Feb 25, 2015
Executives
Sherry Lauderback - VP, Investor Relations & Global Communications David Wathen - President and CEO Mark Zeffiro - Group President, Cequent Robert Zalupski - CFO
Analysts
Scott Graham - Jefferies Andy Casey - Wells Fargo Securities Karen Lau - Deutsche Bank Robert Kosowsky - Sidoti Matt Koranda - Roth Capital Partners Walter Liptak - Global Hunter
Operator
Good day, and welcome to the TriMas Fourth Quarter and Full Year 2014 Earnings Conference Call. Today's conference is being recorded.
At this time, I would like to turn the conference over to Sherry Lauderback. Please go ahead.
Sherry Lauderback
Thank you, and welcome to the TriMas Corporation fourth quarter and full year 2014 earnings call. Participating on the call today are Dave Wathen, TriMas' President and CEO; Bob Zalupski our new Chief Financial Officer, Mark Zeffiro, our Cequent Group President.
Dave and Bob will review TriMas' fourth quarter and full year 2014 results, as well as provide details on our 2015 outlook. Mark will provide an update on the Cequent spin, and after our prepared remarks, we’ll open the call up to your questions.
In order to assist with the review of our results, we have included a press release and PowerPoint presentation on our company website, www.trimascorp.com, under the Investors section. In addition, a replay of this call will be available later today by calling 888-203-1112 with a replay code of 3786796.
Before we get started, I would like to remind everyone that our comments today, which are intended to supplement your understanding of TriMas, may contain forward-looking statements that are inherently subject to a number of risks and uncertainties. Please refer to our Form 10-K for a list of factors that could cause our results to differ from those anticipated in any forward-looking statements.
Also, we undertake no obligation to publicly update or revise any forward-looking statements, except as required by law. We would also direct your attention to our website, where considerably more information may be found.
I would also like to refer you to the appendix in our press release, issued this morning, and included as part of this presentation, which is available on our website. With the reconciliations between GAAP and non-GAAP financial measures used during this conference call.
Today, the discussion on the call regarding our financial statements will be on an excluded special item basis. At this point, I would like to turn the call over to Dave Wathen, TriMas' President and CEO.
Dave?
David Wathen
Thanks, Sherry. Good morning.
Thanks to everyone on this call for your interest and attention to TriMas. Our view 2014 is a year that kicked off a new set of transformational improvements for TriMas.
While we faced external and internal challenges throughout the year, we have taken many actions to improve our company going forward. You’ll notice that we have reorganization or restructurings in the majority of our businesses, including those which have been - achieve higher margins.
We are focused on those areas that we believe will drive value for our customers, shareholders, and employees. Throughout this call, we’ll provide insights into why we’re excited about TriMas, our businesses, and the prospects of the future.
We have several large projects under way, and a couple of key people and new roles, which you will hear from today. But first let me comment on 2014 on slide 4.
Despite the slow growing economy and other economic uncertainties during the year, TriMas achieved $1.5 billion in sales representing growth of 8%. Externally we faced slower market growth rates in Asia and South America, Europe remained flat and the U.S.
stayed near 2% GDP growth. So I’m pleased with these top line results.
We attained the full year EPS of$1.92, which was in the middle of our range, absorbing a $0.01 related to the impact of the Allfast acquisition and its related financing, as well as increased headwinds in the fourth quarter related to currency, rapidly declining oil prices, and the port slowdown on the west coast. We have, of course, already reacted to these challenges and we’ll continue to react as required in 2015.
We also continued to refine our business portfolio toward higher growth, higher margin businesses. We completed strategic acquisitions in Packaging and Aerospace, disposed of a lower margin defense business, and announced the decision to spin Cequent into a free standing public company.
On slide 5, I’d like to update you on four key initiatives which are focused on increasing value. Packaging has a global reorganization underway, due to better service its customers at end markets around the world.
With four new low cost plants in Asia to support our growth, we will continue to ramp up our manufacturing capabilities there for ongoing enhancement of our cost structure and flexibility. Aerospace consists of four businesses working together in new ways to capitalize on synergies, both on the product offering side, benefiting our customers and for cost leverage and cost take up.
Packaging, Aerospace are growing inherently high margin businesses as is, but both have upsides. Packaging is focused on revenue growth and maintaining operating margin in the low to mid-20s, and Aerospace’s priorities are focused on margin recovery to previously demonstrated levels and also continuing revenue growth.
There are many similarities and tactics. We are supplementing these teams with new people to add horsepower.
We are reorganizing the front ends towards more customer and market focus rather than product focus, implementing pricing improvements, and placing our high emphasis on new product development. Both Packaging and Aerospace have strong continuous improvement programs and lean productivity activities underway as well.
Moving on to our Energy initiatives, while our Energy business is almost doubled in size over the past five years as we've built out our global footprint following our significant customers, we are now primarily focused on margin improvement. There are two main tactics, one cost out through plant and branch consolidation with emphasis on ramping production in Mexico and India.
And two, improving the mix of higher margin specialty products through product enhancements, education of customers and our sales force and appropriate selling incentives. We announced the decision to move some production of our longer lead time gaskets and bolts from our existing facility to a new facility in Mexico.
And while in the early stages, we expect this initiative to start showing improvements in the back half of 2015. In addition we are also in the middle of the project aimed at achieving the tax free spin of our Cequent businesses.
The next few slides are a reminder of why this transaction is value enhancing, which I will discuss, and then I will turn the call over to Mark Zeffiro who will be CEO of the new company to share an update. First reminder is about why we pursued this path.
We believe this move will establish two strong businesses that have distinct characteristics and independent growth in margin expansion opportunities. Each business will benefit from a total focus on capital allocation, investment targets, organizational structures and incentives.
The separation will allow each company to pursue a more focused strategy that leverages its respective strengths, while providing two different and compelling investment opportunities that can be achieved in a tax efficient manner. Mark and I are both committed to proving that the value of these two businesses could exceed one plus one.
With the significant amount of work still to do, we do believe we are on schedule and are still targeting a mid-2015 completion for this tax efficient transaction. The next slide displays the key characteristics of the two companies.
