Q3 2020 Ingersoll Rand Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to Ingersoll Rand third quarter 2020 earnings Conference call.
Time, all participants are listen only mode. After the speakers presentation, there will be a question and answer session. After.
Ask the question during the session you'll need to press star one on your telephone.
Require any further assistance. Please press star zero I would now like to hand, the conference over to your first speaker. Please pick 'em kidney Chief Financial Officer. Thank you. Please go ahead Sir.
Thank you and welcome to Ingersoll Rand 2023rd quarter earnings call.
I'm, just kidding, Ingersoll Rand's Chief Financial Officer, and with me today is a center in <unk> Chief Executive Officer.
Our earnings release, which was issued yesterday and a supplemental presentation, which will be referred to during the call are both available in the Investor Relations section of our website Www dot.
Dotcom. In addition, a replay of this morning's conference call will be available later today.
Well, we get started I want to remind everyone that certain statements on this call forward looking in nature and are subject to risks and uncertainties discussion our previous LTC Bylines would you should read in conjunction with information provided on this call. Please.
Please review the forward looking statements on slide two for more details.
In addition in todays remarks, we will refer to certain non-GAAP financial measures you can find a reconciliation of these measures to the most comparable measure calculated and presented in accordance with GAAP in our slide presentation and in our earnings release, which are both available on the Investor Relations section of our website.
Turning to slide three on this call will provide an update on the integration efforts of the company as well as review, our third quarter and total company and segment highlights.
We'll conclude today's call with a Q and a session. We ask that each color keep to one question and one follow up to allow for enough time for other participants.
At this time I'll turn the call over to listen to.
Thanks, Rick and good morning to everyone I want to start our call by thanking all our employees around the world.
Her work and commitment to the health and safety of our teams and their families.
As we continue to navigate the colby lighting, but not make as well as their dedication to serving our customers at the highest level.
Book isn't consistent contribution coupled with a continued proliferation of irex throughout our organization delivered strong results. We can all be proud of.
Turning to slide four I want to spend some time on our culture because it is a competitive advantage for us.
Particularly in the Midwest, but keep in mind people when they make a progress has been impressive.
Let me point out a few examples like.
Like initiatives that are helping to foster our unique culture as we integrate both companies.
We have now rolled out our purpose on bogs activation to nearly the entire company.
These are high we engage in one one sessions.
Well, we work with our employees to disclose our purpose and values and what do you mean to lead them every day.
In addition, we have continued the only our future forms which are virtual micro by all means to create open dialogue.
To date, we have engaged and hurt from over 7000 employees.
The feedback is hoping they'll simply by our internal processes.
In the first quarter, we also conducted.
Oh first on employee engagement survey.
We had to maybe five participation rate occurs in power company.
Which is nearly 15 percentage points higher than the manufacturing index would benchmark.
It's all in the top worked Oh participation.
Oh, hi engagement level is a positive reflection of employee satisfaction with working out and go for one.
Employee happiness is very important to us.
A great example of our employees, leaving a purpose and values and making a positive impact in our community is that those which are doing well.
I would say in our precision and science technology segment.
But those trumping helped develop a method to the mirror clean drinking water borne openedge in a remote location in my back of Scott.
Using our technology of electricity fleet dosing pumps.
Examples like these are happening around the company and our strong pool for the culture. We're building are used to run which really supports our purpose.
Ninos to help you make life better.
Moving to slide by one of our key values is thinking and acting like an owner in the third quarter. We took a major step forward in bringing that value to life like making all of our employees shareholders of the company.
On September 21st we were proud to virtually ring the opening bell at the New York Stock Exchange and announced the issuance of $450 million, Nick with your words.
Across our entire employee base.
This is a meaningful distribution equal to 20% on individuals base cash compensation.
And as I said before this is not a thank you note to the team.
Yes, Dan this is a catalyst to hop on 16000 owners all moving in the same direction to drive change and creating value for all shareholders including themselves.
Like we need a burning remember what kind do equity grant with specific initiative of improving that working capital.
We're treating all employees on what it means to be an owner.
When we launched these in 2017, we improved working capital as a percentage of sales are gonna Denver by over 500 basis points in less than three years.
To build we feel the future is extremely bright eyed English and was 60000 employee owners moving in a common direction I'm confident in our ability to create meaningful value.
Turning to slide six let me now provide an update on our integration efforts.
We have built a strong foundation and are now pivoting to growth with.
With a specific focus on executing our top priorities.
Continuing to capture supply chain synergies and driving free cash flow.
Which is allowing us to accelerate investments in I O D digital and E commerce initiatives and finally advancing our work on the yields you from as we look to be a recognized leader in corporate social responsibility.
It is an exciting time I think this one.
And as we can do to mail complimentary cultures as well as leverage our deep portfolio to serve each end market and accelerate growth.
So speaking about growth, let's turn to slide seven to showcase a few examples.
First example is focused on how were leveraging and differentiate us in person technology to penetrate the hydrogen refueling and be spent in each market.
She is a high growth and rapidly changing market.
A part of the integration planning process, we did a lot of work to better understand these end market and the potential you could bring to our combined company.
Hi skill with over 70 years of industry experience is one of the world leaders in offering the most reliable high pressure equipment and technology today.
We're very excited about high schools comprehensive portfolio of specialized compression solutions.
That's where we're positioned to win share with turnkey refueling stations youth sport heavy duty vehicles and buses and light duty passenger vehicles. We have now over 100 stations across the world and its technology leadership edge that we created over the past 12 months.
One example of our investments in innovation here is the launch of a new small scale cost effective standalone hydrogen fueling station.
Which is designed for small simple plug and play installations.
Now with a complete people configuration. It can be relocated from one location to another very easily for forklift applications.
As we look ahead the growth prospects in this space are extremely promising as it continued penetration of hydrogen fueling into key markets is expected to create a $2.5 billion addressable market rose by 2027.
Turning to slide eight.
The second example demonstrates how we can leverage the breadth of our technologies across multiple segments. We you know targeted end markets like water and waste water.
They put sample and waste water treatment when shown on the picture.
We have begun to leverage our technologies are closing ideas on PST segment to drive further penetration in what is estimated to be nearly 5 billion dollar addressable market with.
With a five year CAGR of at least two times GDP.
Utilizing iris two we're focused on capturing quick wins within our combined broader portfolio.
First we're focused on increasing customer share wallet by offering a broader set of close solutions. We have identified already by more than 50, new sales channels to penetrate.
Second we're coordinating internally our large project one point you were all relevant business. It I'm, Brian are emboldened beads with the goal of maximizing the comping well Ingersoll Rand products in any project.
