Q2 2024 Kennametal Inc Earnings Call

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I would now like to turn the conference over to Michael P. C Vice President of Investor Relations.

Thank you operator, welcome everyone and thank you for joining us to review Kennametal second quarter fiscal 2024 results. This morning, we issued our earnings press release and posted our presentation slides on our website.

We will be referring to that throughout today's call Michael.

Michael <unk>, Vice President of Investor Relations joining me on the call today are Christopher Rossi, President and Chief Executive Officer, Pat Watson, Vice President and Chief Financial Officer.

Good morning, I would like to welcome everyone to Kennametal second quarter fiscal 'twenty 'twenty four earnings conference call.

Sanjay <unk>, Vice President and president of metal cutting and Franklin Cardenas, Vice President and president of infrastructure.

All lines have been placed on mute to prevent any background noise.

After Chris and past prepared remarks, we will open the line for questions.

After the Speakers' remarks, there'll be a question and answer session.

At this time I would like to direct your attention to our forward looking disclosure statement.

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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 materially from those expressed in or implied by such statements.

If you would like to withdraw your question. Please press Star then the number two please.

Please note that this event is being recorded.

Speaker Change: I would now like to turn the conference over to Michael P. C Vice President of Investor Relations.

These risk factors and uncertainties are detailed in <unk> SEC filings.

Speaker Change: Thank you operator, welcome everyone and thank you for joining us to review Kennametal second quarter fiscal 2024 results.

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 deck and on our form 8-K on our website and with that I'll turn the call over to you Chris.

This morning, we issued our earnings press release and posted our presentation slides on our website, we will be referring to that deck throughout today's call.

Speaker Change: Capeci Vice President of Investor Relations joining me on the call today are Christopher Rossi, President and Chief Executive Officer, Pat Watson, Vice President and Chief Financial Officer.

Thanks, Mike Good morning, everyone and thank you for joining us I'll start the call today with a review of the quarter as well as some end market commentary and then we'll share. An example of the industry, leading innovations, we're bringing to market.

Speaker Change: I'm, Jay Chow, Vice President and president of metal cutting and Franklin Cardenas, Vice President and president of infrastructure.

From there Pat will cover our quarterly financial results as well as the fiscal year 'twenty for outlook.

Christopher Rossi: After Christian paths prepared remarks, we will open the line for questions.

I'll make some summary comments and then open the call for questions beginning.

Christopher Rossi: This time I would like to direct your attention to our forward looking disclosure statement.

Beginning on slide three.

Christopher Rossi: 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 materially from those expressed in or implied by such statements.

For the quarter sales were flat year over year with organic decline of 3% offset by favorable business stays at 2% and favorable currency exchange of 1%.

At the segment level metal cutting was flat organically and infrastructure declined 8%.

Christopher Rossi: These risk factors and uncertainties are detailed in <unk> SEC filings.

On a constant currency basis, EMEA posted 3% growth.

Driven primarily by the transportation and energy end markets.

Christopher Rossi: 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 deck and on our form 8-K on our website and with that I'll turn the call over to you Chris.

The Americas declined 5%, mainly due to softening demand in general engineering earthworks and energy and the effect of the UAW strike on transportation.

Asia Pacific sales were flat driven by growth in general engineering and transportation.

Chris: Thanks, Mike Good morning, everyone and thank you for joining us.

Offset by declines in energy and Earth works. The results also reflect the year over year declines in China.

Chris: Start the call today with a review of the quarter as well some end market commentary and then we'll share. An example of the industry, leading innovations, we're bringing to market.

Moving to our end markets.

Transportation grew 4% aerospace and defense was flat.

Chris: From there Pat will cover our quarterly financial results as well as the fiscal year 'twenty for outlook.

General Engineering declined 2% energy declined 3% in earthworks declined 5%.

Patrick S. Watson: I'll make some summary comments and then open the call for questions beginning.

Patrick S. Watson: Beginning on slide three.

Looking now at each end market.

Patrick S. Watson: For the quarter sales were flat year over year with organic decline of 3% offset by favorable business stays at 2% unfavorable currency exchange of 1%.

<unk> decline was driven by increased price sensitivity and Americas construction and softening mining in China.

For energy as expected oil and gas was down primarily due to lower U S land based rig counts and continuing customer destocking within infrastructure and wind energy project delays and metal cutting.

Patrick S. Watson: At the segment level metal cutting was flat organically and infrastructure declined 8%.

On a constant currency basis, EMEA posted 3% growth driven primarily by the transportation and energy end markets.

General engineering decline versus prior year with modest growth in metal cutting in the Americas offset by declines in infrastructure.

Patrick S. Watson: The Americas declined 5%, mainly due to softening demand in general engineering earthworks and energy and the effect of the UAW strike on transportation.

In aerospace and defense sales were flat year over year at the enterprise level.

Patrick S. Watson: Asia Pacific sales were flat driven by growth in general engineering and transportation.

Metal cutting grew 6% from the continued execution of our growth initiatives and overall market strength in aerospace while infrastructure declined due to timing of large defense orders.

Patrick S. Watson: Offset by declines in energy and Earth works. The results also reflect the year over year declines in China.

Patrick S. Watson: Moving to our end markets.

Patrick S. Watson: Transportation grew 4% aerospace and defense was flat.

Transportation grew 4% this quarter from continued strength in EMEA, driven by metal cuttings electric vehicle and hybrid project wins and a slight increase in Asia Pacific, partially offset by a decline in the Americas due to customer production timing effects related to the UAW strike.

Patrick S. Watson: General Engineering declined 2% energy declined 3% in earthworks declined 5%.

Patrick S. Watson: Looking now at each end market.

Patrick S. Watson: It works decline was driven by increased price sensitivity in Americas, construction and softening mining in China for.

Turning now to profitability in the quarter.

For energy as expected oil and gas was down primarily due to lower U S land based rig counts and continuing customer destocking within infrastructure and wind energy project delays in metal cutting.

Adjusted operating margin declined 110 basis points, primarily due to lower volumes higher wages and general inflation and unfavorable price raw material cost timing in the infrastructure segment.

These were partially offset by higher price realization and metal cutting and restructuring savings of approximately $5 million in total.

Patrick S. Watson: General engineering decline versus prior year with modest growth in metal cutting in the Americas offset by declines in infrastructure.

Metal cutting as adjusted operating margin this quarter decreased 40 basis points year over year from higher price realization and restructuring savings of approximately $4 million offset by lower volumes and higher wages and general inflation.

Patrick S. Watson: In aerospace and defense sales were flat year over year at the enterprise level.

Patrick S. Watson: Metal cutting grew 6% from the continued execution of our growth initiatives and overall market strength in aerospace while infrastructure declined due to timing of large defense orders.

The infrastructure segment's adjusted operating margins decreased 320 basis points year over year, primarily due to lower volumes and as expected unfavorable price raw material cost timing.

Patrick S. Watson: Transportation grew 4% this quarter from continued strength in EMEA, driven by metal cuttings electric vehicle and hybrid project wins and a slight increase in Asia Pacific, partially offset by a decline in the Americas due to customer production timing effects related to the UAW strike.

These factors were partially offset by restructuring savings of approximately $1 million.

Adjusted EPS increased to 30, <unk> compared to 27 in the prior year quarter.

Free operating cash flow year to date was $36 million, which is the highest level since 2016.

Patrick S. Watson: Turning now to profitability in the quarter.

Patrick S. Watson: Adjusted operating margin declined 110 basis points, primarily due to lower volumes higher wages and general inflation and unfavorable price raw material cost timing in the infrastructure segment.

We continued the share repurchase program this quarter with $15 million of shares bought back, bringing the total amount repurchased under the existing program to $163 million.

Patrick S. Watson: These were partially offset by higher price realization and metal cutting and restructuring savings of approximately $5 million in total.

Our board of directors authorized another $200 million in share repurchases over a three year period.

Our share repurchase program reflects the confidence we have in executing our strategic initiatives for long term value creation, despite quarterly macroeconomic headwinds and uncertainties.

Patrick S. Watson: That'll cuttings adjusted operating margin this quarter decreased 40 basis points year over year.

Patrick S. Watson: From higher price realization and restructuring savings of approximately $4 million offset by lower volumes and higher wages and general inflation.

Turning to slide four.

I want to provide commentary on our end markets for the full year and how things have evolved through Q2.

Patrick S. Watson: The infrastructure segment's adjusted operating margins decreased 320 basis points year over year, primarily due to lower volumes.

As we discussed on our last call.

Our outlook for the full year is informed by forecast of specific market drivers and.

Patrick S. Watson: And as expected unfavorable price raw material cost tiny these.

And despite developing macro economic uncertainty at the time those.

Patrick S. Watson: These factors were partially offset by restructuring savings of approximately $1 million.

Those drivers have remained unchanged and we are still indicating market conditions improving in the second half.

Adjusted EPS increased to 30, <unk> compared to 27 in the prior year quarter.

Remember for US backlog is not a meaningful indicator of expected quarterly sales and beyond so we rely on forecast of these specific market drivers and customer input.

Patrick S. Watson: Free operating cash flow year to date was $36 million, which is the highest level since 2016.

Patrick S. Watson: We continue the share repurchase program this quarter with $15 million of shares bought back, bringing the total amount repurchased under the existing program to $163 million.

Fast forwarding to today the forecast of these market drivers have evolved as summarized on the slide.

Patrick S. Watson: The board of directors authorized another $200 million in share repurchases over a three year period.

Additionally in December we saw an unexpected slowdown in orders primarily in general Engineering and energy, which has continued in January particularly in the U S.

Patrick S. Watson: Our share repurchase program reflects the confidence we have in executing our strategic initiatives for long term value creation, despite quarterly macroeconomic headwinds and uncertainties.

Based on these changes we still expect second half fiscal year 'twenty for sales to outpace the first half however year over year growth is expected to be down slightly.

Patrick S. Watson: Turning to slide four.

Patrick S. Watson: Want to provide commentary on our end markets for the full year and how things have evolved through Q2.

More specifically the changes year over year by end market are summarized here.

Patrick S. Watson: As we discussed on our last call.

