Albany International Reports Fourth-Quarter 2020 Results

Rhea-AI Summary

Albany International Corp. (NYSE:AIN) reported Q4 2020 results, showing net sales of $226.9 million, a 12% decline year-over-year. The Machine Clothing segment's Adjusted EBITDA remained stable despite a 5% revenue drop, while Engineered Composites faced a 28% revenue decline but improved margins. Net income was $27.5 million ($0.85 per share), down from $29.1 million ($0.90 per share) in Q4 2019. For 2021, the company anticipates total revenue between $850-$890 million, driven by the Machine Clothing segment, despite expected challenges in Engineered Composites.

Positive

• Machine Clothing segment maintained Adjusted EBITDA at 2019 levels despite 5% revenue decline.
• Engineered Composites segment improved Adjusted EBITDA margin by 360 basis points despite 28% revenue decline.
• Company ended the year with a strong cash flow, reducing net debt significantly.

Negative

• Total net sales declined 12% year-over-year due to lower demand and external factors.
• Gross profit decreased by 6% compared to Q4 2019.
• Engineered Composites segment expected to face inventory destocking challenges.

Albany International Corp. (NYSE:AIN) today reported operating results for its fourth quarter of 2020, which ended December 31, 2020.

"Albany International finished 2020 with another strong quarter, particularly in light of the challenging business conditions in some of our end markets,” said Albany International President and Chief Executive Officer, Bill Higgins. “Our operations performed exceptionally well for customers and shareholders. Both segments delivered impressive profit margins despite top-line headwinds caused by the pandemic and the Boeing 737 MAX grounding.

“The Machine Clothing segment managed its business remarkably well during 2020. For the full year, the Machine Clothing segment reached the same level of Adjusted EBITDA as 2019 despite a 5% reduction in segment revenues. We expect another strong year in 2021. We are encouraged by growth in our order book and strengthening end-markets that we serve in this segment.

“In 2020, the Engineered Composites segment expanded its Adjusted EBITDA margin by 360 basis points despite a revenue decline of 28%. Once we get through the inventory destocking challenges we expect to face in 2021, the segment is well-positioned to grow based on the strength of our program portfolio,” concluded Higgins.

For the fourth quarter ended December 31, 2020:

• Net sales were $226.9 million, down $30.8 million, or 12%, when compared to the prior year. Sales declined $24.4 million, or 23%, in the Engineered Composites segment driven primarily by lower demand for LEAP components.
• Gross profit of $91.3 million was 6% lower than the $96.6 million reported for the same period of 2019.
• Selling, Technical, General, and Research (STG&R) expenses were $54.8 million, compared to $51.3 million in the same period of 2019. Revaluation of foreign currency balances increased STG&R by $3.0 million in 2020, compared to an increase of $1.4 million in the same period of 2019.
• Operating income was $35.0 million, compared to $43.6 million in the prior year, a decrease of 20%, principally due to lower gross profit and higher STG&R expenses.
• The effective tax rate was 13.5%, compared to 24.8% for the fourth quarter of 2019. Income tax adjustments decreased fourth-quarter income tax expense by $4.8 million in 2020 and by $1.3 million in 2019.
• Net income attributable to the Company was $27.5 million ($0.85 per share), compared to $29.1 million ($0.90 per share) in Q4 2019. Adjusted earnings per share (or Adjusted EPS, a non-GAAP measure) was $0.89 per share in the fourth quarter of 2020, compared to $0.97 in the same period of last year.
• Adjusted EBITDA (a non-GAAP measure) was $57.3 million, compared to $63.9 million in Q4 2019, a decrease of 10.4%.

Please see the tables below for a reconciliation of non-GAAP measures to their comparable GAAP measures.

“We were very pleased with the Company's performance this quarter and the overall year. Enabled by very strong free cash flow during the quarter, we continued the trend of significantly reducing net debt and, once again, ended the year with a very healthy balance sheet. Earnings per share benefited from a low tax rate this quarter due to significant non-recurring adjustments. Compared to the full-year tax rate, absent discrete items, of about 28%, the lower rate this quarter increased Adjusted EPS by about $0.12, effectively recovering earnings that would have been recognized in earlier quarters if the full year tax rate had been known," said Albany International Chief Financial Officer and Treasurer, Stephen Nolan. "We are also providing initial financial guidance for 2021, reflecting expected strong performance from the Machine Clothing segment, with our expectations for Engineered Composites being significantly impacted by a destocking cycle for our finished goods in our customers’ supply chains. We also expect a strong year for free cash flow generation: our expected cash flow in 2021 should exceed the level delivered in 2020."

