Q2 2021 Altra Industrial Motion Corp Earnings Call
Good day, and thank you for standing by and welcome to the Altra Industrial motion Q2, 'twenty 'twenty 1 earnings call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask the question during the session you'll need the best.
1 of your telephone please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today, Mr. David <unk>. Please.
Please go ahead.
Thank you and good morning, everyone and welcome to the call.
To help you follow management's discussion on this call they will be referencing slides that are posted to the altra motion dot com website under events and presentations and Investor Relations section. Please turn to slide 3 during the call management will be making forward looking statements as defined in the private Securities Litigation Reform Act of 1095.
We're looking statements are inherently uncertain and investors must recognize that events could differ significantly from management's expectations. Please refer to the risks uncertainties and other factors described in the Companys quarterly reports on form 10-Q, and annual report on form 10-K and in the Companys other filings with the U S Securities and exchange.
<unk> Commission.
As required by applicable law Altra industrial motion Corp, and intend to update or alter its forward looking statements, whether as a result of new information future events or otherwise.
On today's call management will refer to non-GAAP diluted earnings per share non-GAAP income from operations non-GAAP net income non-GAAP adjusted EBITDA non-GAAP operating income margin non-GAAP adjusted EBITA margin non-GAAP organic sales non-GAAP operating working capital non-GAAP net debt non.
GAAP free cash flow of non-GAAP adjusted free cash flow. These metrics exclude certain items discussed in our slide presentation and in our press release under the heading discussion of non-GAAP financial measures and any other items that management believes should be excluded when reviewing continuing operations. The reconciliations of altra as non-GAAP measures to the comparable GAAP.
Measures are available in the financial tables of the Q2.2021 financial results press release on <unk> website, Please turn to slide 4.
With me today are Chief Executive Officer, Carl Christenson, and Chief Financial Officer, Christian Storch, I'll now turn the call over to Carl.
Thank you David and thank you for joining us today to review our Q2.2021 of the results.
And please turn to slide 5.
Our business is firing on all cylinders as we capitalize on demand strength across the vast majority of our end markets. We.
We delivered Q2 revenue of $488 million and earnings per share of <unk> 62 cents on a GAAP basis, and 89 on a non-GAAP basis results that not only exceeded the year ago quarter, but also outperformed Q2.2019 pre COVID-19 levels.
I would like to start today's call highlighting 5 themes that have continued to play out for altra through 2021.
First the combination of our high quality portfolio of diverse brands and businesses with our team's ability to remain nimble and manage the supply chain and reliably deliver products to our customers has continued to be of powerful differentiator for altra.
In addition to supporting our strong top line results. This combination positions us to benefit from several secular tailwind in markets like Electronics Assembly equipment General factory automation medical and robotics in the near term.
And mid and later cycle markets, such as mining metals AG and heavy machinery.
Second our incoming order rate remains extremely strong in fact, our backlog grew significantly to the new all time high for Altra.
Our book to Bill ratio from Q2 was 117%.
This positions our company very well for the coming quarters gives us confidence to again raise our 2021 guidance and further validates our belief that there is the long runway ahead for both ultra and the general industrial market in 2022 and beyond.
Third operationally the business is performing very well, despite the supply chain and labor constraints impacting our customers and our operations.
We attribute this to outstanding execution by our operational teams in conjunction with Altra is world class business system.
Fourth we have continued to make exceptional progress advancing our strategic priority to pay down debt and delever our balance sheet.
We are now within our targeted leverage range and remain committed to reducing our debt by an additional $100 million in 2021.
Finally, while we manage the business today, we continue to make tremendous progress advancing our future growth initiatives.
We are very excited by the level of business development happening across our businesses to create innovative solutions with customers in attractive verticals, such as medical factory automation and robotics.
In fact, we are already seeing many of these efforts take hold.
For example, we are experiencing significant growth in a highly customized components with an existing customer that is developing compressors for hydrogen fueling stations.
Over the next several years, we expect to receive orders for this new environmentally friendly application.
Supporting reduced vehicle emissions.
Additionally, we are diligently and patiently exploring potential bolt on M&A opportunities that strengthen our market position and expand our exposure to attractive markets.
