Q1 2025 Park-Ohio Holdings Corp Earnings Call
Brian Sponheimer, Matthew Storms, Christian Zyla, Park Ohio
Speaker Change: Good morning and welcome to the Park Ohio First Quarter 2025 Results Conference call. This time all participants are in listen only mode. After the presentation the company will conduct a question and answer session. Today's conference is also being recorded. If you
Speaker Change: Before we get started, I want to remind everyone that certain statements made on today's call may be forward-looking statements as defined in the Private Security's litigation
Speaker Change: These four-looking statements are subject to risk and uncertainties that may cause actual results to different materially from those rejected.
Speaker Change: A list of relevant risks and uncertainties may be found in the earnings press release, as well as in the company's 2024-10K, which is filed on March 6, 2025 with the SEC.
Speaker Change: Additionally, the company may discuss adjusted EPS, adjusted operating income, and EBITDA has to find on a continued operations or consolidated basis. These metrics are not measures of performance under generally accepted accounting principles.
Speaker Change: For reconciliation of EPS to adjusted EPS, operating income to adjusted operating income and net income attributable to Park Ohio common shareholders to Ibadah. As defined, please refer to the company's recent earnings release.
Speaker Change: I will now turn the conference over to Mr. Matthew Crawford, Chairman, President and CEO . Please
Speaker Change: Thank you and good morning to everyone. While our first quarter results were a little behind our internal expectations, we're happy with how we performed, given the volatility we saw in some of our end markets.
Specifically, I'd like to call out three main themes [inaudible]
Speaker Change: First, January started off surprisingly slowly. A number of customers confirmed a similar start to the year, but fortunately things rebounded quickly and February and March improved steadily and became more consistent with our expectations.
Speaker Change: Secondly, our engineer-protest group turned the corner and we saw year-over-year improvement and strong quarter-end execution.
Speaker Change: as we mentioned often, and your progress group historically has led Park Ohio in both margin profile and backlog visibility. While we continue to see solid order entry and backlog stability in the segment, we are now beginning to see improved profitability.
We anticipate this will continue through 2025 and beyond.
Speaker Change: Lastly, we have discussed in every recent results conference call our effort to reshape our business by focusing our investment on our best products and services.
Speaker Change: This also required a calling of the herd, a bit in terms of closing some non-strategic locations, discontinuing some customer relationships, and in some cases the sale of assets.
Speaker Change: Fortunately, during this period, we also saw record growth in our remaining businesses and in particular supply technologies.
Speaker Change: financially we believe this will improve our cash flows, reduce earnings volatility and improve our overall margins through the business cycle
Speaker Change: While our work is not complete, we saw evidence of these efforts in the first quarter as we navigated end-market volatility and some unusual product mix.
Speaker Change: With increasing uncertainty in the global industrial markets, our products, our strategy has been timely and will lead to more stable and improved results.
Speaker Change: Turning to tariff uncertainty, there are several important points to make regarding our company.
Speaker Change: We have presents in more than 20 countries and for the most part focus on an in-region strategy for manufacturing, distribution and the end customer.
Speaker Change: This does not mean that we will not see some tariff costs. It means that we are an experienced operator in the global industrial space, and we'll seek to understand optimal supply change.
Speaker Change: Also, the vast majority of what we sell are highly engineer products, and where changing the supply chain is difficult or two time consuming, we will see customer support for these costs.
Speaker Change: 2nd, we are predominantly a US-based business with about two-thirds of our revenue coming from domestic customers. Where we do rely on Mexican or Canadian suppliers, our imports are predominantly USMC-MCA compliant.
Speaker Change: Lastly, we're a well positioned in our US-based businesses to benefit from reshoring. We have seen multiple early examples of customer inquiries or new orders which relate to our customers seeking to secure their supply chains in the US.
Speaker Change: Given the highly engineered nature of these products, we anticipate little impact during 2025, but expect incremental business in 2026 and beyond.