Outlook for Full-Year 2021

Albany International is updating financial guidance for the full-year 2021:

• Total company revenue of between $850 and $890 million;
• Effective income tax rate, including tax adjustments, of 28% to 30%;
• Total company depreciation and amortization of between $70 and $75 million;
• Capital expenditures in the range of $50 to $60 million;
• GAAP and Adjusted earnings per share of between $2.40 and $2.80;
• Total company Adjusted EBITDA of $195 to $220 million;
• Machine Clothing revenue of $570 to $590 million;
• Machine Clothing Adjusted EBITDA of between $195 and $205 million;
• Albany Engineered Composites (AEC) revenue between $275 to $295 million; and
• Albany Engineered Composites Adjusted EBITDA of $55 to $65 million.

ALBANY INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
		Three Months Ended December 31,								Years Ended December 31,
		2020				2019				2020				2019
Net sales		$	226,857			$	257,678			$	900,610			$	1,054,132
Cost of goods sold		135,539				161,037				529,538				656,431
Gross profit		91,318				96,641				371,072				397,701
Selling, general, and administrative expenses		45,742				42,049				163,909				163,651
Technical and research expenses		9,043				9,246				35,347				37,569
Restructuring expenses, net		1,547				1,766				5,736				2,905
Operating income		34,986				43,580				166,080				193,576
Interest expense, net		3,542				3,886				13,584				16,921
Other expense/(income), net		(493		)		349				13,422				(1,557		)
Income before income taxes		31,937				39,345				139,074				178,212
Income tax expense		4,327				9,754				41,831				44,829
Net income		27,610				29,591				97,243				133,383
Net income/(loss) attributable to the noncontrolling interest		73				446				(1,346		)		985
Net income attributable to the Company		$	27,537			$	29,145			$	98,589			$	132,398
Earnings per share attributable to Company shareholders - Basic		$	0.85			$	0.90			$	3.05			$	4.10
Earnings per share attributable to Company shareholders - Diluted		$	0.85			$	0.90			$	3.05			$	4.10
Shares of the Company used in computing earnings per share:
Basic		32,339				32,308				32,329				32,296
Diluted		32,365				32,331				32,356				32,322
Dividends declared per share, Class A and Class B		$	0.20			$	0.19			$	0.77			$	0.73

ALBANY INTERNATIONAL CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
		December 31, 2020				December 31, 2019
ASSETS
Cash and cash equivalents		$	241,316			$	195,540
Accounts receivable, net		188,423				218,271
Contract assets, net		139,289				79,070
Inventories		110,478				95,149
Income taxes prepaid and receivable		5,940				6,162
Prepaid expenses and other current assets		31,830				24,142
Total current assets		$	717,276			$	618,334
Property, plant and equipment, net		448,554				466,462
Intangibles, net		46,869				52,892
Goodwill		187,553				180,934
Deferred income taxes		38,757				51,621
Noncurrent receivables, net		36,265				41,234
Other assets		74,662				62,891
Total assets		$	1,549,936			$	1,474,368
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable		$	49,173			$	65,203
Accrued liabilities		125,459				125,885
Current maturities of long-term debt		9				20
Income taxes payable		16,222				11,611
Total current liabilities		190,863				202,719
Long-term debt		398,000				424,009
Other noncurrent liabilities		130,424				132,725
Deferred taxes and other liabilities		10,784				12,226
Total liabilities		730,071				771,679
SHAREHOLDERS' EQUITY
Preferred stock, par value $5.00 per share; authorized 2,000,000 shares; none issued		—				—
Class A Common Stock, par value $.001 per share; authorized 100,000,000 shares; 39,115,405 issued in 2020 and 39,098,792 in 2019		39				39
Class B Common Stock, par value $.001 per share; authorized 25,000,000 shares; issued and outstanding 1,617,998 in 2020 and 2019		2				2
Additional paid in capital		433,696				432,518
Retained earnings		770,746				698,496
Accumulated items of other comprehensive income:
Translation adjustments		(83,203		)		(122,852		)
Pension and postretirement liability adjustments		(39,661		)		(49,994		)
Derivative valuation adjustment		(9,544		)		(3,135		)
Treasury stock (Class A), at cost; 8,391,011 shares in 2020 and 8,408,770 shares in 2019		(256,009		)		(256,391		)
Total Company shareholders' equity		816,066				698,683
Noncontrolling interest		3,799				4,006
Total equity		819,865				702,689
Total liabilities and shareholders' equity		$	1,549,936			$	1,474,368