And third by combining the imagination database contact across the two segments. We have now over 32000 contracts with an expectation to increase by 40% in the U.S. alone as part of our impact daily management process.
We're now beginning to educate these entire universe of potential customers of our technologies and solutions dedicated digital campaign.
Well, we're still in the early days as we just launched this initiative we have already seen an increase of over $30 million you know form.
This commercial synergy is just the beginning of what we believe would be a future where we collect all the technologies to optimize and dark losses.
And given the work we are already doing on Aiotv, we feel that we're well positioned to capture these opportunity given our deep know how of the types of sensors and control is required in her problems to best optimize the data acquisition and analytics.
Let me now turn over the call it the big four an overview on the financials.
Rick.
Thanks to the center moving to slide nine overall, we are extremely pleased with our performance in Q3 and industrial end markets on gradual sequential momentum throughout the quarter we.
We saw similar trends across the majority of our businesses as total company orders and revenue increased 13% and 6%, respectively as compared to twoq levels with strong double digit momentum in the industrial technology and services, especially vehicles and high pressure solutions segments.
Precision in science segment.
A slight sequential declines in orders, which was in line with expectations due to the large cold related orders from medical pumps. We saw in the first half of the year that we did not expect to repeat.
As we continue to navigate these uncertain times our goal is to continue to manage those areas within our control by utilizing the IRS to maximize the value capture on productivity and synergy initiatives and maintain ample liquidity.
And the team did exactly that as they delivered adjusted EBITDA of $284 million and adjusted EBITDA margin of 21.3%.
The 220 basis point improvement from the second quarter.
On a year over year basis, despite double digit revenue declines margins were up 150 basis points and when adjusted for the high pressure solution segment total company margins improved 240 basis points.
The teams are continuing to execute extremely well on capturing cost synergies and our annualized savings now stand at $150 million or 60% of our stated target of $250 million.
Our strong commercial and operational execution led the company wide decrementals of only 6%, which marks our lowest level seen thus far in 2020.
From a cash flow and capital structure perspective, we saw similar strong performance as free cash flow grew to $179 million.
Liquidity now stand at $2.3 billion and as a reminder, historical financials.
As provided in this.
Oh supplemental basis as if the transaction had happened on January 1st 2018 to assist in clean compared is for the quarter.
The detailed assumptions and adjustments using the supplementals can be found in the appendix to the slides and our earnings release.
Turning to slide 10 from a total company perspective, FX adjusted orders and revenue declined, 8% and 11%, respectively, which is a meaningful improvement from the comparable 21% a 19% decline we saw in the second quarter.
Well Colin continues to create challenges we saw continued stabilization in core markets in the Americas and EMEA, particularly in the segment.
Both region saw high single digit order declines our total quarter basis for compressor blower vacuum equipment was the strongest month occurring in September and.
In Asia Pacific continued to show positive trends on both revenue and orders led by China.
Especially vehicles saw strong orders performance up 29% ex FX as the momentum for consumer vehicles continues at record levels.
And as expected the high pressure solutions segment saw order declines Oh slightly over 80% due to continued overcapacity in the market and depressed activity levels.
Overall, we posted a strong book to Bill of 1.02 for the quarter, which was slightly better than the levels in the prior year of 1.0.
The company delivered $284 million adjusted EBITDA declined only 3% versus prior even with the headwinds caused by the pandemic.
I cant s. precision in science and specialty vehicle segments, all solid year over year improvements in adjusted EBITDA and strong triple digit margin expansion.
All such were seen in the high pressure solutions segment, as well as higher corporate costs, which saw a large benefit in prior year cost due to reduced incentive compensation costs as well as in your investments primarily around infrastructure and growth initiatives to stand up a new company.
Turning to slide 11 free cash flow for the quarter was $179 million driven by the strong operational performance across the business working capital improvements and continued cost savings and Capex pressurization initiatives in the current uncertain environment.
Capex during the quarter totaled $8 million.
Free cash flow included $26 million of outflows related to the transaction comprised of $13 million. This interview delivery span and $12 million of company understandable is done.
From a leverage perspective, we finished a 2.5 times, which was an o. 0.1 improvement as compared to prior quarter, despite $10 million of lower LTM adjusted EBITDA.
We would expect to continue to see leverage remained the 2.5 times range or slightly better as the year.
And we feel comfortable with our current leverage position and see a path to being a 2.0 times or better in the relatively near term.
On the right of the page you can see the breakdown of total company liquidity, which now stands at $2.3 billion based on $1.3 billion of cash and nearly $1 billion availability on our revolving credit facility.
During the quarter, we terminated our legacy receivables financing agreement, which was due to expire at the end of the year.
We were not attendant to renew the arcade moving into 2021 due to our enhanced liquidity profile.
And given the fact that the overall impact on liquidity from the Arfaei exit was less than 2%.
As of September end, all the company's legacy fixed interest rate swaps have now expired.
This is expected to yield approximately $5 million cash interest benefit in Q4 as compared to Q3 at current interest rate levels.
And as the company's debt profile is now 100% fully loaded will be examining the appropriate fixed versus floating structure moving forward from a risk management perspective.
In total liquidity has now increased $730 million from the end of Q1, giving us ample dry powder to execute on our organic and inorganic growth strategies.
Moving to slide 12, we continue to see strong momentum in our cost synergy delivery efforts.
In the quarter, we accelerated the phasing of this initiative and we have now already executed $150 million of annualized synergies.
This includes $105 million, a permanent structural cost reductions with approximately $80 million to $85 million of those savings expected to be realized in 2020.
Our procurement synergies, we have captured $40 million to $50 million with approximately $15 million to $20 million of the savings expected to be delivered in 2020.
This represents an increase of $20 million of executed action does compare to prior quarter.
And as a reminder, our funnel for direct material line and synergies are based on 2019 direct material spend.
In total we now expect to deliver approximately 40% of our overall synergy target in 2020, which is approximately $100 million of savings.
In addition, we now expect to deliver approximately 70% of our cumulative synergy savings by the end of 2021 and approximately 85% by the end of 2022 with the balance coming in 2023.
And finally as previously communicated we are keeping the overall cost synergy target of $250 million over a three year timeframe to remain prudent on volume dependent synergies like procurement and I to be given the current environment and will provide an overall update when we give 2021 guidance during our February 2021 earnings call.
We also continued to make strong progress on lowering decremental margins total company Decrementals were only 6% with GNS precision in science and specialty vehicles, all seen strong flow through and high pressure solutions managing decrementals below 40% for the first time this year.
