Q4 2024 Alamo Group Inc Earnings Call
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Speaker Change: On the line with me today are Jeff letter, President and Chief Executive Officer, and Agnes camps, Executive Vice President and Chief Financial Officer Management will make some opening remarks, and then we will open up the line for your questions.
Speaker Change: During the call today management may reference certain non-GAAP numbers in their remarks.
Speaker Change: Reconciliations of these non-GAAP results to applicable GAAP numbers are included in the attachments to our earnings release.
Speaker Change: Before turning the call over to Jeff I would like to make a few comments about forward looking statements.
Speaker Change: We will be making forward looking statements today that are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Speaker Change: Forward looking statements involve known and unknown risks and uncertainties, which may cause the company's actual results in future periods to differ materially from forecasted results.
Speaker Change: Among those factors, which could cause actual results to differ materially are the following adverse economic conditions, which could lead to a reduction in overall market demand supply chain disruptions labor constraints competition weather seasonality currency related issues geopolitical events and other risk factors.
Speaker Change: As listed from time to time in the company's SEC reports.
Speaker Change: <unk> does not undertake any obligation to update the information contained herein, which speaks only as of this date.
Speaker Change: I would now like to introduce Jeff letter Jeff. Please go ahead. Thank you Ed we want to thank everyone, who has joined US on the conference call today and express our appreciation for your continued interest in Alamo group our results for the fourth quarter were aligned with our expectations as the industrial equipment Division produced strong results as they did all year.
Speaker Change: And a robust market.
Speaker Change: Headwinds prevailed in several markets served by the vegetation management Division as a result of elevated interest rates and lower commodity prices.
Speaker Change: I'd now like to turn the call over to <unk>, who will take us through a review of our financial results for the fourth quarter. I will then provide additional comments on our results and say a few words about the outlook for the first quarter of 2025. Following our formal remarks, we look forward to take your questions. I guess please go ahead. Thank.
Speaker Change: Thank you Jess and good morning, everyone.
Jess: We finished the 'twenty 'twenty four with double digit profitability.
Jess: Despite significant headwinds in some of our markets.
Jess: Forestry and agricultural markets were weak most of the year, well governmental and industrial sectors experienced growth.
Jess: First quarter revenue was $385 $3 million, reflecting a seven 7% decline compared to the same period last year.
Jess: Gross profit for the quarter was $91 $8 million with margin of 23, 8% of net sales.
Jess: Margin decline of 230 basis points compared to the fourth quarter of 2023 was due to lower volume in the vegetation management division and separation expenses related to our cost reduction initiatives.
Jess: SG&A expenses were $53 $3 million, which is a reduction of 11, 3% from the first quarter of 2023.
Jess: These reductions are the result of savings initiatives and the vegetation management Division.
Jess: Operating income in the first quarter of 'twenty 'twenty, four was $34 $4 million with an operating margin of eight 9% of net sales.
Jess: Resulting in a decline of 180 basis points compared to the same period in 2023.
Jess: This margin decline included separation expenses of approximately $1 million.
Jess: Net income for the first quarter was $28 $1 million or $2.33 per diluted share compared to net income of $31 $5 million or $2 63 per diluted share in the same period last year.
Jess: Interest expense in the fourth quarter was $3 $1 million lower.
Jess: <unk> done in the same period in 2023.
Jess: Driven by reduced debt levels.
Jess: The provision for income tax was $2 $3 million lower compared to the same period in 2023.
With that overview, let's take a closer look at the performance of our divisions.
Jess: Our vegetation management Division reported net sales of $159 $8 million or 25, 5% reduction compared to the first quarter of 2023.
Jess: The declines occurred in the forestry and agriculture segments, while the governmental segment continued to grow.
Jess: Operating income for this division was $6 $5 million, representing 4% of net sales.
Jess: Savings from cost reduction actions taken earlier in the year, partially offset the impact of lower revenue.
Jess: Additionally, this quarter's result results included approximately $1 million in separation expenses.
Jess: And the other hand, our industrial equipment Division net sales were $225 $5 million, representing 11% growth compared to the fourth quarter of 2023.
Jess: Growth in the fourth quarter was driven by stronger sales of excavators and vacuum trucks as well its snow removal equipment.
Jess: Operating income was $28 million or 12, 4% of net sales.
Jess: Slight improvement compared to the same period last year.
