook. Dave?

Dave Wathen

Thanks, Mark. First, let me share a summary of our current playbook for 2013 on slide 20.

There are several ongoing strategic drivers that are common across many of our businesses, globalization and emphasis on the environment and the growing middle class. We are making sure we capitalize on every opportunity. Let me share some examples.

Globalization is a positive driver in each of our segments. In Packaging, global customers are shrinking the number of suppliers and need a global partner around the world who has local capabilities. They are also communizing dispensing designs globally, with biggest positive for us so far in Asia. In Energy, we have multiple global contracts and continue to build out our branch network to support our customers in close proximity to their plants and refineries.

In Aerospace and Defense, aircraft usage decline with globalization, a trend that promotes aircraft build rates and usually develop products with both current and new manufacturers.

At Norris Cylinder, our ability to meet global specifications helps the export side of the business. And in Cequent globalization of our customer’s means our customers build the same pick up trucks in Thailand, South Africa, Mexico and Brazil, and need our products globally.

Another strategic driver is environmental concerns, which also affects each of our segments. In Packaging, environmental concerns are driving product designs to allow for recycling and less wastes. Our customers are looking for partners to aid them in developing innovative dispensers and green solutions. For example, when they get a request to replace steel springs and plastic dispensers to assist with recycling.

In Energy, plentiful natural gas needs customer plants are converting from oil to gas as feedstock and concerns about leakage or environmental hazards help increase sales of higher spec seals, gaskets and fasteners.

In Aerospace and Defense, environmental concerns for fuel economy drive new aircraft designs, redesigns of existing platforms and substitution of lighter weight fasteners and parts, all areas we focus on.

Norris Cylinders use -- are use in environmental applications, Arrow Engines and compressors are seeing more fracking and shale gas applications, and our future growth driver will be environmental driven retrofits to existing engines. In the environmentally driven downsizing of vehicles for fuel economy is expanding our new product opportunities in Cequent.

Our third strategic driver is the growing middle class in emerging economies like, China, Thailand, Brazil and others, which affects our Packaging, Aerospace and Defense, and Cequent segments.

In Packaging, the growing markets for pharmaceuticals and cosmetics in markets we focus on grow with middle class expansion. Growing middle class populations tend to fly more too. Cequent’s products also tend to grow to the middle class consumer.

My priorities for TriMas in 2013 are listed here as well. Certainly, ongoing growth of revenue and earnings is number one. We use to be a highly leverage turnaround story, now we are fully committed to sustain growth.

Our margins declined in 2012, mostly due to acquisitions and investments in growth, and we are committed to improvement in 2013. Two weeks a go I attended the report out sessions from a group meeting of all of our business unit manufacturing leaders and I can assure you we have action plans in each business for margin improvements.

Balancing spending on capacity has adds -- capacity adds versus timing and location as a new priority, getting it right will also deliver higher margins and improve customer fulfillment.

Cash management is an ingrained priority at TriMas. What’s new with our more normal balance sheet is our ability to use working capital and cash as competitive leverage, and maybe most importantly, how we involve, train, communicate with and compensate, and treat our people is always a high priority.

The tools and tactics we employ aren’t new or unique, we do believe that we execute well, measure and understand our performance, and continuously improve all we do. Our productivity and lean initiatives continue to gain traction.

All of these factors lead us to our outlook for 2013 on slide 21. We expect revenue to grow at high single digits, despite expected slow economic growth. We project 2013 EPS to be between $2.15 to $2.25 per share, with midpoint representing a 19% EPS growth on more average shares outstanding compared to 2012.

A reminder on first quarter EPS expectations, this is the last quarter where we face a significantly higher share account versus 2012 as a result of our May 2012 equity offering. Therefore we expect relatively flat EPS for Q1 compared to the prior year and a greater lift in second through fourth quarters. For 2013 free cash flow looks like $40 million to $50 million even with CapEx spending for capacity being up in 2013 at approximately 4% of sales or more.

I’ll close my comments with a reminder of our value proposition on slide 22 to reinforce how all of us at TriMas intend to keep increasing the value of our enterprise.

Thanks again for all your support. Now we’ll gladly take your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question will come from Joe Bess with Roth Capital Partners.

Joe Bess - Roth Capital Partners

Good morning.

Dave Wathen

Good morning, Joe.

Mark Zeffiro

Good morning, Joe.

