Q2 2024 Gates Industrial Corp PLC Earnings Call
Thank you for standing by and welcome to the Gates Industrial Corporation second quarter
Unknown Attendee: Industrial Corporation, Second Corp.
Operator: Corporation 2nd Quarter 2020 4Earnings Conference Call. All lines have been placed on mute to prevent any background noise.
Unknown Attendee: 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise.
Speaker Change: earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.
Unknown Attendee: After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you.
If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, again press the star 1. Thank you. I'd now like to turn the call over to Richard Kwas, Vice President, Investor Relations. May begin.
Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. I'd now like to turn the call over to Richard Kwas, Vice President, Investor Relations, may I begin?
Richard Kwas: I'd now like to turn the call over to Kwas, Vice President, Investor Relay. This may begin.
Ivo Jurek: Good morning, and thank you for joining us on our second quarter 2024 earnings call.
Richard Michael Kwas: Good morning, and thank you for joining us on our second quarter 2024 earnings call. I'll briefly cover our non-GAAP and forward-looking language before passing the call over to our CEO, Ivo Jurek, who will be followed by Brooks Mallard, our CFO. Before the market opened today, we published our second quarter 2024 results. A copy of the release is available on our website at investors.gates.com. Our call this morning is being webcast and is accompanied by a slide presentation.
Richard Michael Kwas: Good morning and thank you for joining us on our second quarter 2024 earnings call.
Richard Kwas: I'll briefly cover our non-GAAP and forward-looking language before passing the call over to our CEO, Ivo Jurek, will be followed by Brooks Mallard, our CFO. Before the market opened today, we published our second quarter 2024 results. Copy the releases available on our website at investors.gates.com. Our call this morning is being webcast and is accompanied by a slide presentation. On this call, we will refer to certain non-GAAP financial measures that we believe are useful in evaluating our performance. Reconciliation of historical non-GAAP financial measures is included in our earnings release and the slide presentation, each of which is available in the Investor Relations section of our website.
Speaker Change: I'll briefly cover our non-GAAP and forward-looking language before passing the call over to our CEO, Ivo Jurek, who will be followed by Brooks Mallard, our CFO.
Speaker Change: Before the market opened today, we published our second quarter 2024 results.
Copy of the release is available on our website at investors.gates.com
Our call this morning is being webcast and is accompanied by a slide presentation.
Richard Michael Kwas: On this call, we will refer to certain non-GAAP financial measures that we believe are useful in evaluating our performance. Reconciliations of historical non-GAAP financial measures are included in our earnings release and the slide presentation, each of which is available in the investor relations section of our website. Please refer now to slide two of the presentation, which provides a reminder that our remarks will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act.
Speaker Change: On this call, we will refer to certain non-GAAP financial measures that we believe are useful in evaluating our performance.
Richard Kwas: Please refer now to slide two of the presentation, which provides a reminder that our remarks will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward looking statements are subject to risks that could cause actual results to be materially different from those expressed in or implied by such forward looking statements. These risks include, among others, matters that we have described in our most recent hand report on Form 10-K and in other filings we make with the SEC. We disclaimed any obligation to update these forward-looking statements.
Richard Michael Kwas: These forward-looking statements are subject to risks that could cause actual results to be materially different from those expressed in or implied by such forward-looking statements. These risks include, among others, matters that we have described in our most recent annual report on Form 10-K and in other filings we make with the SEC. We disclaim any obligation to update these forward-looking statements. Later this quarter, we will be attending the Jeffrey's Industrial Conference and Morgan Stanley's 12th Annual Laguna Conference. We look forward to meeting with many of you.
Speaker Change: These forward-looking statements are subject to risk that could cause actual results to be materially different from those expressed in, or implied by, such forward-looking statements.
Speaker Change: These risks include, among others, matters that we have described in our most recent annual report on Form 10-K and in other filings we make with the SEC. We disclaim any obligation to update these forward-looking statements.
Richard Kwas: Later this quarter, we will be attending the Jefferies Industrial Conference and Morgan Stanley's 12th Annual Laguna Conference. We look forward to meeting with many of you.
Later this quarter, we will be attending the Jeffrey's Industrial Conference and Morgan Stanley 's 12th Annual Laguna Conference. We look forward to meeting with many of you. Before we start, please note all comparisons are against the prior year period, unless otherwise, unless stated otherwise.
Richard Kwas: Before we start, please note all comparisons are against the prior year period, unless otherwise, unless they've otherwise. Also, please note that we have recast our adjusted EPS figures for 2023 and year to date, 2024 using a normalized adjusted effect attack rate. Historically, many non-recurring individual items have influenced our tax effect attack rate. To minimize quarterly volatility and better reflect our core operations, we've chosen to remove discrete items from our adjusted effective tax rate and recast historical earnings to provide an apples-to-apples comparison. I believe this approach will be beneficial to our investors and analysts, and please see the appendix for more information.
Richard Michael Kwas: Before we start, please note all comparisons are against the prior year period unless otherwise stated otherwise. Also, please note that we have recast our adjusted EPS figures for 2023 and year-to-date 2024 using a normalized adjusted effective tax rate. Historically, many non-recurring individual items have influenced our tax affected tax rate. To minimize quarterly volatility and better reflect our core operations, we have chosen to remove discrete items from our adjusted effective tax rate and recast historical earnings to provide an apples-to-apples comparison. We believe this approach will be beneficial to our investors and analysts, and please see the appendix for more information. Now, with that all out of the way, I'll turn it over to Ivo.
Speaker Change: To minimize quarterly volatility and better reflect our core operations, we have chosen to remove discrete items from our adjusted effective tax rate and recast historical earnings to provide an apples-to-apples comparison.
Ivo Jurek: So, with that all out of the way, I'll turn it over to Evo.
Ivo Jurek: Thank you, Rich.
Ivo Jurek: Good morning, everyone. We'll start on slide three. Today, we reported solid Q2 results delivered through focused execution by our entire team of global gates associates. In a second quarter, we saw our revenues moderate 4% from the prior year on a core base.
Ivo Jurek: Good morning, everyone. We'll start on slide three. Today, we reported solid Q2 results delivered through focused execution by our entire team of Global Gates Associates. In the second quarter, we saw our revenues moderate 4% from the prior year on a core basis, and first sales decreased more than anticipated, reflecting the present underlying business condition. As we anticipated, demand in our industrial and markets remained somewhat soft. However, we experienced incremental demand weakness in agriculture and in construction applications.
Speaker Change: In the second quarter, we saw our revenues moderate 4% from the prior year on a core basis.
Ivo Jurek: purposes. First fit sales decreased more than anticipated, reflecting the present underlying business conditions. As we anticipated, demand in our industrial and markets remained somewhat soft. However, we experienced incremental demand weakness in agriculture and end construction applications. Replacement revenues grew 1% with automotive outpacing industrial. Book to bill and it slightly below 1. We delivered a solid increase in our adjusted EBITAP margin while managing to a softer volume environment. Our adjusted EBITAP margin grew by 170 basis points. Strong growth margin expansion underpinned the improvement. Gross margin benefited from favorable channel mix compared to the prior year period.
Speaker Change: Perfit sales decreased more than anticipated, reflecting the present underlying business conditions.
Speaker Change: As we anticipated, demand in our industrial end markets remained somewhat soft. However, we experienced incremental demand weakness in agriculture and end construction applications.
Ivo Jurek: Replacement revenues grew 1% with automotive outpacing industrial, book to bill, and it's slightly below one. We delivered a solid increase in our adjusted EBITDA margin while managing through a softer volume environment. Our adjusted EBITDA margin grew by 170 basis points. Strong Gross Margin Expansion Underpinned the Improvement Gross margin benefited from favorable channel mix compared to the prior year period, as well as continued progress with our enterprise initiatives. Our net leverage ratio declined to 2.3 times, a one-half turn reduction relative to last year's second quarter. During the quarter, we refinanced our term loans and unsecured bonds at attractive rates and extended our earliest maturity to the end of the decade.
Speaker Change: Book 2 Bill and it's Slide 3 Bill 1.
Speaker Change: We delivered a solid increase in our adjusted EBITDA margin while managing through a softer volume environment.
Speaker Change: Our adjusted EBITDA margin grew by 170 basis points.
Speaker Change: Strong Gross Margin Expansion Underpinned the Improvement
Speaker Change: Gross margin benefited from favorable channel mix compared to the prior year period, as well as continued progress with our enterprise initiatives.
Ivo Jurek: As well as continued progress with our enterprise initiatives. Our net leverage ratio declined to 2.3 times, a 1.5 turn reduction relative to last year's second quarter. During the quarter, we refinanced our term loans and unsecured bonds at attractive rates and extended our earliest maturity to the end of the decade. We are trimming our guidance due to the extended softness in our industrial first aid markets, particularly of Highway. Our updated revenue guidance is consistent with our historical seasonality. Brooks will provide more color and comments about our updated assumptions later in the presentation. Of note, last week, our Board of Directors authorized a new $250 million share repurchase authorization that expires at the end of calendar 2025.
Speaker Change: Our net leverage ratio declined to 2.3 times, a one-half turn reduction relative to last year's second quarter.
Speaker Change: During the quarter, we refinanced our term loans and unsecured bonds at abstractive rates and extended our earliest maturity to the end of the decade.
Ivo Jurek: We are trimming our guidance due to the extended softness in our industrial first markets, particularly highway. Our updated revenue guidance is consistent with our historical seasonality. Brooks will provide more color and comments about updated assumptions later in the presentation.
Speaker Change: We are trimming our guidance due to the extended softness in our industrial first-speed markets, particularly of highway.
Speaker Change: Our updated revenue guidance is consistent with our historical seasonality.
Speaker Change: Brooks will provide more color and comments about our updated assumptions later in the presentation.
Ivo Jurek: Of note, last week, our board of directors authorized a new $250 million share repurchase authorization that expires at the end of calendar 2025. The authorization provides us with an efficient tool to return capital to our shareholders opportunistically. Please turn to slide four. In the second quarter, we posted revenue of $886 million, a 4% decrease on a core basis. However, replacement revenues grew slightly and outperformed first state revenue. The industrial end markets primarily drove the decline in first fit.
Ivo Jurek: The authorization provides us with an efficient tool to return capital to our shareholders opportunistically. Please turn to slide 4. In the second quarter, we posted revenue of $886 million, a 4% decrease on a core basis. Replacement revenues grew slightly and outperformed first aid revenues. The industrial and markets primarily drove to decline in first aid. At the end market level, construction and agriculture were most impactful to the industrial first aid revenue performance. Adjusted EBITDA was $202 million and represented a margin rate of 22.8%, an increase of 170 basis points. The increase was fueled by a 270 basis points increase in gross margin.
Brooks: Replacement revenues grew slightly and outperformed first seed revenues.
Brooks: The industrial end markets primarily drove the decline in first bid.
Ivo Jurek: At the end market level, construction and agriculture were most impactful to the industrial first bid revenue performance. Adjusted EBITDA was $202 million and represented a margin rate of 22.8%, an increase of 170 basis points. The increase was fueled by a 270 basis points increase in gross margin. The execution of our enterprise initiatives continues to deliver improved operating performance. In addition, the higher mix of replacement revenues, which generally carries above average margin relative to our corporate average, supported the increase in gross margin.
Brooks: At the end market level, construction and agriculture were most impactful to the industrial first bid revenue performance.
Brooks: Adjusted EBITDA was $202 million and represented a margin rate of 22.8%, an increase of 170 basis points.
Brooks: The increase was fueled by a 270 basis points increase in gross margin.
Ivo Jurek: The execution of our enterprise initiatives continued to deliver improved operating performance. In addition, the higher mix of replacement revenues, which generally carries above average margin relative to our corporate average, supported the increase in gross margin. We also benefited from inventory build related to our anticipation to gradually improving demand trends in the second half, as well as to support product line expansion with a new and existing customer. Adjusted earnings per share was 36 cents, which represented a 6% increase. Higher operating income and lower share counts drove the growth. On slide 5, we will review our segment performance.
Brooks: The execution of our enterprise initiatives continue to deliver improved operating performance.
Ivo Jurek: We also benefited from inventory build related to our anticipation of gradually improving demand trends in the second half, as well as to support product line expansion with a new and existing customer. Adjusted earnings per share was $0.36, which represented a 6% increase; higher operating income and lower share counts drove the growth.
Brooks: We also benefited from inventory build related to our anticipation for gradually improving demand trends in the second half, as well as to support product line expansion with a new and existing customer.
Brooks: Adjusted earnings per share was $0.36, which represented a 6% increase.
Brooks: Higher operating income and lower share counts drove the growth.
Ivo Jurek: On slide five, we will review our segment performance. In the power transmission segment, our revenues were $542 million, which translated to a 3.5% decrease on a core basis. The replacement channel grew 1%, with industrial replacement growing modestly and automotive replacement being about flat. First-fit revenues decreased double digits, impacted by a mid-teens decrease in industrial first-fits; automotive first fit was also down due to softer production trends in international markets. The majority of our end markets in power transmission decreased low to mid single digits. Personal mobility revenues continue to decline, although the rate of change is starting to moderate.