Jess: A few words to summarize the full year results.
Jess: Net sales were $1 $6 billion, reflecting a three 6% decrease compared to 2023.
Jess: The vegetation management Division declined 19, 8%, while industrial equipment Division grew 18, 7%.
Operating income was $164 $8 million or 10, 1% of net sales, representing a decrease of $33 $2 million and 160 basis points year over year.
Jess: The operating income for the vegetation management division was $56 $6 million or seven 2% of net sales.
Jess: And it included approximately $4 $2 million in employee separation expenses and then additional.
Jess: $1.8 million of other plant consolidation expenses.
Jess: Industrial equipment Division operating income of $108 $3 million was 12, 8% of net sales and 216 basis point increase versus prior year and higher revenue and improved operating efficiencies.
Jess: Net income for the year was $115 $9 million compared to $136 $2 million in 2023.
Jess: Interest expense improved by $5 $5 million versus prior year benefiting from reduced debt levels.
Jess: The provision for income taxes was $5 $3 million lower versus prior year and represented approximately 22, 5% effective tax rate.
Jess: Let me provide an update on our cost reduction initiatives.
Jess: In 'twenty 'twenty, four while forestry and agricultural markets were slow we executed a number of actions with our long term goal to improve efficiencies in the vegetation management Division.
Those actions included consolidation of forestry plans consolidation of U S. <unk> plans and a significant workforce reduction representing approximately 14% of total Alamo group Global staff.
Jess: We are on track to achieve our savings target of $25 million to $30 million on an annualized basis.
Jess: We have already seen some of these savings in the third and fourth quarters of 'twenty 'twenty four.
Jess: Further savings are expected to accelerate over the next few months.
Jess: The cost associated with these actions are mainly employee separation expenses for the first quarter, we incurred approximately $1 million and for the year. The total severance expenses were approximately $4 $2 million as mentioned earlier.
Jess: Moving onto the balance sheet.
Jess: We had a successful year in navigating a challenging environment, our financial position is strong providing us with the flexibility to support ongoing initiatives and future investments.
Jess: Total assets were $1.450 billion at the end of the year, representing an increase of $49 million or two 9% compared to last year at the same time.
Jess: This increase is driven by higher cash and cash equivalents.
Jess: We reduced our accounts receivable by $56 $4 million to $305 $6 million also representing a reduction in days sales outstanding by about 10 days compared to the end of 2023.
Jess: Inventory of $343 $4 million was also reduced by $34 1 million compared to last year.
Jess: Reductions were achieved in our vegetation management division and they more more than offset increased in the industrial equipment Division.
Jess: Higher inventory in the industrial equipment Division supported revenue growth of 19% in that division.
Jess: Operating cash flow in 2024 was $209 $8 million, increasing by $78 $6 million or 60% year over year.
Jess: Free cash flow into 2024 was $184 $8 million compared to $93 4 million in 2023.
Jess: At the end of 2024, our total debt was $225 million and that's net of cash was $23 $2 million.
Jess: This is an improvement of $162 million or <unk> 87, 3% compared to the end of 2023.
Jess: To conclude it has been a challenging but very productive year difficult actions, we took will drive greater efficiencies long term and support our goals to increase our operating margins.
Jess: I would like to emphasize our commitment to delivering long term value to our shareholders. We are pleased that our board has approved a quarterly dividend of <unk> 30 per share representing a 15% increase versus 'twenty 'twenty four.
Jess: Consecutive dividend increases underscore our confidence in the strength and stability of our business.
Jess: As we move forward, we will remain focused on driving growth and optimization of our operations.
Jess: Thank you I'll turn it back over to Jeff. Thank you address the company's fourth quarter results were broadly in line with our expectations given the mixed conditions that continued to be evident in our markets. The governmental industrial contractor and vegetation markets. Once again, followed divergent tracks during the final quarter of 2024.
Jess: Governmental and industrial contractor customers served by our industrial equipment Division continued to invest in fleet modernization and performance upgrades in North America demand for governmental agencies and industrial contractors remains strong across all of our major product launch.
Jess: Fourth quarter sales of $226 million were up 11% compared to the fourth quarter of 2023.
Jess: Bordering activity also continued at a good pace, although some slowing as noted during the final weeks of the U S. National election cycles. This division reported strong fourth quarter operating income of $28 million of barely 12% compared to the same period of 2023 EBITDA was also solid at nearly 16%.
