NPO - Earnings call transcript Q2 2018

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Operator

Good morning. My name is Marcella and I will be your conference operator today. At this time, I would like to welcome everyone to the EnPro Industries 2018 Second Quarter Results Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Instructions]. [Operator you. Thank Vice may Senior Development, Investor and Chris your President, conference. you begin Relations, O'Neal, Corporate

Chris O'Neal

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

periods presented XXXX, subsidiaries the GST, of period Process. XXXX, the and we Resolution is described and been XX, the segment in deconsolidation OldCo segments of the those in forma most pro periods call reporting consolidated and July three only and year-over-year you release. our finally, are from GST its regarding period. prior Technologies of comments reconsolidated results and These of GST collective pro reflect Garlock XX, find today's second, following: were the OldCo as earnings as forma We the after purposes forma them all EnPro of subsidiaries; for businesses. that XXXX, LLC months and non-GAAP until have prior will a small to Claim foreign believe pro Engineered of differences results and important in financial July consolidated investors Systems Products for of a Power references foreign in as relevant the reconsolidated OldCo, and the our results the for included Sealing between to their presentation prepared disclosures XX, material period stemming performance information had if Products for to the Enpro's for additional information illustrative urge and difference for and OldCo or Pro operations basis or been to to the period result reconsolidation the results GST throughout Most be GST, call completion ended of year as in XXXX Asbestos as on with contain subsidiaries. comparisons And forma illustrative financial Consolidated earnings third, carefully. Our July financial June will release months effective those during XXXX. six of conference first, we information; Sealing XX, to read disclosures OldCo, make periods reconsolidation of understanding

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

Steve Macadam

collectively drop pharma, last FX quarter, Garlock's GYLON items product gas. EBITDA was continued next-generation first, our servicing facilities Rubber XX% all of each of significant difficult growth flagship a continues had our our today. our group the the as booking seeing and turbine as We cover our Sealing generated Four we're and Chris that truck in these industrial In & which six with XX and the above metals in first backdrop, expectations challenges Garlock quarter, isolation Garlock our second more mining divisions three headline favorable sales our decision second highlighted noted full-year general version us quarter adjusted detail growth. shortly. oil primary did from the European to launches EVOLUTION challenged Systems. large core above the our of as momentum industrial, has Customer quarter, year-over-year Products, Profitability which and greater up plan. prior led softness business In what's I sales pipelines. brake in total, and which generated and volume semiconductor, second related which goal. in XX% & in in & gas our demand a and were joining numbers segment the food half that to of explain quarter These are the than morning warranty businesses. exit three products oil gas including & continued orders by to established you, items this well for on for well today. to by EVOLUTION thanks second sales Thank is businesses Power In to been including good high quarter market exceeding third, heavy-duty the story versus experience the food in year-over-year currency drag conditions Marvin, Slide were: the in is of our second, many sales already XXXX With which a our year-over-year perform weak our and we'll tell reserve; will the understand level generated full a which help launched markets will sales end don't behind market; in of gains first half GYLON year. gasket items conjunction with pharma profile including positive background financials you product fully we led Milt performance our product encapsulated anticipated the in new Also the acquisition Fab. for in led on

quarter year-over-year In coming continued in very deterioration performed Garlock in addition of these than the impact market Rubber Technetics strong. Fab very continues strong be The this industrial to gains also turbine leading the market. growth. and to to execute from the to innovation demand sales continues well Group and acquisition, gas excellent continued to profitability semiconductor other well be

We sales year-over-year had increases also profitability in and the strong and aerospace markets. nuclear

for conditions rest continue year. We expect demand the these of the favorable to

industrial in permanent the As been in business. growth calls, this the greatly our that review gas business we've the rest the which Technetics real last past in the gas partially turbine the the in of business. the structural of offset attractiveness second We Group. the a market, changes during and market on conditions challenge strong in diminish concluded to industrial and we response changes are discussed a Earlier months turbine quarter conducted comprehensive these that deteriorating year of margins has has XX this

turbine in complete result, Massachusetts, of expect we industrial As this to the our we a end the exit decided facility Oxford, and year. gas exit by to

of heavy-duty to STEMCO's results increased caused that sales the of both rates the In we quarter the double-digit Excluding profit friction to steel and declined impact. first price full our our both STEMCO driven which to discussed as of market commodity had Effective brake XXXX of most and but in we norms. half the XX suppliers failed understand friction increases, truck year, in our business by by past and quality a salary we're warranty of increase In implemented this expense turbine a problem over to second business the tariff-related taking little Technetics to this totaling improve that but results, a restructuring group significantly its factors sales including positions. run the response our action to the adjusted results on relates $X.X productivity several gas stepped to financial issues quarter number you higher weeks which year-over-year one time largely historical EBITDA factory, at serves ago, organic industrial of unusual margins saw leaders eliminated seasoned due to million, during the three one the fronts of from first plan and call, know XXXX costs prices in year-over-year. products in half material

costs. commodity in We to also increases are higher implemented now place price that address

focus half primary review In of taking to addition, the products issues will We facility. brake on our productivity we're group profitability. a we're friction in a believe improvement meaningful the addressing comprehensive in second actions lead with conducting