I will continue leading TriMas and I’m very pleased to have long time TriMas leader Bob Zalupski as our CFO. As I mentioned Mark Zeffiro, who served to TriMas as CFO for six years will be the CEO of the new company and Dave Rice will be its CFO.
Mark who in the interim is Group President of Cequent committee, will now share an update on the progress that he and the Cequent team are making. We do still need to stay to light on details until we get through some of the filing milestones.
Mark?
Mark Zeffiro
Thanks, Steve. And I’m pleased to share with you today the progress our team has made for the spin in Cequent businesses mid-year.
It’s an exciting time for us and we are well engaged in completing this project. The project team has made significant projects - progress toward being ready to be a standalone public company.
First, we've decided on the company name Horizon Global Corporation. This is an important step in creating a new identity for the company and our employees.
This name selection points to us being broader than the products and markets we serve today and embodies our aspirations of growth for the company. In addition, we are well underway and developing our organizational precepts, vision, and mission, all of which will support the company culture we aim to create.
Second, we've made real progress on aligning the organization with how we’ll operate in the future. As you may have seen we have selected our CFO for the company Dave Rice.
Our current TriMas and Cequent employee, Dave joined TriMas in 2005 and brings more than 30 years of financial, audit and leadership experience to the role. I’m looking forward to the partnership we’ll form in leading Horizon.
In addition we've begun combining organizations in the Americas, which have historically been run as separate businesses of consumer products and performance products. The teams have been identified in our line for what we need the Americas business to become, a more efficient part of the enterprise.
As such, the team is working on the synergies of becoming one company. These synergies will mitigate the new burden expected of standalone public company costs.
The team knows the goal and is diligently working on these actions. We have also begun the prioritization of our strategic platforms for Horizon.
We've identified real end market opportunities in the short-mid and longer term, targeted to provide future growth. As I mentioned in our spin call announcement, this set of businesses has grown consistently over the past four years delivering a 10% CAGR in sales, as we've built out the global sales platform.
These growth areas will include the formalization of a global OEM, OES business, further penetration of Latin American and Chinese markets, and last but not least, increased ecommerce capability and capacity. We believe that focusing on these areas will, in conjunction with renewed dedication and operational excellence, provide meaningful growth opportunities.
That brings me to what the team sees as opportunities to be more efficient in our current activities. This re-doubled effort on operating excellence is anticipated to deliver the returns expected from the investments already completed and delivering the margin expectations we had in making those investments.
Much of the heavy, structural change is either complete or well underway to deliver our improved business model. As you would suspect, while efforts have been very concentrated in the past 30 days, the next 90 days represents a real challenge to the team.
I would like to express my thanks for those working on this critical project at TriMas and Cequent. We anticipate filing our S1 registration statement with the SEC at the end of March, which will provide more specifics about the company.
I look forward to sharing future Horizon updates and our progress over the next few months. The team is focused, energized and is positioning Horizon for enhanced value creation.
Dave?
David Wathen
Thanks Mark. Mark has been a great asset to TriMas and I appreciate all his contributions throughout his time here.
At this point I would like to shift gears and have Bob Zalupski discuss our financial highlights. But first let me share why I’m so pleased to have Bob as TriMas' Chief Financial Officer.
Bob’s entire career has been focused on all aspects of finance, from audit to treasury, to reporting and tax. Bob has been on point at TriMas, for our financing and bank relationships, which have served us well.
He has also been leading our corporate development initiatives. He has long-term positive relationships with the audit community and rating agencies.
And highly important to me, Bob is a true team player, has strong, positive relationships with TriMas division presidents, and financial teams. And clearly has TriMas’ success to continue this improvement to the top of his agenda.
Bob?
Robert Zalupski
Thank you Dave, for the kind introduction. I am excited about the opportunity to partner with you and our business presidents, and my new role as TriMas CFO.
And look forward to the challenge of continuing to prove upon TriMas' valued proposition for our customers, shareholders and employees. I will start my comments by providing a brief summary of our total company performance for the fourth quarter, beginning on slide 10.TriMasreported record Q4 sales of $351 million, a 9.5%increase compared to fourth quarter 2013.
This increase was driven, primarily, by sales growth in our engineered components and energy businesses, and sales resulting from the acquisition of all facts. These increases were partially offset by the unfavorable impact of currency exchange of approximately $4 million in the quarter.
Operating profit for the quarter increased 24% to $29 million, or 8.3% of sales, which is an improvement of 100 basis points as compared to Q4 2013. Q4 2014 income increased 27% to $17 million, despite absorbing higher interest in tax expense, and we achieved diluted EPS of $0.37, as compared to $0.29 in the prior year.
Turning to slide 11, it summarizes our full year 2014 results. For the year, sales increased 8% to $1.5 billion, with sales growth occurring in all six segments.
Of that sales increased approximately 75% was due to acquisitions, with the remainder resulting from organic initiatives. These increases were partially offset by the impact of a $10.2 million decrease, related to the sale of our Italian rings and levers business within packaging in Q3 2013.
It results a $6.3 million of unfavorable currency exchange, as well as a decrease of $4.5 million in sales related to the closure of our less profitable Brazilian manufacturing facility, and branch in China within our energies segment. We are pleased that our growth initiatives were able to more than offset these negative sales impacts during the year.
Operating profit in 2014 was $146 million, a 65 increase from the prior year. Our operating profit margin of 10%, was relatively flat year-over-year, as the impact of higher sales levels and productivity initiatives were substantially offset by a less favorable product sales mix, cost in efficiencies and several of our businesses, and transaction costs related to the acquisition of Allfast.
The year-over-year comparison was also impacted by one-time gains recognized in 2013, under packaging divestiture and the sale of an idle facility in Cequent that did not occur in 2014. We reported 2014 diluted EPS of $1.92, which was in the middle of our previously provided guidance range, but 6% lower than the prior year.
Improvements in operating profit for the year were offset by a net increase of almost $5 million in other expense, and a 700 basis point increase in our effective tax rate, as compared to 2013. And a greater percentage of our income was derived in higher tax jurisdictions.
In addition, EPS was impacted by more than 9% higher weighted average shares outstanding during the year. We exceeded our previously increased free cash flow guidance of $70 million to $80 million for 2014.
