Q2 2026 Atmus Filtration Technologies Inc Earnings Call
Speaker #2: After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star 1 to raise your hand.
Speaker #2: To withdraw your question, press star 1 again. I will now hand the conference over to Todd Chirillo, Executive Director of Investor Relations. Please go ahead, Todd.
Speaker #3: Thank you, Piercy. Good morning, everyone, and welcome to the Atmus Filtration Technologies Q2 2026 earnings call. On the call today, we have Steph Disher, Chief Executive Officer, and Jack Kienzler, Chief Financial Officer.
Speaker #3: Certain information presented today will be forward-looking and involve risks and uncertainties that could materially affect expected results. Please refer to the slides on our website for the disclosure of the risks that could affect our results and for a reconciliation of any non-GAAP measures referred to on this call.
Speaker #3: For additional information, please see our SEC filings and the Investor Relations pages available on our website at atmus.com. Now, I'll turn the call over to Steph.
Speaker #4: Thank you, Todd. And good morning, everyone. Today, I will review our Q2 results and share details of our progress executing our four pillar growth strategy.
Speaker #4: I will also provide updates to our Outlook for 2026. Jack will then speak to our financial results and segment performance. I am pleased to share that we achieved record sales in the Q2 and delivered strong results among our key metrics, including adjusted EBITDA, free cash flow, and EPS.
Speaker #4: I want to thank our global team for their dedication to our customers and their efforts in delivering these impressive results. Now, let me provide you an update on the integration of Cook Filter.
Speaker #4: Our first industrial filtration acquisition, which we closed earlier this year. Our team has made tremendous progress, and we have exited more than 95% of the transition services agreements we expect all remaining integration activities to be completed during the Q3.
Speaker #4: With the integration nearly complete, we are turning our attention to growth initiatives in our industrial solutions segment. We continue to see value creation opportunities for Cook from Cook Filter's deep industry experience, combined with our filtration capabilities and global footprint, which will provide ongoing benefits for all stakeholders.
Speaker #4: Let's now turn to an update on our capital allocation strategy. Our strong cash generation provides us with balance sheet flexibility for both growing the business and returning capital to shareholders.
Speaker #4: With this balanced approach, we expect share repurchases to be 20% to 40 million dollars in 2026, aligned with our previous guide. Looking forward, we intend to allocate surplus cash toward paying down growth debt.
Speaker #4: This will position us for investing in future growth opportunities. Now let's turn to our four pillar growth strategy. Our first pillar is to grow share in first bit.
Speaker #4: We continue to win with the winners by growing our long-term partnerships with leading global and regional OEMs across a broad range of applications. We are leaders in filtration science with our latest generation NanoNet N3 filtration media and advanced testing capabilities strategically located around the world.
Speaker #4: This allows us to expand our first bit customer reach across a broad range of applications and provide advanced filtration solutions for OEMs. Our second pillar is focused on accelerating profitable growth in the aftermarket.
Speaker #4: Our global aftermarket consists of thousands of customers across many applications. We have dedicated teams located where our customers need us. We have developed a robust pipeline of opportunities and a working every day to bring our industry-leading fleet guard and Cook Filter products to current and new customers.
Speaker #4: Our third pillar is focused on transforming our supply chain. We have launched Lean, the Atmus way. Our Lean-based production system. The programming includes implementation of standardized management systems and Lean operating practices, which improves productivity and supports sustainable margin expansion.
Speaker #4: I want to recognize our team in Mexico for becoming the first Atmus site to achieve certification in Lean, the Atmus way. In addition, our focus on relentless improvement has allowed us to continue raising our delivery and on-shelf availability metrics to all-time highs through the Atmus-controlled distribution network.
Speaker #4: We have the right products for our customers when and where they need us. Our fourth pillar is to expand into industrial filtration markets. Following the acquisition of Cook Filter, we continue to review a robust pipeline of opportunities with a focus on industrial air to build a platform of scale by leveraging Cook Filter and creating value through targeted bolt-on acquisitions.
Speaker #1: The Atmus way. In addition, our focus on relentless improvement has allowed us to continue raising our delivery and on-shelf availability metrics to all-time highs through the Atmus-controlled distribution network.
Speaker #4: While our primary focus is industrial air, we remain opportunistic in evaluating industrial water and liquid filtration assets with the goal of identifying and anchoring investments that can serve as the foundation as we build out our broader industrial platform over time.
Speaker #1: We have the right product for our customers when and where they need us. Our fourth pillar is to expand into industrial filtration markets. Following the acquisition of Cook Filter, we continue to review a robust pipeline of opportunities, with a focus on industrial air, to build a platform of scale by leveraging Cook Filter and creating value through targeted bolt-on acquisitions.
Speaker #4: We are focused on delivering long-term shareholder value. Through the disciplined development and execution of industrial filtration opportunities. Now, let's discuss our Q2 financial results.
Speaker #4: Sales were a record 528 million compared to 454 million during the same period last year. An increase of 16.4%. Driven by the acquisition of Cook Filter and strong performance in Power Solutions.
Speaker #1: While our primary focus is industrial air, we remain opportunistic in evaluating industrial water and liquid filtration assets, with the goal of identifying and anchoring investment that can serve as the foundation as we build out our broader industrial platform over time.
Speaker #4: Adjusted EBITDA was 109 million, or 20.7%, compared to 95 million, or 21% last year. Adjusted earnings per share was 82 cents in the Q2 of 2026, and adjusted free cash flow was 67 million.
Speaker #1: We are focused on delivering long-term shareholder value. Through the disciplined development and execution of industrial filtration opportunities, now let's discuss our second quarter financial results.
Speaker #4: Also during the Q2, we returned 18 million dollars of cash to shareholders through share buybacks and dividends. Now let's turn to our outlook for the Power Solutions segment.
Speaker #1: Sales were a record 528 million compared to 454 million during the same period last year. An increase of 16.4%. Driven by the acquisition of Cook Filter and strong performance in Power Solutions.