In General Engineering, we now expect a slight decline driven by lower forecasted industrial production, primarily in the U S Eurozone and China.

Patrick S. Watson: Our outlook for the full year is informed by forecast of specific market drivers and.

Patrick S. Watson: And despite developing macro economic uncertainty at the time those drivers have remained unchanged and we are still indicating market conditions improving in the second half.

And in energy, we're no longer expecting the second half uptick that our customers were indicating last quarter.

Land based rig counts at the end of our fiscal year are now expected to decreased 5% compared to last quarter's forecast.

Patrick S. Watson: Remember for US backlog is not a meaningful indicator of expected quarterly sales and beyond so we rely on forecast of these specific market drivers and customer input.

Our order deliveries have shifted to the second half of calendar year 'twenty four align with customer sentiment that north American activity continues to lag with no meaningful recovery during the first half of this calendar year.

Patrick S. Watson: Fast forwarding to today the forecast of these market drivers have evolved as summarized on the slide.

Patrick S. Watson: Additionally in December we saw an unexpected slowdown in orders primarily in general Engineering and energy, which has continued in January particularly in the U S.

Earthworks is anticipated to decline.

Although we anticipate normal seasonality of demand, we are seeing greater price sensitivity than expected as we entered the second half of fiscal year 'twenty. Four. In addition, we're also seeing some slowdown in China mining.

Patrick S. Watson: Based on these changes we still expect second half fiscal year 'twenty for sales to outpace the first half however year over year growth is expected to be down slightly.

In transportation, we continue to expect slight year over year growth as project wins offset a decline in global light vehicle production per IHS.

Patrick S. Watson: More specifically the changes year over year by end market are summarized here.

Patrick S. Watson: In General Engineering, we now expect a slight decline driven by lower forecasted industrial production, primarily in the U S Eurozone and China.

Our outlook for the full year now includes the effects of the UAW strike.

We anticipate aerospace and defense will continue to experience growth in both segments in the second half, albeit at a slightly lower level.

Patrick S. Watson: And in energy or no longer expecting the second half uptick that our customers were indicating last quarter.

The number of aircraft produced is expected to decline about 13% from last quarter's forecast with potentially some additional near term production disruptions due to recent OEM quality issues.

Patrick S. Watson: US land based rig counts at the end of our fiscal year are now expected to decreased 5% compared to last quarter's forecast.

Patrick S. Watson: Our order deliveries have shifted to the second half of calendar year 'twenty four align with customer sentiment that north American activity continues to lag with no meaningful recovery during the first half of this calendar year.

A major OEM aircraft build rates are still forecasted to increase in the mid teens over the first half and they are still below pre pandemic levels.

And we're confident in our ability to continue winning new projects and gaining share in this end market.

Patrick S. Watson: Earthworks is anticipated to decline.

Finally from a regional perspective, we're no longer expecting a second half recovery in China is the latest official PMI metric remains flat at 50.

Patrick S. Watson: Although we anticipate normal seasonality of demand, we are seeing greater price sensitivity than expected as we entered the second half of fiscal year 'twenty. Four. In addition, we're also seeing some slowdown in China mining.

On last quarter's call I mentioned that given the macroeconomic uncertainties, we would be prepared to take proactive measures. If the end markets didn't improve as expected in the second half.

Patrick S. Watson: In transportation, we continue to expect slight year over year growth as project wins offset a decline in global light vehicle production per IHS.

To that end, we are taking additional restructuring actions to increase our current restructuring program for the previously announced $20 million run rate savings by the end of fiscal year, 'twenty $4 million to $35 million.

Patrick S. Watson: Our outlook for the full year now includes the effects of the UAW strike.

Patrick S. Watson: We anticipate aerospace and defense will continue to experience growth in both segments in the second half, albeit at a slightly lower level.

This accelerates our progress towards achieving the $100 million of cost out targets that we first discussed at Investor day.

Patrick S. Watson: The number of aircraft produced is expected to decline about 13% from last quarter's forecast with potentially some additional near term production disruptions due to recent OEM quality issues.

That will provide additional details in his prepared remarks.

Now on slide five I'd like to highlight an example of our innovation advantage continues to deliver enhanced product offerings to our customers.

Patrick S. Watson: Major OEM aircraft build rates are still forecasted to increase in the mid teens over the first half and they are still below pre pandemic levels.

This slide highlights, our new and proprietary metal cutting answer this.

Patrick S. Watson: And we're confident in our ability to continue winning new projects and gaining share in this end market.

This new geometry enables higher productivity for our customers and eliminates the need to change tools for finishing operations, making it ideal for transportation medical equipment and general engineering applications.

Patrick S. Watson: Finally from a regional perspective, we're no longer expecting a second half recovery in China as the latest official PMI metric remains flat at 50.

Notably this is another innovation enabled by modernization.

Patrick S. Watson: On last quarter's call I mentioned that given the macroeconomic uncertainties, we would be prepared to take proactive measures. If the end markets didn't improve as expected in the second half.

Simply put we could not produce this proprietary geometry on our legacy equipment.

Furthermore, the new Windsor is available with our new Kangol coding technology, which expands the differentiated performance across a wider range of applications.

Patrick S. Watson: To that end, we are taking additional restructuring actions to increase our current restructuring program for the previously announced $20 million run rate savings by the end of fiscal year, 'twenty $4 million to $35 million.

As you May recall, the new Kengo coding technology was also enabled by modernization.

Now, let me turn the call over to Pat who will review the second quarter financial performance and the outlook.

Patrick S. Watson: This accelerates our progress towards achieving the $100 million of cost out targets that we first discussed at Investor day.

Thank you, Chris and good morning, everyone.

Patrick S. Watson: Pat will provide additional details in his prepared remarks.

I will begin on slide six with a review of second quarter operating results, we continue to execute our initiatives in the face of challenging market conditions.

Patrick S. Watson: On slide five I'd like to highlight an example of how our innovation advantage continues to deliver enhanced product offerings to our customers the.

Sales were flat year over year with an organic decline of 3% offset by favorable work there is a 2% and favorable currency exchange of 1%.

Patrick S. Watson: This slide highlights, our new and proprietary metal cutting and serve this.

Patrick S. Watson: This new geometry enables higher productivity for our customers and eliminates the need to change tools for finishing operations, making it ideal for transportation medical equipment and general engineering applications.

As Chris pointed out the performance this quarter was affected by shifting market conditions that put pressure on all of our end markets.

This is the second quarter for metal cutting in the fourth quarter for infrastructure with negative year over year volume.

Patrick S. Watson: Notably this is another innovation enabled by modernization.

Patrick S. Watson: Simply put we could not produce this proprietary geometry on our legacy equipment.

Adjusted EBITDA and operating margins were 12, 4% and 6% respectively versus $13 seven and seven 1% in the prior year quarter.

Patrick S. Watson: Furthermore, the new Windsor is available with our new Kangol coding technology, which expands the differentiated performance across a wider range of applications.

During the quarter, we realized approximately $5 million in savings from the ongoing restructuring program.

Patrick S. Watson: As you May recall, the new Kengo coding technology was also enabled by modernization.

The adjusted effective tax rate was negative, 8%, primarily driven by an approximate $8 million tax benefit from a change in the Swiss tax rate in the current year's quarter.

Patrick S. Watson: Now, let me turn the call over to Pat who will review the second quarter financial performance and the outlook.

Patrick S. Watson: Thank you, Chris and good morning, everyone.

Patrick S. Watson: I will begin on slide six with a review of second quarter operating results, we continued to execute our initiatives in the face of challenging market conditions say.

The prior quarter included an approximate $2 million tax benefit from a Swiss tax ruling.

Adjusted earnings per share were <unk> 30 in the quarter versus EPS of <unk> 27 in the prior year period.

Patrick S. Watson: Sales were flat year over year with an organic decline of 3% offset by favorable work days, a 2% and favorable currency exchange of 1%.

The main drivers of our EPS performance are highlighted on the bridge on slide seven.

The year over year effect of operations this quarter was negative <unk> <unk>.

Patrick S. Watson: As Chris pointed out the performance this quarter was affected by shifting market conditions that put pressure on all of our end markets.

This reflects lower volumes and price raw material timing, partially offset by operational excellence initiatives and restructuring savings.

Patrick S. Watson: This is the second quarter for metal cutting in the fourth quarter for infrastructure with negative year over year volume.

You can also see the effects of the Swiss tax rate I, just spoke about on EPS with taxes contributing positive seven.

Patrick S. Watson: Adjusted EBITDA and operating margins were 12, 4% and 6% respectively versus $13 seven and seven 1% in the prior year quarter.

Lower share count also contributed one set.

Patrick S. Watson: During the quarter, we realized approximately $5 million in savings from the ongoing restructuring program.

Slides eight and nine details the performance of our segments this quarter.

Reported metal cutting sales were up 4% compared to the prior year quarter with zero percent organic growth and a favorable foreign currency and favorable workday effects of 2% each.

Patrick S. Watson: The adjusted effective tax rate was negative, 8%, primarily driven by an approximate $8 million tax benefit from a change in the Swiss tax rate in the current year's quarter.

Patrick S. Watson: The prior quarter included an approximate $2 million tax benefit from a Swiss tax ruling.

We achieved growth in EMEA, and the Americas with Asia Pacific flat due to the slowdown in China.

Patrick S. Watson: Adjusted earnings per share were <unk> 30 in the quarter versus EPS of <unk> 27 in the prior year period.

By region EMEA led at 4% followed by the Americas at 1%, while Asia Pacific was flat.

Patrick S. Watson: The main drivers of our EPS performance are highlighted on the bridge on slide seven.

EMEA is year over year performance reflects growth driven by transportation and aerospace and defense.

Patrick S. Watson: The year over year effect of operations this quarter was negative <unk> <unk>.

Americas year over year growth this quarter was driven by the execution of our growth initiatives in aerospace and defense and in the General engineering end market.

Patrick S. Watson: This reflects lower volumes and price raw material timing, partially offset by operational excellence initiatives and restructuring savings.

Asia Pacific's decline was primarily driven by market conditions in China.

Patrick S. Watson: You can also see the effects of the Swiss tax rate I, just spoke about on EPS with taxes contributing positive seven.

