Q2 2025 Park-Ohio Holdings Corp Earnings Call
Good morning and welcome to the park Ohio, second quarter, 2025 results conference call.
At this time, all participants are starting to listen. Only mode.
After the presentation, the company will conduct a question and answer session.
Today's conference is also being recorded if you have any objections, you may disconnect at this time.
Before we get started, I want to remind everyone that certain statements made. On today's call, may be forward-looking statements as to find in the private Securities. Litigation Reform, Act of 1995
These forward-looking statements are subject to risks of uncertainties that may cause actual results to different materially from those projected.
List the relevant risks and uncertainties may be found in their earnings press release as well as in the company's 2024 10K which was filed on March, 6th 2025 with the SEC.
Additionally, the company may discuss adjusted, EPS, adjusted operating income and ebiz defined on a continuing operations or Consolidated basis.
These metrics are not measured as a performance under generally accepted accounting principles.
For reconciliation of eps to adjust CPS, operating income to adjusted operating income and net income attributable, to Park. Ohio, common shareholders to ebata as the fine. Please, refer to the company's recent earnings release. I'll now turn the conference over to Mr. Matthew Crawford, chairman president and CEO, please proceed Mr. Crawford.
Thank you very much. Welcome. Thank you for joining us this morning.
Uh we are very proud of the accomplishments. During the second quarter, the strength of our business model is the broad and diverse nature of our businesses combined with our strong operating leadership.
Through the business cycle.
Most importantly, we stand ready to absorb improving backlogs and new business with meaningful operating Leverage.
We believe strongly that the remainder of 2025 will continue to provide solid performance while building momentum for an even stronger 2026.
Thank you, especially to all of our Park, Ohio team members. I'll now turn it over to Pat, turn it over to Pat.
Thank you, Matt.
Before I get into the details of our second quarter results, I wanted to discuss a few recent events. First, we recently refinanced both our senior notes and our revolving credit facility, as it relates to the senior notes, we completed a private offering of 350 million of senior secured notes due in 2030, which bear an interest rate of 8 and a half percent.
We use the net proceeds from the offering along with cash on hand to redeem, all 350 million dollars of the senior notes, which were due in 2027 and the pay related fees and expenses.
In addition, we entered into an amendment to our existing revolving credit facility extending its maturity date by 5 years.
In connection with these refinancing activities. We received upgraded ratings on the new senior secured notes for Moody's. S&P Global in Fitch ratings.
in addition, many institutional investors continue their support of Park Ohio, which led to the successful completion of the refinancing
We appreciate their commitment and continued support.
These actions.
Provide us with the future liquidity to execute our long-term goals which include sales growth, higher, operating margins, and reduce net debt, Leverage.
And lastly, our Capital Equipment orders in the second quarter were approximately 85 million and all-time worldly records and included an order from a major steel producer. Tolling 47 million dollars for induction slab, heating equipment for high silicon steel production,
The order demonstrates, our ability to utilize our world-leading technology, to engineer and manufacture, high-tech, induction heating, and melting solutions for our customers.
The New Order which will ship from our Warren Ohio facility beginning. In 2026 enables the most uniform heating profile available in today's markets.
Turning now to our second quarter results, second quarter Revenue, total 400 billion dollars compared to 405 Million last quarter and 433 Million last year.
year-over-year, decrease reflects lower customer demand across certain end markets, most notably on our supply, technology segment in certain North American industrial markets,
we took numerous countermeasures in each segment to enhance profitability including variable cost reductions to align with current demand, targeted restructuring activities and reductions in discretionary spending
As a result of these actions profitability improved on a sequential basis. In the second quarter compared to the first quarter with adjusted EPS, increasing 14% to 75 cents per diluted share. And even though is to find increasing 4% to 35 million
The sequential profit improvement was driven by a higher gross margin percentage in the second quarter of 17% compared to 16.8% last quarter and 16.9% a year ago.
We continue to focus on gross margin improvement through the implementation of value driver initiatives in each business.
We generated 35.2 million in of Evita on the quarter and increase of 33.9 million dollars in the first quarter.
as a percentage of sales or even time margin was 8.8% in the quarter,
On a trailing 12-month basis are either ties to fine told 144 million dollars.