Joe Bess - Roth Capital Partners

In your opening remarks you mentioned the process to penetrate markets like Brazil take a bit of time. Can you walk me through some of what the key main steps are over the next couple of years to really get to a point of having meaningful customer relationships there?

Dave Wathen

Yeah. Two things, one, there are some new customers, particularly the drilling companies who are putting in a lot of infrastructure and use our kinds of products. We have to get ourselves qualified and accepted by them. That is going on.

Certainly, the acquisition we made in January was about -- partly about acquiring a set of approvals that because the specs are just different enough, we decided we better off acquiring the approvals. So there is a set of getting the approvals from new customers that we haven’t been dealing with.

The other customers, I’ll say current customers, that we deal with globally is a more normal process for us. It just -- it’s a matter of having a site close geographically and convincing that site that we are the supply of choice. We are use to that. It takes a little while.

The advantage in Brazil in particular is the ramp up of the industry is so fast that we do give a leg up and so we are seeing pretty decent growth rates. It was an important ingredient to get that acquisition done in January though to get some approvals into our camp, and it makes it easier now for us to start bringing in the rest of our product line for those customers.

Other than that it’s a global, it’s a global sealing market, customers in Brazil are similar to customers everyplace else and so you’ll see pretty decent and in the Cequent that was also of really about approvals in country, so that we have products that meet the local specs and importantly meet the approval agencies requirements. So we are seeing that ramp pretty nice to.

Joe Bess - Roth Capital Partners

Okay. Thank you for that insight. And then thinking about the leverage ratio, Mark, are we still sort of targeting 1.6 times leverage ratio or how should we start to think about that now, the debt levels where they are and a currency issues that you really have to increase EBITDA going forward?

Mark Zeffiro

That’s a -- thanks for the question, Joe. The goal of the company is still to continue our relative leverage ratio [sub two] is exactly where we are headed, the 1.5 to 1.75 level is kind of what feels where we should be as a company long-term. There is obviously the opportunistic view towards acquisitions we’ve had. So I think we’ll continue to prioritize cash use with high shareholder, stakeholder, value accretion to these acquisitions at least for the immediate term.

Joe Bess - Roth Capital Partners

Okay. And then thinking about inventory levels, it is little higher this quarter on a percentage sales basis. Should we think about that as being just some of their redundancies with some of the facilities, Dave, you are consolidating or is this sort of a level?

Dave Wathen

No. You’re right on. That’s the big driver.

Joe Bess - Roth Capital Partners

Okay. So we should see that kind of come down the board?

Dave Wathen

Yeah. That’s part of the check list as you move in facilities around the Q. To take care of your customers, you make sure you’ve got a -- I don’t like the word bank of inventory but it’s descriptive.

Mark Zeffiro

I would add one thing there. There is obviously pushes and pulls with everything in business. We have the gain of certain regional and global customer opportunities. We have added inventory in those spaces. But we also knew we have if you will transitions to new facilities like that have temporary effects associated with inventory.

So there is growing consideration in terms of customer needs. And then there is obviously the temporary consideration associated with continued investment in our footprint optimization.

Joe Bess - Roth Capital Partners

Okay. And then last question, I’ll get back in the queue. Thinking about the Martinic acquisition, is there opportunities for us to penetrate existing programs that you guys already have or is this really a function of getting new customers and new programs like with customers in Europe and stuff?

Dave Wathen

It’s important that Martinic’s main customers are not the first tier aircraft manufacturers.

Joe Bess - Roth Capital Partners

Okay.

Dave Wathen

It’s the -- call it OEM suppliers who make big subassemblies for the aircraft manufacturers. Martinic machines titanium ports. We’ve got that what we are used to but they use more in the customer channel of this big suppliers. And so it gives us that opportunity to go into those people that we haven’t served this much. Conversely though it allows us to take their products to the customers we know best. This is one of those put unique two way synergy wins...

Joe Bess - Roth Capital Partners

Okay.

Dave Wathen

And we are happy to make a connection with them.

Joe Bess - Roth Capital Partners

Thank you for that.

Operator

Thank you. We’ll take our next question from Robert Kosowsky with Sidoti.

Robert Kosowsky - Sidoti

Good morning guys and Sherry. How are you doing?

Dave Wathen

Doing pretty well.

