NPO - Earnings call transcript Q1 2018

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Operator

Good morning. My name is Kelly and I will be your conference operator today. At this time, I would like to welcome everyone to the EnPro 2018 First Quarter Results Conference Call. [Operator Instructions] I will now like to turn the call over to Mr. Chris O'Neal, Senior Vice President of Strategy, Corporate Development, and Investor Relations. Mr. your begin may you conference. O'Neal,

Chris O'Neal

our statements XX, which our made undertake or on change number forward-looking are are statement actual SEC for to our and the and change management's webcast including Good ended Thank performance described results Marvin will discussion, cause their before any and and will our review that quarter our conference EnPro our risks But circumstances you and our These press accompany and with and historical in you detail, first included a call this December this based. Riley, involve in being and call that to during we in other in or the may CFO from statements. such out expectation that call. our a in XX-K begin uncertainties COO; everyone, statements expresses as safe uncertainties, along that well quarterly expectations facts. you, are call release the find on I those earnings harbor any events CEO; filings slides as also that update our year of outlook point Kelly. in our any XXXX. not Industries' moment. you conference statements forward-looking with the welcome risks materially remind the of hear and These belief, begin where not Childress, differ in risks of more do statements may assumptions We intention Form that Macadam, or course are morning, call. such to the enproindustries.com, at Steve referenced is are can forward-looking to reflect uncertainties I'll Milt

comparisons of XXXX the and understanding read OldCo you call of of First, Garlock subsidiaries; the Our information; disclosures deconsolidation earnings or GST, GST, and and the Claim them and third, non-GAAP will Sealing that to or We illustrative for year will the XXXX. EnPro if Resolution our first forma as are the Asbestos be to XXXX materials OldCo, the conference the financial effective reconsolidation following: of call believe on investors of were forma most of Consolidated presented July their that contain performance year-over-year information reconsolidation references These of subsidiaries finally, for illustrative Enpro's result and regarding of find until of the in today's we throughout prior OldCo the OldCo, and businesses. disclosures results purposes XX, period. completion comments pro to to release all Process. LLC results for we pro collective And to reflect make important relevant financial for the of XX, presentation quarter reconsolidated period GST its carefully. the periods after urge periods consolidated additional a Technologies, second, a reporting first as July quarter as XXXX of during results financial

forma For to over call, the the this to clarity results consolidated quarter Steve. first compare XXXX will XXXX. turn call now, pro results throughout we I'll And quarter first of for

Steve Macadam

our offset engine in the softness momentum Power turbine pleased the general & first Good joining throughout to Thanks food in semiconductor, pharma, strong, Demand Chris. I continue & conditions quarter metals oil and gas mining, continued favorable for today. have markets. automotive to relatively was to Thanks, by everyone. of and gas in was and positive sales. driven nuclear gained, XXXX declines am in industrial, of aerospace that morning, quarter and flat. experience increased be partially in market. share & we slightly Systems the versus grew higher industrial sales while also first by demand This many

us of to see, more conditions for deliver And earnings improvement release these confidence in through strong right to first you noted continue ability you power at systems growth positive the engine give As the half aftermarket expected of can which our year-over-year trends and at end guidance, least in I’ll expect the These hand column our in we full call. our as X, year. with cover sales and earnings increasing increases we’re in of XXXX likely the market in sales. the year Slide parts truck further detail in heavy-duty

like minute greater our some in issues highlights. of fundamentals cover that In generated year-over-year of in positive that believe our and Now are sales some very growth I'll I'd we of our the in to strong. a segments. the detail I describe first despite each performance divisions To company start, quarter,

Consolidated Excluding approximately in as the foreign and in differences the and to results, exchange were up is X% we which year. decline translation adjusted year-over-year to power first coming into decreased sales truck systems EBITDA EBITDA year. our expecting refer and divestitures, Products, Sealing acquisitions were normalized year. due quarter over our in we'll prior of sales prior from much in the adjusted which X.X% in segment The heavy-duty in results business the

Our were end aerospace gas in by Engineered year-over-year. year to adjusted demand very to European driven SG&A relatively about relatively relative continued and Normalized and in markets automotive industrial year. saw compared last strong XX% compared & the the and Products oil flat flat to the Segment to year. segment with increasing and start We sales segment sales markets. up adjusted general volume a increased was Primarily up last year. and had the approximately momentum EBITDA X% EBITDA prior

two for Sealing division two you circumstances few a the Technetics Garlock segment, the Products help start sales at core demand and this our quarter generated strong had their in positive of that unique Normalized which in after the as I'm these thirds in and our in X% innovation masked the to of two the some understand representing challenging heavy-duty EBITDA XX% was results going result better same prior details the first described markets Products good adjusted many In earnings up and adjustments businesses, in up initiatives. approximately period was and level. share were in be a year. to by improvement teams continued nearly of and approximately the in in is business. operational very year our to compared to Sealing on divisions our also executed sales, We truck our to performance order release the quarter

mentioned, business a some I heavy-duty our moment that to profitability STEMCO encountered As describe. headwinds I will ago truck

first loss year of decline quarter of by in driven volume in business was promotion some we coming including knew two accounts quarter middle of year. from And XXXX of the the First, year. a in issues about last the earnings affected this into of the that the fourth

into experienced small expenses legal expenses, consolidated several satellite charges sites start-up from we manufacturing facilities. unusual warranty costs and expenses relocation great two Second, in including our sales, larger friction,

increases prices Third, our in and enhanced in pass-through from commodity margins. our impacted but suffered have we not that price these been yet were cost negatively steel increases Most of place QX.