Sgna expenses were 46.8 million in the quarter down from 47.4 Million last year and 48.2 Million last quarter, reflecting our Cost Containment efforts interest cost total 11 million during the quarter compared to approximately 12 million dollars. Last year, driven by lower average interest rates in the current year and lower average outstanding debt balances.
Our effective income tax rate was 17% in the quarter, which reflects the ongoing benefits from research and development, tax credits, and other tax planning initiatives to reduce our overall effective tax rate.
During the quarter, we used operating cash at 14 million, primarily driven by higher working capital and capex, including technology related, Investments and growth capex in multiple businesses.
We expect significant operating and free cash flow in the second half of the Year, driven by increased profitability and reduced working capital levels.
For the full year, we continued to expect Higher year-over-year. Free cash flow and expect free cash flow to be approximately 23 million.
Free cash flow during the second half of the year, is expected to significantly improve and total approximately 65 million dollars.
Our liquidity continues to be strong and totals $189 million as of June 30th, which consists of approximately $46 million of cash.
On hand and 143 million dollars of unused barring capacity under our various banking Arrangements.
Turning now to our segment results.
Supply Technologies' net sales of $187 million in the second quarter approximated our first quarter net sales and were lower than the sales in the prior year quarter due to lower customer demand in certain key markets, including Power Sports, heavy-duty trucks, and industrial equipment. This decline was partially offset by increases in the electrical and semiconductor markets.
Geographically sales in Europe were stronger, year-over-year.
Is more than offset by lower sales in North America and Asia.
Sales in our Fastener manufacturing business, we're down year-over-year reflecting lower Auto production during the quarter.
Adjusted operating income in the segment. Total 17 million dollars compared to 19 million dollars last year, adjusted operating margins of 8.9% in the quarter, compared to 9.5% a year ago, due to the lower sales levels.
On a year to date basis sales in the segment with 375 million and operating margin was 9.1% compared to 9.6% last year.
Operating margins above 9% in this business are at historically, high levels. And we expect continued efforts to increase our margin profile in this segment by implementing operational improvements to drive growth and profitability including Investments and technology and Warehouse optimization
In our assembly components sales in the quarter were 95 million compared to 103 million a year ago.
If you're over a year, decreased sales was driven by lower unit volumes and our fuel rail and extruded Rubber products customer delay. Delays on new product launches across several Automotive platforms. And favorable pricing that ended in 2024 on certain Legacy programs.
Segment, adjusted operating income of 6.1 million increased sequentially from the first quarter and was lower than the second quarter of last year, due to the lower sales levels.
In this segment, we continue to win new business as over 50 million dollars of incremental business across all product lines, will begin to launch in the second half of this year and throughout 2026.
The incremental business will positively impact future sales and margins in this segment.
In our engineer product segments, sales were 1118 million dollars compared to 127 million dollars. A year ago, due primarily to lower sales in our Forge Machine Products group.
Driven by lower rail car, demand, and closure of a small manufacturing operation last year.
In our Industrial Equipment group sales were similar to year-over-year as aftermarket sales continue to be strong and production of New. Capital Equipment was stable in most of our global locations.
During the second quarter, new equipment, bookings. We're at an all-time quarterly high in total 85 million, which was driven by the 1 order totaling, 47 million that I mentioned earlier.
Our Capital Equipment, backlog continues to be strong, totaling 172 million and increase of 19% compared to backlogs at the end of last year.
During the quarter adjusted operating income, and the segment was 6.4 million dollars compared to 7.3 million dollars a year ago.
The decrease in profitability year-over-year was driven by lower sales in our Forge, the Machine Products group.
Year to date, sales in this segment were approximately $240 million, which is similar to the prior year. Net sales levels and operating income were approximately $10 million in both periods.
7.6 million a year ago.
I'll conclude my comments with an update on our current expectations for the rest of the year.
Given the current environment and uncertainty around tariffs. We continue to assess the impact of both added costs for direct imported, raw materials, and other components, and lower-end market demand in each of our businesses.
We are working with our customers and suppliers to mitigate the impact of such tariffs and expect to fully recover. Our tariff costs, which we estimate to be $25 million to $35 million in 2025, are primarily in our supply technology sector.