Now please turn to.
Slide 6 for an overview of Q2 performance highlights.
Christian will take you through details of our financial performance, but I wanted to touch on a few high level points.
Our top line performance was really strong Q2 revenue was up 21, 9% from the prior year and nearly 5% compared to Q2.2019 the.
This reflects the strong demand we're seeing across nearly all of our end markets and our teams exceptional management of the supply chain to minimize production disruptions and deliver product to our customers.
We are also very pleased with our operating performance, particularly given 2 notable dynamics that we face this quarter.
The first relates to increasing material costs and wage inflation that are impacting manufacturing companies like ours.
In response, we have implemented several pricing initiatives and have several more in process.
However, given the rapid increase of input costs. The typical notice period, we give our customers regarding price increases and the fact that the existing backlog is at lower price.
There was and will be of lag and flow through.
Therefore, even though we took substantial pricing action the realized price increases did not fully offset the cost increases in the quarter.
We do expect to benefit from these pricing actions to ramp up through Q3 and fully catch up with costs in Q4.
The second point to note is that on year over year basis, our operating performance comparable <unk> were impacted by the exceptional level of cost management in Q2, 2020 related to COVID-19, which did not repeat this year.
As a result, while 2021 non-GAAP adjusted EBITDA margins decreased by 120 basis points compared to last year margins were up 50 basis points when compared to Q2.2019.
Now turning to slide 7 for a market review.
As noted last quarter, we are simplifying our market discussions to focus on the core markets and trends that we believe are most relevant to altra performance and growth prospects.
Transportation.
Which represents approximately 16% of our business on a last 12 month basis was up low double digits in the quarter, reflecting broad based strength across heavy duty trucks automotive and marine applications.
In line with expectations class 8 truck revenues were strong in the first half of the year, but we are starting to see some deceleration in China.
This aligns with our expectations for the broader transportation market to be flat to slightly up in 2021.
Longer term as the worlds leading engine braking supplier, we expect altra transportation business to benefit from new technology initiatives that support future global safety and emission mandates.
Factory automation and specialty machinery, which represents about 12% of our business was up over 20% as we again benefited from strong tailwind in both the specialty machinery and automation categories, notably food and beverage packaging robotics.
<unk> in general factory automation.
Our expectations for strong 2021 remain intact with several favorable trends driving growth in <unk>.
<unk> strength in the electronics markets, driven by global Digitization, and industrial Iot as well as macro trends in robotics.
Turf and Garden AG and construction, which combined represents approximately 10% of our business had a very strong quarter up mid double digits in part due to favorable comps in the year ago quarter, but also reflecting stronger than expected <unk> across the board in all key segments.
We now expect to see positive growth in most of these markets for the full year.
Longer term, we remain very positive on our growth prospects, given altra strong position in attractive secular tailwind, including increased infrastructure spending and where we are in the AG cycle.
Medical equipment, which is about 8% of our sales was up low double digits year over year as the decline in Covid related <unk> related sales was offset by a rebound in elective surgeries and hospital capital expenditures.
Although the comps for Covid related spending this year will remain challenging. This is a very exciting long term growth market for us as several secular trends are expected to drive growth from aging population demographics, the growth of non invasive and robotic surgeries.
Material handling, which represents about 7% of sales was up double digits due to strength across all key segments, including conveyors forklifts and vertical lifting systems.
Although of cyclical market. This is an attractive growth opportunity supported by several exciting tailwind from strong growth in warehousing driven by e-commerce to advanced technology to improving warehouse efficiency.
Aerospace and defense, which combined is about 6% of sales was up low single digits.
Notably, while our defense business remains solid our sales into commercial aerospace showed some signs of improvement in the quarter.
An encouraging indicator for our anticipated recovery.
Despite near term headwinds we remain excited about this market, namely our A&D business is very attractive margin profile with a strong competitive position and high barriers to entry.
We continue to expect this market will rebound at some point in 2022.
And finally renewable energy.
<unk> represents about 5 percentage of sales was down low double digits in the quarter due to supply chain logistics and labor issues impacting turbine Oems and resulting in order push outs.