EBITDA quarter segment demand quarter and the margin year Products markets. in industrial double-digit EBITDA had sales adjusted solid XXXX. increasing second at markets and adjusted Engineered growth generated driven growth in rates primarily strong GGB recording and adjusted Europe automotive since highest EBITDA profitability general sales also strong in sales generated Our growth year-over-year year-over-year. CPI strong its double-digit another over in prior the and by with

and fundamental affecting a its ago and As issues review other you reset position. subsequent its that few years restructuring will recall, we comprehensive on CPI embarked structure competitive a of cost address

and prior taken actions the recently. CPI new future CPI's expanded margins margin we by including to this XX that adjusted with believe adjusted the has to for point, EBITDA GGB percentage of review, result positive a recovered we've some the At more exciting points. outlook As EBITDA products than comparable launched a with has

an Systems. to I'll over Marvin call Power the Now update on provide to turn

Marvin Riley

Thanks, good everyone. Steve, morning and

another across were sales and parts higher year. strong marine part the on marine last versus we sales our Engine the higher on and quarter, adjusted continue currency years. of businesses service We for prior impact in year. Systems EDF strong programs, couple great sales quarter all major generated project. EBITDA large during segment quarter ramping experienced of in momentum, a decline to some last the the strong programs the Systems Power previously, revenue aftermarket of over as progress As Power the the were Despite including serving the particularly similar one quarter and past revenue noted a has with up performance engine; segment relative make to to result of several as just the aftermarket

impact small Power of EDF year-over-year. the up exchange on restructuring was Systems XX% the EBITDA foreign charge the contract, in Excluding

earnings up calls, on two impact discussed second year the of the half of this earnings exclusive prior to be currency As charges. we the expect in of significantly

order military Our a In intake backlog continues at to marine parts marine, level. record is parts our be strong. currently

in improvements mix. Milt. second our a together productivity mix parts engine expect the call strong Systems profitable cost and I'll in with expectations underpin backlog Power This half And the control focus now, more performance our to year. the over for also balance continued engine favorable strong more for turn We on of

Milt Childress

Marvin. Thanks,

gas XX.X% to sales prior the the as the second year-over-year up cost seven explain margins. and goods Freight improvement the percentage and points Products, up actions, of particular, million Systems as the in have from account with IT current profit XX.X% percentage trucking and experienced quarter, restructuring sales $X.X EDF trailer reported and with were in Our unusual second segment, the food prior trucking Products This over In Power between million Products, resulting in of currency just Gross and a our the builds, tariff-related sales the X.X% up point industrial Products of expenses excluding acquisition, in business the mainly excludes and Steve while quarter and forma XXXX and gas of a there drivers quarter over over increases discussed. was balance at in the for quarter decline Sealing XX.X% inventory and pro growth swing XX.X% These Sealing seven down million the metals gross mining, second Engineered product allocation in and for were acquisition we due of and quarter Power last year. compared $X.X was XX.X% define market pharma, lowered nuclear adjusted margin sales to commodity the sales Products The year-over-year of sales the of heavy-duty the impact million year-over-year Sealing translation price of in write-down period. million, the up sold to by $XX.X & million Marvin mix to in related related & impact $X.X Systems. to Segment decline quarter which and in friction we warranty X.X% year of $XXX.X about attributable in XXXX. profit turbine in second EBITDA was Group, which Euro. four to were gross tractor the continued a of divestitures, organic In fluctuations increase semiconductor, year-over-year in XX.X% margin heavy-duty Systems. up of of factory X.X% Organic in majority issues Power items turbine four approximately that declines year-over-year and strong and year, expense to main and relative restructuring to respectively SG&A heavy-duty the strength cost aerospace, our decline. Products combination in Sealing productivity the down $X.X industrial

was quarter decrease and versus driven gas heavy-duty products. turbine profitability exchange continued of brake prior acquisitions, EBITDA divestitures, business softness trucking industrial the The the decline and in impact in foreign by year. XX.X% translation, adjusted year-over-year Excluding the second decreased the the in

discussed, from factory. organic cost Segment XX.X% period. sales Steve products quarter was warranty metals, brake resulted due was the items: prior Engineered reported challenge XXXX. segment. million, the charges, the increase In segment in tariff-related and This sales second profitability three unusual primarily adjusted XX.X% of were up Products productivity relatively increases strength As up in in broad-based in the our Products and year-over-year respectively friction over Engineered over and primarily low demand $XX.X EBITDA year in X.X% the commodity

period over to XX% the XX.X% of sales up primarily increased prior adjusted EBITDA margins prior were the million XX.X% increased Segment quarter quarter, the $XX.X compared volumes. exchange period. In quarter second the Excluding year adjusted due period. XX.X% to segment year the year impact in second Systems sales the segment the the in foreign prior were Power second over translation, EBITDA in in

due sales engine across Marvin As and the parts was the primarily aftermarket with increase noted, strength over segment the period. marine year increasing service prior

engines EDF and continued end had contract. we progress make XX on production second shipped and complete the less of we to units addition, quarter, In the eight EDF Through add the deliver.