And reported a record level of 89 million, which was more than 100% of net income and an increase of 85% as compared to 2013. Improved cash generation was due primarily to induced investment and working capital by our businesses.
During 2014, we also invested more than $34 million in capital projects, with the majority spent in support of future growth and productivity initiatives. We also invested approximately $383 million in acquisitions focused on our aerospace and packaging businesses.
We ended the year with approximately $639 million in total debt, an increase from 2013 year end, and due primarily to the financing of the acquisition of Allfast in October 2014. Our leverage ratio of 2.7 times was lower than expected, due to strong cash generation in Q4.
And we had $216 million of cash, and aggregate availability under our credit facilities at year end. While we expect high levels of capital investment in 2015, to further our low cost manufacturing and technical center initiatives, we expect strong operating cash flow will allow us to return to leverage levels in the mid-twos, or lower, during the year.
And we continue to target a leverage ratio of between 1.5 and 2 times, as a longer term sustainable level. At this point, I would like to share a few highlights on our segments, beginning with packaging on slide 13.
Packaging had another strong year with the 2014 sales increase of nearly 8%, as compared to 2013. Excluding the impact of the 2013 divestiture of the rings and levers business, packaging sales would have increased nearly 11%.
Despite the lower growth in Q4, impacted by the port slowdown on the West Coast, we continue to experience increase demand from our North American, European, and Asian dispensing customers. We’re also pleased with the annual operating profit margin of nearly 24%.
Q4 margins were slightly higher at 25%, but reflect the reduction of a contingent liability related to Arminak. Packaging remains focused on sustainable operating profit margins in the 22% to 24% range, while funding initiatives such as the new customer innovation Centre in India, and the ramp up of many factoring capabilities in Asia.
Moving on to slide 14 and energy. While sales increased 16% in Q4, as compared to significantly lower demand levels in Q4 2013, full year sales were essentially flat.
Higher sales resulting from our acquisitions were essentially offset by reduced sales in Brazil and China, as a result of facility closures. Margin declined 110 basis points for the year, as the mix of products was more heavily weighted toward lower margins, standard gaskets, and bolts.
We also experienced labor cost inefficiencies at our Euston facility, when shifting between the manufacture of lower volumes special product orders, and the higher volume standard products. While there are signs of increased order activity, we have yet to see sustained recovery to a more normalized mix of standard versus special products.
In order to improve upon the current margin levels, we have several initiatives underway, including pricing reviews, relocation of higher volume, longer lead time product manufacture to lower cost facilities, and implementation of our sales inventory operations planning system, or SIOB [ph] in our Euston facility. Implementation of SIOB, will increase production efficiency and throughput reduce, order lead times and improve on time delivery.
From a commercial perspective, we’re also focused on increasing sales of a more highly engineered products at higher margins, and have revised our sales of incentive programs to award the same. Turning to slide 15, aerospace sales increased 28% and 27% for the quarter and full year respectively due principally to the acquisitions of Mac Fasteners in October 2013, and Allfast in October 2014.
Partially offsetting this increase was the reduction of distribution customer’s sales, resulting from industry consolidation and OE customers going direct. Throughout the year, we continue to see less predictable order demand and smaller lot sizes, which stress our manufacturing processes and resulted in higher cost inefficiencies.
These trends, as well as a less favorable product sales mix, resulted a lower profit margins in Q4 2014, and for the full year. Q4 operating profit declined $2.9 million, approximately one-third of which was due to a less favorable sales mix, one-third due to manufacturing inefficiencies resulting from the inconsistent order demand, and one-third related to the resolution of our previous customer client.
The new leadership team has been heavily focused on optimizing the planning, scheduling, and manufacturing capabilities at Monogram, Mac, and Martinic, to increase the production through put and quality, reduce order lead times and improve on time delivery, while lowering internal cost to manufacturer. I’d be remiss if I didn’t take a moment to review the results of Allfast in the quarter.
Sales were 9.1 million, while operating profit of 14.3% inclusive of purchase accounting adjustments exceeded expectations, and we also had strong free cash flow generation in the period. The acquisition of Allfast has served as the catalyst for a broader set of integration activities with respect to our Aerospace group.
We are leveraging operating processes, revenue opportunities, and cost synergies across the portfolio as TriMas Aerospace seeks to become the Aerospace fastening system supplier of choice. Moving on to slide 16 Engineered Components, full year and fourth quarter sales increased 19% and 36% respectively, primarily due to the small cylinder asset acquisition which occurred in November 2013.
Sales of gas compression products also increased, which was partially offset by decreased sales of engines. The margins in both periods also increased significantly, each improving 400 basis points year-on-year due to increased sales levels and resulting operating leverage, price increases, and ongoing cost reductions.
For 2015, the Engineered Component segment is focused on aggressively managing the cost structure at Arrow engine, in response to significantly reduced oil prices and the related impact on end market demand. Norris Cylinder will continue to expand product offerings and better leverage the increased capacity and manufacturing cost structure, resulting from the 2013 acquisition of cylinder assets.
Turning to slide 17 we showed the performance of Cequent split into two segments. Sales for Cequent America has increased slightly in both periods, due to increases within the Africa market and retail channels.
Operating profit and margin levels were relatively flat, as the benefits of the lower cost manufacturing facility in Mexico were offset by higher freight cost related to the footprint changes, and increased input cost notably steel. Sales of Cequent APEA representing our businesses in Asia-Pacific, Europe and Africa, increased 9% for the full year, primarily due to the 2013 acquisitions in Europe, while the fourth quarter sales declined 7% due to lower sales in Australia and Thailand, and the unfavorable impact of currency exchange.
Full year and fourth quarter operating profit declined, primarily due to a less favorable regional and product sales mix and higher levels of SG&A. Overall, we expect to improve Cequent’s margins by continuing to optimize the supply chain, and increase productivity of our lower cost manufacturing facilities.
Cequent continues to globalize its product lines and brands for market share, and cross selling in new geographic markets in support of our global customers. In summary, 2014 represented a year of high single-digit sales growth in line with our strategic aspirations.
While growth is important, margin improvement is now our area of focus. During 2014 we initiated actions to restructure or reposition the majority of our businesses, which will take time and resources to execute.
