Q2 2020 Gates Industrial Corporation PLC Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Gates Industrial Corporation second quarter 2020 earnings Conference call. At this time, all participants are in listen only mode.
After the speakers presentation, there will be a question and answer session to ask your question. During the session you will need to press star one on your telephone.
If you would.
Require any further assistance. Please press star zero I'd now like to hand, the conference over to your Speaker today Bill Lucky you may begin.
Thanks, Robert Thank you everyone for joining us today on our second quarter 2020 earnings call I'll briefly cover our non-GAAP and forward looking language before passing the call over to evil, who will be followed our CFO Brooks Mallard.
After the market close today, we published our second quarter results.
I'll be able to release is available on our website at investors got gates Dot com.
Today's call is being webcast is accompanied by a slide presentation on this call we will refer to certain non-GAAP financial measures that we believe are useful in evaluating our performance.
Reconciliations on historical non-GAAP financial measures are included in our earnings release and the slide presentation, each of which is available in the Investor Relations section of our website.
Please refer now to slide two of the presentation, which provides a reminder that our remarks will include forward looking statements within the meaning of the private Securities Litigation Reform Act.
These forward looking statements are subject to risks that could cause actual results to be materially different from those expressed in or implied by such forward. Looking statements. These risks include among others matters that we have described in our most recent annual report on form 10-K, and other filings we make with the FCC.
Including our quarterly report on form 10-Q filed in May of this year.
We disclaim any obligation to update these forward looking statements, which may not be updated until our next quarterly earnings call. If at all with that I'll turn the call over to Eva.
Thank you Bill good afternoon, and thanks for joining us today.
Thank you and your families are staying safe and healthy.
As we continue to confront the pandemic globally, we recognize the enormous effort our gates associates, who put forward during the difficult second quarter.
I want to thank each one of our team members for their unwavering dedication and efforts during this time of great uncertainty.
Throughout the quarter, we maintain our focus on complying with the recommended safety protocols and mandates around the world to operate our facilities, while adopting enhance safety practices to protect the safety of our employees the families as well as the communities in which we operate.
Doing so remains our top priority.
But in this challenging business environment, we delivered performance that exceeded our expectations.
In the face of the volume declines driven by the pandemic. We have been focused on what is under our control to mitigate the decline in margins well acting with the long term interest of our business in mind.
We have maintained operational and supply chain continuity throughout the crisis and have been a reliable partner to our customers many of whom participate in essential industries around the world.
We also continued to fund our key initiatives and did not compromise our ability to respond to improvements in our mostly short cycle and markets, which we're now seeing across all of our regions.
While we do not minimize the threat tragic effects of discipline Denny.
That in many ways continues to impact the daily lives of our employees their loved ones and the general public we believe the second quarter marked a turning point for our business.
Based on the incremental improvements in our end markets as well as positively trend in macro data. We believe the most significant impact to our business from Corbett 19 is likely behind us.
Yes shelter in place requirements in different geographies were lifted.
Customers, who had suspended operations began to recharge their supply chains and progressively resumed production.
The overall increase in industrial activity combined with an increase in personal mobility and driving levels contributed to improving demand trends for our mission critical components throughout the quarter.
Absent any broad re implementation of movement restrictions. We believe April represented the Pandemics most significant impact on our business.
Exiting the quarter, we had to return to year over year growth in China.
And the recovery also began to take hold in North America in Europe.
We continued to make progress on our restructuring plan, we announced last year taking to further actions.
In June we announced the closure of our power transmission plant in Korea, a market, which we plan to serve from other facilities in the region.
Additionally, in July we announced our intent to established a shared service center in Europe, which would consolidate certain functions that are currently distributed throughout the region.
We anticipate completing the closure of our Korea facility this quarter and intend to complete the European projects in a second half of next year.
These actions represent continued optimization of our operational footprint.
Resulting in increased flexibility without compromising our ability to provide customers with highest level of service.
Although coded 19, it's certainly not yet under control.
The macro indicators and improving levels of customer activity give us an early indication.
Absent significant additional ways of the virus our business has turned the corner and it's on a measured trajectory to recover.
Now moving to slide for an overview of our second quarter results.