Speaker #4: In the aftermarket, we are starting to see signs of health in the overall freight market. Including higher spot rates and increasing optimism for improved freight activity.
Speaker #1: Adjusted EBITDA was $109 million, or 20.7%, compared to $95 million, or 21%, last year. Adjusted earnings per share was $0.82 in the second quarter of 2026, and adjusted free cash flow was $67 million.
Speaker #4: However, we have yet to see a significant inflection, and therefore continue to expect the market to be relatively flat year over year. In our first bit markets, the US EPA has provided the industry with some regulatory clarity surrounding the implementation of 2027 emissions standards.
Speaker #1: Also during the second quarter, we returned 18 million dollars of cash to shareholders through share buybacks and dividends. Now let's turn to our outlook for the Power Solutions segment.
Speaker #4: The agency has proposed allowing current engines to be sold into 2027 with a non-conformance penalty. While this is expected to ease some pre-buy pressure, customers have indicated a stronger second half driven by improved market conditions and a cyclical recovery.
Speaker #1: In the aftermarket, we are starting to see signs of health in the overall freight market, including higher spot rates and increasing optimism for improved freight activity.
Speaker #1: However, we have yet to see a significant inflection, and therefore continue to expect the market to be relatively flat year-over-year. In our first BIT markets, the US EPA has provided the industry with some regulatory clarity surrounding the implementation of 2027 emissions standards.
Speaker #4: We are already seeing the benefits of this cyclical recovery in our Q2 results and have good visibility through the end of the year. We also expect continued market share gains in both aftermarket and first bit through our multi-channel distribution strategy improved on shelf availability and winning with new and existing customers.
Speaker #1: The agency has proposed allowing current engines to be sold into 2027 with a non-conformance penalty. While this is expected to ease some pre-buy pressure, customers have indicated a stronger second half, driven by improved market conditions and a cyclical recovery.
Speaker #4: For Power Solutions, overall, we expect volume growth in a range of approximately flat to 2%. Inclusive of global markets and share gains. Additionally, pricing is expected to add approximately 1.5% and foreign exchange is expected to be a tailwind of approximately 2%.
Speaker #1: We are already seeing the benefits of this cyclical recovery in our Q2 results and have good visibility through the end of the year. We also expect continued market share gains in both aftermarket and first fit through our multi-channel distribution strategy, improved on-shelf availability, and winning with new and existing customers.
Speaker #4: In total, we expect Power Solutions revenue to be in a range of 1.82 to 1.865 billion. Which represents growth of approximately 4.5% at the midpoint.
Speaker #4: In our industrial solutions segment, we expect favorable market conditions and strong performance to continue. With total revenue to be in a range of 155 to 165 million.
Speaker #1: For Power Solutions, overall, we expect volume growth in a range of approximately flat to 2%, inclusive of global markets and share gains. Additionally, pricing is expected to add approximately 1.5%, and foreign exchange is expected to be a tailwind of approximately 2%.
Speaker #4: Taken together, we expect total company revenue to be in a range of 1.975 to 2.03 billion. An increase of approximately 13.5% at the midpoint.
Speaker #1: In total, we expect Power Solutions revenue to be in a range of 1.82 to 1.865 billion, which represents growth of approximately 4.5% at the midpoint.
Speaker #4: We are narrowing our full-year adjusted EBITDA guidance and now expect to be in a range of 19.75% to 20.25%. Lastly, adjusted EPS is expected to be in a range of $2.85 to $3.
Speaker #1: In our industrial solutions segment, we expect favorable market conditions and strong performance to continue. With total revenue to be in a range of 155 to 165 million.
Speaker #4: In summary, our team continues to successfully execute our four-pillar growth strategy and provide the protection our customers need and value most. I want to thank all Atmusonians for their strong performance in the first half.
Speaker #1: Taken together, we expect total company revenue to be in a range of $1.975 to $2.03 billion, an increase of approximately 13.5% at the midpoint.
Speaker #4: I remain confident in the ability of our team to continue to deliver for all our stakeholders. Now I will turn the call over to Jack.
Speaker #1: We are narrowing our full-year adjusted EBITDA guidance and now expect to be in a range of 19.75% to 20.25%. Lastly, adjusted EPS is expected to be in a range of $2.85 to $3.00.
Speaker #1: Thank you, Steph, and good morning everyone. I also want to recognize our global team for delivering another quarter of strong financial performance, all while successfully navigating challenging market conditions.
Speaker #1: Sales in the second quarter were a record 528 million, compared to 454 million during the same period last year. An increase of 16.4%. Power Solutions delivered sales of 486 million, compared to 454 million in the prior year.
Speaker #1: In summary, our team continues to successfully execute our four-pillar growth strategy and provide the protection our customers need and value most. I want to thank all Atmusonians for their strong performance in the first half.
Speaker #1: An increase of 7%. The increase was primarily due to higher pricing of 3%, higher volumes of 2%, and favorable foreign exchange of 2%. Industrial Solutions sales were 42 million, resulting from the acquisition of Cook Filter.
Speaker #1: I remain confident in the ability of our team to continue to deliver for all our stakeholders. Now I will turn the call over to Jack.
Speaker #2: Thank you, Seth, and good morning, everyone. I also want to recognize our global team for delivering another quarter of strong financial performance, all while successfully navigating challenging market conditions.
Speaker #1: Gross margin for the second quarter was 154 million, or 29.2%, compared to 131 million, or 28.9% in the second quarter of 2025. The increase was primarily due to favorable pricing incremental margin from the acquisition of Cook Filter, favorable foreign exchange, higher volumes, and the cessation of one-time separation costs.
Speaker #2: Sales in the second quarter were a record 528 million compared to 454 million during the same period last year, an increase of 16.4%. Power Solutions delivered sales of 486 million compared to 454 million in the prior year, an increase of 7%.
Speaker #1: This was partially offset by higher materials and manufacturing costs. Selling administrative and research expenses for the second quarter were 62 million, compared to 57 million in the prior year.