We are committed to achieving these goals and we’ll keep you appraised of our progress. That concludes my remarks.
Now Dave will provide you with some comments on our 2015 outlook. Dave?
David Wathen
Thanks Bob. So as Bob mentioned I’m now going to look forward and comment on our guidance for 2015.
I’d like to start with sharing our baseline revenue and margin assumptions for each of our operating segments for 2015 based on our current view of markets, currency, oil prices and our own plans and projects in business. Packaging strong performance to continue into 2015, even with the headwind of 2% to 3% related to the strength of the dollar.
Operating profit should stay in the low 20s, even with building out global tech centers, including one in India during the year. This tech centers are a piece of our commitment to our global customers to support them with the right products in the markets they pursue.
Aerospace growth will be driven by the addition of Allfast, plus over time, the additional new product opportunities within the overall Allfast Monogram and Mac Fastener’s product portfolios. In parallel, we will prune and harvest some less attractive product lines.
We expect margin improvement as we move through 2015, as we work through the operational challenges we faced in 2014. Martinic Engineering is showing progress, and Mac continues to improve its product mix to distributors, both of which should yield higher margins.
Tom Aepelbacher has added sales and operating horsepower to his team, including folks with significant industry experience. They are focused on long-term sales growth and attaining longer term margin levels and compete with packaging for highest marks.
In Q4 2014, Energy revenue increased 16% incurred orders improved, but we know our Energy customers have cut CapEx budgets and short term changes will occur. So we are modeling low revenue growth in 2015.
As I previously discussed, our main focus in this business is margin improvement, via manufacturing cost out, and product mix improvement with multiple projects underway. We certainly have some lessons learned while Cequent moves to Mexico, this should help the new energy operations in Mexico.
Longer term we are targeting to return to the near 12% operating profits at this segment, rammed in 2010 and 2011. In 2015 we expect to see good progress in margin improvement.
Engineered Components is already being impacted by the oil price decline, which affects the Arrow Engine business, specifically the engine portion of Arrow. We saw a 90% drop in engine orders in January, where some bounced back in February, meaning the typical de-stocking by distributors and installers is occurring.
For now, we are modeling one-third decline in Arrows revenue overall, such sales of parts, gas products and compressors appear to be holding up through the first half of the year. Should oil prices continue to remain low, we will revisit our sales forecast for Compression Systems and Gas products in the back half of the year.
As you would expect, we did a substantial downsizing of the workforce with hourly and salaried early in 2015, and we’ll keep ourselves sized right to the current demand levels. Our cylinders continues to perform well, although growth may be slow with any GDP growth expected to be offset by lower export sales as a result of the current exchange rates.
So overall, we expect Engineered Components operating profit margin to be down 2% to 3% versus 2014, again primarily due to the declining oil price impact on Arrow’s demand. Cequent Americas has seen the transition and supply chain cost for the production move to Mexico normalizing, driving margin expansion.
And the Australia base business has several positives that in total will be offset by currency translation. So what does all this mean in term of full year guidance for TriMas?
Turn on slide 20, we're expecting 3% to 5% sales growth which includes both organic and acquisition growth, partially offset by the impacts of unfavorable currency and lower oil prices. Our expectation for 2015 EPS is $2.10 to $2.20, with the midpoint representing a 12% increase over 2014.
We also expect free cash flow to be approximately $60 million to $70 million. All of these ranges are for TriMas as it exists today.
We will update you with new guidance once the planned Cequent spend is completed. The next slide, slide 21 is a useful bridge from 2014 to 2015 EPS, to assist you in understanding our best estimates of the impacts discussed above on our businesses.
As you can see significant headwind related to currency and oil prices, moderate our operating improvements. As usual we will keep you updated throughout the year as we mitigate risks and capture opportunities, plus as the spin of Cequent occurs.
In summary on slide 22, 2014 was a challenging and busy year, and while we accomplished a lot, we still have much more work to do on many fronts. In 2015 we will continue our progress towards the strategic aspiration of being a high margin, highly engineered product and Solutions Company, as we continue to shift the portfolio in this direction.
We will also focus on expansion and capitalizing on profitable growth opportunities. De-emphasizing or reducing less profitable business.
And of course, we will always focus on mitigating the external headwinds and risks, and responding quickly to changes. I feel we have a strong foundation to build on, and I’m looking forward to the remainder of 2015.
One additional comment, we will be hosting a joint TriMas and Horizon Investor and Analyst Day in New York on Thursday, May 21st, where we will share additional information on strategies and goals for the two new companies. We hope you’re able to join us, please contact Sherry for more information.
Now we are glad to take your questions.
Operator
[Operator Instructions]. And we’ll take our first question from Scott Graham from Jefferies.
Scott Graham
Good morning. I have a couple of questions about the segment assumptions for 2015 that’s short.
And really, thank you very much for that chart, that’s really helpful. The assumptions that you’re making for within oil and gas overall, Arrowed down to 25% to 35%, but I assume that you’re kind of thinking a similar type of number.
Maybe not quite as bad, but a pretty down number in the energy segment as well. Could you give us just an idea of maybe bracket what you’re thinking in that business?
David Wathen
In the interview segment, I think what was - you can tell we’re seeing a lot of growth right now, kind of recovery. Scott, what it comes to us, we projected that momentum of growth forward and then pulled it back down due to the customers pulling CapEx out and it winds up, we marveled at about flat revenue.
We’ve got a few upsides going on, with some new big programs. We know there is a pretty decent recovery, and heavy project work, new builds, gas compression and all that stuff.
And so we put it altogether, and it feels essentially flat. So oil price impact, for sure offset by some big multi-billion dollar projects that we know respect in that.
Scott Graham
Right. So it sounds to me like you’re expecting whatever kind of flattish out of energy.
Most of the energy segment serves the oil and gas market versus the petrochemical market, right?
David Wathen
Of course most of it is refineries and processing plants. We’ve seen quite a bit of growth in oil production for, I’ve mentioned before, under the ocean spec for platforms where they use real high end fasteners, because of corrosion.