This was a challenging quarter.
Total Q2 revenue of $577 million declined 28.8% year over year, including a negative currency impact of 2.4%.
Core revenue in the quarter declined by 26.4% year over year better than the midpoint of the ranch, we provided on our last call.
This is a result over our ability to maintain operational continuity throughout the quarter in the vast majority of our global production facilities.
Importantly, after bottoming in April we saw significant improvement across the business.
Oh revenues progressively strengthened throughout the quarter Tech sitting with June core revenue down mid teens year over year.
The strength of improving business activity continued in July.
For the second quarter sales into replacement channels substantially outperformed dose into the first fit channels.
Second quarter, adjusted EBITDA was $83 million, representing a margin of 14.4% in a decremental margin of 35%.
The improved decremental margin from Q1 is primarily the result of cost reduction actions we have taken.
Enhance productivity and favorable product mix.
Our adjusted earnings per share of three cents per share was primarily the result of lower revenues and associated earnings partially offset by lower income tax and interest expense compared to prior year.
Moving onto slide five.
As a side note, we will continue to provide geographic pray that breakdown of our revenue for the remainder of 2020.
Our business is a very global one with over half of our revenue coming from outside North America.
And the regional trends, we saw rail largely inline with the journal expectation, we laid out last quarter.
Across our regions extended customer shutdowns, particularly in the out and what is automotive first fit channel negatively affected demand for our products in a broad sense.
With the most significant impact in Europe and Asia regions.
Now, let me move to greater China.
The stronger order trends, we began to see in the end of March continue.
Within our business, they're returning to core growth in May followed by further acceleration in June.
We saw growth in a quarter broadly across the region with the exception of automotive first fit which improved significantly as the quarter progress.
But remain core growth never negative compared to the prior year.
The construction and heavy duty truck end markets, notably outperformed other parts of the business in China.
After hitting and trough in April our business in Europe improved throughout the quarter, most notably in June when movement restrictions head largely being lifted or significantly east.
Although sales into first fit channels improved sequentially within the quarter. They were down significantly on a year over year basis, primarily due to the decline in automotive first fit.
Our replacement channels, where less impacted.
With the automotive replacement channel in particular, seeing nearly flat core growth performance on a year over year basis in June.
Our business in North America performed in a similar fashion toward we experienced in Europe overall and improve sequentially after bottoming in April.
Sales into replacement channels outperformed first fit with automotive replacement showing the most significant improvement within the quarter.
Exiting with mid single digit decline.
All industrial markets were down significantly, but improved during the quarter.
The most notable improvement also coming in the month of June.
As to our East Asia, and South America regions, those regions demonstrated slower rates of recovery in the quarter.
The largest impact coming from extended shutdown in India.
Moving now to our segments on slide six starting with our transmission business part transmission business in Q2, So core revenue declined 23.7% on a year over year basis.
Within this revenue decline, our China business generated modest level of growth.
Well, our automotive business in China improved throughout the quarter. It was a solid performance in the industrial end markets, particularly generally industrial and heavy duty truck that drove the growth.
As to the other regions North America was impacted the lease and improve solidly throughout the quarter driven by the larger percentage of sales directed into replacement channels, particularly automotive agriculture in general industrial applications.
Our business in Europe showed the most significant improvement throughout the quarter also led by the replacement channels with our automotive replacement business rebounding in the quarter and exiting nearly flat on a year over year core basis in June.
One of the notable effects in a quarter that we anticipate will remain for an extended period of time is an increase in demand for our belts and related components in the personal mobility applications.
Although it is a relatively small piece of our overall revenue. This business has been growing significantly a trend we expect to continue particularly as many commuters search for alternative forms of transportation and localized recreation during this crisis and.
Yeah.
During the second quarter, we launched a number of new personal mobility products that cover a wide range of applications from E bike and traditional bicycles to power sport vehicles capitalizing on what we believe the inherent advantages of our belts versus truck.
Additional change in applications that offer positive longer term secular trends.
Our industrial changed about initiative had another strong quarter of design wins in applications, including automotive assembly plants aggregates facilities medical product manufacturing and industrial dispensing equipment.
