Q2 2017 CEO Commentary
CEO Joseph Morone said, "Aside from the charge associated with future losses on the BR 725 and A380 programs, Q2 was another strong quarter for Albany International. MC once again generated stable sales and strong income, while AEC grew sharply and took another incremental step toward improved profitability. Both businesses are now a little ahead of our expectations for the full year, and remain firmly on track toward their longer term objectives of stable MC cash flow and sharp AEC growth coupled with gradually improving profitability.
"In MC, sales were once again steady; Q2 sales were slightly above the preceding three quarters and slightly below a strong Q2 2016. The market trends of recent quarters continued. Publication sales declined by nearly 8%, but since they now represent less than 25% of total sales, they were almost completely offset by incremental growth in packaging and tissue. This pattern held in every major geographic region. Meanwhile, pricing across all regions was stable and new product development and performance were again very strong, particularly in the growth grades of tissue, packaging and nonwovens.
"Turning to the outlook for MC, due to seasonal effects, the second half of the year tends to be weaker than the first half. But on a year-over-year basis, given MC's strong competitive performance, stable market conditions, and good order backlog, it is reasonable to expect continued stable performance in the second half of the year. Last quarter, we reported that the MC segment was on track toward full-year 2017 Adjusted EBITDA in the middle of our expected range of $180 million to $195 million dollars. With the strong first-half performance and our outlook for the second half, MC 2017 Adjusted EBITDA now appears more likely to end up in the upper half of that range.
"AEC sales grew to $69 million, compared to $56 million in Q1 and $54 million in Q2, 2016. The growth was driven primarily by LEAP, and secondarily by the F-35 and Boeing fuselage frame programs. Each of AEC's key growth and legacy programs performed well, with good performance on deliveries and steady advances across all operations in continuous improvement activities aimed at higher yields and lower costs. Operating income declined in the quarter principally due to the $15.8 million charge associated with the BR 725 and A380 programs. But aside from this charge, AEC took another tangible, incremental, sequential step in Q2 toward our target of 18% to 20% Adjusted EBITDA as a percentage of sales by 2020.
"New business development activity continues to be strong on all fronts, with AEC actively exploring a portfolio of opportunities in both civil and defense markets, including opportunities on existing aerospace platforms, emerging aerospace platforms, and outside of aerospace. The biggest news in the quarter came from the Paris Air Show. Orders for LEAP were very strong, the order backlog now exceeds 13,100 engines (over six years of full production), and GE and Safran are now considering additional increases in LEAP production rates. There was also a great deal of discussion by Boeing at the show about its planning for the potentially new 797 (i.e., new middle-of-market aircraft), and CFM and Safran expressed their clear intent to compete for the engine that would power it. A decision by Boeing to launch the 797 would create potentially significant opportunities for AEC on both airframe and engine.
"As for the near-term outlook for AEC, we had previously stated that we were looking for full-year 2017 revenue to grow by 25% to 35% compared to full-year 2016, coupled with gradually improving Adjusted EBITDA as a percentage of sales. We now expect full-year 2017 growth to be at the high end of that range, and for the trend of incremental, sequential improvements in Adjusted EBITDA as a percentage of sales to continue through the second half of the year."