Q3 2022 Kennametal Inc Earnings Call
Good morning, and welcome to the Kennametal third quarter fiscal 2022 earnings call. All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions. Please note. This event is being recorded and I would like to turn the conference over to Kelly Boyer. Please go ahead. Thank you operator and welcome everyone and thank you for joining us to review Cana metals third quarter fiscal 2022 results.
Yesterday evening, we issued our earnings press release.
Instead, our presentation slides on our website, we will be referring to that slide deck out todays call.
I'm Kelly Boyer Vice President of Investor Relations joining me on the call today are Chris Rossi, President and Chief Executive Officer, and Damon Audia, Vice President and Chief Financial Officer.
After Chris and Damon's prepared remarks, we will open the line for questions.
At this time I would like to direct your attention to our forward looking disclosure statement.
Today's discussion contains comments that constitute forward looking statements and as such involve a number of assumptions risks and uncertainties that could cause the company's actual results performance or achievements to differ.
For materially from those expressed in or implied by such statements.
These risk factors and uncertainties are detailed in kennametal SEC filings.
In addition, we will be discussing non-GAAP financial measures on the call today.
Reconciliations to GAAP financial measures that we believe are most directly comparable can be found at the back of the slide deck and on our form 8-K on our website and with that I'll turn the call over to Chris. Thanks.
Thanks Kelly.
Good morning, everyone and thanks for joining today's call.
To start with an overview of the quarter.
Are you wanting some key points on our continuing strong results despite the changing macroeconomic environment.
Followed by our expectations for Q4.
Damian will then go over the Q3 financial results and Q4 outlook in more detail.
I'll make some summary comments before opening the call for questions beginning on slide two in the presentation deck.
The strong operating leverage again, this quarter as well as improving margins through the disciplined execution of our commercial and operational excellence initiatives.
We delivered sales of $512 million, an increase of 8% organically year over year and 5% sequentially.
This was slightly above our normal sequential trend despite continuing challenges in transportation.
Kinda and stopping sales in Russia late in the quarter.
End market the strongest year over year performance was in aerospace at 29% growth in energy at 25% followed by Earth works at 13% in General engineering at 8%.
<unk> decreased by 7% year over year, However was better than expected all end markets increased sequentially.
Transportation continues to be affected by supply chain challenges, most notably in China due to COVID-19 related lockdowns as well as more recent disruptions due to the Ukraine conflict.
We continue to believe underlying transportation demand remains strong and as such we expect that a recovery will file a resolution of supply chain issues.
On a regional basis, we saw strong year over year growth of 15% in the Americas and 9% in EMEA.
The Pacific declined at a rate of 4%.
As was the case last quarter outside of China, The rest of Asia Pacific performed well.
Despite these challenges our commercial and operational excellence initiatives drove strong operating leverage and improved margins.
Adjusted EBITDA margin increased significantly by 300 basis points year over year to 18, 3%.
Adjusted operating expense as a percentage of sales declined by 160 basis points year over year to 27% close to our target of 20%.
Adjusted EPS improved to 47 as compared to 32 cents in the prior year quarter.
Free operating cash flow was $13 million.
We bought back $15 million of shares reflecting the confidence we have in our strategy to drive growth and margin improvement over the long term.
So in summary, Q3 was a solid quarter, despite the significant and unexpected macroeconomic disruptions created by the Ukraine conflict.
And the China, COVID-19, Lockdowns that transpired after the quarter began.
Looking ahead to Q4.
We believe the macroeconomic environment will remain dynamic and difficult to predict due to continuing supply chain issues. The effects of COVID-19, Lockdowns in China, which have already significantly limited sales, thus far in Q4, and the repercussions of the Ukraine conflict, especially in Europe.
These disruptions are masking what would otherwise be strong revenue growth due to the strength of most of our end markets, particularly aerospace energy and earthworks.
