Q3 2015 CEO Commentary*
President & CEO Joe Morone said, "Q3 2015 was a strong quarter for Albany International. Compared to Q3 2014, sales excluding currency effects improved by 5%, and Adjusted EBITDA improved 25%. Net debt declined by $21 million. Both businesses performed well, and as they have all year, are firmly on track toward their long-term strategic objectives of steady annual Adjusted EBITDA and cash flow in MC, and rapid, profitable growth in AEC.
"In MC, sales excluding currency effects were 4% ahead of Q3 2014; Adjusted EBITDA was 24% ahead. Year-to-date sales excluding currency effects were flat compared to 2014; Adjusted EBITDA was 8% ahead. All regions performed well in Q3. Consistent with our long-term view of this business, the publication grades declined in every region of the world, but the decline was more than offset by good performance across all of our growth grades and regions. On a year-over-year basis, Asia and South America grew modestly, despite economic weakness in those regions; North America rebounded back to normal levels, despite much lower publication grade sales; and Europe was stable. Margins were exceptional, and reflect continuing efforts to improve productivity and consolidate operations. The strong dollar relative to the Mexican peso and Brazilian real also contributed to the improvement in gross margin and Adjusted EBITDA.
"AEC once again performed well. Sales were 11% ahead of Q3 2014, while Adjusted EBITDA continued to hover slightly below breakeven and about $1 million behind last year. Until the LEAP ramp begins in earnest a year from now, the most important metrics for AEC are performance to schedule, manufacturing yield, manufacturing cycle time, and of course, market demand. Against these four metrics, performance was very strong in Q3. On the development front, broad progress continued in all areas of focus – that is, on applications for aircraft engines, airframes, and the high end of the automotive market. Two milestones of particular note this quarter were the production of the first three prototype fan cases for the GE9X engine, and the entry into initial production of a family of woven, semi-finished components that are used to connect the skin of aircraft to their underlying structure in a variety of defense applications. While this family of components has only modest revenue potential – roughly $5 million to $10 million per year by the end of this decade, it represents what could be the first of several emerging AEC opportunities aimed at the defense aerospace market.
"Turning to our short-term outlook, in MC the normal seasonal year-end slowdown is likely to be magnified by continued economic weakness in key markets, and so we expect Q4 Adjusted EBITDA to be at best comparable to, and quite possibly a bit lower than, Q4 2014. Full-year Adjusted EBITDA should be well ahead of full-year 2014.
"This expectation of full-year growth in Adjusted EBITDA in no way alters our long-term view of this business, just as it remained unaltered by the relatively weak Q2 results. While performance may continue to fluctuate from period to period and with general macroeconomic conditions, we maintain our long-term view of this business as capable of generating steady year-over-year Adjusted EBITDA and cash flow - with annual Adjusted EBITDA ranging from $180 million to $195 million, depending on currency translation effects.
"The short-term outlook for AEC is of course dominated by preparations for the LEAP ramp. Revenue could be subject to a good deal of quarter-to-quarter volatility over the next four quarters, as the rate at which Safran pulls parts out of our finished goods inventory fluctuates with their short-term need for parts during this final stage of development, testing, and certification. Assuming the LEAP program stays on schedule, we expect production to begin to ramp in Q4 of next year and then to increase rapidly, growing from roughly 200 shipsets in 2016 to at least 1,800 a year by the end of the decade.
"In sum, this was a good quarter for Albany; both businesses performed very well in Q3 and remain firmly on track toward their long-term objectives of steady Adjusted EBITDA and cash flow in MC, and rapid, profitable growth for AEC."
* from Q3 earnings press release issued October 27, 2015