Jess: On a full year basis, the division sales improved by almost 19% and operating income improved 43% compared to 2023.
Jess: EBITDA improved by 170 basis points year over year.
Overall, the industrial equipment Division had another excellent quarter and full year 2024, and remains well positioned to continue this pattern of success heading into 2025.
Jess: Our vegetation management division continue to face tough market headwinds in several of its key markets in the fourth quarter. The combined effect of elevated interest rates and excess channel inventory has continued to depress market activity in the forestry tree care and agricultural equipment markets dealers have remained cautious as they anticipated a belief in <unk>.
Jess: Interest rates has been further delayed by the fed as it continues to battle inflation.
Jess: Fourth quarter sales of 160 million U S dollars declined 25% versus the corresponding period last year operating income in the quarter was $645 million EBITDA was $15 $3 million or 9% nine 6% of sales.
Jess: Order bookings improve sequentially during 2024, albeit modestly while still remaining off the peaks recorded in 2023, while we still have a long way to go to get this division back to acceptable growth. The improvement in orders is a good indicator that the worst may be behind us.
Jess: Turning our attention first to the forestry and tree care market sales were soft as dealer inventories remained elevated and large tree care contractors continue to postpone nonessential equipment replacements sales.
Jess: Sales were down compared to the fourth quarter of 2023 and were sequentially lower than during the third quarter more positively. However order bookings in this largest part of the vegetation management division's portfolio improved sequentially every quarter during 2024 and rose nearly 8% on a full year basis compared to 2023, so it seems.
Jess: Clear that this part of the vegetation management equipment Division is beginning to steadily regained momentum the consolidation of our two largest facilities, serving forestry and tree care was completed in the fourth quarter and the expected cost savings or just becoming evident as we head into 2025 and this will certainly help this part of the division produced a stronger operating rig.
Jess: So even on lower volume.
Jess: In the agricultural equipment market similar patterns were evident sales in this market also declined throughout 2024, including the fourth quarter. However, order bookings improved sequentially every quarter during 2024 and fourth quarter book to Bill was the highest of the year more than 115% 1.151.
Jess: Dealer inventories remain elevated they've continued to come down.
The inventory of our own products remained at a very very low level. The consolidation of our two largest aggregate manufacturing facilities in the U S continues to progress. According to our planning the physical move was completed at the end of 2024. However, some capital improvements in the Meridian facility will not be completed until the second quarter.
Jess: 2025 that is when we expect to receive the full cost and efficiency benefit of this consolidation.
Jess: It was great to see that other parts of this division's business, where stronger equipment sales. So the vegetation management markets in Europe were modestly higher than in the fourth quarter of 2023 and orders were up nearly 5% compared to the prior year fourth quarter.
Vegetation management equipment sales in South America, while relatively smaller than the other markets were up 5% compared to the fourth quarter of 2023. Finally, this division sales of mowers to governmental agencies were also up about 5% in the fourth quarter compared to the final quarter of 2023. It is important to note that the divisions governmental.
Jess: <unk> continued to be at historically high levels.
Jess: Turning now to corporate performance as I, just noted fourth quarter consolidated net sales declined 8% compared to the fourth quarter of 2023 fourth quarter net income declined 11% to $28 $1 million net of separation costs of $1 million. These results reflect the persistent headwinds we experienced in.
Jess: Can management throughout most of 2024, however, we've not been staying idle during 2024. In addition to the conducting two major facility consolidations, we've reduced our global employee population by about 14% cost improvement actions will continue in 2025 as we've identified additional opportunities to improve.
Jess: <unk> and streamline our operations.
Jess: I was especially pleased with the improvement in the company's cash flow in the second half of 2024 as a result of our team's intensive focus on working capital reduction we were able to dramatically reduce our long term debt net of cash to just $23 million.
Jess: The business environment remains quite dynamic, particularly in North America, we're closely monitoring developments involving tariffs in our planning actions to minimize the impact of them on our operations with significant manufacturing facilities in the United States and Canada. We are optimistic that we can adjust our manufacturing strategy to minimize the direct impact of <unk>.
Jess: On profitability.
Jess: Reciprocal tariffs with the rest of the global community are more concerning these tariffs will probably appear in the form of input cost inflation we.
We successfully navigated the inflation during the immediate post pandemic period, and I'm confident we will do so again, but it remains to be seen what effect. This will have on global trade.