In addition, we are experiencing the hangover from China's policy induced production surge last year as their version of the DTC expired in December 2020.
We expect 2021 to be flat to slightly down barring any new administration policies or accelerating wind industry supply chain issues.
Longer term renewables remains an exciting growth play for altra as global demand for increased usage of renewable energy favors our strong position in both onshore and higher growth offshore wind and.
And with that I'll turn the call the Christian to provide a detailed review of the quarter and our 2021 guidance.
Thank you Paul and good morning, everyone.
Our second quarter results were highlighted by Altra is resilient and balanced portfolio strong top line and cash flow performance and solid progress delevering the balance sheet opt.
Operationally it was a very challenging quarter, given input cost inflation strained logistics and supply chain channels in a very tight labor market.
Turning now to review of our top line performance in the second quarter.
Sales were up 21, 9% compared with the prior year period organic sales grew 17, 2% with price contributing 130 basis points.
In addition, several businesses imposed surcharges.
Foreign exchange rates had a positive effect of 470 basis points.
Excluding the effects of foreign exchange net sales for the PTT segment were up 16, 1%.
Booking momentum has remained strong across most end markets, including turf and garden ex factory automation and material handling.
Excluding the impact of foreign exchange net sales for the E&S segment were up 18% compared with the same quarter last year.
The segment once again saw strong broad based growth, including transportation factory automation medical equipment, construction and farm and AG markets.
Taking a closer look at our performance by geography.
In Asia, and the rest of the world revenues without the impact of foreign exchange were down slightly to 9% primarily due to softening sales into the class 8 truck and wind markets in China.
This was partially offset by strength in miniature motives and factory automation.
In Europe sales were up 17, 4% with all of the impact of foreign exchange as Europes vaccination efforts begin to catch up and the economy started to recover.
Organic sales in North America grew 27, 3%.
As expected, we saw raw material and labor cost inflation flow through in the quarter.
The head of realizing the benefits from the pricing actions, we have taken and those that we have in process.
In addition operations and those of our customers continue to face strained logistics channels.
And the very tight labor market.
The training shipments.
We expect these conditions to prevail through the end of the year.
Non-GAAP operating income was $84.6 million and was up 18, 5% when compared to the prior year non.
Non-GAAP operating margins margin was up 40 basis points when compared to the pre COVID-19 second quarter of 2019.
Non-GAAP adjusted EBITDA was $102.6 million for the second quarter were up 13, 3% from the prior year.
At 21% of net sales non-GAAP adjusted EBITDA margin was up 50 basis points from the pre Covid second quarter of 2019.
To reiterate what Carl noted earlier it is important to recognize that the prior year quarter reflects an exceptional level of cost savings actions due to COVID-19.
Working capital was up approximately $31 million as all of operations increased inventory levels to support very strong sales and bookings.
Total receivables grew in line with our top line.
The increase was almost offset by the increase in accounts payables.
The provision for income taxes in the second quarter of 2021 on a normalized basis was 20% before discrete items.
Please turn to slide 9 for a closer look at our balance sheet improvements cash flow and liquidity.
Our cash generated of business model and the financial resilience of our business continues to serve us very well non.
Non-GAAP adjusted free cash flow for the quarter was $56 million down 13% from the prior year quarter, but up 20% compared to the second quarter of 2019.
Capital expenditures through the during the quarter totaled $7.9 million, we expect capital expenditures to increase in the second half of the year.
As we continue to direct investments to growth opportunities, including automation and technology enhancements.
We ended the quarter with $278 million of cash and another $296 million of.
Availability under the revolving credit facility.
In the quarter, we paid down an additional 30 million of the term loan, bringing our total debt paydown since the NES acquisition to $360 million.
Net leverage at the end of the quarter was 2.8 times and is now in all the diavik range of of less than 3 times net leverage.
Our top capital allocation priorities continue to be to reduce our debt balance by the additional $100 million by year end managed leverage preserve optionality for investing in future growth, while continuing to support our quarterly dividend.
Now that we out of the target leverage range, we are increasingly open to evaluating investment and bolt on M&A growth opportunities.
