NPO - Earnings call transcript Q4 2018

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Operator

Greetings. Welcome to EnPro Industries 2018 Fourth Quarter and Year-end Results Conference Call. [Operator Instructions]. Please note, this conference is being recorded. I will now turn the conference over to our host, Mr. President, Development Vice Investor Senior O'Neal, Strategy, and Corporate Relations. Chris you. Thank

begin. You may

William O'Neal

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

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

XXXX. will compare results year for XXXX year to the pro full results throughout clarity, consolidated call, the full For this forma we for

Day Investor want I Parker that Finally, to be York March an announce XX, will New at the on hosting hotel. Wednesday, we

the During the will believe for operating we who our and EnPro divisions, provide informative be enhancing of strategy our of day will will anyone a and We overview the share that understand company. each The Steve. presentation for morning in turn comprehensive the meeting, be we value call I and better. will Industries.com. to now at And hope will the our over business start our strategy X:XX you us. wants join EnPro webcast also at the and to of I'll

Stephen Macadam

Chris. us morning, today. Good joining and thanks for everyone, Thanks,

our Before we results. then and discussion and additional our for quarter Milt jump all, a accomplishments. I'll like had year a Marvin the on great reflecting our comments over year back as on time XXXX, today many fourth of to stepping off in EnPro I'd our to to and All by results. performance turn in quarter, kick on full with call reflect I the

sales exception business our problem businesses of challenges the X specific and of namely gas in turbine and With areas and our growth. Products, earnings strong the very isolated exit brake products our Sealing posted group, in

products, all and including and introduced marine by total customer X points sales new and the versus CPI, aerospace, pharma, basis margins heavy-duty and mining, and year full diligent emissions X.X% XX%, result trailer suite approximately aftermarket food as and The over and in conditions, our during semiconductor, year. market In of Excluding launching metals control. those EBITDA and new units, and EBITDA programs success adjusted business engines a oil several Products, strongly new new winning favorable respectively, XXX refining products. improved parts year. service guard products grew tractor processing, a XXXX performed XX% and Engineered last grew sales builds, and gas of and We cost

We development delivered negative and joint the being operational production the continued of technologies Power In included the OP the SG&A cost achieved This the related of R&D of million of segment. venture record through Trident in expense and a the million coatings $X.X $XX.X to our capacity EDF EDF business Systems, for also improvements engine. and program, development $X.X impact our EBITDA. program to due million despite GGB in engines the new for in constrained advanced our of

robust XXXX. the in business a In of positioned we well. another believe majority very at Products, of of end for is the Given strong performed Power Sealing the results backlog year, year very, Systems vast

As semiconductor, and issues semiconductor, and I a food that a and describe we those new win and us, favorable steady continue Marvin a The of growth, and for of and healthy nearly the will food and and heavy-duty sales approximately specific we strong in tailwinds challenges Products Sealing Demand markets aerospace, at benefited which metals EBITDA rest market posed XX%. and had from were drove pharma, in mining, that minute. XX% mentioned, Milt margins very of to and couple pharma. processing business, refining represents of OE rate truck aerospace programs in held revenue,

corner from the the we Products our year. and anticipate While we beginning are the Group, challenges that business unit Brake throughout to recover in will turn improve

our discuss call comments Now to on performance. Marvin to over some additional the I'll turn

Marvin Riley

Steve, everyone. and Thanks, good morning,

by to we have expand of EnPro action operating turnaround the As take the when our team several built Engineered necessary of Products demonstrated to our capability over has past the years, the segments. margins

quarter, identify, a the in during as expand gas reduce issues Products Brake half highlighting I in of that operating to quarter, Group. As industrial challenges the the QX, fully complete; is result second in this year again saw direct the Sealing segment the second in in the we system exited And as we in operational we time. of taking addressed Products action the year the ability swift turbine market is margins. discussed isolate flexible our Last now robust to and our we're cost we which action and over resolve we have STEMCO's and developed and began

previously prospects in had turbine of a Typically, disruption in changed competitive with in and large asset a clear end the business exiting we results have fundamentally market business due that that discussed our and to our industrial It trends the demands. circumstances exited market. We that became gas similar impairments expenses. in business thorough OEM after landscape evaluation

STEMCO. project that thank restructuring. through the and we our has Brake net impact of a decisions recently to program most the our them one at Products President's make-versus-buy of seasoned Beginning business a difficult in Drum effort, were outcome a to pricing our STEMCO, our of the Since review and smaller have position leaders asked to detailed upgrades detailed unit P&L support a the we we work team, our been and we has July, business units. the gain of However, that customer, our minimize to and partnership positive from launched publicly exit generate congratulate put announced This role improvement I Brake diligent team situation. working collaboratively then, able would talent At comprehensive actually within project Group. cash the to our take competitive analysis campaign a Manufacturing. like led to improve on to Friction place should-cost management with significantly leadership a included into initiatives, largest the led on in to

should-cost competitive work product than cheaper and is it to Our source it manufacture analysis this demonstrated our is that in-house. to sourcing

have Friction cost it chain take of this we Our exit maturity supply while anticipate efficiency. reach as to reliable newly for may swift, months we sources and few and that from product, Manufacturing a our established

margin XX% We products expansion the group. with STEMCO roughly our campaign complete are in brake