Robert Kosowsky - Sidoti

Doing pretty good. Mark, I was wondering if you look year-over-year the -- full year the operating margin was down 130 basis points, 140 basis points. And I was wondering if you could bucket that into acquisition accounting impacts, product mix, inefficiencies from all these new plants going on, other growth initiatives. Just kind of give us a little bit of more clarity into what the margin degradation was?

Mark Zeffiro

Yeah. If you think about if there is nearly $3 million in purchase accounting effect within the year, you’ve got just sub $3 million and which will be duplicative cost, not considered net special items, namely you feel duplicative cost and frank consolidations. And also Robert, I told you product mix is a big number for us as well. And that was more in the neighborhood of about $8 million in terms of relative margin pressure that we felt as a company.

Robert Kosowsky - Sidoti

Okay. That’s very helpful. And then what did you see in the fourth quarter on the industrial closures business and how is that trending in the first quarter, kind of, was there a dive in demand in December like we’ve seen without industrials?

Dave Wathen

Yeah. It’s a -- if you had Lynn Brooks on the phone and the folks of that business can tell you that they almost attributed it to the new cycle about fiscal cliff and all that. And it turned back on after we got through that whole mess. And it turned back on as it went back to the way it was earlier in the year. But December was pretty -- was pretty discouraging. Europe is still just up and down. And if you step back far enough and smother over a few months, it’s fairly level and the lower levels we’ve been running at.

But yeah, we definitely saw industrial closures. We probably saw some of it in the other industrial business like Norris, some of it, the effect from the stuff going on in Washington, D.C. People…

Robert Kosowsky - Sidoti

Okay.

Dave Wathen

… back order -- back orders was best you can tell.

Robert Kosowsky - Sidoti

Okay. So, given that we should see a decent snapback in the profitability on the Packaging side in the first quarter. So given that December might have been a pretty poor month?

Dave Wathen

There will be some improvement because we’ve got a heavy load in Packaging of new product launches and we get going big time in Asia on capacity adds. But yeah the margin -- I will give you a quarter answer but we are on the margin of movement track actually in each of our businesses because we are on the margin improvement track for sure.

Robert Kosowsky - Sidoti

Thank you very much.

Dave Wathen

Thanks Rob.

Operator

Thank you. We’ll go next to Scott Graham with Jefferies.

Mark Zeffiro

Good morning, Scott.

Scott Graham - Jefferies

Good morning. Sorry, I had to unmute myself here. So I kind of have the same questions, the prior question but may be with a little bit more specific on each segment. Could you tell us how the purchase accounting numbers as far as that between the segments, Packaging and Energy, in particular, I guess, the larger ones.

Mark Zeffiro

Just for everybody, that will obviously be in the K. The purchase accounting effect obviously affected the Packaging business most notably and the Energy business also. And I’ll tell you that they were terribly dissimilar between the two.

Scott Graham - Jefferies

Okay.

Mark Zeffiro

3 million buck -- I mean it’s 3 million buck, Scott. I mean, it’s between probably it’s just 1.5 for our trends in Packaging and the rest of it obviously is largely in Energy. There is obviously couple of other admits in that but the biggest effect was Packaging.

Scott Graham - Jefferies

Okay. And then I, kind of, saw, you were kind enough to give us the $8 million hit on mix. Two questions on that, where did you see that the most in the segments and was any part of that $8 million from pricing?

Mark Zeffiro

No, we separate pricing for mix, Scott, in terms of pure analytics. I would tell you we saw very much affect obviously the Energy business with the launch of new branches. We saw affect on Packaging business with some of the new product launches and engineered component as well in terms of some of the new products that were really most notable out of our Arrow Engine business.

Scott Graham - Jefferies

Okay. That’s great. Two other questions and this may be is more directed toward you, Dave. I know that sale spending is extremely targeted with you guys and certainly it has worked. You pick a spot, you spend it and sales come through the next quarter or so. It looks to me like the fourth quarter. There was a fair amount of that, heading into 2013.

I was just kind of wondering two things on this, number one, where was that sales spending kind of the most and maybe identify a couple of things that you are pursuing if you will. And then secondly, on the productivity side, the product fees, of course the fund sales spending, did that happen this quarter and the decline in the margin was from these other factors. Just curious?

Dave Wathen

The last question, I would say that we are in balance of the productivity didn’t offset this spending that we took on. The targeted spending, Brazil was certainly, it is a focus and will continue to be, Asia in the broader sense for Packaging and Aerospace and Cequent and it is paying off. I’d say, the science in it is to get the capacity adds at the right time and we are trying more hard to make sure we get that right.