Speaker Change: We also have seen an increase in investment in infrastructure, defense, and specifically key steel technologies which will benefit our engineering product segment as the Trump administration drives reinvestment in these end markets.
Speaker Change: Given all this uncertainty, we have widened our 2025 earnings forecast to account for these questions and for the potential for lower sales as customers hit the pause button, excuse me, as consumers and customers hit the pause button waiting for some clarity.
Speaker Change: Thank you to our entire park Ohio team. We have a wonderful opportunity to demonstrate the strength of our team in our business model during these very interesting times.
Pat: With that, I'll turn it over to Patrick to cover the quarter results
Thank you, Matt.
Pat: Our first quarter results were mixed across our various businesses. On a positive note, we saw sales growth in several parts of our supply technology business, including our locations in Europe and Asia, and in the commercial aerospace and market, which helped offset man weakness in certain markets in North America.
Pat: Also, our industrial equipment business and our engineering product segment performed well as sales grew 13% in operating margins increased 110 basis points during the quarter, resulting from strong new equipment and aftermarket demand in all regions.
Pat: and our assembly component segment, Lower Universe and Lower Pricing on certain fuel rail products and the lane-new business launches impact its sales in the quarter.
Pat: Sales in the quarter total four and five million dollars compared to four and eighteen million dollars a year ago.
Pat: Also, first-quarter revenues in our enterprise segment from 6% compared to last year, resulting from strong sales in our industrial equipment.
Pat: Our consolidated gross margin was 16.8% the quarter compared to 17.1% in the first quarter of last year Consolidated operating income total $19 million compared to $24 million in the first quarter of last year
Pat: The decline of those gross margin and operating income margin during the quarter were a result of the lower sales levels and supply technologies and assembly.
Pat: The up earnings per share from continued operations for the quarter was 61 cents per diluted share compared to 83 cents last year on an adjusted basis earnings per share was 66 cents per share compared to 85 cents per share a year ago.
Pat: The year-over-year decrease in gap and adjusted earnings for share was driven by lower sales in the quarter, primarily in assembly components, and the increase in diluted shares outstanding resulting from the sale of common shares in the third and fourth quarter of last year.
Pat: The increase in shares outstanding impact of the current board res earnings per share by approximately 5 cents per share.
Pat: Are EBITAS defined total $34 million in the quarter and out of trailing 12-month basis are EBITAS defined was $148 million compared to $152 million for the full year 2024.
Pat: During the quarter, cash flow from operations was a use of $10 million to fund working capital. Primarily accounts receivable do the increase in sales in the second half of the quarter.
Pat: Capital spending in the first quarter total nine and a half million dollars, which included investments in information technology and to support new business activities during the port. We expect our full year catbacks to range between 30 and 35 million dollars.
Pat: A liquidity at the end of the first quarter was $210 million, which consisted of approximately $55 million of cash on hand, and $155 million. One of these barring capacity under our various banking arrangements, including suppressed availability.
Pat: Turning now to our segment results in supply technologies, net sales totaled $188 million during the quarter compared to $197 million in first quarter of last year.
Pat: from the heavy duty truck semiconductor equipment, consumer electronics and electrical distribution markets.
Pat: Sales in our fast and remain manufacturing business were down 9% year over year due to a sluggish start to the year despite strong sales in the second half of the first quarter.
Pat: Operating income in the segment totaled $17.8 million compared to $19.5 million a year ago and operating margins were 9.5% compared to 9.9% a year ago. The lower profitability in the quarter was driven by the lower sales levels.
Pat: In our assembly component segment sales for the quarter total $97 million, this compared to sales $107 million a year ago with the decline due to lower univines in our fuel rail product line.
Pat: customer delays and new business launches affecting our fuel filler and extruded rubber products businesses and favorable pricing on legacy programs that ended in 2024.
Pat: Segment operating income total $5.3 million compared to $6 million a year ago. Segment operating margins were impacted by the lower sales levels and we're 5.5% compared to 8%
Pat: In our engineered product segments, the man continues to be strong across most product brands and geographies.