Speaker #2: The increase was primarily due to higher pricing of 3%, higher volumes of 2%, and favorable foreign exchange of 2%. Industrial Solutions sales were 42 million, resulting from the acquisition of Cook Filter.
Speaker #1: The increase was primarily due to people-related expenses and information technology consulting. Joint venture income was 8 million in the second quarter, flat compared to prior year.
Speaker #2: Gross margin for the second quarter was 154 million, or 29.2%, compared to 131 million, or 28.9% in the second quarter of 2025. The increase was primarily due to favorable pricing incremental margin from the acquisition of Cook Filter, favorable foreign exchange, higher volumes, and the cessation of one-time separation costs.
Speaker #1: Strong performance in China offset weaker markets in India, which has been impacted by the Middle East conflict. Other income expense was unfavorable by 1 million, compared to favorable by 4 million in the second quarter of 2025.
Speaker #1: The increase in expense was primarily due to foreign exchange losses, and a non-operating gain that did not repeat. Excluded from the adjusted results are one-time costs related to the integration of Cook Filter, which for the full year is expected to be in the range of 3 to 6 million.
Speaker #2: This was partially offset by higher materials and manufacturing costs. Selling administrative and research expenses for the second quarter were 62 million, compared to 57 million in the prior year.
Speaker #2: The increase was primarily due to people-related expenses and information technology consulting. Joint venture income was $8 million in the second quarter, flat compared to the prior year.
Speaker #1: We also exclude intangible asset amortization, resulting from the Cook Filter acquisition, which is expected to be in a range of 11 to 13 million for 2026.
Speaker #2: Strong performance in China offset weaker markets in India, which has been impacted by the Middle East conflict. Other income expense was unfavorable by 1 million, compared to favorable by 4 million in the second quarter of 2025.
Speaker #1: Total enterprise adjusted EBITDA in the second quarter was 109 million, or 20.7%. Compared to 95 million, or 21% in the prior period. Segment adjusted EBITDA for Power Solutions was 101 million, or 20.8%, compared to 95 million, or 21%, last year.
Speaker #2: The increase in expense was primarily due to foreign exchange losses, and a non-operating gain that did not repeat. Excluded from the adjusted results are one-time costs related to the integration of Cook Filter, which for the full year is expected to be in the range of 3 to 6 million.
Speaker #1: Industrial Solutions segment adjusted EBITDA was 8 million, or 18.9%. Adjusted earnings per share was 82 cents, compared to 75 cents last year. Adjusted free cash flow was 67 million this quarter, compared to 36 million in the prior year.
Speaker #2: We also exclude intangible asset amortization, resulting from the Cook Filter acquisition. Which is expected to be in a range of 11 to 13 million for 2026.
Speaker #1: Now let's turn to our capital deployment strategy. The combination of strong cash flow and continued robust adjusted EBITDA performance has resulted in an estimated net debt-to-adjusted EBITDA ratio of 1.9 times the trailing 12 months ended June 30th.
Speaker #2: Total enterprise adjusted EBITDA in the second quarter was $109 million, or 20.7%, compared to $95 million, or 21%, in the prior period. Segment adjusted EBITDA for Power Solutions was $101 million, or 20.8%, compared to $95 million, or 21% last year.
Speaker #1: We also invested 13 million dollars in capital expenditures for continued growth, and we returned 18 million dollars to shareholders consisting of 13 million in share repurchases and 5 million of dividends.
Speaker #2: Industrial Solutions segment adjusted EBITDA was 8 million, or 18.9%. Adjusted earnings per share was 82 cents, compared to 75 cents last year. Adjusted free cash flow was 67 million this quarter, compared to 36 million in the prior year.
Speaker #1: As Steph highlighted, we will continue to strategically deploy capital through investment in growth and paying down debt to provide balance sheet flexibility. Our cash flow allows us to take this balanced approach for both growth opportunities and returning capital to shareholders.
Speaker #2: Now let's turn to our capital deployment strategy. The combination of strong cash flow and continued robust adjusted EBITDA performance has resulted in an estimated net debt to adjusted EBITDA ratio of 1.9 times the trailing 12 months ended June 30th.
Speaker #1: In closing, I want to thank and applaud all of our teams around the world for all of your hard work and dedication in delivering a strong first half of 2026.
Speaker #1: Now we will take your questions.
Speaker #2: We also invested 13 million dollars in capital expenditures for continued growth, and we returned 18 million dollars to shareholders consisting of 13 million in share repurchases and 5 million of dividends.
Speaker #2: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand.
Speaker #2: To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality.
Speaker #2: As Seth highlighted, we will continue to strategically deploy capital through investment in growth and paying down debt to provide balance sheet flexibility. Our cash flow allows us to take this balanced approach for both growth opportunities and returning capital to shareholders.
Speaker #2: If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. The first question comes from the line of Quinn Frederickson with Baird.
Speaker #2: In closing, I want to thank and applaud all of our teams around the world for all of your hard work and dedication in delivering a strong first half of 2026.
Speaker #2: Your line is now open.
Speaker #2: Now we will take your questions.
Speaker #3: Hi, good morning.
Speaker #1: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand.
Speaker #4: Good morning, Quinn.
Speaker #3: Could you guys discuss Steph maybe how aftermarket and first-fit revenues performed in the quarter and also give us an estimate for how much share gains contributed in Power Solutions and whether any change to the year for your assumption there?
Speaker #1: To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality.
Speaker #1: If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. The first question comes from the line of Quinn Frederickson with Baird.
Speaker #4: Thanks, Quinn. Great question. And let me start with, I guess, as I was saying in my prepared marks, remarks. Our team delivered a really strong quarter.
Speaker #4: In the Power Solutions segment overall, record revenues of 16.4% on the same period last year. And in the Power Solutions segment, delivered revenue growth of 7.1%.
Speaker #1: Your line is now open.
Speaker #3: Hi, good morning.
Speaker #4: Good morning, Quinn.