Overall, we expect Q4 sales to be in the range of approximately flat to positive 3% year over year, including a negative effect of 3% from foreign exchange.
We expect cost inflation to continue in Q4, however, our proactive pricing actions and productivity improvements are helping dampen the effect on margins.
David will go into more detail on the outlook later in the presentation.
Now, let's turn to slide three where we have highlighted a wide range of recent wins that were made possible by leveraging our strengths in sales application engineering and product innovation.
As well as efficient and consistent manufacturing performance to drive higher levels of customer service.
We posted another major win with an electric vehicle manufacturer in this case, we provided a solution on an additional family of EV components, thus broadening our leadership position in the space. We also saw share gains in wind energy by expanding into other turbine components, reflecting our ability to deliver innovative products for improving.
<unk> productivity.
In mining, we won incremental share of wallet with existing customer after helping them drive productivity improvement in other areas of their business.
In the energy space, a large oil field services company selected us as a sole source supplier due to our ability to optimize a complex product design and consistently manufacturer and.
And finally in process industries, our expertise in additive manufacturing and material science allowed us to shorten lead times and provide greater design flexibility and flow control devices, which drives increased productivity for the customer.
These wins give us confidence that our commercial and operational excellence initiatives will continue to drive growth share gains and improved margins as we demonstrated this quarter and with that I'll turn the call over to Damien.
Thank you, Chris and good morning, everyone.
Who will begin on slide four with a review of Q3 operating results on both the reported and adjusted basis.
We posted strong results again this quarter.
Sales increased by 6% year over year, and 8% on an organic basis with business days contributing positive, 2% and FX negative 4%.
On a sequential basis sales increased by 5% slightly above the normal Q2 to Q3 seasonal trend despite worsening conditions in China due to COVID-19, Lockdowns and the effects on our Shanghai distribution center customers as well as in EMEA and the broader effects related to the Ukraine kind of flip.
As Chris mentioned, we stopped selling in Russia towards the end of the quarter.
The effect was not material in the quarter, but will reduce our sales by approximately $20 million on an annual basis.
Adjusted gross profit margin increased 90 basis points sequentially, and 110 basis points year over year to 32, 7%.
Adjusted operating expenses as a percentage of sales decreased 160 basis points year over year to 27%.
Adjusted EBITDA margin was up significantly by 300 basis points to 18, 3%.
The strong year over year margin performance was mainly due to price more than offsetting raw material increases volume and associated absorption, partially offset by higher manufacturing costs, including COVID-19, absenteeism and higher depreciation.
The adjusted effective tax rate in the quarter was 27, 7% in line with our outlook of 26% to 28%.
We reported GAAP earnings per share of <unk> 42 <unk>.
Versus 26 in the prior year period.
On an adjusted basis EPS was <unk> 47.
Versus 32 in the prior year.
The main drivers of our improved adjusted EPS performance are highlighted on the bridge on slide five.
The effects from operations this quarter were 19.
Including approximately <unk> <unk> of simplification modernization carryover benefits.
The factors contributing to the substantial improvement in EPS year over year are the same as the drivers of our strong margin performance this quarter that I just reviewed.
The year over year quarterly EPS was negatively affected by <unk> related to taxes and negative <unk> due to currency.
Slide six and seven detailed performance of our segments this quarter.
Metal cutting sales increased 5% organically year over year versus flat in the prior year period.
Currency was a negative 5% effect in the quarter and business days was a positive 2%.
On a year over year basis, all end markets, excluding transportation posted gains this quarter with aerospace continuing its strong momentum at 29% General engineering at 10% and energy at 9%.
Although transportation declined by 7% year over year, it was better than expected.
Sequentially, all end markets improved including transportation.
Regionally the Americas led with year over year sales growth of 11% followed by EMEA at 9%.
Asia Pacific declined by 7%.
Last quarter the decline was concentrated in China due to COVID-19, lockdowns, mainly affecting transportation and energy end markets.