Power to segment. the Now Systems shifting

timeline addition and engines parts, value our demand our opportunity to look the Milt. provided challenges a and our to however, We're operating robust we to meet focus during across new for businesses. system that expanding launch call our turn constrained operating we the and engine. demand capacity Trident year are production adjusting as test Trident Trident pace with engines we how parts. OP As Overall, take our investment These upcoming and engines believe the improvements in and our result above and margins military, Day engines we in our previously order further actions completion of We the not must actions over parts increase of prioritizing we of we market discussion the mentioned the business are which taken production in in of the bring leverage to evidence field significant perception aftermarket change improvement Investor now company OP. to at the the unique marine currently progresses. the and discussing in have forward adjust our cost customer the marine does for March. to in and I'll accelerated to of our the currently capabilities engine; the And on our system marine address in the about lead the This for EDF OP by product drive will are installation

Milton Childress

Marvin. Thanks,

year-over-year products Demand the engines, marine builds, mining and parts food We continue although markets. were to favorable and fourth during experience of services strong Products automotive, many by sealing, and pharma, and turbine conditions also U.S. construction quarter about from in our in exit the markets. metals oil trailer tractor in Engineered the aerospace, in was industrial in and year throughout growth company's core strong and heavy-duty and earlier the gas quarter, and and muted year, the the results, gas pipeline prior market nuclear softness

aftermarket mentioned to Systems during achieved throughout Power sales, year, up as in sales as driven And marine the prior second the we a engine fourth weighted the translation, total, heavily levels record for the organic the primarily acquisitions, were of Systems military, by Power of revenue. strong service currency over and expected excluding to As increased divestitures aftermarket which Power period, year. service of and X% the be Systems. as and impact In we we revenue and half well year define parts XX% engine parts growth approximately EnPro, quarter,

trucks for Group. For EBITDA quarter, Systems, period were fourth XX.X% in year-over-year same the up due the the million year, sales compared up about $XX.X was the Consolidated adjusted Products the in previously our challenges primarily in heavy-duty Power in year, our results full organic to offset strength noted by to prior X%. Brake

For year, versus $XXX.X EBITDA pro million, forma up the was XXXX. adjusted X.X% full

guidance on compared quarter range the impact X million drivers fourth Excluding the provided year despite to We call X.X%, in profit fourth to EBITDA negative of year. about quarter year on impact the within currency margin There was and the year for the earnings decline. quarter our X of foreign in gross contract, year-over-year adjusted finished down QX prior in of Gross last an the compared were fourth EDF up the respectively, the margin exchange the periods. percentage full and fourth however, was primary XX.X% the approximate XX%, $X.X quarter. points

and challenges margins to Marvin were Sealing our affected in business, as First Brake Products our related foremost, by Steve Products has the and discussed.

X.X% by to year-over-year moving driven to the XXXX goods mostly At cycles. the of past the in we markets. estimate improved down the a products American items last is affected by resulted general and weakness sold. to this down by translation. year. potentially Segment-adjusted and these expenses, markets challenges $XX.X was the compared automotive over primarily which timing and our increase explain only of quality to affected friction to restructuring business warranty tractor degree, X.X% offset gas markets. impact reduced in certain were friction we cost of in which in a costs, specific general primarily points and of the were third year-over-year the and the in X.X year oil which by led European products material for due compared heavy-duty in decline. of brake degree, quarter, in material an mining driven Second, builds our aforementioned despite The softness which up allocation wind had reserved was excluding costs from warranty the lesser of that supplier. the excludes and market. Products revised by of increase all X encouraged to to and friction addressed customers sales were the that strength driven end period, that used an our We food prior of The issues exchange large a decrease In related lesser cover prior aerospace, was continued and margins style trailer acquisition by EBITDA, year partially the portion sourced product pertain were markets. million, core problems cost foreign metals STEMCO. IT single the pharma, and the period, in we offset impact industrial overall to being shipments application, Engineered fourth to costs. XX.X% in industrial for adequately an margin quarter, maintenance in a percentage Sealing production, In friction A communicated quality reserve. industrial of to Sales in one The believe friction quarter, North strong from affected nuclear total Strength niche in down was and the X by the of percentage many Products we Sales the point we segment of estimates down segment, the of sales SG&A performance

impact due quarter by the increased period. exchange quarter the fourth were year the in Segment-adjusted translation, of EBITDA XX.X% segment-adjusted Excluding margins to in the partially volumes. XX.X% costs, decreased increased manufacturing prior X.X% foreign material to the over fourth prior compared primarily in sales offset and year, EBITDA raw

due Systems as for prior quarter, margins For the Results up In ship parts up related we of service XX.X%, program. the production full production Power sales was in end were XX by year, EDF from sales fourth million, the engines EBITDA quarter, XX.X% expect over At and increase XXXX. sales the XXXX. in aftermarket period. of the The XX.X% levels to were the of of shipped to adjusted $XX.X record quarter the revenue. and included engine increased XX as end remaining the the to million had well $X.X engines year

the of the delivered, value. the of mostly EDF had approximately quarter, networking expect the contract spare of two billings, XXXX. $XX had at timing end which XX% to Due million. of EDF engines is complete program investment we and individual capital Production of in year after to engines the of XX we at the a are total end XX% ship approximately billed was the engines approximately Additionally, in we

in capital complete convert we $X.X the cash the deliver to for to Results as include XXXX EBITDA engines. $XX.X expect this networking program. of production EDF remaining and fourth Systems was much the loss quarter of program the a Power over Segment-adjusted million in quarter million, XX% We XXXX. of up for

decrease the $XXX,XXX of quarter diluted segment compared million for a in increase a in in the The diluted million XX.X% XXXX million XX.X ago. a quarter a of Average in quarter share up had Adjusted by decrease quarter was shares a increase million impact corporate period impact $X.X a increase EDF to negative the for and in expense year $X.X earnings repurchases. $X.XX in fourth same fourth fourth of shares $XX of million $X.X per tax quarter The driven profit, outstanding was XXXX. diluted of to adjusted to interest share in and a by fourth driven the outstanding, compared million reduction other fourth were Foreign the decrease primarily was for by compared income exchange the quarter $X.X costs, contract of adjusted positive partially offset $X.X million net on expense. the shares a XXXX.