We are pleased with our ability to drive a solid level of design wins as we deployed virtual sales and marketing tools to continue to engage our global customers.
Let me move now to slide seven.
Our fluid power core revenue represented a decline of 30.6% year over year. The result of very challenging market environment.
After bottoming in April all of our regions showed sequential improvement throughout the quarter.
Similar to power transmission, our fluid power business in China returned to growth aided by construction end market.
Outside of China, North America was lease impacted the result of is extremely exposure to the agriculture in market and automotive replacement channel.
Our fluid power business in Europe, So a large decline across first fit customers in particular with sales into replacement channels outperforming on relative basis.
The lighter more flexible new products, we have been introducing to our costs customers continue to gain acceptance in a marketplace.
Our pipeline of opportunities continue to grow and we had a number of wins in the quarter with our new NXT and pro series hoses, notably we expect to see the sales of our new fluid power products grow this year, despite the negative mark.
Good dynamics.
Although we are exiting a very difficult quarter. We are encouraged by the more positive business outlook and momentum behind our new products.
I will now turn the call over to our Chief Financial Officer Brooks Mallard for some additional detail on the financials Ross Thank tivo.
Moving now to slide eight which provides detail on key balance sheet and cash flow items.
Operating working capital decreased.
Our 107 million compared to the second quarter 2019.
Really driven by reductions.
And accounts receivable and inventory.
Accounts receivable reductions were driven by lower revenues.
Somewhat off.
But a higher mix the automotive replacement business.
On an LTM basis.
Our second quarter free cash flow of 288 million.
Represents an increase.
I was 69 million compared to the second quarter.
Of last year.
The increase was driven primarily.
But lower operating working capital.
Cash taxes and cash interest.
Partially offset.
But lower adjusted EBITDA.
With respect to Capex, we're limiting new spending while still funding key initiatives.
But we will maintain flexibility.
Based on prevailing market conditions.
As a reminder.
We undertook a significant growth investment in 2017 and 2018.
And improve the reach and flexibility of our manufacturing footprint.
Our return on invested capital was approximately 15% in the quarter compared to approximately 21% in Q2 of 2019.
With a reduction driven primarily by lower operating income.
Despite the downturn leverage has not been an issue for the business net debt to adjusted EBITDA increased to 4.8 times as a result of lower adjusted EBITDA.
Although we remain committed to bringing net leverage below three times over time, we expect net leverage to continue to increase this year on the decline and adjusted EBITDA.
We are still confident in our ability to de leverage, particularly as our end markets recover.
Moving to slide nine this provides detail on our available liquidity financial covenants and debt maturities.
Our liquidity position strengthened to approximately 1.1 billion at the end of the quarter.
Consisting of 640 million in cash and 415 million in revolver availability.
Our credit facilities remain Undrawn, which we do not anticipate changing this year and we do not have any material debt maturities until 2024.
We continue to expect to generate substantial free cash flow in 2020, which will further strengthen our liquidity position.
With that I will now I'll turn it back over to Eva Thanks Brooks.
While we saw improving business trends throughout the quarter.
The strength and pace of the recovery from Covidien remains uncertain.
As such we are updating our high level 2020 framework and do not plan to provide guidance in this environment.
Based on the data available to US today, we expect the second half of the year to get progressively better with core revenue in Q3 anticipated to decline, 10% to 15% year over year, which represents a notable sequential improvement from Q2.
In China, we expect industrial end markets will continue to perform well in sales into the automotive replacement channel will continue to grow.
In North America in Europe, which performed similarly today, we expect to see a continued trend of improvement across the business.
While sales into first fit channel improved throughout the second quarter day remains relatively weak overall.
With the most significant improvement in first fit sales only coming in June we believe we'll see the channels performance continued to accelerate in Q3.
We also expect to see incremental improvement in replacement channel sales as distributors have largely maintaining prudent inventory positions, despite improving end market demand.
Our second half decremental margins I expected to be approximately 35% a result of the benefits. We're now seeing from the actions taken over the last four quarters to rightsize the business and respond to Covidien 18.
We are maintaining our full year capital spending expectations of a prop approximately $70 million to support maintenance and key growth initiatives.
From a free cash flow perspective, our expectations haven't changed.
