Q2 2020 EnPro Industries Inc Earnings Call
Greetings and welcome to Enpro Industries incorporated Q2, 2020 earnings conference call.
This time, all participants are in listen only mode.
To answer session will follow the formal presentation.
Anyone should require operator sisters during the conference. Please press star zero on your telephone keypad.
Please note this conference is being recorded.
I'll now turn the conference over to your hosts Chris O'neil Senior Vice President strategy corporate development.
And Investor Relations you may begin.
Good morning, and welcome to in first quarterly earnings Conference call I remind you that recall was also being webcast in per industries Dot Com, where you can find the presentation that accompanies the call.
With me today, or Marvin Raleigh, our CEO and Milt Childress our CFO.
Due to the couldn't 19 pandemic, we're holding our call virtually told her social distancing. We're dollar <unk> dollar then from different locations. So we asked for your understanding if we encounter any technical issues.
And that's we coordinate our responses during Q1 day.
Before I begin our discussion a friendly reminder, that we'll be making statements on this call that are not historical facts that are considered forward looking in nature. These statements involve a number of risks and uncertainties, including impacts from the couldn't 19 pandemic unrelated governmental responses and their impact on the general economy.
As always other risks and uncertainties are described in our filings at the FCC, including our most recent form 10-K and form 10-Q, we do not undertake debate any of these forward looking statements also during the call. We will reference a number of non-GAAP financial measures.
Tables reconciling these measures took to the comparable GAAP measures are included in the appendix to the presentation materials.
I also want to remind you that as a result of the sale of Fairbanks Morse in January 2020. The power system segment is accounted for as a discontinued operation and our financial statements for both current and historical periods unless otherwise noted all of our comments today, we'll refer to continuing operations.
Additionally, in the second quarter of 2020, we moved the oil and gas component of our garlic pipeline technologies or GP tea business from the sealing products segment to the engineered products segment. This news allowed us to group, our two largest oil and gas businesses GBT and CPR together. So they can be managed as one business unit.
Prior year segment level results have been restated to reflect this change for all periods presented.
We've also provided a supplemental table at the end of the press release with restated quarterly segment results, reflecting this change going back to 2019.
Now I'll turn the call over to Marvin.
Thanks, Chris and good morning, everyone.
Thank you for joining us I hope that you and your families are safe and healthy.
2020 has been a very unpredictable year as we continue to battle to covert 19 pandemic as we navigate through these unprecedented times a top priority remains to health and safety of our global employees their families our communities customers and suppliers.
I want to express my sincere gratitude to the heroes, who continue to battle to covert 19 pandemic the health care professionals emergency responders grocery store employees government officials and our Enpro colleagues working on the front line in our factories around the world.
I'm very proud of the way our team.
Have continued to excel in delivering quality products and solutions to our customers.
Adopting enhanced safety practices throughout the organization and keeping our core values at the heart of their actions.
Before I begin my remarks on the quarter I want to emphasize enpros core values of safety excellence and respect for our people we hold dearly the sanctity of all human life and each person's inherent in equal right to grow and develop into the best interests expression of themselves.
In Stark contrast tour enduring values in purpose, there was an acute and systemic racism against black people in the world today.
This racism and discrimination of anytime violates our values and what we stand for as a company.
On June 5th our executive team and board of Directors issued a statement that shared our company's commitment to being part of an enduring solution. If interested you can read our and per standing together letter by using the link posted on the home page.
Our website, where the Lincoln todays press release.
Over the last year, we've taken several concrete actions to further these values that we held so strongly including increasing the diversity of our leadership team, creating a diversity and inclusion leadership position implementing bias training leveraging our internal leadership programs to provide.
Got a form for small groups to talk openly about biases belief systems and different perspectives.
Providing enhanced mental and emotional health resources, and establishing an internal charitable foundation to support ongoing education equality and diversity.
We stand in solidarity with the African American community persons of color across the globe.
Employees, our customers our friends in our family, we stand together to create real and sustainable change starting right here at Enpro.
As we began our discussion on our second quarter highlights I'd like to start.
Discussing for keeping.