That align with altra.
With that Atlanta, Altra was attractive secular trends.
Of course of the market is highly competitive right now and valuations are high.
We are committed to taking a diligent and disciplined approach to potential M&A.
And remain patient to find opportunities that make both strategic.
And financial sense for ultra and our shareholders.
Please turn to slide 10 for an update on our outlook for 2021.
With an excellent first half performance in the books broad based tailwind so it all back and more confidence from the overall economic recovery.
We have excellent momentum starting into the second half of the year.
As a result, we are increasing our guidance for the full year 2021, which is included in this morning's release.
We continue to expect that the temporary cost savings realized in 2020 will gradually phase back and the full impact of the force of the cost to return by the end of the third quarter.
With that as the background.
The revised guidance for 2021 is as follows.
Sales from the range of $189 million of 1 billion to $1.92 billion.
GAAP diluted EPS in the range of $2 and 28.
To $2.41.
And non-GAAP diluted earnings per share in the range of $3 from 30.
2 of $3.46.
Non-GAAP adjusted EBITDA in the range of 395 million to $405 million, a normalized tax rate for the fluidity of approximately 20% to 22% before discrete items jetblue.
Capital expenditures in the range of 50 to 55 million of depreciation and amortization of the range of 100.
On the $22 million to $124 million.
The last non-GAAP free cash flow in the range of $210 million to $235 million.
Let me provide you with additional color regarding our expectations for the third quarter.
The financial performance of the third quarter of 2020 was extraordinary to the significant temporary cost reductions.
1 of our businesses remain extremely strong given the difficult comps the seasonality of the business and the timing of the impact of our pricing initiatives. We expect the third quarter earnings could be lower than in the prior year quarter.
Would be would be substantially higher than the third quarter of 2019 or pre COVID-19.
We expect year over year earnings growth to return in the fourth quarter.
Despite the third quarter challenge of full year guidance implies the full year earnings will be at record levels and significantly higher than the previous 2 years.
And with that I would turn the discussion back to Paul.
Thank you Christian please turn to slide 11.
We remain extremely pleased with our performance. So far this year. We believe we are at the beginning of a broad based market recovery and Altra is in an excellent position to capitalize on several secular tailwind as we move through the year and into 2022.
Our focus remains on executing against our strategic priorities the optimize our opportunities as the Premier Industrial company.
This includes leveraging our efficient cash generative business model and the altra business system to maximize cost and sales synergies delever the balance sheet further and expand our margins.
Now that we have reached our target leverage range, we expect to accelerate our focus on driving top line growth both organically and Inorganically. However, we do intend to remain disciplined.
Finally, we continue to make great strides advancing our ESG efforts, including making headway with our recently formed diversity equity and inclusion committee.
The completing an ESG materiality assessment.
We are very confident in our ability to deliver on our new 2021 guidance and maximize value for our shareholders as the industrial world economic recovery accelerates in 2022 and beyond.
I want to thank the altra team for our continued commitment.
For their continued commitment and resilience that has enabled us to deliver exceptional results.
The best possible customer service and advance our strategic priorities with that we'll now open up the call for questions.
As a reminder to ask the question kidney depressed star 1 on your telephone line.
Question Press the pound key please standby lagoon pollo the Q&A roster.
Your first question is from Jeff Hammond from Keybanc capital markets. Your line is open.
Hey, good morning, guys.
Non gesture.
So just thinking about sequential momentum between the 2 segments into the second half if you look at orders backlog and seasonality it looks like.
It was kind of flattish <unk> had the big step up but just how do you think about it.
The sequential dynamic.
So I think in the second half, we expect that the PTT on the top line would outperform DNS side modestly.
1 of the reasons is that the third quarter will be the low point for our class 8 truck business in the in the.
The year as the.
China.
Sales will drop significantly sequentially, then then recover strongly in.
In the fourth quarter.
Total Gordon.
Seasonality.
Typically causes some sequential decline for the PTT side, but we see strength.
In other markets like oil and gas and mining.
That we think will will help to offset that.
When we look at a N S on the E&S side I think the strength is broad based.
Of that side of the business.
Whether it's factory automation with the medical side.
