Tredegar Reports Fourth Quarter and Full Year 2023 Results

RICHMOND, Va.–(BUSINESS WIRE)–Tredegar Corporation (NYSE:TG, also the “Company” or “Tredegar”) today reported fourth quarter and full year financial results for the period ended December 31, 2023.

Fourth quarter 2023 net income (loss) was $(35.6) million ($(1.04) per diluted share) compared to $(3.9) million ($(0.11) per diluted share) in the fourth quarter of 2022. Net income (loss) from ongoing operations, which excludes special items, was $(0.1) million ($(0.01) per diluted share) in the fourth quarter of 2023 compared to $0.5 million ($0.02 per diluted share) in the fourth quarter of 2022.

Full year 2023 net income (loss) was $(105.9) million ($(3.10) per diluted share) compared to $28.5 million ($0.84 per diluted share) in 2022. Net income (loss) from ongoing operations was $(4.7) million ($(0.15) per diluted share) in 2023 compared to $39.5 million ($1.17 per diluted share) in 2022. A reconciliation of net income (loss), a financial measure calculated in accordance with U.S. generally accepted accounting principles (“GAAP”), to net income (loss) from ongoing operations, a non-GAAP financial measure, for the three months and year ended December 31, 2023 and 2022, is provided in Note (a) to the Financial Tables in this press release.

Fourth Quarter Financial Results Highlights

• Earnings before interest, taxes, depreciation and amortization (“EBITDA”) from ongoing operations for Aluminum Extrusions was $8.0 million in the fourth quarter of 2023 versus $8.9 million in the fourth quarter of last year and versus $5.1 million in the third quarter of 2023.
  • Sales volume was 32.9 million pounds in the fourth quarter of 2023 versus 37.2 million pounds in the fourth quarter of last year and versus 32.5 million pounds in the third quarter of 2023.
  • Open orders at the end of the fourth quarter of 2023 were approximately 14 million pounds (versus 17 million pounds at the end of the third quarter of 2023), which is below the quarterly range of 21 to 27 million pounds in 2019 before pandemic-related disruptions that resulted in excessive open orders, which peaked in the first quarter of 2022 at approximately 100 million pounds.
• EBITDA from ongoing operations for PE Films was $4.5 million in the fourth quarter of 2023 versus negative $2.6 million in the fourth quarter of 2022 and $4.0 million in the third quarter of 2023. Sales volume was 8.5 million pounds in the fourth quarter of 2023 versus 5.6 million pounds in the fourth quarter of last year and 7.2 million pounds in the third quarter of 2023.
• EBITDA from ongoing operations for Flexible Packaging Films (also referred to as “Terphane”) was $2.3 million during the fourth quarter of 2023 versus $7.0 million in the fourth quarter of 2022 and $0.5 million in the third quarter of 2023. Sales volume was 22.8 million pounds in the fourth quarter of 2023 versus 24.5 million pounds in the fourth quarter of 2022 and 22.2 million pounds in the third quarter of 2023. The Company believes that unfavorable variances throughout the fourth quarter of 2023 versus the fourth quarter of 2022 were primarily due to lower sales volume and lower margin, driven by global excess capacity and intense competition in Brazil from imports from multiple origins. See Status of Current Corporate Strategic Initiatives section of this report for information on the sale of Terphane.

John Steitz, Tredegar’s president and chief executive officer, said, “Results for the fourth quarter were better than expected and improved compared with the third quarter of 2023. There are signs that the downturn at Bonnell, which we believe is a residual impact of the pandemic and started in the second half of 2022, has hit bottom and that a recovery is underway. In addition, U.S. authorities have made favorable preliminary determinations regarding a trade case backed by a coalition of members of the Aluminum Extruders Council. At PE Films, EBITDA was $8.6 million during the second half of 2023 compared with $2.7 million during the first half. We expect that this positive recent performance will continue in 2024.”

Mr. Steitz further stated, “We continue to make progress on our corporate strategic initiatives. The process to complete the sale of Terphane is advancing as planned, including the review required by competition authorities in Brazil. In early November, we settled our pension plan. In late December, we executed an amendment of our credit agreement and conversion to an asset-based lending facility to support us during what has been an unprecedented cyclical downturn. Furthermore, favorable operating results have improved our outlook for our financial leverage.”

Mr. Steitz continued, “I’d like to express my sincere appreciation to all of the employees at Tredegar and its operating divisions for coming together as a team to meet head-on our significant business challenges in 2023.”