Speaker #3: Could you guys discuss Seth maybe how aftermarket and first-fit revenues performed in the quarter and also give us an estimate for how much share gains contributed in Power Solutions and whether any change to the year for your assumption there?
Speaker #4: And as Jack highlighted, that really was broken down between 3% price, 2% volume, and 2% FX. So if I take that volume growth year on year and break that down as requested into aftermarket and first-fit performance, what we saw in aftermarket, I would say, is still flattish conditions.
Speaker #4: Thanks, Quinn. Great question. And let me start with, I guess, as I was saying in my prepared marks, remarks, our team delivered a really strong quarter.
Speaker #4: So if I give you a view of aftermarket around the world and reminder that aftermarket is 85% of our revenues within the Power Solutions segment.
Speaker #4: In the Power Solutions segment overall, we recorded revenues up 16.4% on the same period last year. And in the Power Solutions segment, we delivered revenue growth of 7.1%.
Speaker #4: And within that, about 50% of those revenues in the US. And so we are seeing stronger sentiment in the US and in Mexico. But as I look around the rest of the world from an aftermarket perspective, I would say Europe and the Middle East and Asia-Pacific outside China we're still seeing some huge conditions.
Speaker #4: And as Jack highlighted, that really was broken down between 3% price, 2% volume, and 2% FX. So if I take that volume growth year on year and break that down as requested into aftermarket and first-fit performance, what we saw in aftermarket, I would say, is still flattish condition.
Speaker #4: And so that balance really gives us a flat aftermarket outlook and also flat aftermarket through the quarter. We continue to deliver strong gains with our customers and I continue to see us within the range of 1 to 2% within for our share gains outlook.
Speaker #4: So if I give you a view of aftermarket around the world and reminder that aftermarket is 85% of our revenues within the Power Solutions segment.
Speaker #4: And within that, about 50% of those revenues in the US. And so we are seeing stronger sentiment in the US and in Mexico. But as I look around the rest of the world from an aftermarket perspective, I would say Europe and the Middle East and Asia-Pacific outside China we're still seeing subdued conditions.
Speaker #4: If I turn to first-fit market, we did start to see the cyclical recovery in first-fit markets that we have been anticipating and was previously incorporated in our guidance.
Speaker #4: We started to see that uptick in our business in the second quarter. And we do just as education to you, we do see that uptick in our business ahead of the vehicle OEMs.
Speaker #4: And so that balance really gives us a flat aftermarket outlook, and also flat aftermarket through the quarter. We continue to deliver strong gains with our customers, and I continue to see us within the range of 1% to 2% for our share gains outlook.
Speaker #4: The APT data that we often refer to with vehicle builds is about 4 to 6 weeks we're about 4 to 6 weeks ahead of that in terms of the supply chain cycle.
Speaker #4: If I turn to first-fit market, we did start to see the cyclical recovery in first-fit markets that we have been anticipating and was previously incorporated in our guidance.
Speaker #4: And so we started to see the cyclical upturn in first-fit markets here at the end of the second quarter. I would say it was a balanced performance in first-fit between market improvement and share gains through our ongoing strategy of winning with the winners.
Speaker #4: We started to see that uptick in our business in the second quarter. And we do just as education to you, we do see that uptick in our business ahead of the vehicle OEMs.
Speaker #3: Thank you, Steph. Jack, could we get an updated view on price cost expectations for the year and I think you said maybe 2% price.
Speaker #4: The APT data that we often refer to with vehicle builds is about 4 to 6 weeks we're about 4 to 6 weeks ahead of that in terms of the supply chain cycle.
Speaker #3: Is that the right way to think about for the full year? So it sounds like you would have taken some pricing actions in July.
Speaker #3: Could you just clarify on that?
Speaker #4: And so we started to see the cyclical upturn in first-fit markets here at the end of the second quarter. I would say it was a balanced performance in first-fit between market improvement and share gains through our ongoing strategy of winning with the winners.
Speaker #1: Yeah, absolutely. So from a pricing perspective, obviously we continuously assess our pricing and make strategic adjustments where necessary, both in terms of gross pricing as well as rebates.
Speaker #1: And rebates can drive some of the timing nuances we saw good price realization through the first half. Just over 2%. Our full guide is 1.5% for the full year and that reflects a mix of carryover from prior year as well as some new pricing and obviously anticipates a moderating price realization environment as I think about the year-over-year comparison in the third quarter and the fourth quarter.
Speaker #3: Thank you. Seth, Jack, could we get an updated view on price cost expectations for the year and I think you said maybe 2% price.
Speaker #3: Is that the right way to think about it for the full year? So, it sounds like you would have taken some pricing actions in July.
Speaker #3: Could you just clarify on that?
Speaker #2: Yeah, absolutely. So from a pricing perspective, obviously we continuously assess our pricing and make strategic adjustments where necessary, both in terms of gross pricing as well as rebates and rebates can drive some of the timing nuances.
Speaker #1: As I think about that comparison as well, obviously there's some rollback of certain tariff pricing that occurred last year that we've continued to implement or remove as policies change.
Speaker #1: As always, we'll take a balanced approach to pricing and share gains in our certainly doing that over the balance of the year. As I think about some of the cost dynamics in the second half, we continue to see some elevation in our cost base associated with some commodities.
Speaker #2: We saw good price realization through the first half. Just over 2%. Our full guide is 1.5% for the full year and that reflects a mix of carryover from prior year as well as some new pricing and obviously anticipates a moderating price realization environment as I think about the year-over-year comparison in the third quarter and the fourth quarter.
Speaker #1: And a lot of that's driven by the ongoing conflict in the Middle East. That's probably the biggest kind of headwind that's embedded in our second half.
Speaker #1: And as you look at the first half, year-to-date margin compared to the second half is one of the contributors leading to the implied softening second half compared to first half.
Speaker #2: As I think about that comparison as well, obviously there's some rollback of certain tariff pricing that occurred last year that we've continued to implement or remove as policies change.
