Q1 2024 Donaldson Co Inc Earnings Call
Good morning, and welcome to the Donaldson in the fiscal first quarter 'twenty 'twenty four earnings call.
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Yeah.
I will now turn the call over to circa Dod wall head of Investor Relations. Please go ahead.
Good morning, Thank you for joining Donaldson's first quarter fiscal 2024 earnings conference call with me today are Tod Carpenter Chairman CEO.
And President and Scott Robinson, Chief Financial Officer. This morning ton Scott will provide a summary of our first quarter performance and details on our outlook for fiscal 2024.
During today's call, we may discuss non-GAAP or adjusted results.
Prior year period first quarter fiscal 2023, non-GAAP results exclude restructuring and other charges of seven 6 million and a reconciliation of GAAP to non-GAAP metrics is provided within the schedules attached to this morning's press release. Additionally, please keep in mind that any forward looking statements made.
During this call are subject to risks and uncertainties, which I described in our press release and SEC filings with that ill now turn the call over to Tod Carpenter.
Thanks Darko.
Morning, everyone I am pleased to report our first quarter earnings results, which demonstrate our continued ability to deliver to our customers and shareholders.
Spike overhanging macro uncertainty.
This quarter, we reported consolidated gross margin at nearly a decade high driven by our team's efforts on strategic pricing deflation in select input cost mixed benefits.
Plant productivity, we focused on executing and.
And growing each of our three operating segments.
The groundwork for a record figure.
So 2024.
And mobile solutions, despite volume weakness from softer end market conditions, we delivered strong profit margins driven by strategic pricing select input cost deflation mix benefits and strong client performance.
Our industrial solutions business continues to outperform from a top and bottom line perspective.
Our create connect replace service business model has allowed us to first create high quality first fit solutions through innovation and the addition of connected features.
Second connect solutions through next generation Gateway and controllers.
In fiscal 2023 aftermarket sales growth from connected customers outpaced that of non connected industrial customers and we launched the connected modeling, India, Thailand and China.
While we're in the early innings as of the first quarter, we have seen strong growth in the new connections as compared to prior year.
Lastly, we are replacing and servicing equipment through our one stop shop approach and service capabilities across the full range of industrial solutions businesses.
Overall, we are gaining market share in industrial as we penetrate key end markets and expand geographically.
For example, our power generation business drove results this quarter as we benefited from recent customer wins, including large turbine projects in Asia and the middle East.
Aerospace and defense also had a strong quarter and we've increased our outlook for the year, which Scott will discuss later as wins in cabin air filtration, including a major OEM win positively impact results.
In life Sciences as expected, we saw sequential improvement in our operating performance, we continue to invest and build the foundation needed to gain share in these highly attractive high margin markets by leveraging our competitive strength and global reach and our pipeline of opportunities is growing.
Now I'll cover some consolidated highlights.
Sales of $846 million was flat year over year as volume declines were offset by pricing benefits currency was also a slight tailwind.
Volumes were negatively impacted by OEM aftermarket destocking.
<unk> end market weakness and continued pressure in disk drive.
Conversely.
Pricing remained a benefit as we added value for our customers and strategically offset ongoing inflationary pressures such as labor rates and energy costs.
EPS in the quarter was 75 flat to prior year as gross margin gains and favorability in other income were offset by investments in strategically important growth areas, including our life science business.
One of the highlights this quarter was the strength and resiliency of our best in class operations, one of Donaldson's key competitive advantages as always our focus remains on working down our backlog and improving our fill rates and on time delivery rates as supply chain conditions have improved.
We have been able to return to the company's long standing focus on operational excellence and effective cost management.
While we execute today, we continue to invest for the future through our Capex and R&D investments.
With respect to Capex, while capacity investments continues to be the largest portion as we prepare for future profitable growth. We're also focused on cost reduction initiatives and the further commercialization of our life Sciences acquisitions.
Our strong cash flow generation combined with the strength of our balance sheet allows us to continue these exciting investments and drive towards our long term strategic objectives.
Now I'll provide some detail on first quarter sales.