Looking at sales by end market.

Aerospace and defense grew 6% year over year as our strategic initiatives continue to drive share capture.

Patrick S. Watson: Lower share count also contributed <unk> <unk>.

Patrick S. Watson: Slides eight and nine detailed the performance of our segments this quarter.

General Engineering grew 1% year over year with the strongest growth in the Americas, partially offset by lower sales in EMEA.

Patrick S. Watson: Reported metal cutting sales were up 4% compared to the prior year quarter with zero percent organic growth and a favorable foreign currency and favorable workday effects of 2% each.

Energy declined 3% this quarter with the majority of the impact in Asia Pacific as a result of the slowdown in China, mainly from delays in wind power projects and.

Patrick S. Watson: We achieved growth in EMEA, and the Americas with Asia Pacific flat due to the slowdown in China.

And lastly, transportation grew 4% year over year, driven by our strategic growth initiatives and project wins in EV and hybrid vehicles in EMEA.

Patrick S. Watson: By region EMEA led at 4% followed by the Americas at 1%, while Asia Pacific was flat.

Offset by weaker conditions in the Americas as a result of the effects of the UAW strike.

Patrick S. Watson: EMEA is year over year performance reflects growth driven by transportation and aerospace and defense.

Metal cutting adjusted operating margin of eight 4% decreased 40 basis points year over year as higher selling prices and restructuring savings of approximately $4 million were offset by lower volumes and higher wages and general inflation.

Patrick S. Watson: Americas year over year growth this quarter was driven by the execution of our growth initiatives in aerospace and defense and in the General engineering end market.

Patrick S. Watson: Asia Pacific's decline was primarily driven by market conditions in China.

Turning to slide nine for infrastructure.

Patrick S. Watson: Looking at sales by end market.

Reported infrastructure sales were down year over year from an organic sales decline of 8%, partially offset by a foreign exchange tailwind of 1%.

Patrick S. Watson: Aerospace and defense grew 6% year over year as our strategic initiatives continue to drive share capture.

Patrick S. Watson: General Engineering grew 1% year over year with the strongest growth in the Americas, partially offset by lower sales in EMEA.

Regionally sales were flat in Asia Pacific declined by 1% in EMEA and sales in the Americas declined 12%.

Patrick S. Watson: Energy declined 3% this quarter with the majority of the impact in Asia Pacific as the result of a slowdown in China, mainly from delays in wind power projects at.

Looking at sales by end market on a constant currency basis, aerospace and defense decreased 14% due to defense order timing when compared to the prior year.

Patrick S. Watson: And lastly, transportation grew 4% year over year, driven by our strategic growth initiatives and project wins in EV and hybrid vehicles in EMEA.

General Engineering declined 10% for softer demand in EMEA.

<unk> declined 5% with underground mining offset by lower construction volume in the Americas.

Offset by weaker conditions in the Americas as a result of the effects of the UAW strike.

And lastly.

Energy declined 4%, mainly in the Americas due to lower than expected U S land rig counts and continued destocking of inventory at our customers.

Patrick S. Watson: Metal cutting adjusted operating margin of eight 4% decreased 40 basis points year over year as higher selling prices and restructuring savings of approximately $4 million were offset by lower volumes and higher wages and general inflation.

Adjusted operating margin declined year over year to one 9% primarily from two factors.

<unk>.

Lower sales volumes, primarily in the earthworks and general engineering end markets in the Americas.

Turning to slide nine for infrastructure.

Patrick S. Watson: Reported infrastructure sales were down year over year from an organic sales decline of 8%, partially offset by a foreign exchange tailwind of 1%.

Second significant factor affecting the margin this quarter as expected was unfavorable price raw material timing.

These headwinds were partially offset by operational excellence initiatives, including restructuring.

Patrick S. Watson: Regionally sales were flat in Asia Pacific declined by 1% in EMEA and sales in the Americas declined 12%.

Now turning to slide 10 to review, our free operating cash flow and balance sheet.

Patrick S. Watson: Looking at sales by end market on a constant currency basis, aerospace and defense decreased 14% due to defense order timing when compared to the prior year.

Free operating cash flow year to date was $36 million up from $4 million in the prior year. This was the highest first half free operating cash flow generated since 2016.

Patrick S. Watson: General Engineering declined 10% from softer demand in EMEA.

The increase in free operating cash flow was driven primarily by working capital changes, including improved inventory levels and proceeds from the disposal of property plant and equipment, partially offset by higher capital expenditures.

Patrick S. Watson: <unk> declined 5% with underground mining offset by lower construction volume in the Americas.

Speaker Change: And lastly.

Speaker Change: Energy declined 4%, mainly in the Americas due to lower than expected U S land rig counts and continued destocking of inventory at our customers.

On a dollar basis year over year primary working capital decreased to $668 million on a percentage of sales basis primary working capital increased to 32, 7% with.

Speaker Change: Adjusted operating margin declined year over year to one 9% primarily from two factors.

Speaker Change: First.

We continue to focus on optimizing inventory levels and driving improved working capital.

Speaker Change: Lower sales volumes, primarily in the earthworks and general engineering end markets in the Americas.

Net capital expenditures increased to $52 million year to date compared to $48 million in the prior year.

Speaker Change: Second significant factor affecting the margin this quarter as expected was unfavorable price raw material timing.

In total we returned $61 million year to date to shareholders through our share repurchase and dividend programs.

Speaker Change: These headwinds were partially offset by operational excellence initiatives, including restructuring.

Speaker Change: Now turning to slide 10 to review, our free operating cash flow and balance sheet.

We repurchased $15 million of shares in Q2 for a total of $163 million or $5 8 million shares representing approximately 7% of outstanding shares since the inception of the program.

Speaker Change: Free operating cash flow year to date was $36 million up from $4 million in the prior year. This was the highest first half free operating cash flow generated since 2016.

As Chris mentioned earlier, the board of directors authorized another $200 million share repurchase program.

Speaker Change: The increase in free operating cash flow was driven primarily by working capital changes, including improved inventory levels and proceeds from the disposal of property plant and equipment, partially offset by higher capital expenditures.

Over a three year period.

And as we have every quarter since becoming a public company over 50 years ago, we have paid a dividend to our shareholders.

Our commitment to returning cash to shareholders reflects confidence in our ability to execute our strategy to drive growth and margin improvement.

Speaker Change: On a dollar basis.

Speaker Change: Year over year primary working capital decreased to $668 million on a percentage of sales basis primary working capital increased to 32, 7% with.

We continue to maintain a healthy balance sheet and debt maturity profile at.

Speaker Change: We continue to focus on optimizing inventory levels and driving improved working capital.

At quarter end, we had combined cash and revolver availability of approximately $770 million.

Speaker Change: Net capital expenditures increased to $52 million year to date compared to $48 million in the prior year.

And we're well within our financial covenants.

A full balance sheet can be found on slide 17 in the appendix.

In total we returned $61 million year to date to shareholders through our share repurchase and dividend programs.

Turning to slide 11 regarding our third quarter outlook.

We expect Q3 sales to be between 510 and $530 million with volume ranging from negative 5% to negative 2%, which includes approximately 1% negative effect from fewer workdays.

Speaker Change: We repurchased $15 million of shares in Q2 for a total of $163 million or $5 8 million shares representing approximately 7% of outstanding shares since the inception of the program.

Price realization of approximately 2% and unfavorable foreign exchange of about 1%.

Speaker Change: As Chris mentioned earlier, the board of directors authorized another $200 million share repurchase program.

Let me share some details on the sales assumptions and trends affecting the Q3 outlook.

Speaker Change: Over a three year period.

Speaker Change: And as we have every quarter since becoming a public company over 50 years ago, we have paid a dividend to our shareholders.

At the midpoint, our Q3 range reflects sequential growth from the second quarter that is generally in line with our historical norms.

Speaker Change: Our commitment to returning cash to shareholders reflects confidence in our ability to execute our strategy to drive growth and margin improvement.

On a year over year basis, we expect aerospace and defense to continue to grow and transportation to increase slightly.

Speaker Change: We continue to maintain a healthy balance sheet and debt maturity profile at.

Additionally, we expect energy to decline from lower rig counts delayed project worked and continued destocking.

Speaker Change: At quarter end, we had combined cash and revolver availability of approximately $770 million.

General engineering to decline earthworks.

Worth works to decline as pricing pressures continued to affect growth and we anticipate no significant improvement in China.

Speaker Change: And we're well within our financial covenants.

Speaker Change: A full balance sheet can be found on slide 17 in the appendix.

The current inflationary environment persists, but at a modest pace.

Turning to slide 11 regarding our third quarter outlook.

Foreign exchange and noncash pension expense are expected to be neutral on an operating income basis.

Speaker Change: We expect Q3 sales to be between 510 and $530 million with volume ranging from negative 5% to negative 2%, which includes approximately 1% negative effect from fewer workdays.

We expect adjusted EPS in the range of 25 to 35 per share.

Turning to slide 12 regarding our full year outlook.

Speaker Change: Price realization of approximately 2% and unfavorable foreign exchange of about 1%.

We expect FY 'twenty for sales to be between $2.02 billion.

Speaker Change: Let me share some details on the sales assumptions and trends affecting the Q3 outlook.

And $2 <unk> 7 billion.

With volume ranging from negative 4% to negative 2%.

Speaker Change: At the midpoint, our Q3 range reflects sequential growth from the second quarter that is generally in line with our historical norms.

Net price realization of approximately 2% with our inflationary pricing actions, partially offset by lower prices for customers with index pricing.

Speaker Change: On a year over year basis, we expect aerospace and defense to continue to grow and transportation to increase slightly. Additionally.

Foreign exchange is expected to be neutral.

Year over year, we expect aerospace and defense to have moderate growth transportation to increase slightly general engineering declined slightly and energy in earthworks to decline.

Speaker Change: Additionally, we expect energy to decline from lower rig counts delayed project work and continued destocking.

Speaker Change: General engineering to decline.

Speaker Change: Earthworks to decline as pricing pressures continued to affect growth and we anticipate no significant improvement in China.

From a cost perspective.