Speaker #1: The other dynamic I would just call out as you think about that margin walk is not only are we experiencing some commodity price increases associated with the conflict in the Middle East, that's also contributing to weaker overall conditions in India.
Speaker #2: As always, we'll take a balanced approach to pricing and share gains and are certainly doing that over the balance of the year. As I think about some of the cost dynamics in the second half, we continue to see some elevation in our cost base associated with some commodities.
Speaker #1: And therefore, leading to a lower joint venture income outlook than we originally anticipated at the full year. So I think the combination of those hopefully helps you bridge kind of the first half, second half dynamic and get a better sense of price cost dynamics as we move through the year.
Speaker #2: And a lot of that's driven by the ongoing conflict in the Middle East. That's probably the biggest kind of headwind that's embedded in our second half.
Speaker #2: And as you look at the first half, year-to-date margin compared to the second half is one of the contributors leading to the implied softening second half compared to first half.
Speaker #2: The next question comes from the line of David Ridley-Lane with Bank of America. Your line is now open.
Speaker #2: The other dynamic I would just call out as you think about that margin walk is not only are we experiencing some commodity price increases associated with the conflict in the Middle East, but that's also contributing to weaker overall conditions in India.
Speaker #3: Sure. Thank you very much. On for Andrew Obin. Just really quickly, on the Middle East, since you mentioned that, did you catch up on any of the loss sales from first quarter?
Speaker #2: And therefore leading to a lower joint venture income outlook than we originally anticipated at the full year. So I think the combination of those hopefully helps you bridge kind of the first half, second half dynamic and get a better sense of price cost dynamics as we move through the year.
Speaker #3: And what's embedded in the guide that you catch up or don't catch up in the second half?
Speaker #4: Hi. Thanks, David. Good morning. So we didn't fully catch up. The Middle East in the second quarter, the conflict is ongoing as I think we talked about in our first quarter earnings.
Speaker #4: We were uncertain as to how the conflict would play out. So we're still seeing underperformance in our expectations of our Middle East business driven really by market conditions is how I would describe it.
Speaker #1: The next question comes from the line of David Ridley Lane with Bank of America. Your line is now open.
Speaker #3: Sure. Thank you very much. On for Andrew Oben. Just really quickly, on the Middle East, since you mentioned that, did you catch up on any of the loss sales from first quarter and what's embedded in the guide?
Speaker #4: We are anticipating it recovering into the second half. And it is a smaller proportion of our business as we have shared before, about 2% of overall revenues.
Speaker #3: Did you catch up or don't catch up in the second half?
Speaker #4: We are seeing, as I talked about, subdued conditions through Europe that may also be related to the conflict. And as Jack referred to, we've seen challenges in our India business through the joint venture line in our P&L.
Speaker #4: Hi. Thanks, David. Good morning. So we didn't fully catch up. The Middle East in the second quarter, the conflict is ongoing as I think we talked about in our first quarter earnings.
Speaker #4: That is also related to the Middle East conflict.
Speaker #4: We were uncertain as to how the conflict would play out. So we're still seeing underperformance in our expectations of our Middle East business driven really by market conditions is how I would describe it.
Speaker #3: Got it. And then just on that point on pricing, first, can you confirm there's no tariff refunds in second quarter results? And then how much of your I know it's hard to parse this, but when you lower your prices, just mechanically because of the tariffs coming off, how much of a drag is that in the second half ballpark?
Speaker #4: We are anticipating it recovering in the second half. And it is a smaller proportion of our business—as we have shared before, about 2% of overall revenues.
Speaker #4: We are seeing, as I talked about, subdued conditions throughout Europe that may also be related to the conflict. And as Jack referred to, we've seen challenges in our India business through the joint venture line in our P&L.
Speaker #3: Because I realize there's still a lot of moving parts around tariffs. Thank you.
Speaker #4: That is also as related to the Middle East conflict.
Speaker #4: Jess, do you want to take that one?
Speaker #1: Yeah, absolutely. So let me first start with the tariff refund question, David, and then I can talk a little bit about what the implied pricing in the second half is.
Speaker #3: Got it. And then just on that point on pricing, first, can you confirm there's no tariff refunds in second quarter results? And then how much of your I know it's hard to parse this, but when you lower your prices just mechanically because of the tariffs coming off, how much of a drag is that in the second half ballpark?
Speaker #1: As you note, it's a little bit hard to parse out, but I'll do my best. From a tariff refund perspective, as of the end of the second quarter of 2026, we've received an immaterial amount of tariff refunds.
Speaker #1: Of course, we've applied for all the refunds that we feel entitled to. And we'll continue to evaluate the potential treatment of those refunds as and when we receive them.
Speaker #3: Because I realize there's still a lot of moving parts around tariffs. Thank you.
Speaker #1: Including whether or not a portion of those should be allocated to expenses that we've already incurred and then what is left over in terms of customer refunds.
Speaker #4: Jess, do you want to take that one?
Speaker #2: Yeah, absolutely. So let me first start with the tariff refund question, David, and then I can talk a little bit about what the implied pricing in the second half is.
Speaker #1: Overall, I would say we continue to expect the net impact on EBITDA from a tariff perspective to be substantially neutral. As you note, the tariff environment will continue to evolve.
Speaker #2: As you note, it's a little bit hard to parse out, but I'll do my best. From a tariff refund perspective, as of the end of the second quarter of 2026, we've received an immaterial amount of tariff refunds.
Speaker #1: With ongoing changes in policy, and I would just say that our strategy to address that remains unchanged. Of course, we'll continue to avail ourselves of any exemptions so as to protect our customers from the impact of tariffs.
Speaker #2: Of course, we've applied for all the refunds that we feel entitled to. And we'll continue to evaluate the potential treatment of those refunds as and when we receive them.
Speaker #1: Continue to evaluate our supply chain and optimize wherever possible. And then finally, obviously looking to pass that on the impact of tariffs through pricing.
Speaker #2: Including whether or not a portion of those should be allocated to expenses that we've already incurred and then what is left over in terms of customer refunds.