The company sales were $846 million essentially flat to prior year pricing was an approximate 3% benefit.
And mobile solutions total sales were $540 million a.
A 3% decline versus 2023 pricing added 3%.
Within the mobile segment performance continued to be mixed.
<unk> sales of $95 million were down 9% due to weakening end market conditions, including in China.
The agriculture markets within the Americas and India.
Aftermarket sales of $408 million were down 2% year over year driven entirely by the OEM channel.
As anticipated Destocking from OEM customers continued in response to normalizing global supply chain conditions that said, we are now starting to see a stabilization in order patterns and believes the destocking is largely behind us.
And our independent aftermarket channel sales increased 3% year over year.
Sales in our on road first fit business up $38 million grew 5% driven by elevated levels of on highway equipment production, particularly in China.
Now I will touch on China as a whole within mobile solutions as it continues to be an important market for us sales declined 14% versus 2023 and declined 11% in constant currency conditions within the country continue to be very challenging given the weak broader market conditions.
Particularly with respect to off road.
<unk>, our long term view remains positive given the market size and our opportunities to gain share.
Turning to the industrial solutions segment.
Industrial segment had another robust quarter as sales increased 7% to $246 million pricing added, 2% industrial filtration solutions or ISS sales grew 7%.
$211 million, driven by strong dust collection and power generation sales.
Aerospace and defense sales rose, 6% due to another quarter of defense sales strength.
On the life Sciences segment life Sciences sales was $60 million, a 4% year over year decrease driven primarily by anticipated ongoing disk drive market weakness.
We are seeing early signs of a slow demand recovery and expect a sequential improvement in disk drive sales through fiscal 'twenty 'twenty four as data center and cloud computing demand recovers.
Along with growing our legacy life sciences businesses, including food and beverage we are focused on scaling our acquisitions and look forward to detailing how these are contributing to our growth in the quarters to come.
As we close the first quarter of the year I am proud of our hardworking Donaldson employees around the globe I'm continually impressed with their dedication to our customers their fellow employees and to our mission of advancing filtration for a cleaner world through our ongoing efforts, we are well poised to deliver value to <unk>.
All of our stakeholders in fiscal 2024 as such for the full year. Our outlook is unchanged as we forecast total sales operating margin and earnings at all time high levels.
Now I'll turn it over to Scott, who will provide more details on the financials and our outlook for fiscal 'twenty for Scott.
Thanks Todd.
Everyone.
Our first quarter results serve as a solid foundation for us to build upon throughout fiscal 2024 and beyond.
I would like to thank our outstanding global teams.
I am so impressed by and proud of the way.
They once again came together executed and delivered solid results.
Donaldson has the right people and strategy in place to drive the company towards our fiscal 2026 financial and strategic targets.
I will provide color on our outlook for fiscal 2024 in a few minutes.
First we will give additional details on our results for the first quarter in summary.
Sales were flat versus 2023.
Operating income decreased 2% from the prior year, largely driven by ongoing investments in our life Sciences segment.
And EPS of <unk> 75 was flat year over year on a comparable basis.
Gross margin was 35, 6%, a 170 basis point improvement versus the prior year.
<unk> was the largest driver of the improvement followed by benefits from deflation upgrade and slack material cost and mix.
Operating expenses as a percent of sales were 28% compared with 18, 9% a year ago.
Deleveraging of operating expenses in the quarter is due to increased hiring related expenses and notably nearly half of deleveraging continues to be for the incremental expenses related to the scaling of our life Sciences acquisitions operating margin was 14, 7% down 30 basis points versus 2023.
Three as operating expense deleveraging more than offset the year over year increase in gross margin.
Now I will discuss segment profitability mobile solutions pre tax profit margin was 17, 1% up 260 basis points year over year.
By gross margin expansion, resulting in large part by pricing and deflation of slack input costs.
Also as Todd mentioned earlier mix and strong plant productivity contributed.
Industrial solutions pre tax profit margin was 17, 6% up 120 basis points as a result of leverage on higher sales.
Life Sciences pre tax losses of approximately $4 million, including the headwind from acquisitions of roughly $11 million pre.