Brooks: On slide five, we will review our segment performance.
Ivo Jurek: In the power transmission segment, our revenues were $542 million, which translated to a 3.5% decrease on a core basis. The replacement channel grew 1% with industrial replacement growing modestly and automotive replacement being about flat. First phase revenues decreased double digits, impacted by a mid-teens decrease in industrial first fit. Automotive first fit was also down due to softer production trends in international markets. The majority of our end markets in power transmission decreased low to mid single digits. Personal mobility revenues continued to decline, although the rate of change is starting to moderate. Energy and on highway revenues posted growth, led by solid expansion in our developed geographies.
Brooks: In the power transmission segment, our revenues were $542 million, which translated to 3.5% decrease on a core basis.
Brooks: First-fit revenues decreased double-digits, impacted by a mid-teens decrease in industrial first-fit.
Brooks: Automotive first fit was also down due to softer production trends in international markets.
Brooks: The majority of our end markets in power transmission decreased low to mid-single digits.
Brooks: Personal mobility revenues continue to decline, although the rate of change is starting to moderate.
Ivo Jurek: Energy and on-highway revenues posted growth led by solid expansion in our developed geography with regard to top-line opportunity. During the quarter, we secured an agreement to extend our market presence with a national replacement channel partner that we anticipate will begin to meaningfully ramp early next year. The new business broadens our market reach for our mission critical products. Power Transmissions Adjusted EBITDA Margin expanded to 110 basis points. The margin improvement was led by contributions from our enterprise initiatives, as well as favorable channel mix, partially offset by lower volume; the fluid power segment generated revenues of $344 million, while poor revenues decreased 5%. Industrial first declined in the mid-teens driven by weaker activity in agriculture and construction. However, industrial replacement sales declined at about the same rate as the overall sector.
Brooks: Energy and on-highway revenues posted growth led by solid expansion in our developed geographies.
Ivo Jurek: With regards to top line opportunities during the quarter, we secured an agreement to extend our market presence with a national replacement channel partner that we anticipate will begin to meaningfully ramp early next year. The new business broadens our market reach for our mission critical products. Power transmissions adjusted EBITDA margin expanded 210 basis points. The margin improvement was led by contributions from our enterprise initiatives, as well as favorable channel mix, partially offset by lower volumes. Our fluid power segment generated revenues of $344 million for revenues decreased 5%. Industrial first fit declined mid-teens driven by weaker activity in agriculture and construction.
Brooks: With regards to top line opportunities, during the quarter, we secured an agreement to extend our market presence with a national replacement channel partner that we anticipate will begin to meaningfully ramp early next year.
Brooks: The new business broadens our market reach for our mission-critical products.
Brooks: Power Transmissions Adjusted EBITDA Margin Expanded to 110 Basis Points
Brooks: The margin improvement was led by contributions from our enterprise initiatives, as well as favorable channel mix, partially offset by lower volumes.
Brooks: Fluid Power Segment Generated Revenues of $344 million.
Brooks: Poor revenues decreased 5%.
Brooks: Industrial first decline mid-teens driven by weaker activity in agriculture and construction.
Ivo Jurek: Industrial replacement sales declined at about the same rate as the overall segment. Automotive replacement was a partial offset, increasing low double digits. Similar to power transmission, we have reached an agreement to extend our partnership with one of our largest replacement channel partners to drive product conversions to gates mission critical components in an important US geography. This is an exciting opportunity that broadens our ability to more efficiently serve our customers. Additionally, in a data center space, we are now specified with multiple customers and are in discussions with several servers and chip manufacturers to support their application needs.
Brooks: Industrial replacement sales declined at about the same rate as the overall segment.
Ivo Jurek: I don't want it replacement was a partial off, increasing by low double digits. Similar to power transmission, we have reached an agreement to extend our partnership with one of our largest replacement channel partners to drive product conversions to Gates mission critical components in an important US geography. This is an exciting opportunity that broadens our ability to more efficiently serve our customers. Additionally, in the data center space, we are now working with multiple customers and are in discussions with several servers and chip manufacturers to support their application needs. I will now turn the call over to Brooks for additional comments on the quarter.
Brooks: Automotive replacement was a partial offset, increasing low double digits.
Brooks: Similar to power transmission, we have reached an agreement to extend our partnership with one of our largest replacement channel partners to drive product conversions to Gates' mission-critical components in an important U.S. geography.
Brooks: This is an exciting opportunity that broadens our ability to more efficiently serve our customers.
Brooks: Additionally, in a data center space, we are now specified with multiple customers and are in discussions with several servers and chip manufacturers to support their application needs.
Brooks Mallard: I will now turn the call over to Brooks, additional comments on the quarter. Thank you, Vivo. Let's turn to slide six, which shows our core revenue performance by region. In North America, core revenues decline approximately 4%. Industrial Channel core revenues fell high single digits, primarily due to a double-digit decrease in first step. North American industrial replacement revenues increased slightly. Within industrial, the agriculture and construction market for our softest end markets, while personal mobility was down double digits. Energy and commercial on highway increased modestly. Automotive grew low single digits, with replacement revenue growth slightly stronger than first step.
Brooks: I will now turn the call over to Brooks for additional comments on the quarter. Brooks.
Unknown Attendee: Let's turn to slide six, which shows our core revenue performance by region. In North America, core revenues declined approximately 4%. Industrial Channel core revenues fell high single digits, primarily due to a double digit decrease in first foot.
Brooks: Thank you, Ivo.
Brooks: Let's turn to slide 6, which shows our core revenue performance by region.
Brooks: In North America, core revenues declined approximately 4%.
Speaker Change: Industrial Channel Core Revenues fell high single digits primarily due to a double digit decrease in first foot.
Unknown Attendee: North American Industrial Replacement Revenues Increased Slightly. Within industrial, the agriculture and construction markets were our softest end markets, while personal mobility was down double digits, energy, and commercial on highway increased modestly. Automotive grew low single digits, with replacement revenue growth slightly stronger than first. In EMEA, core revenues fell about 7%. Slower demand trends in the industrial markets weighed on the region's core top-line performance; both industrial first and replacement core revenues fell double digits.
Speaker Change: North American Industrial Replacement Revenues Increased Slightly
Speaker Change: Within industrial, the agriculture and construction markets were our softest end markets, while personal mobility was down double digits.
Brooks: Energy and commercial on highway increased modestly.
Brooks: Automotive grew low single digits, with replacement revenue growth slightly stronger than first fit.
Brooks Mallard: In Amia, core revenues fell about 7%. Solar demand trends in the industrial markets weighed on the region's core top-line performance. Both industrial first and replacement core revenues fell double digits. Four revenues and automotive were about flat, with automotive replacement growth offsetting a decline in first step. China core revenues decreased modestly. Automotive experienced a decrease driven by first step applications. Automotive replacement increased low single digits. Our industrial revenues increased modestly, supported by solid growth in our replacement channel. In South America, core revenues decreased slightly, with meaningful declines in the industrial first step markets largely neutralized by growth and replacement channels.
Brooks: In EMEA, core revenues fell about 7%.
Brooks: Solar demand trends in the industrial markets weighed on the region's core top-line performance.
Brooks: Both industrial first fit and replacement core revenues fell double digits.
Unknown Attendee: More revenues in the automotive were about flat, with automotive replacement growth offsetting a decline in first step. China Core Revenues Decreased Modestly, Automotive experience that decreased driven by first good applications, and automotive replacement increased low single digit. Our industrial revenues increased modestly, supported by solid growth in our replacement channel. In South America, core revenues decreased slightly, with meaningful declines in the industrial first fit markets, largely neutralized by growth and replacement chance. East Asia grew slightly, with automotive growth more than offsetting an overall decline in the industrial market.
Brooks: Four revenues in automotive were about flat, with automotive replacement growth offsetting a decline in first fit.
Brooks: Channel Corp revenues decreased modestly.
Brooks: Automotive experienced a decrease driven by first-fit applications. Automotive replacement increased low single digits.
Brooks: Our industrial revenues increased modestly supported by solid growth in our replacement channel.
Brooks: In South America, core revenues decreased slightly, with meaningful declines in the industrial first fit markets, largely neutralized by growth and replacement channels.
Brooks Mallard: East Asia grew slightly, with automotive growth more than offsetting an overall decline in the industrial markets.
Brooks: East Asia grew slightly, with automotive growth more than offsetting an overall decline in the industrial markets.
Brooks Mallard: On slide seven, we lay out the key drivers of the year-over-year change in adjusted earnings per share. Operating performance contributed approximately one cent of growth, and a lower share count represented another one cent of growth. Higher taxes were all set by lower interest expense.
Unknown Attendee: On slide seven, we lay out the key drivers of the year over year change and adjusted earnings per share. Operating performance contributed approximately 1 cent of growth, and a lower share count represented another 1 cent of growth. Higher taxes were offset by lower interest expenses.
Brooks: On slide 7, we lay out the key drivers of the year-over-year change in adjusted earnings per share.
Brooks: Operating performance contributed approximately 1 cent of growth and a lower share count represented another 1 cent of growth.
Brooks: Higher taxes were offset by lower interest expense.
Brooks Mallard: Slide eight has an update on our cash flow performance and balance sheet. Our free cash flow for the second quarter was $67 million, which represented free cash flow conversion of 70%. Our trade working capital in dollars increased slightly relative to last year's second quarter, primarily due to inventory build to support the new business at our channel partners, even highlighted earlier, and to protect the service levels for our existing customer base. We intend to reduce our inventories in the second half of the year in line with our normal season out. Our net leverage ratio finished at 2.3 times, which is one half a turn lower than the second quarter of 2023.
Unknown Attendee: Slide 8 has an update on our cash flow performance and balance sheet. Our free cash flow for the second quarter was $67 million, which represented a free cash flow conversion of 70%. Our trade working capital in dollars increased slightly relative to last year's second quarter, primarily due to inventory build to support the new business at our channel partners, as Ivo highlighted earlier, and to protect the service levels for our existing customer base. We intend to reduce our inventories in the second half of the year in line with our normal seasonality.
Brooks: Slide 8 has an update on our cash flow performance and balance sheet.
Brooks: Our free cash flow for the second quarter was $67 million, which represented free cash flow conversion of 70%.
Ivo: Our trade working capital in dollars increased slightly relative to last year's second quarter, primarily due to inventory build to support the new business that our channel partners Ivo highlighted earlier, and to protect the service levels for our existing customer base.
Speaker Change: We intend to reduce our inventories in the second half of the year in line with our normal seasonality.
Unknown Attendee: Our net leverage ratio finished at 2.3 times, which is one half a turn lower than the second quarter of 2023. During the second quarter of 2024, we refinanced our term loans and unsecured bonds at an attractive blended rate that lowers our annualized interest. In addition, our nearest debt maturity is now 2029. Our trailing 12-month return on invested capital expanded approximately 250 basis points to 23.1% and was primarily fueled by higher margins. We believe our balance sheet is in solid shape, and we intend to remain opportunistic in returning capital to shareholders.
Speaker Change: Our net leverage ratio finished at 2.3 times, which is one half a turn lower than the second quarter of 2023.
Brooks Mallard: During the second quarter of 2024, we refinanced our term loans and unsecured bonds at an attractive blended rate that lowers our annualized interest expense. In addition, our nearest debt maturity is now 2029. Our Trailing 12 Month, Return on Invested Capital, expanded approximately 250 basis points to 23.1% and was primarily fueled by higher margin. We believe our balance sheet is in solid shape, and we intend to remain opportunistic, returning capital to shareholders.
Speaker Change: During the second quarter of 2024, we refinanced our term loans and unsecured bonds at an attractive blended rate that lowers our annualized interest expense.
Speaker Change: In addition, our nearest debt maturity is now 2029.
Speaker Change: Our trailing 12-month return on invested capital expanded approximately 250 basis points to 23.1% and was primarily fueled by higher margins.
Speaker Change: We believe our balance sheet is in solid shape and we intend to remain opportunistic, returning capital to shareholders.
Brooks Mallard: Shifting now to our updated 2024 guidance on slide 9, where we have trimmed our 2024 guidance. We have lowered core revenue expectations to a range of minus 4 to minus 2% from our prior range of minus 3 to plus 1%. At the midpoint, we now expect our core revenues to be down about 3% compared to a midpoint of down 1% previously. The majority of our markets have performed as we had anticipated heading into the second half of the year. However, industrial first-fit demand trends have gotten softer in certain areas, most notably in agriculture and construction.
Unknown Attendee: Shifting now to our updated 2024 guidance on slide nine, where we have trimmed our 2024 guidance. We have lowered core revenue expectations to a range of minus 4 to minus 2% from our prior range of minus 3 to plus 1%. At the midpoint, we now expect our core revenues to be down about 3% compared to a midpoint of down 1% previously. The majority of our markets have performed as we had anticipated heading into the second half of the year.
Speaker Change: Shifting now to our updated 2024 guidance on slide 9, where we have trimmed our 2024 guidance.