Speaker #1: Overall, continue to be guided by cost-neutral principle as it relates to tariffs. From a pricing perspective, I think I'll just kind of talk about it in totality because it's really hard to parse out given all the moving pieces.
Speaker #2: Overall, I would say we continue to expect the net impact on EBITDA from a tariff perspective to be substantially neutral. As you note, the tariff environment will continue to evolve.
Speaker #1: Last year in particularly, but if you look at the full year guide and then year-to-date price realization, you can kind of see price realization, as I said, moderating in the third and the fourth quarter compared to those same periods in the prior year.
Speaker #2: With ongoing changes in policy and I would just say that our strategy to address that remains unchanged. Of course, we'll continue to avail ourselves of any exemptions.
Speaker #2: So as to protect our customers from the impact of tariffs, continue to evaluate our supply chain and optimize wherever possible. And then finally, obviously looking to pass that on the impact of tariffs through pricing.
Speaker #1: Kind of between just over half a percent, I would say.
Speaker #2: Overall, continue to be guided by cost-neutral principle as it relates to tariffs. From a pricing perspective, I think I'll just kind of talk about it in totality because it's really hard to parse out given all the moving pieces.
Speaker #2: The next question comes from the line of Bobby Brooks with Northland Capital Markets. Your line is now open.
Speaker #5: Hey, good afternoon. Team and taking questions. So industrial solutions run rate that quarterly sale level versus the Cox 2025 close when you acquired it.
Speaker #2: Last year in particularly, but if you look at the full year guide and then year-to-date price realization, you can kind of see price realization, as I said, moderating in the third and the fourth quarter compared to those same periods in the prior year.
Speaker #5: It's a nice high. So question there, is any seasonality that would make this an over way of looking at it for qualitatively? Anything that drove from sequentially?
Speaker #2: Kind of between just over half a percent, I would say.
Speaker #1: The next question comes from the line of Bobby Brooks with Northland Capital Markets. Your line is now open.
Speaker #4: Good morning, Bobby. I'm doing my best to make out your question. I must say on my end, it's breaking up a little. So I'll try to summarize I think what your question is is related to industrial solutions revenues.
Speaker #5: Hey, good afternoon, team, and thank you for taking my question. So, in Industrial Solutions, you run-rate that quarterly sale level versus the Cox 2025 close when you acquired it.
Speaker #4: How is that performing? And is there any seasonality in the guide that for that revenue? So I'll try to answer that and I'm not sure what's driving the breaking up at your end.
Speaker #5: It's a nice high rate. So the question there, is any seasonality that would make this an over way of looking at it for qualitatively?
Speaker #4: So industrial solutions is performing right where we would expect it to. I think broadly speaking, we've talked about 1% price for industrial solutions, 1 to 2% market share and really overall the market impact for industrial solutions being closely linked to GDP or around that sort of 3% level.
Speaker #5: Anything that drove for sequentially?
Speaker #4: Good morning, Bobby. I'm doing my best to make out your question. I must say on my end, it's breaking up a little. So I'll try to summarize I think what your question is is related to industrial solutions revenues how is that performing and is there any seasonality in the guide that for that revenue?
Speaker #4: Overall, the guide we're still giving is 1 to 8% for industrial revenues. We think it's pretty steady over the quarters. So I wouldn't call out any specific cyclicality in the quarters.
Speaker #4: So I'll try to answer that and I'm not sure what's driving the breaking up at your end. So industrial solutions is performing right where we would expect it to.
Speaker #4: And we're confident and really pleased with the ongoing performance relative to our original business case assumptions.
Speaker #4: I think broadly speaking, we've talked about 1% price for industrial solutions, 1 to 2% market share and really overall the market impact for industrial solutions being closely linked to GDP or around that sort of 3% level.
Speaker #5: Apologize for the bring-up. And maybe just a follow-up there. You spoke to how you finishing up integration pieces and a shift to that. Just wanted to give you the floor to speak to what might be some exciting growth in this that you can help for industrial solutions.
Speaker #4: Overall, the guide we're still giving is 1 to 8% for industrial revenues. We think it's pretty steady over the quarters. So I wouldn't call out any specific cyclicality in the quarters.
Speaker #5: Thank you.
Speaker #4: Okay, Jack, give me a second.
Speaker #1: Yeah, I'll take it. Thanks, Bobby, for the question. So I think again, I think I'll interpreted your question as just a quick update on the Cook integration overall and then speaking to some of the growth initiatives that the team is thinking through.
Speaker #4: And we're confident and really pleased with the ongoing performance relative to our original business case assumptions.
Speaker #1: So first of all, I would just say we continue to be very excited about the acquisition of Cook Filter and very pleased to see such a strong cultural fit with our organization.
Speaker #5: Apologize for the bring-up. And maybe just a follow-up there. You spoke to how we do 3Q finishing up integration pieces and a shift to that.
Speaker #1: As you noted and as we noted in our prepared remarks, we're through about 95% of the TSAs. And we'll be planned to fully exit those TSAs here in the third quarter.
Speaker #5: Just wanted to give you the floor and to speak to what might be some exciting growth in this that you can help for industrial solutions.
Speaker #5: Thank you.
Speaker #4: Okay, Jack, do you want to take that?
Speaker #2: Yeah, I'll take it. Thanks, Bobby, for the question. So I think again, I think I'll interpret as your question as just a quick update on the Cook integration overall and then speaking to some of the growth initiatives that the team is thinking through.
Speaker #1: Overall, continue to be really excited about the growth prospects for that business. And a lot of different initiatives that we are working through in a collaborative way with the Cook business.
Speaker #1: Of course, continuing to cultivate new market share opportunities through the build-out of distributor relationships. Launching new products to fill gaps in that coverage. As well as looking to expose the business to high growth end markets.
Speaker #2: So first of all, I would just say we continue to be very excited about the acquisition of Cook Filter and very pleased to see such a strong cultural fit with our organization.