China, I could go on and on about, but the dilemma in China of all the stuff with permits and export duties and import duties and all. And the Chinese government recognizing the issues and changing the rules around and us trying to -- in our favor and us trying to find the most opportune way to do it. And we think we’ve sorted that out and you will see some pretty decent positives come out of all that.

I wouldn’t list any broader sales efforts than there really have been regional. There is a few specific things in the U.S. in a couple of business. Norris’ had a couple of special things that are quite dependable for us and Arrow has the customer complexion in Arrow because of shale and fracking and all that kind of thing is just moving fast. We had a good story. I’ll tell we’ve got one engine design in Arrow that has proven to be extremely popular. It hasn’t lay past any kind of capacity and we’ve actually -- we’ve had air freight components and all that kind of a thing but it’s good.

And we’ve raised prices a couple of times too. And so we are still chasing kind of when you say mix, mix is normally bad. A lot of times it’s a positive but you are chasing it to get yourself lined up with it and we have that kind of a year. That’s the way of the world, moving faster and we keep getting faster to respond.

Scott Graham - Jefferies

And, Mark, back to you on for one last one. The mix was $8 million. I forget to ask, does that include acquisition mix or is the other way?

Mark Zeffiro

No. That is existing product mix.

Scott Graham - Jefferies

Got it. Thank you.

Mark Zeffiro

You bet.

Operator

(Operator Instructions) We’ll go to Steve Barger with KeyBanc Capital Markets.

Steve Barger - KeyBanc Capital Markets

Hi. Good morning.

Dave Wathen

Hey, Steve.

Steve Barger - KeyBanc Capital Markets

First question for Mark. How much of that 6% to 8% revenue growth was from acquisitions you completed last year, or what are you thinking about in terms of pure organic growth this year?

Mark Zeffiro

Pure organic growth, we’ve grown the gap really. The Martinic acquisition, which allows us to add acquisitions topline, GVT is not a material number in terms of total company and you’ll have the first quarter associated with Arminak. So you put all those three together, you are talking about $30 million or 20 million bucks. We are actually targeting more than $15 million. So call about $30 million in total will be acquisition growth, Steve.

Steve Barger - KeyBanc Capital Markets

Okay. And do you expect positive organic growth in every segment in 2013, based on how you are planning the year right now?

Dave Wathen

Yeah. Organic would include driven by new product programs and that sort of thing but yeah.

Steve Barger - KeyBanc Capital Markets

Sure. But right just and you don’t see any areas that we -- sorry, go ahead.

Dave Wathen

No. I mean, we’ve got markets modeled at the -- I’d call it, we would try to do on the low end and I still think the U.S. is a 2% GDP in 2013 and Europe is flat, et cetera. There are some people who think Europe might be up a percent, but not enough you can feel it.

No. I think we’ve got -- we’ve got product programs and customer programs identified and so when we give you a sales guidance we know what it is. We’ve got risk factors applied to it. The trick then is to find some more to add on top.

Steve Barger - KeyBanc Capital Markets

Right. So just as you think about the various segments, I'm guessing just given on the aerospace build rate, A&D could have double-digit organic growth but is there anything else in there that could approach high singles, or are you thinking more low single-digit for all the segments?

Dave Wathen

You are right about A&D because of the d part has got them small enough now. We don’t have to keep making or trying to explain that. Packaging has got some strong sales programs. The Asian part of Packaging we keep talking about, that is really helping and there is some kind of neat, new products that are adding in Packaging. Energy, it will be pretty decent but it’s being driven by more branches.

Steve Barger - KeyBanc Capital Markets

Right. So the margin profile may not be there but the topline is --

Dave Wathen

But the topline will come true, yeah.

Steve Barger - KeyBanc Capital Markets

Okay. What do you expect the impact of working cap is going to be this year?

Mark Zeffiro

It will be as of growing and unlike, we are expecting it obviously to be used. We’ll close the year and of the higher teens than what we have historically been, in the 12% to 13% but the reality is we are looking at about 15% working capital as a percent of sales. So it will be a slight use.

Steve Barger - KeyBanc Capital Markets

Right. Okay. Say that again, sorry?

Mark Zeffiro

In dollars but on a percentage basis, we should see a slight improvement.