Speaker Change: We have lowered core revenue expectations to a range of minus 4 to minus 2 percent from our prior range of minus 3 to plus 1 percent.
Speaker Change: At the midpoint, we now expect our core revenues to be down about 3% compared to a midpoint of down 1% previously.
Speaker Change: The majority of our markets have performed as we had anticipated heading into the second half of the year.
Unknown Attendee: However, industrial first fit demand trends have gotten softer in certain areas, most notably in agriculture and construction. In addition, while it's a relatively small end market for us, automotive OEM production trends have softened recently. We are now seeing more extended levels of summer shutdowns from the automotive OEM sector.
Speaker Change: However, industrial first fit demand trends have gotten softer in certain areas, most notably in agriculture and construction.
Brooks Mallard: In addition, while it's a relatively small end market for us, automotive OEM production trends have softened recently. We are now seeing more extended levels of summer shutdowns from the automotive OEMs. We are reducing our adjusted EBITDA guidance to a range of $740 million to $770 million. The $750 million midpoint is $20 million lower than our prior guidance, with the headwind from lower volume and forward exchange being partially offset by execution on our enterprise initiatives. Our adjusted earnings per range is now $1.29 per share to $1.35 per share and incorporates our new tax methodology. Our guidance for capital expenditures and free cash flow conversion remains unchanged.
Unknown Attendee: We are reducing our adjusted EBITDA guidance to a range of $740 million to $770 million. The $755 million midpoint is $20 million lower than our prior guidance, with the headwind from lower volume and foreign exchange being partially offset by execution on our enterprise initiative. Our adjusted earnings per share range is now $1.29 per share to $1.35 per share and incorporates our new tax methodology. Our guidance for capital expenditures and free cash flow conversion remains unchanged.
Speaker Change: The $755 million midpoint is $20 million lower than our prior guidance, with the headwind from lower volume and foreign exchange being partially offset by execution on our enterprise initiatives.
Brooks Mallard: For the third quarter, we expect revenues to be in the range of $825 million to $855 million. At the midpoint, we anticipate core revenues to decrease approximately 2% year-over-year. We estimate adjusted EBITDA margin to decrease about 40 basis points year-over-year at the midpoint.
Unknown Attendee: For the third quarter, we expect revenues to be in the range of $825 million to $855 million. At the midpoint, we anticipate core revenues to decrease approximately 2% year over year. We estimate the adjusted EBITDA margin to decrease about 40 basis points year over year at the midpoint. On slide 10, we walk from our prior adjusted earnings per share guidance to our updated guidance. From left to right, we project about a three percent impact from lower operating income with the unfavorable impact of lower sales volumes, partially offset by enterprise initiatives.
Speaker Change: We estimate adjusted EBITDA margin to decrease about 40 basis points year-over-year at the midpoint.
Brooks Mallard: On slide 10, we walk from our prior adjusted earnings per share guidance to our updated guidance. From left to right, we project about a three-cent impact from lower operating income, with the unfavorable impact of lower sales volumes partially offset by enterprise initiatives. The cost associated with accelerated new business conversions is approximately two cents per share. We expect incremental growth and profitability from this investment to begin in Q1 of 2025. Unfavorable FX approximates about a two-cent per share hit. Lower interest expense, higher tax and other items, net to about three cents of adjusted earnings per share benefit.
Speaker Change: From left to right, we project about a 3 cent impact from lower operating income with the unfavorable impact of lower sales volumes partially offset by enterprise initiatives.
Unknown Attendee: The cost associated with accelerated new business conversions is approximately two cents per share. We expect incremental growth and profitability from this investment to begin in Q1 of 2025. Unfavorable FX approximates about a two cent per share head. Lower interest expense, higher tax, and other items net to about three cents of adjusted earnings per share benefit. With that, I will turn it over to Ivo for some summary comments.
Speaker Change: Unfavorable FX approximates about a 2 cent per share headway.
Ivo Jurek: With that, I will turn it over to Ivo for some summary comments.
Ivo Jurek: Thank you, Brooks. On slide 11, I will summarize our key messages before we take your questions. First, I am pleased with our operating performance in the first half of 2024. Year to date, we have increased our adjusted EBITDA margin by 250 basis points year over year while encountering a 4% decrease in core growth. We are making good progress with our enterprise initiatives, particularly in the area of material cost reduction. Our heightened focus over the last couple of years on our resident material science capabilities has paid nice dividends for us. We fortified our supply chain capabilities and reduce exposure to single source highly engineered polymers.
Ivo Jurek: On slide 11, I will summarize our key messages before we take your questions. First, I am pleased with our operating performance in the first half of 2024. Year to date, we have increased our adjusted EBITDA margin by 250 basis points year over year while encountering a 4% decrease in core growth. We are making good progress with our enterprise initiatives, particularly in the area of material cost reduction. Our heightened focus over the last couple of years on our resident material science capabilities has paid nice dividends for us. We have fortified our supply chain capabilities and reduced exposure to single-source highly engineered polymers.
Speaker Change: Our heightened focus over the last couple of years on our resident material science capabilities has paid nice dividends for us.
Speaker Change: We fortified our supply chain capabilities and reduced exposure to single-source highly engineered polymers.
Ivo Jurek: Also, we accelerated our ability to draw material savings through reengineering of critical materials and components and expect more savings to come. Now, we are benefiting from our engineering focused in terms of developing new product lines that enable us to enter exciting, secure growth markets. From driving a change in a way, personal mobility devices are designed and built to developing new fluid conveyance technologies that offer more efficient cooling solutions to hyperscale data sense. Our focus is on opportunities to accelerate our organic growth while we are managing to the present macro environment. Given how industrial demand has unfolded this year, we have decided to pull forward our footprint optimization plans outlined during our Capital Markets Day and initiate a number of these projects in 2024.
Ivo Jurek: Also, we accelerated our ability to drive material savings through reengineering of critical materials and components and expect more savings to come. Now we are benefiting from our engineering focus in terms of developing new product lines that enable us to enter exciting secular growth markets. From driving a change in the way personal mobility devices are designed and built to developing new fluid conveyance technologies that offer more efficient cooling solutions for hyperscale data centers.
Speaker Change: Also, we accelerated our ability to drive material savings through reengineering of critical materials and components and expect more savings to come.
Ivo Jurek: Our focus is on opportunities to accelerate our organic growth while we are managing through the present macro environment. Given how industrial demand has unfolded this year, we have decided to pull forward our footprint optimization plans outlined during our capital markets day and initiate a number of these projects in 2024. We anticipate the annualized savings associated with the actions will approximate $40 million, with about 40% of the run rate realized by the end of 2025 and the balance of the savings achieved by year-end 2020.
Speaker Change: Our focus is on opportunities to accelerate our organic growth while we are managing through the present macro environment.
Speaker Change: Given how industrial demand has unfolded this year, we have decided to pull forward our footprint optimization plans outlined during our capital markets day and initiate a number of these projects in 2024.
Ivo Jurek: We anticipate the annualized savings associated with the actions will approximate $40 million, with about 40% of the run rate realized by the end of 2025 and the balance of the savings achieved by year and 2026. We intend to share more specifics on a program's execution plan and impact on a business on next quarter scope. We believe these actions will improve our manufacturing and logistics efficiencies long term and enhance our ability to flex our operations to demand changes. In our view, the enterprise initiatives underway and investments being made should position the company to generate stronger profitability from an already solid levels when the next industrial upturn takes hold.
Speaker Change: We anticipate the annualized savings associated with the actions will approximate.
Speaker Change: $40 million, with about 40% of the run rate realized by the end of 2025, and the balance of the savings achieved by year-end 2026.
Ivo Jurek: We intend to share more specifics on the program's execution plan and impact on the business on next quarter's call. We believe these actions will improve our manufacturing and logistics efficiencies long term and enhance our ability to flex our operations to changing demand. In our view, the enterprise initiatives underway and investments being made should position the company to generate stronger profitability from an already solid level when the next industrial upturn takes hold.
Speaker Change: We intend to share more specifics on the program's execution plan and impact on the business on next quarter's call.
Ivo Jurek: Second, our optionality to enhance shareholder value continues to build. Our net leverage ratio is in the low to and tracking to the two times level by year end. We recently extended our debt majorities and lowered our annualized financing costs. We remain highly focused on balance sheet improvements, which should enable us to more actively pursue inorganic growth initiatives of the midterm. Last week, our Board of Directors approved a new 250 million dollar share reproaches authorization, which replaces the $50 million less under our prior authorization. At our current valuation, we believe opportunistically deploying capital towards our shares is an attractive use of our excess capital.
Ivo Jurek: Second, our optionality to enhance shareholder value continues to build. Our net leverage ratio is in the low twos and is tracking to the two times level by year end. We recently extended our debt maturities and lowered our annualized financing costs. We remain highly focused on balance sheet improvements, which should enable us to more actively pursue inorganic growth initiatives over the midterm. Last week, our Board of Directors approved a new $250 million share repurchase authorization, which replaces the $50 million left under our prior authorization.
Speaker Change: Second, our optionality to enhance shareholder value continues to build. Our net leverage ratio is in the low twos and tracking to the two times level by year end.
Speaker Change: We recently extended our debt maturities and lowered our annualized financing costs.
Speaker Change: We remain highly focused on balance sheet improvements, which should enable us to more actively pursue inorganic growth initiatives over the midterm.
Speaker Change: Last week, our Board of Directors approved a new $250 million share repurchase authorization, which replaces the $50 million left under our prior authorization.
Ivo Jurek: At our current valuation, we believe opportunistically deploying capital towards our shares is an attractive use of our excess capital. Before taking your questions, I want to convey my gratitude to the almost 15,000 Global Gates Associates for their commitment and dedication to achieving our business priorities and meeting our customers' expectations. With that, I will now turn the call back over to the operator for Q&A.
Speaker Change: At our current valuation, we believe opportunistically deploying capital towards our shares is an attractive use of our excess capital.
Ivo Jurek: Before taking your questions, I want to convey my gratitude to the almost 15,000 global Gates associates, with our commitment and dedication to achieving our business priorities and making our customers' expectations. With that, I will now turn the call back over to the operator for Q&A.
Speaker Change: With that, I will now turn the call back over to the operator for Q&A.
Unknown Attendee: Thank you.
Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. Your first question comes from the line of Mike Halloran from Baird. Your line is open.
Unknown Attendee: We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the Q. If you would like to withdraw your question, simply press star one again.
Mike Halloran: Your first question comes from the line of Mike Halloran from Baird. Your line is open.
Unknown Attendee: Good morning, everyone. Good morning.
Michael Patrick Halloran: Hey morning, everyone. Good morning. So just some thoughts on the end markets where you're seeing some pressure, maybe just talk through what you saw through the quarter. If you're seeing stabilization at any levels at lower levels here and, you know, maybe the outwork from your perspective on when you start normalizing some of those end markets.
Speaker Change: Hey, good morning everyone.
Mike Halloran: Just some thoughts on the end markets for you're seeing some pressure. Maybe just talk through what you saw through the quarter. If you're seeing stabilization on any levels at lower levels here and maybe the outwork from your perspective on when you start normalizing the sum of those end markets.
Speaker Change: Good morning.
Speaker Change: So just some thoughts on the on the end markets where you're seeing some pressure maybe just talk through what you saw through the quarter if you're seeing stabilization on any levels at lower levels here and
Speaker Change: You know maybe the outlook from your perspective on when you start normalizing some of those end markets
Ivo Jurek: Yeah, thank you for your question, Mike. Look, I think that the end markets have been developing more or less in line with how we have envisaged that they're going to play out. And as you may recall, we were, you know, reasonably muted about our expectations for any type of industrial recovery. But as we went through the order, what we have seen is that, particularly in the off-highway applications in the industry of first business, again, I would say, expressed by predominantly ag and some commercial construction applications, we have seen deceleration that kind of crept in towards the latter part of May and remained in June.
Ivo Jurek: Thank you for your question, Mike. Look, I think that the end markets have been developing more or less in line with how we have envisaged that it's going to play out. As you may recall, we were reasonably muted about our expectations for any type of industrial recovery. As we went through the quarter, what we have seen is that particularly in the off-highway application, in the industry of first business, again, I would say expressed by predominantly Ag and some commercial construction applications. We have seen the situation that kind of crept in towards a lot of part of May and remained in June.
Ivo Jurek: And I'll note that it remains weak in July as well. And that would be probably the most notable change that we have seen. I'd say that some of the auto OEMs have been putting in some reductions in car bills.
Speaker Change: Yeah, thank you for your question, Mike. Look, I mean, I think that the markets have been developing more or less in line with how we have envisaged that it's going to play out.
Speaker Change: But as we went through the order...
Speaker Change: What we have seen is that particularly in the off-highway applications
Speaker Change: In the industry, our first big business, again, I would say, expressed by predominantly ag
Speaker Change: and some commercial construction applications we have seen deceleration that kind of crept in towards you know a latter part of May and and remained in June and I'll note that it remains weak in July as well.
