10-Q: Ampco-Pittsburgh Reports Q2 Loss Amid UK Exit Costs

Ampco-Pittsburgh Corporation reported a significant net loss for the second quarter and first half of 2025, primarily driven by charges related to exiting its UK operations.

Summary

• Net sales for the six months ended June 30, 2025, decreased to $217.37 million from $221.20 million in the prior year.
• The company reported a net loss attributable to Ampco-Pittsburgh of $6.19 million, or $0.31 per share, for the six months ended June 30, 2025, compared to a loss of $0.71 million, or $0.04 per share, in the same period of 2024.
• Operating income for the six months ended June 30, 2025, was $0.77 million, a significant decrease from $5.13 million in the prior year.
• The Forged and Cast Engineered Products (FCEP) segment incurred a loss from operations of $0.06 million for the six months, down from an income of $6.94 million, primarily due to a $6.75 million charge related to the U.K. exit.
• The Air and Liquid Processing (ALP) segment's income from operations increased to $7.42 million for the six months, up from $5.16 million in the prior year.
• Cash and cash equivalents decreased by $5.48 million to $9.95 million as of June 30, 2025, from $15.43 million at December 31, 2024.
• Net cash flows used in operating activities significantly increased to $7.61 million for the six months ended June 30, 2025, compared to $0.78 million in the prior year.
• Total backlog decreased to $351.27 million as of June 30, 2025, from $378.88 million at December 31, 2024, with FCEP backlog declining by $38.10 million while ALP backlog increased by $10.48 million.
• The company recognized $735,000 in Employee-Retention Credits during the second quarter of 2025.
• A tax benefit of $800,000 for the six months ended June 30, 2025, resulted from the Chinese joint venture qualifying as a high-tech enterprise (HTE), reducing its tax rate to 15% through 2026.

Sentiment

Score: 3

Explanation: The overall sentiment is negative due to a significant increase in net loss, substantial negative operating cash flow, and a decline in overall backlog. While the ALP segment shows some strength and new financing was secured, the large restructuring charge for the U.K. exit and ongoing challenges in the FCEP segment overshadow these positives, indicating a difficult financial period.

Positives

• The Air and Liquid Processing (ALP) segment demonstrated improved operating income, increasing by $2.26 million to $7.42 million for the six months ended June 30, 2025.
• The company received $735,000 in Employee-Retention Credits, positively impacting operating results.
• A tax benefit of $800,000 was realized due to the Chinese joint venture's qualification as a high-tech enterprise, reducing its tax rate to 15% through 2026.
• Net cash flows used in investing activities decreased by $1.36 million, primarily due to lower capital expenditures in the FCEP segment following the completion of a significant capital equipment program.
• The company secured a new $100 million senior secured asset-based revolving credit facility and $13.5 million in Equipment Term Notes, enhancing liquidity.
• The ALP segment's backlog increased by $10.48 million, driven by strong order activity in the U.S. Navy, pharmaceutical, and nuclear markets.

Negatives

• The company reported a net loss attributable to Ampco-Pittsburgh of $6.19 million for the six months ended June 30, 2025, a significant increase from a $0.71 million loss in the prior year.
• Operating income decreased substantially to $0.77 million for the six months ended June 30, 2025, from $5.13 million in the prior year.
• The Forged and Cast Engineered Products (FCEP) segment experienced a significant decline in operating results, reporting a loss of $0.06 million for the six months, primarily due to a $6.75 million charge related to exiting U.K. operations.
• Net cash flows used in operating activities increased significantly to $7.61 million for the six months ended June 30, 2025, from $0.78 million in the prior year, driven by higher investment in trade working capital and asbestos-related payments.
• Total backlog decreased by $27.62 million to $351.27 million, largely due to a $38.10 million decline in the FCEP segment's backlog.
• Cash and cash equivalents decreased by $5.48 million to $9.95 million as of June 30, 2025.
• The company's U.K. operations (UES-UK) are being exited due to unpredictable and high energy costs, lower demand, and increased imports, leading to significant restructuring charges and potential future costs.
• The company continues to face increasing production costs due to inflation, particularly in the ALP segment, and tariffs on raw materials.