First I'm pleased to share that despite the impacts of covert 19.
And weaker year over year conditions across most of our markets. Our Q2, adjusted EBITDA margin held up extremely well.
Contracting approximately 30 basis points to 15.2% with adjusted EBITDA of $37.5 million.
When the pandemic emerged we acted quickly to develop rigorous cost management plans to navigate this new landscape, we're seeing the benefits of these savings our bottom line.
Second.
We continued to optimize our portfolio, we announced the final steps and reshaping our heavy duty truck business, which upon completion will significantly reduce our revenue exposure to the commercial vehicle and heavy duty truck markets, while increasing adjusted EBITDA margins in that business. This is evidence of our portfolio evolution towards.
More durable business in higher growth markets that generate higher margins and cash flow.
Third I have commented before that we have a clear strategy a cycle tested in dedicated leadership team and a talented workforce. These elements have enabled us to adapt and act with agility and the changing economic environment.
And finally, we continued to focus on preserving capital we have a very strong balance sheet fortified by cash proceeds from the recent Fairbanks Morse divestiture, which closed in January our net debt to adjusted EBITDA ratio 0.4 times at the end at the second quarter with 424 million.
Allergan cash.
Largely untapped revolver and a relentless focus on cash generation, we feel good about our financial position, we're poised to emerge from this economic downturn with the flexibility to take advantage of opportunities as they arise.
Turning to slide five.
I'd like to take a few moments to provide an update.
On our four phase approach to navigating the covert 19 pandemic to level set.
Part with a quick summary.
Phase one focused on health and safety, while phase two centers on business stability in progression, including running our business is an adverse conditions calibrating the business to new demand levels.
Judging liquidity and being responsive to our customer needs phase three encompasses cost and process improvements.
Based on our learnings from the previous phases.
And face for is the post pandemic period, we will be well positioned to capture growth as markets recover.
During our first quarter earnings call I discussed in detail. The steps we took during phase one and today I will delve deeper into phases, two and three which we entered into during the second quarter.
The second phase of our response involves a keen focus on business stability in progression.
Leading up to and during the second quarter, we plan for several contingency scenarios of increasing severity. We took decisive informed action to prevent the spread of cobot 19, while ensuring business continuity and success in any environment.
Each of our business is enacted initiative in line with their playbooks to adjust to new demand levels.
Well, we took specific actions to address immediate needs. We also emphasize creating lasting changes that will fortify our business for the future by focusing on permanent structural changes rather than just short term actions. For example, we reduced our cost structure by exiting and consolidating sites where possible and told.
No we enacted cost reductions, resulting in full year 2020 savings of approximately $30 million, which we estimate half will be sustained annual savings moving forward.
These changes will result in higher profitability and will position us well.
When the environment improves.
From a supply chain perspective, we maintained our focus on risk mitigation due to the diligent efforts of our supply chain leadership Council, we've not experienced any material supply chain issues. This year, we're utilizing best practice proprietary tools and techniques developed by our teams to understand operational status.
Communicating regularly with our suppliers our supply chain organization.
As a notable strength during these challenging times.
We started to enter.
Our third phase, which involves monitoring and improving the processes procedures in new ways of working that if emerge from the first two phases.
Early on we re imagine our manufacturing teams conduct their work implementing manual tracing at each of our facilities along with temperature checks and additional PB requirements. Today, we have had only 32 known infections out of approximately 5000 employees worldwide now.
Taking our safety protocols the step further and are in the process of implementing testing for all plant employees and contact tracing technology across a U.S. manufacturing footprint.
This technology is currently being tested in one facility and following pilot success will be rapidly rolled out to the rest of our plans, but we cannot fully control. The number of cases, we may see we can apply new tools processes and technology to increase or employee safety, while they deliver on our customer needs.
Another initiative, we're in the process is developing is called working together from anywhere.
Our teams have rapidly and effectively adopted new technologies that have achieved similar or better results.
And with the manner in which we were working before the pandemic, while we acknowledge it our sales and M&A teams will be required to travel to conduct specific aspects of their business. We do not anticipate that our company's overall travel returned to pre covert 19 levels through this initiative, we're confident that we will develop solutions to enable our employees.