Jess: As we look ahead to the early months of 2025, we expect the pattern of the past several quarters will again be evidence, we expect that our industrial equipment Division will continue to produce strong results and mid single digit organic sales growth. We also expect the vegetation management Division will continue to show modest but steady recovery in order flow.
Jess: <unk> backlog at operating margin driven by the cost reduction initiatives. The division sales were expected to begin showing modest growth in the second half of 2025 prop.
Jess: Profitability is expected to show improvement in the second quarter as the full benefits of the planned consolidations and staff reductions flow through on balance we like how the company is now positioned and we're pleased with the results of the cost reduction initiatives. We implemented last year. We're also excited about the prospects for meaningful acquisitions in 2025.
Jess: Our acquisition target pipeline is the most active its been since before the onset of the pandemic our strong balance sheet gives us ample room for meaningful investments.
Jess: Inorganic growth in 2025 before closing I would like to take this opportunity to express our sincere appreciation to our customers dealers supplier partners, our dedicated employees and financial stakeholders for their continued support of the company. This concludes our prepared remarks, we're now ready to take your questions.
Jess: Operator, Please go ahead.
Jess: We will now begin the question and answer session to.
Jess: To ask a question you May press Star then one on your telephone keypad.
Jess: If you were using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
Jess: At this time, we will pause momentarily to assemble our roster.
Speaker Change: Our first question is from Mike's Liskey with D. A Davidson. Please go ahead.
Mike's Liskey: Good morning, and thanks for taking my questions.
Speaker Change: Hi, Mike.
Mike Liskey: Hello there.
Mike Liskey: But I appreciate your commentary on margins for vegetation for 2025, it will start seeing some benefits here in the second quarter when the plant consolidations.
Mike Liskey: I'm curious if you can talk to us about the industrial group for 2025.
Mike Liskey: It has some.
Mike Liskey: The volume increases are there any unusual mix changes or anything lumpy, we should be thinking about that might affect the margins at 25, but just maybe just a broad sense of what the incrementals could be.
Mike Liskey: In the coming year here.
Speaker Change: Yeah. Thanks, Mike Great question, I don't see significant mix changes within the industrial equipment Division at the moment all three of the segments of that division are holding up very very nicely.
Speaker Change: And January has gotten off to a good start so we're very pleased with the direction inside that division in terms of the tariffs and plant capacities and so on Mike.
Speaker Change: We you may recall that we repurposed our planet and Wooster, Ohio from Forestry tree care equipment manufacturing to slow removal that was done partly to mitigate potential risks related to tariffs. So we can produce snow removal equipment for the U S market inside that facility and use our Canadian facilities to serve the Canadian market.
Speaker Change: That's really the only significant major shift as we've done that that's liberated some capacity in another one of our snow removal plants in the U S and so it gives us some opportunities to think about how we continue to streamline the operations inside the industrial equipment Division, having said that the utilization of facilities in that division is already running very very well the under absorbed.
Speaker Change: But essentially nil for a bit now so we're in a pretty good spot.
Speaker Change: Got it thank you.
Speaker Change: Also great to see if you basically got almost.
Speaker Change: Almost zero net debt at the moment.
Speaker Change: I'll give you a lot of kudos it was really a gradual process to pay down that debt from more bark and get to a very comfortable level here.
Speaker Change: Yes, I was wondering what you do with your free cash from here.
You paid down the gross debt and try and go below zero net debt.
Speaker Change: You just raised the dividend do you have other plans for.
Speaker Change: Yeah.
Speaker Change: So the investments or are you just going to try and save money for every day.
Speaker Change: No we're not trying to save money for a rainy day at all Mike Obviously as I said, our M&A pipeline looks very interesting right now.
Speaker Change: So really that's the primary purpose of any cash that we continue to accumulate and that's why we like the debt position that we're in but.
Speaker Change: But I think any further reduction of debt would frankly be counterproductive. So if the M&A targets don't come we may buy back a few shares.
Speaker Change: Because we believe strongly in the future of the company.
Speaker Change: Alright, maybe one last one for me, Jeff you announced a few months back your eventual retirement.
Speaker Change: Is there any update for us on how the how the next tier of search hasn't hasn't come in so far.