an first aftermarket by had unfavorable lower mix driven more several relative product last our in to year categories. quarter STEMCO Finally, sales in profitable of the product

which production. driven sales take and in confidence productivity anticipate and higher sales is portion cost results offset to from aftermarket balance was XX%. improve the the We're decline taking increase the STEMCO’s primarily nature. countermeasures anticipated approximately Which, The driven seeing the place. increases Power orders will STEMCO’s give segment, aftermarket of are higher partially still and these year. significant revenue Both commodity of by to me lower profitability sales higher parts we're improved unusual or in was revenue. of increased over by and engine engine price much a that EDF costs, In in by of to either resulting from was Systems cost While large improve begin

last the addition the relative OP costs In activities year were quarter in launch Trident higher commercial mix primarily for product by the SG&A to first engine. driven to unfavorable

working are major and Offshore programs, Tanker Cutters the Oiler. of We new Patrol production also the the through launch two

costs, engines necessary anticipate in engines. naval for which resulted over margins the service of programs, and more remaining EBITDA. we significantly Marvin new up in custom will year. XX% quarters standard program combination result of these parts fabrication pick in assembly The speak work in But The minute. higher we adjusted to about a segment in define first the and typically engine decline higher a on as a sales Fairbanks normally are and Morse aftermarket these the

And and during speak Both call of turn we our half at I'll services February a Marvin to quarter facts on As backlog efforts. power the to now, the commercial update in to second over of innovation provide systems in the noted and to confidence give Fairbanks year. strong. further performance our our are the call, about parts us earnings for today these fourth and XXXX

Marvin Riley

everyone. Steve Thanks, morning and good

strong Morse to profitability. year quarter we As sales in in at previously decline Steve a noted suffered Fairbanks relative last a had but

you'll recall, we strong As since a light and recovered. parts last entered as with aftermarket result the which were year in the year backlog, fourth of has quarter sales quite a of

engines in of continue six are zero have left EDF’s XX EDF in ship delivering XX approximately deliver, shipped which program date, are we manufacture facilities addition, margins. and for to We complete aggregate. last to have To the and which In anticipate process currently the near engines, in engine and are at production we to XX% units XXXX.

higher first SG&A and relative quarter last higher expenses. sales driven the Additionally, by marketing we had to expenses primarily in year

many first EBITDA be to As Morse in of in know, a business last segment can Fairbanks experienced decline uneven throughout quarter relative adjusted while year, our you the year. the

and we the will our control higher profitability last this levels increase million confident quarterly significantly top remainder year which for in momentum, as parts of will to the recover has Notably, also navy stronger stronger and since the by to given to sales is shortfall the beginning parts drive deliver balance and of half which productivity, XX% year-over-year. We We're aftermarket a the and year revenues. of progresses. backlog grown parts our first year. compared through $X.X of expect through current that of communicated service levels and year. up current growth, and order our service in growth on our the programs We be line call engine backlog working on second year of We to the costs ability anticipate expect driven the the services the margins and normal to and we're

an you I'd like on our which Trident fuel as OP that efficiency. know provides our update industry-leading next-generation opposed-piston is engine provide to program, Finally,

the demonstrated optimize opportunities product continued have its this of our quarter, pipeline In competitive at with Today, on across note continued We have initiatives to product potential sales first innovation them added highlighted Sealing exciting the have our launch fuel segment. to the to new segments. and we prior over grow Products briefly advantages their as our we quarters, efficiency like partners launch best-in-class collaborated and timelines. In I'd efficiency set. fuel an of

turnaround to setting As are through attributes many to newly and broader received events an manufacturer you products Asia, new customers valuable products the fluid gaskets the process; time, regional the call a now by and design. is well Middle traditional allowing a and is forgiving product development launch over seals America, just a in re-work, developed our effectively standard In Garlock PTFE high EPIX orders And launch East. know, its than lower product, more by the and North known With Garlock with redefining globe, from EnPro. EPIX, more installation applications leading introduced the Europe, costs. performance, within of and and I'll to is flagship the reduce focus, of end Garlock performance is quality enhanced family innovative launch to quarter, user GYLON first during Milt. industry expected. high innovation the was the the Garlock the of reliability. of Garlock of is our example This surface EPIX turn save GYLON PTFE in performance gasketing combining around sealing our EPIX, team distributors one its across range

Milt Childress

Thanks Marvin.

in satisfied XX of our want the plan. substantially Chapter remind all our to year. company we that fourth And on of begin, I obligations we quarter, the under last I July in closed permanently remaining you the Before joint Asbestos

as final highlights sheet, first consolidated One results results forma results consolidation So balance first which first quarter quarter of information about pro I in of all reviewing of the since of comparisons year quarterly results year quarter, first I quarter. will the was order I and EnPro’s entities. our will the most the second meaningful past. make for XXXX. In results, period the note, this the in for covered provide walk Marvin for segment to the reflect had Steve not the to the and through before financial full quarter

you on the call results, the tables. please accompanying questions the summaries the release If to that are refer not and addressed in segment press have segment