As Chris mentioned, we continue to believe underlying transportation demand remains strong and as such we expect that a recovery will follow the resolution of supply chain issues.
Adjusted operating margin increased 290 basis points to 11, 1%.
The increase was driven mainly by favorable pricing versus raw material increases and higher volume and associated absorption, partially offset by higher manufacturing costs, including COVID-19, absenteeism and higher depreciation.
Our growth initiatives remain on track, we are continuing our pricing actions to ensure we price for the value of our products and look to cover the inflationary pressures in the current environment.
Operational excellence is also on track as we continue to drive productivity and leverage our modernized facilities.
Turning to slide seven for infrastructure.
Organic sales increased by 12% year over year versus a 3% decline in the prior year period.
There was a positive effect of 1% due to business days and a negative effect of 1% due to currency.
Regionally the Americas continued its strong year over year growth of 20% followed by EMEA at 13%.
Asia Pacific was flat year over year.
As in the first and second quarters of the fiscal year the strength in the Americas was driven mainly by improvements in the U S oil and gas market as seen in the continued increase in the U S land only rig count.
By end market energy was up 33% year over year.
<unk> was up 13% and general engineering was up slightly at 1% growth year over year sequentially energy continued its strong growth followed by earthworks.
Adjusted operating margin improved by 190 basis points year over year to 12%.
This increase was mainly driven by price exceeding raw material cost increases and higher volume and associated absorption.
As in the case with metal cutting we remain on track with our commercial and operational excellence initiatives.
Now turning to slide eight to review, our balance sheet and free operating cash flow.
We continue to maintain a strong liquidity position healthy balance sheet and debt maturity profile at.
Quarter end, we had combined cash and revolver availability of $773 million and were well within our financial covenants.
In dollar terms primary working capital increased year over year and sequentially to $676 million due mainly to an increase in inventory, resulting from higher material cost the unexpected decline in sales in China as well as strategic decisions on safety stock due to continuing supply chain issues.
On a percentage of sales basis primary working capital was relatively flat sequentially at 31, 2% and a significant decrease on a year over year basis.
Net capital expenditures were $22 million relatively flat year over year.
We now expect fiscal year 'twenty, two capital expenditures to be approximately $105 million slightly lower than previously forecast due to supply chain constraints with suppliers longer lead times and COVID-19 absenteeism.
Our third quarter free operating cash flow was $13 million versus $47 million in the prior year quarter.
The decrease in free operating cash flow is due to greater than expected increase in working capital mainly inventory, reflecting the unexpected and rapid change in the external environment. This quarter that I touched on a moment ago.
We paid a dividend of $17 million in the quarter and finally, we repurchased $15 million of shares during the quarter.
Since inception of the program earlier this fiscal year, we have repurchased $50 million in shares as part of our $200 million program.
The full balance sheet can be found on slide 13 in the appendix.
Now, let's turn to slide nine to review the outlook for the fourth quarter.
We expect sales to be in the range of $510 million to $530 million, which represents a year over year growth range of approximately flat to 3%.
This outlook reflects recent market disruptions, including the broader effects of the Ukraine conflict on sales in Europe , and the elimination of sales in Russia.
In addition, the outlook assumes limited China sales in April through mid May due to the effect of COVID-19, Lockdowns on our Shanghai distribution center in many of our customers.
These disruptions and a continuing negative effect from foreign exchange are masking, what would otherwise be a strong revenue growth mainly in aerospace energy and Earth works on.
On the cost side as discussed on previous earnings calls higher raw material costs as well as well as other inflationary headwinds continue.
We expect to offset them through value based pricing appropriate for this inflationary environment and productivity.
Adjusted operating income is expected to be a minimum of $55 million.
On a year over year basis margins will be negatively affected by lower price net raw favorability this quarter versus the prior year period and higher general inflation. However.