Speaker #1: Things such as data centers, healthcare, so on and so forth. And so the team's got a lot of energy around that. We continue to find ways that we can complement the already strong attributes that they bring to the table.
Speaker #2: As you noted, and as we noted in our prepared remarks, we're through about 95% of the TSAs, and we plan to fully exit those TSAs here in the third quarter.
Speaker #1: And excited about the future.
Speaker #2: Overall, I continue to be really excited about the growth prospects for that business. There are a lot of different initiatives that we are working through in a collaborative way with the Cook business.
Speaker #2: The next question comes from the line of Tami Zakaria with JP Morgan India Private Limited. Your line is now open.
Speaker #2: Of course, continuing to cultivate new market share opportunities through the build-out of distributor relationships launching new products to fill gaps in that coverage. As well as looking to expose the business to high growth end markets things such as data centers, healthcare, so on and so energy around that.
Speaker #6: Hi, good morning. Thank you so much for taking my question. Question on your EBITDA margin guide. I think you took you narrowed the range and the top end came down by 25 basis points.
Speaker #6: Is that because your first fit expectation is now better? So that's a mixed headwind or how should we think about that lowering of the top end of the range?
Speaker #2: We continue to find ways that we can complement the artery strong attributes that they bring to the table. And excited about the future.
Speaker #4: Good morning, Tami. I'll pass that one to Jack.
Speaker #1: The next question comes from the line of Tammy Zachariah with JP Morgan India Private Limited. Your line is now open.
Speaker #1: Yeah, thanks, Tami. Good morning. So first of all, I would just say we've seen really strong operational execution through the first half of the year.
Speaker #1: I think year-to-date margins at about 20.3% from an EBITDA perspective over the first six months. So really pleased with where that's at. I'll start first, Tami, maybe just bring to life performance in the second quarter.
Speaker #6: Hi, good morning. Thank you so much for taking my question. I have a question on your EBITDA margin guidance. I think you narrowed the range, and the top end came down by 25 basis points.
Speaker #1: And then I'll speak to the balance of the year and a couple of the moving pieces. As we noted, the second quarter, we saw the benefits of pricing volume FX.
Speaker #6: Is that because your first-fit expectation is now better? So, is that a mixed headwind, or how should we think about that lowering of the top end of the range?
Speaker #1: And then partially offset by higher material costs and manufacturing costs. In addition, we had a small amount of elevated incentive compensation costs in the quarter.
Speaker #4: Good morning, Tammy. I'll pass that one to Jack.
Speaker #1: As we're outperforming the plan. And then finally, down in the other income expense line items, a couple of non-operational items in Q2 of '25 that didn't repeat.
Speaker #2: Yeah, thanks, Tammy. Good morning. So first of all, I would just say we've seen really strong operational execution through the first half of the year.
Speaker #2: I think year-to-date margins are at about 20.3% from an EBITDA perspective over the first six months, so we're really pleased with where that's at. I'll start first, Tammy—maybe just bring to life performance in the second quarter.
Speaker #1: This year. Let me help you then kind of bridge to the full year guide. As our guidance implies, we have more favorability in the first half as you think about year-over-year comparisons in the form of pricing and FX than we will in the second half.
Speaker #2: And then I'll speak to the balance of the year and a couple of the moving pieces. As we noted, in the second quarter, we saw the benefits of pricing, volume, and FX, which were partially offset by higher material costs and manufacturing costs.
Speaker #1: So those are a little bit of a moderating lever to pull, if you will. Secondly, we expect the ancillary effects of the Middle East conflict to persist for longer than we originally anticipated.
Speaker #2: In addition, we had a small amount of elevated incentive compensation costs in the quarter, as we're outperforming the plan. And then, finally, down in the other income expense line items, there were a couple of non-operational items in Q2 of '25 that didn't repeat.
Speaker #1: Really driving inflationary pressures associated with raw materials like chemicals, plastics, and then as I noted, I would just say that the other impact from a second half perspective is the Middle East conflict impacting JV income, most notably in China.
Speaker #2: This year—let me help you then kind of bridge to the full-year guide. As our guidance implies, we have more favorability in the first half, as you think about year-over-year comparisons in the form of pricing and FX, than we will in the second half.
Speaker #1: And so you'll see that we lowered our outcome a bit on JV income. Sorry, in India. I apologize. In terms of mix to your question, Tami, I think obviously there is a little bit of a mixed dynamic with strengthening first fit relative to aftermarket.
Speaker #2: So, those are a little bit of a moderating lever to pull, if you will. Secondly, we expect the ancillary effects of the Middle East conflict to persist for longer than we originally anticipated.
Speaker #1: But I think it's a combination.
Speaker #6: Understood. That's very helpful. And I wanted to get some clarity on the industrial solutions segment. If I look at the EBITDA margin for that segment, it sequentially down on almost 200 basis points.
Speaker #2: Really driving inflationary pressures, associated with raw materials like chemicals, plastics, and then as I noted, I would just say that the other impact from a second half perspective is those Middle East conflict impacting JV income most notably in China and so you'll see that we lowered our outcome a bit on JV income.
Speaker #6: Is that seasonality? If not, what drove this sequential decline? And how should we think about that segment's EBITDA margin for the back half versus what we saw in the second quarter?
Speaker #2: Sorry, in India. I apologize. In terms of mix to your question, Tammy, I think obviously there is a little bit of a mixed dynamic with strengthening first fit relative to aftermarket.
Speaker #1: Yeah, I'll take that one as well, Tami. So look, year-to-date margin performance is about 20%. If you average the first quarter, second quarter, and that continues to be our guide.
Speaker #2: But I think it's a combination.
Speaker #6: Understood. That's very helpful. I wanted to get some clarity on the Industrial Solutions segment. If I look at the EBITDA margin for that segment, it's sequentially down almost 200 basis points.
Speaker #1: And so that's how I would have you think about the third and the fourth quarter. As you note, second quarter margins took a sequential step down at 18.9% and below that full year guide.
Speaker #1: Really, I would say that's driven by some one-off impacts that drove some inefficiencies that we expect to be one-time and not repeating. In nature.