Additionally, we believe many of our businesses are well positioned to benefit in the long term from the current environment, due to higher production, activity and localized sourcing back into the United States.
In addition, the refinancing of our senior notes will result in higher interest in the second half of the year, which will reduce our adjusted earnings per share by approximately 20 cents.
As a result, we now estimate that our 2025 adjusted EPS will be in the range of $2.90 to $3.20 per diluted share.
Our net sales are expected to be in the range of 1.62 billion dollars to 1.65 billion dollars.
We expect our free cash flow to be 20 to 30 million in 2025, compared to 15 million last year, with the increase, due to strong free, cash flow of approximately 65 million for the remainder of the year.
I'll turn the call back over to Matt.
Great, thank you very much Pat. Uh, we'll now turn the floor over to questions. Thank you. And I'll be conducting a question and answer session. If you'd like, to be placed in the question queue. Please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. Once again, that's star 1 to be placed into question Q.
Our first question is coming from Steve Barger from keybanc Capital markets. Your line is now live.
Thanks. Good morning, guys.
Good morning. Steve, how are you?
I'm good. Um, Matt the press release talked about being in the late Innings of a portfolio transformation, leading to higher profitability. First question is, do you have any other lines of business that are earning less than acceptable returns right now? And what's the plan for that? And then second, do you have an operating margin Target? You can talk about like, is the expectation that you'll be consistently above 6% or or what's, what are your thoughts on that?
Yeah, I'll let I'll attach, uh, speak to the targets, uh, for a moment. Um, in a moment I would I would articulate that our transformation, uh, began with um, as, you know, exiting uh, parts of the portfolio that we felt were permanent detractors. Um, from what we were trying to achieve either, they were too cyclical to Capital intensive, to customer concentrated, uh, Etc. So, we exited a, a few of those businesses, um, which I thought didn't give us sort of the long-term sustainability that we were looking for. I think the second part of that transformation was um, looking internally to provide uh, opportunities for consolidation. Um, and in that case, I think we highlighted a number of things, but most notably, we highlight, um, the closure of over a million square feet of of American manufacturing. Um footprint. Um not necessarily because we felt
That they, those, uh, customers were better served outside the country, but but often they were, uh, intended to consolidate facilities. The highlight of that, for example, is a consolidation of our large forging businesses, um, with by closing crop Forge, and, and merging that into our Canton Forge facility to create a center of excellence. Um, now we're on the third part of that Journey, which is, you know, turning our historic, allocation of capital model upside down. And and spending uh, we believe our our maintenance cap.
Uh, business that uh, historically has been a pillar of our margin. Profile has been underperforming massively and and quite candidly. That's the the the the 1 in which we're we believe, uh, will be a big step forward over the next 12 months, in terms of our aggregate, uh, leg up and earnings. Um, having said that, I don't see that as a business, that isn't a good and strong long-term part of Park, Ohio. Um, it's just 1 in which we, we've got some some work to do to get it to where it, it was for 20 years. So, um, I don't know if that answered your question, but that's the way I think about it.
I think it does answer my question, and I guess the, the follow up to that before Pat comments on the margins is, when you talk about these investments in the context of deleveraging which was also in the press release, do you anticipate that more of that comes on a net basis from higher ebit, dog. Going forward or from actual debt reduction from free cash flow.
Yeah. I mean, from from a practical standpoint, uh, the answer right now is robust cash flow in the back half of the year, uh, largely from from harvesting, um, working capital, uh, as well as uh, our our Eva, which isn't where we want it to be. But again, we're we're we're we're seeing some light at the end of the tunnel on some of our underperforming assets. So that that's the that's the Tactical answer to your question. The the answer to your question I think and how we think about allocation is um no we we expect um
You know what? I would consider to be slightly elevated, um, capex as we invest in these types of things, um, not by historic standards, but by where, again, our our our current, uh, maintenance capex profile is. Um, but that will be paid for not only I think out of aggregate cash flow. It'll be paid for, I think out of the business unit cash flow. So, um, our businesses across the board are are profitable enough and generate enough cash flow to sustain their own, their own investment cycle.