However, it is important to note that sequentially margins will be relatively flat. Despite increasing inflationary cost. This is a solid result made possible by proactive value based pricing and our focus on driving productivity through operational excellence.
On a full year basis, we expect depreciation and amortization to be approximately 135 billion, increasing around $10 million year over year.
Capital expenditures to be approximately $105 million in primary working capital as a percentage of sales to be approximately 31%.
These assumptions together translate to free annual operating cash flow of approximately 75% of adjusted net income below our long term target of 100%, primarily due to higher working capital and lower than expected sales in China and Europe .
And with that I'll turn the call back over to Chris. Thanks.
Thanks, David turning to Slide 10, let me take a few minutes to summarize.
We posted another solid quarter as demonstrated by our strong operating leverage and improving margins, despite the rapidly changing macro environment or.
Our product innovations and commercial and operational excellence initiatives position us well to drive further share gains and improved margins a strong balance sheet and free operating cash flow give us flexibility to continue investing in our long term strategic initiatives, while optimizing our balanced capital allocation strategy.
Looking forward underneath the recent market disruptions, we believe most of our end markets are performing well, particularly aerospace energy and airports.
We remain confident in our strategy and our ability to drive share gains and improved margins and with that operator. Please open the line for questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If youre using your speaker speakerphone, please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Our first question comes from.
Stephen Volkmann from Jefferies. Please go ahead.
Hi, Good morning, guys. Thanks for taking my question.
David I Wonder if you could put a little sharper pencil on your comments around <unk>.
Sumit.
Continuing interruptions around European demand due to Russia, Ukraine, Youre direct business in Russia, and China, how much do you think that is kind of a headwind in your fourth quarter thinking.
Yes, I think Steve good question for Us as we as we talked about the direct sales for Russia.
$20 million annualized so usually a little bit more second half weighted so let's call that five to 10, 5% to $7 million of a sequential headwind.
When we look at China, what we've seen and what we've been able to ship.
In April and our assumption that it will be limited through mid May I would tell you that thats affected our sequential sales in the range of $10 million to $15 million. So those would be the ones that were sort of quantifying.
There's a little bit of an indirect in Europe , as well related to things like supply chain challenges for automotive smaller and then I think the other point that I would highlight is we talked on the FX and if you think about FX sequentially from Q3 to Q4 and where the dollar is we would estimate that's about $5 million to $7 million of a sequential headwind as well.
So when you put it all together I would say 20% to $30 million.
In effect relative to what we thought when we talked about three months ago.
Okay, Great that's helpful.
Hi, Chris.
Yes.
I think the consensus that we had.
<unk> talked about on the last call was.
Fourth quarter somewhere around $543 $5 45.
That puts us right in the middle of where we thought we'd be when we started the quarter and then.
The Russia, and China, Lockdowns, obviously, we didn't anticipate that.
Understood and then as a follow up it seems like things are really starting to take off in <unk>.
In the energy oil and gas and mining et cetera, it's been a while since that's happened can you just remind us I guess I'm expecting that should be a strong positive mix for you in.
In those end markets, but can you just comment on whether that's still the case and how we should think about that for 'twenty three.
Yes, I think energy in both energy and mining energy in particular is certainly a positive mix for us.
And mining is also.
More from the perspective, maybe not so much historically, Steve our mining Adjacencies and some of the areas, we're expanding into as we're doing that we're.
We're realizing our value proposition is pretty sound and so we think that that that type of business could actually be more profitable than historical so.
Are those just in simple terms the answer your question answer your question what would be a positive mix for us from profitability perspective.
Great. Thank you.
Yes.
The next question comes from Steven Fisher from UBS. Please go ahead.
Thanks, Good morning.
When you add up the puts and takes can you maybe just kind of at least directionally give us a little help on what youre assuming in Q4.
For metal cutting versus infrastructure, he is organic growth and volumes.
Yes, Steve we don't really give any specifics.