Pat: First quarter sales were $121 million compared to $114 million a year ago. The increase in sales was driven by sales and dual equipment, primarily in Europe and strong after-market sales in North America.
Pat: During the quarter, our total aftermarket revenue increased 5 percent of margins in this part of our business increased 130 basis points year over year. New equipment booking is total approximately $39 million in the quarter compared to quarterly average bookings of $43 million in 2024.
Pat: Backbots as of March 31st, hold $136 million compared to $145 million last quarter.
Pat: We expect strong bookings in the second quarter based on increased quoting activity, especially with producers of lightweight steel who are actively looking to expand production capacity.
Pat: The increase in sales in our industrial equipment business was offset by lower sales in our forage products business resulting from lower demand for rail forageings and forging related equipment.
Pat: During the quarter, our adjusted operating income and the segment improved the 4.6 million dollars compared to
the 3.8 million dollars a year ago.
Pat: Despite the strong performance in our industrial equipment business, our profitability in this segment continued to be impacted by the soft demand for rail forging and forging related equipment.
Pat: We continue to see improved profitability in this segment, resulting from ongoing initiatives to improve production efficiencies at several locations and equipment uptime in our foraging facilities.
Pat: And finally corporate expenses total $8 million during the quarter compared to $7.6 million a year ago driven by higher personnel costs.
Pat: Turning now to our outlook for the years indicated in our press release, we continue to assess the impact of tariffs on certain important raw materials and other components and softening of end market demand in each of our businesses.
Pat: We are working with our customers and our various supply chains and expect to mitigate the effect of the added costs caused by tariffs.
Pat: Conversely, we believe many of our businesses are well positioned to benefit in the long term from the current environment through the high production activity and the localized sourcing back into the United States.
Pat: We are currently estimated that our 2025 net sales were range from 1.6 billion dollars to 1.7 billion dollars and adjusted earnings would be in the range of $3 billion dollars.
Pat: We continue to expect our free cash flow to improve year-over-year and I'll turn the call back over to Matt.
Pat: Great. Thank you very much Pat. We'll now open the line for questions.
Speaker Change: Thank you. Well now we're conducting a question and answer session. If you'd like to ask the question, please press star 1 from your telephone keypad and confirmation tone will indicate your lines in the question queue. Let me press star 2 if you'd like to withdraw your question from the queue.
Speaker Change: For position-threading speaker equipment, it may be necessary to pick up your handset before pressing the star keys
Speaker Change: One moment please, so we pull for questions. Let's get into star one. Thank you
Steve Barger: Thank you, and our first question is from the line of Steve Barger with Keybank Capital markets. Please just use your questions.
Steve Barger: Good morning, this is Jacob Moore, unperceived. Thanks for taking our questions.
Speaker Change: I joined a little late topologies if you addressed anything specifically already but the first one for me is on the updated guide Could you just break down for us what parts of the business are driving the changing guidance or at least the majority of the change?
Speaker Change: Well, I'll start just by saying just to make sure we're characterizing clearly what we think the risks are. You know, we continue to believe that the high end of our range is consistent with what we've seen here today.
Speaker Change: and hopefully anticipate seeing for the rest of the year. So some impact I think with some of the uncertainty in the customer mix.
Speaker Change: and the volatility we're seeing, but generally in line with our business plan and how we've seen the year so far. The lower end, I think, caught in place, some of the uncertainty related to current demand.
Clearly some consumer-facing customers.
Our seeing weakness [inaudible]
Speaker Change: today. Some of that weakness, I think, is because of anticipated inflation. Some of that weakness could be related to restructuring their production schedules to contemplate for waiting for imported parts after this more clarity around tariffs.
Speaker Change: So there's some volatility out there that we're concerned about that may impact some of the demand going forward, particularly in the second half.