To thrive in the new environment, while also maintaining a lower expense base related to these activities.
Moving now to our fourth and last phase once market conditions returned to a state of relative normalcy, we expect improved financial characteristics across our businesses as a result of the structural actions, we've taken including improvements in our cost base productivity and supply chain.
Yeah.
While demand continues to remain soft across several core businesses, we're focused on controlling what we can.
In executing our profitable growth strategy.
Now, let me spend a few moments discussing our strategy and actions taken this corner this quarter to reposition and Brett.
Our strategy is focused on three areas first reshaping our portfolio to include business is focused on material science with compelling margins, leading technologies and strong cash flow in markets with favorable secular trends second increasing our aftermarket exposure and driving greater recurring revenues.
Third maintaining a balanced disciplined approach to capital allocation by leveraging the end for operating system to increase margins and cash flow return on investment.
As evidenced by our portfolio moves over the past year, including those announced over the past several months, we're taking proactive an aggressive actions to successfully position our company for the future.
Let me briefly summarize the actions we've taken so far first is the divestiture.
Of our Fairbanks Morse Division.
In January we completed the 450 million dollar sale, a fairbanks Morse, which constituted the power system segment.
After careful review, we have determined Fairbanks Morse was no longer a strategic fit while a great business to sale, which was completed at an attractive valuation contributed to our goal of owning businesses with high cash flow return on investment that are based on our core competency of material science.
Second.
Our sealing products segment.
We conducted an extensive review to identify business isn't product lines that are no longer aligned with our long term strategy.
As a result, we exited or divest it several businesses, while reducing our exposure to heavy duty truck. These actions include the recently announced agreement to sell our Air Springs business.
And our announced plans to exit brake products.
With the announcement of the Air Springs transaction, we have now addressed all the portfolio reshaping actions in our trucking business.
And we expect to complete this reshaping work in line with our previously communicated timeframe of year end.
He steps refocus stemcos resources on its higher margin Wieland business, which is aligned with our strategy to shift the enpro portfolio to markets in products that offer the most value to our customers and our shareholders.
With these exits we anticipate that going forward, our annual sales to the heavy duty truck market will be in a range of approximately 125 million to $175 million. These actions significantly reduce portfolio cyclicality and increase our exposure to resilient technology oriented recurring revenue.
Businesses further these efforts will increase or adjusted EBITDA margin Kasler return on investment.
Finally, we made two strategic acquisitions in 2019, Leadtec and the aseptic group, which expanded our reach into the attractive semiconductor aftermarket pharmaceutical and biopharmaceutical industries, both companies as strong competitive positions in high growth markets excellent margins compelling.
Cash flow and strong secular trends supporting long term growth. These acquisitions aligned with our growth strategy due to their technical expertise niche market leadership mission critical applications and significant aftermarket contributions.
Both businesses are performing in line with expectations and showing resiliency through the cycle with solid order intake and backlog.
It is important to note that with the executed and announced portfolio reshaping moves we will have a more attractive portfolio with semiconductor as our largest end market, we're committed to continuing to seek organic and inorganic growth opportunities in faster growing higher margin.
That's technology spaces.
Third.
Let's look at our engineered product segment.
In this segment, we're focused on increasing margins and asset efficiency, while optimizing our cost structure.
In support of this work on June 18th we announced plans to exit operations at GGB Bushing block manufacturing facility headquartered induced France, which will refocus the business on higher margin product lines.
Overall, the actions taken over the past year demonstrate our commitment to proactive portfolio management and strengthening the durability of our business.
Before turning the call over to melt I want to touch briefly on M&A.
Our growth strategy is focused on organic initiatives as well the strategic M&A, we remain focused on identifying opportunities that align with our strategy. We have built a strong M&A practice that enpro and have a seasoned team overseeing this effort from sourcing and purchasing to integrating and optimizing businesses why.
I'll deal volume decreased substantially during the first half of the year, we've seen increased activity over the past several weeks, we're diligently cultivating and reinforcing strong relationships with key advisers and owners of target businesses as well as briefing key contacts on our strategy and acquisition criteria so that.