to per full For diluted year, $X.XX, were up share the XX.X% year. the earnings adjusted prior compared

attached to capital adjusted primarily software, reminder, of are in the $XX.X to expenses and programs. spending adjusting quarter. environmental In our tax equipment select and marine shown major reserve support in military quarter, normalized such fourth Slide we a charges, rates, XX we and costs, by acquisition legacy in to charges the As when the and all diluted share, impairment Power million release. Systems uses summarizes driven litigation, facilities, for earnings we refer restructuring our in as items earnings per invested tables as

of a subsequent $X loss in In or We the $XX the year. dividend a share also received of loss return, XX-year million $X.XX XXXX. share X.X% per we yesterday, this quarterly refunds million. increase and paid carryback our announced And ACRP-related of starting per in federal in XXXX with filing our connection dividend $X.XX totaling to tax March legacy we

the federal was by by government additional of previously quarter, fourth have the communicated shutdown. receipt delayed but for $XX the an processing in expectations million We IRS

we remaining year, At have million, not XX, million of now down XXXX. to The receipt. separate was expect on and tax repatriated a respectively, $XXX $XXX fourth estimate our earnings the overseas second quarter of of cash function refund million XX, timing we December X a facilitated the year. In last December cash borrowings repatriation full quarter reduction in Slide taxes. incremental the balance federal at We million, total, $XXX the end of and refund resulted $XXX repatriation payments million outline debt fourth receive estimate of reform. $XXX received primarily XX, million, subsidiaries from without in reduction net an is to $XX have be The and at of any and refund the leverage our although borrowings our the in and totaled in million cash our the updated from sometime from foreign in respectively, by $XX tax of and quarter. We during XXXX, we do on ratio and

ratio quarter adjusted adjusted been year leverage the in the line is refund full receive, million with leverage to XXXX EBITDA X.Xx, can you end the was year approximately year of the would which EBITDA. during at end expect net our XX-month full adjusted the multiple earnings approximately debt see, we tax our last to As Including have estimate X.Xx trailing call. $XX fourth that approximate provided

call Steve. I'll back over Now the turn to

Stephen Macadam

conditions with close a and outlook of Thanks, current our Milt. then take questions. and XXXX We'll discussion for market

visibility As future we've have demand. always we of explained, limited

to to short of of most shipment of exception order months. handful of relatively and from a typical businesses Systems, range our have the couple days Power a backlogs cycles, With

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

costs, from legacy The rates cost tensions impacts market costs, and tariffs Our and exchange or impact restructuring changes numbers subsequent year-end year number of and the and shares of trade costs from outstanding, guidance trades well -- tariffs. environmental future foreign charges. impacts as and acquisitions the select incremental acquisition-related of of to the on demand in the litigation excludes and

share demand, the the and million earnings expect Group automotive, macroeconomic outlook heavy-duty translates Brake year to in full to we $X.XX per year. be of forecasts, Given current semiconductor, an adjusted XXXX adjusted Products truck in weakness $XXX our This planned improvements between and diluted anticipated $XXX to EBITDA for OE STEMCO's million. $X.XX and

questions. Now we'll line open your for

Operator

[Operator Instructions].

comes from Sidoti question Mondillo Joe first Company. & Our with

Joseph Mondillo

the on restructuring. of questions sort and segment Couple the sealing brake

First of off, how $XX the much was of sort opposed expenses as of one-time was -- cash to much noncash? million how

Milton Childress

noncash It in was the Joe. quarter, all

Joseph Mondillo

Okay.

a of today? are say provide so And the sort integration in more XX% of where we could new you color terms sort I just of supplier. I little you're that you of on complete the think heard

Are walk of through efficiencies the Just see up about are the thinking as behind that how first supplier? still Or some us? ramp with inefficiencies. us you you most inefficiencies quarter volume sort the of in the we sort do of

Stephen Macadam

Yes.

So Joe, this is Steve.

this as were to here, heavy-duty one and products Marvin you we well last -- is So trucking. we can warranty build year, cost first deal that group, on on I'm three business But done. the the had when There if issue. issues X might right, ask this The primarily I Duroline to reflect was unit brake within right? so with issues,

explain this. let So me

and So to early our year, supplied of thinner course the Well, time. one Duroline picked type supplier, of be was to over years there particular a discovered be we that It type. from last we happened was the friction. product supplier that Brazil ago

that them of X So and we sizable. have of container only. pretty unfortunately business, it's used X shipping is And chassis customers in only in

type. to the outside we warranty so started in friction didn't was type. application. And Again, one this any this in is cracking of rate. change only We this see an Basically, over particular incur cost accelerated anything at performance

-- expensive. it friction we was how because when team, the fails, when particular in took So our our much this it's estimate, this is engineering application team to so okay, trying of failing,

We not replace have to only it.

have the it to replace the to We of pay labor that takes cost it.

of a money. us cost it And so lot

so type estimating know, we warranty, in it in ultimate potentially -- course over had added as and assume the that the during chasing of just XXX% going you we just And concluded, -- then just to we're the of warranty. of leading the year, and in tired fails I -- reserve ultimately reserve application a we're that big another so of to QX, a this lot fail always the had that of up we we were XXX% life reserve concluded, could QX, that percentage to of We life I'm and the And of problem, going right? the over just friction of cost to QX.

another we in which QX, cost reserve out, maxed That much, in to warranty how warranty you kind of took So will, this QX was alone if Milt? XXX%.