all three-fourths our However incurred contract. approximately we've total complete of estimated cost on engines the work these of already to started and XX

engine the to anticipate continue program for last We EDF delivering the XXXX. in

on Systems the impact quarter our through these typically second U.S. negative program, the adjusted first Coast engines work to Patrol EBITDA the new down continued Tanker and $X.X the Since million, a of programs was we we incur had production Offshore million programs. higher of quarter. launch Additionally, Segment on the Guard Navy Cutter profits $X.X Power costs U.S. the in in over second of XXXX. Oiler

which small the the the of quarter the which the of and million of in period. EDF foreign adjusted Excluding quarter versus $X.X impact on a and negative related impact of restructuring completed to had was positive a quarter trucking $X.X heavy-duty second sales industrial business the in turbine $X.X XX% impact turbine of year a gas restructuring contracts of increased restructuring facility building Oxford, million in industrial second and Total prior restructuring the of a exchange Sealing was that million year million an $XX for XXXX, The charge exiting EBITDA incurred second during of in the the segment $X.X this May. in quarter, Massachusetts. were second gas costs of million included Products

impact our cash quarter Adjusted the release. tax quarter such charges, acquisition tables to all million. received the proceeds charges, tax adjust and share quarter earnings our result, XXXX. per a per attached costs, restructuring the of positive net as to $XX second shown rates of XX.X% of for the share the reserve down before building, normalized in a was $X.XX expenses the earnings for environmental for from sale the as were of As restructuring items compared earnings Adjusted impairment

tax The as the of second income quarter $XX.X outstanding in for for Products by to decrease items million ago. second year a and in $X.X a Systems same compared a corporate net and expense, period $XX.X quarter the Sealing costs, of the increase result XXXX year-over-year affecting Average decrease interest and discussed in diluted $X.X shares decrease adjusted is Power million offset other expense. were million million a $XXX,XXX previously and

As and disciplined include of we consistent you adjusted are and in we adjusted EBITDA very all know, calculation income. net what the in

Our the that in Therefore trucking operating in unusual or adjustments as do adjusted our quarter impact and costs. included not of the our in earnings. items of include EDF the earnings calculation adjustments on cost not unusual warranty one-time such the affected are second currency heavy-duty loss reserve

were these up invested quarter. we of previously paid in and In facilities, software. you uses double-digit $XX per adjusted capital announced our major the adjust $X.XX our dividend we would the over including rate the prior plant share Consistent XX quarter, our totaling two at If of earnings Slide items million. to with $X share million year. in summarizes a per a second dividend increase, be

the repurchased repurchases completion early shares the the under governing beginning allowed We our approximately been value also and authorization $XX With the program, XXX,XXX October. have by we final XXXX authorized Since in purchased under a we the million under total first XXXX, now the the We shares October have a in last permitted million. of remaining million share senior through substantially for program total for began portion of quarter for Repurchases July exhausted. the repurchase quarter repurchased approximately under XXX,XXX notes the million of of the completed its X.X second value program board indenture July. purchases current shares $XXX $XX had million. inclusive the $XX.X in the of of

first ACRP the tax related $XXX you by receiving taken year of of we we anticipated million trust indicated end the conjunction to loss the funding. XXXX. a we earnings call, have action benefits realize federal with our totaling approximately On As quarter refunds that in last know, created

quarter, During received and year. receive refund the estimate $XX will of in that second the of half the we tax million the second we the we remaining federal $XX million

foreign carryback reduce $XX addition future in XXXX ACRP credits credits quarter reduce approximately taxes. approximately $XX up offset reform million which expected and indicated we of The approximately foreign recoveries. from tax in also charge insurance related the tax first used will frees to call, receive $XX the that tax our to million related used will we XXXX periods. On balance In be million to in taxes of toll be

million cash balance seasonal refund by the the borrowings respectively end year of was through the half that million net additional facilitated $XX quarter. offset in capital overseas received build, our of more which Slide driven $XX consolidated facility anticipate future from reduction have the outlined repurchases, X At repayments leverage first on from year. tax $XX second pension largely recoveries first collect cash The million We reflects working reduction of this during XX the the We in last of interest the than the ratio were The share million second reform. at year in by in debt repatriation the cash periods. credit contribution, by the half of payments. We use federal of our tax half outflows $XXX and $XXX another $XX million year, funded an totaled repatriation in and dividends, will a million and our at $X June of $XXX and June of of million the cash borrowings down December million our resulted XX XX and $XXX and largely million, year. insurance in

the approximately year, the X.X the As insurance scheduled our adjusted would was been leverage approximately the second ratio you trailing of quarter of XX-months tax have refund forma million ratio EBITDA second federal quarter the asbestos-related the recovery at can of including see, $XX benefit times. for half second end and X.X the of end pro times $X leverage at the million our

Now turn call the Steve. I to back will

Steve Macadam

Thanks, Milt.