We will be well positioned as an acquirer of choice, we're being patient and we'll remain disciplined while actively pursuing attractive opportunities and now I will turn the call over to melt for additional discussion on our second quarter results melt.
Thank you Marvin and good morning, everyone.
In the second quarter sales decreased 22.1% to $247 million coming in better than our expectations at the onset of the covered 19 endemic.
We experienced growth in our semiconductor and food and pharma businesses, including the contribution from the lean Tech and they septic group businesses acquired in 2019.
While seeing declines across our heavy duty truck general industrial automotive aerospace oil and gas and petrochemical markets has become a 19 impacts ripple through the global economy.
Excluding the impact of foreign exchange translation and sales from acquired and divested businesses organic sales for the quarter declined 23.6% year over year.
Gross profit margin for the first quarter was 33.4% down 80 basis points.
The decrease was driven by sales volume declines across our businesses and $5 million in inventory write downs related to the recently announced heavy duty truck exits offset in part I acquisition contributions and companywide cost reduction programs.
Adjusted EBITDA margin held up well contracting about 30 basis points to 15.2% with adjusted EBITDA of $37.5 million.
The largest factor driving the decline was decreased demand in markets that had previously this decline was mostly offset by probably your acquisitions divestiture actions and cost reductions across the company.
Excluding the impact of foreign exchange translation acquisitions, and divestitures decremental year over year adjusted EBITDA margins were approximately 30% in the second quarter, which is significantly below the weighted average contribution margin for the company.
This result was achieved largely through executing on cost management actions developed as part of our scenario planning work in response to the covered 19 endemic.
As Robert noted, we enacted cost reductions, resulting in full year 2020 savings of approximately $30 million.
Of which we estimate half will be sustainable annual savings moving forward.
Adjusted diluted earnings per share decreased 42% to 54 cents per share primarily driven by weak demand in many of our served markets.
During the second quarter, we recorded total restructuring and impairment charges of $17.5 million. The charges include $13.2 million related to the exit of the remaining part about brake products business.
As Robin mentioned earlier in June we announced our planned exit GGB pushing block business, which is headquartered and use France.
Many of the exit from this business is dependent on ongoing discussions with customers regarding their future needs.
Future restructuring charges are anticipated to include contract termination and other costs. In addition to employee severance and benefits.
Given the uncertainties regarding the outcome of these discussions we do not yet have an estimate for the expected restructuring charges and no restructuring charges related to the exit from the Bush in Black business are included in our results for the second quarter.
Also as required under French law, we're simultaneously pursuing a sale of this business.
We anticipate that any sale would involve a cash paying us to the buyer and we can't provide any assurance that we could affect a sale on terms more favorable to us and exiting this business.
Turning to segment performance, while we experienced growth in the food and pharma and semiconductor markets.
Sales in sealing products decreased 17.9% versus the prior year period due to decreased demand in the heavy duty truck aerospace general industrial and oil and gas markets.
Results were also impacted by unfavorable foreign exchange translation.
Exit during the fourth quarter 2019 of operations of three underperforming product lines.
And the divestiture that breaks you business third quarter 2000 might change.
Excluding the impact of acquisitions divestitures and that foreign exchange translation.
Second quarter sales decreased 20% to 20.2%.
Despite the sales decline segment, adjusted EBITDA margins expanded 360 basis points to 21.9%.
And total adjusted EBITDA declined only 2.1% compared to the prior year.
Nearly as result of the contribution of acquisitions cost management actions and more favorable mix and heavy duty trucking, resulting from the ratio reshaping Daves Marvin discussed.
Excluding the impact of foreign exchange translation, the two acquisitions and the divestiture. The breaks you business segment adjusted EBITDA margin contracted only 40 basis points compared to last year to 19.5%.
Sales in engineered products decreased 32.9% year over year, primarily due to weakness across most served markets, including automotive.
General industrial oil and gas and petrochemical.
The lower sales volumes resulted in a second quarter segment adjusted EBITDA decline of 68.8% at a second quarter segment adjusted EBITDA margin decline from 18% a year ago <unk>, 8.4%.