Speaker Change: Got it. That's that's really helpful. Thank you. And I guess go ahead, but I guess I guess
Speaker Change: More specifically, I think it's worth commenting on because you didn't miss the opening. You know, where that, where is that? Well, that's mostly in supply technologies in ACG. You know, we'll be the beneficiaries of some new business in the second half and in those businesses, but, you know, that's where we're more impacted, I think, by the consumer facing part of the business.
Speaker Change: I mentioned engineer products, ended the quarter very strong, they were up year over year. This historically is the highest margin.
Speaker Change: Business with the most visibility and stability in their backlog. So we're pretty excited, not only how that business can succeed for the rest of the year, but we're also pretty excited to see what some of the terrorists and some of the things that the reorganization of global supply chains are going to do for that business.
That physicist is uniquely levered [inaudible]
Speaker Change: on the forward side to a domestic supply chain, and on the equipment side is leveraged to some of the infrastructure and steel investments that we've talked about in the past so and also the defense industry in the infrastructure.
Speaker Change: So a lot of the things we are excited about in prior calls for engineer components is going to continue, I think, to evolve perhaps even more quickly.
Speaker Change: Okay, great. Yeah, that's really good color. My second question is on your cost-base.
Speaker Change: Here I'm thinking specifically but not exclusively about China Could you just help us understand how much of your cost base comes from China or more broadly from countries where significant tariffs could potentially be imposed?
Yeah. Jacob, this is Pat Fogarty.
Speaker Change: You know, 70% of our business is North America based. The other 30 is Split Roughly 15% Europe 15% Asia
Within the Asia Marketplace [inaudible]
Our business is roughly 8% of that 15%
Speaker Change: So, relatively small, in terms of the total of our business.
It is located in China.
Speaker Change: But clearly we're a global business and we have locations in many countries and in many areas of the country.
Speaker Change: So, in terms of the cost base, I can't really speak to the cost base, but I can speak to the total size of our revenues and those locations.
Speaker Change: Okay, got it. That's helpful. Thank you. And then if I could see it, one more in the way to do it. Jacob, just to be a little more explicit, because again, you missed the opening comments. We, you know, we do, we will address tariff issues or a global business. We're sizeably a US business. So those are certainly issues that we're going to have to address, particularly on the 232 tariffs.
Speaker Change: Understood, yeah, that's a helpful add there. And maybe if I could sneak one more in related to tariffs, are you seeing more demand pull forward or maybe wait and see type of pauses? I mean, it feels like component manufacturers have been more victims of pull forward while larger more complex goods are more wait and see. I'm just curious what your experience has been so far and then maybe that's an opportunity to expand on any specific mitigation efforts you look to call out as well. Thank you very much.
Speaker Change: Well, I'll discuss the pull forward. I would say I'm sure there are examples of that in our broad portfolio, but I would say in general, other than March being a pretty good month as I indicated, I do not think that we saw evidence of a sizable pull forward.
Speaker Change: and call our suppliers until them to double the orders. So again, I think that our supply chains are reacting. We do see at the end market. We've heard comments from some of our customers that they saw some pull forward. I don't know that that sort of filtered down to the tier 1 and tier 2 level on the supply chain side. [inaudible]
Speaker Change: We will first seek to understand and optimize supply chains. We are mostly in country. We benefit from the USMCA agreement. We will seek to optimize as best we can our supply chains. We think we are in a great position to actually do that.
Speaker Change: So we will look to support our customers in all the appropriate ways and where we can because, again, we're sole source most of our relationships on highly engineered components. We're going to look for customer support.
Speaker Change: I think the risk of our forecast again to finish where we started is related to the broader issue with the consumer and demand destruction and less about specific tariffs.
Okay, that makes sense to me and thank you for taking my questions today.
Thank you.
Speaker Change: Thank you. As a reminder to ask questions today, you may press star one. The next question comes from the line of Dave Storms with Stonegate. Please just use your questions.
Morning and thank you for taking my questions.