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

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

nature macro correlations of products indicators. component of market many the obscures often Additionally our with end

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

many momentum Given current Systems forecasts Power macro year. of continue economic the our markets, in backlog and through sales our we of the robust demand a positive believe will in end patterns

forma a between expect sale We to full-year million guidance a be between of impact the This year. and and EBITDA outlook end reduction which balance X% $XX $XXX the improved from represents the quarter and million. previous attributable our it X% the the in was first heavy-duty up the from over of shortfall to experienced stronger adjusted full-year is slightly million the quarter where of be pro trucking. sales dollar in and profitability $XXX for last range to the at This second year's reflects

Now we will lines for open questions. your

Operator

Instructions]. [Operator

Your first question Zaffino Oppenheimer. the comes Ian from line of from

is line open. Your

Ian Zaffino

give on very touch what's launch you kind and if Question last that thank going there, on heard color market, a of us Thanks. that work you months three just OPX, there? Hi, given since of overall your view months or summer partners, we discussions much. or the be several on about on would little could

Steve Macadam

Ian. that, Marvin cover Let

Marvin Riley

perspective in good we as would that progress partners for about get but be is we mean are with we've sites and OPX with positive to-date. you I we what and now excited yes. still progress more Right view major progressing faith as extremely feel that think of to granular OPX relates expected two to do a is to some with Okay, expected. it validation that give the consistent feel through us, conversations we we we details sort of need

Ian Zaffino

Okay.

here details around far more like as a partner, announcement an So as move launch a of it that? size when did maybe launch,

Marvin Riley

Yes.

what that to launch will you to hard size and of that an tell have right, you one be fairly but can the unit we'd operate and how we announcement -- so unit it's run for conditions the in it's like of unit field a in the of takes field. exactly take a sort we see give look when an considerable the we So deeper engineering running will operates narrow time, we have partner unit a to can opportunity amount the could once that

we're maybe initially individuals two the customer one then we're to with we broader units target the to, confidence sort that in acquisition. like two open two of So up speaking field, the performance that it and is to speaking once like that companies have we'd to of to we'd units

Operator

comes Your Brady the from SunTrust next of from line Charlie question Robinson.

Your line is open.

Patrick Wu

Good morning guys. This is actually for for taking Patrick Charlie. Wu standing Thanks in question. the

Just a is into guys STEMCO, the bit reserves I deeper wanted half about the of quarter. think warranty that supplier that saw to you previous to little delve the mentioned in issue allocated you

in the the did then call? three months that increases and to go Just earlier mentioned of half moving price the past this that cost see of fund didn't about price increases sort what how place that should we that forward, at so, material the you did over that the these talked point anticipate has the cost in you think of the resolves of able year and And inflation in when guys you reserves? of unexpectedly most got you into terms issues quarter guys be warranty guys transpired previous these that the or about, portion second STEMCO neutralize to you for

Steve Macadam

Two okay questions. Yes, Patrick. good

and million couple $X.X $X let exposure it’s incurred aware at First another for second the the for Of brake whole customers, we -- million. decided so we we and exactly This warranty what to the of We we're reserved in of have ahead reserve actually reserve were didn't friction the put in charge amount. charge, really of cover not was of of actually at million it quarter up. me quarter just end the first the we a is a with $X.X point, know the this much and because go dealing the take the limited at a all, that and quarter STEMCO. total

this exposure was already made another have is time behind to $X it's and we notifying that point. million we at unrelated customers. that's we're to we've of may feel So we this the the for remaining a we defined us, of in covered product product, like have field, a period The discovered, friction got some is product now which process that in that a

went increase So increases, trade June. dealing But in what million. so been fully our -- really of any that basically the Then customers and about because three STEMCO in for is pass-through the the other more tariff that's to $X board essentially finally, have price to was yesterday affecting STEMCO the -- And from the there pass-through set I aftermarket exactly with. Then price recovering to can't import bearings Monday. OE there in or that steel the on of we X. there across that's need in the tell for whole of tapered you types U.S. went understand across steel the the to there's we're again impact increase, and is roller were China products, get we're the went into first that in, OE prices the that products that July

as are as the they be that pricing. so went, on so one place -- list seen tapered Does in all feel specific like we're question? bearings essentially we of tariff covering that impacts the stand that's well going on targets roller steel we ones answer to that that's both where the we've now, that so So in price the your is increases and

Patrick Wu

does. it less or More Yes.

Steve Macadam

Okay.

Patrick Wu

a think take when you picture eventually just it, number just margins little I a where gear step to think a few want to stab bit take want for quarters segment the I Engineered to would have obviously Products, segment I a a well to at big there really you of on of a do this back, toward? then move just and switch Yes sort can now. solid been margins quarter of like quite -- done have

Milt Childress

that is work and a we the pretty shareholders with had Milt. this restructuring conditions this CPI aware Patrick, We're of. did year running right most are the the with that that at now at favorable good work we've heavy our well of rate

in most we're to a the if CPI from the happy As CPI. good was margins on number past GGBs in And out Steve as the years had couple as improvements significant the our that which clock you call, in over the now say the the same segment improvement back we've has are come the of years. mentioned margins in back case historically turn of neighborhood

additional the should confidently expansion gas is the margins then volume don't additional of markets I think I of CPI side could question a the we think the and and I that volume business. benefit and say accrue I of on So if know on largely see the margin function will to in oil

it's think this I at about So point. volumes all

Steve Macadam

I new and think over slowly be. they in that if on up. will products more time successful need that points, introductions those which working to Yes, hope new GGB is come we margin the because obviously we're are a those technologies of new are product from ramp Those couple upside will

Operator

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

open. line Your is

Joe Mondillo

top million to the warranty of that the trying on just gas I like terms in to Sealing up related think and Sealing that I then of correct your to then productivity as related the million $X second about to… EBITDA but of it of in so was I wanted change? pricing the added sounds segment, quarter guidance the understand on change to the Just pricing, if the I'm all and headwinds that also wrong, correctly I'm to numbers didn't turbine, the $X hear follow-up me and guidance, that