Excluding the impact of foreign exchange translation year over year decremental adjusted EBITDA margins of approximately 40% were significantly less than decrementals and past recessions, resulting from cost management actions taken by the segment teams.
Now, let's turn to our financial position.
Our balance sheet is very strong bolstered by the gross proceeds from the $450 million sale Fairbanks Morse.
Additionally, the sale of our heavy duty truck air screens, but a manufacturing business announced yesterday is expected to generate gross transaction proceeds of approximately $32 million plus a long term promissory note with the face value of $7 million subject to closing adjustments.
From a debt maturity standpoint, we're also at an attractive position with our revolver and term loan maturing in 2024, and our senior notes maturing in 2026.
Subject to applicable reinvestment requirements related to the Fairbanks Morse and other divestures.
We ended the quarter with cash at $424 million and full availability about 400 million dollar evolve or less $13 million, an outstanding letters of credit.
At the end of June our net debt to adjusted EBITDA ratio was approximately 0.4 times.
Oh no cash balance does not include estimated taxes of approximately $50 million to be paid in the second half the year much of which is driven by the gain on sale of Fairbanks Morse.
Free cash flow in the quarter was flat year over year at approximately $29 billion. As a reminder, we suspended our share repurchase program in response to come at night team and the suspension remains in place.
Our dividend policy remains unchanged during the second quarter, we paid a 26 cents per share quarterly dividend totaling $5.3 million.
We continued to prioritize maintaining a strong cash position throughout the year, while successfully positioning our company for the economic recovery.
Al seemed to short term focus on cash preservation, but our long term strategy of profitable growth.
We expect overall capital spending to be at or below 2019 levels.
Plan to continue to invest in strategic growth opportunities as Marvin described earlier.
And on our first quarter conference call. We provided color on how we were thinking about a year.
I'd like to spend a few moments updating you on our lives latest thinking recognizing theres continued uncertainty regarding covered my team and the challenging economic environment.
And our sealing products segment, our largest served markets our semiconductor general industrial and trucking.
And the semiconductor market backlog remains strong versus prior year levels, and we anticipate demand to be solid in the second half a year. In addition to a year over year acquisition benefit in the third quarter.
We anticipate continued weakness in general industrial and trucking.
Through the end of the year compared to prior year.
And engineered products are probably market exposures for automotive general industrial oil and gas and petrochemical.
We anticipate that the significant impact of the covered 19, and then we've seen that first half of 2020 will moderate in the second half a year.
We have revised our scenario planning ranges.
Based on our strong second quarter results.
We continue to model it 15% to 25% full year revenue decline compared to 2019, including the impact of our portfolio shaping actions.
Sure revenues decline in this range, we now expect adjusted EBITDA margins.
They range from 13% to 14% for the year, depending on the settles decline and product mix.
This compares to our prior scenario planning range of 11% to 13%.
As a reminder, we typically see softer demand in the third quarter due to seasonal patterns.
And specific to this year, we're expecting longer lead time orders also affect <unk> third quarter.
We anticipate a modest sequential improvement in the fourth quarter.
Importantly, we expect to generate positive free cash flow for the year, excluding taxes related to sell Fairbanks Morse, even in our downside case.
As a result of expense actions across our businesses disciplined capital spending and aggressive working capital management.
As a reminder, there are many uncertainties surrounding how that could be 19 crisis will impact demand and revenue.
Our comments on market trends revenues and adjusted EBITDA margins I attended to provide transparency on how we're thinking about the business.
Now I'll turn the call back tomorrow than for closing comments.
Thanks melt.
In closing as I reflect on my first your CEO.
We've made significant strides in improving the quality of our portfolio and execution.
And then building upon the cultural foundation established by my predecessor, and mentor, Steve Macadam.
We've exited or divested businesses that we're no longer strategic fit.
And acquired those that align with our long term vision for Enpro.
We've focused on driving operational excellence by leveraging the end per operating system to reduce cost and improve productivity and quality control across all our businesses.
We have developed new ways of working as we navigate through the covert 19 environment, while protecting the health and safety of our employees in delivering the high level of service and then for customers expect.