Milton Childress

$X was million. It over

Stephen Macadam

Another $X million.

So full costs, essentially year, $X million for the reserve, obviously that of a which as warranty is some total of right? was still on books the

Milton Childress

Yes. million reserve. It the was about you a if little highlight -- to issue, on friction roughly $X.X want the

Stephen Macadam

Yes.

Okay, that $X.X on problem. friction million just total,

So that was that done. one and is issue,

product Now, in is pick up this normal see we'll there, application, any of was that, total never to following that one EnPro friction warranty reserved. of obviously, not I the But guaranteeing literally does community particular Industries another issues. this a seen type of not which that in as to all I'm We're mean, haven't lot outside has and investor said, so mean I that. we our now just process. this isolated, And out XXX%

Okay.

sorry, is your to long long. So But probably a of X. be that's I'm going that's the one. answer X question, too to this

to couple out so brake product, And It particular so products -- dollars want resolve continuing conservative issues brake how that that And of our is believe chase towards We with product. lean number, we we we did, the automatic an with brake another we have reserve, we to reserve. products were in product. figured product brake because where the a took tried thing obviously, we we early on wanted was our on. the I was -- that of to kind in best customer started warranty million we sorry, we get -- a jumped QX. side and year, with but adjuster into that forth to one second friction, didn't increasing related in to The did and same happen adjuster also one to

in the half we in not in failure than we're because so that other we a haven't haven't easily that we're there, and feel of other reserved second So the the rate we other have adequately the of far. any we the in customer of seen got product year not, we changed half Whether seen reserved out reserve, woods all that. for but one other like year any or of change still issues with one, this the second customers we which see

this believe point issue we actually product disputed. paid one they to in So fair honest having with that's We was contained a you. installed bit warranty. still to the customer the with particular factory, do that still with But at the how be

at that to led what that's the to $X So charge million STEMCO year.

up on struggled was engineering below productivity have that ramp struggled and it was The waste needed put years where with the capability. third and year. issue Rome, the a in was with all up over we existing very on own of product just spent line, many that. facility. with Georgia -- on, world-class friction manufacturing high, thought ourselves to our we productivity in technical We -- was friction ramp We and well be, on productivity automated, too too the what associated And issues our and line produce with to this

though work to we if should-cost, the now let's think invested least can even line cheaper damn the it could get because in it or the capital we And on QX, lot got where at led buy described, decided, down looked with even of buy you produce our and QX in we we very -- basically it get shut of what, we're at can Marvin we really we where deep So different productivity. this. a thing, a in know formulation got we this thought could we suppliers we number that of

associated restructuring there down that line ended the just shut a in that indicated, Milt workforce up, reducing right? was obviously, we the noncash QX charge, with cost took whatnot. we And and the So and

done. So that's

have to on one left we we new in to with us and the to is rate the and products water full which we suppliers couple get produced, to be that supply now, won't us India. total. ramp that in We've the We do supplier a new do have it most over base at is is a so us our supply what chain. up forth, product obviously, run product and ramped supplying is going in why supply so So we've suppliers, another started. signed customer needs. brake will a meeting months recently are for not customer the to be while got It's with of of get just actually up. And we're way got that to just to We've the this takes that them the got able But that contract take the product actually to of them. friction like other meet couple needs. would We've

we what that's by So that. mean

detail that's high degree to leads are in issues that brake us which products, brake So fairly the to of add substantially want on behind confidence products you these Marvin, why us. that? a have it anything is to

Marvin Riley

focus that the group, small add I deployed thing we additional a Steve improvements products pretty improvement. would only The we resources mentioned, to have there, as is, team quality the the to providing accelerate productivity brake on do are them hard and to working and within

and their expect up show we P&L, do to So QX, to throughout in in see will improve starting the it year. that actually start

Stephen Macadam

that products drums other the basically and and so forth. is produce, like to and we shoes that And AVAs continue

Joseph Mondillo

the appreciate Okay. That color I really helpful. was there.

up you a said, or up, a bit? margins ramp you does little like as on productivity follow Just to that weigh need chain, still supply the

Stephen Macadam

keep -- commitments through fulfill customers we are we're trying That's to supply, customer on meet cost high trying with contracts It basically implication. the Joe. and weighs our margins, to because

Joseph Mondillo

Okay.

to Or first the is in of end can is going something be... the by that quarter, we expect ramping terms And of up? that Okay. that

Stephen Macadam

this understanding it's weeks, just, a takes et to My literally locked in team think cetera. product QX, couple arrangement last few I whole down, is got the the high it it's of the it our X -- qualified, get to so get cetera, because et into or has probably months friction, here We cost. get it first fly supply water. heavy to got flowing. It's you over the big, can't in chain the shipments and bring months

Joseph Mondillo

Yes.

