Executive Summary / Key Takeaways

• Ampco-Pittsburgh ($AP) is executing a strategic pivot, leveraging recent capital investments and focusing on high-growth niche markets within its Air and Liquid Processing (ALP) segment to offset persistent challenges in its traditional Forged and Cast Engineered Products (FCEP) segment.
• Recent performance highlights include significant profitability improvement in Q1 2025, with consolidated operating income rising to $3.9 million from $0.1 million in Q1 2024, driven by improved margins in both segments despite a slight revenue decline.
• The ALP segment is a key growth engine, achieving record order intake in Q1 2025 fueled by strong demand in the nuclear (including SMRs), U.S. Navy, and pharmaceutical markets, supported by strategic capacity expansion and Navy funding for modernization.
• The FCEP segment is benefiting from operational efficiencies and improved reliability following a major capital program completion, positioning it for low to mid-single-digit volume growth in 2025 despite headwinds from global steel overcapacity, imports, and high European energy costs, with a focus on resolving losses at the UK facility.
• While liquidity appears sufficient for near-term operations and CapEx, the company faces ongoing risks from market volatility, inflation, geopolitical events, and significant asbestos liabilities, necessitating continued focus on operational execution and debt management.

Forging a New Path: Ampco-Pittsburgh's Strategic Evolution

Ampco-Pittsburgh Corporation, with roots tracing back to 1929, operates as a specialized manufacturer of highly engineered metal products and customized industrial equipment. The company is structured into two primary segments: Forged and Cast Engineered Products (FCEP) and Air and Liquid Processing (ALP). Historically, AP has served foundational industries like steel, aluminum, and energy, but has faced the cyclical cyclicality and competitive pressures inherent in these sectors. Over recent years, the company has embarked on a strategic transformation, marked by significant capital investments aimed at modernizing its facilities and a focused effort to capitalize on growth opportunities in specialized markets, particularly within the ALP segment, while simultaneously addressing underperforming assets.

The broader industry landscape presents a mixed picture. The global steel market, a key end market for FCEP, continues to grapple with manufacturing capacity exceeding consumption, leading to soft but stable demand and intense competition, exacerbated by increased imports of low-priced products in the U.S. and Europe. Conversely, certain niche industrial markets, particularly those served by ALP, are experiencing robust demand driven by secular trends like the expansion of the U.S. Navy fleet, a renewed focus on nuclear power generation (including the development of Small Modular Reactors or SMRs), and the expansion of pharmaceutical manufacturing capabilities, especially through onshoring initiatives in the United States. These divergent market dynamics necessitate a dual-pronged strategy for AP: enhancing efficiency and defending market share in FCEP while aggressively pursuing growth and capacity expansion in ALP.

AP's competitive positioning is defined by its specialized engineering capabilities and differentiated product performance in specific niches. In the FCEP segment, the company competes with global players like ArcelorMittal (MT) in steel rolls and Baker Hughes (BKR) in forged products for the energy sector. While larger competitors benefit from scale and broader market reach, AP differentiates itself through custom-engineered solutions. Its proprietary forging technology, for instance, offers quantifiable advantages such as enhanced durability and efficiency in specific rolling applications, allowing it to command higher pricing in certain specialized segments. However, AP lags larger rivals in overall scale, operational cost efficiency (particularly in certain European facilities due to high energy costs), and the pace of broader technological innovation.

In the ALP segment, competing with companies like A.O. Smith (AOS) in heat exchange and pumping solutions, AP leverages its expertise in custom-designed, high-performance equipment for demanding industrial applications like nuclear power and marine defense. Its products are engineered for superior performance and reliability under stringent conditions, offering benefits like higher energy efficiency or lower failure rates in critical applications compared to more standardized offerings. This focus on bespoke solutions for complex environments provides a competitive moat, although it comes with higher upfront costs and requires significant engineering resources. The company's strategic investments in this segment are aimed at strengthening these capabilities and expanding manufacturing capacity to meet growing demand in these specialized niches, positioning it to capture market share where customization and performance are paramount.

Performance Reflecting Strategic Shifts

Ampco-Pittsburgh's recent financial performance underscores the impact of its strategic initiatives and the contrasting dynamics of its core markets. For the first quarter of 2025, the company reported consolidated net sales of $104.3 million, a slight decrease from $110.2 million in the prior year quarter. This modest decline was primarily attributable to lower volume and unfavorable exchange rates in the FCEP segment, partially offset by improved pricing and increased Forged Engineered Products (FEP) shipments, and lower air handling unit sales due to timing in the ALP segment, offset by growth in heat exchange coils and centrifugal pumps.

Despite the top-line dip, profitability saw a significant uplift. Consolidated income from operations surged to $3.9 million in Q1 2025, a substantial improvement from just $0.1 million in Q1 2024. This was driven by improved gross margins in both segments. The FCEP segment's operating income more than doubled, reaching $3.9 million compared to $1.6 million in the prior year period. This improvement stemmed from the benefits of higher base pricing, better manufacturing absorption, and enhanced operational efficiencies and equipment reliability following the completion of a major capital equipment program in the U.S. Forged operations by the end of 2024. These gains successfully offset the impact of lower shipment volumes and higher selling and administrative costs.

The ALP segment also demonstrated strong profitability growth, with operating income climbing to $3.5 million in Q1 2025 from $2.0 million in Q1 2024. This improvement was principally driven by a more favorable product mix, which outweighed the effects of slightly lower shipment volume and increased manufacturing costs. The segment's focus on higher-margin, custom-engineered products for growing markets like nuclear and military is clearly contributing to enhanced profitability.