Milt Childress

decision we the again than no. restructuring in and force is But made that then the in the IGT were STEMCO, challenges of see and had lot the half the STEMCO business, did then so in year of the that pricing the of second we in million made headwinds, that QX. the we and the The momentum a in not head the net so. had a the net products. exit of exit Joe, but business, rest no, brake We looking of is to and in hit we was offsetting we had increase then in $X to $X anticipated decision we No, the so the bigger of in million it, the the QX kind at we certainly

Joe Mondillo

Okay.

way can quarter to to So these you headwinds quantify, you what -- in see that saw? headwind that all is second you the the did quantify a there was related

Milt Childress

then trucking and turbine I where to ended the of call were top the during the pluses and alone Well, directional quarter and and just some expectations was a swing up minuses roughly dealing we when on directionally which an our with gas it gave at so pretty not number, it's number, compared we big guidance on exact million earnings industrial look heavy-duty QX last you we in previous guess that's with if $X Joe. the that

Joe Mondillo

Okay.

Steve Macadam

of alone Joe, but you'll just for in just end $XX so well, XXXX the million. you was XXXX actually it, quite the over ask million, the and mean bought and on two we $XX from facility XXXX expectations was did of didn't us would our if this business, remember for actually one bought XX turbine at in business, I EBITDA could $XX second facility XXXX this little have XXXX spend it into it for years that million XXXX industrial gas and it been bought I more and it this ahead and

quickly cetera, felt plummeted. secret replace it gas renewable a sudden it's including basically because in big market very coal coal macro went globally our bunch has to business, from is really down, of very, this the they thought happened missed well coal customer would the all volume trend who as stopped continue we and just business, and everybody that and what to happened they were supply the in et GE converting China a to has to the stuff then I good right gas Alstom bought they and marketplace not So the so died, mean GE's of about

for but so most So the restructuring in building of is it cash. last of get couple after behind XXXX some $XX out costs be looking have and in bit QX at a in decided restructuring us hard of the sold we QX in a to months, will already in of math there and and we million it actually then and little tail

books, though it's because an So located. it get to fortunate for much we building even it's standpoint of economic restructuring -- on where the a the so from were was charge

hopeful company STEMCO, best well, of through we other the about productivity but some we've a And view through, done And We Group and leader, is seasoned of most got step he concerned the will has to price all all we're most the cover Technetics right. right six that will but things. new to he's year we've is it be, long that try our top half that second with a that experienced of a do certainly I running that. for have business our warranty that than pass-through, business that, years will the quite costs. is and way we hopefully will these done is won’t one possible the STEMCO in we're now change So drag issues so I'm last estimate those improve deployed, on Garlock think improve, seven in of earnings the could resources guy In of been really best got in our getting the have and shine for a get it what improve. costs time, not is he and shine it in doing guys, really on us or led the of the the and stepped is the over

all it’s it's So very them missteps that's all but we've good STEMCO centered products suspension it's view. well. a and the that good been issue historically a fundamental margin the not it's fixable, still in of all all seal, made so business, into Hubcaps still business, it a core almost the were a some And healthy STEMCO business we have products, doing brake Bearings, products in my the group,

a to So we have expect contained situation all half. have through we of had think things first we and these second I certainly the in than half it's stronger a

Joe Mondillo

great. Okay,

a maybe like the is sort and would to of that these we sounds STEMCO, but even much would and questions, XXXX will the say? behind the it at related $X by them, headwind maybe third how million couple enter in productivity largely fourth of second be you the productivity you say in of follow-up maybe issues time Just quarter the lingers in

Milt Childress

we million that, getting all, driven. in covered think and that's what's cited kind chunk warranty number we’re that Well to happening largely generally first top I $X.X of the productivity that beyond on friction you earlier metals biggest Steve of costs of have discussed the can the we got got, tariff-related address so the the we I million that that so unusual $X with of that's roughly start I facility,

can't precise Joe. give you there, I really a breakdown So

Joe Mondillo

should outperforming, to looking Okay. environment truck the doing kind is unfortunate thinking And because a good to really STEMCO like it’s what just and this hindsight now we do hindsight, good, of in at this well, economy the prevent miles sort been in STEMCO? can that really be be actually right for are really environment of I've thing seems

Milt Childress

well. now Our been volumes mix we steady good relative on side been aftermarket growth been has solid has because growth affected lot as of profits and the the aftermarket the have OE although the by to in and

so quick said dealing we're and it, we've question we’re not taken we're So it we're some volume of industry, share, that a really as yes with, pretty action. Steve not is in incidents participating isolated the well-positioned losing

Joe Mondillo

quarterly gas What on Okay. basis? All a of on the exiting is savings right. the turbines

Steve Macadam

we've plus minus. lost or roughly year-to-date, we've year-to-date bucks X we Well lost million

Milt Childress

the -- it varies new bit a little and bit Yes, question, it’s a on little year last

Steve Macadam

Yes.