Pre tax profit margin was minus 7% versus minus 12, 4% in the fourth quarter and compared with 17, 2% a year ago incremental.
Investments in our acquisitions continued to negatively impact results. However, through our commitment to long term profitable growth, we are investing for the future and look forward to seeing these businesses scale.
Turning to a few balance sheet and cash flow statement highlights first quarter capital expenditures were approximately $23 million.
Cash conversion in the quarter was 125% versus 97% in 2023.
Conversion was above average driven by operating performance and focused working capital management.
In terms of other capital deployment, we returned approximately $84 million to shareholders inclusive of $30 million in the form of dividends and $54 million in share repurchases.
Accordingly earlier this month <unk> board of directors authorized a new share repurchase program, which replaces the previous plan.
New plan allows for the repurchase of up to 12 million shares of common stock or approximately 10% of shares outstanding.
Our strong cash flow generation and disciplined capital deployment allows us to maintain a healthy balance sheet, our net debt to EBITDA ratio was.
Was <unk> seven times at the end of the quarter.
Now moving to our fiscal 'twenty four outlook.
First on sales.
We continue to expect full year total sales to increase between 3% and 7%.
Which includes pricing.
Of approximately 2% and currency translation benefit of about 1%.
Our mobile solutions, we are forecasting a sales increase of between 1% to 5% consistent with our previous expectations within mobile we now expect off road sales to be down mid single digits versus our previous expectation of up low single digits as end market conditions, particularly in China and agriculture.
Markets within the Americas, and India have shop at <unk>.
<unk> sales are forecast to be flat versus up low single digits previously due to weaker than expected on highway vehicle production our outlook for the aftermarket is unchanged.
Strategic pricing benefits and market share gains are expected to drive mid single digit growth over prior year.
For industrial solutions sales are expected to increase between three and 7% in line with our previous guidance.
<unk> sales are forecasted to grow mid single digits as strong overall demand and market share gains and dust collection and power generation drive results.
Aerospace and defense sales are projected to increase mid single digits, an improvement from the previous negative low single digits expectation due to a robust end market conditions and market share goals.
In life Sciences, our sales and profitability expectations for the year are unchanged.
We're forecasting sales growth of approximately 20% driven by geographic expansion in food and beverage.
The scaling and mature Asian of our bioprocess equipment, and consumables businesses and a return to growth in the disk drive business.
We expect full year fiscal 2020 for our life Sciences pre tax profit margin to be positive and are committed to our longer term life Sciences Investor day targets.
Consistent with our previous guidance total company operating margin is expected to be within a range of between $14 seven and 15, 3%, which at the midpoint is up 40 basis points year over year improvement from adjusted operating margin of 14, 6% in fiscal 'twenty.
23.
Year over year gross margin expansion is expected to be the driver of the improvement.
Touching on gross margin cadence for the balance of the year. Our first quarter performance was very strong as we look to the remaining quarters, we expect year over year gross margin expansion. However, we will likely see a sequential step down, particularly in the second quarter due to typical seasonality and a slight moderation.
<unk> and pricing benefits versus the prior year.
For the full year higher operating expenses as a rate of sales our forecast are partially offset gross margin strength.
It is worth highlighting once again that our operating margin guidance represents a record for Donaldson and we're particularly proud of this given our ongoing commitment to investing for the future, including in our life Sciences segment.
In terms of EPS, we are reaffirming our guidance of a range between $3 14.
And $3 30.
Up from $3 <unk> in fiscal 2023.
In summary, we are committed to delivering higher levels of profitability on higher levels of sales to our shareholders in fiscal 2024 and beyond.
Now onto our balance sheet and cash flow outlook cash conversion expected to be in the range of 95% to 105% above our historical averages are capital expenditures forecast of 95 million to $115 million is heavily weighted towards growth initiatives in all three segments.
In terms of other capital deployment priorities. Our strategy has not changed we continue to focus on reinvesting back into the company through strategic acquisitions and are committed to returning value to our shareholders through dividends and share repurchases now ill turn the call back to Todd. Thanks.