We anticipate generating substantial free cash flow this year in excess of adjusted net income while still funding key initiatives to built on our strong competitive position.
So let me wrap things up on slide 11.
The challenges presented by Corbett 19 are certainly not over however, I am pleased with how our global teams executed in second quarter delivering results of better than our expectations three months ago as we reacted to the unprecedented macroeconomic decline.
Given the trends we are seeing we are shifting our posture towards we believe will be continued trajectory of business recovery.
During this crisis, we have maintained our ability to respond to demand improvements, while increasing our operational flexibility and continuing to fund our key initiatives, which we believe will serve as well as our end markets continue to recover.
The improvements in our end markets notwithstanding.
We remain operationally focused on what we can control and continue to pragmatically manage our discretionary spending and compressible costs.
We anticipate these actions in combination with the progress made without restructuring program will allow us to deliver strong incremental margins as we returned to growth in the near future.
We continue to win business in the quarter with our new products and also took share in the replacement channels due to the relative breath of our product coverage and reliability of supply.
Investment in innovation remains a significant priority and we believe the benefits we have seen will only be further enhanced as our end markets recover.
Our sales into replacement channels has fared significantly better than first fit channels, particularly in our larger regions.
We believe this speaks to the critical nature of our products across a broad range of end market and applications we serve.
In closing I'm very proud of our team's performance over the last three months.
I am certain we will see additional obstacles, but I am confident in our ability to navigate through them and deliver value to our associates customers and shareholders.
Thank you and we will now turn the call back over to Robert to begin DQSA.
Certainly thank you.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
We stand by what we compile the human error Austria.
Your first question comes from the line of Julian Mitchell with Barclays. Please go ahead. Your line is open.
Hi, good afternoon.
Hey, maybe just the first question on that topline outlook the.
At low teens decline dialed in for Q3.
Maybe just help us understand how you see the different trends between the two segments.
Within that quarter.
Sales drop.
It also maybe touch on China, and little bit as well you gave some good detail already but maybe help us understand.
Do you seen month on month improvements still in China, or do you think we might be starting to see some kind of plateauing.
Offsite initial kind of four months also recovery pace.
Good good questions Joanne.
Let me let me try this way look based on the trends we have seen we would expect improvements in Q2, the reasonably broad base frankly across both of our product lines.
Our first fit customers really did not begin to meaning fully recover from very depressed levels until June David the most impacted with most of the shutdown that we have seen so we expect plenty of room to be able to see continuation of the improvement in demand.
Trends.
In the replacement channels, our main channel partners, frankly, still largely managing their inventory levels in a very prudent way.
Particularly on the industrial side of our business.
I would say that we have seen the sales out of the channel partners or the business that they do continues to outpace our sales into our channel partners. So that would give you an indication that they still.
Managed inventory to a degree and.
At the Q3 level, we anticipated we will start seeing more normalization of our sales into the channel.
More in line with with our sales out taking into account that we have seen.
A significant amount of.
Channel inventory.
Reductions over the last three or four quarters.
Coming back to China.
We continue to see improvements in China in a very broad sense again as I highlighted in my prepared remarks July.
Continued to see pretty much across all channels and all applications. So.
Our sense is that.
We will see continuation of.
Of improvement in China throughout Q3, and and we have taken all of that into account, providing that guidance of 10% to 15% down year on year.
And as I said pretty significant re acceleration from what we have seen a Q2, a very challenging Q.
Thanks season, and then just one quick follow up the decremental margin guide for the second half that's kind of steady with what you just reported even though you got a narrower sales decline is that really about managing the thinking about managing to that margin. So you're kind of re.
Reinvesting for the up.
Maybe there's some return of temporary costs will certainly I can understand how the decremental could be narrower if you wanted it to be.
So is it more about positioning for the upturn as to why it stays in that mid seventys level.
Yes, I think that it's important to stay that did we continue to invest for the long term future of our business and we really haven't taken the foot off.
Of the pedal on on a portfolio remain very reinvention and we'll continue to do that and maybe accelerated as we move out of Q2.
But we also as you can recall have begun to take significant cost actions in the second half of 2019.
And as you very well outlined when volumes improve in second half some portion of the variable costs will start coming back with the higher sales.