Okay.

the for guidance segment and you inefficiencies XXXX, have much at back related anyway looking in is everything the just the can quantify before chance. with the then you other And gas you people as to Is business? well to of saw Just you last turbine in I'll that products not divesting there any costs? about question, jump the to inefficiencies in a what's reoccur? sealing early there going anyway let just the other terms your talked as overall, brake queue losses quantify can or how But year

Stephen Macadam

Yes.

that. So with let help me you

figure sealing sealing In the around segment, little can business in of total my group right, XXXX XX% IGT the out. products, year If look XX% a seen products the was brake historically. this the and we've the of basically what at products bit the so the okay? you prepared remarks, revenue was of in You XX% margin

issues we are last year. we rest of the end around, no described level that moving no et business, reason markets we and than other so the to -- mix Obviously, there's a cetera, growth, about although IGT that, the to very that no crank semi There's at -- products. reasonable to the specific gets of in And serve. lot of it to more believe kind of reasonable along where improvement saw on cetera, we still et throughout brake continue down continued a of macros. talking with hey, just the depends So wouldn't rest done, is the is it, reason I'm than year see and that there we've

do. So Milt, math you want that's pretty to to add easy something to that? do

Milton Childress

thinking look level, if have and but takes. obviously is assuming No. higher It's XXXX your it's problems I is we at all correct, would us, are restated behind Joe, that puts and puts all year performance, at then you a are the There no these and of you finished what question, think takes. some a

some we be about, gas So these year productivity into favorable to We would not the turbine at warranty the would have have the would that the Steve year in be, improvements going as decline adjustments progresses, manufacturing. would expect our and industrial talked earnings hopefully not from charges and we'll get the to that with year-over-year expect business. then

as And happening So so Steve those in Europe forth. macros the semiconductor, positive. it's year are auto, I is of in what's which what's and all, talked about, guess, all in what's then happening the happening

Stephen Macadam

China.

Milton Childress

China.

talked was litigation in impact keep not guidance in settlement million XXXX. about about account. quarter, you as we also things thinking takes to that 'XX in in $X you're our a need that those a And recurring number benefit all adjusted mind So your last into results received that semi will connection in positive It with in our a products XXXX. on we be our

So think hopefully it. there you as through to you are a think little about color that a bit gives lot but of factors of guidance,

Joseph Mondillo

margins an sort XX% correct? margin, just And that you cited, does. the of that's it EBITDA lastly, Yes,

Milton Childress

Correct.

Stephen Macadam

Yes.

Operator

Humphrey. with comes Our Brady Charley from question Robinson next SunTrust

Charles Brady

Trident talking going I more and a on is changing with at bit customer involved the there? little a happening changing just And what's some potential any timing wanted engine the to guess go about back Or of just schedule on what's on penalty there? the about with there flesh that. you I Can that delivery to comment all?

Stephen Macadam

No.

high-level seen is well Fairbanks and services Morse in engine the as increase really Systems orders. in Just parts segment significant the good is aftermarket the has Power really, business, shape. as effectively, And orders

extremely is puts constrained business, pretty we demand a capacity that in in precarious the So that in in situation, strong which totality. effectively are us

had of will sort of resolve customer the We we've we'll we service relates customer as that our all. to and some we'll any anticipate we work, we've obviously be course of to to we have with don't to the and dependencies that don't run work of And is cost. the continue today, what customers to considerations the in what the risk decisions but the run any do, OP, schedules. cancellation, at it there Trident has a delivery make difficult I to of terms risk a development resource take decided as have primary So really action.

Stephen Macadam

money it's Charley, to, make on, our have hard capacity money in Navy. really, to the and when fact for losing the any do really can any we're pretty plan. to engine the The field we're mean, the to, matter want be stomach the something was build factory in build field, for build to Trident we're the not us of to get I fact, not is, going it we're But fact, that. we to building it, engines still that to the going on, first in U.S. We to, out going need making because -- idea of In right? using get on money

dilemma. our that's So

we it's thread with kind we're customer again, penalties. to working -- if So that's to try maintain can the to of nothing out needle. any how going lead this to see try to to figure But

Charles Brady

you go 'XX. it little about more ramp Can on et as you covering dynamics wanted a into 'XX? you of Where you that. just to clarify increases Does you are bit al. price/cost as just I Are now? material Okay. kind to impacts go and talk raw tariff there

Stephen Macadam

no. No,

get of the I little there. see on the We're we bit to a 'XX. way going side, think frankly, material raw we're other go it starting where relief into

as I was prices it has right? raw steel in tariffs. any right to see leveled happens and tough for covered well. Now, begun of your case I'm working terms who the the guess that but it as at adequately year how particularly and -- directly that. steel aluminum, didn't on happen. obviously, huge making in not is economy making we versus were status it are tough year knows environment of kind other mean, prices, "tariff so some to in ripple because broadly a environment of what good we started And that through them, ours ours, steel has up, I definitely overall. wave impact have with commodity material comment But we've last in to the going is now, was what's of throughout very, prices We're doing catch like not tariff on moderation, moderate. but industrials very the because only hard not off -- next year and right there like on any commodity for have quo of is just a much was just -- separate was effect the us least to a to other" Last

Charles Brady

have I margin? to tariff mean way impact in any are you on business, assess of would your go XX%, that what to on sort able that your was if to the

Stephen Macadam

think answer is, we're now. I the more short ready

as think to little we covered But issue -- so that a really, that get everything have is year, would the we we I bit mechanics much, quickly we happened if then So in got think of well. we could would able such last which conversations, lot happened, the behind a the struggled $X.X to question industry we terms caught be know the would we'd did and quickly of immediate we But million year, how that it and anticipating. than many of where that do, it be, impact, eightball visible the the last in customer that in and consume has this steel. become which I a primarily business, quicker much really that covered STEMCO got

Operator

with from Our Justin Bergner Gabelli next question comes & Company.