Selling and administrative expenses saw a modest increase in Q1 2025, rising to $13.7 million from $13.0 million, primarily due to inflationary pressures, higher employee-related costs, and professional fees. Interest expense remained relatively stable at $2.7 million, as lower average interest rates and revolving credit borrowings were offset by higher borrowings under the equipment financing facility used for capital investments. Other income net declined slightly, influenced by lower net pension income and fluctuations in foreign exchange gains and losses. The income tax provision in Q1 2025 benefited from a reduced tax rate for the Chinese joint venture due to its qualification as a high-tech enterprise.

Backlog remains a key indicator of future revenue. As of March 31, 2025, total backlog stood at $368.5 million, a decrease from $378.9 million at December 31, 2024. The FCEP segment backlog decreased by $18.2 million, primarily due to lower mill roll orders, influenced by market softness in Europe and order deferrals by U.S. customers partly due to tariff uncertainty, although this was partially offset by favorable foreign exchange translation and improved FEP demand. The ALP segment, however, saw its backlog increase by $7.8 million, driven by record order intake in heat exchange coils (nuclear market), centrifugal pumps (U.S. Navy), and air handling units (pharmaceutical market). Notably, a significant portion of the backlog, approximately 20% overall, is expected to ship after 2025, providing some visibility into future periods.

Liquidity, Outlook, and Key Considerations

Ampco-Pittsburgh's liquidity position reflects the ongoing investments and working capital requirements of its operations. Net cash flows used in operating activities totaled $5.3 million in Q1 2025, a shift from $4.5 million provided in Q1 2024. This was primarily driven by a higher investment in trade working capital, particularly increased trade receivables and inventories, and higher pension contributions, partially offset by the improved net income and lower asbestos-related payments. Inventories increased due to higher production in anticipation of planned summer shutdowns and more production days in the first quarter compared to the fourth quarter.

Net cash flows used in investing activities decreased to $1.7 million in Q1 2025 from $2.8 million in Q1 2024, mainly due to lower capital spending in the FCEP segment as the significant capital equipment program concluded, although capital spend increased in the ALP segment. The company received $0.3 million in government grants in Q1 2025 to subsidize capital expenditures, with future commitments for capital expenditures totaling approximately $5.2 million expected over the next 12-18 months. Net cash flows used in financing activities were $1.7 million in Q1 2025, primarily reflecting net repayments on the revolving credit facility. Cash and cash equivalents ended Q1 2025 at $7.1 million, with the majority held by foreign operations. Domestic cash is minimal as remittances are used daily to repay the revolving credit facility.

As of March 31, 2025, remaining availability under the revolving credit facility was approximately $28.6 million. The company recently closed an amended and restated credit facility in June 2025, providing a $100 million five-year asset-backed revolving line of credit and a $13.5 million term loan, the proceeds of which were used to reduce revolving borrowings. This new facility extends the maturity date beyond the previous June 2026 deadline, providing enhanced financial flexibility. Management is focused on debt reduction, recognizing that increases in variable interest rates will impact debt service costs. The ability to reduce debt will largely depend on improving profitability and managing working capital effectively.

Looking ahead, management's outlook is cautiously optimistic, particularly regarding the ALP segment's growth trajectory and the anticipated benefits from operational improvements and strategic actions in FCEP. The ALP segment is expected to see record orders and shipments in the nuclear market in 2025, driven by SMR development and plant reopenings. Strong demand from the U.S. Navy is also anticipated to continue, supported by fleet expansion plans and Navy funding for facility modernization expected by the end of 2025. Demand in the pharmaceutical market for air handlers is projected to remain strong for several years. In FCEP, based on backlog and customer indications, the company is positioned for low to mid-single-digit volume growth in 2025. FEP sales and margins are projected to rise from 2024 levels, benefiting from tariffs on imports. A critical near-term focus is the conclusion of the collective consultation process at the UK facility, expected by the end of May 2025, with definitive actions aimed at significantly stemming or eliminating losses, potentially improving annual operating income by at least $5 million. Management expects to pass through tariff costs to customers to protect margins.

Despite the positive momentum in ALP and operational improvements in FCEP, significant risks persist. Global steel market softness and import competition remain headwinds for FCEP. Inflation continues to pressure production costs in ALP. Geopolitical conflicts and changes in government policies, particularly regarding tariffs, introduce uncertainty, although management sees potential long-term upside from U.S. onshoring trends for ALP. The company also carries substantial asbestos liabilities and related insurance receivables, which are subject to significant estimation uncertainties and could result in material adjustments to reserves. The outcome of the UK facility consultation process, while aimed at stemming losses, could also involve costs or operational adjustments. Investors should monitor market demand trends, the successful execution of strategic initiatives, the resolution of the UK situation, and the management of asbestos liabilities and overall debt levels.

Conclusion

Ampco-Pittsburgh is navigating a period of strategic transition, leveraging recent capital investments and focusing on high-growth niche markets to build a more resilient and profitable business. The significant improvement in Q1 2025 operating income, driven by enhanced efficiencies in FCEP and a favorable product mix in ALP, demonstrates tangible progress. The ALP segment, fueled by robust demand in the nuclear, Navy, and pharmaceutical sectors and supported by strategic capacity expansion, stands out as a key growth engine with promising long-term prospects. Concurrently, the FCEP segment is benefiting from operational modernization, positioning it for volume growth despite challenging market conditions, with a critical focus on resolving the drag from the UK facility.

While the company has made strides in operational performance and secured a more favorable credit facility, it continues to face headwinds from market volatility, cost inflation, and the complexities of managing its legacy asbestos liabilities. The successful execution of the UK restructuring plan and the continued ability to translate strong ALP order intake into profitable revenue will be crucial determinants of future performance. For investors, the story centers on AP's ability to capitalize on its niche strengths and operational improvements while effectively mitigating external risks and addressing structural challenges, aiming to translate recent profitability gains into sustained financial health and enhanced shareholder value.