So, no, we we, we expect to be able to chew gum and walk at the same time and, uh, while we're not forecasting anything about 2026. At this time, we will deliberate and continue to invest in those optimization Investments that, that, that we just profile.
Yeah, Stephen, and I'll comment now on the the margin profile that that we expect in each of our business segments. You know, as you know, your supply Technologies has continued to improve their margin profile and are now bumping up a 10% operating income margin. Uh, we expect that to continue on that path. Uh, but we're happy with where, where the margin profile is in in that segment.
uh, in assembly components, uh we believe there's there's opportunity to improve the margin profile by 200 basis points at a minimum
You know, as part of the, the consolidation of several facilities, uh, recently, uh, we believe we haven't seen the necessary absorption in some of our facilities. We haven't lost any market share. Uh, so we expect continued Improvement, and not only the, the restructuring that was completed, but also in some of the value driver initiatives that we have in place, including the vertically, integrating a rubber mixing operation. Uh, so a lot of the things that will improve our margin profile in that segment, will come to fruition as as, as volumes uh, continued to increase. We're excited about the $50 million of incremental business. We're quoting, uh,
Affect a lot of different programs. And each of our product lines will expand our our high absorption levels and improve profitability.
So we'd like the path that we're on in that segment and and believe the, the margins will continue to improve and and engineered products. Uh, historically our highest margin segment of our vid business, may have talked about the forged and Machine Products group. Uh, we continue to put a lot of time and effort on improving the margin profile.
There, we're happy with the progress we've made in the industrial equipment group. Uh, keep in mind, the industrial equipment group represents new equipment, builds as well as aftermarket products and services, high margin, aftermarket, products and services. So as we grow that business uh we expect the margin profile to continue to grow and we expect operating income margins in that segment to exceed double-digit margins.
There's a lot of initiatives in place to do that, and we're confident in our ability to progress towards those levels.
On it. Um, we've been asked a lot recently in the context of debt refinancing about Ava targets. Um we've talked about 10%. Uh being ibaa Target 1 of the questions. We got back is well geez you guys are almost there now. You get a leg up from this improved performance out of the forge group you're there and I thought Pat made a great question. He goes, well, then it'll be time to set a new Target. So um you know that that's I think how we think about the aggregate business and our and our, and our really short-term goals.
1 more for me just to follow up and I'll get back in line, Pat. When you talk about 200 basis points for assembly and then double digit in engineered. What is the the internal time frame that you put on that? Just so, we can have a frame of reference as we watch the, the results come in.
yeah, I I think we we
Look at our these goals as as more long-term in nature. Meaning it's not going to happen overnight, uh, it won't happen within the next 12 months, but it's progressing nicely to those levels. Uh, so to put a time frame on, it will depend on how volumes ramp up on some of this new business. Uh, not only in the assembly components but in engineered products as well.
Thanks very much.
Thank you. Next question is coming from Dave storms from Stonegate. Your line is now live.
Good morning.
Um just want to start with some of the EP backlog that just seems to keep on climbing uh any sense of what the drivers are here. Are customers ordering ahead or are there other things that we should be keeping an eye out for
Um, well, uh, it's really been fantastic. We we are today, we're sort of highlighting, um, our Capital Equipment business. Uh, and and that's I think really important because the art activities robust. But before I move on, I would continue to highlight that despite some of our execution issues, the forge group, their backlogs are historicize too. So that those are the type of of long cycle business that provide us, um, some comfort as we begin to even mention 2026. Um, but going back to the order book on the equipment side, there's a lot of drivers to be honest with you to our Global business. Um, you know, this Regional investment cycle that's going on, um, around manufacturing and defense and Aerospace and and even some some extent Automotive. Um, and and energy are absolute drivers to to a number of our business around the globe. Um, what we saw particularly in North America, more more recently is investments in, you know, uh, the
The the the the large investment and Investments generally, in electrical steel. Um, this was long in in process before terrorists began, but I think that there's a genuine sense that, that the there is a need in this country for higher-grade Steeles, and in particular electrical steel, um, for Battery Technology. And I'm not just not referring to car batteries and EVS, I'm referring to Battery Technology, uh, across the board. So, um, unique steals high strength, Steels more, efficient steals, um, electrical steel there. There is a, uh, uh, a reinvestment cycle going on, I think, and it includes, um, really unique manufacturing processes. Some of which not only do we have unique know-how, but we have either patent pending or, or, or, or patented technology, so, um, that investment cycle not just here in North America, but across the board, we we've been seeing for a while.