We're standing behind our company's commitment to quality and standing up against any form of discrimination that exists in our society today.
It's been quite a busy year.
And while we've made great progress, we're only just beginning.
Looking forward I'm confident that we will emerge from the current environment as a stronger organization.
With many opportunities on the horizon, our success will be fueled by the commitment of our cycle tested leadership team.
Ron financial position.
Folio transformation work completed.
And operational improvements, we continue to make throughout the organization.
I invite you to join me in our approximately 5000 global employees on this journey to push boundaries and advanced industries, while maintaining a diligent focus on capturing above market growth expanding margin.
And driving cash flow return on investment to maximize shareholder value.
And now we'll open the line for questions.
And at this time will be conducting a question answer session. If you like to ask a question. Please press star one on your telephone keypad confirmation total indicate your line is in the question Q.
Many pretty start to if you like to remove your question.
Participants using speaker equipment, maybe necessary to pick up your hand said before pressing the star keys.
One moment, please let me pull for questions.
And our first question is from Joe Mondillo with Sidoti and company. Please proceed with your question.
Hi, good morning, guys.
Well, Joe more than just first wanted to start with the guidance and I was just hoping just given all the divestitures and product that.
If you could help translate what that 15% to 25% decline is in absolute dollars and then also.
What does that 15% to 25% look like on a organic basis.
Yeah, Joe Good morning, Hope, you're doing you and your family, we're doing well our sales I referenced a 15% to 25% down is in reference to 2019, So 2019 actuals for about 1.2 billion.
So.
It is about 15% down would be roughly two $200 million.
25% down would obviously be more so you can do the math on that but it's it's directly in reference to our 2019 actual revenues from continuing ops.
So hopefully hopefully that helps that was the first part of your question now if you look at that at our performance. So organically. What's your what's your question how do we perform.
For the quarter year to date on an organic basis from both the so I'd be all standpoint.
Correct me, if I'm wrong, but the 15% to 25% includes some divestitures that you just have made this year and exiting products and I'm wondering you know excluding.
Existing those revenue streams, what does the 15% to 25% look like on inorganic.
Yes.
Yeah, Let me let me give you some data so you'll know, let's just take the first six months of the year.
Because it's a it's a little bit of Oh, the target keeps moving depending on the time period, we're talking about so let me let me help you with Oh some information on here today. So this would be in the first half of the year.
We had a rather news from acquisitions of roughly.
Roughly $13 million and then and the.
Rone business that we divested at the end of 2018.
19.
She's me at the end of 19 was about $8 million. So the net of those two it wasn't a big difference if you've got out those two for the.
For the excuse me that's for the quarter for the first for the first half the years $24 million from acquisitions net of about 15 of around so it's the only about a 9 million dollar impact than the first half of the year.
And had been the.
The EBITDA impact.
Is there is on a net basis was for the first half a year.
Probably a data of about $8 million a favorable.
So that will give you some impact for the first half of this year of the impact of.
Sales and.
And our earnings.
To help you estimate that for the the impact for the first half the year.
Okay.
Or would you say the 15% to 25% is almost it's not going to fluctuate a time when you now all these acquisitions.
I mean, just even.
There's spring business.
Announced that you just divested.
Would you say the net numbers, you know plus or minus a point or two from that 15 to 25 it sounds like.
Well if you let scan if you look at the second half year.
In addition to what I just covered.
We will.
We will have the exit from the Air Springs business, let's say after regulatory approvals and we get to closing.
That that that happened slipped to say by the end of the third quarter just.
Just as an estimate and if that happens that in the fourth quarter year, Yeah, We would we would likely have some.
Some fall off.
And the first half of the year.
Let's say in the and the second quarter of the year, We had air Springs revenue of about $15 million. So that'll help your size roughly what what didnt impact might be.
If that transaction closes at the ended the.
Third quarter, the 15% to 25% modeling that we're using does the same that Oh, we no longer have the air Springs business and the fourth quarter that also assumes that the previously announced exit from motor will.
Happens so that we need that revenue drops off in the fourth quarter, the year and that revenue.