Given the current environment that you know that we are in and the gross margins debt that we generate we certainly believe that 30, 35% decremental margin is isn't appropriate target for a second half of 20.
But I also wanted to remind everybody that over the midterm ask all of our restructuring benefits start flowing to the piano. We were we would expect that that tiger is going to start trending lower so second half 35%. This.
Probably appropriate plus or minus.
It will trend lower ASP as our restructuring is is nearing completion.
Great. Thank you.
Thank you.
Your next question comes from the line of Deane Dray with RBC capital markets. Please go ahead. Your line is open.
Good afternoon, everyone.
Hi, Dan how are you doing very well. Thanks could we go back to your comments you go about the distributors you said that there was some destocking going on in the quarter, but you thought that might begin to normalize.
This quarter, but the idea is.
Would there be a would that be a very gradual process, where you might see sell in Dan reverse and it would be a would it come in a bigger chunk. It would be very gradual any sense of how the distributors are acting in this environment.
Yeah. So you know being as I said I, we're still seeing.
Sales out.
Out of our channel partners outpacing our sales then more or less.
I will remind everybody that we have seen inventory channel destocking for a reasonable amount of time now right. This is not the first to second quarter that we are seeing that so my sense is that inventory levels at least with the largest distributor that we have a reasonably good visibility we.
We feel.
You know quite confident that Dan nearing or approaching the end of the stocking they still maybe some level of limited destocking going through Q3, but not too distant future from now my expectation is that we will start seeing the sales to approach.
Their sales out and ultimately the only to start outpacing their sales because of the level off inventory that they have managed down too. So I think that inventory assigned reasonably good shape from from where we sit.
Good to hear and then can you comment on price cost in the quarter.
And expectations or in the third quarter.
Yes, a price material economics remain positive Dean we anticipate that it will remain so for the second half of the year and as you know we are reasonably focused on that.
Whether or not it isn't a downturn or an up cycle. We we always want to make shouldn't be outpace mature economics.
Got it and just last question the idea that you're getting good traction with some of your newer products.
So just kinda take us through and highlight which of those products. You think are making a difference here and it's hard to is your approach to sales and bring it more virtually his how has that worked out and anything like permanently going to change and in terms of your go to market post call but.
Yeah. So let me start during the second part of your question and I'll come back to for the first a little bit later, so we have deployed.
A number of virtual sales tools, we are investing actually quite aggressively in a digital front end.
And we have seen yes reasonably good progress in our ability to to switch into this virtual New war. That's certainly for 110 year old Industrial company I think this was.
Quite new for us. So we are I'm very pleased with how well we have been able to to respond to the restriction in People's movement.
We have conducted virtually hundreds of a virtual training sessions and marketing marketing sessions over the last quarter and I will say that we probably had the largest and thats very surprising to me the largest number.
Oh, sorry folks attending on these training seminars and educational sessions and marketing marketing session more so than what we actually see in person. So my sense is that we will lean forward on.
Utilizing these digital marketing tools well into the future regardless of what happened. So how fast we cannot be able to return to more normal business conditions. So I think the days that there's an attribute of the that's a very good outcome for companies that that invest in those tools.
Now coming back to the first part of your question Dean we see a very nice pace of no just design wins, but also invoicing.
A follow up products that we have launched over the last 18 months in particular, a fluid conveyance products. As you know we have been speaking now for a significant amount of time about reinventing our fluid power portfolio.
And we now are seeing.
The fruit of that labor to to frankly start coming to fruition. So we anticipate that we will have the highest sales of these new products that we have seen over the last 18 to 20 months for fall under that bodes really well.
For the future when you take into account that last quarter. The sales in fluid power were down about 30% in yet with being down 30% sales of new products were flat to up year over year. So that there is very very good.
Now we also have put a pretty significant efforts in Q3.
Reinvention of our power transmission portfolio and as I have highlighted my prepared remarks, we're now starting to see at very nice acceleration of design wins were not it is in the personal mobility space, which is growing.
Quite quite nicely for us and you know, it's a business that's kind of 70 $580 million sin in scope, yet that business is going to grow very nicely in 2020. Despite the Kobe 19 pandemic. So we're very excited about that business.