We also mentioned last quarter that were expected to be approximately $30 million to $35 million of the short term cost actions that were taken in Q to come back to the you know the.
The team did a nice job managing those costs and we sold only saw approximately 10 million come back the piano.
Given the gradual recovery the overall market as well as very recent cold rolling and locked out in several countries. We're now expecting a full return that 30 to 35 million dollar cost base to extended to 2021.
I will now turn it back over to the sensitive to discuss the segments.
Thanks, Nick So moving to slide 13, and starting with the industrial technologies and services. Overall this segment performed better than expected with organic orders and revenue down, 8% and 9% respectively, resulting in a book to bill ratio of one.
Despite the revenue decline the team delivered strong adjusted EBITDA, but it was up 9% and an adjusted EBITDA margin of 24% up 370 basis points year over year moving to commercial performance well, we know that many like to compare the entire idea segment again some of our peers that comparison can be challenging.
Given that we have several different businesses in this segment.
Last quarter, we broke down the segment based on our internal business structure in the spirit of transparency and desire to help you understand the business. We are now showing a part looking line breakdown.
Starting with compressors, which represents about 65% of the segment, we saw orders down mid single digits and revenue down low single digits.
Further breakdown into all three and oil lubricant products will show that oil was up low double digits in revenue, which we believe demonstrates the success of our strategic focus in this category.
As well as market for CMC for oil for books.
From an oil lubricant a perspective orders in revenue were down mid to high single digits, mainly driven by small rotary compressors word why a large compressors continue to outperform.
Regarding the regional split for Remy on compressors in the Americas, The North America team performed comparatively better down low single digits, while Latin America was down in the mid single digits.
Mainland Europe was down low single digits, while India Middle East and Africa continued to see a decline in the mid teens.
Which is a great improvement from Q2 levels of down nearly 40%.
Asia Pacific continues to be the best performer with revenue up mid single digits, driven by positive growth in China.
Southeast Asia is still seen declines due to carbon shutdowns in some countries.
Moving to Bakken and blowers, which represents approximately 20% of the segment orders were down low single digits driven by mid single decline in the blower business, partially offset with positive order momentum in our longer cycle, Nash and Garo biking businesses.
We were encouraged also to see that industrial packaging business in Europe was relatively flat compared to down double digits in the second quarter.
Which is a sign that our OEM customers are seeing some underlying improvement in their markets.
Moving next to the power tools and lifting which is 10% of the segment. The total business was down high teens in orders and mid Twentys in revenue.
Encouraging sign here is that the rapid improvement from last quarter, where we were down low fortys in orders.
The tool business have materially improved from the second quarter, while lifting and material handling business remained the press.
And as we have said in the past our focus here has been to materially improve the profitability of this business and we're very happy with how the team has executed delivering 270 basis points on a sequential adjusted EBITDA margin expansion.
This quarter, we want to highlight one of our growth synergies.
Which is the expansion of our oil free compressor launch in Europe.
You May recall, we launched a radical new technology in the oil for space within Gardner Denver, just a few years ago.
This patented technology delivers completely oil less air with a value proposition on match in the market.
At that time, the Gonna Denver, China was not properly set up an experienced enough to sell such a unique product focus on total cost of ownership in the oil free space.
However, the Ingersoll Rand team has a lot of experience in selling older products and.
And within a matter of months, we have relaunched the product under the Ingersoll Rand, Brian and leverage things will run channel.
We have also train over 400 channel partners and our formal has increased to $50 million in a matter of months.
It's good to note that more than 20% of that one will increase was generated purely with demand generation efforts.
Moving to slide 14 will review the precision on science technology segment.
Overall organic orders were down 9%.
I suspect that total order levels were down 3% sequentially, but when normalizing for the carbon related orders that we saw on the medical side of the business into the second quarter. The sequential improvement was actually positive.
Revenue performance was quite strong at down only 1% organically.
Driving this strong performance within the business, where the dose of drug and medical businesses, which delivered double digit revenue growth.
The precision and science technology team also delivered strong adjusted EBITDA that was up 14% on relatively flat revenue.
This led to a very resilient adjusted EBITDA margin of 30.7% up 350 basis points year over year, and 40 basis points sequentially.
Again, driven by solid execution and use all either its tools to drive productivity enhancements.
On this call we're excited to introduce Albin pump to the Ingersoll Rand family.
Albion is a leader in the manufacturing of electric for Celtic pumps, which is one of the highest growth positive displacement technologies.
We see strong commercial synergies as we leverage our beam alongside our payroll and Milton Boyer brands and plan to leverage the precision and signed global network and channel to accelerate growth added.
This is a great example of the type of bolt on acquisitions, we're very excited about for the company.
Moving to slide 15, and the specialty vehicle technology segment. Overall Q3 was another strong performance for the specialty vehicle technology team with organic orders and revenue up 29% and 1% respectively.
Adjusted EBITDA of 38 million increased 36% year over year, leading to an adjusted EBITDA margin of 19.7%, which represents 510 basis points improvement versus prior year.
Proliferation of the IRS toolkit is allowing the specialty vehicles team to capture strong end market demand in the consumer vehicle segment and grow our share.
The strength is based on continued digital demand generation activities compelling new product launches, including lithium and is expecting girlfriend and extremely consistent production and channel performance.
We're also pleased with the traction on the launch of the second generation lithium battery for the gold card market, where we're seeing an improvement in cost reliability and range.
Which we believe is now leading in the industry.
After market also continues to be a strong focus including our club car connect platform, which is showcased on the right side of the slide.
With over 100000 connected vehicles Clubcard connect is a GPS enabled technology platform that provides lead many years with card control features such as you have fencing and location based speed control.
As well as asset management tools, such as the ability to monitor the location of the Gulf cars and report vehicle diagnostics.
Moving to slide 16, and the high pressure solution segment.
Business performed largely in line with expectations.
And it continue low demand in the oil and gas industry.
Orders and revenue were down, 81% and down 68% respectively.
Nearly 90% of the revenue base continues to come from aftermarket parts and services with consumable continuing to be the most stable component of the revenue base.
I am extremely proud of the team for their proactive efforts in.
Favorite improvements around cost management controls.
Which allows us to deliver positive adjusted EBITDA of $1 million and Decrementals below 40%, despite the meaningful revenue declines.
As we look ahead to the fourth quarter, although we're seeing some market recovery, we have the only known of extended holidays later in the quarter as well as continued pandemic headwinds.