ALBANY INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
		Three Months Ended December 31,								Years Ended December 31,
		2020				2019				2020				2019
OPERATING ACTIVITIES
Net income		$	27,610			$	29,591			$	97,243			$	133,383
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		16,039				15,426				63,328				62,085
Amortization		2,360				2,405				9,377				8,710
Change in deferred taxes and other liabilities		(1,333		)		900				11,101				13,702
Provision for write-off of property, plant and equipment		637				2,018				1,173				3,119
Non-cash interest (income)/expense		(152		)		151				(290		)		605
Write-off of pension liability adjustments due to settlement/curtailment		411				450				411				450
Compensation and benefits paid or payable in Class A Common Stock		909				650				1,505				2,063
Provision for credit losses from uncollected receivables and contract assets		(36		)		(827		)		1,628				309
Foreign currency remeasurement (gain)/loss on intercompany loans		(1,504		)		(1,074		)		14,246				(3,730		)
Changes in operating assets and liabilities that provided/(used) cash:
Accounts receivable		25,453				17,554				31,522				9,278
Contract assets		(31,190		)		(12,641		)		(59,122		)		(19,199		)
Inventories		6,358				13,004				(13,685		)		(8,923		)
Prepaid expenses and other current assets		(822		)		1,766				(7,811		)		(2,291		)
Income taxes prepaid and receivable		775				728				113				1,390
Accounts payable		(95		)		2,687				(15,586		)		10,524
Accrued liabilities		4,207				1,369				(3,856		)		(7,393		)
Income taxes payable		2,198				2,360				5,939				3,979
Noncurrent receivables		3,989				(662		)		4,158				(1,341		)
Other noncurrent liabilities		(2,024		)		(2,162		)		(2,437		)		(6,573		)
Other, net		2,770				66				1,296				205
Net cash provided by operating activities		56,560				73,759				140,253				200,352
INVESTING ACTIVITIES
Purchase of business, net of cash acquired		—				(30,793		)		—				(30,793		)
Purchases of property, plant and equipment		(10,143		)		(18,512		)		(41,463		)		(67,358		)
Purchased software		(772		)		(291		)		(927		)		(597		)
Net cash used in investing activities		(10,915		)		(49,596		)		(42,390		)		(98,748		)
FINANCING ACTIVITIES
Proceeds from borrowings		5,000				25,000				75,000				45,000
Principal payments on debt		(25,004		)		(25,003		)		(101,020		)		(120,017		)
Principal payments on finance lease liabilities		(416		)		(304		)		(7,214		)		(1,180		)
Debt acquisition costs		(2,432		)		—				(2,432		)		—
Taxes paid in lieu of share issuance		—				—				(490		)		(971		)
Proceeds from options exercised		30				7				55				112
Dividends paid		(6,144		)		(5,816		)		(24,568		)		(23,251		)
Net cash used in financing activities		(28,966		)		(6,116		)		(60,669		)		(100,307		)
Effect of exchange rate changes on cash and cash equivalents		9,333				3,754				8,582				(3,512		)
Increase/(decrease) in cash and cash equivalents		26,012				21,801				45,776				(2,215		)
Cash and cash equivalents at beginning of period		215,304				173,739				195,540				197,755
Cash and cash equivalents at end of period		$	241,316			$	195,540			$	241,316			$	195,540

Reconciliation of non-GAAP measures to comparable GAAP measures

The following tables present Net sales and the effect of changes in currency translation rates:

(in thousands, except percentages)		Net sales as reported, Q4 2020				Increase due to changes in currency translation rates				Q4 2020 sales on same basis as Q4 2019 currency translation rates				Net sales as reported, Q4 2019				% Change compared to Q4 2019, excluding currency rate effects
Machine Clothing		$	144,173			$	3,539			$	140,634			$	150,580			(6.6	)%
Albany Engineered Composites		82,684				756				81,928				107,098				(23.5	)%
Consolidated total		$	226,857			$	4,295			$	222,562			$	257,678			(13.6	)%
(in thousands, except percentages)		Net sales as reported, YTD 2020				Increase due to changes in currency translation rates				YTD 2020 sales on same basis as 2019 currency translation rates				Net sales as reported, YTD 2019				% Change compared to 2019, excluding currency rate effects
Machine Clothing		$	572,955			$	2,252			$	570,703			$	601,254			(5.1	)%
Albany Engineered Composites		327,655				620				327,035				452,878				(27.8	)%
Consolidated total		$	900,610			$	2,872			$	897,738			$	1,054,132			(14.8	)%

The following tables present Gross profit and Gross profit margin:

(in thousands, except percentages)		Gross profit, Q4 2020				Gross profit margin, Q4 2020			Gross profit, Q4 2019				Gross profit margin, Q4 2019
Machine Clothing		$	73,410			50.9	%		$	75,601			50.2	%
Albany Engineered Composites		17,908				21.7	%		21,040				19.6	%
Consolidated total		$	91,318			40.3	%		$	96,641			37.5	%
(in thousands, except percentages)		Gross profit, YTD 2020				Gross profit margin, YTD 2020			Gross profit, YTD 2019				Gross profit margin, YTD 2019
Machine Clothing		$	301,144			52.6	%		$	309,641			51.5	%
Albany Engineered Composites		69,928				21.3	%		88,060				19.4	%
Consolidated total		$	371,072			41.2	%		$	397,701			37.7	%

A reconciliation from operating income/(loss) (GAAP) to Adjusted EBITDA (non-GAAP) for the current-year and comparable prior-year periods has been calculated as follows:

Three months ended December 31, 2020
(in thousands)		Machine Clothing				Albany Engineered Composites				Corporate expenses and other				Total Company
Operating income/(loss) (GAAP)		$	41,386			$	8,787			$	(15,187	)		$	34,986
Interest, taxes, other income/(expense)		—				—				(7,376		)		(7,376		)
Net income/(loss) (GAAP)		41,386				8,787				(22,563		)		27,610
Interest expense, net		—				—				3,542				3,542
Income tax expense		—				—				4,327				4,327
Depreciation and amortization expense		5,161				12,303				935				18,399
EBITDA (non-GAAP)		46,547				21,090				(13,759		)		53,878
Restructuring expenses		1,332				215				—				1,547
Foreign currency revaluation (gains)/losses		3,009				(372		)		(1,134		)		1,503
Acquisition/integration costs		—				405				—				405
Pre-tax (income) attributable to noncontrolling interest		—				(64		)		—				(64		)
Adjusted EBITDA (non-GAAP)		$	50,888			$	21,274			$	(14,893	)		$	57,269
Adjusted EBITDA margin (Adjusted EBITDA divided by Net sales-non-GAAP)		35.3		%		25.7		%		—				25.2		%
Three months ended December 31, 2019
(in thousands)		Machine Clothing				Albany Engineered Composites				Corporate expenses and other				Total Company
Operating income/(loss) (GAAP)		$	46,277			$	10,922			$	(13,619	)		$	43,580
Interest, taxes, other income/(expense)		—				—				(13,989		)		(13,989		)
Net income/(loss) (GAAP)		46,277				10,922				(27,608		)		29,591
Interest expense, net		—				—				3,886				3,886
Income tax expense		—				—				9,754				9,754
Depreciation and amortization expense		5,201				11,611				1,019				17,831
EBITDA (non-GAAP)		51,478				22,533				(12,949		)		61,062
Restructuring expenses		4				1,815				(53		)		1,766
Foreign currency revaluation (gains)/losses		1,365				(12		)		(748		)		605
Pension curtailment expense		—				—				478				478
Acquisition/integration costs		—				421				200				621
Pre-tax (income) attributable to noncontrolling interest		—				(586		)		—				(586		)
Adjusted EBITDA (non-GAAP)		$	52,847			$	24,171			$	(13,072	)		$	63,946
Adjusted EBITDA margin (Adjusted EBITDA divided by Net sales-non-GAAP)		35.1		%		22.6		%		—				24.8		%