Speaker Change: It's proceeding very very well, Mike we've just come off our board meeting and I'm very pleased with the direction of the board is taking however, having said that I'm in this out all that I am going to continue driving the bus as long as I needed to do that I'm not slowing down at all.
Speaker Change: Well that sounds great. Thank you so much I'll pass it along.
Speaker Change: Alright, Thank you Mike.
The next question is from Chris Moore with CJS Securities. Please go ahead.
Chris Moore: Hey, good morning, guys. Thank for taking a couple oh.
Chris Moore: Well good morning start with with margins. So Q4 operating margins were eight 9% just trying to get a feel for maybe the puts and takes of you guys being able to generate better than 10% operating margin in 2025.
Chris Moore: I think we're at a pretty nice position to do that Chris and the reason is the full effects of these cost reduction initiatives initiatives haven't flowed through yet, but the costs associated with them largely half. So as I mentioned on the call. We have a little bit of Capex left to do associated with that but all of the separation costs and so on.
Chris Moore: Well behind US now and as you heard in the remarks, the resizing of the company was actually a little bit more dramatic than we'd initially planned that's a little bit of a safety buffer from our point of view.
Chris Moore: So I think as long as industrial can keep growing and they are in hold onto their profitability, which has been steadily increasing as you've seen and we get our vegetation management division to keep kind of gathering momentum it won't be dramatic in the first half.
Chris Moore: But as I said, our own inventories in the field are really low, particularly in AG, a little less so in forestry, but even in forestry, the inventories come down quite a bit I think.
Chris Moore: The outlook for the second half is quite good and of course, when forestry does start to regain momentum there are cost structure. So streamline now that that should drop very very quickly to the bottom line and that's where my confidence comes that we should be able to stay above 10% op income for the full year of 2025, maybe if I can add.
Speaker Change: This is agonist.
Speaker Change: If I can add something here fourth quarter seasonally is always a little bit lower so I expect us to be above 10%.
Speaker Change:
Last year 2024, we achieved 10, 1% and I was I was quite happy with that because looking at history yet.
Speaker Change: Alamo. This is the second highest year that we've done in the last at least few decades. So so.
Speaker Change: So we've been okay with that and like Jeff said, considering all the actions. We have taken we are already starting to see some benefits on that so I will be pushing to get back to normal.
Speaker Change: Got it very helpful.
Speaker Change: Thank Jeff in your prepared remarks, you talked a little bit about.
Speaker Change: Channel inventory levels, I know that had been coming down over the last couple of quarters, but.
Speaker Change: Just.
Speaker Change: Maybe could you characterize them a little bit further in terms of what you're seeing in early 2025 and you.
Speaker Change: How much further they need to come down in order to make a difference.
Chris Moore: Yes, I can give you some good color on that Chris.
Chris Moore: Let's start with the agricultural equipment side. The inventory is now very low by historical standards and that's why we're seeing some orders even though the rest of the AG market is reporting that recover yet our dealers are just out of stock or they have to order now and I think that's going to continue for a bit it wont be overwhelming but it'll be a positive trend I believe all through the first quarter.
Chris Moore: Then if we move up the tree care sort of the next segment up the up the food chain inside that division the field inventory and <unk> come way down and that was our biggest problem a lot of the multiyear equipment in the trackers that drive those were in excess and that's come down very very nicely during the fourth quarter. We've been very pleased with that and that is we.
Chris Moore: <unk>, we started to see some nice orders starting to come out of our National accounts again. These are people like the the daily trees. The Louis trees. The aspens of the World, who began to reinvest in fleet they'd been postponing some investments and we saw some of that flow through we also saw some nice orders flowing through from the state of California related to the fire management going forward for for shippers.
Chris Moore: And the like so.
Chris Moore: So that's that's very helpful to us because that was the most hard hit area. In 2024, then when you go to the high end of the food chain the industrial.
Chris Moore: The forestry equipment field inventories and heavy theyre expensive its not a lot of machines. It's just high ticket items, but with the wood pellet industry now starting to recover with a lever now finally, getting recapitalized and back on their feet. Those customers are ordering again as well. So there is still further work to go to clear the inventory there, but we're in a much better position than we were.
Chris Moore: Were one quarter ago.
Chris Moore: So I hope that helps.
Chris Moore: That's very helpful.
Chris Moore: Maybe just to wrap that up a little bit so vegetation revenue was down I think just under.
Chris Moore: 20% and 24.