Milt Childress

dig have slowing if when the to the that a in pretty do answer second volumes it. quarter to to spending we all details, so are the significant the you in your time and quarter but saw look it Because compared year question it because we're year starting we've drop we had if XXXX, on -- just still a seen then, question you to quarter last go the QX, in after acceleration that continued you got at are of we to second happy that’s this a IGT, half in quarter since But together in to we're sense details, have We we of things down. us to it's the was of first second the worsen pretty back is if quarter good the want of specific an what the soft XXXX. really depends almost decline, to for

want look cited So full-year, to but. I at one a of it's couple dollars the million directionally, is good as if Steve think you

Steve Macadam

would well, second have Joe, worse than yes. half been the that, that's But going in

Joe Mondillo

Understand.

on about and that booked that you hoping of sort to still margin but just to be on be year year? tell sort will outlook a helpful know ago, provide margins very EDF can I Power of think is that half revenue lumpy the jump I half to the the any full-year would as the ask do for in you to back you this tough and one us last Systems, for comparable us of queue, could could Just and that wanted enter get, the top I in in well second was thoughts much the for first thought was as revenue and update you your earlier we it’s that, wondering, then I XXXX on just how on of year of

Steve Macadam

We probably the three probably when we four going shipped the on ship more week Joe, and we've we'll what far X the will mentioned so so three-fourths we’re percent -- probably roughly this to as you the two Milt? of would year. -- of half, contract. EDF of know we one the first going of be we a in the I ship the Yes the got completion XX% By end close is basis because remarks by end next in probably through will or Marvin, probably the I out we that year, say three-fourths more don't to prepared are year way the ship guess

Marvin Riley

one this more after year the week. Four next

Steve Macadam

and works, point, yes process so somewhere started so we shop. this call it Milt be -- would all the shipped in we've be and way production as at essentially they're them will one, of the started would the After through, that XX that the all said,

to last as not significant year, dollar huge if the a But we're Milt the a currency period to just the currency want as the we balance of to that's sure whatever have it's obviously because out for was right a do make And as published that we The So in EDF to I now it complicated guys number, little loss in the we’re of but is it is, why thing, and thing that we're operations. more language and through the guidance forward. of seven from clarify, a only big mentioned weakening. guidance some -- will to on our that quarter this it taking a prospective that had we that quarter. we year because everybody changing million it his that the we this knows adjust other take they impact bucks I in whatever of or swing on what mark our seeing because you had was currency I plus clarify guidance second we as is EDF the at Euro the knows obviously just moving does, now if you this by the Euro the not last period does of say, this kind that because closer position, morning, we it is basis, book is, saw position make slowly is chunk a gain wanted foreign end year affects the simply of rack loss have know difference in projection but notes of €XXX you our and a a fact a year going it’s end I big over to and during is the €XXX the want it's through everybody the of bit deal don't we remarks, closer had of market on to most also one think pipe the getting to that because course currency that of then, a I went as what

address wanted just of clarification I rest questions. now So Milt can make to that the your

Milt Childress

I revenues second were EDF the had about think related. asked quarter you in

Joe Mondillo

half actually? For the first

Milt Childress

$XX half first roughly, the million. roughly For it’s

Joe Mondillo

Okay.

the at that's million that the about think margin back I so XX% million looking at about to this the you to costs look looking with of $XX earlier and Okay $XX we're of were half year at you way of that? your is year in said the about revenue, way of revenue

Milt Childress

Definitely two here. things looking is this

So to heavy think the half according maybe estimate the might of you’re the to best in $XX second year, I little and now of $XX more year, million a half million. of right be second so neighborhood our the

Joe Mondillo

Okay.

Milt Childress

In half the of year. the second

Joe Mondillo

I outlook XXXX think then the the margin better back behind largely in early still year and on And XXXX because just in gets and EDF that overall sort is how the little of of thoughts things you should half of do any margin a you environment maybe say look? but

Milt Childress

should And half Yes. of second the in XXXX. it should have mix profitability will in then the we even improve marginally and a year, yes engine better that help

Steve Macadam

of to important half note sitting currently of this back I aftermarket it's that backlog add the with color to just business, business a record sort year today, right. the Power on Systems to is that, a the Yes, little think

a backlog the very cover in the of of of very, position. the year forecast, in backlog, year in so the enough coverage the the So we terms have half for already the to strong we're second balance

expect back So to would of much be the I the year half better.

Operator

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

open. is line Your

Brad Thomas

the your assess two at then is it have my allocation, here color at you for M&A on return pay have debt you’re capital pay a there Thanks. of of bit you to Hey guys, now in anything and the little answered Most down this to first what some is through down sounds go table more Jeff. like times? and Brad been appetite filling just to one roughly but be debt buybacks may all can when pipeline, when