I think it's just starting to show more more more more meaningfully in some of these more unique sectors.
Honestly, very helpful. Thank
Um, turn into Supply Tech, your, uh, press release. Outlined a couple of the growth drivers, uh, that you're seeing, you know, free foreign Trends, growth in Europe. Uh, I guess. Can you help us understand maybe what inning we're in with some of those reassuring Trends uh and maybe a timeline. Uh, May how far out we are from an inflection point?
To to really see some growth there.
That the North American Market has been strong for a while. I mean we've been an outlier globally for the last couple of years. So I think that uh that there's a lot of momentum, I think built up.
Behind investment in industrial policy in the US before tariffs Camp. Certainly tariffs is causing people to rethink Supply chains. The reason I say it's early Innings is because until we get some clarity around these tariffs and until customers really can plan their business. I I hesitate to say, they'll make huge decisions on reassuring. Having said that it is definitely begun.
Yeah. Dave, 1 of the
Comments. I make. And if this doesn't relate to onshoring, but it relates to some of the growth initiatives that we have within Supply Technologies. Um, you hear a lot about the data center buildout, that is occurring around the world. Uh, keep in mind, we service customers, like, Lenovo like IBM, chip makers, like Applied Materials data center, infrastructure. Customers like the Nord martex, fur of Schneider eat. We service a lot of those businesses and the growth in our European operations is starting to see the benefit of some of that activity. Uh, we expect that to continue. Uh, we picked up 4, new customers in the last 12 months, uh, to service the data center activity, that's occurring around the world. We view that as a very big opportunity for Supply Technologies.
and we're just scratching the surface right now with some of these initial orders that are coming through,
Dave, I my comments are about across the business, but I do want to point out, um, Supply Tech itself. Um, as you know, um, really provides a suite of services around the product that they can pay. So, so this other on the product that that they deliver and sell. So this idea of reshuffling Supply chains, you know, this idea of really understanding where the market opportunities are for our customers or what we do.
So, we we believe that the chaos in the marketplace around this, um, you know, we will be well positioned to help our customers solve for. So because that, that's what we do.
and I think you'll see more of that going into 2026, as you get more clarity around tariffs,
I I really appreciate that commentary, and that actually brings me to my last question, um, around the new customers that you have added. Uh, are you finding that those are new customers coming into the market? Because they're finding that they need the support or, uh, would you characterize that as more, uh, capturing market share, that was already there and you're just expanding your market share footprint.
I, I would say today. We are seeing more activity across our portfolio with current or former customers that are looking to solve for some of the challenges in their, in their, in their supply chain, um, and whether it be tariff or unrelated, so I would say that it's, it's the, the activity currently is around.
Yeah, current or or I would say, you know, former customers people. We know well who reach out to us first and say I got a problem. Can you help me solve it?
So, I would say that in general since co, uh, delivery and quality, our ticket for granted anymore. So I think that was sort of the beginning of it, there's more urgency now, I think, um, given some of the geopolitics and tariffs, but, but no, I would say the, the, the the ones I'm thinking of very quickly are, are, are good customers and partners, reaching out and saying, can you help me?
That's very helpful. Thank you for the commentary and good luck in Q3.
Thanks Steve.
Thank you. We we've reached out to our question and answer, so I like to turn the call back over for any further. Closing comments.
Great. Well, thank you very much uh, for your time today and your interests, and your questions. Um, there's never been a time that I've been more excited, not just about the company about our leadership team. Um, but also our positioning relative to our portfolio and our ability to outperform, uh, through the the
Current and future business cycle. So, great time to to be there. We are. Are happy to get the debt refinancing behind us and focus on creating value for our shareholders. So, thank you very much.
Thank you that does conclude today's teleconference webcast and we just connect your line at this time and have a wonderful day. We thank you for your participation today.