The way was also around $15 million and the second quarter. This year. So those two businesses combined.
In the fourth quarter the way, we're doing our scenario planning the reflect about 30 million dollar drop off.
And the fourth quarter, resulting from those too much.
That's helpful as far as a the sealing segment.
<unk> operating income despite 20% decline in revenue.
Is this.
Mainly.
<unk> I mean, I assume a big portion of that cost cuts that you initiated in the quarter could you just talk about.
That kind of performance despite.
20% decline in revenue.
How are we can look at.
Segment going forward.
Yeah, it's really a function of two things Joe.
It's certainly a function of the cost efforts and the and the restructuring actions we've taken during the quarter. It also reflects the.
Benefit of the acquisitions in 2019, or they said, they septic and lean tech.
So and a and and thirdly it reflects the positive.
Positive impact of the divestiture of problem that happened the 10th last year, because that business had been losing.
Losing money.
So.
It's really a function of all three of those things.
Got it and just in general.
But in general in terms of cost cuts here, you mentioned 30 million total half of which is gonna be permanent.
A couple of things there and then I'll hand, it off to someone else.
<unk> or any temporary costs coming back say immediately in the third quarter.
Regardless of revenue I'm, just curious because some companies.
And others.
You're seeing a big chunk of I don't know if its furloughs or other temporary costs that come back no matter what revenue does in the third quarter. So that's number one and number two as far as the permanent cost cuts how did we see most of those annualized benefit in the second quarter or should that be a progression.
Benefit into the second.
Yeah, It's a it's a good question, Joe or some of the cost the benefits from the cost actions.
We will see more fully in the third quarter and some in the fourth quarter.
The numbers that we provided obviously were annual numbers. So let me tell you how we approached the cost savings.
We were looking the numbers that we provided on the call the 30, but roughly 30 million and indicating that about half of that would be sustainable in the future.
Those are costs that we've identified as being non volume related.
And the reason that not all those are sustainable let's say.
Got it in a different environment, just because some expenses, we would not and anticipate to to be as low under more normal conditions T.N. Expats. For example, you know while we don't expect that to go back to the levels that was pre pandemic Oh, we certainly expect.
TNT.
Going forward to be greater than it was has been this year and then we expect it will be for the fourth this year.
So.
But but that includes supply chain savings that includes labor cost savings. It includes other manufacturing cost includes as genetic.
So.
It's it's a lot of up a lot of individual line items that make up the cost savings that we've been able to.
Execute on this year.
Okay sounds like <unk>.
<unk>.
Yeah, I was just kinda chime in at a high level I mean, our posture.
As we want to maintain our cost savings for as long as possible and if we are.
In proving are increasing t. any for example, that's directly aligned to trying to grow sale right. So if you look at our headcount reductions there in line with the demand drop off you know we see some increases is gonna be in line with with growing revenue.
We're really trying to maintain a posture that is.
One of being very thoughtful on ours as it relates to spending there very thoughtful as it relates to the hard work we put in to get these cost savings. So our attention is not to give them right.
Okay perfect.
So I appreciate it.
And again, if anyone has any questions you May press star one on your telephone keypad doing so we'll place you answered the question Q. Our next question is from Jeff Hammond with Keybanc capital markets. Please proceed your question.
Hey, good morning, guys.
Hey, Jeff I do want yet.
Good good just on the 15 I think last quarter, you said, the 15% to 25% decline a bias was towards the the worse and of that just wondering if you know after twoq results and kinda based on that the incoming order rates.
If you're still feeling that way or or if anything's changed within that you know wide band.
Well.
I'll I'll give you a sense of incoming order rates and then we can go back to sort of the band we feel comfortable about the bad because we want to be thoughtful we want to be mindful that we don't really understand exactly what will happen in the future, but from an order intake perspective, we feel.
Really good about what's happening you know if you look at our trucking business I'm going to get a little granular here just to give you a little bit more perspective, if you looked at our heavy duty trucking business from an orders perspective, our orders Troughed in April.
And we'd win recovering every month since.
You know trailer builds if you were to look at Ft. Our you know is.
Looking about trailer built being down about 40%.