Ivo Jurek: I'll note that it remains weak in July as well. That would be probably the most notable change that we have seen. I'd say that some of the OEMs have been layering in some reductions in car bills. Again, if I comment on July, I'd say that they have extended their summary shutdowns to be a little bit longer than we have seen, maybe over the last four or five years. Those would be probably the most notable changes that we have seen.
Speaker Change: And that would be probably the most notable change that we have seen. I would say that some of the auto OEMs
Ivo Jurek: And again, if I comment on July, I'd say that, you know, they have extended their summer shutdowns to be a little bit longer than we have seen maybe over the last four or five years. And so, those would be probably the most notable changes that we have seen. And frankly, you know, I do not anticipate that this is going to reverse in the second half.
Speaker Change: have been layering in some reductions in car bills and again if I comment on July I'd say that you know they have extended their summer shutdowns
Speaker Change: to be a little bit longer than than we have seen maybe over the last four or five years and so So those would be probably the most notable changes that we have seen and frankly, you know I do not anticipate that this is going to reverse
Ivo Jurek: Frankly, I do not anticipate that this is going to reverse in the second half, and that's why we've taken the proactive step and reflect what we believe is going to be the underlying environment, particularly in the industrial first fit. Now, what's changed maybe from prior assumptions. Again, I'll say that pretty much as we anticipated, mobility, we think, has bottomed out into two. While we still anticipate that we're going to see negative core growth into the second half, the underlying market conditions are improving. We think that this stocking has played itself out and we should start seeing the acceleration of growth into 2025 so that again, it's playing out the way we anticipated, and maybe China industrial replacement performance was around the edges a little bit better than what we've anticipated, but that's not really a massive amount of revenue that had the opportunity to offset how we think about the market.
Ivo Jurek: And that's why we've taken the proactive step and reflected what we believe is going to be the underlying environment, particularly in the industrial first fit. Now, what's changed, maybe from, prior assumptions? Again, I would say that pretty much as we anticipated, you know, mobility, we think has bottomed out in Q2. While we still anticipate that we're going to see negative core growth into the second half, it's the underlying, you know, underlying market conditions are improving.
Speaker Change: In second half, and that's why we've taken the proactive step and reflect what we believe is going to be the underlying environment, particularly in the industrial first bid.
Speaker Change: Now what what's changed maybe from from prior
Speaker Change: assumptions again I would say that pretty much as we anticipated you know mobility we think has bottomed out in Q2 while we still anticipated we're going to see negative core growth into second half it's the underlying you know the underlying market conditions are improving we think that this stocking has played itself out
Speaker Change: and we should start seeing re-acceleration of growth into 2025, so that again is playing out the way we've anticipated.
Ivo Jurek: We think that this stockpile has played itself out, and we should start seeing reacceleration of growth into 2025. So that, again, is playing out the way we've anticipated. And maybe the China industrial replacement performance was around the edges, a little bit better than what we've anticipated. But, you know, that's not really a massive amount of revenue that had the opportunity to offset how we think about it.
Speaker Change: China industrial replacement performance was around the edges a little bit better than what we've anticipated. But you know, that's not really a massive amount of revenue that had the opportunity to offset how we think about the markets.
Mike Halloran: Great. That was really helpful.
Ivo Jurek: Great, that was really helpful. And then on the margin line, if you look at the commentary for the third quarter margins down a little bit year over year, I'm guessing that has everything to do with the demand environment. And you're still very confident in the changes and the normalization you're seeing in the internal efforts. So, maybe if you look to the third quarter in the back part of the year, you can talk a little bit about confidence in those trends and what you're seeing internally. And if there's any change in how you're thinking about some of those internal things in the short term.
Mike Halloran: And then on the margin line, if you look at the commentary for the third quarter, margins down a little bit over the year. I'm guessing that has everything to do with the demand environment, and you're still very confident in the changes and the normalization you're seeing on the internal efforts. So maybe if you look to the third quarter in the back part of the year, you can talk a little bit about confidence in that trends and what you're seeing internally. And if there's any change in how you're thinking about some of those internal things in the short term.
Speaker Change: Great, that was really helpful. And then on the margin line, if you look at the commentary for the third quarter, margins down a little bit year over year, I'm guessing.
Speaker Change: That has everything to do with the demand environment and you're still very confident in the changes and in the normalization you're seeing on the internal efforts. So maybe if you look to the third quarter or in the back part of the year you can talk a little bit about confidence in that, trends, and what you're seeing internally.
Speaker Change: And if there's any change in how you're thinking about some of those internal things in the short term.
Brooks Mallard: Yeah, thanks for your question, Mike. No, I think, look, I think we're really, we feel good about our enterprise initiatives and how they're driving, you know, improvement on the gross margin line. I mean, we expect, you know, some headwind on EBITDA margins from STNA, just because it's kind of flat. It's on lower volume. But we expect to be able to maintain kind of our gross margin outlook, even with lower volumes. And, you know, as we take out a little bit of image, the inventory, and we look at some of the conversion costs that we talked about for some of the new business wins.
Ivo Jurek: Yeah, thanks for your question, Mike. No, I think, look, I think we're really feeling good about our enterprise initiatives and how they're driving, you know, improvement on the gross margin line. I mean, we expect, you know, some headwind on EBITDA margins from SG&A, just because it's kind of flattish on lower volumes. But we expect to be able to maintain our gross margin outlook, even with lower volumes. And, you know, as we take out a little bit of inventory and we look at some of the conversion costs that we had talked about for some of the new business wins, we expect the enterprise initiatives to be able to offset that as we go through Q3 and Q4.
Speaker Change: Yeah, thanks for your question, Mike. No, I think, look, I think we're really, we feel good about our enterprise initiatives and how they're driving, you know, improvement on the gross margin line. I mean, we expect, you know, some headwind on EBITDA margins from SG&A, just because it's kind of flattish or lower volume. But we expect to be able to maintain.
Speaker Change: kind of our gross margin outlook, even with lower volumes and
Speaker Change: You know, as we take out a little bit of inventory and we look at.
Speaker Change: Some of the conversion costs that we had talked about for some of the new business wins. We expect the enterprise initiatives to be able to offset that as we go through Q3 and Q4. So, you know, the enterprise initiatives are working on the material line on material savings line, especially we're doing well. And so we feel good about.
Brooks Mallard: We expect the enterprise initiative to be able to offset that as we go through Q3 and Q4. So, you know, the enterprise initiatives are working on the material line on material savings line, especially we're doing well. And so we feel good about, you know, where we stand from a gross margin perspective in the second half of the year.
Ivo Jurek: So, you know, the enterprise initiatives are working on the material line, the material savings line, especially. We're doing well. And so we feel good about where we stand from a gross margin perspective in the second half of the year.
Speaker Change: You know where we stand from a gross margin perspective in the second half of the year.
Brooks Mallard: So no, so no change into in the internal confidence on the change initiatives that you're driving currently, and this is just a band related, correct. That is correct. And, you know, I would, you know, I'll actually, you know, stay Mike that, you know, we're doing really well with enterprise initiatives. And as you could see in the gross margin and EBITDA margin performance. And so as the market start, I mean, the underlying market trend start to recover. We feel like we have a, we have, we have started from an incredibly strong position better than we have ever been historically.
Ivo Jurek: So no change in internal confidence and the change initiatives that you're driving currently, and this is just demand-related, correct?
Speaker Change: So no change in the internal confidence on the change initiatives that you're driving currently, and this is just demand related, correct?
Ivo Jurek: That is correct. And, you know, I would, you know, I'll actually, you know, state, Mike, that we're doing really well with our enterprise initiatives. And as you can see, in the gross margin and EBITDA margin performance in the So, as the market starts, I mean, underlying market trends start to recover, we feel like we have a, we have, you know, we started from an incredibly strong position, better than we have ever been historically.
Speaker Change: That is correct and you know I would you know I'll actually you know state Mike that you know we're doing really well with our enterprise initiatives and as you could see in in the gross margin and EBITDA margin performance in a
Speaker Change: So as the underlying markets start to recover, we feel like we have a
Speaker Change: We are starting from an incredibly strong position, better than we have ever been historically.
Ivo Jurek: And, and I feel this high degree of confidence that, you know, taking into account again, we've been over 40% post margin on a really negative market backdrop in Q2. So, you know, I feel, you know, I feel quite well that we are incredibly well positioned to deliver on that will be accommodated at the CMT.
Mike Halloran: And, and I, you know, I feel this high degree of confidence that, you know, taking to an account again, you know, we've been over 40% gross margin on really negative market backdrop in Q2. So, you know, I feel, you know, I feel quite well that that incredibly well positions deliver on now will be committed at the SCMV recently. Makes sense. Appreciate it. Thank you.
Speaker Change: And I, you know, I feel this high degree of confidence that
Speaker Change: You know, taking into account again, you know, we've been over 40% post-margin on a really negative market backdrop in Q2. So you know, I feel, you know, I feel quite well that we are incredibly well positioned to deliver on what we've committed at the CMT recently.
Ivo Jurek: Makes sense. I appreciate it. Thank you.
Speaker Change: Makes sense. Appreciate it. Thank you.
Jeffrey Hammond: Your next question comes from a line of Jeff Hammond from KeyBank Capital Markets. Your line is open.
Jeffrey David Hammond: Your next question comes from the line of Jeff Hammond from KeyBank Capital Markets. Your line is open.
Speaker Change: Your next question comes from a line of Jeff Hammond from KeyBank Capital Markets. Your line is open.
Jeffrey Hammond: Hey, good morning, guys. Want to, Jeff, hey, maybe you could just unpack the wins you talked about with the major partner in each segment. Is that the same partnership and just, you know, how's it getting broadened out and how much of an impact, if it's material, do you see it, you know, impacting 25, I think you said. Yeah, absolutely.
Ivo Jurek: Morning, Jeff. Hey, maybe you could just unpack the wins you talked about with the major partner in each segment. Is that the same partnership?
Jeffrey David Hammond: Hey, good morning guys.
Jeff: Good morning, Jeff.
Jeffrey David Hammond: Hey, maybe you could just unpack the the wins you talked about with the major partner in each segment Is that the same partnership and just you know, how's it getting broadened out and and how much of an impact? If it's material, do you see it? You know impacting 25. I think you said
Ivo Jurek: And just, you know, how's it getting broadened out? And how much of an impact does it have? If it's material? Do you see it? You know, impacting 25? I think you said 25.
Ivo Jurek: Yeah, absolutely. Thank you for your question, Jeff. So I would say that on the fluid power side, that is with, you know, one of our largest existing customers, we are just broadening out where we serve and how we serve them. And it's in one of the large critical geographies that we're going to become a prime supplier to them. And on the power transmission, that's actually a new customer acquisition that we historically did not do business with.
Ivo Jurek: Thank you for your question, Jeff. So I would say that on the fluid power side, that is with, you know, one of our largest existing customers, we are just broadening out where we serve and how we serve them. And it's in one of, you know, one of large critical geographies that we're going to become a prime supplier to them. And on the part, transmission, that's actually a new customer acquisition that we historically did not do business with them. And as this ramps up kind of over the next 18 months, it's going to be, you know, reasonably material that will be anticipated it will add 100 to 150 basis points of revenue to Two Gates cooperation.
Jeffrey David Hammond: Yeah, absolutely. Thank you for your question, Jeff. So I would say that on the fluid power side, that is with our, you know, one of our largest existing customers, we are just broadening out
Jeff: where we serve and how we serve them. And it's in one of, you know, one of large critical geographies that we're gonna become a prime supplier to them.
Jeff: and on the on the power transmission that's actually a new customer acquisition.
Jeff: that we historically did not do business with and as this ramps up kind of over the next 18 months.
Ivo Jurek: And as this ramps up kind of over the next 18 months, it's going to be, you know, reasonably material that will be anticipated; it will add 100 to 150 basis points of revenue to Gates Corporation. So it's a meaningful two meaningful design wins. And we felt that it was worthwhile to go ahead with some of the activities and get them into Q4 so that we can start seeing the benefits from 25 onwards.
Jeff: It's going to be, you know, reasonably material that will be anticipated. It will add 100 to 150 basis points of revenue to Gates Corporation. So it's a meaningful, two meaningful design wins.
Ivo Jurek: So it's a meaningful two meaningful design wins, and we found that it was worthwhile to go and prove for some of the activities and get them into four so that we can start seeing the benefits from 25 onwards. course.
Jeff: And we felt that it was worthwhile to go and move forward some of the activities and get them into Q4 so that we can start seeing the benefits from 25 onwards.
Jeffrey Hammond: Okay, that's great news.
Ivo Jurek: Okay, that's great news. And then I think he said, you're seeing some forward weakness on first fit auto. Maybe just speak to, you know, the replacement trend and if you think there's any offsets, as maybe people defer, you know, new purchases.
Jeffrey Hammond: And then I think you said you're seeing some forward weakness on first fit auto. Maybe just speak to, you know, the replacement trend. And if you think there's any offsets as maybe people defer, you know, new purchases.
Speaker Change: Okay, that's great news. And then I think he said, you're seeing some some forward weakness on first fit auto, maybe just speak to, you know, the replacement trend. And if you think there's any offsets as maybe people defer, you know, new purchases.