Year ended December 31, 2020
(in thousands)		Machine Clothing				Albany Engineered Composites				Corporate expenses and other				Total Company
Operating income/(loss) (GAAP)		$	190,805			$	31,536			$	(56,261	)		$	166,080
Interest, taxes, other income/(expense)		—				—				(68,837		)		(68,837		)
Net income/(loss) (GAAP)		190,805				31,536				(125,098		)		97,243
Interest expense, net		—				—				13,584				13,584
Income tax expense		—				—				41,831				41,831
Depreciation and amortization expense		20,304				48,496				3,905				72,705
EBITDA (non-GAAP)		211,109				80,032				(65,778		)		225,363
Restructuring expenses		2,746				2,821				169				5,736
Foreign currency revaluation (gains)/losses		1,743				130				13,571				15,444
Former CEO termination costs		—				—				2,742				2,742
Acquisition/integration costs		—				1,272				—				1,272
Pre-tax loss attributable to noncontrolling interest		—				1,348				—				1,348
Adjusted EBITDA (non-GAAP)		$	215,598			$	85,603			$	(49,296	)		$	251,905
Adjusted EBITDA margin (Adjusted EBITDA divided by Net sales-non-GAAP)		37.6		%		26.1		%		—				28.0		%
Year ended December 31, 2019
(in thousands)		Machine Clothing				Albany Engineered Composites				Corporate expenses and other				Total Company
Operating income/(loss) (GAAP)		$	191,965			$	55,520			$	(53,909	)		$	193,576
Interest, taxes, other income/(expense)		—				—				(60,193		)		(60,193		)
Net income/(loss) (GAAP)		191,965				55,520				(114,102		)		133,383
Interest expense, net		—				—				16,921				16,921
Income tax expense		—				—				44,829				44,829
Depreciation and amortization expense		21,876				44,670				4,249				70,795
EBITDA (non-GAAP)		213,841				100,190				(48,103		)		265,928
Restructuring expenses		1,129				1,833				(57		)		2,905
Foreign currency revaluation (gains)/losses		630				643				(4,463		)		(3,190		)
Pension curtailment expense		—				—				478				478
Acquisition/integration costs		—				421				200				621
Pre-tax (income) attributable to noncontrolling interest		—				(1,308		)		—				(1,308		)
Adjusted EBITDA (non-GAAP)		$	215,600			$	101,779			$	(51,945	)		$	265,434
Adjusted EBITDA margin (Adjusted EBITDA divided by Net sales-non-GAAP)		35.9		%		22.5		%		—				25.2		%

Per share impact of the adjustments to earnings per share are as follows:

Three months ended December 31, 2020 (in thousands, except per share amounts)		Pre tax Amounts				Tax Effect				After tax Effect				Per share Effect
Restructuring expenses		$	1,547			$	485			$	1,062			$	0.03
Foreign currency revaluation (gains)/losses (a)		1,503				1,379				124				0.00
Acquisition/integration costs		405				121				284				0.01
Three months ended December 31, 2019 (in thousands, except per share amounts)		Pre tax Amounts				Tax Effect				After tax Effect				Per share Effect
Restructuring expenses		$	1,766			$	494			$	1,272			$	0.04
Foreign currency revaluation (gains)/losses		605				169				436				0.01
Pension curtailment charge		478

FAQ

What were Albany International's Q4 2020 results for AIN?

In Q4 2020, Albany International reported net sales of $226.9 million, a 12% decrease from Q4 2019, with a net income of $27.5 million.

How did the Machine Clothing segment perform in Q4 2020?

The Machine Clothing segment achieved stable Adjusted EBITDA, matching 2019 levels despite a 5% revenue decline.

What financial guidance did Albany International provide for 2021?

Albany International expects total revenue of between $850 million and $890 million for 2021, with strong performance anticipated from the Machine Clothing segment.

What challenges are anticipated for the Engineered Composites segment?

The Engineered Composites segment is expected to face inventory destocking challenges impacting its performance in 2021.