Looking forward to Twentytwenty, one we remain encouraged with how the business is position from a pause ultimately and cost structure perspective.
We feel there is some pent up demand in the market, which will return at some point it beginning beginning with the service and repair work and we're well positioned to capture these opportunities with the Premier service centers like our Permian facility that is highlighted on the right side of his life.
Moving to slide 17, we wanted to provide a quick snapshot of how the business has performed thus far in the fourth quarter.
Through the first three weeks of October the total company's down mid single digits in orders with book to Bill greater than one.
Within the industrial technologies and services segment. The regions are largely trending in line with the year over year order trends that we saw in the third quarter.
The powder business continues to see sequential improvements.
The precision and science Technology segment is currently positive year over year I'm.
The specialty vehicle segment is continuing to see healthy momentum on the consumer side, coupled with growth seasonality.
Hi, Christian social segment is down 30% to 35%, which is encouraging but we see limited expectations for activity in December.
We're providing formal Q4 or total year guidance at this time, but from a high level perspective, we expect the gradual market recovery to continue in the fourth quarter with revenue trending positively on a sequential basis there.
Adjusted Technology and specialty vehicle segment should support most of that strength given normal seasonality in the shorter cycle components of industrial technology as well as larger projects that will ship later in the quarter.
What a precision in science technology and high pressure solution segments, we expect a comparable revenue performance relative to the third quarter.
From a margin perspective, we will continue to aggressively manage decrementals and expect to be below 30% were.
We're expecting some headwinds in fourth quarter compared to what we saw in the third quarter, mainly on favorable product mix in precision unsigned due to a lower contribution from medical as as a covered related backlog has largely shit and especially the vehicles as mix mix shifts more towards growth, which carries a lower margin than the consumer.
Her which has been very strong.
We also spent the cost base to increase slightly as we continued to invest in organic initiatives to fuel long term growth.
It is also worth noting that these assumes no additional material headwinds from depend I mean, we.
We haven't seen any noticeable impact on order rates deals yet but.
But were monitoring closely and we will be ready to execute our playbook as we have successfully don't easier to react quickly to any business interruptions.
Moving to slide 18, as we wrap up todays call I want to reiterate that we're excited by our progress.
Well, we're still in the early stages of our transformation, we have taken meaningful steps forward in creating a differentiated culture.
Improving the performance of the company.
And now with 16000 employees, who are now owners of the company.
I'm confident that we can continue to transform Ingersoll Rand and deliver increased value to all of our shareholders with.
So with that I'll turn the call back to the operator and open forgetting.
Thank you as a reminder, if you would like to ask a question. Please press star followed by the number one on your telephone keypad to withdraw your question. Please press the pound key.
Your first question comes from Julian Mitchell from Barclays. Please go ahead. Your line is open.
Hi, good morning.
Good morning.
Maybe just the first question around the operating leverage as we look ahead to a more normalized sort of recovery stage, you had 60% sequential incremental margins I think in Q3, so extremely high level then understand that.
Those incrementals will moderate as the recovery matures, but maybe any kind of price holder.
Thinking about the next all of temporary costs coming back the ongoing synergy extraction, and the extent to which you'll you'll manage those incrementals via ongoing reinvestments as well.
Yeah, Hey, Julien this is Dick I'll start with that and I Love The centre weigh in as well you are absolutely right. The Q3 was a it was an extremely strong quarter for all the reasons you mentioned I.
I think as we think forward as we look into Q4 as we mentioned we don't expect the sequential.
Incrementals still to look quite as strong.
Our view as we look kind of forward and frankly, even looking to 2021 is that we think that normalized incremental kind of across the portfolio on a base level should play in that kind of 30% to 35% range with obviously some upside opportunity off of the synergy extraction remember there are some cost normalization and things of that nature that we'll continue to kind of unfold as we move into 2002.
Anyone as we mentioned, but I think 30% to 35% is probably a good base level to use with some upside opportunity as synergies start to materialize into 2021 and thereafter.
That's very helpful. Thank you and then my second question really around the free cash flow.
Very strong in the nine months.
Network 417 million all in 125% conversion to adjusted net.
Realized it was the first sort of yeah with the combined entity and maybe there are some one time pieces moving around the working capital move perhaps a bit abnormal this year.
So just wondered you know what you could indicate in terms of free cash conversion expectations. As you look out and also within this year's number what's the total synergy and stand up a cash outflow for the year. Please.
Yeah, Julia I think we would expect to be greater than or equal to a 100% of legitimate income on a free cash flow perspective, I think what we're excited about is that yes, you have seen that in some very good momentum on the free cash generation.
Generation and the most important piece here is that we still feel we have plenty of levers for us to improve.
You know what you know clearly one that we just talked about here.
So were were rallying up a old 16000 employee owners in the company I run that working capital.
As a percentage of sales and how we believe we can on look good.
Good amount of cash by getting everyone focused on that perspective, as we did with the Gardner Denver.
In the past and then other levers such as you know.
Tax our tax rate that we spoke a lot about that that's that's also offering a good meaningful opportunity.
And so I think you know the exciting piece here.
One is that we still have a more improvement opportunities.
Yes, Julian on the on the second piece in terms of some of the moving components and kind of what we've spent thus far off from a free cash flow perspective, specifically on the Dissynergies and stand up costs.
The first half of the year, we had about $80 million of between the first first second quarter cash outflows.
And then as you can see in Q3, we had about $26 million. So you had a little over $100 million of cash outflows, thus far specifically for synergy and standup, let it stand through the first three quarters and we would expect right now the Q4 somewhat comparable to what you saw in Q3 as we've guided before so I can kind of give you an idea of kind of just the I'll call. It one time, but really the synergy in standup related.
And that does flow through free cash flow.
Fantastic. Thank you.
Your next question comes from Michael Halloran from Baird. Please go ahead. Your line is open.
Hey, good morning, gentlemen.
Good morning, Mike I'm more like so why don't why don't we start with some thoughts as you as we're thinking about next year just a.
A lot of uncertainty out there qualitatively how are you guys positioning things internally in your core businesses as we said as we sit here. What's your thought process. How are you guys going about iterations for next year.
In any kind of high level thoughts on that side.
Yeah, Mike I, you know clearly you know we're now in the midst of that cycle of kind of getting with the teams through through a budget cycle for us for 221.
And this is part of our process, but as we completed our strategic plans a couple of months ago.
Well, we don't have full visibility I mean, we like what we see from the micro indicators via my eye, Sam I mean across the world showing some continual gradual gradual improvement. So we're encouraged about this but you know we know that theres. Some uncertainty ends up with called it in many other global markets and look down I think the most important thing for me too high.