Speaker #6: Is that seasonality? If not, what drove this sequential decline, and how should we think about that segment's EBITDA margin for the back half versus what we saw in the second quarter?
Speaker #1: To bring a little color to that, it's a little bit of operational efficiencies as volumes moved around. And some inefficiencies associated with the transition off of the TSAs, some redundant expenses.
Speaker #2: Yeah, I'll take that one as well, Tammy. So, look, year-to-date margin performance is about 20% if you average the first quarter and second quarter, and that continues to be our guide.
Speaker #1: So we remain confident in our full year guide for that business and think it's just a temporary nuance.
Speaker #2: And so that's how I would have you think about the third and fourth quarter. As you note, second quarter margins took a sequential step down at 18.9% and are below that full-year guide.
Speaker #2: The next question comes from the line of Kevin Urek with Wells Fargo. Your line is now open.
Speaker #7: Hi guys. I just wanted to double-click on the North America truck aftermarket market. How have your expectations changed from the beginning of the year?
Speaker #2: Really, I would say that's driven by some one-off impacts that drove some inefficiencies that we expect to be one-time and not repeating in nature.
Speaker #7: And what are you seeing currently?
Speaker #2: To bring a little color to that, it's a little bit of operational efficiencies as volumes moved around, and some inefficiencies associated with the transition off of the TSAs.
Speaker #4: Good morning, Kevin. Thanks for the question. Look, I would say our guide remains the same, actually, as we came out from a market perspective.
Speaker #2: Some redundant expenses. So we remain confident in our full year guide for that business and think it's just a temporary nuance.
Speaker #4: On aftermarket in the US, certainly we are reading what I'm sure you're reading, which is improving sentiment. And that gives us a lot of optimism is what I would say.
Speaker #1: The next question comes from the line of Kevin Urek with Wells Fargo. Your line is now open.
Speaker #4: But we are not yet seeing that translate in at least the visibility we have at this stage. And we don't have a lot of forward visibility in aftermarket orders.
Speaker #7: Hi guys. I just wanted to double click on the North America truck aftermarket market. How have your expectations changed from the beginning of the year?
Speaker #4: But in the visibility we have at this stage, we're not seeing that translate yet into an uptick in outcomes in market conditions. So the way we see it is really flat year on year aftermarket.
Speaker #7: And what are you seeing currently?
Speaker #4: Good morning, Kevin. Thanks for the question. Look, I would say our guide remains the same, actually, as we came out from a market perspective.
Speaker #4: Obviously, we'll continue to deliver share gains as we've got previously guided to. But not significantly changed from where we started out the year.
Speaker #4: On aftermarket in the US, certainly we are reading what I'm sure you're reading, which is improving sentiment. And that gives us a lot of optimism is what I would say.
Speaker #7: Understood. Thank you. And then maybe going back to the Middle East conflict. Is there a way you can help us think about the margin impact on the quarter, the moving pieces there?
Speaker #4: But we are not yet seeing that translate in at least the visibility we have at this stage. And we don't have a lot of forward visibility in aftermarket orders.
Speaker #7: Thank you.
Speaker #1: Yeah, so I would think about again, I highlighted some of the commodity cost impacts you can imagine it takes a little while for things like that to work through the system.
Speaker #4: But in the visibility we have at this stage, we're not seeing that translate yet into an uptick in outcomes in market conditions. So the way we see it is really flat year over year aftermarket.
Speaker #1: And obviously, we're doing our best to mitigate the impact of those. So it's a bit more of a second half dynamic, I would say, than a Q2 dynamic.
Speaker #4: Obviously, we'll continue to deliver share gains as we've got previously guided to. But not significantly changed from where we started out the year.
Speaker #1: And it's one of the drivers, if you will, of the step-down in the margin percentage outlook in the second half. If you look at our joint venture income, year over year, it's flat compared to the same period last year.
Speaker #7: Understood. Thank you. Maybe going back to the Middle East conflict, is there a way you can help us think about the margin impact on the quarter and the moving pieces there?
Speaker #1: And I think really what that is reflective of is a strong market in China. Not only in the second quarter, but in the first half.
Speaker #7: Thank you.
Speaker #2: Yeah, so I would think about again, I highlighted some of the commodity cost impacts you can imagine it takes a little while for things like that to work through the system.
Speaker #1: And then some corresponding weakness in our India market, which is driving a bit of that lower joint venture income. Again, originally we had kind of built in an assumption, I think like many people did, that we'd see some resolution of that conflict in the second quarter.
Speaker #2: And obviously, we're doing our best to mitigate the impact of those. So it's a bit more of a second half dynamic, I would say, than a Q2 dynamic.
Speaker #2: And it's one of the drivers, if you will, of the step down in the margin percentage outlook in the second half. If you look at our joint venture income, year over year, it's flat compared to the same period last year.
Speaker #1: And obviously, that's not been the case. So we'll continue to do our best to mitigate those ongoing impacts. Not only at the cost line, but also trying to get product to our customers.
Speaker #2: There are no further questions at this time. I will now turn the call back to Todd Chirillo for closing remarks.
Speaker #2: And I think really what that is reflective of is a strong market in China, not only in the second quarter, but in the first half.
Speaker #1: Thank you, Piercy. That concludes our teleconference for the day. Thank you for participating and for your continued interest. Have a great day.
Speaker #2: And then some corresponding weakness in our India market, which is driving a bit of that lower joint venture income. Again, originally, we had kind of built in an assumption, I think like many people did, that we'd see some resolution of that conflict in the second quarter.
Speaker #2: And obviously, that's not been the case. So, we'll continue to do our best to mitigate those ongoing impacts—not only at the cost line, but also by trying to get product to our customers.
Speaker #1: There are no further questions at this time. I will now turn the call back to Todd Chirillo for closing remarks.
Speaker #2: Thank you, Piercy. That concludes our teleconference for the day. Thank you for participating and for your continued interest. Have a great day.