Mccain is seeing the aftermarket being down about 18%.
Our business is probably in line with the OE and performing a little better on the aftermarket side and if you look at our trucking business you know that 70% of that business is aftermarket so.
We would expect that to perform nicely going forward.
In automotive orders Troughed in April and is improved ever since we actually had a really strong in July.
Some of that fueled by increased order from the do do the announcement, but even without that we really had a strong recovery here.
In July if you look at our energy and sort of Petro visited our orders Troughed in may and it's been essentially flat.
Since then no further degradation, which we like and with the cost savings that that's worked out nicely.
In general industrial businesses Troughed in the May timeframe and has improved nicely sense and as you know semiconductors performed really strong for us Oh throughout and continues to be strong we expect that to be strong going forward do 2021. So we are maintaining our 15 to.
25% range, just because that mix varies but you know the indication you know across the board has that orders are improving I just wanted to give you that color.
Okay. So it sounds like the bias is maybe no longer the lower end just given the trend in order rates.
So far.
I would say.
Good mill.
Yeah got Mcmoran go ahead, and then I'll chime in.
Yeah, I would I would focus for me, it's a mix them in the bias is you know it's got to be in that range. It. It's hard to give you a bias quite frankly, but it's going to be in that range. It all depends on.
How things shake out.
That's what I'd say I'd like to stick to the range just to.
The Keepitsafe, it's probably right in the middle.
Right Okay.
Okay. The other thing I would Oh thing I would say, it's just it's just to go back to.
No go back tower.
Results for the first for the first half the year and you've got the data, but just to summarize it if you look at our topline sales for the quarter, we were down 22% year to date, because we you know we pandemic wasn't fully felt in the first quarter, we were down 15%.
So you know 22% down in the second quarter.
Yeah, that's that's out of the environment that were and currently.
Even with some modest improvement.
So I think you'd like to our historical numbers, what's changed maybe colored a little bit by some.
Of the order pattern information that Marvin described.
Thank you just see yourself got in that range and that 15 to 20, 25% range.
Okay. The Air Springs business can you give us like either 19 revenue and EBITDA or trailing 12 months <unk>.
Revenue and EBITDA what comes out.
On an annualized basis.
Oh, yes, let's see what we can give you kind of a ballpark and how it will affect affect us.
If you if you look at 2019.
Business I'm, just I'm, what I'm all lumped in both Air Springs, and motor will together, because they're both businesses that were exiting.
But in 2019.
We had revenues of roughly 140 $845 million and those two businesses.
And the first half of this year.
We've had roughly.
65 million of revenues and those two businesses.
If you look at.
EBITDA in 2019.
And those two businesses we had roughly.
Roughly $10 million EBITDA and then if you don't get this year of those two businesses combined probably first half of this year, probably about three and a half million I'd be to die. So that will give you.
Give you.
Promotion, where you could not.
Estimate the overall impact that we'll have once we complete those exits.
Okay, and then final question Hum Marvin you, you've cleaned out of the portfolio and you've talked about the direction you want to go I mean.
It looks like engineered products still though is you know at minimal you know maybe differentiated but still very cyclical business as we can see.
Obviously, a unique circumstances, but very cyclical in a pretty high decrementals, even with the better performance. Just you know how do you think about the portfolio shaping that.
Particularly a engineered products.
Yeah, I mean, the best way to answer that is ceiling is you know basically the way we like it.
And as we think about our capital going forward, that's where we'll directed.
Primarily because of its financial profile the exposure to the end markets that we like and want to participate in the future.
That's how I would think about it and as it relates to engineered it's primarily around.
Getting as much cost out as possible improving the profitability and you know.
Just running those operations as lean as we can going forward and making you know sort of some decisions down the road around whether or not they.
We'll achieve what we consider to be the hurdles necessary to participate in sort of the portfolio future. That's how I would think about it.
Okay, great. Thanks, guys.
[noise] and we have reached the end of the question and answer session and I'll now turn the call Chris So new for closing remarks.
I think each Mali and thank you all for joining us this morning, I have a great.
And this concludes todays conference you may disconnect. Your lines at this time. Thank you for your participation.