Risks

• Inability to maintain adequate liquidity to meet operating cash flow requirements, repay maturing debt, and cover financial obligations, including severance costs for the U.K. exit.
• Economic downturns, cyclical demand for products, and insufficient demand.
• Excess global capacity in the steel industry.
• Inability to successfully restructure operations, exit U.K. operations, or invest in operations that yield long-term shareholder value.
• Changes in the global economic environment, inflation, ongoing impact of tariffs, elevated interest rates, recessions, or prolonged periods of slow economic growth, and global instability/geopolitical conflict.
• Liability of subsidiaries for claims alleging personal injury from exposure to asbestos-containing components, with significant uncertainties regarding future costs and insurance recoveries.
• Inability to obtain necessary capital or financing on satisfactory terms for capital expenditures to support growth strategy.
• Inoperability of certain critical equipment.
• Increases in commodity prices or insufficient hedging against such increases, reductions in electricity and natural gas supply, or shortages of key production materials.
• Inability to satisfy the continued listing requirements of the New York Stock Exchange.
• Potential attacks on information technology infrastructure and other cyber-based business disruptions.
• Fluctuations in the value of the U.S. dollar relative to other currencies.
• Changes in the existing regulatory environment.
• Consequences of pandemics and geopolitical conflicts.
• Work stoppage or other industrial action by unions.
• Failure to maintain an effective system of internal control.
• The imposition of tariffs by the United States has negatively affected, and could continue to negatively affect, operations, financial performance, and liquidity, leading to customer order deferrals and pass-through risks.
• Internal corporate reorganizations may be disruptive, result in significant expense, require regulatory approvals, and fail to result in intended benefits.

Future Outlook

The company expects to complete orders in backlog and cease foundry operations at UES-UK by the end of 2025, with finishing operations ceasing in spring 2026. Additional severance benefits of $500,000 to $600,000 may be earned by employees. The company will continue to evaluate future alternative uses of UES-UK property, plant, and equipment, and additional charges may occur. Tariffs are expected to be passed on to customers, but outcomes are fluid and subject to change, potentially affecting ordering patterns. The company anticipates sufficient liquidity from funds on hand, future operations, and the revolving credit facility to finance operational requirements, debt service, and capital expenditures, but may consider other strategies to enhance liquidity. The Chinese joint venture's earnings will be taxed at a reduced rate of 15% through 2026. There is a reasonable possibility that a portion of the valuation allowance against deferred income tax assets in Sweden may be released within the next 12 months, which would decrease income tax expense.

Management Comments

• The U.K. operations have been impacted by unpredictable and high energy costs compared to foreign competitors, lower demand for products manufactured in the U.K., and increased imports of rolls and flat rolled steel into Europe from low-cost countries.
• UES-UK has decided to exit its operations in light of its historical performance and management's outlook for the remainder of 2025 and subsequent years.
• For the ALP segment, businesses are benefiting from steady demand and increased market share but continue to face increasing production costs due to inflation.
• The ALP segment has been implementing price increases for certain products to help mitigate inflationary effects.
• The U.S.'s onshoring of additional manufacturing capabilities would potentially increase demand for the ALP segment's products.
• The company is actively monitoring changes prompted by the U.S. government, repercussions from Middle East conflicts and similar geopolitical matters, economic conditions, and other developments relevant to its business.

Industry Context

The global steel manufacturing industry continues to face excess capacity relative to consumption, leading to soft but stable demand. Increased imports of low-priced products from other countries, particularly into the U.S. and Europe, are negatively impacting local demand and profitability for domestic producers. Tariffs imposed by the U.S. government on steel and aluminum imports, while intended to protect domestic industries, create uncertainty in trade policy and can lead to customer order deferrals. The cast roll market in the U.S. is currently underserved, which could provide a competitive advantage for domestic producers. Inflationary pressures are driving up production costs across industries, necessitating price increases to maintain margins. The potential for U.S. onshoring of manufacturing capabilities could boost demand for industrial components like those produced by the ALP segment.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or results to assess performance against global benchmarks. However, it notes that UES-UK's operations were impacted by unpredictable and high energy costs compared to its foreign competitors, indicating a disadvantage in cost structure.
• The company believes its European operations are on equal footing with competition regarding tariffs in the underserved U.S. cast roll market, suggesting a competitive positioning in that specific niche despite trade barriers.

