Luxfer Holdings PLC (NYSE:LXFR) Q3 2019 Earnings Conference Call Transcript

Oct 31, 2019 • 08:30 am ET

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Luxfer Holdings PLC (NYSE:LXFR) Q3 2019 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good morning, my name is. Dorthy, and I will be your conference operator today. Welcome to Luxfer's 2019 Third Quarter Earnings Conference Call. [Operator Instructions]. After the speakers' remarks there will be a question-and-answer session. Now I will turn the call over to Cassandra Stanford, Luxfer's communication specialist.

Cassandra, you may begin.

Executive
Cassandra Stanford

Thank you, Dorothy. Welcome to Luxfer's third quarter 2019 Earnings Call. We're happy to have you all with us today. I'm Cassandra Stanford, and with me today is Alok Maskara, Chief Executive Officer. And Heather Harding, our Chief Financial Officer. On today's call, we will provide details on our third quarter 2019 performance as outlined in the press release we issued yesterday. Today's webcast is accompanied by a presentation that can be accessed at luxfer.com. Please note any references to non-GAAP financials are reconciled in the appendix of this presentation.

Before we begin a friendly reminder that any forward-looking statements made about the company's expected financial results are subject to future risks and uncertainties. please refer to Slide 2 of today's presentation for further details. Now let me turn the call over to Alok.

Executive
Alok Maskara

Thank you, Cassandra. Welcome everyone. During our call today, I will provide an overview of our third quarter performance, an update on transformation plan progress, and an outlook for the remainder of the year. Please turn to Slide 3 for the summary of our performance. Third quarter 2019 financial results were a reflection of weak industrial macro conditions in the US and Europe which impacted our industrial segment sales. Demand for our SoluMag product typically used in fracking was notably lower.

As a reminder we had record SoluMag sales in the third quarter of 2018 creating tough comps for this quarter. In addition unprecedented storm-related flooding in the Midwest caused a temporary disruption at one of our graphic art facilities. Total sales excluding the impact of the non-core Czech divestiture declined 14.1%. Currency exchange rate created an additional 2.3% headwind. Because of lower sales our EBITDA declined 27% $16.7 million as we were unable to offset the gross margin impact of lower sales with cost reductions. Operating cash was also weaker, as we were unable to quickly lower inventory to match lower sales .

We have implemented aggressive plans to improve cash generation in the 4th quarter and beyond. Our balance sheet remains in great shape with a net debt to EBITDA ratio of 1.3 times. Our return on invested capital increased 220 basis points year-on-year to 18.6%. During the quarter, our cash outflow was $1.2 million as we used operating cash to fund $8 million in restructuring expenses. We expect Q4 cash generation to be stronger as we continue to adjust our working in response to lower sales. We continue to make good progress on our transformation plan to better position Luxfer for long-term success. As a reminder, one of our strategic initiatives is to streamline our global footprint. During the quarter, we completed the consolidation of our cylinder facilities successfully transferring all remaining