ALBANY INTERNATIONAL CORP /DE/ Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Business Performance: Performed well in both segments; Machine Clothing had strong results, while Engineered Composites under new leadership showed operational progress.
• Financials: Record revenues of nearly $1.25 billion in 2024, generated free cash flow of $137 million, and initiated a share repurchase program with $250 million authorization.
• Machine Clothing: Focused on consolidating operations and discontinuing unprofitable product lines at Heimberg. North America remained a strong contributor, while Europe and Asia were flat. Global backlog was stable.
• Engineered Composites: Impacted by EAC adjustments, but made progress on CH-53K, Gulfstream, space, and advanced air mobility. Defense business stable with growth potential in hypersonics.
• Strategic Actions: Consolidating facilities, divesting non-core assets, overhauling executive compensation, and consolidating headquarters in Portsmouth, New Hampshire.

Segment Performance

• Machine Clothing: Fourth quarter net sales were $188 million, down 1.9% year-over-year. Driven by lower packaging and publication grades but offset by increased sales in engineered fabrics. For the full year 2024, it contributed significantly to record revenues of nearly $1.25 billion, with forecasts of low single-digit revenue growth going forward. Revenue contribution in Q4 was approximately 65.5% of consolidated net sales ($188 million / $287 million).
• Engineered Composites (AEC): Fourth quarter net sales were $99 million, down from $132 million year-over-year. Impacted by EAC adjustments ($14 million), lower LEAP revenues ($10 million), and lower 787 volumes ($2 million). Revenue contribution in Q4 was approximately 34.5% of consolidated net sales ($99 million / $287 million). Q2025 projected LEAP revenues are approximately $150 million, with growth potential in space, advanced air mobility, and hypersonics.

Guidance

• 2025 Outlook:
  • Machine Clothing: Top line expected to decline ~3% y-o-y, but comparable sales forecast to grow ~2% with Heimberg synergies and efficiencies. Adjusted EBITDA margin projected to improve ~150 basis points.
  • AEC: Modest growth led by CH-53K and advanced air mobility, offset by LEAP. Adjusted EBITDA margins expected at midpoint ~13%.
  • Consolidated: Adjusted EBITDA expected to grow ~8%. EPS range $3.00-$3.40, midpoint $3.20. 60% of net earnings projected in H2 2025.

Risks

• Uncertainties: Trade tariffs, especially with China; potential cost pressure from new defense administration; uncertainties in Boeing and Airbus recovery affecting LEAP volumes.
• Execution Risks: Challenges in integrating Heimberg, managing EAC adjustments, and ramping up new programs like hypersonics.

Question and Answer

• Q: On AEC, progress on CH-53K, Gulfstream, margins, and free cash flow.

A: Gunnar and Rob discussed CH-53K improvements, AEC margins including GIS costs, and free cash flow guidance for 2025, stating AEC margins are expected to improve over time with strategic actions.

• Q: On Boeing production rates, LEAP, and new comp structure.

A: Gunnar and Rob talked about cautiousness with Boeing production rates due to inventory and recovery uncertainty, LEAP flexibility with Safran, and the new executive compensation structure aligning with long-term shareholder value.

• Q: On LEAP inventory, working capital, and defense programs.

A: Rob and Gunnar discussed LEAP inventory destocking, continued focus on working capital improvement, and uncertainties in defense programs regarding potential cost pressure from the new administration.

• Q: On tariff risk and defense cost pressure.

A: Gunnar addressed tariff uncertainty with China as de minimis but under analysis, and defense program cost pressure concerns, noting uncertainties but stable long-term prospects for some programs.