By business unit, but I think if you look at the the outlook. We gave you in the sequential and you use the midpoint right, it's going to be up modestly I think what you can assume and knowing our business as we do see a sequential improvement in infrastructure from Q3 to Q4 related to the road construction season.
So again I think what you'll be seeing is that as an unnatural.
Increase there I think everything else would sort of fit within that that overall outlook that we gave you.
Okay, and just to clarify the China comment what have you assumed sort of for the second half of the quarter after mid may.
Yeah, So our assumption right now.
<unk> mentioned on the call or the prior conversation is that we've assumed about a $10 million to $15 million reduction in sales here in the first half of our fiscal fourth quarter versus the third quarter. We would expect that our warehouse would begin to open here in mid may and our customers would reopen.
And we would start to resume sort of I'll call normalized sales, we don't expect any sort of recovery in the sales that we have lost here in the first half of this quarter related to the warehouse being down and the customers, but we sort of assume normal in the back half.
Okay normalizing got it and then just lastly, you mentioned the.
Transportation was better than expected can you just kind of give us what your expectations were and maybe kind of what drove it better than you expected was that something operational internally or was it just the market and your expectation for the market. It was just much worse and then maybe you could just level set for for Q4. Thank you.
In terms of transportation are.
Our expectation was the transportation actually will be flat sequentially and it was a little bit stronger and I think thats just reflective of the fact that in general the supply chain bottlenecks. There is still there for sure in transportation, but they started to recover better than better than.
We thought.
And then our expectation for Q4 is the transportation will still still kind of remained flat.
The good news is theres, some signs that the chip issues starting to.
Starting to resolve itself.
Fortunately as Warren Ukraine has caused significant disruptions with wiring harnesses and stuff and it's caused some shutdowns of.
Production.
But the car companies are clever and they're working through we're working through all that but.
But we think the right.
Rate estimate for transportation Q3 to Q4 is still there's still to be flat.
And depending on how well the fix some of these things there could be some upside to that.
Our next question comes from Julian Mitchell from Barclays. Please go ahead.
Hi, good morning.
So just wanted to start off on the operating margin front. So as you said I think your guidance implies operating margins year on year or down.
140 bps or so.
With flattish.
Sales, so just trying to understand.
Is all of that decline sort of price.
Yes net of cost and then how do we think about that decline all of that pressure on margins playing out beyond the current quarter. When you look at sort of spot input costs and the price measures that you're pushing through what impact does that have maybe looking out to.
December .
Yes, Julian I think.
Terms of the year over year difference.
The Big driver was the price raw favorability is less in the fourth quarter. This year than it was last year and then general general inflation those are the two.
Big drivers.
And then I would say in terms of the reason to Daymond emphasize a point that we maintain flat margins sequentially.
Is because we.
We believe that our pricing actions, which we have been proactive as you know we've gone we soybean price.
Positive price raws.
Throughout the year and so that was part of our pricing strategy plus we're driving productivity.
And we expect to.
As we go through through next year or two.
To do the same thing and make sure that our pricing actions are commensurate with the inflationary environment, we have and will continue to drive productivity.
Which is again why we are emphasizing keeping.
Keeping the margins flat in this environment actually was.
Positive and was a proactive action on our part.
And then just from a sort of a year on year standpoint, do we think that this is the quarter of sort of maximum pressure year on year from price cost and inflation and then it eases sort of gradually beyond this quarter.
Alright, I think Julien the answer as well.
About the absolute Delta in what we were positive price versus raws. If you remember we were very positive in the first half of last of this fiscal quarter and we've talked about the increasing cost continuing to flow into our P&L and we periodically priced we see that improvement, but as I think about the first.
Half of next year, we know these material cost and other inflationary costs are continuing to increase sequentially, which is what youre seeing in the quarter here. We know that will continue into the first half and it will continue to squeeze that price versus raw benefit. We saw last year will be bigger last year, then it will be in the <unk>.