Thanks, Scott as we look to the remainder of the year and beyond we are focused on continuing to invest and execute on our long term strategic initiatives all aimed at building upon our position as the leader in technology led filtration.
We are confident in our balanced growth strategy and in the fiscal 2026 financial targets, we laid out at Investor day, our organic growth continues to be fueled by our R&D investments, which we expect to increase more than 20% this year.
With respect to our inorganic growth, we are integrating and working to scale, our life Sciences and services acquisitions, and our healthy balance sheet continues to afford us significant flexibility in pursuing additional strategic M&A in those areas. Our purpose of advancing filtration for a cleaner world does that.
At the forefront of our growth and everything we do importantly, this purpose serves as a foundation for our sustainability strategy and through our company principles. We continue to work towards delivering on our 2030 ESG ambitions. These.
These principles include.
One operate sustainably, we're working everyday to do our part to help mitigate impacts from climate change to operate safely. We aim to provide safe and healthy workplaces for our global employees three engage and empower employees were dedicated to advancing opportunity in equity at.
Donaldson and four enrich our communities, we continue to prioritize our commitments to positively impacting our communities with charitable giving through the Donaldson Foundation.
In closing I would like to thank the entire Donaldson team through their demonstrated agility ability to operate in any environment and dedication we have and will continue to return value to all our stakeholders.
With that I will now turn the call back to the operator to open the line for questions.
Thank you as a reminder, if you would like to ask a question. Please press star one.
Your first question comes from Bryan Blair with Oppenheimer. Please go ahead.
Thank you good morning, everyone.
Good morning, Brian.
I was hoping for a little more color on how you see mobile aftermarket savings through the year.
Some pressure to start.
It was expected given the OE channel dynamics, but do you know to stabilization. There. So that's certainly positive comps obviously he's going forward.
Should we see aftermarket returned to solid growth in fiscal <unk> or is it more of a.
Back half from collection that's contemplated.
Yes, so as we've talked about before on the OEM channel relative to aftermarket.
Been going through an extended period of Destocking.
Driven really on a customer customer by customer basis, which prolonged it.
Overtime, we believe that we are largely through that piece at this point.
And as we as we look now forward sequentially, we would suggest that it's going to go up.
Driven by the overall share gains on the independent channel and the stabilization of the OE channel.
Yes, I appreciate the color.
Gross margin was obviously excellent in the quarter, Scott said that we should expect there'd be some moderation from these levels.
Could you offer a little more detail there.
Isn't that a assay.
Just very simplistically looking forward volume should be.
Stronger.
Really going into the back half for your typical seasonality and I assume there'll be more favorable mix.
Looking for a little more quantification, if youre willing to offer them.
Sure I can try to help you out of it. So obviously $35 six is a really good number for for Donaldson, we kind of had.
All things heading in the right direction this quarter, which is great we had a good.
The cost picture really good plant performance, we had a good mix.
Things really all came together for us this quarter and a longer term, we obviously see opportunities to mix, our company's gross margin up and that's something that we're going to we've been talking about for a long time and we continue to work on it and you're seeing some green shoots of that I don't think $35. Six is is necessarily sustainable in the very short term.
So we said we expect that.
It is sequentially stepped down, but we'll still have year over year margin improvement throughout the year. So we feel good about where the margin landed for the quarter. We will have year over year gross margin improvement this year and just sequentially, we're going to step down a little bit from this quarter.
Okay understood.
Just sticking with the margin.
For some finer points on.
What youre anticipating by segment for the year you did specify that life Sciences is expected to get to a positive level.
Started out.
Rather strong the legacy segments.
I'm curious how.
The segment outlook shakes out for you.
Yes.
You said the first thing we said is we expect the life sciences business to to get to.
Breakeven this year. So they are sequentially improving sequentially improved from Q4 to Q1, and we expect continued sequential improvement as they scale. We want to continue invest there we feel really good about where we're headed and some great opportunities that the team is working very hard on.
Our other two businesses had a strong quarter good solid performance and.
It would be a lot to expect a 35, 6% gross margin going forward. So like I said, we don't we don't expect that but we do expect a 40 basis point improvement.