The current inflationary environment persists, but is assumed to moderate.

Speaker Change: The current inflationary environment persists, but at a modest pace.

We expect to offset raw material wage and general cost increases on a dollar basis.

Speaker Change: Foreign exchange and noncash pension expense are expected to be neutral on an operating income basis.

Assuming the price for tungsten remains constant in the second half of FY 'twenty four.

We will begin to benefit from lower material costs in the fourth quarter.

Speaker Change: We expect adjusted EPS in the range of 25 to 35 per share.

This will largely affect our infrastructure segment.

Speaker Change: Turning to slide 12 regarding our full year outlook.

We expect infrastructures fourth quarter adjusted operating margin will be approximately at the same level as the fourth quarter of FY2023.

Speaker Change: We expect FY 'twenty for sales to be between $2.02 billion.

Speaker Change: And $2.07 billion.

Foreign exchange and noncash pension expense is expected to be neutral on an operating income basis.

Speaker Change: With volume ranging from negative 4% to negative 2%.

Speaker Change: Net price realization of approximately 2% with our inflationary pricing actions, partially offset by lower prices for customers with index pricing.

Our previously announced restructuring initiative has been expanded and we now expect to achieve annualized run rate savings of approximately $35 million at the end of FY 'twenty four up from $20 million.

Foreign exchange is expected to be neutral.

Speaker Change: Year over year, we expect aerospace and defense to have moderate growth.

The total estimated cost of this program is now $25 million versus the previously announced $20 million.

<unk> increased slightly general engineering declined slightly and energy in earthworks to decline.

We now expect adjusted EPS to be in the range of $1 35 to $1 65, with a full year effective tax rate of approximately 21%.

Speaker Change: From a cost perspective.

Speaker Change: The current inflationary environment persists, which is assumed to moderate.

Speaker Change: We expect to offset raw material wage and general cost increases on a dollar basis.

Our outlook for depreciation and amortization interest expense and capital expenditures remains unchanged.

Speaker Change: Assuming the price for tungsten remains constant in the second half of FY 'twenty four.

On the cash side, the full year outlook for capital expenditures remains $100 million to $110 million and the outlook for primary working capital was approximately 32%.

Speaker Change: We will begin to benefit from lower material costs in the fourth quarter.

Speaker Change: This will largely affect our infrastructure segment.

We expect infrastructures fourth quarter adjusted operating margin will be approximately at the same level as the fourth quarter of FY2023.

Taken together, we will continue to expect free operating cash flow at approximately 100% of adjusted net income in line with our long term target.

Speaker Change: Foreign exchange and noncash pension expense is expected to be neutral on an operating income basis.

And with that I'll turn the call back over to Chris. Thanks.

Thanks, Pat turning to slide 13 to summarize.

Speaker Change: Our previously announced restructuring initiative has been expanded and we now expect to achieve annualized run rate savings of approximately $35 million at the end of FY 'twenty four up from $20 million.

Overall, although market conditions changed from our previous outlook over the long term the global Mega trends driving market growth are still intact.

We remain confident in executing our strategy to drive share gains throughout the economic cycle.

Speaker Change: The total estimated cost of this program is now $25 million versus the previously announced $20 million.

We have experience navigating these market headwinds and we will focus on taking actions to place the company in the best position moving forward.

Speaker Change: We now expect adjusted EPS to be in the range of $1 35 to $1 65.

An example of this is accelerating the $100 million of cost out actions, we outlined in Investor day, and with that operator. Please open the line for questions.

Speaker Change: With a full year effective tax rate of approximately 21%.

Speaker Change: Our outlook for depreciation and amortization interest expense and capital expenditures remains unchanged.

If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad.

Speaker Change: On the cash side, the full year outlook for capital expenditures remains $100 million to $110 million and the outlook for primary working capital is approximately 32%.

If you are using a speakerphone please pick up your handset suppressed Keith.

If you would like to withdraw your question. Please press Star then the number two.

Speaker Change: Taken together, we will continue to expect free operating cash flow of approximately 100% of adjusted net income in line with our long term target.

Our first question today comes from Steve Volkmann with Jefferies. Please go ahead.

Speaker Change: And with that I'll turn the call back over to Chris. Thanks.

Hey, good morning, everybody. Thanks for taking the question.

Chris: Thanks, Pat turning to slide 13 to summarize.

Steve Steve.

Chris: Overall, although market conditions changed from our previous outlook over the long term the global Mega trends driving market growth are still intact.

A couple of quick things I guess for me I'm interested I think both of you guys mentioned sort of increased price sensitivity.

Chris: We remain confident in executing our strategy to drive share gains throughout the economic cycle.

Maybe that was just earthworks, but im trying to get a little more color. There does that mean youre seeing actually pricing go negative there or is it that youre holding the line, but others might not be just any more color there would be great.

Chris: We have experience navigating these market headwinds and we will focus on taking actions to place the company in the best position moving forward.

An example of this is accelerating the $100 million of cost out actions, we outlined at Investor day.

Yes. It was it was a U S phenomenon and was related to road road milling.

Speaker Change: With that operator, please open the line for questions.

And.

I think I would say that we're holding our prices and being more selective I think what might be happening from a market perspective as the projects are still there.

Speaker Change: If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad.

Speaker Change: If you are using a speakerphone please pick up your handset to breastfeed.

If you remember last year, we talked about the fact that there was less miles being mill because budgets were strained.

Speaker Change: If you would like to withdraw your question. Please press Star then the number two.

So the infrastructure Bill helps to helps too is supposed to be able to help to backstop those budgets, but.

Speaker Change: Our first question today comes from Steve Volkmann with Jefferies. Please go ahead.

That business for the construction season, which happens at the end of our fiscal year.

Stephen Edward Volkmann: Hey, good morning, everybody. Thanks for taking the question.

Stephen Edward Volkmann: Steve I see.

That business is quoted right now and so I think people are are worried that they want to make sure that they get locked into those projects right now and it is kind of driving a little bit more price sensitivity than we would normally see.

Stephen Edward Volkmann: A couple of quick things I guess for me I'm interested I think both of you guys mentioned sort of increased price sensitivity.

Stephen Edward Volkmann: I think maybe that was just earthworks, but im trying to get a little more color. There does that mean youre seeing actually pricing go negative there or is it that youre holding the line, but others might not be just any more color there would be great.

Which was temporary.

A little different than what we had expected.

Got it okay. Thanks, and then.

Relative to sort of the weaker end market outlooks that seem pretty broad here is there any way crews to sort of think about how much of this might be inventory destock and how much is just kind of weaker end markets because they seem a bit weaker than sort of what we're hearing from other companies.

Speaker Change: Yes, Steve It was it was a U S phenomenon and was related to road road milling.

Stephen Edward Volkmann: And.

Stephen Edward Volkmann: I think I would say that we're holding our prices and being more selective I think what might be happening from a market perspective is the the projects are still there.

Yes, I think.

On the Destocking side, our distributors have been pretty this is kind of a global comment had been pretty conservative in terms about not getting over their skis by adding inventory.

Stephen Edward Volkmann: If you remember last year, we talked about the fact that there was less miles being mill because budgets were strained.

So we never really thought we saw a much of a restocking if you will except in areas, where they knew like aerospace there were supporting they knew they had to hold the hold the inventory because those demand patterns are a little more certain.

Stephen Edward Volkmann: So the infrastructure Bill helps to helps too is supposed to be able to help to backstop those budgets, but.

That business for the construction season, which happens at the end of our fiscal year.

Stephen Edward Volkmann: Business is quoted right now and so I think people are are worried that they want to make sure that they get locked into those projects right now and it's kind of driving a little bit more price sensitivity than we would normally see.

We don't think this is like a major destocking because it wasn't really a major restocking if you will and so therefore, it's more of a it's more of a little uncertainty in terms of what the economic outlook looks like and you saw just based on how much the data has changed over the last the last quarter. So I think it's more about that.

Stephen Edward Volkmann: Well there is different right.

Stephen Edward Volkmann: A little different than what we had expected.

Speaker Change: Got it okay. Thanks, and then.

Speaker Change: Relative to sort of the weaker end market outlooks.

And then clearly in infrastructure from an oil and gas perspective, they've been working their inventories down and they've now versus the.

Speaker Change: Seem pretty broad here is there any way Chris to sort of think about how much of this might be inventory destock and how much is just kind of weaker end markets because they seem a bit weaker than sort of what we're hearing from other companies.

The customer sentiment and what's now been articulated actually by the oilfield service companies on there on the earnings calls they now believe that especially in North America.

Yeah I think.

That business is going to continue to be slow at least for the at least for the rest of our year or the first half of calendar year 'twenty four.

Chris: On the Destocking side, our distributors have been pretty this is kind of a global comment I've been pretty conservative in terms about not getting over their skis by adding inventory.

Okay. Thank you guys I'll pass it on.

Chris: So we never really thought we saw a much of a restocking if you will except in areas, where they knew like aerospace there were supporting they knew they had to hold the hold the inventory because of those demand patterns are a little more certain.

The next question comes from Stephens.

Steven Fisher with UBS. Please go ahead.

Thanks, Good morning.

Specie debt.

I appreciate that you're <unk>.

Chris: We don't think this is like a major destocking because it wasn't really a major restocking if you will and so therefore, it's more of a it's more of a little uncertainty in terms of what the economic outlook looks like and you saw just based on how much the data has changed over the last the last quarter. So I think it's more about that.

Focusing on the things that you can control when the markets are outside of your control. So maybe you can just sort of level set us on the cost tailwind that you have for fiscal 'twenty five versus fiscal 'twenty, four and now that youre accelerating the cost savings in other words, if nothing else changed.

Into next year, how much lower are your fiscal year 'twenty five costs compared to the 24 of them and I know theres still going to be likely some inflation headwinds.

And then clearly in infrastructure from an oil and gas perspective, they've been working their inventories down and they've now versus the.

Chris: The customer sentiment and what's now been articulated actually by the oilfield service companies on their on their earnings calls they now believe that especially in North America.

Headwinds, but just understanding what is the tailwind that you start off with facing 25 on lower costs.

Yes, I think the way I would think about that Steve is we're going to hit a run rate.