Right here and we're highlighting where the team is that I believe that we have been able to demonstrate how we are able to adjust and adapt to whatever environment looks like and you can see that from the down market and how we have control our decrementals.
Very well at the same time, while while investing so so I think you know the way that we're we're we're working with the teams is.
So habit perspective in terms of good gradual confusing Quinn show, nothing but more important making sure that we're making the right investments while controlling.
You know the cost and continued improvements in our company.
I would say to us well, maybe Mike to add to that is you know.
Right now we feel good about kind of that backlog.
In terms of our long cycle businesses.
I'd like you know like we have a you know whether large compressors or some of our larger banking businesses and and also with the specialty vehicles I mean, they have a very solid backlog to us well heading into a into 2021. So.
At least at this point I mean, we were going to be really be a working with the teams and the budgets and building as we kind of go forward 2021, with a high level of just flexibility.
Well that makes sense and then maybe help with some puts and takes on the on the ops capital Optionality side, one how you're thinking about the current portfolio as it sits here today any changes there and then secondarily.
You are in a good balance sheet position you know Dick mentioned earlier towards two times in the near future here. How are you thinking about M&A, what's the funnel look like and then secondarily are buybacks something you guys are considering when you return.
Yeah, Mike I think I think this is.
As you saw we got a pretty faces and we spoke a lot openly about our kind of face to your portfolio Optionality that gives us plenty of opportunity for us to evaluate that and that is equal on both sides. As you said you know up optionality on on potential divestitures, but at the same time on the M&A and the M&A.
The M&A I tell you the funnel is very very active.
We're very excited with our been that acquisition that we just made you know a lot of these acquisitions as well I think the interesting thing is that we continue to.
Source those ourselves and the things that we're finding.
That being proactive and working with a with a lot of these companies.
Our relationship is really unlocking that opportunity to be able to be more prudent and disciplined in the tens of multiple that we paid.
So I think the M&A.
Funnel, it's a it's a very very active and we're really excited about.
Well, we have ahead of us in the in that case.
And the buyback side any thoughts there.
Not at this point I will say.
Mike Let me because we see very good opportunities for us in the M&A and you have seen high we're able to you know from a pre imposed multiple reviews opposed multiple synergy dramatically. So we just see greater payback right now and the M&A.
That makes less sense. Thanks, Synta I appreciate it thank.
Thank you Mike.
Your next question comes from Jeff Sprague from vertical research. Please go ahead. Your line is open.
Thank you good morning, everyone I'm wondering.
Just coming back to kind of this synergy question.
You know what as.
As you think about kind of the funnel right I just wonder if the funnel or really the complexion of the funnel is changing at all.
And you know some of your concerns just about kind of the.
Ability to travel and all these sorts of things kind of getting at the 250.
Doesn't really seem to have kind of borne out right. It seems like you're actually getting at it maybe.
Maybe a little bit quicker than than you thought so really kind of two questions. The.
The speed with which you can kind of continue that knock out the 250 and whether there's anything really moving around on the 350 and when that might move from kind of funnel to actual from target.
Yes sure Jeff This is Rick I'll take that one.
You're absolutely right, we've been pretty pleased with how we've been actually able to execute on the on the synergy bundle at this point in time as we mentioned I don't think that frankly, the coven environment is really prevented us from for next to get on the funnel. We started with frankly a lot of the activity is picking on the structural side I'd say, the beginning phases of the procurement.
Good for the merger even was really it was really was were completed so that's really been able to accelerate what we've been able to see and you've seen that we've actually sequentially every quarter, we view than we do and accelerated the cadence, including now where we're saying about 40% of the savings to be delivered here in 2020, 70% by next year, and then 85% by the year.
Thereafter, which is considerably I'd say, you know sped up compared to what our original expectations are so I'd say at this point in time continuing to kind of move forward I don't think the cobot environment has dramatically stop things. We didn't found ways to do things like I, just would be and workshops and tear hounds in a virtual manner not how we planned it originally but still being able to execute.
Turns up the the larger funnel in excess of 350, I'd say the complexity and to your point, it's still largely the same really whats ahead of us here as much more direct material oriented savings as well as footprint and as we mentioned the direct material side does have a big component is obviously tied to the volume equation, which as I mentioned as we go.
Better visibility to 2021, and thereafter, I think we'll be able to give an update accordingly and the footprint. These are largely have not changed I'd say, that's the piece that clearly in this environment, it's probably a little bit more difficult to execute on the good news is the funnel is continuing to progress quite nicely and we had always planned to be executed on that footprint funnel really into 2021 in 2020 do nothing.
Really changed in that manner. So I'd say, we're still pleased with how things are progressing and weve largely accelerated what's within our control.
Great. Thanks for that and just back to I T. N S. On some of the kind of the kind of heavier capex oriented parts of the business.
Davis, the order color and I appreciate that I, just wonder if you could give us a little bit more color, though just on.
What your what your customers are saying, how the capex outlook in some of these vertical markets that are more industrial sensitive.
Look as we perhaps look into the at least the first part of 2021.
Yes.
I think the good good I mean, we're encouraged in terms of how we're seeing the conversations with the customers.
I mean, obviously, we spoke earlier in the year, how things were kind of slow.
But we are seeing some fairly good momentum on C. Some of these kind of long cycle businesses that require some very large capital investments. So so we're encouraged with the conversations that our teams are having it.
We saw also some of that here in the second quarter and you know, we always said that the fourth quarter. It's a it's a quarter, where we expect a lot of these are kind of orders to get closed and and booked into the into the orders.
So these were we're encouraged with that and that was a little bit of the commentary I made about you know going into 2021 that we're we're we're we're at least there are positive in terms of the backlog that we have coming into the year with these businesses and obviously more encouraged about how our teams are pursuing.
Or more aggressively a lot of these kind of large investments that are kind of getting freed up.
Great. Thank you.
Thank you.
Your next question comes from Nigel Coe from Wolfe Research. Please go ahead. Your line is open.
Thanks, Good morning warning.
So I wanted to switch to a.
Upstream oil and gas high pressure high.
Yes.
I'll see encouraging trends that seems like weve, we'd be found a floor.
On to improve sequentially.
A couple questions that one would you say that the disproportionate amount of the temporary cost measures that's going into that business to sort of because of the the margins and you know should we be down and some modest sequential improvement in that business.
And with what we've seen in prior recoveries from from here.