In the flooring in the forthcoming quarters here.
Again, as Chris said, we're going to maintain our diligence on pricing for value and trying to make sure that we're doing our best to offset these inflationary costs and keeping margins flat in the fourth quarter is an example of our aggressiveness in looking to do that but again I think you've got to remember what we had in the first half of last year or this current year and how we were.
<unk> positive price versus raws.
Thanks, very much and then my follow up David maybe this is one for you just around.
Working capital because I think that a lot of companies have complained about super strong revenues and demand putting upward pressure on working capital and that's hurting cash flow.
Now it seems the sales are falling a bit short and that's also putting upward pressure on working capital and downward pressure on free cash flow. So maybe help us understand sort of from here.
How that plays out in your inventories I think it plays to a high 20 share of revenue.
How long does it take for those to get back to that low twenty's historical rate.
Yes.
Julien for US here, if you look in the quarter. Our inventory went up just around $30 million from Q2 to Q3, and our working capital as a percentage of sales is right around 31% and as I said on the scripted portion we would expect that to sort of either at the at fiscal year end is right around.
30, 31%, but if I think about what happened this quarter there was a couple of things.
And you know in our in our inventory our finished goods a lot of that is ordered and shipped very quickly. So we are we've talked about having the right inventory to ship and with what's happened here in Russia, and China. We have built that inventory that's now sitting in our in our finished goods and looking for alternative homes for that but in addition to that as these Ms.
<unk> costs have continued to increase through the quarter. That's increased the overall value of our inventory and as we look at where tungsten prices are right. Now we know that will continue to increase the value of inventory as we move into the fourth quarter as well. So those are probably two of the biggest drivers influencing the overall working capital.
<unk> the third one as we've said this before we are being very careful to run our operations and we made some decisions to strategically add some some inventory for certain materials here in the third quarter and that was probably the third component.
Our goal is to try to get closer to this 30% of sales, but again, a lots going to depend on that top line is we need to continue to see the markets continue to recover but we think 31 for around 31 for the fourth quarter, and then sort of hopefully trending around that to lower to <unk>.
As revenues continue to improve.
Julian I would just add that the.
So Damon mentioned the.
Sales that unexpectedly went away for the reasons, we talked about.
Operationally what that means is since you already loaded the factories.
Months in advance of that and we're producing that at higher level.
We are we are modernizing we're lean but for our factory to make that kind of adjustment is going to take several it's going to take several months to sort of work through that so as the suddenness of the sales coming away that it was a big driver in the inventory increase.
That's very helpful. Thank you.
The next question comes from Tami Zakaria from Jpmorgan. Please go ahead.
Hi, good morning. Thank you so much for taking my questions.
So my first question is on Incrementals can you help us understand how to think about incrementals for the next fiscal.
More specifically raws prices.
Where they are.
Do you expect to realize sort of the normal incrementals and the full fiscal.
<unk> of next year or or how should we think about incrementals in the first half versus the back half.
Yes, let me just I'll make a couple comments on the price versus raws.
That's something that we have a long history of being able to stay ahead of and so.
As we operate the business going forward, that's something we still expect as David and I, Both said will well it's connected to at least be neutral on price raws.
As we can going forward through our proactive pricing actions.
And then I think Tammy to think about in terms of the Incrementals.
We're we're in a higher inflationary environment than historically, we've been in all companies are experiencing that and so I think the thing to keep in mind is that.
As we adjust price to offset these raw materials and higher and higher.
General inflation.
Prices price becomes covering cost becomes a larger portion of our revenue as we've said before.
That doesn't lever.
And what we need what we need in the factories to lever is actually revenue that generates more pieces through the factories.
A good portion on our modernization. We've got these factories that are already too ready perform but they need more peace volumes. So as Youre doing your model you got to factor in more of our growth comes from price covering.
Covering costs thats not going to lever it.
B the revenue portion that generates more volume through the factories.