Chris: That business is going to continue to be slow at least for the lease for the rest of our year or the first half of calendar year 'twenty four.

Exit the year at $35 million right and we think about the build.

Speaker Change: Okay. Thank you guys I'll pass it on.

This year in <unk>.

So where are we at had $5 million. This quarter in Q2, we will see a slight uptick here from Q2 to Q3, but probably a more substantial uptick in Q4.

Speaker Change: Sure.

Speaker Change: Sure.

Speaker Change: The next question comes from.

Speaker Change: Steven Fisher with UBS. Please go ahead.

Steven Fisher: Hi, Thanks, good morning.

One was I think about $4 million in total so.

Steven Fisher: Good morning appreciate that.

Steven Fisher: I appreciate that you're.

Take that $35 million and kind of back out.

Steven Fisher: Focusing on the things that you can control when the markets are outside of your control. So maybe you can just sort of level set us on the cost tailwind that you have for fiscal 'twenty five versus fiscal 'twenty, four and now that youre accelerating the cost savings in other words, if nothing else changed.

Approximately we're going to be here.

And this year you will see that rollover to next year in terms of savings from that restructuring program in particular.

Okay. That's helpful.

Then on pricing I'm curious how broad are the price realizations.

Steven Fisher: Into next year, how much lower are your fiscal year 'twenty five costs compared to the 24 of them and I know theres still going to be likely some inflation headwind.

As you have in I guess, the 2% in Q3, and maybe Q4 and when were those prices increases put in and I guess I'm wondering how hard is it to introduce new price increases at the moment.

Steven Fisher: Headwinds, but just understanding whats the tailwind that you start off with facing 25 on lower costs.

Given some of the market backdrop.

Speaker Change: Yes, I think the way I would think about that Steve is we're going to hit a run rate.

Yes, the prices that we put in were largely.

Stephen Edward Volkmann: Exit the year at $35 million right and we think about the build.

<unk> done at the start of our fiscal year.

And then we continue to monitor pricing in both segments as the year progresses, and I think there was some.

Stephen Edward Volkmann: This year in terms of where we had $5 million. This quarter in Q2, we'll see a slight uptick here from Q2 to Q3, but probably a more substantial uptick in Q4.

So smaller modifications that were recently made in particular in metal cutting.

In general Steve We think that we can.

Stephen Edward Volkmann: One was I think about $4 million in total so.

We can hold on to the prices that we put in place.

Stephen Edward Volkmann: Take that $35 million and kind of back out were approximately were going to be here.

This infrastructure example road milling, which by the way isn't a large portion of our business and it's probably the least profitable portion of <unk>.

Stephen Edward Volkmann: And this year you will see that rollover to next year in terms of savings from that restructuring program in particular.

Infrastructure anyway.

Sure.

Absent that for the most part.

I think competitors have been behaving sort of logically and along the lines of what we do so we think we can continue to raise prices, especially in line with in line with inflation, so even in a declining market.

Speaker Change: Okay. That's helpful and then on pricing I'm curious how broad are the price realizations that.

Speaker Change: Do you have in I guess, the 2% in Q3, and maybe Q4 and when were those prices increases put in and I guess I'm wondering how hard is it to introduce new price increases at the moment.

Are some there are some very small players in China. For example that are less price sensitive, but they are always less price sensitive than any in any market in and we don't think they have a differentiated value proposition to be.

Speaker Change: Given some of the market backdrop.

Substantially much of a threat or influenced the prices that we're able to demand in our key markets.

Yes, the prices that we put in were largely.

Yeah.

Speaker Change: Done at the start of our fiscal year and then we continue to monitor pricing in both segments as the year progresses, and I think there was some.

Okay. Thanks very much.

The next question comes from Julian Mitchell with Barclays. Please go ahead.

Speaker Change: So smaller modifications that were recently made in particular metal cutting.

Hi, good morning.

Just wanted to circle back to the Hey.

Speaker Change: In general Steve We think that we can.

Just to follow up on that sort of operating margin.

We can hold on to the prices that we've put in place.

Guidance for the year.

Speaker Change: This infrastructure example road milling, which by the way is up there isn't a large portion of our business and it's probably the least profitable portion of <unk>.

So it looks as if.

Youre looking at an operating margin clean basis.

Speaker Change: Infrastructure anyway.

Speaker Change: <unk>.

Exiting the year at sort of nine and a half the savings in infrastructure I think you'd said to be flat year on year.

Speaker Change: Absent that for the most part.

Speaker Change: I think competitors have been behaving sort of logically and along the lines of what we do so we think we can continue to raise prices, especially in line with in line with inflation, so even in a declining market.

And that's versus maybe a breakeven in the third quarter. So.

All of that step up that tungsten aspect.

Speaker Change: There are some there are some very small players in China. For example that are less price sensitive, but they are always less price sensitive than any in any market in and we don't think they have a differentiated value proposition to be.

Just trying to understand I guess, how much might be coming from from say volumes sequentially in Q4 versus simply tungsten.

And then we're looking at the kind of third quarter guide.

Speaker Change: Substantially much of a threat or influenced the prices that we're able to demand in our key markets.

Is it sort of a margin of seven and a half a percent total company is that the framework.

Speaker Change: Okay. Thanks very much.

As you think about infrastructure Julien.

Speaker Change: The next question comes from Julian Mitchell with Barclays. Please go ahead.

You're right in the sense that there is a big component of that margin here in Q2, and we will repeat in Q4 is this price raw timing alright, once we get out to Q4 that will flip to a positive for us.

Julian Mitchell: Hi, good morning.

Julian Mitchell: Just wanted to circle back to the Hey, just.

Julian Mitchell: Just to follow up on that sort of operating margin.

Julian Mitchell: Guidance for the year.

Companywide and an infrastructure, that's going to propel a pretty significant improvement in the margins and then on top of that as you know Q4 is the strongest quarter for infrastructure as well and so we will see a volume uptick more notable in Q4, then we would going from Q2 to Q3.

Speaker Change: So it looks as if you.

Speaker Change: Youre looking at an operating margin clean basis.

Speaker Change: Exiting the year at sort of 9.5% in infrastructure I think you'd said to be flat year on year, and that's versus maybe a breakeven in the third quarter. So is all of that step up that tungsten aspect.

From a from a margin perspective as well.

Yes.

That's helpful. Thank you.

Speaker Change: Just trying to understand I guess, how much might be coming from from say volumes sequentially in Q4 versus simply tungsten.

Third quarter, we should think about the company margin being about seven 5% with a sort of a breakeven in infrastructure is that fair.

Speaker Change: And then we're looking at the kind of third quarter guide.

Yes, I think from an infrastructure perspective, you'll see a really modest improvement in margin Q2 to Q3, Alright, and then youll see a little bit of an uptick here as well from a metal cutting perspective again based on volume.

Speaker Change: Sort of a margin of seven and a half a percent total company is that the framework.

Speaker Change: As you think about infrastructure Julien.

Julien: You are right in the sense that there is a big component of that margin here in Q2 and will repeat in Q4 is this price raw timing right. Once we get out to Q4 that will flip to a positive for us.

That's helpful. And then just my follow up question.

Maybe on the sort of cash flow conversion side of things.

It's the price, perhaps with the weaker volumes, maybe you're not getting more conversion from working capital kind of liquidation.

Julien: Companywide and an infrastructure that is going to propel a pretty significant improvement in the margins and then on top of that as you know Q4 is the strongest quarter for infrastructure as well and so we will see a volume uptick more notable in Q4, then we would going from Q2 to Q3.

Just is that that volume rolls over.

Anything going on there just sort of curious how you're thinking about inventory management I think inventories were flat sequentially and up a little bit versus June.

So are you kind of holding the working capital in the assumption that the sales will.

Julien: From a margin perspective as well.

Speaker Change: That's helpful. Thank you.

We'll improve in kind of six months time.

Speaker Change: The third quarter, we should think about the company margin being about seven and a half 8% with a sort of a breakeven in infrastructure is that fair.

Yes, as we think about the working capital and a couple of things from a framework perspective, you know over a longer term basis, we've got a number of initiatives underway to drive down working capital and inventory in particular, when you think about that in the context of I'll say shifting market conditions in the short term.

Speaker Change: Yes, I think from an infrastructure perspective, you'll see a really modest improvement in margin Q2 to Q3 alright.

Speaker Change: Then you'll see a little bit of an uptick here as well from a metal cutting perspective again based on volume.

The supply chain is relatively elongated just in terms of physical distance and time. It does take a little bit of time for us to rectify that supply chain. So as you know we've got softening here that developed in the month of December It will take us a little bit of time to kind of get the inventory and supply chain reacted made it to where we expect.

Speaker Change: That's helpful. And then just my follow up question.

Speaker Change: Maybe on the sort of cash flow conversion side of things.

Speaker Change: It's the price, perhaps with the weaker volumes, maybe you're not getting more conversion from working capital kind of liquidation.

Demand to come out and so that will put a little bit of a temporary pause probably on our ability to drive down the inventory, but that's not going to take us off track of.

Speaker Change: I'm just is that that volume rolls over.

Speaker Change: Anything going on there just sort of curious how you're thinking about inventory management I think inventories were flat sequentially and up a little bit versus June.

Objectives, we've set for ourselves in terms of improving net working capital over the long run.

That's great. Thank you.

Speaker Change: Or are you kind of holding the working capital in the assumption that the sales will will improve and kind of six months time.

Yeah.

Thanks Sheila.

The next question comes from Tami Zakaria with Jpmorgan. Please go ahead.

Speaker Change: Yes, we think about the working capital a couple of things from a framework perspective, you know over a longer term basis, we've got a number of initiatives underway to drive down working capital and inventory in particular, when you think about that in the context of I'll say shifting market conditions in the short term.

Hi, good morning, Thank you good morning.

Thank you.

Hi, how are you.

I have a question on the Aero and Defense segment I think you now expect.

<unk> growth environment related to.

OEM production initiatives so from your perspective.

Speaker Change: The supply chain is relatively long dated.

Or is.

Speaker Change: In terms of physical distance and time it does take a little bit of time for us to rectify that supply chain. So as you know we've got softening here that developed in the month of December.