Yes, you also so definitely a good amount of temporary but I mean, I would say similar in nature to what we have done if you remember I mean, the hps is a business that even even back in the second half of last year, we started the restructuring and the business look really different from a footprint perspective, and also from a capex in better.
So we have done so I think we're encouraged with what the team has been able to rapidly adjust and I think that that is really encouraging as we see some of that kind of come back.
We are seeing in the market.
And then sequential growth from hedges and I think that's reasonable based on customer.
Conversations and then we've seen in the market.
We think so we're thinking about it I mean, we're being kind of thoughtful and prudent from the perspective, only just because you never know what's going to happen on some of the holidays year after Thanksgiving to Christmas.
But based based on Middle fleet Count continues to increase sequentially.
Our order rates continue to increase as you. So now you know year over year as we pointed out in the first week of the month over were down only 30% to 35% which is also encouraging.
And and but we still also feel that the the pent up demand has not come through so I think that that's also highly encouraging as we'll see.
Okay, Great and then my follow up question on I T. S is a fiscal thankful the detail I think you preempted about 10 questions with the detail.
But how did services track within that mix I mean, I know that was hit pretty hard by the shutdowns I'm just wondering if we're seeing some.
Some some pent up demand coming through there on whether we're back to growth and surface yeah.
Yeah no good good good question.
Thank you I would say that you know the big service business that we have is really mainly oh say, mostly in the us.
And Europe, where we mostly in many places we've got the right. We saw the good sequential improvement through the quarter.
And and what we have seen is that aftermarket and service is all that Holistically is roughly two times better than the whole goods. So then on the complete so I wouldn't call. It that's a massive pent up demand I'll, just say kind of more gradual improvement as people are kind of dating and opening the locations do allows us to broader kind of going but nothing.
I think dramatic.
Just good president from sure great. Thank you.
Your next question comes from Rob Wertheimer from ALS Research. Please go ahead. Your line is open.
Hey, good morning, everyone.
Morning.
So that's something I think you've touched a couple of times on sort of a long cycle versus short cycle dynamics, but I wonder if you could just.
Tell us underlying demand trends is there a very wide gap between the two how wide is it does it is it already narrowing down. So you know the longer cycle stuff is in fact come.
Coming off we're not just relying on short cycle stuff.
All right it feels that way, Rob I mean, it feels that.
But definitely you know we can tell you that.
On the on the long cycle business was actually positive from our perspective in the in the third quarter.
So again that can be sometimes spotty based on the size of the projects that you see but.
But we're seeing some good momentum and feel to capture we're seeing some good momentum in air separation industrial gases.
We're seeing some some kind of projects that are more related to onshoring, getting kind of release and and allowing us to to implement our technology on those.
So we're seeing some good good you know say sequential improvement on that.
I guess for me more encouraging is the conversations that are that our teams are having with the customers seem to be just much more active than what it wasn't that bad. So what is it that are big separation between the two.
No no no dramatically I would say, but encouraging signs on both.
Okay. That's very helpful. Thank you.
That's good just one other on on pivot to growth on phase two I Wonder if you can characterize where are you where you think you have the organization focused as the intense focus spend on synergies the past few months and you've already internally sort of EBITDA growth with some of the focus you're doing and that will show up in next few quarters or where would you say you put the organization right now thanks.
Yeah, well, that's a great great question and you know one of the things that we're able to do in our business with the increased amount of agility and implement that we're driving with the use of IR rigs and as you know we have over 200 of those kind of every week with an impact daily management and so yeah. I mean, I can tell you that in our conversation.
We talk a lot more about growth synergies now that we see some good momentum on the cost synergies. So you know we're still with the have the capex on the cost synergies. Both now we have added the capex on the growth synergies. So the conversation is really people to be more doors that it takes time to see that that solid momentum in the business.
So but.
But again, you know we were able to people and people kind of ride writing the in the I would say.
You know we did a mitt made the mid third quarter.
No about people thing to have and so again more encouraging and as kind of we go into 2021 that we could see some of the fruit of those actions that we're taking.
Thanks very much.
Your next question comes from Stephen Volkmann from Jefferies. Please go ahead. Your line is open.
Hi, good morning, guys.
If I could just go back to some of your comments about the margin Incrementals.
I think we had originally thought about thirtyish percent this quarter, and obviously kind of blew that away and talked about some of the temporary costs not coming back as you expected I'm just trying to understand how does that work I mean, it sounds like you don't actually kind of drive that from a top down perspective, maybe it's more driven by the businesses and.
Obviously I'm trying to think about how that all plays out in the fourth quarter. Thanks.
Thanks.
Yes, yes, I could see where I said I mean, it's obviously driven.
Our teams a as I said you know even even as we are preparing our budgets were talking to anyone our teams are really up to them in terms of what well incur.
Incrementals and Decrementals are going to be being view as for best in class and we strive to do to get to those.
I think when we provided some of that kind of conversation or got no guidance, but you know a framework as we were going into a into Q3. There was a lot of discretionary cost that was supposed to combat obviously not all of that showed up into.
Into the third quarter, but what I will tell you that our teams just pay close attention to do a lot of these leading indicators that were that were tracking and.
And I think in our commentary, we'll we'll just cannot be more through and in terms of just telling you kind of what we expect to see but obviously with the room for our teams to be able to drive further improvements to that.
Okay. So so just to be clear then Rick mentioned I think 35 ish percent Incrementals is that the right way to think about the fourth quarter.
No. So so Steve I think the way we're thinking about it is that was kind of more of a longer term in the 2021 from a from a 34 core core perspective, and if you look year over year I think in our in our prepared commentary, obviously, we're still going to see that.
That's the challenge view versus prior year, we mentioned the decremental should be lower than 30% and frankly, we would expect to be able to control it frankly lower than that level pretty much more in line with probably levels. You saw in the Twoq, you realm or slightly better clearly not as well as Q3, which was 6% clearly a lot of good tailwinds and some of the margin mix items, we talked.
But I think Q4, specifically could you just see decrementals well below 30%.
But I think as we look further out and then hopefully the business turns to more of a growth mode that would kind of the comment as we look ahead.
Great. Thank you that's exactly I was looking for our shows that decremental sorry. So that's all I got thank you.
Thank you.
Your next question comes from Andy Kaplowitz from Citi Group. Please go ahead. Your line is open.
Hey, good morning, guys.
Good morning.
And they can you can can you give us a little more color on what you're seeing in terms of the growth within precision precision and science. He mentioned the expected decline in the foreign PSS business. It was down 6% in Q3 did you do on medical I think was up 10, but then you mentioned the overall segment is positive to the first weeks of Q4, so is PFS continuing to.