Steve Barger - KeyBanc Capital Markets

Right. In decent dollars though, yeah.

Mark Zeffiro

Temporary.

Steve Barger - KeyBanc Capital Markets

And CapEx looks like, it’s a mid $50 million range. Can you break that up between maintenance and growth, and talk about how you are framing up your return profile expectations on the growth part?

Mark Zeffiro

Yeah. Let me give the bifurcation of the three elements here. Our maintenance CapEx hasn’t really moved drastically all that much and it’s been about in the mid teens in terms of our million of dollars a year. The rest of it is, obviously very much focused on growth and productivity for us as a company.

So there is really three pieces, right, Steve and that is productivity and that investment has been kind of a two-year or less kind of pay back investment. I think our growth capital has obviously had some shorter, some longer but on average it’s been about a two-year savings.

Dave Wathen

If you were siting in an operating room, you’d recognize that we have -- we are pursuing more CapEx driven productivity, which is a way to go after margins. TriMas had been pretty stark on that kind of stuff and I could take you around and show you a banks of machine tools and that sort of thing that are really paying off and four of them sitting in Monogram. The obvious next step is eight more. So we’ve got some -- within the CapEx spending, we’ve got some of those kind of things going on and it’s another one of those hidden benefits in TriMas for me is that when it’s been starved so long, the upside for turn on some of that a little bit on some of that kind of productivity CapEx is great.

We are not replacing machines that are 5 or 10-years old. We are replacing machines that are couple of decades old that have come a long, long way and not just cost of running the machine. It’s about throughput and quality levels and all that. We’ve got a whole push going on throughout and first passing yields and all that in some of the basics and I like it. We have used a lot of good.

Steve Barger - KeyBanc Capital Markets

Well, I guess I will take it one step further then since you have these good things going on. If there's $40 million plus or minus of growth CapEx -- growth and productivity, will you tell us the split between how much of that is on the productivity side, the machine investments that you are making and how much of it’s on growth?

Dave Wathen

I don’t want to give that precise on it because there is a little spillover between them too.

Steve Barger - KeyBanc Capital Markets

Okay. I understand.

Mark Zeffiro

Sometimes you get a growth investment that’s also productivity, so it's kind of hard to separate those two.

Steve Barger - KeyBanc Capital Markets

Okay. And Dave, you talked about waiting for confirmed revenue growth before you add capacity. Which segments are up again constraints right now and really need the expansion, and where are you maybe over capacitize or you just don’t need the investment right now?

Dave Wathen

Well, we’ve -- certainly in Packaging, we’re up against in our capacity and we are having to run higher cost ways of making products and so we can gets some things online. So, Packaging definitely needs capacity adds. We are -- we have a capacity ramp going on in Monogram as you can imagine that will be on for a while unless something changes dramatically in those markets, we will be on our capacity to ramp for a while in that business.

There is -- we have a fastener capacity issue within Energy, as in the big fastener that we will make a South Texas Bolt in all that. And we need more of that capacity because we are having to outsource things and pay way more than we could manufacture four. I would kind of put those at the top of a list.

There is a few tights spots and certain kinds of cylinder sizes in Huntsville and things like that, but we know how to address them. The new plants in Reynosa for Cequent North America are -- we do add some capacity because we can see the product mix. But they're totally driven by productivity, so we generally have enough capacity in the rest of businesses.

Steve Barger - KeyBanc Capital Markets

All right. Okay.

Dave Wathen

I have a few division presidents reminding me that I had this saying about me running a press on third shift Sunday night and I get called on that once in while.

Steve Barger - KeyBanc Capital Markets

And last question, I will get back in line. You talked about being up against capacity in Packaging also in Energy. Are those the first initiatives that you are pursuing with the $40 million in growth and productivity CapEx, and do you expect that those capacity constraints can be broken to some degree in the first half of the year -- of your year?

Dave Wathen

Generally, yeah.

Steve Barger - KeyBanc Capital Markets

So we should start to see the margin.

Dave Wathen

Yeah. And it’s about margin. Again, it’s -- we’re the kind of company that we can find a way to build it. A way we build our higher costs where we outsource a component and sort of things. So not like it’s we’re going after the revenue, it’s going after margin.

Steve Barger - KeyBanc Capital Markets

Right. Okay. Thanks so much. I’ll get back in line.

Operator

(Operator Instructions) We’ll take a follow up from Robert Kosowsky.