Really good good momentum growth in the fourth quarter.
Through the third and fourth quarter sort of into the second half.
Okay.
And then just to be clear on the supply chain dynamics.
So it sounds like <unk> was kind of the biggest challenge in an <unk> kind of of transitory quarter in <unk>.
You're fully catch up is that the right way to think about it and just within that anything getting particularly better or worse within some of the supply chain of inflation challenges.
Yes, I think the supply chain challenges have been pretty stable I mean, it is with the old whack, a mole game, where something pops up.
But we've been able to work around the chip shortages that we've had.
It's taken some engineering work to do so, but we've been able to work around that and that's probably been the the <unk>.
Worst issue, so I would say that's fairly stable.
And hopefully it's going to get better.
Some areas I think it's going to be a little bit for the chip.
Supply to to really get better, but some of the other.
Items I'm hopeful we'll start to get better.
Okay, and then just to sneak 1 more in corporate expense I think last year was kind of zero in maybe zero to $1 million of quarter and it seems like.
It stepped up a bit and I'm just trying to understand what's going on there and how to think about corporate expense.
Going forward.
So there's a big swing in medical cost.
We provide sort of speak a guaranteed cost program to the up close and any overruns underrun we.
Absorbed at the corporate level. So the last year with significant health care cost savings the benefits showed up at the corporate level not at the Opco level. This year Youll have the if we have the big swing is medical expenses have returned to more normal levels.
A huge year over year swing here in the second quarter.
90% of what has driven that change.
Change.
Okay. Thanks, guys.
Thank you Jeff.
Your next question is from Bryan Blair from Oppenheimer. Your line is open.
Thanks, Good morning, guys.
Hi, Brian.
PTT margin was very encouraging in the quarter and in my view of maybe the biggest highlights of the quarter.
Given continued top line growth in the back half of catch up on price cost as you've outlined and I suspect some incremental.
The cost actions or drop through from cost actions is Q2 type of margin sustainable.
Through the second half of the year.
Yeah.
So I think.
When we look at the margin of the second half of it the gross profit level.
I think they are.
The sustainable.
At the operating income level, we'll probably see a modest decline here in the third quarter and in the fourth quarter, mainly related to some of the cost of coming back and the seasonality of the business.
But I think from a mix standpoint, I think gross profit margins, we can hold force here in the second half.
Okay, that's fair.
And going back to the.
Price cost.
Of the price cost compression in the second quarter, that's perfectly understandable.
Narrowing through Q3.
The projected to be favorable in the fourth quarter.
Can you parse out price contribution to the second quarter than expected.
Back half realization from price.
As of the way.
I can answer that is when we look at how much price are we short so to speak we're missing about 120 basis points of price.
And so that's what we're trying to recover here of starting in the.
And late in the second quarter, and then into Q3.
So if you think about 120 basis points over.
$490 million in revenues.
That's the dollar amount of price we are missing.
To be made whole.
Got it in the second quarter was around 130, <unk>, we've got 130 already but we need another 120 right.
And then Theres a surcharge Pete.
Don't include a net 130, Brian so the surcharges.
The 50 basis points, probably for surcharges Theres no margin on that.
But.
We get about 50 basis points. In addition to the 130 basis points of price and form of surcharges in the second Corp.
Understood. Okay. That's helpful.
And then Carl you offered kind.
Of the typical walkthrough of core market trends and anticipate the second second half dynamics I'm not asking for anything to be quantified here I know the 2022 guidance only weeks we have seen.
From time to wait for that but could you provide.
A high level perspective, similar walk through on the puts and takes as we look to 2027.
Yes, thanks for that because it's.
I'm really encouraged by 2022 for several reasons 1 is the amount of backlog we are building.
And some of that obviously as we.
We've extended lead times, and so you get more orders because of the lead times longer some of it is people are trying to.
Get in the queue, because they were afraid of what might happen if theyre not in the queue.
And I don't have a really good handle on how much of that is related to those 2 things, but the underlying demand is just really really strong I mean do you look at our book to Bill ratio of 117% I cant remember many times in my lifetime that we've seen that.