Steve Macadam

pipeline Let notes maximum with script. under about and of the talk we're the share can on of thinking senior back and we as mentioned Yes, first the start question me about indenture that. the our and repurchase then permitted we’re agreements running I up into M&A how

with we any So existing repurchases want will we it's time of decision further basket is a what senior with such that proceed There make unlikely builder share shares our at a be that our we that any until notes. the to amounts will income pretty if basket near-term. the on the based rebuild time do ability likely under repurchase to you're over that generate will but small, looking we builder

share situation the that's repurchases. with our So

small anticipate pretty of of down the half fee second in yes we We be so We second by half will flow refund the coming extra are So that strong strong of the the generator do this year for than the second be amount be cash will asset much cash a typically the in year. a the we collections, end at got good the we think first the year. of we generating point additional year are the in debt. cash paying of year, expect yields, half us will in half the

considerable the targeting question are time are of at on growth. pipeline, some opportunities the that quarter for M&A we -- we're working looking past spent So over our identified in has things, of markets the a number amount lot the we of of future we've of that a team that at

year price the to-date, maintaining We’re but discipline, haven't you down our pulled so this couple anything of know. we've we on as road some pretty considerations of and it's gone given deals the trigger far on other a --

looking some existing either in business and market serve and or So debt with of and to markets tuck-in we and we're actual adjacency that continue at we're and that the we're have larger kind that our moves businesses attractive filter look is characteristics. are for so strategically looking fit interested business

Operator

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

open. line Your is

Justin Bergner

that’s of on flow the half, got I ask now, call stock year-end, more million of you activities your of paid million free little there of to $XX million first if it sort cash about first debt and what's so free normally half dividends, to repurchased of are cash Is in net flat. by half refund $XX to tax other the first $XX sort from $XX non-operating year cash a where about be million flow million went sort front, million of first helpful? you down outside bit of flow versus as factors non-operating sort in and can and the and be $XX end be the of of so wanted seems drag of the so the in tax that sort would these any the not refunds where projection sort $XX would

Milt Childress

question to We the do previously. Justin back

pretty fairly build work we then Our the the working capital the year, see the that half see it’s typically the half half as the predictable. combination is in of of in fairly of We talked first second two seasonal, it of nicely we've up about and this down are year in revenues so year we've a had on year. is growth things typically of first a but X% to year Systems Power what's sales the even still happening of we’re the our revenue organic Systems of X% up our there this we're outside and the Power expecting good to top and with for expecting be recognition year that today, that

first the have the addition second so. additional quarter quarter million is second quarter, that capital $XX or of support some to working we there's and growth, So in historically working build has in neighborhood needed that been capital

then And so down our working that operations. of we in the would generated addition cash to from whatever and we of end by expect year the some to build come capital

Justin Bergner

on Okay, And that's of free you it’s typically something guided flow to? helpful. conversion, sort know not then comments any cash I

Milt Childress

I’m percentage internally percentage as of your we’re and a and we’re of to how depends changes sure that is less Yes, targeting of what conversion we well it about definition what varies is. our working that's to what we do generate But something basis, think EBITDA, EBITDA definition not but internally, EBITDA in cash take free business capital capital XX% XX%. exactly spending, is is flow it what targeting like by on that

mentioned in first why year of I the was flat the the one so quarter half. year cash a half saying in made contribution That say. in cash reasons second of use you're $XX of I should the of that and million is in performance did the --or first the of first have the half we the Now the outflows in one comments earlier pension the

Justin Bergner

quarter Okay. in second Was or the the quarter? first that

Milt Childress

second million to was $X in mostly I had in quarter. That $X the a in we first bit, the little had million the quarter think we

Justin Bergner

Okay. conversion by again, free bit sorry you And a could that just just quickly, of ran hear? I you cash definition little I your think again, flow state couldn’t

Milt Childress

return after changes and EBITDA after of do percentage we in working what capital Essentially capital. spending

Justin Bergner

including effects? Okay, tax

Milt Childress

no. definition In that

Justin Bergner

Okay.

Milt Childress

cash rates you on refunds I’m happy looking are at more cash than our the tax given and so the differences, different which to tax rate our significantly spend statutory forth. they with taxes time underlying flows including vary the

Justin Bergner

two Okay, helpful was that's it's just will before? first is few there. I view half quickly, quick sort there, in second more of second than that gears EBITDA switch it of seems guidance it same questions in any guidance half the good, to the like or the lower given years less your quarter, was

Milt Childress

as more considered take less said the be the total, what's with businesses. other picture trucking would it or -- you Yes, would it in be our slightly heavy-duty happened if if in how Steve you same, improved

Justin Bergner

truck to of the from million the increased there waterfall sales a sort is the $X to X% from on to guidance bridge really versus offset the increased heavy-duty benefit there X%, the then referred X% you of being in to guide by sales that And to earlier that's number $X Okay. sort the slight of sort benefit hit X% side? the amidst million

Milt Childress

I your following I’m sure question. am not

Justin Bergner

that to and EBITDA forecasting the of hit growth outlook a second quarter, new that you’re your of to from we’re would million million increased truck really sort receipt so I mean guide $X in now earlier heavy-duty but part you the X% sales the EBITDA normally then X% guide was of inform sales truck sales also that sort mentioned then hit there heavy-duty $X offsetting increased really guidance? to to your

Milt Childress

having I average -- driven which don’t a the than in there lot good that a Products, to does revenues of the strong aftermarket business. other this year which aftermarket second in heavy-duty and is strong same mean but Yes, Sealing volumes in semiconductor, some on half carry we’re one as a we're pretty margins our too. of semiconductor revenue that engine well. lower other have by trucking semiconductor reasons In having new expecting sales there is are performance Power the pretty our in factors the performance the Systems we’re being are average OE seeing margins increase are we’re the in

with plan but do part So of there I is use to a nexus think agree it. comment, your of that’s I

Operator

Instructions]. [Operator

from America. from line of Matthew Your the next Bank question of comes Fields

open. Your line is

Matthew Fields

everyone. Hey

because just a sort which so bond I'm how your to talking you’re of callable sure about much if and currently limited is aware were trading September but steps lot they're on you now. as down not XXth well XXX.X where indenture on above their Just they're call buybacks you're

could today flexibility I a and So under fee mean weeks with you that yourself your from XX-day more two basket. you're bonds giving announce those refinancing notice

thought your terming what's on debt? just out So refinancing that

Steve Macadam

options. Yes, we're considering all those

Operator

from line of comes the [ph] Management. question Andy Reamer from next Your [indiscernible]

Your line is open.