That’s all upside for us, and it’s all high margin business. So when you throw that all in, again, we come out flat, but -
Scott Graham
I know you work a lot this season, that you’ve --. Apologies I know you work a lot with the E&C in this business, so you’re not hearing them say that some of these multi-billion dollar projects that you’re specked in at, that these projects won’t --?
David Wathen
We’re actually not hearing much of that. I mean we are hearing people cutting CapEx at the refineries, we know about there’s strikes going on.
And the one in the refinery’s what - we don't call it bench for salary folks. Yeah, we've been trying to cross-reference with what other people are saying.
The couple of big projects we’re on, they’re all kind of one-off events, seem to be still on track.
Robert Zalupski
And there has been some requests, Scott, from those customers for, what I’ll call price reductions, are not necessarily cancelling the deferral of orders, but looking for some price give back. Naturally, we’re negotiating those quite heavily, but there is some of that pressure we’re seeing as well because of what’s going on with oil.
Scott Graham
Thank you for being very forthcoming with that, I appreciate that. My last question is this, in the aerospace segment you’re expecting a pretty big improvement in the operating margin there.
Is there any way to kind of sort out how much of that is Allfast mix versus base business margin?
Robert Zalupski
Well to answer that is of course, we typically don’t get into the margin assumptions around the individual businesses. But what I would say Scott, is that clearly the Monogram margins were lower than we would like, or even expect for that business.
The new management team is really heavily focused on improving the efficiency of, not only the manufacturing within Monogram, but also as it relates to Martinic and Mac. The Martinic business, while smaller, was a fairly sizeable drag on the margins in 2014 given, certain adjustments and other kind of one-time clean-up activities that occurred in that business.
Going forward, we see that business returning to its historic levels of profitability, and similarly we would expect Mac to be at comparable margin levels. So in that sense, that’s kind of mid-teens, in that business, which would be a significant - those two businesses, which would be a significant improvement over the 2014 results.
Scott Graham
That's great. Thanks a lot.
David Wathen
Scott, part of the advantage of my goal is, if I need to be brutal I can be. And I was pretty brutal about some parts in that business to say - on the positive you’re part of the diversified company that can handle some bad times.
On the other side, you’re part of diversified company that can put this behind this and move on, prove to me it’s worth staying in this business. And I give the team - some of us are good people, I give the team a lot of credit for - not going under and - what’s good and what’s not.
Sometimes in times of stress, you get much faster response, I’m pretty upbeat. I also have very high confidence in that management team.
Tom is as good an operating manager as I know, he’s also - he and the folks from Allfast, have recruited some people that we would have never recruited as Monogram. And we’re a much bigger and more attractive business, we’ve got a marketing guy who came back, who had left.
We’ve got an office manager who is Tom, a little younger, and in the industry. So got the customer relationship interest and all that so there’s a lot of positive indicators in that business.
Scott Graham
Thanks a lot.
David Wathen
I feel pretty good about it.
Operator
And next we’ll go to Steve Barger with KeyBanc Capital Markets.
Unidentified Analyst
Hey good morning, it’s Ken Newman on for Steve. Just curious, if you could talk a little bit about the neutral cooperation agreement with engaged capital.
I think the release states that engage can appoint its own principle to the TriMas board at its request in 2016. Just wanted to get your thoughts on why agree to the agreement, and what does that get TriMas?
David Wathen
Well we’ve got is a very first class board member joining, Herbert Parker. I would cement that any of you who know him, or would spend time with him, we’d get the same opinion as me.
Herbert Parker is a lived around the world, dealt with lots of things, helpful, kind of a long time global CFO and Operating Manager. And he, like anything, part of a function of board is to sort out, what do you focus on?
What do you focus less on, and be part of a team? And he - so we got Herbert Parker which I feel real good about.
The agreement with engaged capital, I would say our legal for general counsel, Josh could explain it looks almost stereotype for this kind of thing. That if in the future the focus on engaged capital feel the need, they do have a right to appoint principle as a board member, we’ll see.
I would say for now, I like the outcome, and we’re in a government mode.
Unidentified Analyst
Got it, and then. And then switching gear to your - it looks like you had about a $7.5 million restructuring charge in energy this quarter.
Can you provide some color on what that charge consisted of, and what’s the expected payback on that charge, and as well, if you could just talk about do you expect a similar type charge of that magnitude going through the course of the year?
Robert Zalupski
The majority of the charge in energy related to some restructuring activities in Brazil. And in doing that, a big chunk of it was basically a lease facility that we’re in, that we have now exited.
Any time you discontinue a business, or an operation, in a foreign country, there’s the cumulative translation adjustments or losses, in this instance that we’re tied up in CTA, which also get expense to the P&L. So that was the majority of the 7.1 million charge, the remaining was ancillary cost as well as employer related kinds of severance.
David Wathen
You will see costs in 2015 we're moving, we're ramping up a plant in Mexico and they’re down plants in the U.S. you’ll see cost related to that going forward.
I’m not being shy about really getting busy in energy making the moves that bring it back to where it ought to be.
Unidentified Analyst
Understood and then just one more for me. Just comment on how we should be thinking about - full conversion this year.
I know your guidance came down from last year, I’m just curious if you’re expecting for the conversion - for the spin-off and also wanted to get your thoughts on what that means for capital allocation in the near term?
Robert Zalupski
Well we're expecting very strong cash flow generation from operations, again, in the current year Ken. And I think maybe the difference between this years and last is that we've got a much higher level of capital investment plan relative to building out - our manufacturing footprint in packaging in Asia in the related technical centers, as well as the relocation of the Lehman’s manufacturing capacity to Mexico.
So that will reduce the conversion percentage as it relates to net income, but again, I think the underlying principles of cash flow generation will be, again, very strong.
David Wathen
We still have strong metrics on working capital as a percent to sales and efficiency of how we use cash in each business. We're pretty, that’s pretty ingrained in us by now.
Operator
And next we’ll go to Andy Casey with Wells Fargo Securities.
Andy Casey
Related to - if we could go back to engaged capital I’m just wondering, did you receive any advice from them prior to your decision to spin-off Cequent, or would you describe any advice that may have provided as more forward looking?