And then when you look at the inventory positions 1 of heart of general managers, 1 of our Opco presidents.
<unk> meeting last week.
Sure the.
Picture of the local home depot, and they had 1 teeny weeny garden tractor out in <unk>.
1 of the store and non inside.
So it was.
Kind of unbelievable that the inventory positions on garden tractors, just arent there look at automobiles they arent there.
So there is some I think some.
Very very significant pent up demand and just go get inventories back in place and it's going to take a while when you look at the supply chain constraints, we could be shipping significantly more if we had labor and we had materials, we could be shipping significantly more so.
I think this is going to we've got a really good prospects for 2022 and then.
Barring.
Any outside things of that.
<unk>.
That happened to cost into the slowdown I think beyond 'twenty, 2 looks really good too.
From our our projections of our internal projections.
And I am excited to Brian that in March.
March of next year.
We're planning to have an investor day, where we can talk about the long term prospects for the company and our portfolio management activities that we've been working on so.
Im really looking forward to the next couple of years.
All of Great day here, Thanks again guys.
Thanks, Brian Thank you.
Your next question is from Joel <unk> from BMO. Your line is open.
Hey, guys How's it going.
Good Joel how are you.
Hanging in there.
So the backlog can you give us the number of what the backlog is today versus what it was in.
In the same quarter in 2019 and also.
It sounds like it's a little bit of a combination of demand is strong but also your inability to get to get stuff out the door because of the supply chain challenges. So maybe just shed a little light on that.
Yes, well, we don't disclose the backlog number I can tell you it's up 35% from a year.
Joe.
That's a big number for us.
And <unk>.
All of our shipments are really constrains the gist.
At this point, we would love to ship more because we get the backlog we get the bookings.
But supply chain of tight labor market, just the constraints that we're dealing with right now yes.
Yes, we are.
Not having any significant customer issues, we haven't shut down any customers' lines.
Some of it is the backlog build is also our customer's ability to produce because of the supply chain et cetera.
So we don't have any major customer any major customer issues.
The hand to mouth with.
We're pretty good shape.
Okay and can we can we dig a little more into acquisitions.
Are you waiting to get that $100 million pay down by the end of the year are you kind of looking you're feeling.
Pretty good probably at 2.8 times.
And visibility to get the Cam under 2 and a half and just.
Are we like you think before the end of the year that you feel more comfortable if the right thing came along and maybe just 1 or 2 little highlights of areas that that look really attractive to you.
Got it.
Our.
No definitely.
Out there looking in and kicking some tires and im really excited about our balance sheet position.
And.
The projections of where the balance sheet is going to be at the end of the year the.
The discouraging thing is that when you look at what.
Even small bolt ons are going for in the marketplace. It's just.
Some of it doesn't make any sense to me from a return perspective, so we're going to remain disciplined.
Disciplined and.
And if the right thing comes along.
Strategically critical for us.
I think we'd be willing to participate.
But at some of the pricing levels of just a little.
Little lofty right now a little crazy.
So, but we will we'll continue to look and hopefully we can.
We can find something that makes sense and we can get it and get the right return metrics on it.
Alright, great. Thank you.
Okay. Thank you.
Your next question is from Scott Graham from Rosenblatt. Your line is open.
Hi.
Good morning.
Nice quarter.
Wanted to maybe assets come first.
Laurel.
You had some statements around transportation, suggesting the softening certainly relating to China I'm, just wondering that the end of the U S market is pretty good Europe looks like it's improving as well on them.
As China become like a much larger I'm sure it's become a larger portion of it I mean, maybe you can kind of size what.
Each of those markets look like today off of China strength. So far this year and then maybe I would understand that statement a little bit more of if you could help us with that.
Yes, I'll start and the correction can fill in with some of the numbers but.
So the North American market is very very strong and I think the constraint there is.
Our customers the ability to get everything they need to produce the engines they need.
So that 1 sets that is definitely constrained by supply chain issues not with US I think we've got most of our supply chain issues resolved.
His hand to mouth of a little bit, but with some of our customers. They are constrained, but north America is doing very very well.
The.
And Europe is also doing very well, we've seen the nice pickup in Europe.