OPERATIONS REVIEW

Aluminum Extrusions

Aluminum Extrusions (or Bonnell Aluminum) produces high-quality, soft-alloy and medium-strength custom fabricated and finished aluminum extrusions primarily for the following markets: building and construction (“B&C”), automotive, and specialty (which consists of consumer durables, machinery and equipment, electrical and renewable energy, and distribution end-use products). A summary of results for Aluminum Extrusions is provided below:

		Three Months Ended								Favorable/		Year Ended								Favorable/
(In thousands, except percentages)		December 31,								(Unfavorable)		December 31,								(Unfavorable)
		2023				2022				% Change		2023				2022				% Change
Sales volume (lbs)			32,940				37,243			(11.6)%			138,451				174,670			(20.7)%
Net sales		$	110,196			$	127,805			(13.8)%		$	474,803			$	637,872			(25.6)%
Ongoing operations:
EBITDA		$	8,008			$	8,915			(10.2)%		$	37,976			$	66,800			(43.1)%
Depreciation & amortization			(4,675	)			(4,568	)		(2.3)%			(17,927	)			(17,414	)		(2.9)%
EBIT*		$	3,333			$	4,347			(23.3)%		$	20,049			$	49,386			(59.4)%
Capital expenditures		$	2,477			$	8,576					$	20,339			$	23,664
* For a reconciliation of this non-GAAP measure to the most directly comparable measure calculated in accordance with GAAP, see the EBITDA from ongoing operations by segment statements in the Financial Tables in this press release.

The following table presents the sales volume by end use market for the three months ended December 31, 2023 and 2022, the three months ended September 30, 2023, and the years ended December 31, 2023 and 2022.
		Three Months Ended				Favorable/			Three Months Ended		Favorable/			Year Ended				Favorable/
(In millions of lbs)		December 31,				(Unfavorable)			September 30,		(Unfavorable)			December 31,				(Unfavorable)
		2023		2022		% Change			2023		% Change			2023		2022		% Change
Sales volume by end-use market:
Non-residential B&C		18.4		20.7		(11.1	)%		18.0		2.2	%		78.6		93.5		(15.9	)%
Residential B&C		2.0		2.7		(25.9	)%		1.6		25.0	%		8.1		13.7		(40.9	)%
Automotive		3.3		3.3		—	%		3.9		(15.4	)%		13.8		14.0		(1.4	)%
Specialty products		9.2		10.5		(12.4	)%		9.1		1.1	%		38.0		53.5		(29.0	)%
Total		32.9		37.2		(11.6	)%		32.6		0.9	%		138.5		174.7		(20.7	)%

Fourth Quarter 2023 Results vs. Fourth Quarter 2022 Results

Net sales (sales less freight) in the fourth quarter of 2023 decreased 13.8% versus the fourth quarter of 2022 primarily due to lower sales volume and the pass-through of lower metal costs. Sales volume in the fourth quarter of 2023 decreased 11.6% versus the fourth quarter of 2022 but increased 1.5% versus third quarter of 2023. Beginning in the third quarter of 2022, the Company observed order cancellations and slowing order input as customers continued to report high inventory levels, which carried into 2023. The Company believes that its percentage changes in sales volume by end-use markets for 2023 versus 2022, particularly for residential B&C and the distribution sector within specialty products, were unfavorable versus the industry as a whole mainly due to surging imports.

Net new orders, which remain sluggish compared to historical levels, increased 55% in the fourth quarter of 2023 versus the fourth quarter of 2022, marking the sixth consecutive quarterly increase in incoming orders. Open orders at the end of the fourth quarter of 2023 were 14 million pounds (versus 17 million pounds at the end of the third quarter of 2023 and 41 million pounds at the end of the fourth quarter of 2022). This level is below the quarterly range of 21 to 27 million pounds in 2019 before pandemic-related disruptions that resulted in long lead times, driving a peak in open orders of approximately 100 million pounds during the first quarter of 2022. We believe that current open orders are below pre-pandemic levels due to higher interest rates, tighter lender requirements and the increase in remote working, which particularly impacts the non-residential B&C end-use market. In addition, data indicates that aluminum extrusion imports increased significantly in recent years, especially during the pandemic, and some of Bonnell Aluminum’s customers may have sourced, and continue to source, aluminum extrusions from producers outside the United States.