David Wathen
You know the answer to that, we don’t talk about discussions like that. But the Cequent spin was - you know that the idea of doing something different, Cequent has been around for a while.
You and others have asked us about that. I would - if you could eavesdrop in the boardroom in previous meetings, that was a TriMas Board decision, certainly driven by lots of inputs by investors and analysts and industry and all that, but that was a TriMas decision.
I would call it a tactic.
Andy Casey
And then an additional question on the 2015 outlook, you were very clear on the oil related demand impact. And you may have touched on this, but could you discuss whether any of the commodity price declines the market has seen, may drive an input cost tailwind.
I guess overall are you including in positive net pricing, meaning priceless cost in the outlook?
Robert Zalupski
I don’t know that we're seeing, I would describe it as tailwind. I mean in certain of our businesses where steel has an impact and Norris Cylinder notably, the price downs there have been available to us for a while now.
I think the issue that we potentially see is their pricing pressure in terms of givebacks to customers, relative to their perception of declining prices and commodity costs.
David Wathen
I’m sure you hear this a lot - the refined products, like plastic resins, have stayed remarkably robust. Once you think it would drop immediately, but overtime sure, we will take advantage of it, our job is to hang on to selling prices longer than the - so we do get benefit from commodity price reductions as it goes on.
It’s - you’d think there’d be more of a strong dollar and all that, but we’ve got global sourcing organization, we're on top of all that. And it’s been a slow move down.
In finished products like we buy.
Andy Casey
And then couple of questions on kind of historical, first on Q4 in the P&L you called out a 4 million hit due to dispositions. Was that all related to Aerospace?
Was there any better impact, I’m just wondering where that - segments, and if there was any tax effect associated with that?
Robert Zalupski
There’s a $4 million reduction that you’re referring to, I believe, was the divestiture of our Brazilian business.
Andy Casey
Okay. And then on cash flow you had pretty favorable changes in receivables during the second half of the year.
Can you provide a little bit more color on what drove that?
Robert Zalupski
We are always focused, Andy, on improvements on our working capital efficiencies. If you look across our businesses, we’re generally speaking, pretty darn good about reducing the day sales outstanding, particularly at year end.
So in that sense, I don’t know if there’s anything particular that I would point to other than just normal operating practices.
David Wathen
I will tell you, I’ve been a broken record in operating reviews about, interest rates are low. We forget what it’s like in higher interest rate times for receivables and payables, but it intentionally goes up.
So get busy and then of course it’ll go up, but we all know interest rates will climb and get tougher. And we’ve got to be on our gains in control in working capital.
And so - not that that’s a specific answer, but we pay attention to it even though the low cost of money could let you go to sleep about it but you can’t.
Andy Casey
Okay. I’ll pass it on.
Thank you very much.
Operator
And next we’ll go to Karen Lau with Deutsche Bank.
Karen Lau
Question on Energy. It sounds like the refinery maintenance is coming back a little bit, but yet you haven’t seen the mix improve, I was under the impression that the turnaround starts to happen, your mix will kind of come along with it.
So is there something structural going on that is depressing the mix do you think?
David Wathen
I mean some of it is the timing that you tend to order the standard product sooner and get that all delivered and then the specials become fast turnaround style. I don’t think there’s anything structural with that.
I’m expecting improvement index, the - and the team in that business have really gotten proactive recently. And I mentioned some of that, I mean it’s everything from making sure we're selling all the higher margin products every place in the world.
Some of that’s education of our own sales force and branches, resetting some of our setting system, so it’s not spread across specific. Karen I’m going to say stay tuned, because we are expecting to see that impact.
I want it sooner too.
Karen Lau
Okay. And then I just want to follow-up on the question about price costs.
So it sounds like you were not expecting any meaningful boost, for instance in packaging, which I believe resins and steel, and portion of the cost of goods, but you’re assuming a benefit to margins in the near-term based on lower prices?
David Wathen
No, we have pretty tough customers about that and while we will always try to come out ahead on the timing of price downs - but no, we're not modeling that way.
Robert Zalupski
We just haven’t seen it in actuality that would suggest it’s an appropriate thing to do at this point.
David Wathen
I mean you’re exactly right, it could be an opportunity in times like this. And, but again I’m not one to count on opportunities until I really see them, but you know we’ll try.
Karen Lau
And aside from packaging, I mean you mentioned little bit on the cylinder side. There could be some pricing pressure with regarding tough customers asking for some sort of price back given lower high commodity prices.
Do you expect that dynamic to happen in any of the other segments?
David Wathen
I think there’s a lot of that going on Karen. I think there’s a lot of price pressure on in this - we're all everybody I talk with, I’m sure is dealing with the same thing.
You’ve got muddy low inflation, you’ve got commodity softening, strong dollar. Strong dollar makes - people who sell in the U.S.
from outside get aggressive, they may look aggressive. So there’s a lot of price pressure.
Karen Lau
Okay. And then last one, could you help me a little bit with the free cash flow how to bridge the component.
I realized the CapEx component is what, like maybe 30 million higher year-over-year, but I was under the impression that Allfast, given its high EBITDA margins, was going to boost free cash by 30% year-over-year. So are there may be like charges incorporated in that $60 million to $70 million number?
Robert Zalupski
No, not being specific in that regard Karen, you’re correct, we do expect the benefits of Allfast strong cash flow generation as a positive, obviously. I think you have to remember the benefit we saw this year in terms of much higher free cash flow generation through improved working capital, that’s not necessarily a benefit that recurs.
And again, in 2015 we have a much, much higher level of capital investment plan that we had in the current year, which will approximately offset the improvement or the add, if you will, from Allfast.
Karen Lau
Okay, makes sense. Thank you.
Operator
And next we’ll go to Robert Kosowsky with Sidoti.
Robert Kosowsky
Just going back to that $4 million charge that’s in the P&L so is that included in your $29.1 million adjusted operating profit?
Robert Zalupski
No it isn’t, it’s one of the special items.
Robert Kosowsky
So it’s included in the $7.5 million of severance in business restructuring costs?
Robert Zalupski
Correct.
Robert Kosowsky
Okay, and then secondly it seemed like corporate expenses stepped down pretty nicely in the quarter about $6.7 million, was there anything behind that especially sequentially? Is this a new level with just bonus accruals being reversed because Europe didn’t come in as planned, just kind of thoughts on that.