Come on, Dan.
Speaker Change: Just wanted to kind of stick with some of the momentum you saw coming out of February of March. The difference between your Q1 results and your Q1 forecast, how much of that do you think can be made up in the subsequent quarters of 2020-25?
Speaker Change: Dave, where we saw a slow start, it was primarily in the month of January , as Matt mentioned in his opening comments
Speaker Change: So, when you look at where we expected to be compared to where actual sales came in, we fully expect to make up ground.
The Rest of the Year
You know, the shortfall wasn't that great.
Speaker Change: Business by Business, but it was a slow start to the year, especially in the first two weeks.
Speaker Change: in January . We picked a momentum. Average daily sales in our supply technology business in the month of March. You know, mirrored where our expectations were.
Speaker Change: and many of our businesses perform better as Matt mentioned in his opening comments in our industrial equipment business. We add outstanding execution and flow through and equipment building in the month of March, which we expect to carry through the rest of the year.
Speaker Change: Dave, I think it's important to note, too, particularly with our small share count. I know we talked about this fairly often, but even with the increased number of shares, you're over a year because of the equity offering. Yep.
Speaker Change: These are businesses that were strengthening throughout the quarter, so we're not taking aggressive cost actions some cost actions not aggressive cost actions, so you know that filters through pretty quickly and you can find yourself, you know, losing north of 10 cents a share really quickly. [inaudible]
Speaker Change: But again, as Pat said, that was I think a little bit more isolated in the front end of the quarter than the back end.
Speaker Change: That's great. Thank you. And then another one for me. You've mentioned that the supply chain is shifting and in your favor, hopefully. Is there a qualification process that makes this shift a little more durable? Or is it still at the stage of just order inquiries? I guess kind of what inning of that supply chain shifter are we in?
Speaker Change: Well, we touch global supply chains in a lot of different ways. So I would characterize broadly incremental new opportunities.
Speaker Change: In businesses like automotive that are more fully evolved and very cost sensitive are going to happen very quickly. It's already begun happening. I think you've probably noticed a lot of other industrial companies. [inaudible]
Speaker Change: talking about the fact that they were exiting China years ago.
Speaker Change: There's nothing new to that still create. I think there's an urgency to some of these industrial sort of price sensitive consumer products like Auto that are going to force the global OEMs and global tier ones to be very nimble.
Speaker Change: You know, are is that going to cause green field investment? I wouldn't go that far. Is there going to be incremental activity around understanding how to how to strengthen their supply chains, dual source and look for the ability to avoid tariffs?
Speaker Change: Absolutely. So I think that you're going to see that. I think on some of the more longer term ones.
Speaker Change: So again, I mentioned that I don't see much of this leaking in the book until 2026, but I think some of these shifts are, if not permanent, certainly semi-permanent, particularly around the 232 tariffs and steel and aluminum and those derivative products.
Speaker Change: That's great, Colin. Thank you. And then just one more for me, if you could, more general question. I know you guys keep in here to the ground in the M&A market. Just curious if you're seeing any really structural shifts there, given the macro uncertainties and things have frozen up for her, if you're looking at this as a buying opportunity, any color that would be great.
and a toning money to buyers of businesses.
Speaker Change: Aquarius of businesses are taking a weight and speed attitude and sellers as well.
Thank you.
Speaker Change: At this time, I'd like to turn the floor back to management for further remarks
Speaker Change: Alright, well thank you for your time this morning. I do want to point out that it is while interesting and important for us to appreciate the risks in this year's business plan related
but not only
Speaker Change: I'm going to weather this period well, but we'll be stronger for these changes [inaudible]
Speaker Change: Next year and beyond. So this is an exciting time for us to focus on industrial policy. The focus on US manufacturing clearly is a trend that will support our business now and going forward. So thank you for your attention and have a great day. Bye.
Speaker Change: Let's all conclude today's conference. Let me disconnect your lines at this time. Thank you for your participation for your participation.