X.X% $XXX.X quarter quarter of first first Our sales XXXX. million of over were up the

rates; restructuring attached $X.XX items sales prior basis per release. all Power as noted, of tables have Steve Systems. year; per adjusts charges, our share XXX of points for performance the was Marvin the were impairment X.X% earnings X.X% share and of the X.X% earnings Systems, and first Power charges, and were down and as up XX.X% to XX.X%, discussed. Engineered trucking earnings Products As from first in in costs, the quarter Steve up compared XX.X% reserve tax to normalized heavy-duty the in expenses Adjusted quarter first margin in to for up acquisition XXXX. in XXXX for shown quarter Gross quarter compared environmental over down normalized profit Adjusted such resulting Sealing, as up

software, $XX.X The in other is corporate again items and expense, result under first quarter total by same in program of million invested consistent increase and million. first discussed. the from summarizes announced as $XX diluted for our $X.X period quarter the first $XX.X compared of we our the the quarter, last dividend quarter Steve for Average $X.X tax of paid costs, XX, $X.XX the and increase Products, authorized were income with $XX.X adjusted $X.X in Marvin first Power Sealing during increase. $X.X heavy-duty including dividend our totaling XXX,XXX million million year-over-year quarter. board to uses We million plant interest repurchased the previously of part a decrease Systems Slide approximately facilities, capital affecting expense. year-ago. million And the shares offset once of for per share by XXXX a trucking decrease and in the million million also $XX value major We shares October. net in million

the reform. cash $XX was ended $XXX approximately pursuant our cash as Our overseas at first December a balance million, repatriating of to quarter we result $XXX about approximately with million tax cash XX and of partially million, of

on discussed As earnings calls. previous

benefits We also conjunction created trust are loss taking the the action to in last related funding. realize the with of ACRP year

we the And $XX tax driven million. totaling refund call. is most by filing receiving tax the recent to tax return moving subsequent target, IRS, As additional issued XXXX. of earnings tax subsequent the been tax quarter of you to know, earnings XX-year the loss with by of carryback filed clarifications tax to XX-K call, a our connection refund be we since call, and estimated on $XXX.X bit estimate the modifications our a tax million by announcement guidance has the be to which we $XXX earnings by reform. anticipate planning Based reform in million IRS, refund now our approximately end fourth estimated the to refunds due of In our

will credits, to XXXX, insurance XXXX, approximately million of our $XX ACRP periods. in carryback result in quarter the related $XX receive tax million received we foreign in tax the reduce Also first About was expect recoveries. future of which approximately year. which this payments in million $X Beyond from

Slide first the As in outlined debt the leverage quarter. on XX, of previous we at net end our ratio quarters, consolidated

end was EBITDA. the X.Xx adjusted our you XX-month leverage approximately pro forma trailing see at of ratio As can the quarter

this note As be discussed insurance year. schedule in are will portion on the limiting we asbestos-related our know to that the that the last amount call please we received

XXXX. in $XX periods. million future not balance In approximately in and table refund received of quarter in that expected The calculation of mentioned will the ACRP million that included this end million $XXX X.Xx. leverage receive trust first benefit, to approximately approximately tax this ratio estimate our Including million We $X does funding related the the the have been $XX we leverage the addition in to the would I previously. first at quarter

Now to I'll Steve. call back turn the

Steve Macadam

Thanks, Milt.

of and for then your and close We market will questions. current our a outlook conditions discussion XXXX with take

of As a engine with cycles in range typical to Most limited have new businesses on of from backlogs order months. have we've our relatively visibility couple handful of a of days and shipment Power exception always production explained the short to the demand future we Systems. order

aided of CPI signs products performing Notwithstanding well, are nature year. very component about indicators. market performance the end obscures macro Technetics, by Additionally, at for into of this with the of visibility, market our last higher often second to remainder year. beginning than many increase Morse million to the and time that conditions we're optimistic and overall of the GGB financial favorable show same engine year, higher Garlock, correlations of since the all strength. continue limited Fairbanks backlog parts we've in expects half aftermarket the quarter of year. as was the service be the second the to the in heading several sales dollars STEMCO's And known volumes our

While commodity the are margins. impact on prices actions mitigate concerned, to our taking we're rising

impacts of litigation driven usual, end future to As changes quarter excludes foreign guidance the costs, and environmental impact the subsequent or acquisitions, restructuring of our the exchange any charges. by

and Given the in year the current the results and the And increasing Systems, macroeconomic in due we're despite forecasts continued full slow our of heavy-duty markets. our for overall expectation EBITDA. start to end Power and of trucking to year XXXX most sales strength

our in year. We guidance EBITDA to be of and of year million the to currency increase balance increase businesses. About a impact is the X% to million estimated the the and current between $X.X is of $XXX expect EBITDA sales up X% be adjusted prior over $XXX and million between of momentum last the and result due over for

for Now we'll open questions. the your line

Operator

Capital. from Jeff Hammond first line of Your Instructions] question KeyBanc comes the from [Operator

is Your open. line

Jeff Hammond

morning, guys. good Hey,

Steve Macadam

Jeff. Hey,

Milt Childress

Good morning, Jeff.

Jeff Hammond

or then and of what that into or then issues XQ? within of through go and you one-time quantify issues. over kind individual Thanks. is versus the all-in order of ones truck of if Can number I and quantify can isolated the on of the you the Just don’t quarter know bucket carries to in either kind magnitude of kind

Milt Childress

buckets, Jeff. but our the major it I Yes, had everything our plan framed talk obviously once got of the I’ll we've our quantified, think we up. in kind all countermeasures Well, just about action and again done we of comments. Steve scrubbing

First that volume loss had expected. some we of all, was

in expecting the in for the So the at last look in our year. decrease year-over-year a year, coming were the first business into quarter. We we if compared QX trucking heavy-duty to budget STEMCO

customers loss price knew are going the some So of of and is rising to the key commodity prices we there before expected, at was to recover increases to we a look could impacted that. we be be that lag by going

into were we in So knew related the those some legal and in that kind things one that doing ATD some the were expected, facilities, Steve small some expenses had facilities we we also too involved also describes. with litigation of consolidation