Chris Moore:
Chris Moore: Comps will be a little bit easier.
Chris Moore: Is it low single digit decline for the year is that achievable or is that aggressive.
Speaker Change: You know I think we're going to do better than that Chris I'm more of an optimist about that I actually still think we're going to work out a little bit of growth next year at the rate, we're going so I'm more optimistic than RV owners are more optimistic than they have been for quite a while as well and that studies. So I think the overall AG market is so <unk>.
Speaker Change: <unk> right now and farmer sentiment is reacting both short term and long term short term.
Speaker Change: Sentiment has been a little bearish because of all the talk about tariffs and kind of the actions of the federal government, which makes everybody nervous.
Speaker Change: But their long term outlook is actually quite good right now and in the prospects for that market. If the war in Ukraine get settled in I think it will that helps a great deal, particularly from US historically, we had a nice export market in both Ukraine, and Russia, So I'd love to see that come back.
Speaker Change: So.
Speaker Change: And then as you move into the Forrester and <unk> Aerospace as I said most of the inventory overhang now <unk> is gone and we're starting to see nice orders flowing through again for four mulching heads and per chip or is not at the level. They were in the sort of late pandemic period, but coming back to a much more normal order flow and as I said sequentially orders have been right.
Speaker Change: Every quarter for most of last year. So I think we can clearly state that we're off the bottom and I think the momentum should continue to increase as we go throughout the year. Obviously tariffs are the big wildcard, but if you think about that most of that business for Alamo group is north American business and most of it is U S business and again, we have facilities on both side of the U S.
Speaker Change: Canada border, so I'm not overly concerned about tariffs we've studied exhaustively to understand where our risks are.
Speaker Change: Relative to the size of the company and our profitability, it's not a significant risk at this point in time, so I'm fairly bullish about the way 2025 is going to shape up and you know already we're off to a pretty good start the early weeks of the urban very encouraging.
Speaker Change: It sounds good I'll jump back in line thanks, guys.
Chris Moore: Thanks, Chris.
Speaker Change: The next question is from Greg Burns with Sidoti <unk> Company. Please go ahead.
Greg Burns: Good morning.
Speaker Change: Good morning, Greg could you just talk a little bit about the order activity on the industrial side.
Greg Burns: In particular, where you're seeing declines this quarter.
Speaker Change: Yeah.
Speaker Change: Okay, Yeah, Great question, Greg there the vacuum truck market first of all held up very very well, that's been running steady and decent growth.
Speaker Change: So theres been no interruption in that whatsoever.
Speaker Change: Sweeper side Street sweepers were down a little bit and you've heard me talk on the call before Greg sweepers tend to be the Canary in the coal mine, but this was a national election years, I highlighted and we always see disruption in that particular product group in a national election here that has happened every year every four years any way since I've been with the company a snow removal was down a little bit I think some.
Speaker Change: That is related to our lead times, we were so busy throughout the second and third quarter I think our lead times were getting a little bit long, but ramping up this worcester facility in Ohio to produce snow removal is helping to alleviate that quite a bit. So I think that will come back on and obviously the snowfall. This winter has been actually really really good we've had frequent snow floor falls so it's.
Speaker Change: Required continuous plowing, so I think the outlook for snow removal going forward is actually pretty good but it was those two areas that we can then back a vacuum trucks remain very strong.
Speaker Change: Or.
Speaker Change: The sweepers and sewer cleaners vacuum trucks.
Speaker Change: What are your lead times like there for others in the space talking about longer lead times and if you. If you have like more normal lead times are you are you at all able to benefit from that dynamic in the market.
Speaker Change: Yeah, we are Greg our lead times are still running three to four months, we're in a pretty good position there we've still got capacity available.
Speaker Change: So we're not overwhelmed in either one of those product groups at all.
Speaker Change: Okay. Thank you.
Speaker Change: Again, if you have a question. Please press Star then one.
The next question is from Mircea Dover with Baird. Please go ahead.
Peter: Hey, guys. This is Peter calling carrying on for Mig. This morning, a quick question for me.
Speaker Change: Good morning, Jeff quick question from me on vegetation could you first remind us the percent of that 25 to 30 million in savings that is flowing directly through vegetation. My recollection with almost all but I just want to confirm that and second given these cost savings how are you thinking about vegetation decrementals through 'twenty five.