This is the third OEM.

Prove more long term or what.

The strategy to diversify away from it and try to win new Oems how prepared are you should this need alright.

It'll take us a little bit of time to kind of get the inventory and supply chain reacted made it to where we expect demand to come out and so that will put a little bit of a temporary pause probably on our ability to drive down the inventory, but that's not going to take us off track of the objective we've set for ourselves in terms of improving net working capital over the long run.

Yes, I think I would think of a couple of things here.

The good news about aerospace and defense, whether it's the large Oems are the other producers is there still is a huge amount of demand out there and they're producing at much lower levels than even pre pandemic.

Speaker Change: That's great. Thank you.

And they would like to actually produce even more aircraft, but they are constrained really by by the supply chain.

So.

The particular quality issue, we think is probably just a.

Short term phenomena, we don't know exactly we think we've got the appropriate risk factored into our immediate outlook.

I don't see that as a.

A risk for the longer term projections of this business and so we feel quite good about.

Our ability to gain share and.

We're adding new customers as part of that share gain not just at the OEM level, but also the tier suppliers the tier one two and three suppliers to support this industry, that's where our opportunity is so I don't think any of that any of that changes our picture, but it did it did our forecast would have to reflect that while there'll be growth it won't be quite.

As much as we thought.

In the short term.

Got it.

That's helpful. Thank you and then my second question is can you remind us.

What you can price positioning is versus.

One of your main competitors given the last couple of years of relatively higher price realization.

From your perspective are your products now cheaper or in line or.

Relatively at a premium versus some of the competitors out there.

Yes, the way I would think about it is.

We always try to price for value and.

Theres parts for example, the metal cutting segment that we just we just don't want that business because it's only competing on price.

That's not where our advantages.

And in the current environment or even in a downturn or upturn, we think we're priced competitively.

And it's based on the value, we deliver and we think.

Even over the last few years through Covid and the high inflation.

Our competitors have largely been on par with our price increases as much as we can tell.

Some of them are publicly disclosed information others, though for sure are talking to the same customers. We are in distributor. So we think were in line with what the competition is doing and we don't think that landscape has really changed or put us at a disadvantage going forward.

Got it thank you so much.

The next question comes from Michael Feniger with Bank of America. Please go ahead.

Hey, guys, yes. Thank you.

Hey, everyone. Thanks for taking my questions.

You touched on your own inventories.

I'm curious how you are managing the working capital just with the weaker end market in your in your guidance do you have to do some under producing in the back half maybe more than expected.

How do you feel like you can get your inventory ended the year kind of positioning yourself for 25, just curious how youre thinking that given kind of the softer end market backdrop.

Absolutely as we think about the back half and I would say embedded in our outlook any other change in our outlook for over the last 90 days here. We are assuming that we will take some actions here internally to make sure that we've constrained excuse.

Excuse me extreme production constrained production a little bit that will result in a little bit of under absorption that's factored into the outlook we have in place.

I think that inventory number given the other mid point of the outlook and where we think the end market is going to be relatively flat as we move through.

The rest of this fiscal year.

Great and is there anything you would flag it in January you made some comments I think on the Earth.

<unk> work side, just trying to get a sense on the general engineering side only tipped.

Typically how your customers either on the distributor side or or the Oems typically kind of look at it particularly.

Particularly book in January how that informs.

And market backdrop.

The next six months and what you kind of saw in January now relative to maybe where November December what thanks, everyone.

Yeah, absolutely as we think about the back half and I would say embedded in our outlook the change in our outlook for over the last 90 days here.

Yes, I think our comment on January was.

We're assuming that we will take some actions here internally to make sure that we've constrained great excuse me extreme production constrained production a little bit that will result in a little bit of under absorption that's factored into the outlook we have in place.

Was about the order order pattern that we started to see in December and certainly in the.

Second half of December that that lower lower order pattern.

Repeated sort of in January we didn't see much of a much of a change there. So that was that comment the other thing I would I want you to realize as part of what we had talked about on the call. When we do our forecast is that that backlog in this business is not a meaningful indicator of the.

That inventory number given the midpoint of the outlook and where we think that end market is going to be relatively flat as we move through the.

The rest of this fiscal year.

The forecast for sales in any given quarter, there simply isn't much backlog. Most of this business is transacted when the same day and so it's very much the statistical process. So the better the better indicator is how were orders actually coming in and.

Great and is there anything you would flag it in January you made some comments I think on the.

Earthworks side, just I'm trying to get a sense on the general engineering side.

Typically how your customers either on the distributor side or or the Oems.

So the fact that they came down in December and continue that pattern to sort of level off in January I think is the best indicator of.

We kind of look at.

Typically book in January how that informs.

The future for us, which.

The next six months and what you kind of saw in January now relative to maybe where you know November December what thanks, everyone.

Which is why we that was one of the major inputs that we had to take two.

Reassess our second half outlook in addition to.

Third party Prognosticators.

Yes, I think our comment on January was.

On the longer term mid term trends.

Was about the order order pattern that we started to see in December and certainly in the.

Thank you.

The next question comes from Steve Barger with Keybanc capital markets. Please go ahead.

The second half of December.

That lower lower order pattern.

Repeated sort of in January we didn't see much of a much of a change there. So that was that comment the other thing I would I want you to realize as part of what we had talked about on the call. When we do our forecast is that that backlog in this business is not a meaningful indicator of the.

Good morning, Steve Good morning.

Over the past few years.

A real focus on commercial excellence product innovation, and new markets to try and drive share gains.

Organic growth still seems subtract the metalworking index of industrial production top line is going to be flat for three years. Now why are you convinced your initiatives are working and is the team, bringing us new ideas on.

The forecast for sales in any given quarter youre simply isn't much backlog. Most of this business is transacted when the same day and so it's very much the statistical process. So the better the better indicator is how were orders actually coming in and.

How to drive the outgrowth differently.

Yeah I think.

So the fact that they came down in December and continued that pattern to sort of level off in January I think is the best indicator of.

We talk about the share gains that we're making and.

If I think about what's what's different about kennametal than than before is certainly the simplification and modernization.

The future for us, which.

Which is why we that was one of the major inputs that we had to take two.

Reassess our second half outlook in addition to.

Many of the innovations that we kind of highlight on these calls they weren't possible before.

Third party Prognosticators.

On the longer term midterm trends.

Before modernization and also if you ask our customers from a quality perspective and delivery perspective prior to modernization.

Thank you.

The next question comes from Steve Barger with Keybanc capital markets. Please go ahead.

We were playing defense. We are always we are a lot of times, explaining why we were missing deliveries are not not making their cycle times et cetera. So I think that situation has improved.

Good morning, Steve Good morning.

Over the past few years.

A real focus on commercial excellence product innovation, and new markets to try and drive share gains, but organic growth still seems subtract the metalworking index of industrial production top line is going to be flat for three years. Now why are you convinced your initiatives are working and is the team, bringing you new ideas.

And that allows us to now go in and talk to.

Two new customers and so we do we do believe that like for example in aerospace.

That our growth rate has been higher than what.

What the changes in industrial production and aerospace are so that gives us an indicator that we're we're.

On on how to drive that growth differently.

We're growing faster than the market.

Yeah I think.

Franco has got several examples in infrastructure, where we were under serving customers for example, in Chile and we.

We talk about the share gains that we're making and.

We got large new orders.

If I think about what's what's different about kennametal than before is certainly the simplification and modernization.

Because we've expanded into different types of mining applications are aware solutions application. So we've got a number of things that point to gaining share I would say, Steve that the headwinds of the market and the situation that can move against you.

Many of the innovations that we kind of highlight on these calls they weren't possible before.

Before modernization and also if you ask our customers from a quality perspective and delivery perspective prior to modernization.

The share gains while they are there.

I'll get lost in the noise and if you think about the.

We were playing defense. We are always we are a lot of time, explaining why we were missing deliveries are not not making their cycle times et cetera. So I think that situation has improved.

If you think about just in the month of December.

Versus our midpoint, we probably saw most of that $7 million Miss from our midpoint in the month of December so that kind of a reduction happening that quickly.

And that allows us to now go in and talk to.

Can cause the numbers to be massed. The other thing is is that an electric vehicle.

Speaker Change: New customers and so we do we do believe that like for example in aerospace.

Vehicles, we've got lots of indications that we're winning.

Speaker Change: That our growth rate has been higher than what.

Above our normal win rate in those type of applications again, most of that is based on our ability to differentiate from a technology perspective. So I agree with you that the share gains can get lost inside of the noise of the cycle of the market.

Speaker Change: What the changes in industrial production and aerospace are so that gives us an indicator that we're we're growing faster than the market.

Speaker Change: Franco has got several examples in infrastructure, where we were under serving customers for example, in Chile, and we we got large new orders.

And volumes I'll remind you are still down about 20 about 15% from 2019 levels.

Speaker Change: We've expanded into different types of mining applications are aware solutions applications. So we've got a number of things that point to gaining share I would say, Steve that the headwinds of the market and the situation that can move against you.

Yes.

It's a great point it leads to my second question, which is about capital allocation.

Again, just looking at three years of what it'll be flat sales, but really we can go back to FY 16, or 17 and we're in the same general range of revenue and earnings why are you convinced share buyback is a good use of cash versus more.

Christopher Rossi: The share gains.

They are there.

Christopher Rossi: I'll get lost in the noise and if you think about the.

Christopher Rossi: If you think about just in the month of December.

Aggressive cost streamlining or M&A to find some growth.

Christopher Rossi: Our midpoint, we probably saw most of that $7 million Miss from our midpoint in the month of December so that kind of a reduction happening that quickly.

Yes, I think.

We think we have the right capital allocation strategy. So your question implies there's a tradeoff going on between.

Christopher Rossi: Can cause the numbers to be massed. The other thing is is it on electric vehicles, we've got lots of indications that we're winning.

Restructuring and taking cost out and we absolutely have that as part of our our investment thesis. That's it that's why we're going after the $100 million and that project is not being not be inhibited because of cash allocation.

Christopher Rossi: Our normal win rate in those type of applications again, most of that is based on our ability to differentiate from a technology perspective. So I agree with you that the share gains can get lost inside of the noise of the cycle of the market.