To add anything to that David I think youll ever point, I would add Tammy, especially in the first half of fiscal 'twenty, three and no different than what we've talked about here in Q4 of 2000 and for US given the positive price versus raws in the east and the very strong operating leverage we saw in the first half of this year again, when you adjust for those temporary cost actions that were in.
Effect, a year and a little bit over a year ago, our leverage in the first half of this year was very strong, which we alluded to being positive price versus raws and so again in any quarter. When you look at Q1 of 'twenty. Three you have to factor that in as you think about that quarter leverage year over year.
Understood. Thank you so much.
The next question comes from Dillon Cumming from Morgan Stanley . Please go ahead.
Hey, good morning, guys. Thanks for the question, maybe if I can state Atlantic question again 23 for a second X transportation is still feels like the bulk of your end markets are still some improvement sequentially in the fourth quarter I'm.
Hoping we get some normalization in China, essentially Europe over the next few months, but sitting here today are you able to underwrite at 23 is a growth year over year volume perspective, I know, Chris you still kind of alluded to the incremental contribution from pricing, but would be curious from a volume perspective, what your view is going into next year.
Yes, I think we're obviously not giving our FY 'twenty three guidance, but.
Just a little color on on transportation for example, we think that the.
The demand pattern is still strong there there is a lot of pent up demand and so.
The supply chain issues, the fact that they've gotten worse here because of the Ukraine and a little bit on Covid in China.
Those will eventually rectify themselves so we feel good to transportation.
Still has runway ahead of it to grow.
I don't see the energy situation in.
And.
Some of the mining improvements I don't think those are short term I think thats going to continue to trend in the right direction, and then transportation or excuse me aerospace has not recovered to pre pandemic levels.
So I think we still feel pretty good about that growth trajectory there and.
And also general engineering.
A portion of that is obviously affected by transportation, so that will that will improve as transportation improves and if we look around the world.
Most of the Prognosticators still have expanding.
Pmi's in manufacturing indices. So we think we think there's the opportunity for growth through both next year at this point.
Got it yeah, that's global color. Thanks, Chris and then maybe just my last one a question on kind of customer inventory levels, I guess theres been some weapons like airports and the channel with regards to customers essentially holding more inventory than needed for the same reason I think kind of metals and holding higher safety stock over the last few quarters here I think you've been clear in prior quarters that you've never really seen a restocking.
Kind of curious your view around that dynamic.
Yes.
I wouldn't I wouldn't call. The we haven't seen we haven't seen a normal restocking that you would see when.
These type of businesses typically come out of.
Downturn, but.
But we do see it general inventory build in some regions.
But generally as we've said before there's still reservations on customers, they're being careful about how much of that inventory build.
<unk>, obviously those that are.
Our supporting things like medical aerospace and process industries, which tend to be a little less cyclical Warner growing that's probably where that inventory build is being done to support it.
And then I would say on the infrastructure side the customer level.
Customer inventory I'd say sort of stable.
It's kind of normalized across markets based on the demand they see so again not not the normal restocking you would see especially in metal cutting.
But where there is.
Positive growth trajectories that are that are pretty solid and long term like in medical and aerospace and some of the process industries, I think thats, where its whats happening.
Got it appreciate the time.
There are no more questions in the queue. This concludes our question and answer session.
Like to turn the conference back over to Chris Rossi for any closing remarks.
Thanks, operator, and thanks, everyone for joining the call today.
This quarter I think is another proof point that our strategic initiatives are working.
Sure.
We feel very good and confident in the investments that we've made as a company to modernize our factories.
To demonstrate the return on those investments and the profitability improvements possible as we drive higher volumes through these factories.
Always we appreciate your interest and support and please don't hesitate to reach out to Kelly. If you have any questions have a great day. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
[music].
Yes.
[music].
Okay.
Okay.
Okay.
Okay.
Okay.
And.
Okay.
Okay.
Yeah.