<unk>.
Driven.
By all of those factors through the year that'll get us to a good point for the company.
<unk>.
About a third of our way towards our Investor your targets after year, one so I would say, both mobile solutions and industrial will contribute to that improvement.
Keeping in mind, we want to continue to invest in future growth.
Understood. Thanks again.
Thanks, Brian Thanks, Brian.
Your next question comes from Nathan Jones with Stifel. Please go ahead.
Good morning, everyone.
Good morning Nathan.
I'm going to push a little more on the gross margin and pace of the business.
I know you guys had some initial trouble with pricing with your OEM customers on the mobile side, which is not unusual for them.
And obviously, realizing some of that price now seeing some deflation.
Part of this strategy there had been to hold on to that pricing.
If you saw some deflation I'm looking for a little bit of commentary on on your ability to hold pricing in a deflationary environment.
I would also imagine that is life sciences ramps up as we go through the year that would be a tailwind to mix.
So I'm just looking for a little bit more color on outside of the seasonality in the second quarter.
What are the headwinds to gross margin that may be made that 35 six.
Not sustainable for the full year.
Yeah. So I mean, I think you kind of covered it relatively well in your question, we certainly expect.
All our slow and steady mix improvement in our gross margin. So we want to continue to execute on that plan.
Like you said, we've worked very hard on pricing and in some cases its taken us.
While to get pricing, where it needs to be we've only included in our guidance at 2% price increase this year. So certainly.
Price increases are leveling off as kind of the world comes back into balance we see some of our larger customers are still increasing their prices at a pretty good rate.
And we want to have a reasonable commercial discussion with all of our customers on pricing and certainly we've never taken advantage of any situation that really pushed pricing, we want to have reasonable commercial relationships with both our suppliers and our customers and so just like on the upside.
We're going to manage it if things trend down some commodities are down as you noted, but media is still up and other costs are still up so we have to manage the price equation on a consistent basis, we certainly want to be fair and expect fairness on the other side as well and we're going to continue to manage it and update you each quarter honor.
Price impact that we can deliver.
Things go Crazy Opera Crazy down obviously, we have to adjust as we've done recently.
And we're going to continue to manage that.
What we consider to be a fair and equitable manner.
Yes, maybe just a quick at the relationships that we have with the customers I think what really hurt. So badly is the degree of change that we experienced through this past cycle.
And now as we as we March forward were hoping that the overall range of change would be much.
A much smaller than what we've experienced so we don't get the larger swings, which will allow us to really have a more normal type of a pattern on the up and down.
And as Scott appropriately said, we're just looking to have.
Good.
Their commercial relationships with our customers and we'll continue to work to do that.
Thanks.
Life Sciences.
To get to 20% growth, you're obviously getting a major significant sequential ramp up as we go through the year in revenue.
Last four quarters have been pretty stable at about $60 million.
Revenue that can you talk about how we should think about the cadence of the ramp up through the year.
And most of that ramp up is driven by that.
The actual life Sciences pace.
Finishing the capacity adds and starting to ramp up volume.
Can you just talk about how we should think about that is as it goes through the year to get to that 20% growth number.
Sure, it's a sequential step up Nathan.
It goes from.
A very broad based approach, particularly notable in some of the larger projects that we have in the bio processing world that will ship in the back half of the year.
As well as more of a stabilization looking and looking forward crawling forward. If you will in our disk drive based businesses and some of our traditional.
Also wins within.
More of our venting applications.
Type of type of programs, but within the bioprocess ing side, clearly we will be stepping forward on.
On the back half of the year. So I would say, it's very broad based and life Sciences.
And you'll see us.
Have a sequential improvement looking forward and that the backlogs do support the current guidance.
Last one from me on <unk> projects.
It's been a while since I've heard you guys talk about winning large turbine projects I know it'd be something that <unk> been de emphasizing because the margin profile wasn't accurate.
Can you talk about.
Whether or not you've managed to make these projects something that's.
Solid margin for the business or how these came about.
Been a while since we've talked about any of those things.