Justin Bergner

are not in that such timeline as make And I to a launch you customer risk could the pushing wanted continue revisiting if start is the just they sure why the customer to that want see potentially? formal any question by they OP. back off to reason a take Trident customer. I firm-launch would customer in launch

Marvin Riley

be feel pursue. would that could this customer, in bad really That confident up good fairly we other like that situation we That's the that we if We have question. a ever into a particular if we can answer do We problem we ended options. with that ran feel problem. solve easy

penalty relates fairly an as confident establish mentioned alternatives conduct call, But we sort pursue. this that that. As you can or Feel about confident And signed this we launch testing. we also conditions last know, as the with of of we have an fairly it and in we arrangement situation. the satisfaction to customer are did LOI to

Justin Bergner

customer LOI stage? Okay. But a or is still they are the it firm-launch at

Marvin Riley

were of our Well, we terms to firm in not to what facing we knew did want sign because we execute. a contract ability

Justin Bergner

Understood. Okay.

Stephen Macadam

us ongoing. total And we're be to engines them, sense that a had just side-by-side They've is so engine. or I trying still X out to still with with work to competitor's make for Justin, timing work going forth. and now it project to was X X. it, a conversation, we got It that's which Well that's at was do, a think, going what

the we still engine and still bow We the of were could as tightly were for complete -- the trying we gap work the development putting development remember, too. Now ongoing the the to of is close around kind as time really And done. make first so field, have the bit the a getting and sure to love complete of development is out the everything more the little is matter fact one right? fully team that would in to

busy So why this shop, frankly. really It a problem. more not we -- is are it's indicates not how in real the just that's quite

Justin Bergner

Understood. Okay.

wanted the 'XX to before I nonrecurring were we business down puts sure just million sort you million then into puts and in polystyrene product expense, of and benefit. make shut it As expense the $X small Those in warranty $X and litigation takes? -- IGT one-time XXXX, the versus look that the of of I takes understood sort that that's the terms

Marvin Riley

obviously and That's about in the these issues Obviously, the that But year. hurt relate we one-time. which friction price/cost got terms Steve are... around by talked discussed the productivity in about, we've That been early to that of hurt was manufacturing. our We tariffs. those Marvin issues

Stephen Macadam

are Those movers. big

Milton Childress

items the XXXX. we yes, Yes, noted say, shouldn't could circle, have the really and in we that ones those ones but you are

Justin Bergner

are going 'XX, or beneficial either to be as note we different mix markets? And then impacts OE look of aftermarket end into any negative versus or Okay.

Stephen Macadam

short how mix the mean, it's full don't what we with in have said, QX less very I QX because to difficult know mean, I to we've that's we cycle predict got, a very year. is very, going complex much Justin. question, move that and it's store, as the

we not long-term of the bottom, trend refueling of has for that's shown cycles the businesses. 'XX and kind signs margin of nuclear semiconductor, know demand do 'XX scheduled So our that will, our is maintenance We weakness, of of if you the customers. both in higher and know one

requirements think We've good drives 'XX. really start aftermarket that. do getting on a communicated recently bit. year, last years, kicked said, the over get in that we big we've better the have new said, and because cetera visibility more two any very it Fairbanks XXXX, be for what these, of that you we've in modification There's also, shouldn't will as in we XXXX. the planned is Navy on based very, A have the do expansion how was testing and in, it years all won't and It 'XX, of because of application. high much 'XX capacity each lot that Milt of but nature drove to et just won about engine better. will a Marvin 'XX worse, demand. We seen it avails done and on to spend, capital programs has look for needs a in as and like shape. So the in and ago, any ship get test

XXXX spend And fair get just these programs. of those to had in to capital so and bit we Systems. a on modifications in Power us capital Again, ready tests is for that spend behind

general. had about feels still again uncertainty it's it with are in just a good, there of we not like that direct with right customers, we've pretty year communications terms that the So caveat the now, orders of QX. pretty which huge on books in than visibility. feel balance, there's better lot good the on Yes, the anyway, is But feels the

what's knows happen. who going So to

Operator

& Oppenheimer next with question Zaffino Co. from Our comes Ian

Mark Zhang

for on Ian. Mark is This

are demand think year-over-year indications slight, just a slowdown this of strong of So those at how I in bit there? that we a I what, balance guess, little Aerospace can Can impact XXXX? XXXX. the for been expect What's looking more drivers the consistent Sealing. speak of detail in for to a beginning sort the you to just guess, like guess And the segment? has expectation some driver for segment. We fairly I

Milton Childress

somewhat Yes, same that right it's so of the made if on, for we're are general to comment that view kind the us, would or aerospace. be in Steve programs aerospace. in call of single-digit don't like cycle. not on know we But But earlier not our limited flat, we're we part else is relatively year-over-year, market some have market. growth. the based demand. that market to I on -- that We I I And Marvin strong the on it it's growth a but we're and going Mark, the growth that's expecting once continue -- Milt, of I'd you think Steve, know expecting again, good lot on a visibility low have anything probably upper We be think visibility. now small,

Mark Zhang

capital then Can allocations on terms speak and areas any with Okay, a interest? of capital great. on the pipeline And and outlook XXXX, And guys that you the great. buybacks details on M&A investments launch. would be in bit little of

Stephen Macadam

Sure.

space start a lot ongoing. at We year very our strategic we're acquisitions. have you as a be and seen capital find active pretty year, you been something on high-priced this space, We to the this stop, us spend remains Sealing our we can case, very Products not we're previously, pharma the opportunities and and aerospace select opportunities and and on communicated It's know. haven't environment. of in food business to disciplined M&A grow and in We've a look this the It's if semiconductor focused there.