The Company is participating as part of a coalition of members of Aluminum Extruders Council who have filed a trade case with the Department of Commerce (“DOC”) and the U.S. International Trade Commission (“ITC”) against 15 countries in response to alleged large and increasing volumes of unfairly priced imports of aluminum extrusions since 2019. In November 2023, the ITC found that there is a reasonable indication that the American aluminum extrusions industry is materially injured or threatened with injury due to imports from 14 countries, including China. The ITC’s preliminary determination found that subject import volumes were significant and increasing, and that with regard to pricing, subject imports predominantly undersold the domestic product by volume in each year of the period of investigation. On March 5, 2024, the DOC announced its preliminary finding that the governments of China, Indonesia, Mexico and Turkey unfairly subsidize their aluminum extrusion industries. The DOC calculated a range of affirmative preliminary countervailing duties from each country. A preliminary anti-dumping determination for these four countries and the 10 other countries included in the initial petition is expected in May 2024. The Company expects the final ITC vote to occur in late 2024.

EBITDA from ongoing operations in the fourth quarter of 2023 decreased $0.9 million versus the fourth quarter of 2022, primarily due to:

• Lower volume ($3.6 million), higher labor and employee-related costs ($0.9 million), lower pricing ($0.6 million), and higher selling, general and administrative (“SG&A”) expenses ($1.8 million), partially offset by lower supply expense ($1.9 million) and utility costs ($0.7 million);

• The timing of the flow-through under the first-in first-out (“FIFO”) method of aluminum raw material costs passed through to customers, previously acquired at higher prices in a quickly changing commodity pricing environment, resulted in a charge of $0.3 million in the fourth quarter of 2023 versus a charge of $1.7 million in the fourth quarter of 2022; and

• Inventories accounted for under the last in, first out (“LIFO”) method resulted in a benefit of $1.2 million in the fourth quarter of 2023 versus a charge of $2.9 million in the fourth quarter of 2022. In addition, the Company recorded a favorable out-of-period adjustment of $1.9 million related to inventory in the fourth quarter of 2022.

Full Year 2023 Results vs. Full Year 2022 Results

Net sales in 2023 decreased 25.6% versus 2022 primarily due to lower sales volume and the pass-through of lower metal costs.

EBITDA from ongoing operations decreased $28.8 million in 2023 versus 2022, primarily due to:

• Lower volume ($29.6 million), higher labor and employee-related costs ($4.5 million), lower labor productivity in the first half of 2023 ($0.9 million), higher supply expense, including higher paint expense associated with a shift to more painted product throughout 2023 and inflationary costs for other supplies ($1.2 million), higher freight rates ($0.8 million) and higher SG&A expenses ($1.5 million); partially offset by higher pricing, primarily in the first quarter of 2023 ($4.0 million), and lower utility costs ($2.3 million);

• The timing of the flow-through under the FIFO method of aluminum raw material costs passed through to customers, previously acquired at higher prices in a quickly changing commodity pricing environment, resulted in a charge of $1.1 million in 2023 versus a benefit of $0.1 million in 2022; and

• Inventories accounted for under the LIFO method resulted in a benefit of $1.2 million in 2023 versus a charge of $2.9 million in 2022. In addition, the Company recorded an unfavorable out-of-period adjustment of $0.6 million related to inventory and accrued labor costs in the third quarter and fourth quarters of 2022.

Aluminum Extrusions believes that it has adequate supply agreements for aluminum raw materials in 2024. See discussion of Quantitative and Qualitative Disclosures about Market Risk in Item 7a of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (“Form 10-K”) for additional information on aluminum price trends.

Projected Capital Expenditures and Depreciation & Amortization

Capital expenditures for Bonnell Aluminum are projected to be $9 million in 2024, including $4 million for productivity projects and $5 million for capital expenditures required to support continuity of operations. The projected spending reflects stringent spending measures that the Company has implemented to control its financial leverage (see “Debt, Financial Leverage, Debt Covenants and Debt Refinancing” section for more information). The multi-year implementation of new enterprise resource planning and manufacturing execution systems (“ERP/MES”) has been reorganized with an extended implementation period. As a result, the earliest “go-live” date for the new ERP/MES is 2025. The ERP/MES project commenced in 2022, with spending to-date of approximately $21 million. Depreciation expense is projected to be $16 million in 2024. Amortization expense is projected to be $2 million in 2024.