So what OE year. higher in bit a all our the off. products of developing, think that is a continuing business to mix more not quarter to be of we effect as I with particularly was strong. negative little see aftermarket that We some was coming did of no from And – the saw in into the be margin

some you quarter product of into at is Now up. the the coming higher if our of picked lines margin look backlog second

So…

Steve Macadam

of seal Hey, that was last a year. exacerbated promotion Milt, we in in the I that sales a jump aftermarket weakness in let have promotion we QX think me did relative by the because Jeff,

demand some the lot permanent there’s other thing is on road. forward the pull did isn’t new probably a equipment that and So of just more

that trucks know, done you are maintenance the trucks been has newer, few OE trucks. years mix it's the long-term trailers and as line. for trailers those driving demand and over both the so well And less on last of above the trend around the And

So look are kind the that of impactful new total that road. it's on forward. fleet, a less the at you pull But that's when the probably relatively trucks U.S. said, than

really hit as operations. the ever back surprised little team that tariffs bit been, just core in a the that It's got when the lot bit lot with not behind it's have has it that QX everyone at as saw through STEMCO, the covering forth. look pricing I was we well fine because little spike be of were do with is came I and with cost a So just a was that operating we stuff is on as you of the we a us confidence most things and peel associated we'll solid you of so steel in

the our we've price already through So start will street, increases are got to that announced increases. on already and commodity pass those

the So don't taking margins to have short some a be actions concerns pretty to to for year. Yes. of I even have – back going lot guys going peel but been I ourselves it's we're segment. and that, STEMCO hard manage back going as but that of aggressive pretty STEMCO's internal to feel to see corrective acceptable what look forward, about the cost our but for on position right you confident has be plan our I we don't and underneath

Marvin Riley

would And for XX% business, the say so for the just is about roughly to Jeff, at changes of I these forth. business in non-typical this and if was some the expenses negative the year-over-year variance facility of legal year-over-year of you untypical, related look kind and roughly earnings delta the EBITDA

second a front, will its have maybe little yes, some but that to legal bit. in dribble some it ballpark quarter the that likely Now of the what help on we you have we

Jeff Hammond

Okay, that’s different ask just helpful. a in way. Maybe

loss appreciate like in variance knew. that of would the a and million things I $X litigation, I of volume So the guess some the don't some I you

had of give variance I sense guys you expecting. just you of since the the understanding better you So some Maybe, was can were what dynamics. of versus what a mean, us a

Milt Childress

of that, half The probably variance expecting Jeff. that were is we about

Jeff Hammond

Okay.

Milt Childress

again, line. into It these higher in cost, but Rome. other we than operations relo know warranty the was thought back. fees the had consolidated end in didn't small work in because was issues, going knew was them legal moved actually Mexico, shut expecting the that really just stuff was we've of one it even down of a in warranty there, we the half the We start-up cost the friction we had few we out costs that it And quarter. some things. distribution and we and one the the the got came of two center facility cost, And We

bit So was of than just we was the of you other would but about one-time that half kind more in what kind slightly maybe – issues. expected what got the quantify the half of

is that Now helpful?

Jeff Hammond

the are those us? like Yes. And it just the – lingers, relocation then on behind what of legal, and kind the warranty so sounds are and plant costs move,

Milt Childress

Well driven the we warranty the you, the two, and these done what we yes, think have to we warranties. excited all of about – Jeff, reason get – quite That's get but done honest because to and the they've I litigation the we're know, relationship, lot are us two friction one a out And moves in years. always we by been the driven are our frankly costs, trying that up the by Dura-Line over mean Dura-Line now be to Dura-Line don't of get actually running. having a historical friction situation poor costs cancel such line supplier with

think the it's XXX% but one-time behind are behind here certainly us. that would we behind but that XX% – say case, to sit them and I'd to XX% the like of of be So I lion's those are costs I don't believe to I'd this, us, say share

Jeff Hammond

delta points the raises bigger of the get three And you then is the in bucket and buckets guidance businesses. Okay, – good. looks then on the in revenue. And Can I'll on back Thanks. queue. then FX like just what the it

Steve Macadam

to… want you Milt,

Milt Childress

so Yes, currency quarter. about X.X as about the that Steve noted and raised was so X.XX the we of about $X comments in to X.XX were before we X.X related in in to changes million guidance,

combination, end our a we the time the the end EDF the at continues currency it the that's of compared favorable quarter of at assuming was on currency initial the where resulted the At from plus first translation that of made year guidance. effect Jeff, to year. full-year our estimate throughout income the So of that of contract

of thoughts saw the first So and is we the year about and us heavy-duty our year balance four the part of for have result by both results Systems businesses Power confidence a that roughly and X.X our the that the trucking kind quarter encouraged then and of the full Sealing. X.X tightening of that we in

Steve Macadam

it, end those we we else where goes talking of I I back rates numbers the the I but first to year, at really quarter, think everybody to we of close that I it currency assume as today when March. currency without the entered we the It's we since knows quarter. as I not has post as because to end as should you the but The reiterate make or the was ended entered this, saying, the talked people that. sure We're – about rates want about know as strengthened end that the the and quarter Jeff. are quarter the say. of know dollar want in this just forecast know all we most that

Milt Childress

currency the and $X.XX translation which euro, today a a $X.XX the where at – at particularly was that's sitting at we're for year. of end biggest was which us, And it there here we’re is is the

Steve Macadam

Correct.