Robert Kosowsky - Sidoti

Yeah. Just a couple of follow ups. First off on Cequent North America, do you -- are you baking much growth in that segment given the rebound that we are seeing in housing?

Dave Wathen

There is, yeah, housing, the rebound of housing is driving, we see it in construction, we see it, we might even see a secondary effect because of people’s house values feeling little better and them spending more money on the recreational side of that business. But directly in the construction part of the business, yeah, we are seeing it. How you’re going to be, we don’t tend to think, we don’t tend to talk housing as a driver for TriMas, but at least in that segment it will be good for us for awhile, yeah.

Robert Kosowsky - Sidoti

Okay. That’s going to be good amount of…

Dave Wathen

As you run into a math problem because of the size of construction within Cequent, within TriMas, so it’s not a huge change. But, yeah, it’s definitely a positive and it tends to be the heavy duty products which are higher margin for us.

Robert Kosowsky - Sidoti

Okay. Now these are some of the products that you are moving from Goshen to Mexico and kind of how are you dealing with that, I guess, risk if demand come back?

Dave Wathen

Well, some of it we build inventory for, we have been, Goshen is the only facility we have -- we have a lot of issues with potential conjunctions and things like that which have now settle out with us going to the employees and agreeing on severance and that sort of things.

I would say, we, I strongly believe in treating people well, you can’t fix every problem for them but in a time like this we treat people well, we are doing that and they build it for what we rewarded. So now we have a situation where people know what their exact package is and all that kind of thing, and so we are doing okay building.

There is always a chance of issues with it. But I think we’ve get it covered with some dual capacity, with some inventory build. We’ve done this kind of thing before and we certainly know how and so we got good people working on it.

Robert Kosowsky - Sidoti

Okay. That’s helpful. And then if you are talking about…

Dave Wathen

We are not skimping. We’ll show you a show place plant in those some day.

Robert Kosowsky - Sidoti

Okay. Cool. And then you talk a lot about the short-term and you are feeling on margins right now? And I was wondering longer term what the margin potential is as you see down the road?

Mark Zeffiro

Are you talking in general or in a specific segment rather?

Robert Kosowsky - Sidoti

Just company-wide, you mentioned a lot of short-term in this year and I’m just wondering what you see five years down the road is kind of some margin potential targets?

Mark Zeffiro

Well, let’s talk immediate term because obviously there is, we’ve recognized the pressure that we saw in 2012. We did everything possible to offset those pressures in 2012. We never stand still. We’re expecting to see margin expansion in 2013 as a company. We haven’t given guidance on what the expansion will look like but it like to be all the way back but we’re going to recover good of it in 2013.

The reality is that there are investments that you hear us talking about in terms of Packaging as well as our trends in Cequent are clearly going to add margin opportunities for us as the company. You can do your own mathematics associated with that with respect to the move to the Goshen facility and get a sense as to what that means to your own model.

But we will continue to expand margins because quite frankly as we’re growing earnings faster than topline, we’re going -- you're going to naturally see that happen. So in terms of target tier, we internally continue to think of it in terms of 15% operating target that has a threshold for us as a company and that’s what we’re running to.

Now, I’m not going to give and say it’s five and three years but I’ll tell you that’s where we’re heading.

Robert Kosowsky - Sidoti

Okay. That’s helpful. And then also any thoughts about return of cash to shareholders?

Mark Zeffiro

It’s interesting that for the first time we with this most recent finance that’s not a restricted payment as under the credit agreement. It’s not something that immediately is ahead of us simply because we have a very robust acquisition pipeline. So I think that the return on capital is there for us to continue down the path.

Robert Kosowsky - Sidoti

All right. Thank you very much and good luck.

Mark Zeffiro

You bet.

Operator

Thank you. (Operator Instructions) It appears we have no further questions.

Dave Wathen

Okay. Well, we sure appreciate everyone’s attention and interest and suggestions. We’ve come a long way. We’ve got long ways to go yet. And we understand our priorities. We know how to continuously improve. We know when we need to turn the dials heavier in one direction than another. We know how to do that.

So in spite of kind of ugly economies and markets and natural events, I think we’ve got great spots identified and focused on them. And we look forward to continuing the increase the value of this place. So thank you for your support. Be in touch.

Operator

Thank you. Ladies and gentlemen, that does conclude today’s presentation. You may now disconnect.

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