We're moving at a pace and it's sized properly for what we think we can execute but we're not limited by cash there.

Chris: And volumes I'll remind you are still down about 20 about 15% from 2019 levels.

M&A perspective, we are looking for other opportunities to grow, but we're going to stay within our own fairway and we're looking for opportunities, where we can help accelerate growth.

Mike: Yes. It is.

Mike: Great point it leads to my second question, which is about capital allocation.

Mike: Again, just looking at three years of what it'll be flat sales, but really we can go back to FY 16, or 17 and we're in the same general range of revenue and earnings why are you convinced share buyback is a good use of cash versus more.

And so there is a there is a pipeline of those opportunities that we continue to pursue.

And then Youll have to inform you about those as we go.

Anything else you would add to that I just think the other thing I would add Steve is as we talked about at Investor day.

Aggressive cost streamlining or M&A to find some growth.

Talked about a little bit today in terms of our inventory management, we're really focused on on driving cash performance in the business here. This year and then going forward years, we've got.

Speaker Change: Yes, I think.

Speaker Change: We think we have the right capital allocation strategy. So your question implies there's a tradeoff going on between.

String over the last couple of quarters of generating cash.

Patrick S. Watson: Restructuring and taking cost out and we absolutely have that as part of our our investment thesis. That's it that's why we're going after a $100 million and that project is not being not be inhibited because of cash allocation.

Cash flow is much improved over where we have been and so I think as we as we as we as we work forward here, we're really confident in our ability to drive cash out of the business and that will go back from a standpoint of as Chris said reinvesting back in the business at the pace, we can support as well as fund.

Patrick S. Watson: We're moving at a pace and at sized properly for what we think we can execute but we're not limited by cash there from an M&A perspective, we are looking for other opportunities to grow, but we're going to stay within our own fairway and we're looking for opportunities, where we can help accelerate growth.

<unk> share repurchases as appropriate.

Understood. Thanks for the time.

The next question comes from Andrew <unk> with Morgan Stanley. Please go ahead.

So there is a there is a pipeline of those opportunities that we continue to pursue.

Hi, good morning, and thanks for taking my question just wanted to quickly clarify on January comments, I think you mentioned.

Speaker Change: I'll have to let them worry about those as we go.

Speaker Change: Anything else you'd add to that Pat I, just think the other thing I would add Steve is we as we talked about at Investor Day, we talked about a little bit today in terms of our inventory management, we're really focused on on driving cash performance of the business here. This year and then going forward years, we've got a string.

Continuing versus December.

Wanted to clarify I guess, the leveling off is that basically the same year over year kind of drop that you were seeing in December.

Or is that to mean the January continue to be weaker than December more from a sequential basis.

So just kind of clarify are there and then maybe from a longer term perspective.

Patrick S. Watson: String over the last couple of quarters of generating.

You noted <unk> or manufacturing indices in your in your slides.

Patrick S. Watson: Cash flow is much improved over where we have been and so I think as we as we as we as.

We see maybe a modest pick up in those in kind of the January timeframe.

Patrick S. Watson: As we work forward here, we're really confident in our ability to drive cash out of the business and that will go back from the standpoint of.

How would you kind of read that in terms of your longer term, maybe as we look into kind of the first half of your fiscal year 'twenty five do you anticipate that some of these trends will start to drive.

Patrick S. Watson: Chris said reinvesting back in the business at the pace, we can support as well as funding share repurchases as appropriate.

More of a pickup.

Just on what you historically see.

Yes, I think to answer your first question that was a sequential comment so they've leveled off sort of sequentially.

Speaker Change: Understood. Thanks for the time.

Speaker Change: The next question comes from George Hill with Morgan Stanley. Please go ahead.

And then the.

We're encouraged when the PMI start to go above 50, and look look favorable.

George Hill: Hi, good morning, and thanks for taking my question.

Speaker Change: Just wanted to quickly clarify on January comments, I think you mentioned.

And so I would say to you that the January actually.

When you start to look at some of these these forecasts there was a bit of an uptick that we've seen that before I mean, the U S. S&P global Flash PMI it increased.

Speaker Change: Trends continue versus December just wanted to clarify I guess.

Speaker Change: Leveling off is that basically the same year over year kind of drop if you were seeing in December or is that to mean the January continue to be weak or even in December from a sequential basis. So.

Three three months in a row.

Prior to the lead up of our second our first quarter earnings call.

Patrick S. Watson: So just kind of clarify are there and then maybe from a longer term perspective.

That trend reversed itself.

What encourages me, though is that the there is still.

Patrick S. Watson: You noted PMI manufacturing indices in your in your slides as we see maybe a modest pickup in those in kind of the January timeframe.

A lot of a lot of now industrial companies, we have the advantage of seeing what they're what they're saying about their markets.

Patrick S. Watson: How would you kind of read that in terms of your longer term, maybe as we look into kind of the first half of your fiscal year 'twenty five do you anticipate that some of these trends will start to drive.

They are now projecting their full year candidly or fiscal year 'twenty four and it seems like angel that a lot of them are saying, yes, it's probably going to be a little slower in the first half of the calendar year and Theyre expecting.

Patrick S. Watson: More of a pickup.

Patrick S. Watson: Based on what you historically see.

Patrick S. Watson: Yes, I think to answer your first question that was a sequential comment so they've leveled off sort of sequentially.

Increase in business in the second half.

And so we're encouraged by that.

Patrick S. Watson: And then the.

Okay.

Patrick S. Watson: We're encouraged when the PMI start to go above 50, and look look favorable.

Very helpful. And then maybe just more from a regional standpoint, I guess the dynamic that you saw on December versus January could you talk about that it sounds like maybe Americas and EMEA is an area that might be slowing down a little bit more within that kind of December January timeframe. So just.

Patrick S. Watson: <unk>.

Patrick S. Watson: And so I would say to you that the January actually.

Patrick S. Watson: When you start to look at some of these these forecast there was a bit of an uptick that we've seen that before I mean, the U S. S&P Global Flash PMI had increased.

Just curious if you could unpack some of that more near term nuances, maybe by by the kind of the regions ex China ex Asia.

Patrick S. Watson: Three months in a row.

Prior to the lead up of our second our first quarter earnings call.

Yes, I think most of that slowdown was was in the Americas and.

Patrick S. Watson: That trend reversed so, but what encourages me, though is that the there's still.

And then Asia Pacific, we were expecting frankly, China two to have a recovery and that didn't really happen I think.

Patrick S. Watson: A lot of a lot of now industrial companies, we have the advantage of seeing what they're what they're saying about their markets.

They're going to continue to struggle and we think that will continue for the rest of the year I would say EMEA was.

Patrick S. Watson: They are now projecting their full year candidly or fiscal year 'twenty four and it seems like angel that a lot of them are saying, yes, it's probably going to be a little slower in the first half of the calendar year and they are expecting.

Was about in line with what we what we thought they're already kind of operating at a low industrial production level.

The change there, though is going forward is that was expected to start to improve and it looks like it's going to take a little longer to start to improve.

Patrick S. Watson: The increase in business in the second half.

Yeah.

Patrick S. Watson: And so we're encouraged by that.

Very helpful. Thank you.

The next question comes from Joe Ritchie with Goldman Sachs. Please go ahead.

Speaker Change: Very helpful. And then maybe just more from a regional standpoint, I guess the dynamic that you saw on December versus January could you talk about that it sounds like maybe Americas and EMEA is an area that might be slowing down a little bit more within that kind of December January timeframe. So just curious if you could unpack some of that more near.

Hi, Joe.

Good morning, guys.

Hey, Chris I'm going to start with a broader question I just wanted to kind of understand the cycle that youre seeing today versus maybe some previous cycles that you've seen with this business.

Patrick S. Watson: Term nuances, maybe by by the kind of the regions ex China ex Asia.

It seems different at least on.

Just curious how would you kind of characterize it similarly.

Speaker Change: Yes, I think most of that slowdown was was in the Americas and.

Do you have any expectation for how you guys rebound or Reaccelerate post the cycle.

Speaker Change: And then Asia Pacific, we were expecting frankly, China too.

Yes, I think this.

Speaker Change: Have a recovery and that didn't really happen I think.

Patrick S. Watson: They are going to continue to struggle and we think that will continue for the rest of the year I would say EMEA was.

The cycle and I'll, let I'll, let Pat comment because he's got more history than I do but my.

Patrick S. Watson: Was about in line with what we what we thought they're already kind of operating at a low industrial production level.

My feeling is that this is a little bit different than what we've seen.

I would characterize this as.

Patrick S. Watson: The change there, though is going forward is that was expected to start to improve and it looks like it's going to take a little longer to start to improve.

A continuation of.

What's been a mild downturn.

And previously we expected of course for this to sort of bottom out here and then start to improve in the second half and it looks like it's going to continue to have a mild downturn, but this downturn has been happening in playing out over over quite a long period of time.

Speaker Change: Very helpful. Thank you.

Speaker Change: The next question comes from Joe Ritchie with Goldman Sachs. Please go ahead.

Joseph Alfred Ritchie: Thanks, Joe and good morning, guys.

Joseph Alfred Ritchie: Hey, Chris I'm going to start with a broader question I just wanted to kind of understand the cycle that youre seeing today versus maybe some previous cycles that you've seen with this business.

And we've talked on this call before that's probably due to the fact that there was a huge amount of backlog associated with all the supply chain issues and so that's sort of moderated this so.

Patrick S. Watson: I mean, it seems different at least to us.

I think that.

Typically you might find that once once these.

Speaker Change: Just curious how would you kind of characterize it and then similarly do you have any expectation for how you guys would rebound or Reaccelerate post this cycle.

Volume start to go go negative they go negative for quite a while ago pretty steep we don't see that steep decline, but we recognize we've actually been in decline for some time I think it's been a couple of quarters of volume reduction in metal cutting and now four quarters in infrastructure.

Speaker Change: Yes, I think this.

Speaker Change: The cycle and I'll, let I'll, let Pat comment because he is he's got more of a history than I do but my.

I think that we.