We talked about some years ago that we were changing our strategy and really entering a very disciplined approach.
Relative to those larger larger projects and that we fail, we felt that we were not getting.
The overall profitability for those projects.
And so we backed down.
Obviously.
I would tell you. We also said that should we win large turbine projects. It will be on our terms and I can tell you we remain very disciplined.
In that regard and.
And so consequently, we're very happy with the large turbine project wins, because they are on our terms.
And frankly, they are fair with the with the customer relationships and what we would expect to.
Profit with that type of a business it is.
In the neighborhood of <unk>.
At this point in time this year of about.
30 ish million.
Give or take a little bit.
And so we're really happy with where we are.
Okay, great. Thanks for taking my questions.
Next question comes from Rob Mason with Baird. Please go ahead.
Hi, yes, good morning, thanks for taking the questions.
Todd you described them mobile aftermarket business growth.
Mid single digit growth for the year kind of driven by price and market share gains should.
Should we infer that volume is neutral there oil volumes be down.
No volumes will be up driven by the share gain that we have clearly.
Across the independent channel so the independent channel is driving the up.
And then the stabilization of the OEM channel.
And lapping that Destocking activity is really what what.
What what gives us.
That.
Kind of a kind of an outlook. If you will and if you just if you just look at what happened year over year first quarter. The OEM channel was down high single digits, the independent channel up obviously low single digits.
But looking forward.
We would expect now because we lap the OEM destocking that will be up year over year and then on the independent channel will continue the share gain momentum that we have.
Okay. So the sheer gain impact an independent that is youre already seeing that because.
Frankly aftermarket seasonally was better than typical seasonality fourth quarter to first quarters. So I'm just curious that's all share gain rob, but I'll share gain.
Very good.
Maybe I'll get my gross margin question as well just maybe more pointedly is.
It was 30 35 handle on fiscal 'twenty for gross margin I mean is that a is that a likelihood.
Possibility.
35.0 or 35 nine.
So we did 35 six rate in the quarter. We said, we're going to sequentially stepped down but we are going to have Qs two three and four we should pretty much have year over year gross margin growth. So I'll, let you triangulate it work your calculus from there sure.
Okay very good thanks.
Just last question just you did tweak the off road.
As well as the on road.
Guidance lower understandably I think just given what we're hearing but.
If I think I know the comps ease in off road for the balance of the year, but.
Think about that trending out just in revenue dollars. It seems to suggest that revenue dollars go up from here.
That's maybe counter a little bit of what we're hearing from some of the producers I'm just curious if.
The level of visibility around that as you would think about for the balance of the remaining three quarters.
Yes, if I just talk about the R&D up.
Start with the on road, Yes, we did go from up low single digits to flat.
I want to point out that it's kind of nuanced. So we were up like plus one and now were flat and so the overall dollar value of that is like zero to $5 million. So it is not a lot of movement across the models on the on road sector and so we would tell you that the on road sector.
Really is is kind of behaving.
As expected, it's just a nuance if you will and then within the within the off road sector. We did bring the off road sector down as in our remarks.
Commented by are really highlighted by the AG pressures that we're starting to see however.
However, within the model the second half in off road is higher than the first half.
So I'm not sure you have your model that way based upon the question, but it's important to be that on a dollar basis.
Yes.
Yes that was the inference that was the case, but I was just.
So youre seeing those pressures.
And off road now but.
Production rates improve.
Yes.
But you have to have to realize that we're talking about.
$48 52, first half second half type of type of company and based upon what we're seeing we have that type of a type of a model.
Built ahead of us in that.
That's kind of how we how we built it out and projected it.
Understood. Okay very good thank you.
Your next question comes from Brian Drab with William Blair. Please go ahead.
Hi, Thanks for taking the questions.
You, obviously had stronger performance in the aerospace and defense.
Segment.
And some.
Some share gains and wins there can you just elaborate on that.
Hi.
That win on the aerospace side or more on the defense side it sounds like.
Aerospace and.
And.
Kevin Air.
Niche of the market, where <unk> had a presence for a long time. So can you just elaborate on what's happening there.