Corporate Governance

Legal Proceedings

• The company and its subsidiaries are involved in various claims and lawsuits incidental to their businesses.
• Subject to asbestos litigation, with claims alleging personal injury from exposure to asbestos-containing components historically used in some products manufactured by predecessors of Air & Liquid.
• As of June 30, 2025, there were 6,172 total asbestos claims pending, with 3,150 active claims.
• Gross settlement and defense costs paid for asbestos claims were $13.13 million for the six months ended June 30, 2025.
• The company has settlement agreements with insurance carriers covering the Asbestos Liability, but access by Howden North America, Inc. to coverage for Buffalo Forge products may erode available coverage.
• The Asbestos Liability and insurance receivable estimates rely on assumptions that are regularly reviewed and may be adjusted, with potential material impact on financial results and position due to uncertainties in litigation and insurance recovery.

Related Party Transactions

• Akers TISCO Roll Co., Ltd. (ATR), a 59.88% indirectly owned joint venture, periodically has loans outstanding with its minority shareholder, though no borrowings were outstanding as of June 30, 2025.
• ATR had purchases from related parties of $4.01 million and sales to related parties of $9.21 million for the six months ended June 30, 2025.
• Accounts receivable from related parties totaled $1.85 million and accounts payable to related parties totaled $0.62 million as of June 30, 2025.
• ATR leases its manufacturing facilities from its other partner, with rent payments of $61,000 for the six months ended June 30, 2025, included in purchases from related parties.

Stakeholder Impact

• Shareholders: Experienced a significant net loss and decline in EPS, impacting shareholder value. The expiration of Series A Warrants without exercise for most holders also impacts potential future share dilution.
• Employees: 168 employees of UES-UK are affected by the decision to exit operations, with statutory severance and other benefits payable, and potential additional benefits.
• Customers: FCEP customers have deferred orders due to geopolitical events and tariff uncertainty. ALP customers are facing price increases due to inflation and tariffs on raw materials.
• Suppliers: The company's operations are exposed to increases in commodity prices and potential shortages of key production materials.
• Creditors: The company amended its revolving credit facility and secured new term notes, indicating ongoing debt management and reliance on financing for liquidity. Compliance with debt covenants is maintained.

Next Steps

• UES-UK to complete orders in backlog and cease foundry operations by the end of 2025.
• UES-UK to cease finishing operations in spring 2026.
• The company will continue to evaluate future alternative uses of UES-UK property, plant, and equipment.
• Accrual of additional employee benefits for UES-UK employees as services are rendered (estimated $500,000 $600,000).
• Monitoring and active response to changes prompted by the U.S. government, geopolitical matters, and economic conditions.
• Evaluation of the impact of new accounting standards (ASU 2024-03 and ASU 2023-09) on future disclosures.
• Potential release of a portion of the valuation allowance against deferred income tax assets in Sweden within the next 12 months, contingent on profitability.
• Expenditure of approximately $8.4 million in capital commitments over the next 12-18 months.

Key Dates

Recommendation

The company's financial performance for the first half of 2025 was significantly worse than the prior year, marked by a substantial net loss and negative operating cash flow, primarily due to the strategic decision to exit U.K. operations and associated charges. While the ALP segment shows positive momentum and the company has secured new financing to bolster liquidity, the FCEP segment faces ongoing challenges including declining backlog and market uncertainties. The long-standing asbestos liability remains a material risk. Given the significant restructuring and its immediate negative impact on profitability, coupled with a mixed outlook across segments, a 'hold' recommendation is appropriate. Investors should monitor the successful execution of the U.K. exit, the FCEP segment's ability to return to profitability post-restructuring, and the company's overall cash flow generation before considering further investment.

Keywords

Specialty Metal Products, Forged Steel Rolls, Cast Rolls, Air Handling Systems, Heat Exchange Coils, Centrifugal Pumps, SEC Filing, Quarterly Report, Financial Performance, Restructuring, UK Operations Exit, Asbestos Liability, Tariffs, Liquidity, Manufacturing, Industrial Products