Ampco-Pittsburgh: A Margin Turnaround Hiding in Plain Sight

The stock market often rewards investors who can spot companies where operational improvements outpace top-line headwinds. Ampco-Pittsburgh (NYSE: AP) presents such an opportunity. While its Q1 2025 revenue dipped 5% year-over-year to $104.3 million, its GAAP EPS surged to $0.06—a dramatic turnaround from a $0.14 loss in Q1 2024. This valuation dislocation—shrinking revenue but rising earnings—demands scrutiny. Is this a fleeting blip, or a sign of durable margin normalization? The answer lies in the company’s structural shifts and secular tailwinds.

The Revenue-EPS Paradox: A Closer Look

Ampco-Pittsburgh’s Q1 results highlight a critical divergence: falling sales but soaring margins. Revenue declined due to softness in its core Forged and Cast Engineered Products (FCEP) segment, which supplies steel and aluminum mills. Yet operating income jumped to $3.9 million from just $0.1 million in Q1 2024. How?

1. Margin Expansion Drivers:
2. FCEP: Higher pricing and manufacturing efficiencies, including new U.S. equipment boosting productivity, drove margins.
3. ALP: A favorable product mix (e.g., nuclear, military, and pharmaceutical markets) offset lower sales volume.

4. Cost Discipline: Corporate expenses held steady, and interest costs stayed flat despite a $2.7 million annual burden.

5. No One-Time Charges:
   The rebound isn’t fueled by accounting tricks. The earnings release explicitly states no material one-time items impacted Q1. Non-GAAP adjustments were limited to recurring items like depreciation ($4.6 million) and stock-based compensation ($306,000).

Why the Revenue Drop Isn’t Terminal

The 5% revenue decline is less alarming when viewed through a sector lens. Steel and aluminum industries face cyclical pressures: China’s steel production cuts, European mill closures, and trade wars have crimped demand. Yet Ampco-Pittsburgh’s record ALP order intake—particularly in niche markets like nuclear energy and pharmaceuticals—suggests secular demand is intact.

Moreover, CEO Brett McBrayer’s strategy to pass tariff costs to customers (not yet reflected in Q1 results) hints at margin resilience. The U.S. forged business’s new equipment and ALP’s high-margin product focus are structural advantages, not temporary fixes.

Valuation: A Contrarian’s Bargain

At its May 12 closing price of $10.45, Ampco-Pittsburgh trades at just 17x its Q1 2025 EPS of $0.06—far below its five-year average P/E of 28. This compression ignores the margin turnaround and omits the 8.43% adjusted EBITDA margin, up from 4.6% in 2024.

The market is pricing in lingering doubts about the company’s ability to sustain margin gains. But consider:
- ALP’s record orders signal future revenue stability.
- FCEP’s operational fixes (machine uptime, pricing power) are sticky.
- Geopolitical tailwinds: Global energy infrastructure projects (e.g., nuclear plants, defense spending) align with Ampco’s niche expertise.

Risks: Navigating the Storm

The UK facility’s restructuring and tariffs are legitimate concerns. The company’s collective consultation process aims to eliminate losses there, but execution risks linger. Meanwhile, tariffs could crimp margins if customers resist price hikes—a risk mitigated by Ampco’s status as a specialized supplier with limited substitutes.

Investment Thesis: Buy the Margin Turnaround

Ampco-Pittsburgh’s Q1 results reveal a company executing operational excellence in a tough environment. Its valuation discounts cyclical revenue dips but not its margin revival. With secular demand in industrial infrastructure and energy sectors set to grow, Ampco’s niche markets are poised for resilience.

The stock is a contrarian buy at current levels. Investors who focus on the margin story—and not just top-line fluctuations—will be rewarded as Ampco-Pittsburgh’s structural improvements translate into sustained earnings growth.

Act now: The dislocation between revenue and earnings won’t last. The next earnings call on May 13 will clarify management’s path forward, but the Q1 results already tell a compelling story. This is a rare chance to buy a margin turnaround at a valuation discount.