Milt Childress

plays very the as be as we'll So about out the other changes. explicit impact forward guidance going we talk from of versus year currency

Jeff Hammond

Okay, lot. thanks a

Operator

next line the And Sidoti comes Mondillo Company. of Joe your & of question from

open. is line Your

Joe Mondillo

guys. Hi, good morning

Steve Macadam

Good morning, Joe.

Joe Mondillo

you businesses that under $X.X which maybe are different takes ones ones organic the takes? the Can just related us segments on or are us improvement. guidance sort puts and you those give what throughout expectations. outperforming and puts you STEMCO the of really different your to throughout seems million the like obviously give Just to down touch Could brought and

Milt Childress

sealing STEMCO, if split, again, Technetics really. I evenly it's obviously as because It's of performing the Other backlog we're better mean than simple kind Garlock We story across between think and I Engineered well, Yes, you the board will the Products. and in and the of encouraged the the and by of story. making the on Fairbanks encouraged has SME overall. service progress always back in a all half parts we're parts very been way business. the We're by

because So it's thought slightly see we gave as we away, backlog and going only the essentially the because kind good, with darn pretty is today. the be to confidence we year parts slightly in close of where throughout because we we that year Fairbanks just STEMCO took have of to of that we're a full everything is but maybe parts of little service back and recover into a – we year. were lower better bit QX into going aftermarket that going step

from of all really and the the balance is sealing of So the strength the four make other up Engineered divisions that Products.

the it's characterize I Joe. way would it, think I

Steve Macadam

Yes, anything nicely strong side, Joe. were visibility pattern that in Garlock, earnings GGB, I in three Garlock is strong our really still that GGB Order ever backlog on have add, in us. which don’t a We don't have and CPI, really are and to really else the CPI. businesses the Technetics Group, helps strong up

in just the never of look quite higher. we it's of three at been order week has patterns flow Technetics our healthy in to all So And still backlog week, those. frankly,

by order look year I – again any the obviously macros I as the feel our So better own they and stop at – I if and still feel reading just at internal don't paper we patterns I stronger. I beginning than caveat see things the did changing – just that backlogs we because but the good,

what essentially us to led our increase that's what So we're guidance. which is at looking

Joe Mondillo

first big Sealing comp in already quarter year-over-year looking so disappointment the the obviously segment, which All we've covered. right, the at and was

where works to you your relative ago. sounds sort year Garlock then above on Going of to I'm year-over-year to I just How rest and quarter the think trying out then at to quarter STEMCO how a a were of my sense in adjusted effects get into in an half the like you relative you're basis, XX%, of just do ago, the second Technetics. itself second the to raising starts year stock second of little year. at lingering STEMCO maybe a second considering but the the segments by guidance comps and in look see comp to quarter weighs STEMCO and of it the the sort the compared

Milt Childress

bit second would to flat, for margins be the be quarter expect maybe standpoint just sales year. it down would relatively up to year-over-year a to but margins from a we for Yes, and Sealing flat last call – in I rounding EBITDA

Joe Mondillo

Okay.

in good given with pretty terms and Okay, positively. And Power like are trending really us it then guys our looking have that’s seems just always you of at things helpful. visibility a backlog Systems,

could The first – out, call watermark idea sort where the quarter the last of margins an maybe that trying margins should how year it for get just low and sounds the of like aftermarket are growth year for you to the revenue called fall I seeing of looking we're we year be do of sort and margin think it the to are out side some a you're be looking a but like we seems kind bit maybe growth ago, on – where Systems? improvement Power revenue comparable stressing at at we more, of so and what

Milt Childress

Steve and engine because I margins we will sales could that Marvin the margins on year-over-year think see – pressure our strong talked about. of some our

Steve Macadam

an And we EDF Marvin, And it’s shipped year. just how going rest EDF today. volume, seven I mean of the more lot are engines it's to primarily a to as of through many ship through going ship, we've the we're of example.

Marvin Riley

Yes, way so make our XX And way of six through should today. shipped at the through all end we year. the we’ve the

Steve Macadam

is So pressure putting to margins. That's more we margin, got at are. engines zero what's Joe where right on nine we shift, our EDF essentially

If you out equation, the look margins the take healthy. that of would

Milt Childress

much the think half half. last first And Systems this we from a year than standpoint essentially then Power earnings call. stronger an on expecting of so – I our we're said second But in

our be the as QX, QX, year QX, QX, expectations a progresses. ramp-up So from would

Joe Mondillo

less I you on And relative business? or the guys of side – the last margin on you the are the positive call, profitability Because thought more to Okay. are of…

Milt Childress

The Fairbanks.

Joe Mondillo

now of Yes, down Fairbanks call that margins year maybe the… of to was they're looking, ago. a said because I little last you be because I quarter conference are comparable sort last should you or the that thought saying And a

Steve Macadam

be. to place last Not the wholly comparable year,

Joe Mondillo

I CPI lastly, just Engineered Okay, And going Products curious then guess, segment. what's the on in with okay.

well, a at it's all I but sounds like contributor? pretty think is GGB's trending that