Robert Zalupski
Yeah, clearly there were lower incentive comps related accruals and adjustments, so that was a portion of it, but again as we went through the year and we saw certain of the challenges that were coming at us in the back half. We appropriately pulled back in terms of corporate office expense as well.
So is that through run rate normal? No because obviously the incentive comp arrangements get reloaded and there’s the net inflationary pressures on, in terms of married increases in the like.
Robert Kosowsky
Okay. And then finally in your - outlook you fall for mid-single-digit revenue growth and that seems like a step down from kind of high just to low double-digit growth rate that were accustomed with Packaging.
Was there anything behind that slowdown? And maybe you could talk about the outlook from U.S.
also international?
David Wathen
Remember Packaging gets hit on currency translation, because of the amount of sales outside the U.S., so that’s the big delta.
Robert Kosowsky
So the mid-single-digit - well sorry --
David Wathen
But other than that, again I would say we are - we know what we've got - and what we can count on. We're viewing Asia as good, but softer than it used to be.
Plenty of people think Europe’s going to rebound, but again, I’m not going to count on that till we see it actually occur. So I mean you might get away with accusing us so far.
Not counting on some potential upsides we’ll see. It’s also true, and this is a structure of the business, we've got a lot bigger, we are dealing with some new bigger customers who have a lot of control of their own wrap-ups and switches and that sort of thing.
We aren’t as used to them as some of the customers were, so we're not going to be aggressive about things that are in their control. We’ll make sure we can serve them when they’re ready for us, but we're not going to forecast the revenue till we’ve really got it in hand.
Robert Kosowsky
Okay and so that mid-single-digit growth rate, that’s inclusive of the 2% to 3% headwind?
David Wathen
Yes. Maybe - once clear on that.
Operator
And we do have three questions left in queue. And next we’ll go to Matt Koranda, Roth Capital Partners
Matt Koranda
So it looks like in Q4 you guys already saw a bit of the impact of the west coast port delays in the packaging segment. But I was just wondering how we can think about the near-term impact, maybe the Q1 impact by business segment?
And are you comfortable it’s all fully factored in the year 2015 outlook?
David Wathen
I think we’ve got it factored into our outlook, I mean as it’s working out, it’s hitting harder in first quarter. And, but you could probably, with the right telescope, you could count the ships right?
I mean and it’s another couple of months to get it through this system, but that said, it hits packaging hard because we do quite a bit of production particularly for - in Asia and move it this way. It gives us some fits on some commodities that tend to come from Asia, like some steel product out of Korea for Norris but we could re-route some of that.
It - castings for Arrow, nobody in the U.S. runs foundries anymore.
I mean castings, while we've moved a lot of those in the Mexico. Mexico is mighty busy, that’s been giving us some issues.
I could put a - somebody named [indiscernible] 7, 6.28 who runs our logistics for us and she could take you through everything. And we re-routed, and we found that where we've bit down and decided to airfreight, that’s a long answer to say.
I think it’s going to be first half before we see it flush out.
Sherry Lauderback
Mark do you have impact at Cequent?
Mark Zeffiro
Yeah Matt, when you think about the Cequent business obviously a good portion of supply chain comes out of China as well, that’s obviously been re-routed to other - we're seeing the fact that we anticipated some of this and re-routed to other locations. It’s at least to reducing the risk of not having the right inventory for key customers.
So to that end, if you really think about it, you might see pressure in the Q2 numbers as you start to think through help fight, though we’ll actually roll off the balance sheet. So I would tell you that the team’s done a great job in terms of re-routing efforts to ensure that our customers haven’t been affected?
Matt Koranda
Okay, thanks for that guys, that’s helpful. And one more from me on Energy, just wondering in terms of the move from Houston to Mexico, if you could give a little bit more detail on where you are on the process?
Maybe, share potential timeline here and maybe some milestones that might be associated with the move. And I know Dave, I think you mentioned earlier some lessons learned from the Cequent move, if you could just elaborate on some of those lessons and how they’re on form to move in Energy?
David Wathen
We have a plant, we are, and we’re doing the plant improvements, air gliding and all that kind of thing. Equipment is, much of it is on orders delivered.
So all that is underway, we did move out of the Cequent team review the - have been real active in building new plants in Mexico, and its helped us with everything from the logistics of crossing the border and timing, to help and recruit new plant manager and that kind of thing. So it is at that stage that we’ll have initial production in the pretty near future, certify that kind of thing.
So that’s why I’m saying we’ll see the impact to that and are starting to ramp up in second half. We did so far away yet.
The lesson learned, and we've talked about it quite a bit, the real lesson learned for me at Cequent, and I’ve lost count of how many projects like this I’ve been involved in since, call it the 80s. Mexico is so much busier that you can’t quite count on the supply chain like you used to.
It will catch up, but even though you find the supplier for brackets you need made outside, it takes a while for that supplier in Mexico to pitch it into their schedules. And a while might be months, and we are configuring the initial ramp-up of the energy plant where we will - and it’s partly the physical location of Houston versus Reynosa, being able to move, call it raw materials and supply chain things from the U.S.
into the plant, rather than to outsource in the - Mexico. So that didn’t sound all that profound, but it was a decision to make the ramp-up go smoother without getting caught out with vendor problems.
And of course we also have the physical advantage of, call it, used to be in a master distribution point for that entire company that it’s not so far away from Reynosa, we don't have to move - move the entire warehouse system at the same time. And so we don’t have a parallel there, and so it’s simpler, and we’re trying to - we're derisking it.
The folks who work on it, - I get to hear the output, and it’s important enough that I go out of my way to travel to a debrief meeting and we talk about how will we de-risk this? So there’ll be any time start-up as share stumbles, but I think we have learned and this one will stay tuned, but I think we’ll be happy with the way it ramps.
Matt Koranda
Okay. Thanks for the color and then I'll jump back in queue.
Operator
And next we’ll go to Walter Liptak with Global Hunter.