in taking And the that's this So support growth that big inorganic heavily XXXX. for our uses spent had lower expect of meaningfully opportunities. just wins Power that to mentioned, capital would we've we Systems. we've as in pretty we look priority year to Steve ends test be spending Other capital, on

where we million below a the be we'll we least were our at So to $XX probably opportunities now. would though to do invest that I we on we $XX on. be decide in. coming say million subject based probably you'll year year-over-year, order think And will return that to that repurchasing I see expect goes small see 'XX, guess, up how might yes, shares end we good that's another on -- it change that But have there. up, plans, in as investment or

Operator

next from Jeffrey Our comes from question KeyBanc. Hammond

Jeffrey Hammond

associated friction, So be that the should headwind with a there drum on about? just we that revenue in 'XX is thinking back that's

Milton Childress

no No, to know business, we we need work side. there's a on about. cost revenue It's Nothing this point. just healthy still headwind at the

Jeffrey Hammond

of you're the that? reaction hearing play out of kind to and like just kind drum shifts brakes air we've then to speak Okay. And been business, how And on just it that seems to seeing more disc.

Stephen Macadam

trend, a definitely long-term it's Jeff. Well,

buy us. introduced friction. a a strategic things We factory disc that but that plate we've look have front on at. supplier, in we business a in air to China, relatively did And you a It's remember, of well. We our as it's China -- in may just a a we're rotor introducing of company make through small small,

do So is goal be to help as migration. systems we're to and brake our going this disc selling air well, customers

will don't these I base. because, and I trailers, -- I have thing So life is it and mean, think tractors just a as be long-term know, massive long a you there installed a

mainly conversion dangerous we've that the is really far over. stuff of what Those first very been trucks happening so ones with and tanker like a trucks. heavy So carry shift to have seen -- lot the

have fleets installed are, obviously, continue the resisting like have to they service and they an -- they're So to to it going base that. because

help that so to So hope is technologies we we but today, and our at sit have both ongoing migration of can customers obviously review do over as our here hope, types time. least is transition and change, this our subject that to

Jeffrey Hammond

OP, Okay. And make we're then back too. want clear. I just sure to just on

and So this you capacity short-term a is kind opportunity a with of spend the it? R&D differently associated long-range the thinking kind any about of guess, I are issue.

Milton Childress

to the demand substantial be quite super Systems the in Systems capacity mean, we're least to we're going be and XX seeing, I at not business. in is Power much X I'm Yes. guess that about issue mindful my it to how experiencing the excited trying months business, What Power but years. is

next for quite backlog and their So is strong year. this year

those get is us market, the ways we the really at product are, what so to the things get think what we means to options We now. the with alternatives other we're product know to are for to looking other we exercise to as how we're So Trident of the have experimenting to that. have market that do to OP kinds whether want on it relates to through

Jeffrey Hammond

Okay. And a how rates look of kind picture? Systems the in 'XX, growth Power just, give you Marvin, then us big 'XX in of sense you can think

Marvin Riley

for 'XX. it it's be so. X% but then It that get right sure. to could of it's north XX% based We 'XX, for It 'XX, could for me probably shipments, will of or I And all on -- you. number for X% be be Well, that north don't of let's say can front now in have sure.

Jeffrey Hammond

mix? does in margin how growth that And fallout terms of

Marvin Riley

amount fair we year. get of the system of have out EDF a to Well, this

up see units ended start like in to go I would walk that EDF EBITDA we'd year once of its entirety, with up out improvement you and expect we system XXXX. So XX%, the where the Systems into come will you to forward in that 'XX to moving from in margins Power XX.X% to that High that XX% EBITDA. business some and see start 'XX. as level, last

Operator

next with comes Company. Our Sidoti Mondillo question from Joe &

Joseph Mondillo

Just a of for needs year? you -- quick Could questions. working capital follow-up couple the CapEx quick sort expectations on give hopefully us and

Stephen Macadam

expecting XXXX, the of EDF shipping was won't primary heavy end I of I said $XX in on have to expect CapEx working case the 'XX for would some invoice. that mentioned so Yes. in million the capital engines, the a we be front, because of than less $XX had of tied at the us Power million, $XX Systems On about working and million we ship to year, be up $XX production with repeat just the spending to XX trigger little production we And CapEx, or those, that's in million we And capital. ago, Joe, the shipment in as in capital being in of another the had bit engines the XXXX. all And to the think I XXXX. alone program able

but not movement. working a big in cash convert and the biggest million of it, $XX all to the portion cash expect significant a XXXX. during course chunk of to That's that of We the of cash, to million $XX capital

some Power very strong saw year-end sheet of largest that the accounts and year services at due large the compared at part had quarter our in receivable parts of and 'XX, still in that receivable. books of provided aftermarket December increase pretty And year-over-year parts demand. on also end to month our have You on as the just the we Systems service was and that were to and a year-end balance

So to we that as some expect would down come well. of

Joseph Mondillo

I And or a think visibility sort you that then better maybe Okay, commented and Steve, going you the things to of it mentioned than that of sort of seems feel like great. have, on sort maybe December. back you you currently little

and European that's the heavy business of Specifically, my have some that the question with to, the exposed capital think, some I exposure equipment GGB specifically to do has Engineered sort Products, of given auto you of to markets.

of what of is sort and wondering of we how outlook and where looks? Just your sort are on take that segment the sort