Ivo Jurek: Yeah, look, I mean, you know, we just see more extended shutdowns. So I'm not going to be calling for what, you know, what the production output is going to be on the other OEM site on a forward basis. That has been, you know, more or less playing the way that we've anticipated. We just did not see that they're going to take an extended shutdown in, you know, in July, as to the replacement side of our business. You know, the market dynamics are very, very positive there. You know, the car, the car fleet is getting older around the globe.
Ivo Jurek: Yeah, look, I mean, you know, we just see more extended shutdowns. So I'm not going to be calling for what you know, what the production output is going to be on the auto OEM side on a forward basis. That has been, you know, more or less playing the way that we've anticipated; we just did not see that they're going to take an extended shutdown in, you know, in July.
Speaker Change: Yeah, look, I mean, um, you know, we just see more extended shutdowns. So I'm not going to be calling for what you know what the production output is going to be on the auto OEM side on forward basis.
Speaker Change: That has been, you know, more or less playing the way that we've anticipated. We just did not see that they're going to take an extended shutdown in, you know, in July .
Jeff: As to the replacement side of our business, you know, the market dynamics are very, very positive there. You know, the car fleet is getting older around the globe. It's growing.
Ivo Jurek: As to the replacement side of our business, you know, the market dynamics are very, very positive there. The car fleet is getting older around the world, and it's growing at kind of that low, low single-digit rate. People still have a high degree of employment, so they are driving a large number of miles. So, you know, the underlying market dynamics, just even without the attributes associated with lower purchasing of new vehicles, are very, very positive.
Ivo Jurek: It's growing. You know, kind of that, you know, low, low single digit rate. People still have a high degree of employment. So they are driving a large amount of miles. So, you know, the underlying market dynamics, just even without the attribute associated with lower purchasing of new vehicles, very, very positive.
Jeff: You know, at kind of that, you know, low, low single digit rate, people still have a high degree of employment. So they are driving a large amount of miles.
Jeff: So, you know, the underlying market dynamics, just even without the attribute associated with lower purchasing of new vehicles, very, very positive. And, you know, we believe that we are well positioned to continue.
Jeffrey Hammond: And, you know, we believe that we are well positioned to continue to execute well in AR. And, as you saw, it was a great driver of our growth. We've lost, you know, four or five, six quarters. And we anticipate that it's going to continue well into the future. Okay. Appreciate the time. Thanks.
Ivo Jurek: And, you know, we believe that we are well positioned to continue to execute well in AR. And as you saw, it was a great driver of our growth over the last, you know, four or five, six quarters. And we anticipate that it's going to continue to do well in
Jeff: to execute well in AR. And as you saw, it was a great driver of our growth over the last, you know, four, five, six quarters. And we anticipated that it's going to continue well into the future.
Ivo Jurek: Okay, I appreciate the time.
Speaker Change: Okay, appreciate the time.
Nigel Coe: Your next question comes from a line of Nigel Coe from Wolf Research. Your line is open.
Nigel Edward Coe: Your next question comes from the line of Nigel Coe from Wolf Research. Your line is open.
Jeff: [inaudible]
Speaker Change: Your next question comes from a line of Nigel Coe from Wolf Research. Your line is open.
Unknown Attendee: Thanks.
Ivo Jurek: Thanks. Good morning, everyone. Good morning, morning.
Nigel Coe: Good morning, everyone. Morning, morning. So, when you think about, you know, obviously, you know, you're still more or less within, so your previous range will be at the low end.
Ivo Jurek: So when you think about, you know, obviously, you're still more or less within, so your previous range will be at the low end. But when you think about where we were in April versus where we are now, what would you say is the biggest delta in your thinking? You know, obviously, auto production, the first bit is, is clearly weaker than it was. But off highway, would you say off highway is the biggest move here?
Nigel Edward Coe: Thanks. Good morning, everyone.
Nigel Edward Coe: Morning, morning. So when you think about, you know, obviously, you know, you're still more or less within, so your previous range will be at the low end. But when you think about where we were in April versus where we are now, what would you say is the biggest delta in your thinking? You know, obviously, auto production, auto first fit is, is clearly weaker than it was. But off highway, would you say off highway is the biggest move here? Or is it much broader than that?
Ivo Jurek: But when you think about where we were in April versus where we are now, what would you say is the biggest delta in your thinking? Obviously, all production, all the first bits is clearly weakened. There was, but off highway, would you say off highways, the biggest move here? Was it much broader than that? Yeah. Look, I think thank you for the question, Nigel. I would say that the biggest issue that we have seen was with the off-highway demand, particularly in AG. I mean, AG has, we can materially more than what we've anticipated, but we were not, you know, we were not very constructive on AG already, you know, original guidance.
Ivo Jurek: Yeah, look, I think, thank you for the question, Nigel. I would say that the biggest issue that we have seen was with off-highway demand, particularly in agriculture. I mean, ag has weakened materially, more than what we've anticipated. But we were not, you know, we were not very constructive on ag already in our original guidance.
Speaker Change: Yeah, look, I think, thank you for the question, Nigel. I would say that the biggest issue that we have seen was with the off-highway demand, particularly in ag. I mean, ag has
Sadhguru: Sadhguru we can materially... more than what we've anticipated. But we were not... you know, we were not very constructive on Ag already in our original guidance. But what we are seeing is, we are seeing again extended shut downs of plans.
Ivo Jurek: But what we are seeing is we are seeing again extended shutdowns of plans, significant reduction in builds of new equipment by the AG always. And, you know, we just felt we needed to reflect that in guidance on forward guidance because it is, you know, it's a reasonably good amount of production that's come out outside of that. Look, we didn't really anticipate that there's going to be a V-shape recovery in general industrial; we just, we're anticipating more flattening out of demand. And I think that, you know, that's kind of around the edges, what is happening there?
Ivo Jurek: But what we are seeing is, we are seeing again, extended shutdowns of plants, and a significant reduction in bills of new equipment by the ag OEs. And, you know, we just felt we needed to reflect that in our guidance on forward guidance because it is, you know, it's a reasonably good amount of production that's coming out. Outside of that, look, we didn't really anticipate that there was going to be a V-shaped recovery in kind of general industrial; we just were anticipating more flattening out of demand. And I think that, you know, that's kind of around the edges of what is happening there. I mean, it's choppy, there's some puts and takes. But overall, I would say, it's the off-highway gradually worse.
Speaker Change: Significant reduction in bills of new equipment by the ag OE's.
Speaker Change: And, you know, we just felt we needed to reflect that in our guidance on forward guidance, because it is, you know, it's reasonably, I mean, it's a reasonably good amount of production that's come out.
Speaker Change: Outside of that, look, we didn't really anticipate that there's going to be a V-shaped recovery in kind of general industrial, we just, we just were anticipating more flattening out of demand. And I think that, you know, that's kind of around the edges what, what is happening there. I mean, it's choppy, there's some puts and takes.
Ivo Jurek: I mean, it's choppy; there's some puts and takes, but overall, I would say it's the off highway incrementally worse. And I would say that, you know, some of the extended shutdowns of the other OEMs in July that we have seen, you know, we just did not really anticipate that it's going to be broader or deeper than what we have embedded in our original guide. So overall, while we are taking our revenue down, you know, we are still anticipating, kind of at the midpoint, that even with reasonably, you know, kind of a low mid-single-digit drop in volume year and year for the full year, we're still anticipating at the midpoint to grow earnings. I adjusted it by 100%.
Speaker Change: but overall I would say it's the off-highway incrementally worse.
Speaker Change: And I would say that, you know, some of the extended shutdowns.
Speaker Change: of the other OEMs.
Speaker Change: in July
Speaker Change: that we have seen.
Ivo Jurek: And I would say that, you know, some of the extended shutdowns of the other OEMs in July that we have seen, we just did not really anticipate that that was going to be broader or deeper than what we had embedded in our original guide. So overall, while we are taking our revenue down, you know, we are still anticipating, kind of, at the midpoint, that even with a reasonably, you know, kind of a low mid single-digit drop in volume year on year for the full year, we're still anticipating, at the midpoint, to grow our earnings adjusted EBITDA by 100.
Jeff: You know, we just did not really anticipate that that's going to be.
Speaker Change: brother of Tim Burton.
Speaker Change: and what we have embedded in our original guide. So, overall...
Speaker Change: While we are taking our revenue down, you know, we are still anticipating kind of at the midpoint that even with reasonably, you know, kind of a low mid single digit drop in volume year on year for the full year, we're still anticipating at the midpoint to grow our earnings adjusted EBITDA by 100 basis points.
Nigel Coe: points. And that's kind of second year in a row that we are managing, you know, to do that on a back of very strong execution of enterprise initiatives and drive to demonstrate the earnings power that this business has. Right. That's that's great.
Ivo Jurek: Basically, And that's kind of the second year in a row that we are managing to do that on the back of very strong execution of our enterprise initiatives and a drive to demonstrate the earnings power that this business has.
Jeff: And that's kind of second year in a row that we are managing, you know, to do that on the back of very strong execution of our enterprise initiatives and drive to demonstrate the earnings power that this business has.
Ivo Jurek: Great. That's great. Thanks, Ivo. And then what are we seeing? It certainly looks like replacement demands across your portfolio in industrial, auto, etc. are holding up really well.
Nigel Coe: Thank you.
Nigel Coe: And then are we see in the city looks like replacement demands across your portfolio and industrial auto, et cetera, is holding up really well. So this one makes sure that there's no changes in conditions that you see in there. And then maybe pricing as well. Are we seeing any pockets of price weakness developing with some of this incredibly weaker outlook? Look, you know, the rest of the business is more or less performing very much in line with what we anticipated again. I mean, we might; everybody did not really anticipate that a second half recovery just did not anticipate it will be accelerating.
Speaker Change: Great, that's great, thanks Ivo. And then are we seeing, it certainly looks like replacement demands across your portfolio in industrial, auto, etc.
Ivo Jurek: So just want to make sure that there's no changes in conditions that you've seen there, and then maybe pricing as well. Are we seeing any pockets of price weakness developing with some of this incrementally weaker outlook?
Speaker Change: is holding up really well. So just want to make sure that there's no changes in conditions that you've seen there. And then maybe pricing as well. Are we seeing any pockets of price weakness developing with some of this incrementally weaker outlook?
Ivo Jurek: Look, you know, the rest of the business is more or less performing very much in line with what we anticipated. And again, I'll remind everybody, we did not really anticipate a second half recovery; we just did not anticipate it would be decelerating. And so absent of the industrial OE applications, it is playing itself out more or less as we anticipated in our original guidance. And Yeah, so, from an inflation perspective, it's a little bit of a mixed bag, pretty flattish, you know, from an inflation perspective, a little bit better on utilities, a little bit worse on freight, you know, labor's kind of sticky.
Speaker Change: Look, you know, the rest of the business is more or less performing very much in line with what we anticipated. And again, I'll remind everybody, we did not really anticipate a second half recovery.
Brooks: did not anticipate it will be decelerating, and so absent of the industrial OE applications, it is playing itself out, more or less how we have anticipated in our original guidance. And I'll let Brooks answer the question.
Brooks Mallard: And so, absent of the industrial ole applications, it is playing itself out, more or less, how we have anticipated in our original guidance. And I'll let Brooks answer the question. So, you know, from an inflation perspective, you know, it's a little bit of a mixed bag material, you know, pretty, pretty flatish, you know, from an inflation perspective. Little bit better utilities, a little bit worse on freight, you know, labor is kind of sticky. But, you know, between our normal pricing actions, and then the additional 80 20 work that we've done in terms of strategic pricing and optimized pricing.
Brooks: Interesting question.
Brooks: So from an inflation perspective, you know, it's a little bit of a mixed bag material.
Brooks: It was pretty, pretty flattish, you know, from an inflation perspective, a little bit better on utilities.
Brooks: A little bit worse on freight.
Ivo Jurek: But, you know, between our normal pricing actions and then the additional 80-20 work that we've done in terms of, you know, strategic pricing and optimized pricing, we don't see the pricing environment remaining, you know, stable to, you know, slightly constructive as we move forward. So we don't see any headwinds from that.
Brooks: You know, labor's kind of sticky, but, you know, between our normal pricing actions and then the additional 80-20 work that we've done in terms of, you know, strategic pricing and optimized pricing, you know, we don't see, you know, we see the pricing environment remaining, you know, stable to, you know, slightly constructive as we move forward. So we don't see any headwinds from that.
Brooks Mallard: You know, we don't see, you know, we see the price of environment remaining, you know, stable to, you know, slightly constructive as we move forward. So we don't see any headlines from that.
Ivo Jurek: Okay, that's great. Thank you.
Nigel Coe: Okay, that's great. Thank you. Thanks, Nigel.
Speaker Change: Okay, that's great. Thank you.
Julian Mitchell: Your next question comes from a line of Julian Mitchell from Barclays. Your line is open.
Julian C.H. Mitchell: Your next question comes from the line of Julian Mitchell from Barclays. Your line is open.
Nigel Edward Coe: Thanks, Nigel.