Turning more positive or is it really strengthened the GDN medical business and can you give us more color on what's driving the improvement in PFS.
Yeah, and they also that most of the businesses are kind of a continuing to strengthen wouldn't that be a but the partitioned signs and that's you know clearly you're seeing some of that here in a in early October.
And when you when we saw throughout the quarter in the third quarter. We saw continued improvement through the months of Q3.
And then send it obviously you spent some time talking about hydrogen and obviously as GE becomes more important every day you just mentioned on shoring and lean initiatives. There. So if you look at all these sort of newer trends together is it having an impact on your business overall right now and as you think about 21, how well positioned.
Question are you to sort of grow above market because of all these new trends that you guys are exposed to.
You know that that is I think the exciting piece there.
And b that but a lot of these.
Kind of trends continue to to go in our favor from that perspective, and not just by pure look, but baby mainly because of the.
I will say call. It self help innovation that the team is doing I mean, we we find some of these kind of growth secular trends and then we evaluate how cannot technology would be applicable to those trends and then we go deeply and then and then create some unique differentiated innovation and I think that is what is very different.
In our case is that that our teams are pretty agile in that so yeah. I mean, I think it's more going to be indicative in 2021 and further you can see I mean expectations for the hydrogen are just kind of massive in terms of growth and we want to be participants with our new kind of unique technology, but it's going to be kind of more I'll say medium to long term.
Thanks Cindy.
Thank you.
Your next question comes from David Raso from Evercore ISI. Please go ahead. Your line is open.
Hi, Thank you for the time a question about what's in the backlog for each business. The color you provided on I T. S appears to be a positive mix when I hear that the bigger compressors are strong and then within precision just thinking about medical maybe that's driving the growth diminishes a little bit should we think about that is.
Maybe potentially a little bit of a less positive mix moving forward. So I'm just trying to get a sense of what's in the backlog what we have seen so far in October to better understand the mix developments of the revenue.
Within those two segments.
David I'll start kind of inverse order you hit on the head with precision inside.
We did definitely have a I'd say an elevated medical backlog that we were really leveraging for second quarter third quarter, largely kind of shipping through here as we got into the beginning in the fourth quarter and the medical piece definitely has a little bit of a margin upside comparatively speaking so it's not to say that the the balance of the precision science.
It's actually healthy healthy margins, it's just not quite at those those medical covered related order. So again that will normalize here as we move through fourth quarter and into 2021.
The CNS side.
It's actually not dramatically different each project is a little bit unique, but I would say that the margin profile is actually kind of comparable to what you see on the on the typically shorter cycle compressors are blowing vacuum equipment.
Equipment and as such I would I would say that Q4 margin profile should be comparable to what you saw in Q3. Its project by project. It looked a bit one of the different but I think in totality, it's a it's relatively comparable especially given the momentum.
Momentum, we've seen on margins across the balance of the short cycle.
Uh huh.
That's helpful and lastly on the cobot impact, especially some of the Lockdowns, we've begun to see in Europe, and hopefully we don't we don't see any here, but when you think about the potential impact are you trying to get ahead of that a bit maybe securing some kind of buffer component inventory or are you just sort of playing it straight and.
As it unfolds. It unfolds. So just curious how you are reacting to potential impact.
Impact.
But I mean, I I wouldn't call that we're accelerating any any inventories as we speak now so.
With what our teams have been doing is that.
They based on that it sounds learn I mean, they clearly worked with the suppliers are the supplier can hold more buffer inventory for own versus us holding that inventory.
And so I think I think we're preparing and working with the supply chain is to be able to service those proactively.
And so far no implications on any facilities from some of the French or UK or no lockdown lights, we've seen in Germany now.
Okay. Good thanks.
Terrific. Thank you appreciate it thank you.
Your next question comes from Joe Ritchie from Goldman Sachs. Please go ahead. Your line is open.
Hi, Thanks, good morning, everybody.
Let me.
This intake can you maybe just touch on that that opportunity that you're seeing specifically on the oil free side.
With with selling through your your your your European channels that I'd love to know any kind of thoughts on cadence of that opportunity over the next couple of years.
Yeah, Joe I think this is actually.
I mean as you remember we were pretty excited with a with a combination of the two companies because of the complimentary technology and how much we can see their oil free to be just a good kind of growth end market.
Based on the market, but he plays.
And so so this is a very good opportunity because the dangers will run team definitely has a little good experience selling oil free comps.
Compressors and I will say that at this point in time, we're just kind of scratching the surface still on just purely a kind of aligning the technologies toward the best channel could be served for Ddos technology. So what we will do so here is basically our kind of launch of that oil free technology that we develop a during the Gardner Denver days.
And having things will run team have access to that through their channel and and the teams are very excited I mean, what I was trying to channel partners as well as a direct teams are very excited positioning those those technologies into the prime any food and pharma and markets.
That's helpful color to say, thanks, I think maybe what my one follow up I know, we touched on this a little bit earlier on and he asked hurts short cycle versus long cycle.
Can you just remind us like how much of your ATM business is tied to short cycle that the I assume improving versus versus long cycle project related.
Yes, Joe I'll take that one this is Eric I would say that probably I would I would ballpark at about 80, 80% roughly speaking is probably shorter shorter cycle kind of typical standard fare compressor blower vacuum power tools and equipment, 15% to 20% somewhere in that range is probably a little bit more time.
To the longer cycle components of things around the larger centrifugal compressors as well as things like the the Nash Darrow kind of vacuum lingering pump and compressor business, that's probably at a pretty good indication.
Okay, great. Thanks, guys.
Thank you.
Your next question comes from John Walsh from Credit Suisse. Please go ahead. Your line is open.
Hi, good morning.
Good morning, John.
Hi, I.
I was wondering if you could just first kind of touch on maybe your customer inventory levels I'm thinking about kind of those distributors that are stocking the smaller side of the compression range.
Yes, you're right.
You know most Oh, we don't have that many distributors that will stock a lot of our compressors.
And our exposure to that kind of smaller reciprocating compressors I bet basically kind of the will be maybe that you would do it yourself or we also don't play on that.
So I will say inventory levels are definitely not.
Not seen by anybody kind of stuck in anything.
Okay. That's helpful.
Great and.
And then I guess, just thinking about some of the adjustments and as we go into next year.
I guess there was a noncash.
Impairment this quarter the acquisition related expenses are ramping down I mean, there's puts and takes but how do we think about those items as we update.
Update our models for next year is there visibility into any big adjustments as you see it today.