Stephen Macadam

I'll that Joe. mean, very good. be we bookings we have I have, Yes. look with very The the you, that orders honest very,

business very, that that automotive across industrial and the the very quickly that's the customers, and one almost mostly is all in turn speaking demand, GGB, right, of OE said, board, Now particular, this because works way that demand. I'm it's can OE

on the or reduce anything changes, so order they world or And the if in the way that books or is the And for push quantities March market order the behaves April. will out an delivery else. there's

typically to that an on many, part been typically or essentially is demand. product in selling automotive it's So XXX% are we XXX% I pump have have there. from the and most the orders barring the the going, an happening, the applications, wherever have like many, we whatever, whether equipment gearbox engineered But we many or particular If GGB on books. of given a of said, -- or are they're of platform that They the it's since platform. placed, platform, we -- have we style any business into style

hard into of that it, less look it on cranes less whatever, to snowmobiles, whatever we ago. actual -- we cranes, right going less at the it to and ripples if if we're don't is, have lot or less starts But cars, customer through less predict. a demand the selling visibility year were our less it's is the where that's now, a you why orders above books, So

So hopefully orders. not just it's and will phantom be it real

Joseph Mondillo

Right. Sure.

sense was currency X%? you as outlook? improved When is ex has get the the under Or trying say revenue the significantly, several sort it very of the defined that of... was Is a good, just slowed of the quarters X% that so And from digits? to over quarter. in fourth low-single sort last I

Stephen Macadam

No, no, no.

looking low-single still digit I think we're at outlook for sure.

Milton Childress

tough, strong The a a had comp, pretty because you years. as know of we've are couple

Stephen Macadam

Yes.

Joseph Mondillo

Yes.

Okay.

Milt, the there. prepared different this going know could And mentioned then sort buckets to you sure wanted wanted have X make going Just receivables I just just and your just you last you lastly, for And think in to what me work I tax clarify I But of that was sort of that mentioned there receivables, forward. asbestos insurance forward? you wondering if quarter. commentary. out

Milton Childress

about just taxes, part, in. okay? what cash most let Well, on you're interested me talk the That's probably

come about X XXXX. It's so We refund receive the probably relevant. going in payments, million in tax that's to likely in expect not different to $XX

processing You that don't But $XX with soon. their so and normal, I forth. relatively things -- IRS the get doesn't think should million matter. And to probably all roughly we whenever go back

cash to procedures sure. it not So additional XXXX, XXXX, over balance piece insurance that, that's, in final get million million. were get also expected on in yes, to asbestos-related part the we time. expect in There's we a bit million would $XX of amount That's a expect by for that $XX the IRS. payments amount make have period $XX over have sign-off another is we sheet. that XXXX. And additional as about little for and On quite auditing, that's But shutdown. to the know of government years the subject I don't would receivables, in our to we expect why a beyond We additional trust few come some guess, we starts

Operator

from & with Justin question comes next Bergner Our Gabelli Company.

Justin Bergner

you and and I think FX then a a to? refers EDF, exactly clarify, mentioned I heard guess, loss that one I had question. million, $X.X just operating $X.X million you $XXX,XXX clarification what Can Just On loss. the if correctly,

Milton Childress

to P&L is as the complete our X It's, end true-up every things, The of impact exchange the Yes. rate euro-dollar contract what's what primarily. is. quarter, the reflection on at as the a estimated quarter cost of one, P&L, the well the

in of the it, And complete program. we bit to fourth the So cost in the little or our increase the of hit million, earnings it that, million call had was $X.X $X.X but an we related quarter, an currency. a $XXX,XXX so change additional, had in to estimate above

for So the the and $XXX,XXX that's the currency. for the was that's $X.X between the or million that difference -- reason cited

Justin Bergner

Okay. But additional Did meeting you you increase cost were that being absorbing talk despite headwind? also the guidance in an your cost quarter? to fourth that $X.X you when in a million FX the Or complete. about hit, the anticipate was incurred

Milton Childress

not we No. the do in guidance that. No. provided QX, we anticipate At time

Stephen Macadam

the it's don't our but you cost make currency to reserve count of is important to it, in P&L know if end But we know EDF margin. change mark-to-market, that million of reserve because of would have even as quarter the that's cash basically understand, a if is that increased change, can it's we essentially how whole do work but That we it a we QX. every X Justin, contract have a -- ton I cost $X.X count basically or because not at quarter, have don't didn't book -- if was cost all And we the mean, cost, certainly had don't some and in I QX. we the split. I don't if

view cost the soon complete didn't And costs in be the up, our as as engines. will the so those our the actually of that as the -- through rest goes soon to as of the quarter, book in even we balance incurred to though cost engines the of have fabricating current those we quarter, costs incur

You follow?

Justin Bergner

Yes.

Stephen Macadam

and done water, all thrilled We're halfway the XX. in test last We're done hours. very, day EDF XX, with way of the be we're goes out on be done, close. out, on very of it with the and engine with we're terms shipments. get XX when me. very, the now yesterday very we will And the trust halfway d**n end went and getting any associated and the Well, We'll XX% actual #XX work then

And trust the hopefully, year, to celebrate, last one. before of going me. to well we'll the to end able be sayonara I'm the So say

Operator

will Chris Ladies to the for at and turn questions I O'Neal closing no over there back are call gentlemen, comments. time. now further this

William O'Neal

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

Have questions, additional call XXX-XXX-XXXX. free you please a at give If feel day. a me have to an great

Operator

day. conference and today's concludes This have call. a All parties disconnect, may great

EnPro Industries (NPO) 15 Feb 192018 Q4 Earnings call transcript