<unk>.
I think when you look at the size of the markets.
The North American market is probably about a third of what China is now they make about 1 billion.
Trucks in China year on average I mean, I think $1.5 million somewhere in that range last year, what it was.
The huge year last year.
So let's just.
The size of the North American market is not.
Anywhere near what it is in China.
I'll be able to offset the declines here of the good news for US is that in China, the prevalence of engine braking.
<unk> has been very low until the new standards of important in place. So we expect over the next few years that the.
The percentage of new engines, and new trucks will have engine break sort of them for a supplemental braking for safety reasons and.
The environmental reasons.
Chris Manuel of if you want to add anything on the numbers.
As I said.
In terms of for us.
China.
Is about 35% of.
Revenues and so as of the North American markets of China has become very important to us.
And the nice thing about it is as such the cyclicality in both markets is different than the gist.
To some extent offset each other was currently seeing significant declines in China as the.
The physical Clunkers program has expired and we'll see.
The had very strong growth in North America, that's offsetting that decline.
Got it.
Okay. Thank you for that just maybe wanted to go back to the second quarter in May.
Maybe even carrying that into July.
July here.
Could you maybe talk a little about by segment.
The progression of sales and orders.
I'm, assuming that they were sequentially better.
At our beginning of the year over year comparison stuff, that's kind of parts.
Litmus test that but I'm just wondering.
The incoming rate of orders you know maybe in dollars.
Sequentially in each segment, how was that Ferring into July.
Are you seeing any restocking benefits did you see any for example in the second quarter.
Yes, So I think what we saw was the second quarter for the PTT segment.
The income from order rate picked up significantly.
It has been.
Really strong and stable.
Through the second quarter the.
The <unk> business the incoming order rates have been out of very good level and have been stable and strong.
Through the quarter I think we will see we should probably see a little bit of of decline as people have now gotten their orders in based on the new lead times.
And the inventory positions that they want to build and so forth. So my expectation is that.
But we will see it.
The drop off a little bit, but we haven't we haven't really seen a noticeable drop yet but my expectation is we will see a drop of the planning gets put in place.
And on the restocking did you benefit at all in the second quarter.
I don't think we benefit in your distribution channel in particular.
I don't I don't think we did because of the capacity constraints of minutes and I don't in the distributors that are distributors of told us that they are not.
Increasing the.
They are not increasing their orders to build inventories on our products. There are some products that they are trying to build a little inventory on but on our products. They are not trying to build of inventory significantly.
The Oems and some of the channel partners.
I think the Oems are trying to get some things back in place but.
And the distributors are only increasing inventories based on higher business levels.
That makes sense Scott.
Yes, it does absolutely. Thank you.
Thank you. Thank you.
Your next question is from Mike Halloran from Baird. Your line is open.
Hey, guys just wanted to clarify a few things here, so if I'm thinking about.
Puts and takes on the margin profile in the back half of this year.
The 130 basis points of price realization, but you need of 120 bps more.
It should.
Less in Q3, Q, and then flatten out year over year, maybe even be a slight tailwind by the timing of the fourth quarter.
And then the.
So 1 is that the thought process and then secondarily on the surcharges could you just provide what those are specifically attached to is.
Is it transportation of oil and gas from sort of other commodity.
So all of the surcharges of couple of related and therefore to motor.
Borders.
And the electromagnetic brakes or think about.
Thank God AG in particular.
That's probably where it's very heavy and then some automotive applications brake applications from other end markets.
And then when I look at price.
Several of our business of going out with second round of price increases here in July of cases of August.
It will take a while until we see the price flow through rate deal you've called backlog because of the oil price that needs to turn.
And so I don't think we will see the benefit really pop up in.
Until Q4.
And therefore, we do expect that gross profit from margins in the fourth quarter will be stronger actually than.
Then.
In the third quarter.
And then the other 2 kind of layering points from an answered Jeffs question then on the corporate expense line certainly understand the variance on the health care costs, how should I think about that line item on the full year basis as we're sitting here.
What does that go forward book like after we get that kind of year over year normalization figure it out.
On a full year basis, corporate expenses should be trending around $10 million to $11 million.