Speaker Change: Your next question comes from a line of Julian Mitchell from Barclays. Your line is open.
Ivo Jurek: Hi, good morning. Yes, I realize that the 24 guidance adjustments, you know, we can see that clearly from the likes of AGCO and so forth. But I wondered more for 2025. You know, what's your perspective, Ivo, on the sort of the slope of recovery we should expect in some of these weaker areas like auto first fit or off-highway first fit or so? General, Industrial. And I guess one reason I'm asking is you've pulled forward this 40 million odd savings program, a chunk of those savings, you know, 20, 15 to 20 million or so coming next year. Is that reflecting the fact that you do not assume a sharp cyclical recovery is likely as you look across the business into next year?
Julian Mitchell: Hi, good morning. Yes, I realized that the 24 guidance adjustments; you know, we can see that clearly from the likes of Ad Co and so forth. But I wondered more for 2025. You know, what's your perspective, either on the sort of the slope of recovery we should expect in some of these weaker areas, like auto first feed or off highway first feed or general industrial. And I guess one reason I'm asking you, you've pulled forward this 40 million or savings program, a chunk of those savings, you know, 2015 to 20 million or so coming next year.
Julian C.H. Mitchell: Hi, good morning. Yes, I realize that the 24 guidance adjustments, you know, we can see that clearly from the likes of AGCO and so forth, but I wanted more for 2025.
Ivo: You know, what's your perspective, Ivo, on the sort of the slope of recovery we should expect in some of these weaker areas, like auto first fit or off-highway first fit or
Speaker Change: General Industrial and I guess one reason I'm asking is you've pulled forward this 40 million odd savings program
Ivo: A chunk of those savings, you know,
Speaker Change: 15 to 20 million or so coming next year is that reflecting the fact that you don't assume a sharp cyclical recovery is is likely as you look across the business into next year
Ivo Jurek: Is that reflecting the fact that you don't assume a sharp cyclical recovery is likely as you look across the business into next year? Yeah, look, I'm not going to get to the specific of 25. I mean, clearly, we are, you know, we're having, you know, some lack of clarity, even some of the shorter trends that are happening. But, you know, the way that I think about it, Julian, is, you know, we have seen reasonably extended disseleration in manufacturing activity over the past couple of years. I mean, that's been, you know, pretty prolonged when, you know, we all look at the PMI reads, the manufacturing PMI reads, and, you know, they have been quite extended 19, 20 months range, which is highly unusual.
Ivo Jurek: Yeah, look, I'm not going to get to the specifics of 25. I mean, clearly, we are, you know, we're having, you know, some lack of clarity, even on some of the shorter trends that are happening. But you know, the way that I think about it, Julian, is that we have seen a reasonably extended deceleration in manufacturing activity over the past couple of years. I mean, it's been, you know, pretty prolonged when, you know, we all look at the PMI reads, the manufacturing PMI reads, and, you know, they have been in a quite extended 19-20 months range, which is highly unusual.
Speaker Change: Yeah, look, I'm not going to get to the specific of 25. I mean, clearly we are, you know, we're having, you know, some lack of clarity, even on some of the shorter trends that are happening. But, you know, the way that I think about it, Julian, is, you know, we have seen
Julian C.H. Mitchell: Reasonably extended deceleration in manufacturing activity over the past couple of years.
Ivo: I mean, it's been, you know, pretty prolonged. When, you know, we all look at the PMI reads, the manufacturing PMI reads, and, you know, they have been quite extended, 19-20 months range, which is highly unusual.
Ivo Jurek: And, you know, if you kind of think about that, you would anticipate that you are, you know, at or near the bottom of the cycle. And, you know, while I'm not, you know, clearly here to predict what's going to happen. And, these are the industrial activity. We do believe that we are probably somewhere near bottoming out. You know, my anticipation on the industrial first fit, particularly on ag side, is that you will see some degree of more prolonged weakness. And frankly, we have had a number of restructuring programs on a book ready to be executed, and we are taking the opportunity to do that right now.
Ivo Jurek: And, you know, if you kind of think about that, you would anticipate that you are, you know, at or near the bottom of the cycle. And, you know, while I'm not, you know, Clearly here to predict what's going to happen vis-a-vis industrial activity, we do believe that we are probably somewhere near bottoming out. [inaudible] You know, my anticipation for the industrial first bid, particularly on the ag side, is that you will see some degree of more prolonged weakness.
Ivo: And, you know, if you kind of think about that, you would anticipate that you are, you know, at or near the bottom of the cycle. And, you know, while I'm not, you know,
Ivo Jurek: And frankly, we have had a number of restructuring programs on the books, ready to be executed. And we are taking this opportunity to do that. Right now, we have presented, I think, a pretty good outline of the structural opportunities that we believe exist for us vis-a-vis footprint optimization at the capital market day update. And, you know, we clearly had that playbook ready to go and move forward. And that's what we are doing presently.
Ivo: You know, my anticipation on the industrial first fit, particularly on the ag side,
Ivo: is that you will see some degree of more prolonged weakness.
Ivo: And frankly, we have had a number of restructuring programs.
Ivo: On a book ready to be executed and we are taking the opportunity to do that right now.
Ivo Jurek: And, you know, we're not really taking capacity out; we're just optimizing how we will service our customers, try to get to locations that have better access to direct labor, optimize our efficiency of distribution, and deliver, you know, rather meaningful improvements to our operating profitability when these projects are completed.
Ivo Jurek: We have represented, I think it's pretty, you know, a pretty good outline of the structural opportunities that we believe exists for us. These are the footprint optimization at the capital's market day update. And, you know, we've clearly had that playbook ready to go and pull forward. And that's what we are doing presently. And, you know, we're not taking really capacity out; we're just optimizing how we will service our customers, try to get to locations that have a better access to the direct labor, optimize our efficiency of distribution and deliver, you know, rather meaningful improvements to our operating profitability when these projects are executed.
Ivo: We have represented, I think, a pretty, you know, pretty good outline of the structural opportunities that we believe exist for us vis-a-vis footprint optimization at the capital market day update.
Ivo: And, you know, we've clearly had that playbook ready to go and pull forward and that's what we are doing presently. And, you know, we're not taking really capacity out, we're just optimizing how we will service our customers.
Ivo: Try to get to locations that have a better access to direct labor, optimize our efficiency of distribution and
Ivo: Deliver, you know, rather meaningful improvement to our operating profitability when these projects are executed.
Julian Mitchell: That's helpful. Thank you.
Ivo Jurek: That's helpful. Thank you. And then, just maybe, my follow up.
Julian Mitchell: And then just maybe my follow up. One is trying to drill a little bit down into that margin element. Again, you know, EBITDA margin to think a guided down about a hundred basis points year on year in the back half after a 200 plus increase in the first, and the revenue trajectory year on year doesn't look that different. So is there something in I think mentioned SGNA investments, but just wonder if there was anything else moving around in terms of mix or price cost dynamics.
Speaker Change: That's helpful. Thank you. And then just maybe my follow up.
Ivo Jurek: One is just trying to drill a little bit down into that margin element again. EBITDA margins, I think, are guided down about 100 basis points year-on-year in the back half after a 200-plus increase in the first, and the revenue trajectory year-on-year doesn't look that different. So is there something in, I think I mentioned SG&A investments, but I just wondered if there was anything else moving around in terms of mix or price cost dynamics and maybe something tied to that, the sort of free cash conversion. I think in the teens in the first half, what's the confidence in the step up to get to 90?
Speaker Change: One is just trying to drill a little bit down into that margin element again. EBITDA margins, I think, are guided down about 100 basis points year-on-year in the back half after a 200 plus increase in the first. And the revenue trajectory year-on-year doesn't look that different. So is there something in, I think,
Speaker Change: You mentioned SG&A investments, but just wondered if there was anything else moving around in terms of mix or price, cost?
Brooks Mallard: And maybe something tied to that, the sort of free cash conversion, I think in the teens in the first half. What's the confidence in the step up to get to 90 for the year? So, yeah, oh, so on the, let me unpack the first one first, there's kind of three elements, I think in the in the margins, you know, one is FX, you know, FX has been a bigger headwind as we move through Q2 and it's now a bigger headwind in the back half of 2024 than we had anticipated. And then I think the other two pieces that we had already talked about are one, you know, we are going to, you know, draw down some inventory in the second half of the year.
Speaker Change: Dynamics and maybe something tied to that the sort of free cash conversion I think in the teens in the first half what's the confidence in the step up to get to 90 for the year?
Unknown Attendee: Yeah, so on the, well, let me unpack the first one first. There are kind of three elements, I think, in the margins. One is FX. FX has been a bigger headwind as we move through Q2, and it's now a bigger headwind in the back half of 2024 than we had anticipated. And then I think the other two pieces that we have already talked about are, one, you know, we are going to, you know, draw down some inventory in the second half of the year. We had built up some, you know, in anticipation of some of these business wins and also to make sure we could take care of our customers.
Unknown Attendee: Yeah, so, yeah, oh, so.
Speaker Change: Let me unpack the first one first. There's kind of three elements.
Speaker Change: Ivo Jurek, Richard Kwas
Unknown Attendee: And now we're going to make sure we align our inventories as we exit the year. That's obviously going to weigh on production. That's going to weigh on our fixed cost absorption and things like that. And then the third part is the new business win conversions. I mean, that's a cost. There's a merchandising cost. There is an inventory change-out cost, and that is going to be a headwind year over year as well. So those are the three elements, really.
Speaker Change: of 2024 than than we had anticipated. And then I think the other two pieces that we had already talked about is one, you know, we are going to.
Speaker Change: You know, draw down some inventory in the second half of the year. You know, we had built up some, you know, in anticipation of some of these business wins and also to make sure we can take care of our customers. And now we're going to make sure we align our inventories as we exit the year. That's obviously going to weigh on production. That's going to weigh on our fixed cost absorption and things like that.
Brooks Mallard: You know, we had built up some, you know, in anticipation of some of these business wins and also to make sure we could take care of our customers, and now we're going to make sure we align our inventories as we exit the year. That's obviously going to lay on production that's going to win or fixed cost absorption and things like that. And then the third part is the new business win conversions. I mean, that's a cost. There's a merchandising cost. There's an inventory changeout cost, and those are going to be a headwind year over year as well.
Unknown Attendee: On the SG&A side, it's really more of just a volume versus, you know, SG&A perspective. I don't think SG&A is going to be that different year over year. There will be less volume.
Speaker Change: And then the third part is the new business wind conversions. I mean, that's a cost, there's a merchandising cost, there's an inventory change-out cost.
Brooks Mallard: So those are the three elements really on the SG&A side. It's really more of just a volume versus, you know, SG&A perspective. I think SG&A will be that different year over year. This could be less volume. So it's going to be it's going to weigh on your margins a little bit from a percentage perspective from a cash conversion. You know, we're actually not that far off. I mean, you look at, you know, 70% conversion in Q2. Historically speaking, you know, we have, you know, we have really strong cash conversion last year, right? Historically speaking, that's not that far off, you know, between kind of the seasonality of some of the cash flows coming in, you know, particularly with the, you know, the higher higher sales in the first half and collecting the cash on that in the second half.
Speaker Change: And those are going to be a headwind year over year as well. So those are the three elements really. On the SG&A side, it's really more of just a volume versus, you know, SG&A perspective. I don't think SG&A is going to be that different year over year. There's going to be less volume. So it's going to weigh on your margins a little bit from a percentage perspective.
Unknown Attendee: So it's going to weigh on your margins a little bit from a percentage perspective. But from a cash conversion, you know, we're actually not that far off. I mean, you look at, you know, 70% conversion in Q2. Historically speaking, we had really strong cash conversion last year, right? Historically speaking, that's not that far off. You know, between kind of the seasonality of some of the cash flows coming in, particularly with the higher sales in the first half and collecting the cash on that in the second half, and then the inventory drawdown that I talked about, we feel, you know, confident that we'll be able to deliver that 90% cash conversion in the second half.
Speaker Change: From a cash conversion, you know, we're actually not that far off. I mean, you look at, you know, 70% conversion in Q2. Historically speaking, you know, we had, you know, we had really strong cash conversion last year, right? Historically speaking, that's not that far off, you know, between kind of the
Speaker Change: Seasonality of some of the cash flows coming in, you know, particularly with the higher sales in the first half and collecting the cash on that in the second half, and then the inventory drawdown that I talked about, we feel confident that we'll be able to deliver that 90% cash conversion in the second half.
Brooks Mallard: And then the inventory drawdown that I talked about, you know, confident that we'll be able to deliver that 90% cash conversion in the second half. Thanks so much.
Speaker Change: Thanks so much.
Deane Dray: Your next question comes from a line of Deane Dray from RBC Capital Markets. Your line is open.
Deane Michael Dray: Your next question comes from the line of Deane Dray from RBC Capital Markets. Your line is open.
Speaker Change: Your next question comes from a line of Deane Dray from RBC Capital Markets. Your line is open.
Ivo Jurek: Thank you. Good morning, everyone. [inaudible] Hey, Ivo, I might have missed this.
Deane Dray: Thank you.