PE Films

PE Films produces surface protection films, polyethylene overwrap films and films for other markets. A summary of results for PE Films is provided below:

		Three Months Ended								Favorable/		Year Ended								Favorable/
(In thousands, except percentages)		December 31,								(Unfavorable)		December 31,								(Unfavorable)
		2023				2022				% Change		2023				2022				% Change
Sales volume (lbs)			8,518				5,600			52.1%			29,355				32,873			(10.7)%
Net sales		$	20,728			$	14,959			38.6%		$	76,763			$	97,571			(21.3)%
Ongoing operations:
EBITDA		$	4,516			$	(2,594	)		NM**		$	11,217			$	11,949			(6.1)%
Depreciation & amortization			(1,216	)			(1,548	)		21.4%			(6,522	)			(6,280	)		(3.9)%
EBIT*		$	3,300			$	(4,142	)		NM**		$	4,695			$	5,669			(17.2)%
Capital expenditures		$	266			$	752					$	1,772			$	3,289
* For a reconciliation of this non-GAAP measure to the most directly comparable measure calculated in accordance with GAAP, see the EBITDA from ongoing operations by segment statements in the Financial Tables in this press release.
** Not meaningful (“NM”)

Fourth Quarter 2023 Results vs. Fourth Quarter 2022 Results

Net sales in the fourth quarter of 2023 increased 38.6% versus the fourth quarter of 2022, with volume increases in both surface protection and overwrap films. Surface Protection sales volume increased 42% in the fourth quarter of 2023 versus the fourth quarter of 2022. Although fourth quarter volume in Surface Protection is typically low due to seasonality, sales volume in the fourth quarter of 2023 increased 8% versus the third quarter of 2023. Given recent volume improvements for Surface Protection and other market indicators, the Company believes that the consumer electronics market is now in recovery mode. Overwrap sales volume in the fourth quarter of 2023 increased 62% versus a weak fourth quarter of 2022.

EBITDA from ongoing operations in the fourth quarter of 2023 increased $7.1 million versus the fourth quarter of 2022, primarily due to:

• A $5.2 million increase from Surface Protection:
  • Higher contribution margin associated with higher volume and favorable mix ($2.1 million), operating efficiencies ($1.0 million), cost improvements ($0.6 million) and lower SG&A and research and development ($0.7 million), primarily from the closure of the technical center in the third quarter of 2023;
  • Inventories accounted for under the LIFO method resulted in a benefit of $1.0 million in the fourth quarter of 2023 versus a charge of $0.1 million in the fourth quarter of 2022; and
  • The pass-through lag associated with resin costs ($0.2 million charge in the fourth quarter of 2023 versus a benefit of $0.2 million in the fourth quarter of 2022).
• A $1.9 million increase from overwrap films primarily due to:
  • Higher contribution margin associated with higher volume and favorable mix ($0.6 million) and cost improvements ($0.7 million);
  • Inventories accounted for under the LIFO method resulted in a benefit of $0.3 million in the fourth quarter of 2023 versus a charge of $0.4 million in the fourth quarter of 2022; and
  • The pass-through lag associated with resin costs (a charge of $0.1 million in the fourth quarter of 2023 versus a benefit of $0.2 million in the fourth quarter of 2022).

See discussion of Quantitative and Qualitative Disclosures about Market Risk in Item 7a of the Form 10-K for additional information on resin price trends.

Full Year 2023 Results vs. Full Year 2022 Results

Net sales in 2023 decreased 21.3% versus 2022, primarily due to lower volume in Surface Protection, resulting from weak demand in the consumer electronics market and customer inventory corrections during 2023. Sales volume in 2023 for surface protection films declined 22% and increased 2% for overwrap films versus 2022.

EBITDA from ongoing operations in 2023 decreased $0.7 million versus 2022 primarily due to:

• A $5.7 million decrease from Surface Protection:
  • Lower contribution margin for non-transitioning products associated with a market slowdown and customer inventory corrections ($11.1 million) and for previously disclosed customer product transitions ($0.7 million), partially offset by favorable pricing ($0.5 million), operating efficiencies ($2.6 million) and cost improvements ($3.2 million);
  • The pass-through lag associated with resin costs ($0.3 million charge in 2023 versus a benefit of $0.5 million in 2022);
  • A foreign currency transaction gain of $0.2 million in 2023 versus a gain of $0.8 million in 2022; and
  • Inventories accounted for under the LIFO method resulted in a benefit of $1.0 million in 2023 versus a charge of $0.1 million in 2022.
• A $5.0 million increase from overwrap films primarily due:
  • Higher contribution margin associated with higher volume and favorable mix ($1.3 million), cost improvements ($3.1 million) and lower SG&A ($0.4 million);
  • The pass-through lag associated with resin costs (a charge of $0.2 million in 2023 versus a benefit of $0.4 million in 2022); and
  • Inventories accounted for under the LIFO method resulted in a benefit of $0.3 million in 2023 versus a charge of $0.4 million in 2022.