Steve Macadam

were a margins little below bit – bit little CPI a Yes, below just XX%. just

very So is very, well. CPI mean doing I

in are the white decent the solid I execution, but like would solid. market, terms things say Solid is hot of management market demand cost

to the has deferred Continued new and some should our back ramp-up market some And downturn and us. half that in execution the oil the XXXX, good. has products come provide of the was time incremental period a in maintenance lot gas that sales. We've is back been XXXX got in force through the of year

is has quite company. the executing I've frankly with CPI So since ever as well been it as

problems us innovation the So a some increased other we're work that business behind through there new we're things and are volume looking at point, things for this and and right. rock doing all are that solid it's product

of echo obviously our GGB have and I better So through didn't problems performed of same operational really to portion I the would a been in have about the the work business done then and all continuing always have it's we're and that teams phenomenal CPI but thing, mean of concerns job. we huge CPI the to it's GGB better GGB well, profitability execute I no we've

demand the said so think been would by the automotive strong where year. into it's affected improving year in expecting is very managing quite didn't smaller this been efforts industrial nicely, we not it's the so. make we're anyway, we grow we've Engineered fluctuations fine. all leverage is we're to portion that as good commercial Automotive that's but business this to as I are the flat, in always business Our shape. is it better us continue only be just for segment margins cost thing we year time a closely go growing it's a still as that's there volume but but been really Products the is

add. So anything to you want

Milt Childress

quarters. case might to the strong, that add second are Products, thing be part to bit We that be strongest. quarters probably of year wish a in year talked expect continues we first this quarter be we I general the have Last see half was to have if past. last Yes, strongest in to first year, the the strongest the did it segment, this was Engineered the the industrial And different about and first tend typically year. now. little the one in But to and we we’ll I this

I things first that's that would had we add and a good have quarter. all So really

be our strongest the first expect in that We segment. in quarter quarters same the quarter

Steve Macadam

seasonal a product. just is general That

Milt Childress

Yes.

Joe Mondillo

Okay, a lot thanks appreciated.

Operator

Your next Liam with comes Burke from of question line B. the Riley FBR.

Your line is open.

Liam Burke

the revenue how Yes, back would and how timing and of you both shapes translate backlog. could to healthy thank you a And year? next morning. get it Could no the the end touch good senses through power out a that growth to have could segment, you we year

Steve Macadam

will programs talked I because and top additional the we've growth some line the this all start But Liam engine expecting some are year Marvin in we revenues of completion percentage have that add healthy color. will to about. of

So it driven the by is sales. be new is engine to topline

second the and We expect year, aftermarket half to the have than a much of half first better parts services. with

the years. would So is by we're on to then growth bright you to that going be be can And total come discussed next bottom so on that for dollars the other might this will to that though encouraged that lot discussed of the that. that having the too. to of we And expect calls, to then, the with business there prior we've future engine a not some isn't color, growth driven the year partially the backlog same of any the challenge, blend is believe the And by programs want up translate get sales. we've step big the engine we revenues that pretty for add the in we from But earnings you from new several line. – of Marvin type sales growing that

Marvin Riley

strong we program system the the out average comment. and solid, rocky to Yes, and because quite top you've have future quite I programs mix get primarily some right aftermarket to would the little we're margin just of bolstered frankly, here of programs engine system, primarily the gotten going nicely is flush be out that backlog had driven we multi-year we'll and of that quite is those higher need until we've of echo by margins really bolstered zero margin Milt’s that the the sort engine but just remain Right, line of nicely. a should

pretty bright. So, think the I future is

Steve Macadam

engine service. in happen new then aftermarket to of seeding and revenues the in are and of will past Navy higher first program, margins our is we on revenues the system. curve especially we future couple sales what as we new would doing the new So, start the expect learning EDF engine result new our those and parts of get And, as engines the engine out obviously for

Liam Burke

new prepared zero margin. go obviously I statements, complete. back XX% So is EDF It's accordingly

then at look of mean XXXX. power backlog So still have it we probably by margin as into heavily we forward, a engines we I good new a as mix EDF systems the we've be negative will more got line because weighted is, offset towards filtering and through go

Milt Childress

year. less a should all goes plan impact We year. did to of this of according if year, a that We – next EDF significant this a had little have had lot bit

Liam Burke

have you to your And stepped up up the R&D investment cash. with freed

the product Sealing new at at pipeline product to been this in Garlock, announcement new going highlighted the Business release? new has how You product addition

Steve Macadam

that run that. our of because singles. diverse small we would just of lot bunch at challenge company done industrial or in one several two as this last like is Right. over Since, a highlight a we’ve it and We this we’ve and a a the is chosen highlighted start quarters wins, to game to kind

units we EPIX, in So, isolation is the launching exciting We've Even we the first aerospace, this are a got quarter very process new of the new Group. for business new highlighted other well Technetics that products really a bunch Garlock underway. the current. and products actually divisions We're of since as semicon Garlock. were in STEMCO the within has exciting number of gasket – other

of that good the the about, against up quite timeframe, our very the about investment a think we're with which little the Trident, field. takes frankly, takes. bit power I the course, And, bucking feel it pipeline don't and biggest made the OP has Trident is facilities new thing in long fact the in we’ve major very it it across board, longer excited is investments very just we because are So, These world. also sales have so I cycle one only a we're product of around been

field the and efficiency get the to that able very fuel see industry see in we'll more, or confident We then seen going near-term the will some to because the they in will the one benefits field, in are one it. we markets, get is be we've

a So, pretty said any without money our Company as went on we decade past, I'm development. and in we've through a is, half optimistic the spending

no this we growing developments effort that pipeline when a product basically And we've a pipeline of we ago had innovation until got and doing. we're now that's launched so, had we and nice really few years

Liam Burke

very Great thank much. you

Operator

of Your Bergner next Gabelli line Justin comes from & Company. from the question

open. is line Your

Justin Bergner

through. general just morning. your context or my about your lagged the Steve, not in how good first terms are your they price in Oh, are that question relates the ability you've to affecting I STEMCO of to other them and pressures. talked of pass-through lagged cost businesses know whether put price but they