Walter Liptak
My question is about the aerospace segment, and your comments that the aerospace distribution channel’s still choppy. I wonder if we can get some color about that, and the way you made sound about the guidance, is that all the 50% revenue growth’s coming from Allfast, is that right or is there also some growth expected in that segment?
Robert Zalupski
Well the majority of the growth, Walt, is attributed to our full year of Allfast being included. So I think sales lies - you can expect that to be the case, I think relative to what we’ve seen in distribution customers, a couple of the major ones, VEO [ph] space and then Wesco.
They’ve undergone some of their own I guess, legal entity or corporate transformations, our BE I think spun off, the distribution business into KLX, but that was a fact, of I believe, was the start of the year. And I think what we saw in fourth quarter was pull back in oil patterns, as now as a separate company, they were preparing to manage their inventory levels in investment and working capital in the like.
So it’s a little different behavior that we’ve seen, in at least the first part of 2015 here. We’ve seen stronger order patterns from BE in particular.
Wesco was acquired by another company, and again, I think again, we’re seeing I think as of yearend, some changes in ordering patterns that reflective of that ownership change. And again, it’s hard - for the first couple of months in 2015, indicated a bit higher order patterns that we expected.
So we’re cautiously optimistic in that regard.
Walter Liptak
Okay good. And then I wanted to ask one about the spend and as we’re getting closer to it, any changes on - associated with it?
And do we start to see any of those - flowing through in the first quarter - the second quarter?
David Wathen
Have you been listening to the questions I get from my board members? Look, the answer is our early estimates have proven to be pretty accurate, but I don’t want to pretend we know it all yet because his is a big, legal structuring kind of project.
So - but so far so good. I mean as you know, we’re pretty decentralized on - sequence is quite separate.
And so we probably have a laid up what some other companies have dealt with in this kind of thing.
Robert Zalupski
Yeah, well specific to transaction related costs - we’re obviously right in the middle of it, so we’ll start to see those slope through in Q1 and obviously Q2. The ones that are directly related will be out boarded, as special items and will obviously be disclosed in our future filings.
Walter Liptak
Right, so we’ll some - I mean you’re going to have added costs and things, you’re saying that we’re going to see some of those in the first quarter?
David Wathen
We’re clicking right through those, but we’ve said, it appears to be clicking right away like we planned it, and we’ll keep at it.
Walter Liptak
Okay. Any additional thoughts on the debt on the horizon business might be --?
David Wathen
It’s a little early yet, we’re talking about it but we will as soon as we can, we will share all that.
Operator
And next we’ll go to a follow up question with Scott Graham from Jefferies.
Scott Graham
I’m sorry, I just want to ask a little bit more around energy. The - exposure that you guys have is housed involved with the energy components businesses, and I’m just hoping that is, if you wouldn’t mind Dave, if we just take out the petrochemical piece of energy, which I consider to be a very different set of multi-dynamics in ’15 than oil and gas.
And then add to that the total form Arrow Engine, which is mostly oil and gas, is that about 15% or 20% of your sales --?
David Wathen
Yeah, if the way you’re trying to describe it is energy, it sounds a little high, but -
Scott Graham
But maybe more toward the 15%?
David Wathen
Yeah. And remember, I’m trying to - whether it’s - chart of the segments of me talking about, with Arrow, it’s the engines that drive pump jacks --.
The gas compression part of the business and metering devices and all, those tend to be a little bit more just on volume being moved, not new the thing that’s way off is new --. The volume of oil and gas moving - today’s the same, the demand number stays the same.
Scott Graham
I think - is going to be a little bit more widespread than that, but --
David Wathen
We can cover with that, and I tried to - but right now, we can - pretty far, but we’ll see.
Robert Zalupski
Well I think the variable here Scott, is - what does the price of oil do as we get into the second half of 2015 is, it stayed kind of where it’s at today. Does it decline further or do we see some bounce back?
I think to the extent there’s a bounce back, we’d expect there to be less of an impact. Obviously if it gets worse, it could prove to be more negatively impactful to the top line, certainly in aero and possibly even so in laymen.
Scott Graham
I’m with you, but then sort of the - to that question is, if we’re talking 15% of sale of total company sales, I thought it’d be much more of that in the energy segment and energy components. You’re still forecasting an obviously healthy margin expansion in energy in the business that has most of your oil and gas.
And you’re kind of expecting just slight decline in edging your components because of what you’re kind of seeing in the order book for Arrow. So that I know you guys are as forthcoming as they come, so obviously there’s going to be some restructuring savings that are going to hit those businesses.
And I’m just wondering if you can kind of get a little more granular on some of the dollars you expect or structuring - to those margins?
Robert Zalupski
Again, as we look at energy Scott, and maybe some of the expected improvement in margins there, a lot of that will be - coming off from very difficult challenges in the current year. So I would certainly view it as a function of some massive restructuring that we’re going to do - further what we talked about in terms of moving, certain about production capability from Euston, New Mexico.
And the margin impact again, I would come back to, we see more of that happening in the Arrow portion of our business. As Dave mentioned, we’ve taken actions to reduce the cost structure in that business, commence - pull back in engine orders.
And - that isn’t visible because it’s part of the segment that includes an all cylinder activity. So I think in the main we’re pretty comfortable with where our outlook is with respect to margin with - overall.
Scott Graham
So what you guys are saying that you need to focus on margins for ’15, it doesn’t’ necessarily mean restructuring across the businesses like that, I feel across the businesses like I thought I heard earlier, but in fact just better execution avoiding some of the pitfalls that you had last year and what have you?
David Wathen
Me giving the businesses, I’ll say, permission to de-emphasize in lower margin lines, we take a hit to the growth rate but exchange for higher margins, a whole lot of that kind of thing.
Operator
[Operator Instructions] And it looks like we have no further questions. I’ll turn the call back over to speakers.
David Wathen
We really appreciate the attention and the input. I am feeling like - we're all going to like 2015.
We're all dealing with a whole bunch of stuff, but that’s what we do. And so I would ask you to, I’d ask you to have that as a takeaway from this, that we've got a lot of good stuff going on, big and smaller.
And we've got a lot of good people getting it done. And I’m happy with where we're at, so much to do, but thank you again.
Operator
And that does conclude today's conference. And we thank you for participating.