Unidentified Analyst

just this questions that And million then contributions but forward? Couple one hate became should pension. that How on no from again, on of on to $XX going contribution harp me, seeing does now the those quarter more what we the behind what some context additional then plan I look point anticipate there, comments? specifically right after could STEMCO at issues guess, I a the was issues, little there and if give you. that you productivity are it your and during evident issues that Thank

Milt Childress

and the the way. shape move from talk then there pension, great Okay, The pension we'll -- on we're by I'll take to about in STEMCO.

market at so funded, that’s to this contributions Certainly in any lot the the have any not funds us, that a risk invested to not pension don't down so nearly road of we're crazy matching a need don’t story how but and pretty make are different the near-term, the we we're future fully on funded are fully up point. we a pension. the maybe goes We anticipate

I will talk that’s it pension have will a this in It one remarks. my mention obligation. story. -- a So good but be the about quarter QX of will It I event. portion slides significant the we in retiree the it a a prepared footnote on was annuitized during to didn’t of referred

So quarter. but positive; a we're have really under the pension. about our a non-cash basically of third It you'll the see charge it's in the it retiree non-operating disclosure will in more annuitizing XX% obligations

the also increase for And might continues if the so we're to NPV the to move lower a years. as fees case positive just dollars we changes participant I -- have few that -- consider we was pension a a By annuitize has been de-risking in future a that plan. We because headcount participants over from the as past the happen PBGC it way, cite based can and be did plan. the opposed per the XX% insulates the to us in dollars on

Steve Macadam

selling demand and put Georgia that friction high premium to business able in last and to the the our and which the, existing seven years supplier. number the friction production be want trucking United friction products we facilities better or higher plan then of a say want Brazilian on the then, friction end going partner ago, products plan a I to heavy-duty longer This years Rome, the forth. in is your that And so our question a that on or STEMCO, also productivity, entered how is we with to of And that one we so seven run sorry, did, in years back, which friction -- within gosh, now. line was right, Andy, bring business win a States six -- into

have to -- and friction that we different designed actually it approach; a and much quality, was a better down line went we et we engineering team installed better producing So our path thought cetera. throughput, that approach we better obviously a friction,

we normal those And issues. struggled that take we but technical well, we was associated so configuration. new the from started of first risk and that won't for it overcome would we kind -- and were I with beginning, struggled of the last production startup the was summer it. months to equipment And with six the like thought continue with issues that we struggle details they it technical it out We some have you and through

So away was that of exposure that's a that of the we cost from productivity but warranty that warranty obviously part We whereas issue supplier the field. big supplier that need is this a also a incurring, yet that we have, have the is output we're from ago, that we're stuff from now our we've warranty to. years Brazil all already good Obviously of we're in just the that moved couple have this facility. incurring any not we got warranty supplier referring

brake So within group. we're that's where the struggling products

Unidentified Analyst

Okay.

I then a the quick Just being talked relatively contained. problem that. mean you follow-up on about

So equipment they're improve What's you're mean, I done to the what the struggle, -- be you be switch where to struggling something the to all why why why specifically [indiscernible]? needs need continue talking and to out, is still Is production? it there? of faulty

Steve Macadam

it's Well, need equipment -- it's think swap I best think think that put would don’t a procured, technical things out, that. would I in we're all obviously steps and be It's the debottlenecked, I its we to don’t problem, we we there's I do to some the but just probably out run decoupled be in that and to working place it. in of process needs need

technical We are -- but an technical progress ongoing a making it's it's some problem.

-- it still lot issues if of spending just negotiating this affected. where to I have that Marvin hopes that be unique and the team go all is times with will and We the of a forth. to relatively that what out sure that's be the is right But we part have of have supplied startup it a big we're still of sort it would it's trying persistently a a So friction. lot make believe looking; caused; produce way have and suppliers help the with resources we equipment been so

that, would Marvin? Do engineering it's problem. want describe that's some anything how So and it I you to technical really

Marvin Riley

add Yes. to we meet have that near-term that is have cost we'll customer The do the that thing drag I only the in would is demand.

to So what's come speed on line, right. and the meet we to have as we we engaged demand customer up another required supplier are buying

the improve cost a So redundancy demand and line attempt relative the you there customer meet as to at time. we same little have to

get obviously that come we of out line as the down. productivity So better will

So near-term. that's in experiencing we're the what here

Operator

are this no to There time. at the I the presenters. turn questions over back call

Chris O'Neal

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

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

Operator

call. conference today's concludes This

You disconnect. may now

EnPro Industries (NPO) 2 Aug 182018 Q2 Earnings call transcript