And that's the right run rate moving forward.
<unk>.
Yes.
Yes.
And then.
<unk>.
Last 1 as we think about the second half of the year same kind of cost question.
How much is left from the normalization perspective on what you drew down the last year of Covid on the cost line and what you think is coming back in the.
The way you can conceptualize that for us in terms of dollar numbers or the percentage whatever whatever makes sense.
Yes, we think that when we look at Q3 Q4 combined the boat.
Below the $20 million left that will come back.
The second quarter was about $13 million. They came back third quarters of both the same and then we'll start sort of drop into the fourth quarter.
Great.
And then off the cost side more broadly, maybe just an update and the revenue synergy side.
Oh the.
The E&S acquisition is going and any kind of updates on that piece.
Yeah.
It's going pretty well.
We.
I think we're currently working on a round of 125 opportunities out there and the value and the funnel is probably about $20 million.
So obviously, we won't get all of that that's just that's the opportunity set are out there but.
My hope is that the.
We will see very meaningful numbers.
The next year certainly in 2022.
And what are those tied to Carl what types of applications that we're thinking about.
We just landed a nice 1 that was in printer printing paper market.
In Italy.
There was another 1 that there is.
The kind of.
Humorous 1, but it's the for dog food and of the processing and packaging at the whole line net starts from raw material.
The big bag of dog food comes out with the big automated line, but that was a nice cross selling win for us. So.
Sure.
And it's across the whole variety of markets.
Great.
Great.
I appreciate it.
Okay. Thanks.
Your next question is from John Prince of Dougherty. Your line is open.
Okay Christian.
Average is it the transportation business.
Yes.
Third quarter be the weak given the rebound in the fourth could you just talk to me as to why and the backlog extends into 'twenty 2 for transportation.
So the backlog does extend into 2022.
In terms of.
Usually these are not firm orders. These are more of a forecast, but we have.
Well the term agreements in place that go into 2021 'twenty 2 as flow.
The main driver of that sequential drop in Q3 being the low point of transportation is China.
China is typical chunk of program expired at the end of June early July and so there was a lot of pre buy.
And <unk>.
Inventory too.
The inventory as well.
And as they work through that.
The the publicly available forecast of good numbers.
For China, which suggests a very strong rebound in the fourth quarter.
It's going to drop.
In the third quarter kind of chew up some of the inventories.
And then rebound in the fourth quarter.
The fourth quarter, we're projecting in China, do actually be slightly better than the second quarter.
Got it might affect the sequential drop in Q3, when compared to Q2 alright.
All right that actually helps a lot.
And I don't know if it cuts from this and I missed it on some of the lagging markets.
What are you hearing around the metals and mining oil and gas.
And any anything during positive or negatively about those markets going forward.
Yes, so in metals and mining.
Very positive news and we actually got a really nice order for.
For some ball mill.
Projects that we hadn't seen since probably 2012 I think we spent a long time since there's been any investment in those we've got a really nice order.
<unk>.
And so there is some investment just starting to ramp up now some of the project work.
Is longer lead time, so we probably won't see the revenues until 2022, but the but we're starting to get orders.
Oil and gas is still lagging.
We've seen a little bit of an uptick there, but I think in general of the oil and gas guys are sitting on their wallets until probably the fourth quarter first quarter next year mining is very strong we own the business down in Texas.
There are orders of about 53% year over year, all led by mining.
I think that.
To that would be general industrial and then.
But in last place will be oil and gas.
And steel is doing we're seeing some nice activity of the steel mills too as you would expect with the.
With what's going on in those markets.
Sure.
Great. Thanks.
Thanks for taking my question is of great quarter.
Thank you John.
There are no further questions at this time I will turn the call back to CEO Carl Christenson.
Okay. Thank you and thank you again for joining US today, we look forward to engaging with many of you in the months ahead and thank you for your time.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
[music] growth.
Okay.
[music].
Sure.
Yes.
Yes.
Net.
And the.
The overall.
Okay.
Yes.
Hi.
Yes.
Okay.
Uh huh.
Yes.
[music].
Yes.
Okay.
Sure.