Sure John ill take that one so I think in terms of as we said you know the Weatherby, Canada, the restructuring or acquisition related items, you can see that the large majority of the purchase accounting items of blood than sell through so again, you saw that dramatically decrease from Q2 to Q3, and I think with regard to some of the restructuring items.
You will see a normal kids so that as we move into 2021 as we still do have your restructuring of our footprint optimization and things like that ahead of us in terms of the trade name item you're correct. We did have a small tradename impairment specific to the power tools and lifting unit within the GNS segment, very discreet and particularly just a reflection of.
Some of the revenue declines that we've seen in the power tools and what the India, specifically on the trade name side. So again I would say that was onetime in nature.
We look forward, we would expect that the nature of adjustments be very comparable to kind of director you're seeing with regards to restructure in some of the normal course adjustments, but no other large adjustments because that nature no. We wouldn't expect those those are very discreet and unique in terms of what you've seen through the first two to three quarters. This year.
Great very helpful. Thank you.
Thanks.
Your next question comes from Nathan Jones from Stifel. Please go ahead. Your line is open.
Good morning, everyone.
And I think one of the.
We have a follow up two questions, Joe and Andy asked before.
On these new product development and adjacent markets that you're moving into <unk> and maybe if you're looking at it over a little bit of a longer time market's going to grow at what they're going to grow.
Do you guys have that number that you're targeting you know water in.
Growing that addressable market overtime lot do you think you can grow the addressable market 50 basis points, a year 100 basis points, a year through the new product development and acquisitions to get yourself into new markets to to really expand that that addressable market consistently over time.
Well as it really great question, maybe on a you.
You know.
Clearly you know we have always been.
Okay speaking and not openly but how the addressable market for girls and how we wanted to if you remember the days of the medical team, how we double that addressable market over a course of like two years. So I think it depends on it depends on the business, but clearly we want to continue to expand addressable market. We don't have it pegged at a number.
But in the precision and science team. It is clearly got dramatic in terms of how we want to increase the addressable market based on penetrating with the new technologies that were there with the team is working so well, but specifically to a number I don't have it we don't we don't kind of peg, we just had a more asset holistically over to strategic area, which is three years.
We want to double to dribble marketing some of the specific businesses that we're focusing ourselves.
Fair enough I'm one of the number that caught my eye was that 29% order growth in I see today.
Can you talk about what's what's driving that number up how that impacts the outlook for fourth quarter and with an average kind of book to ship on in that business.
Yes, so the impact or the.
The team is just executing really well on a lot of the initiatives in particular, they want around the new the launch of new products on the consumer side. So basically these are kind of go cards that are customized to your needs. You can go online and which I mean, you should do and I think all nine and then kind of customized to your specific kind of desire and the basics.
That's a that's kind of a pretty unique solar.
Solution for personalizing the vehicles for individuals and we have seen tremendous demand of that over the past couple of quarters.
No. It's I would say that you know we're we're typically I mean based on the demand that we're seeing is typically you know maybe.
Weeks.
But not quarters in terms of kind of the backlog and specifically I don't want to call. It a number just as we view it as kind of being very strategic in terms of how we quickly we can deliver those.
Those those those those both cards portfolio.
For the consumer side, what is driven by a lot of the initiatives that the teams are doing around direct to consumer demand generation or as well as kind of new launches a product we launch a new lithium.
Battery that extend to extend the range of these Ah consumer cards and and also we spoke today on the call about the connectivity and the connectivity platform is also providing some good recurring revenue streams a productive.
Great. Thanks very much.
Thanks.
Your last question comes from Dubai, Nonetheless stuff done Gordon Haskett. Please go ahead. Your line is open.
Good morning, guys.
Wondering if I'm right on a.
So just to follow up on specialty vehicles, what's driving that this march and significant margin improvement.
And is there a mix it makes a big driver and how do you expect it to kind of.
Develop going forward.
Sure about Q3 was obviously an exceptionally strong.
Arjun performance really driven by kind of two main factors one being the consumer piece that can be in the aftermarket piece. So I think the mix frankly was the single biggest driver consumer as we've spoken about before is the highest margin profile component up the entire portfolio and Mark and frankly aftermarket is is right there with it so I'm not concerned with that comprised of.
Healthier component of the mix you can see kind of the margin profile that goes with it and then we've obviously done a lot with regards to I to be.
Self-help irex initiatives, what you're seeing kind of play themselves out I think as we think about Q4 and as we mentioned.
Again consumer still expected to be strong, but this becomes a very typical very strong Gulf shipment quarter and golf just does frankly have a slightly larger lower margin profile comparatively speaking.
To to the consumer and the aftermarket component. So again, we would see expect to see the kind of margin profile normalize a little bit, but thats really mix, driven but but even then you're going to see in may.
Meaningful margin expansion year over year. So again, we're quite pleased with how the team is executing both on the self help productivity side as well as just frankly to the topline Sunday question.
Got it Okay and then one question on night TNS, how do margins compare between your core business is compressors and blowers versus power tools and and other and what do you see of medium to long term targets for each.
Sure. So we don't break down necessarily the sub components of the portfolio, but let's just say that I think that the you know as we've historically said the compressor blower and backing components actually all have I'd say fairly comparable margin profile, while there tends to be a little bit of mix between original equipment and aftermarket. Once you can expect here is.
Though compressors tend to have a higher aftermarket component, which tends to be a little bit healthier margin and as such I'd say the compressor blower vacuum tends to be a little healthier clearly component the portfolio like power tools.
To be a lower margin profile, we've said that before I think we're quite encouraged by the steps. The team has taken the sense I mentioned in the prepared remarks, you know 270 basis points of sequential improvement as we move from a Q to Q3 I.
I think in terms of medium to longer term targets like we said, we feel very good about where the profile of the total segment is kind of preaching about mid twentys range.
I think thats.
Right, we want to see kind of those levels and we have branded frankly, a lot of opportunity with regards to synergy execution and things like that that are going to kind of start delivered in 2021 onward. So again, we haven't put a formal I'd say target nor have we put a cap on it I think we're encouraged by what we're seeing and yes, we would frankly, so expect that the core component of the portfolio compressors blowers and backings to have a higher.
Margin profile in the balance.
Thank you.
Thank you.
We have no further questions I would like to turn the call over to Vincent Hey, Wayne all for closing remarks.
Thank you and thank you everyone for for the interest in and it gets around and very appreciative of the tremendous amount of work that our employees are doing here even.
Even in this kind of difficult environment and delivering tremendous results. So thank you and thanks to our employees. Thank you have a good day.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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