Ivo Jurek: Good morning, everyone. I might have missed this. I joined a little bit late, but you just talked through the thought process of moving up the pole forward of the repositioning, restructuring actions. That's typically a good sign to, if you have the plan, go ahead and start to implement it. And in your answer, Keith, the 80-20 provide any of the insights in terms of what changes that you'll be making. Thank you for the question, Dean. Yeah, so look, we've represented during the March Capital's Market Day that, you know, we have a good solid plan that we are ready to execute.
Deane Michael Dray: Thank you. Good morning, everyone.
Ivo Jurek: I joined a little bit late, but you just talked through the thought process of moving forward the pull-forward of the repositioning and restructuring actions. That's typically a good sign, so if you have the plan, go ahead and start to implement it. And in your answer, does the 8020 provide any insights in terms of what changes that you'll be making?
Speaker Change: [inaudible]
Deane Michael Dray: Hey Ivo, I might have missed this, I joined a little bit late, but you just talked through the thought process of moving up the pull forward of the repositioning, restructuring actions. That's typically a good sign.
Speaker Change: [inaudible]
Ivo Jurek: Thank you for the question, Dean. Yeah, so look, we represented during the March capitals market day that we have a good, solid plan that we are ready to execute. And we just feel we have two attributes. Number one, we are ready to go and pull forward the, you know, optimization activities. And so we are doing that. You know, those programs are ready to be executed and ready to be put in place.
Ivo: Thank you for the question, Dean. Yeah, so look, we've represented during the March capitals market day that
Ivo: You know, we have a good, solid plan.
Ivo Jurek: And we just feel we, you know, two, two attributes. Number one, we are ready to go and pull, you know, pull forward the, you know, the optimization activities. And so we are doing that; you know, those programs are ready to be executed and ready to be put in place, and we are putting them in place as we speak. You know, we are really pulling those activities forward by about two quarters. So it's not, you know, like we have pulled them forward by, you know, a couple of years. So anything like that, some of these programs are longer term, you know, reasonably complex projects.
Ivo: that we are ready to execute.
Speaker Change: And we just feel we, you know, two attributes, number one, we are ready to go and pull, you know, pull forward the, you know, the optimization activities.
Ivo Jurek: And we are putting them in place as we speak. You know, we are really pulling those activities forward by about two quarters. So it's not, you know, like we have pulled them forward by, you know, a couple of years.
Speaker Change: And so we are doing that.
Speaker Change: You know, those programs are ready to be executed and ready to be put in place and we are putting them in place as we speak.
Speaker Change: You know, we are really pulling those activities forward by about two quarters. So it's not, you know, like we have pulled them forward by a couple of years. So anything like that, some of these programs.
Speaker Change: a longer term, you know, reasonably complex projects, and, you know, we are, you know, ordering equipment and doing things of that nature. So that that will, you know, that that's kind of the attribute that's necessitating, you know, the completion of this project kind of by 2026.
Ivo Jurek: And, you know, we are, you know, ordering equipment and doing things of that nature. So that will, you know, that that's kind of the attribute that's necessitating, you know, the completion of this project kind of by 2026. So we have, you know, from that vantage point, we are in a good place on the 80/20 question. I mean, we look at the 80 20 more that kind of a separate set of programs that are giving us the opportunity to optimize how we, how we think about manufacturing, scheduling, and optimizing output within the plans. And I think what that's doing for us, it's giving us also an opportunity to become significantly more efficient has been before.
Ivo Jurek: So anything like that, some of these programs are longer-term, reasonably complex projects. And, you know, we are ordering equipment and doing things of that nature. So that will, you know, that's kind of the attribute that's necessitating the completion of this project kind of by 2026. So from that vantage point, we are in a good place. On the 80-20 question, I mean, we look at the 80-20 more as a kind of separate set of programs that are giving us the opportunity to optimize how we think about manufacturing, scheduling, and optimizing output within the plans.
Speaker Change: So, from that vantage point, we are in a good place.
Speaker Change: On the 80-20 question, I mean, we look at the 80-20 more as a kind of a separate set of programs that are giving us the opportunity to optimize how we...
Speaker Change: How we think about manufacturing, scheduling, and optimizing output within the plans. And I think what that's doing for us, it's giving us also an opportunity to become significantly more efficient as we move forward. So those are kind of complementary processes.
Ivo Jurek: And I think what that's doing for us is giving us an opportunity to become significantly more efficient as we move forward. So there's a kind of complementary processes, not necessarily one leading the other, they're just complementary in nature. And so we, you know, we are executing.
Ivo Jurek: So there's a kind of complimentary processes, not necessarily one leading the other that just complimentary complimentary in nature. And so, we, you know, we have the executing about. Good to hear.
Speaker Change: Not necessarily one leading the other, they're just complementary in nature. And so we, you know, we are executing a vote.
Ivo Jurek: Good to hear and then just a couple updates. I know it's still a small piece of the business, but anything new on the data center front in the water pumps, and any new developments on chain to belt?
Ivo Jurek: And then just a couple of dates. I know it's still a small piece of the business; anything new on the data center front in the water pumps and any new developments on chain to belt. Yeah, thank you on the, you know, on the data centers. Look, this is really quite an interesting, I mean, space from our vantage point. First of all, very, very early on, lots of changes. People are still trying to figure out, you know, what is the most efficient technology to deliver cooling to this very, very expensive. You know, apparatus that is being that is being deployed in this environment.
Speaker Change: Good to hear. And then just a couple updates. I know it's still a small piece of the business. Anything new on the data center front in the water pumps and any new developments on chain to belt?
Ivo Jurek: Yeah, thank you. On the data centers, look, this is really quite an interesting space from our vantage point. First of all, very, very early on, lots of changes; people are still trying to figure out what is the most efficient technology to deliver cooling to this very, very expensive apparatus that is being, that is being deployed. In this environment, and, you know, presently, we are actually in the process of launching some really interesting new fluid conveyance technology that specifically targets this application, but also will lead itself to be deployed across a pretty broad set of other industrial fluid conveyanc engineering new polymers that give us the opportunity to eliminate nitriles and deliver real differentiation in this space.
Speaker Change: Yeah, thank you. On the, you know, on the data centers, look, this is really quite an interesting, I mean, space from
Speaker Change: From our vantage point, first of all, very, very early on, lots of changes, people are still trying to figure out, you know, what is the most efficient technology.
Speaker Change: to deliver cooling to this very, very expensive.
Speaker Change: you know apparatus that is being that is being deployed in this environment and
Ivo Jurek: And, you know, presently, we actually in process of launching some really interesting new fluid conveyance technology that specifically targets this application, but also lead itself to be deployed across pretty broad set of other industrial fluid conveyance applications. It's, it's, it's very exciting. What would we are able to do, you know, the specifications there are rather difficult, right? You, you have to be metal free; you have to be halogen free in your construction, which is not a trivial set of things to accomplish in the space that, that, you know, that we participate. You know, we've been able to develop a new technology that is based on engineering new polymers that give us the opportunity to eliminate night trials and deliver real differentiation in this space.
Speaker Change: Presently, we are actually in the process of launching some really interesting new fluid conveyance technology.
Speaker Change: that specifically targets this application, but also lead itself to
Speaker Change: to be deployed across pretty broad
Speaker Change: set of other
Speaker Change: Industrial Fluid Conveyance Applications it's it's it's very exciting what we are able to do you know the specifications there are rather difficult right you you have to be metal free you have to be halogen free in your construction which is not a trivial set of things to accomplish in the space that that
Speaker Change: You know that we participate, you know, we've, we've been able to develop a new technology that that is based on engineering new polymers that give us the opportunity to eliminate nitriles and and deliver real differentiation in this space.
Ivo Jurek: So it's quite exciting. We are presently working with a significant number of server manufacturers and chip makers to get specified in the spaces their preferred partners. We have very close coordination with our partner in QIT. We are extending our abilities to offer other solutions beyond the cooling pumps, and we have been able to get specified with a large manufacturer that we anticipate. We will be ramping up some incremental volume towards the other part of this year and early into next year. So lots happening, lots changing there. We are right in the middle of dealing with the major players in cooling.
Ivo Jurek: So it's quite exciting. We are presently working with a significant number of server manufacturers and chip makers to get specified in the space as their preferred partner. We have very close coordination with our partner in Cool IT, and we are extending our abilities to offer other solutions beyond the cooling pumps.
Speaker Change: So, it's quite exciting. We are presently working with a significant number of server manufacturers and chip makers to get specified in the space as their preferred partners.
Speaker Change: We have very close coordination with our partner in Cool IT. We are extending our abilities to offer other solutions beyond the cooling pumps.
Ivo Jurek: And, you know, we have been able to get the specification for a large quantity with a large manufacturer that we anticipate will be ramping up some incremental volume towards the latter part of this year and early into next year. So, lots happening, lots changing there. We are right in the middle of dealing with the major players in cooling. I think that our solution targets very efficient and good, you know, price point entry into the marketplace.
Speaker Change: And, you know, we have been able to get specified.
Speaker Change: in a large
Speaker Change: with a large manufacturer that we anticipate we will be ramping up some incremental volume towards the latter part of this year and early into next year so so lots happening
Speaker Change: A lot's changing there. We are, you know, right in the middle of
Speaker Change: Dealing with the major players in cooling. I think that our solution is targeting very efficient.
Ivo Jurek: I think that our solution is targeting very efficient and good price point entry in that marketplace. But we also believe that this is going to be a game that's going to be played over several years as these folks truly understand the extent of the power, how to remove the power from these servers and these chips, and how to protect that equipment. So it's a very, very exciting start.
Speaker Change: and good, you know, price point entry in the marketplace. But we also believe that this is going to be a game that's going to be played over several years as these folks
Ivo Jurek: But we also believe that this is going to be a game that's going to be played over several, several years as these folks truly understand the extent of the power, how to remove the power from the servers and these chips, and how to protect that equipment. So it's very, very exciting. Coming back to the second part of your question, you know, I will, you know, I'll start with personal mobility, in particular, personal mobility has been, you know, impacted by, you know, pretty significant destock. Put that aside for a second; that plays itself out.
Speaker Change: truly understanding the extent of the power, how to remove the power from these servers and these chips, and how to protect that equipment. So it's a very very exciting stuff.
Ivo Jurek: Coming back to the second part of your question, I will start with personal mobility in particular. Personal mobility has been impacted by pretty significant destock. Put that aside for a second. That plays itself out, and as I've indicated, my preferred remarks that is playing itself out where they've been anticipated. Then we believe that on the onset of 25, we will start seeing the acceleration of our growth. We continue to get very strong print position with the manufacturers of these various two real applications. There are not it is scooters. It's electrified or non-electrified. We're getting very strong print position across the bike market segment, both with electrified application and non electrified application.
Speaker Change: Coming back to the second part of your question, you know, I will, you know, I'll start with with personal mobility in particular. You know, personal mobility has been, you know, impacted by, you know, pretty significant destock.
Ivo Jurek: And as I indicated in my previous remarks, that, you know, that is playing itself out the way to be anticipated. And then we believe that, you know, kind of at the onset of 25, we will start seeing a reacceleration of our growth. We continue to get very strong print positions with the manufacturers of these various two wheel applications that are not it is, you know, it is scooters, it's electrified or non-electrified; we're getting very strong print positions across the bike market segment, both with electrified applications and non-electrified applications.
Speaker Change: Put that aside for a second. That plays itself out, and as I indicated in my previous remarks, that, you know, that is playing itself out the way that we anticipated, and then we, you know, we believe that, you know, kind of on the onset of 25, we will start seeing re-acceleration of our growth.
Speaker Change: We continue to get...
Speaker Change: Very strong print position with the manufacturers of these various
Speaker Change: two real applications, they are not at this...
Speaker Change: you know, the scooters.
Speaker Change: it's electrified or non-electrified.
Speaker Change: We're getting very strong print position across.
Speaker Change: The bike market segment, both with electrified application and non-electrified application. We're now starting to penetrate more broadly in North America, starting to enter more mid-price bikes.
Ivo Jurek: We're now starting to penetrate more broadly in North America, starting to enter more mid-price bikes, and that's really exciting for us. We have a very high degree of confidence that that business is going to start really accelerating and continue to do over that growth that we've participated kind of from 25 onwards. So that's a really nice secular opportunity for us as well. Then on the industrial side, we are doing really well with robotics in Asia, with some food processing equipment in Asia, and we continue to work on a broader set of conversions in the United States.
Ivo Jurek: We're now starting to penetrate more broadly in North America, starting to enter more mid-priced bikes. And that's, that's really exciting for us. So we have a very high degree of confidence that that business is going to start reaccelerating and continue to deliver that growth that we've anticipated kind of from 25 onwards. So that's a really nice secular opportunity for us as well. And then on the industrial side, you know, we are doing really well with robotics in Asia and some food processing equipment in Asia.
Speaker Change: And that's that's really exciting for us. So we have a very high degree of confidence that that business is going to start reaccelerating and continue to deliver that growth that we participated kind of from 25 onwards. So that's a really nice secular opportunity for us as well.