Steve Macadam

challenge an it would I mean us. Yes. say, is for I ongoing

things and world better the the company are times, prices knows in moving to going price us and Our price performs give ability increases many go in reasons, time. are we rising And can for in margin commodity one capture it process does up. that because pass-through the commodity two environments over

markets we in the of and we product that of are steel ton The verticals a saw product and extraction the sell lot driving that strong, second can we agricultural. sell industry, means prices that that up is into. when right? into mining case, into a commercial commodity the All metals things the are that's So the sell we into and are

the a issue to for on of recover the it that. environment an steel rising concerned frame even commodity frame, we us. I to look very when period steel a recovering It's little our So, bit go believe side to performance honest not commodity of long about situation. at was it's you, through that. even really to with from am be have over not a we'll from anomaly timing We more but work not price, though pass you like EnPro’s commercial concerned cost if the we about actually time. I'm

Justin Bergner

the and mean sort weighed Okay, materials of raw as of you would sort – suggest much have how quarter? STEMCO of I price down outside

Milt Childress

at I don’t think all.

Justin Bergner

Okay, the was? just OE the and the into on year, headwind STEMCO said was think coming mix it aftermarket anticipated you I side then

Steve Macadam

part year are that, And like XXXX, promotion QX XXXX, of the do was not steel do, frequently but do so of didn't in, and every get do XXXX, XXXX fourth we repeat. fourth this we did not of we to because we not the then And we good. We STEMCO they quarter frequently comps We one had that first we year weaker. if now. We did. me quarter promotion. a it one into it one making this very a right, did as was, going for of a done let did opposite ago, quarter last did you the of Not in year, this a year one XXXX look little at year,

those and reluctant their affects volume talked snow QX. and of and roads, is and ice Aftermarket bring in is weather and when STEMCO We've but year-over-year weather. in and all but road, all bad so snow rain there stuff, salt that Fleets volume forth. not rain aftermarket so about still and this the because always the to in QX sand are equipment weak much salt off and before. on So,

volume just happens maintenance see we as in is do comes seasonally, right QX weather begin up warm QX typically and so. we cycle what pick and to So, the the aftermarket

way other basis So has on associated on effect in than this Right? would more with it percentage is a the is promotion it QX aftermarket pull the on So any issue quarter. that forward off. a kind And in the every industry the so promotions the QX. don't do we're it bit it of doing it unique works in not we year industry, throws again, and little

like, looks quarter So, figure hard it's into going the that exactly out always to right. what

mostly in were product as make which that in part of lines and But couple a that can. we competitive are is worried I brake of competitive and threat not about. products area. There are pull we am permanent that the more best lot pressure, a the suspension money aftermarket through, under that of product So reacting to the

Justin Bergner

and and long just The there anticipating sort taxes then were want million how tax then the the higher take higher anticipating. back change just benefits? of to sure the And on Okay. than $XXX make those credits. the then in realize million no of million to future I about there foreign than will $XX moving is that's I I What I you to your lastly, parts reduced there. it $XX refund, take and guess, give periods $XX million about understood liquidity. tax there use

Steve Macadam

being the use That’s, second question. those answer able the years. over let to anticipate next me We three

initially a the value to much going what's there happy XXXX, guidance been some somewhat So charge by forth. of reason And But which total go with you I’d some that's kind target. our then offline essentially at And all tax and and this now loss from in have the XXXX surprise too year, have very to how, we back just reduced carry caught use some changed the level that has the be were of us offset was give a high would moving you to details again, so XXXX. got in with the of of a to clarification. the therefore in which details and reform IRS we

IRS impact has know said the on on We I an don't the and clarification lobbying that. no. to some the have this much done point, from lobbying how Have do

in So is back, advantage primary the of jumping number reason our up. use the and able take now for to were we carry the back loss which on full go

We in of that's I our to tax pension referred we've tax in make had where can some to there, – some did up some So loss We that additional did which expected planning we some a do going we're in a increased script, other that us refund nutshell. sure shape to planning loss refund contribution fold carrybacks. that number into get gave bit. tax us planning XXXX our we helped good the that

Justin Bergner

not is best as it you Oh, [indiscernible] all the

Steve Macadam

the Most in of system the it is. planning margin. tax That is

Justin Bergner

Okay, thank you.

Operator

from of the Capital. KeyBanc comes Your Hammond Jeff next question from line

open. is line Your

Jeff Hammond

power. on follow-up Just to

clear little make peer. a close sure to and Just we're

the the EDF at So year comes give contribution in can that zero? you revenue from this us

Steve Macadam

Jeff. second one us Give

Justin Bergner

even margins that. while power think so And different of are should as you on a so looking I year-on-year couple head or that, ex we EDF flat systems through including of things margins, in the the

Milt Childress

including Yes, everything. it was

above a fraction same. I high Marvin that because said As and or said maybe about the of engine revenue the below are

EDF And expect so question flat. to revenues relatively we Then it's see… call revenues that about roughly are and $XX it with I'll just million about EDF

Jeff Hammond

in it XXXX? the was what And What’s incremental…

Marvin Riley

Yeah, and a have let that me handy, on hold second.