Yes, it's rotorcraft.
So it's new programs come on board with <unk>.
Now, we're delivering rotorcraft based.
Project.
That is a very long term program. So we would expect that.
New program to deliver for for many years to come.
Okay.
Is that within our defense program or is that commercial.
Yes, 853 K helicopter.
Great Okay.
And then.
Would you be able to provide an update on some of the bio processing pipeline stance that you've shared in the past you talked.
Recently about.
Having 20 customers prospective customers I guess.
Pipeline of over $200 million in revenue and you mentioned, 20% of the pipeline past technical approvals.
How is that going and could you update any of those metrics yes.
Yes, just generally Brian I would tell you that it continues to grow for US we still have.
A really robust pipeline the pipeline in the last quarter did grow we continue to add out our sales staff touching more more customers and touching far.
Far more important than that more laboratories that those customers. So so we're really pleased with the progress that we have.
Sure.
And we really have we really have great momentum, though we are not prepared to update those numbers.
At this point in time I would just I would just tell you.
With certainty the numbers are higher.
Thank you is some of the <unk>.
<unk> processing revenue starting to hit than in fiscal 2004 in a meaningful way such that that's influencing your.
Forecast for life Sciences up 20% for the year after being down four in the first quarter.
What we have what we haven't been bio processing side, particularly related to the acquisitions that we have for example in Universal's technologies in Soliris et cetera is baked into the current guide there is bio processing deliverables.
On the revenue.
Within the guide for sure.
Okay.
Okay, Alright, thank you very much.
Okay.
Your next question comes from Laurence Alexander with Jefferies. Please go ahead.
Good morning, it's Dan Rizzo on for Laurence Thank you for taking my questions.
So if we talk about pricing I was just wondering how it works is it ongoing discussion is.
Monthly reviews, our quarterly reviews, how often do you go to your customers and just discuss the state of the world So to speak.
So.
You really have to have to parcel out the company into into two buckets. So the first bucket is the independent aftermarket as well as our industrial based businesses.
That is more.
Quick to change and we take pricing action on an annual basis, we have returned back to a more normalized annual price action in the larger portion of the corporation.
That smaller portion that 35% of.
Of the company, which is like that OEM or first fit based project activity.
Those would have longer term contracts and so that is typically now on a quarterly basis, but it is discussed.
Because because theres ranges involved then there is particular commodities involved in.
So it's a pretty complex models that we continue to work through with the customers and perfect overtime.
Because theres been a tremendous challenge.
On the last cycle.
That really <unk>.
Challenged new models to be built et cetera, and we continue to perfect those.
Looking forward so.
It's ongoing relationship discussing as you talked about but it's but they're pretty frequent.
There at this point I would I would tell you there are at least quarterly and discussion.
Okay, and then you mentioned the slowness in China.
A couple of things one can any of the slowdown in China be attributed to seasonality in front of the Chinese new year, and then outside of China and really in the U S and Europe outside of AG is it fair to say that things are generally okay.
We are improving and growing.
How we think about the risk of the world at least from here for here yes.
Yes, if I look at the rest of the world.
I would tell you I'll get to your China question in a second but I would tell you. If we look at the whole world across construction AG mining on road sectors I would tell you the Americas, so the United States in Latam continued to be solid.
I would tell you China, obviously is the very troubled it remains very troubled I don't think it has anything to do with Chinese new year.
It's just a very troubled economy, and we are looking for green shoots to start there and we just have not seen signs I would tell you Europe.
As we continue to look at Europe I would suggest we have a we have a tighter eye on Europe to understand.
Maybe a little bit of a more cautious view of Europe, and we will see how that develops going forward.
But thats generally how we would give you the macro view geographically across our end markets.
Thank you very much.
Okay.
There are no further questions at this time I will now turn the call back to Tod Carpenter for closing remarks.
That concludes the call today, thanks to everyone, who participated and I look forward to reporting our second quarter fiscal 2024 results in February have a great holiday everyone Goodbye.
This concludes today's conference call you may now disconnect.
Yeah.
Okay.
Yeah.
Yeah.
Okay.