The other business that you know we are very excited about is the the pace of design wins in industrial chain to belt.
We continue to to touch applications that ranch from industrial automation warehousing products in our spoken little bit about about aggregate material. So we are converting.
The equipment used bye bye.
By folks that deal that aggregate.
It's very exciting time, and I feel that over the mid terms. This will bode well for our business and it should will bode well for our shareholders as well.
Thank you.
Thank you.
Your next question comes from the line of Jeff Hammond with Keybanc capital markets. Please go ahead. Your line is open.
Hey, good good afternoon guys.
Hi, Jeff.
It's like July orders continue to kind of improve sequentially.
But just wanted to understand better what the July orders look like relative to the guide and.
How much more improvement you have sequentially from July and the if any into August September to kind of get to that 10 to 15 declines.
Hey look so so we saw a broad trend of improvements across our business.
During second quarter exiting second quarter that that's trend as I highlighted has continued nicely in July.
I think right I said at core revenue was down in a thirtyth in April improving to high 27 ending in June.
We have seen declines kind of in mid teens.
So you know frankly sales.
To the replacement channels continue to see greater improvement throughout the quarter, Firstly loss was still pretty tough but.
It is it has improved in June and it has improved through the next level in July.
You know, we we see still an elevated level of uncertainty certainly that's out there as you can appreciate and I think that as you as you hear from from many of the company senior coverage, but frankly, the trends are improving and what we have seen in July gives us high degree.
We have confidence there will be able to meet our guidance for Q3.
Okay and are there any markets that seem to be area. It seems like you know good sequential improvement again, but any markets it seemed to be kind of plateauing.
At a level versus continuing to improve.
At this point in time, we have not seen that Jeff.
But again I will caveat that wed there's lots of uncertainty and.
Lots of our customers have had a really tough Q2, many of them have been shut down for a substantial amount of time. So we anticipate that you know Q3, we are going to start seeing some degree of normalization. Although you know I you know I put the normalization in you know.
Apostrophe is because I.
I don't I don't think that you're going to see the normal rate of production for that fit into the future yet.
Okay, and then just a housekeeping the minority interest line seemed to the swing and maybe there's just a onetime charge in there can you just explain what's going on there and should we see kind of more normal.
Run rates as we you know as we go for.
No that was just the impact of the restructuring of this was Brooks brothers that was the restructuring and Pat or of the Korean announcements that we might.
Okay, Okay, great access.
Thank you.
Your next question comes from the line of Jerry Revich with.
Goldman Sachs. Please go ahead your line is open.
Hi, good afternoon, and good evening.
Hi, Jerry.
Eva where I'm wondering if you could expand on.
Your comments so it doesn't sound like you saw a slowdown will occasionally recovery and you had mentioned that you had exited.
June with core growth down 10, 15% year over year. So in July we mean towards the single digit range in terms of the year over year performance.
No Jerry I said at June we exited down mid teen.
Energy continues to see improvements from from June into July that that is what what I have found what I've said in my sense. Jerry is that you know the improvements.
They are hearing July certainly from where we sit today, but as I said, we anticipated that will occur and we've taken that into an account when we when we issued.
The.
The outline guidance of 10 to 15 down for Q3.
Okay, and even which we placed it in markets outside of China.
Turning positive works close turning positive mid July.
Our automotive replacement or in Europe has been positive.
And you know we have seen a you know an improvement that class, yes pretty much.
Across both of the.
The replacement.
Set of applications NPT NSP, but Europe has turned positive in July.
And any others that are close.
A pain North America, Hey are very close.
Okay.
And then as you folks complete or the tweaking of the footprint and the restructuring can you talk about.
What are you learning as you complete those actions this year and opportunities for further productivity improvement even once a recovery that's growing or are there things that are coming up as you're dealing with the crisis plus the restructuring that could drive actually.
Opportunities, which we think about footprint couple of years from now.
Yeah. So first of all one of the things that I would say that's most astounding instead, we are able to the restructuring during a time, where you are constrained in.
In People's movements. So as you can imagine we have not been able to sent our.
Most qualified people front I plan to a plan to.