Ivo Jurek: And we continue to work on a broader set of conversions in the United States, and we are making some investments in the front end. We believe that it is critical for us to be a real major player with the MOEMs, both, you know, in the US and in Europe, and that investment is being made as well. So, very positive developments on our end. You know, some of them, again, will play themselves out kind of over the next 25 years, but we have a very good sense of confidence that this is an opportunity. Both of these opportunities are opportunities for the next 10 to 20 years.
Speaker Change: And then on the industrial side.
Speaker Change: You know, we are doing really well with robotics in Asia.
Speaker Change: with some food processing equipment in Asia, and we continue to work on a broader set of conversions in the United States. We are making some investments in the front end.
Ivo Jurek: We are making some investments in the front end. We believe that it is critical for us to be a real major player with the MOEMs, both in the US and in Europe, and that investment is being made as we speak. Very positive developments on our end. Some of them, again, will play themselves out over that 25 onwards, but we have a very good set of confidence that this is an opportunity. Both of these opportunities are opportunities for the next 10 to 20 years.
Speaker Change: We believe that it is critical for us to to be a real major player with the MOEMs both, you know in the US and in Europe and And that investment is being made as as we speak
Speaker Change: Stop
Speaker Change: Very positive developments on our end.
Speaker Change: You know, some of them, again, will play themselves out, kind of over that 25 onwards, but...
Speaker Change: We, you know, we have a very good set of confidence that this is, you know, an opportunity, both of these opportunities are kind of opportunities for the next 10 to 20 years.
Ivo Jurek: It's a great update. Thank you.
Ivo Jurek: It's a great update. Thank you.
Speaker Change: It's a great update. Thank you.
Andrew Kaplowitz: Your next question comes from Alaina of Andy Kaplowitz from Citigroup. Your line is open.
Andrew Alec Kaplowitz: Your next question comes from a line of Andy Kaplowitz from Citigroup.
Speaker Change: Your next question comes from a line of Andy Kaplowitz from Citigroup. Your line is open.
Andrew Kaplowitz: Good morning, everyone. Good morning, Andy.
Ivo Jurek: Morning, Andy. Ivo, can you give us a little more color on what you're seeing by region and specifically in China. China shifted back to a year over year decline, I think you said led by first fit, but you mentioned the double digit improvement in industrial replacement. So can you help us make sense of what's going on over there? Does industrial replacement picking up tell you that first fit can't be far behind?
Andrew Alec Kaplowitz: Good morning, everyone.
Andrew Kaplowitz: Can you give us a little more color into what you're seeing by region, specifically China. China shifted back to year over your decline. I think you said led by first fit, but you mentioned the double vision improvement industrial replacement. So can you help us make sense of what's going on over there? Does industrial replacement taking up tell you that first fit can't be far behind? Yeah, so thank you for your question, Andy. And look, I mean, I think I also said in my preferred remarks that China remains choppy. I mean, it's been really interesting to see how uneven the environment is.
Andy: Good morning, Andy.
Andrew Alec Kaplowitz: You know, can you give us a little more color into what you're seeing by region and specifically China? China shifted back to a year over year decline. I think you said led by first fit, but you mentioned the double digit improvement in industrial replacement. So can you help us make sense of what's going on over there? Does industrial replacement picking up tell you that first fit can't be far behind?
Ivo Jurek: Yeah, so thank you for your question, Andy. And look, I mean, I think I also said in my prepared remarks that China remains choppy. I mean, it's been really interesting to see how uneven the playing field is. And frankly, it's not just in China; it's globally, right? I mean, you've seen really kind of nice rebounding in March into April. And, you know, then you see some of the trends reverse themselves. So it's very, very uneven and almost less predictable, you know, type behavior, but specifically to China, I'd say, you know, that's what's happening. It's, it's reasonably uneven.
Speaker Change: yeah so thank you for your question Andy and look I mean I I think I also said in my prepared remarks that China remains choppy I mean
Speaker Change: It's been really interesting to see how uneven the environment is.
Ivo Jurek: And frankly, it's not just in China; it's globally, right? I mean, you have seen a really kind of nice rebound in March into April. And then you see some of the trends to reverse themselves. So it's a very, very uneven and almost less predictable type behavior, but specifically to China. I'll take you know, that's what's happening. It's it's reasonably uneven. AFF AFF was down reasonably well for us in China in Q2. And you know, the forecasted production in the outer space for China is still, you know, reasonably negative. I single digits down for the second half.
Speaker Change: is, and frankly, it's not just in China, it's globally, right? I mean, you've seen really kind of nice rebound in March into April . And, you know, then you see, you know, some of the trends to reverse themselves. So it's a very, very uneven and almost
Speaker Change: less predictable you know type behavior, but specifically to to China. Let's say you know that's what's happening it's it's reasonably uneven. AFF was down reasonably well for us in China in in Q2.
Ivo Jurek: AFF, AFF was down reasonably well for us in China in Q2. And, you know, the forecasted production in outer space for China is still, you know, reasonably negative, high single digits down for the second half. So we anticipate that that's kind of the way it's going to play itself out, maybe, you know, maybe around the edges it could be a little bit, could be a little bit worse than that.
Speaker Change: and you know the forecasted production in the outer space for China is still you know reasonably negative high single digits down for the second half so we anticipate that that's kind of the way it's going to play itself out maybe you know maybe around the edges could be could be a little bit could be a little bit worse than that but
Ivo Jurek: So we anticipated that that's kind of the way it's going to place a lot. Maybe, you know, maybe around the edges could be could be a little bit could be a little bit worse than that. But, you know, for us, we did see a rebound in the industrial replacement side of our business, not necessarily enough to offset the diversify. So the construction side and act in China, while those are reasonably small, you know, overall industrial was, you know, what's kind of less positive, I guess, than what you would, what you would anticipate. But the replacement side of the business is doing quite well.
Ivo Jurek: But, you know, for us, we did see a rebound on the industrial replacement side of our business, but it was not necessarily enough to offset the diversity, sorry, the, the construction side, and act in in China, while those are reasonably small, overall, the industrial was, you know, was kind of less positive, I guess, then what you would anticipate, but the replacement side of the business is doing quite well. AR in China is still doing well.
Andy: You know, for us, we did see rebound in industrial replacement side of our business, not necessarily enough to offset
Andy: The construction side and ag in China, while those are reasonably small, you know, overall industrial was, you know, was kind of
Andy: Less positive, I guess, than what you would anticipate. But the replacement side of the business is doing quite well.
Ivo Jurek: So, AR in China is still doing well. The market dynamics are quite positive, and we don't, you know, we don't really see it as trajectory of change in AR for our business in China. So, China is probably not going to be the massive engine of growth that it has been historically. I mean, the economy has mature and, you know, like you know, not they will be going through the cycles that everybody else is seeing. And, you know, as they start figuring out what they want to do to simulate that economy, you know, things should be on better footing at some time in the future.
Ivo Jurek: The market dynamics are quite positive, and we don't, you know, we don't really see a trajectory of change in AR for our business in China. So China is probably not going to be the massive engine of growth that it has been historically. I mean, the economy has matured. And you know, like it or not, they will be going through cycles that everybody else is seeing. And, you know, as they start figuring out what they want to do to stimulate that economy, things should, things should be on a better footing at some time in the future.
Andy: AR in China is still doing well.
Andy: The market dynamics are quite positive. And we don't, you know, we don't really see a trajectory of change in AR for our business in, in China. So China is probably not going to be the massive engine of growth.
Andy: that it has been historically, I mean, the economy has matured.
Andy: And, you know, like it or not, they will be going through the cycles that everybody else is seeing. And, you know, as they start figuring out what they want to do to stimulate that economy, you know, things should be on better footing at some time in the future.
Ivo Jurek: If I wanted to follow up on your comments that, you know, maybe we're sort of bouncing along the bottoms in terms of industrial, you could talk about inventories in the greater industrial channels, what your channel partners are saying. I'm sure you would say that Aging Construction probably, so it doesn't look great in terms of inventory, but what about the other industrial? and Industrial Markets. What have you seen there in terms of channel inventories and conversations? Well, you gave me your answer. That's exactly what I would say. I believe that the Ag and commercial construction inventories are going to be probably somewhat impacted, taking into account the slowdown that you see.
Ivo Jurek: Ivo, I wanted to follow up on your comments that maybe we're sort of bouncing along the bottoms in terms of industrial. You can talk about inventories in the greater industrial channels and what your channel partners are saying. I'm sure you would say that agriculture and construction probably still doesn't look great in terms of inventory. But what about the other industrial markets? You know, what
Ivo: Ivo, I wanted to follow up on your comments that you know maybe we're sort of bouncing along the bottoms in terms of industrial. You can talk about inventories in the greater industrial channels.
Ivo: and what your channel partners are saying. I'm sure you would say that ag and construction probably still doesn't look great in terms of inventory. But what about the other industrial markets? What are you seeing there in terms of channel inventories and conversations?
Ivo Jurek: Well, you gave me your answer. That's exactly what I would say. Look, I mean, I and my team believe that the ag and commercial construction inventories are going to be somewhat impacted taking into account the slowdown that you see. But the rest of the inventories, we believe are, you know, pretty, you know, pretty reasonable. We don't really anticipate that you're going to continue to see any further destocking taking into account that these markets have been bouncing kind of around the bottom for an extended period of time, and folks have been reasonably proactive in destocking, you know, for an extended period of time. So, absent of the ag in particular, we think that inventories are OK. [inaudible] Thank you.
Speaker Change: Why don't you you gave me your answer that's like that's exactly what I that's exactly what I would say look I mean, I you know, we believe that
Speaker Change: The ag and commercial construction inventories are going to be probably somewhat impacted, taking into account the slowdown that you see.
Ivo Jurek: But the rest of the inventories, we believe, are pretty reasonable. We don't really anticipate that you're going to continue to see any further destock, taking into account that these markets have been bouncing kind of around the bottom for an extended period of time. And folks have been reasonably proactive in destocking for an extended period of time. So absolutely ag in particular, we think that inventories of opposition. Appreciate the color.
Speaker Change: But the rest of the inventories, we believe, are
Speaker Change: You know, pretty, you know, pretty, pretty, pretty reasonable. We don't really anticipate that you're going to continue to see any further destock.
Andy: take into an account that these markets have been bouncing kind of around the bottom.
Andy: for an extended period of time, and folks have been.
Andy: Reasonably proactive in destocking, you know, for an extended period of time.
Andy: So absent of the ag in particular, we think that inventories are well positioned.
Speaker Change: Appreciate the color.
Clay Williams: Your next question comes from a line of Jerry Rubich from Goldman Sachs. Your line is open.
Jerry David Revich: Your next question comes from a line of Jerry Revich from Goldman Sachs. Your line is open. Hi, this is Clay on behalf of Jerry.
Speaker Change: Thank you.
Andy: Your next question comes from a line of Jerry Revich from Goldman Sachs. Your line is open.
Clay Williams: Hi, it's Clay on for Jerry. Just one quick one for me. Apologies if I missed it, but on the previously outlined near 2% benefit from material cost reductions. You know, how much of that? Have we been able to realize so far? What's the timeline to realizing those benefits? I'm moving forward.
Clay: Hi, this is Clay on for Jerry. Just one quick one for me. Apologies if I missed it, but on the previously outlined new 2% benefit from material cost reductions, how much of that have we been able to realize so far? What's the timeline to realizing those benefits moving forward? Thanks.
Brooks Mallard: Thanks, I don't, you know, I don't believe that we have, we have clarified, you know, what exactly is the extent in terms of percent of improvement. I'll just say that we continue to execute well on material cost savings. And we don't anticipate any, you know, any changes to our ability to go and continue, you know, as we move into the future.
Ivo Jurek: I don't, you know, I don't believe that we have clarified what exactly the extent of the percent of improvement is. I'll just say that we continue to execute well on material cost savings. And we don't anticipate any, you know, any changes to our ability to go and continue, you know, as we move into the future.
Speaker Change: I don't you know I don't believe that we have we have clarified you know what exactly is the extent in terms of percent of improvement I'll just say that we continue to execute well on material cost savings
Speaker Change: and we don't anticipate any, you know, any changes to our ability to go and continue, you know, as we move into the future.
Clay Williams: Thanks, I'll pass it on.
Speaker Change: Thanks, I'll pass it on.
Unknown Attendee: That concludes our question-and-answer session.
Richard Michael Kwas: That concludes our question and answer session. I will now turn the call back over to Rich Kwas for closing remarks.
Richard Kwas: I will now turn the call back over to Rich Quas for closing remarks. Thanks everybody for participating. If you have any file questions, feel free to reach out. Have a great day.
Speaker Change: That concludes our question and answer session. I will now turn the call back over to Rich Kwas for closing remarks.
Operator: Thanks, everybody, for participating. If you have any follow-up questions, feel free to reach out. Have a great day!
Richard Michael Kwas: Thanks everybody for participating. If you have any follow-up questions, feel free to reach out. Have a great day.
Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Unknown Attendee: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Speaker Change: This concludes today's conference call. Thank you for your participation. You may now disconnect.