Speaker Change: Should you be able to hold decrementals, maybe in the low to mid Twenty's like we saw in the fourth quarter or maybe does that get a bit better with savings still to flow.
Speaker Change: Just kind of hear your thoughts there and maybe the margin puts and takes for vegetation going into 'twenty five.
Hi, This is agonist I'll I'll take a first run at this so the $25 million to $30 million in savings that we have announced.
Speaker Change: We're on a very good way for achieving that by the way and this is all in vegetation. So all actions. We took you know the consolidations off of planned staff reductions in force.
Speaker Change: It is in vegetation, so nothing in industrial.
Speaker Change: When it comes to Decrementals, we have seen that in improvement as we've been taking those actions and as we go into 2025, I expect that to improve quite a bit, especially since those savings are still a little accelerating in the in the early months in this year and also the costs that we're not going to have that does.
Speaker Change: Separation costs that we had last year will not repeat so I'm, so I expect those to improve.
Speaker Change: Yeah, and I would echo that what I would what I would say further on beyond that is that the actual.
Speaker Change: So price cost margin in that division held up pretty nicely all through last year. The impact of net margin that you see in our published results or the effect of under absorption, which is why we took such dramatic actions to reduce capacity that work is largely done we're still seeing just a little bit of impact from it because the consolidation isn't quite bedded down yet.
Speaker Change: The large facility down in Alabama, but that should settle down in Q1, and then I think we'll see the margin stabilize and start to rise so and as I said all of the savings really.
Speaker Change: We've announced will be a vegetation management.
Speaker Change: Awesome Super helpful guys. Its like its moving to industrial now just thinking longer term.
Speaker Change: Yeah.
Speaker Change: You've taken a lot of steps to improve the overall margin profile of the segment you hit roughly let's call. It a 13% operating margin for the full year 'twenty four.
Speaker Change: You know maybe thinking longer term, where do you think the margin in this business you know can get any further plant consolidations operating initiatives to be aware of that could lead to I don't know sort of fundamentals structural margin uptick in the segment I know maybe in the past you've talked about like fitting teams there or anything any color there.
Speaker Change: Yes, I can give you some nice color there I think a 15% operating margin in that segment is very doable.
Speaker Change: Very doable within 2025 at least by the end of the year not on a full year running basis, but I expect we should be able to end the year at that level next year. We do have some further plant consolidation opportunities within the industrial division as a result of the realignment within our forest from the tree care segment as I mentioned.
Speaker Change: The second largest facility and the vegetation management Division was the was the one in Wooster, Ohio, which has now been repurposed to peruse snow removal equipment that allows us to consolidate some of our smaller facilities that were more fragmented across the U S. In particular, so I think that'll be a nice gain as we head through 2025, and we have clear plans to get that done this year.
Speaker Change: Awesome. Thanks, Jeff and then just one more for me I wanted to.
Speaker Change: I want to circle back to M&A.
Speaker Change: We've been talking a lot lately about some bigger opportunities on the M&A side. You know are there any categories in particular, you're looking at adjacent categories of interests geographic expansion.
Speaker Change: Any color you could add there and kind of what youre looking at with the inorganic component would be super helpful.
Speaker Change: Yeah, I mean, I, obviously cant be too terribly specific here, but we're looking at things that are close to living in our wheelhouse more and more governmental work theres opportunities there.
Speaker Change: Some larger segments of governmental that we're not currently survey that would be incremental products within our government metal portfolio, we see very nice opportunities in Europe, we're chasing a couple of very interesting.
Speaker Change: Cases at the moment that would take our industrial do further and deeper into the European market, which has been a goal of the company for a very very long time.
Speaker Change: So we've seen so many opportunities right now and the timing of them is what we're trying to game a little bit because some of the sellers are also.
Speaker Change: Area or what the tariff impact might be but in any event. Our goal is to keep our balance sheet spotlessly clean and licensed Todd So when the opportunities do come we can react very positively to it and I do think that's going to happen. During the first half of 2025 at least some of these are going to break loose at least that's my expectation right now.
Speaker Change: Awesome. Thank you guys.
Speaker Change: Thank you.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.
Speaker Change: Okay.
Speaker Change: Thank you for joining us today, we look forward to speaking with you on our first quarter conference call in May 2025 that concludes our call.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Okay.
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Speaker Change: Okay.
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Speaker Change: Yes.