Jeff Hammond

follow can I Okay, offline. up

it last Just you’ve a years, one like a resized it, sounds of really bit well. CPI, performing number of challenge, it's a

So of fit, challenged, questions how I it back whether it there's when I fit. think think it was

So performing terms portfolio? the that you better, do now fit in about business the of is how Thanks. think that within

Steve Macadam

have do ask, It the that our it we're growth if in see we've Jeff, you Well, The think look does it I asking to little narrow which it's about once got to question. isolated we happen wasn't same. I a not long-term capital something better future our were mean be will businesses the the and are and rightful always the and exactly we then that long-term can have owner we I it the myself. different, can. we like to questions If find portfolio, and size to future today at we and a different time business. the The feel we a make create thing we need the grow nice fairly owners is advantage that if the markets is competitive if a performing really CPI extent is ability in can't real have with really based and whether that or a believe long-term on portfolio. rightful about they now a actually

and as things others the a not don't that's not business from that in to and precipitous that in I my happened control mind divest the well of to is not reasons that many share case So, drop. gas, decline mean not market – performing was oil barrel performing that I've $XX, time with a because I was it to of drop, with tried many, you for a when CPI. the and well drop is small times, because $XXX the It we

And well operating that so as the issues. as our combination of

a line, the you is to and value – trying and gas And there’s a the much, team and things proposition much that get our market on. are so, on when But issues restructuring oil the behind I that and think strategic and going easier leadership right. right operational has call business it’s lot growth now and EnPro the and efforts make that fact appreciate operationally us stabilized so in of vis-à-vis that so us, our product all portfolio, for work That fighting not new on to forth through is a improving on development can now.

we being years really Garlock but how pieces the So, how ago didn't that’s exactly X – Plastik four not the ago that's we Franken all Quincy to or of I'd ago, the only divested necessarily I don't of number divested that being I years say don’t that's have compressor that’s Rubber owner and know we I'm divested the to transparent division. of three my years unique the we rightful we think and sense and why about. it or that we so why maybe divested answer it about we that bits Technologies remember portfolio how why way our and on CPI, what why X a assets five, it's Under business or just of tenure that's make it’s was, or divested think

Jeff Hammond

guys. thanks Great,

Steve Macadam

Yep.

Operator

Your Company. of of Joe line Sidoti & next question the Mondillo comes from

open. is line Your

Joe Mondillo

Hi, guys.

up of receive that kind rate expect tax what later the questions. year, year? to a at one, of the the on Number you you Just follow refund tax this excluding looking for million two couple are $XXX

Milt Childress

best for the earnings I the normalized, the answer our adjusted as you it, table, release. look me look you is at at If way think think earnings our page last to I in which if Joe,

the obviously normalized We would global are in have. lower tax rate of rate. U.S., It that taxes the our using reflect provide XX% blend that – would also we're using rate, reflects Obviously state would a tax income. we reflect the

to per earnings and So our that's earnings adjusted determine share. using we're the adjusted rate that

Joe Mondillo

relative could then some of that And these highlighted? that items other that Is and downside you carrybacks of sort see fair? to

Milt Childress

confuse to the want of I Hold our a for versus purposes earnings sec. rate cash the taxes, don’t okay. cash effect tax

you’re question look we’re at going that to the understand I if – different correctly? your paying So taxes you cash answer. actual obviously Do into and taking account totally

Joe Mondillo

lower is XX%, be rate to much than that... is cash The so. think I tax going Yeah,

Milt Childress

at you certainly, cash be feel this like all you we’re going look if getting Well, year, yeah, the back. to that

reform. of the have is a the provision going with the tax in Now, tax very our because that provisional, higher the stats reasons discrete quarter-to-quarter is be a bit. obviously little – you know move to of around in can bit tax going items some bit year as our quite provisional It of that – high year. And our because obviously tax that a P&L to this one move early our connection year we carryback this was are especially provisions the and

for this provisions of year for more some of not to just going there little be companies is the going us, carryback, is year there some because for in transition. because bit noise many, this many and a noise the So to tax probably be but us

Joe Mondillo

to just that Okay. And can do EDF have go Where building sort you EDF? targets what positive last think you margin question then say margins regarding the of backlog takeout SME, all trends. sort are long-term your the of and post in

Steve Macadam

then engine you we margins I new if of segment. with kind I probably come on the Tight at after new the and is marine, the up you’re revenues exclude OP, to Okay, going right. the today, growth, least primarily, that obviously which is – product, if of EBITDA upper look configured And business the navy have think side so market impact at engine for is teens. which we’ve XX% got think XX% you

getting Now, if over excess to going have next engines few margins. But we can is side margins that on would then have probably And the that. commercial have early to think going comes the the going that well. a move we’re time additional that’s cash I the suspect we [indiscernible], up find negative over as expect commercial going to from the effect be we’re on we on growth we years to as

Milt Childress

after pull product… to As market start they

Steve Macadam

just volume – And increasing, as our volume our experience… we get more

Milt Childress

margin Yeah, yeah, absolute yeah dollars contribution. a not that’s obviously comment, of

making margin power but market the way, and be money along on will a the We the basis competitive. commercial is

usually demand. success years the So mix we’ll more after any with then what making the us we be engineers see, really in Marvin and money we'll more aftermarket be we have down on the basis, more three years more growth, for margins that see start four significant it that before to to the think

Steve Macadam

correct. That's

Joe Mondillo

that sure trying now to been run that we've And out far. make too right to balance don't we

Steve Macadam

Yeah.

Joe Mondillo

Okay, perfect. you. Thank

Steve Macadam

Yep.

Operator

line DDJ. question Ying Ashley Your from from next of comes the

is open. line Your

Ashley Ying

you. of questions All my Thank answered. already

Steve Macadam

Thanks.

Operator

today's call. O'Neal the Chris it Q&A closing over And turn of to that remarks. for concludes now I’ll portion

Chris O'Neal

Thank you, us you morning. all this Kelly, and joining for thank

have additional good you give If any please questions, me Have at call a XXX-XXX-XXXX. day. a

Operator

call. concludes this And conference today's

disconnect. now may You

EnPro Industries (NPO) 3 May 182018 Q1 Earnings call transcript