Two ramps down one facility in house to ramp up another facility. So our teams.
Our performing extremely well in duress and this also speaks about the in region for region capability that we have been building over the last couple of years. So I'm very proud of how our teams have been executing that being said.
I think that we're making great progress with all of the activities and I think that we anticipate we will be done kind of mid year next year with all of the all of the already announced actions, but as you have very.
Correctly outline we are also learning that we have more capabilities to do potentially more restructuring.
We will we will.
Identified those sand and highlight those says we compete the project that we are.
We are present presently having on a docket and we thing that you now. This is a you know this basically at a process that is going to go on for a good amount of time, particularly as we are getting bigger broader presence in areas that have a greater availability.
The of labor with much greater flexibility to Oh, god to react to supply and demand changes.
Okay. Thank you appreciate sketchy.
Thank you Gerry.
And your next question comes from the line of Andy Kaplowitz with Citi. Please go ahead. Your line is open.
Good afternoon guys.
Hi, Andy.
You know so we know it isn't that large, but India and then maybe southeast Asia in general It seems like it's been a drag on both your Detrimentals and your revenue decline as you've been able to generally get back on line in all of your facilities, including India. If you can talk about how much of a drag on profit.
Ability on your business in your wise in Q2 that'd be helpful.
I don't think now I'll be breaking down the profitability of India and southeast Asia, but.
Yes, we are finally back up fully in India.
Then I would say that the demand is starting to slowly come back we anticipate that.
We probably going to be I, dunno, 60% to 75% back in India in Q3, and we anticipated that's going to progressively get better in Q4, India was really the toughest place for US Andy It was for all practical purposes shut down.
For the entire second quarter. So it was a you know reasonably good amount of drag it represented good amount of Dragon.
So as we've discussed its about a $90 million some odd revenue in India for the full year. So it's not a huge amount of revenue but.
When you are dealing with.
A pandemic you know every drag is just another headache did you have to deal with it so I'm glad to see that India is back up its operating well it came up well, but we're now looking towards the healing of the demand in India.
On the second part of your question, Yes, all of our facilities are now operational.
Everything that that we operate in all regions on now.
For all practical purposes, producing products for our customers demand first to a Dick's different degree obviously of demand levels.
It's good to hear you, though so just if I remember correctly in China Auto first said has been a little bit tougher than on a replacement for you guys sort of over time and I think you mentioned that auto replacement already turned the corner here. So maybe you can talk about sort of dates and market share in China.
And that sort of what you're seeing on the auto side as we do see some recovery there and obviously on industrial side, we've seen recovery and how you've done in terms of market share in the different sort of verticals I know you've talked about.
Yeah. So so out of first fit you know we anticipated that the trajectory of of improvements is going to continue into Q3, and if I was at <unk>.
If I had two.
To guess my sense is that how to first fit is going to be kind of flattish in a into Q3 and it was down you know mid mid single digits to high single digits in Q2 out of first fit that is.
A are in China was positive core growth than we anticipated that will continue industrial frustrated was nicely up a in a teens in Q2 and you know again, our expectation at that will continue and the industrial replacement was up.
Mid single digits.
Again, our expectation is that you know that trajectory continues throughout the quarter. So so gerry dealing nicely.
The biggest impediment that we had in China in Q2 out of first fit that took a little little longer to ought to repair, but our anticipation that market.
It is in my anticipation is that that we will see kind of a flattish Q3 in out of first fit there as well.
You know just one quick follow up on that I think our member that you had that sort of expansion or renovation of your China facility. So is that helping you in fluid power here as the industrial markets come back.
Oh, absolutely I think that says this is a great point.
Some of these investments.
Yes as difficult as they look in one year you know the next year. They look really smart then and I would say that that investment that we've made in fluid power in China has been very very instrumental in our ability to deliver that growth when that growth became available and you know being able to supply these products for our customers.
When they need them during their rebound of their business activity.
Thanks, Dave.
Thank you.
[noise] there no further questions at this time I will turn the call back over to Bill welcome for closing remarks.
As always thank you everyone for your interest in gates. So those of you in particular dealing with the effects of the storm now on the East Coast stay safe and we look forward to speaking with you again in November.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
[music].