Think that our forecast for the first half sort of contemplated at the midpoint.

Patrick S. Watson: Feeling is that this is a little bit different than what we've seen.

There's not.

There's not an uptick but things are sort of moderating.

Patrick S. Watson: I would characterize this as a.

Patrick S. Watson: A continuation of <unk>.

At the current levels and then I absolutely believe in my in my mind that as industrial production improves in the second half of <unk>.

Patrick S. Watson: What's been a mild downturn.

Patrick S. Watson: And previously we expected of course for this to sort of bottom out here and then start to improve in the second half and it looks like it's going to continue to have a mild downturn, but this downturn has been happening in playing out over over quite a long period of time.

Calendar year 'twenty four.

But that's going to be a good opportunity and maybe the snapback.

It will be quite as great. Because we the decline has been has been a slow maybe the improvement will be slow, but it could also snapped back I guess the answer there is I don't know what that answer is.

Patrick S. Watson: And we've talked on this call before that's probably due to the fact that there was a huge amount of backlog associated with all the supply chain issues and so that's sort of moderated this so.

The snapback looks what would you say Pat Yes, I think one of the things I think that if we think about downturns and kennametal or even short cycle industrial companies over a longer period of time.

Patrick S. Watson: I think that.

Patrick S. Watson: Typically you might find that once once these <unk>.

Patrick S. Watson: Volume start to go go negative they go negative for quite a while ago pretty steep we don't see that steep decline, but we recognize we have actually been in decline for some time I think it's been a couple of quarters of volume reduction in metal cutting and now four quarters in infrastructure.

Over the last 15 years, we've got two events thrown in there that are quite frankly really idiosyncratic right I've got it we've got a global pandemic right and we've got we've got a global financial crisis.

Patrick S. Watson: I think that we.

And.

I'd say in terms of where we're at and Chris mentioned, where we are from a volume perspective in both of the businesses here I think.

Patrick S. Watson: Think that our forecast for the first half sort of contemplates at the mid point that.

Patrick S. Watson: That there is not.

We've got a much more I'll.

Patrick S. Watson: There's not an uptick but things are sort of moderating.

I will say normalize.

Industrial downturn right, that's kind of playing out where the volumes are coming down gradually.

Patrick S. Watson: At the current levels and then I absolutely believe in my in my mind that as industrial production improves in the second half of <unk>.

And at this point in time.

Patrick S. Watson: Calendar year 'twenty four.

There is some stability we talk about how the business kind of performed here in December and I was just kind of comment in terms of the overall performance in December.

Patrick S. Watson: But that's going to be a good opportunity and maybe the snapback.

Patrick S. Watson: Won't be quite as great. Because we the decline has been has been slow maybe the improvement will be slow, but it could also snapped back I guess the answer there is I don't know what that answer is.

We came in within that sales outlook, we had in place for the full quarter, although a bit lower in the in the end we're than we would've liked to have been but I'd say the business kind of performed within the range of as expected.

Patrick S. Watson: On how the snapback looks what would you say that.

Patrick S. Watson: One of the things I think.

Patrick S. Watson: If we think about downturns and kennametal or even short cycle industrial companies over a longer period of time.

In Q2.

As we think about how that rolls forward here. It doesn't feel like there's any places where you would see historically if you've looked at some of the other downturns or even some of the slowdown that occurred in 2015.

Patrick S. Watson: Over the last 15 years, we've got two events thrown in there that are quite frankly really idiosyncratic right. We've got we've got a global pandemic right and we've got we've got a global financial crisis.

You've got a dramatic fall off in one of the end markets, we do see some choppiness and energy within oil and gas we've talked about some of the issues that are going on.

Patrick S. Watson: And.

Patrick S. Watson: I'd say in terms of where we're at and Chris mentioned, where we are from a volume perspective in both of the businesses here I think.

In aerospace, but the base feels pretty solid in terms of where the where demand is at this point in time as Chris talked about as we kind of move forward, what's that recovery looks like I think we'll have to see how that plays out over time.

Patrick S. Watson: We've got a much more I'll.

Speaker Change: I will say normalize.

Speaker Change: Industrial downturn right, that's kind of playing out where the volumes are coming down gradually.

Patrick S. Watson: And at this point in time.

Patrick S. Watson: There is some stability we talk about how the business kind of performed here in December and I'll, just kind of comment in terms of the overall performance in December.

Got it.

Very helpful color. Thank you and then just my follow up question.

I'm trying to I'm trying to bridge the 2024.

Patrick S. Watson: We came in within that sales outlook, we had in place for the full quarter, although a bit lower in the in the end we're than we would've liked to have been but I'd say the business kind of performed within the range of as expected.

The EPS guide for 2023.

There's a few moving pieces.

Specifically it looks like Youre Annualizing your synergies at a higher rate which is great.

Patrick S. Watson: In Q2.

I don't know, maybe maybe you realized 2000 $25 million or so this year.

Patrick S. Watson: And as we think about how that rolls forward here. It doesn't feel like there's any places where you would see historically if you've looked at some of the other downturns and even some of the slowdown that occurred in 2015, where you've got a dramatic fall off in one of the end markets. We do see some choppiness in energy within oil and gas we've talked.

But what are the kind of decrementals that you've got baked in to your base volume for the year and then also just on pumps.

Do you have do you have a sense for how much of a tailwind that's expected to be as you exit the fourth quarter.

Yes, so as we think about that the year over year right.

About some of the issues that are going on.

Patrick S. Watson: In aerospace, but the base feels pretty solid in terms of where the where demand is at this point in time as Chris talked about as we kind of move forward, what's that recovery looks like I think.

I'll walk you through what are the main components, obviously, you've got some price realization, that's really going to be overcoming some of the inflation thats in the business.

From a raw material perspective.

Patrick S. Watson: We'll have to see how that plays out over time.

While we have raw material headwinds I'll say in the middle of the year here, we're going to see some of that slipped we talked about.

Speaker Change: Got it.

Speaker Change: Very helpful color from both of you. Thank you and then just as my follow up question.

Speaker Change: I'm trying to I'm trying to bridge the 2024.

In terms of going into.

Q2 here at $12 million $13 million headwind that headwind will go away as we get to the back end of the year. So raw material for the full year I would say it should be slightly positive for us as we get through it I think you've kind of talked about where the restructuring number is coming in terms of like 20 to 25 range.

Speaker Change: The EPS guide for 2023.

Patrick S. Watson: There's a few moving pieces.

Patrick S. Watson: Specifically it looks like Youre annualizing synergies at a higher rate, which is great.

Patrick S. Watson: I don't know, maybe you realized 2000 $25 million or so this year.

Patrick S. Watson: But what are the kind of decrementals.

It's reasonable in terms of again the cadence we talked about earlier on the call taxability in shares will be slight tailwind as well and that really gets you to the big number.

Patrick S. Watson: Again tier base volume for the year and then also just on pumps.

Patrick S. Watson: Do you have do you have a sense for how much of that kind of a tailwind that's expected to be as you exit the fourth quarter.

In terms of what's changing there and that's that's the that's the volume right and so unfavorable volume, yes and.

Patrick S. Watson: Yes.

Patrick S. Watson: As we think about that the year over year right.

Yes, probably a little bit normal as we work our way through here. Some decrementals again as we've talked about just kind of managing production and inventory as we move through the back half of the year.

Speaker Change: I'll walk you through what are the main components, obviously, you've got some price realization thats really going to be overcoming some of the inflation that's in the business.

Patrick S. Watson: From a raw material perspective.

Yeah.

Patrick S. Watson: While we have raw material headwinds I'll say in the middle of the year here, we're going to see some of that slipped we talked about.

Great. Thank you.

This concludes our question and answer session I would like to turn the conference back over to Chris Rossi for any closing remarks.

Patrick S. Watson: In terms of going into.

Patrick S. Watson: Q2 here at $12 million $13 million headwind that headwind will go away as we get to the back end of the year. So raw materials for the full year I would say it should be slightly positive for us as we get through it I think you've kind of talked about where the restructuring number is coming in terms of like 20 to 25 range.

Thanks, operator, and thanks, everyone for joining the call today.

In closing, let me just say that we continue to execute our initiatives in the face of challenging market conditions. We're absolutely focused on what we can control and drive margin improvement and the share gains throughout the.

The economic cycle is.

We appreciate your interest and support and please don't hesitate to reach out to Mike. If you have any questions have a nice day.

Patrick S. Watson: That's reasonable in terms of again the cadence we talked about earlier on the call taxability in shares will be slight tailwind as well and that really gets you to the big number.

A replay of this event will be available approximately one hour after its conclusion.

Patrick S. Watson: In terms of what's changing there and that's that's the that's the volume right and so unfavorable volume yes.

Access the replay you may dial toll free within the United States 87734, 475 to nine.

Patrick S. Watson: And yes, probably a little bit normal as we work our way through here Decrementals again, as we've talked about just kind of managing production and inventory as we move through the back half of the year.

Side of the United States, you May dial four one to 3170088.

You'll be prompted to enter the conference I'd.

Patrick S. Watson: Okay.

Speaker Change: Great. Thank you.

For 188379, then the pound or hash symbol you will be asked to record your name and company.

Patrick S. Watson: This concludes our question and answer session I would like to turn the conference back over to Chris Rossi for any closing remarks.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Christopher Rossi: Thanks, operator, and thanks, everyone for joining the call today.

Patrick S. Watson: In closing, let me just say that we continue to execute our initiatives in the face of challenging market conditions. We're absolutely focused on what we can control and drive margin improvement and the share gains throughout the.

Patrick S. Watson: The economic cycle is.

Patrick S. Watson: As always we appreciate your interest and support and please don't hesitate to reach out to Mike. If you have any questions have a nice day.

Patrick S. Watson: A replay of this event will be available approximately one hour after its conclusion.

Patrick S. Watson: To access the replay you may dial toll free within the United States 87734, 475 to nine.

Patrick S. Watson: Outside of the United States, you May dial four one to 3170088.

Patrick S. Watson: You'll be prompted to enter the conference I'd.

Patrick S. Watson: For 188379, then the pound or hash symbol you will be asked to record your name and company.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Patrick S. Watson: [music].