Closure of PE Films Technical Center

In August 2023, the Company adopted a plan to close the PE Films technical center in Richmond, VA and reduce its efforts to develop and sell films supporting the semiconductor market. Future research and development activities for PE Films will be performed at the facility in Pottsville, PA. PE Films continues to have new business opportunities primarily relating to surface protection films that protect components of flat panel and flexible displays. The Company anticipates all activities to cease at the PE Films technical center in Richmond, VA, by the end of the first quarter of 2024. The Company recognized total expense incurred through December 31, 2023 associated with exit activities of $1.3 million for: (i) severance and related costs ($0.9 million) and (ii) building closure costs ($0.4 million). In addition, the Company recognized a non-cash asset impairment ($3.5 million), accelerated depreciation ($0.3 million) and a gain on the lease modification ($0.1 million). Net annual cash savings of $3.4 million are anticipated, which began in the fourth quarter of 2023.

Projected Capital Expenditures and Depreciation & Amortization

Capital expenditures for PE Films are projected to be $2 million in 2024, including $1 million for productivity projects and $1 million for capital expenditures required to support continuity of current operations. Depreciation expense is projected to be $6 million in 2024. There is no amortization expense for PE Films.

Flexible Packaging Films

Flexible Packaging Films produces polyester-based films for use in packaging applications that have specialized properties, such as heat resistance, strength, barrier protection and the ability to accept high-quality print graphics. A summary of results for Flexible Packaging Films is provided below:

	Three Months Ended								Favorable/ (Unfavorable) % Change		Year Ended								Favorable/ (Unfavorable) % Change
(In thousands, except percentages)	December 31,										December 31,
	2023				2022						2023				2022
Sales volume (lbs)		22,805				24,475			(6.8)%			88,536				106,685			(17.0)%
Net sales	$	31,464			$	40,022			(21.4)%		$	126,326			$	168,139			(24.9)%
Ongoing operations:
EBITDA	$	2,307			$	6,957			(66.8)%		$	4,383			$	27,452			(84.0)%
Depreciation & amortization		(750	)			(721	)		(4.0)%			(2,865	)			(2,444	)		(17.2)%
EBIT*	$	1,557			$	6,236			(75.0)%		$	1,518			$	25,008			(93.9)%
Capital expenditures	$	1,433			$	841					$	4,323			$	8,151
* For a reconciliation of this non-GAAP measure to the most directly comparable measure calculated in accordance with GAAP, see the EBITDA from ongoing operations by segment statements in the Financial Tables in this press release.

Fourth Quarter 2023 Results vs. Fourth Quarter 2022 Results

Net sales in the fourth quarter of 2023 decreased 21.4% compared to the fourth quarter of 2022. The Company believes that unfavorable variances throughout 2023 versus 2022 were primarily due to lower sales volume and lower margin driven by global excess capacity and competition in Brazil from imports.

EBITDA from ongoing operations in the fourth quarter of 2023 decreased by $4.7 million versus the fourth quarter of 2022, primarily due to:

• Lower selling prices from the pass-through of lower resin costs and margin pressures ($4.3 million), lower sales volume ($1.0 million) and higher variable costs ($3.2 million), partially offset by lower raw material costs ($2.7 million) and lower SG&A expenses ($1.4 million); and
• Foreign currency transaction losses ($0.2 million) in the fourth quarter of 2023 compared to foreign currency transaction gains ($0.1 million) in the fourth quarter of 2022.

Full Year 2023 Results vs. Full Year 2022 Results

Net sales in 2023 decreased 24.9% compared to 2022, primarily due to lower sales volume and lower margin that the Company believes were driven by excess global capacity and competition in Brazil from imports, partially offset by favorable product mix.

EBITDA from ongoing operations in 2023 decreased by $23.1 million versus 2022, primarily due to:

• Lower selling prices from the pass-through of lower resin costs and margin pressures ($17.6 million), lower sales volume ($9.7 million), higher fixed costs ($1.0 million, primarily due to under absorption from lower production volumes) and higher variable costs ($1.

Contacts

Tredegar Corporation

Neill Bellamy, 804-330-1211

neill.bellamy@tredegar.com

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