FLOW - Earnings call transcript Q3 2019

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the SPX FLOW Third Quarter 2019 Earnings Call. At this time, all participant lines are in a listen-only mode. After the speaker’s presentation, there will be conduct a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]

to Taylor, conference Chief like speaker to now Ryan today, Strategy would hand over the your I Officer. Please go ahead, sir.

Ryan Taylor

and call here Thank us Jaime Easley, President Sarah, good Financial Thanks and everyone. you, Officer. Chief for and on CEO; the Marc today. are me our With Michael, our morning, joining

our release earnings was morning XXXX spxflow.com. earlier QX this can website, and Our issued be found on

includes being is of available also today. is webcast webcast. of and located our the call for the webcast The results. This the on QX section in investors website of later A details our presentation our replay site be will

that Note to we light. ask of the view our statements forward-looking businesses them that and you change that and view Those contain in subject are elements their that on are current of based our markets. presentation elements

for risk identified are also in appendix our of factors today's filings. presented. in our reconciliations non-GAAP impact that we've And Principal recent SEC the all performance presentation, and adjusted may most provided

And with over to I'll call Marc. turn that, the

Marc Michael

Good Thanks, us the joining on and for thanks everyone, call. morning, Ryan.

the results our Our strategic process solutions progress a underscore we've enterprise. made third transformation quarter to on premier

ability operational many the in our demonstrates our economic period on Additionally, to team execute levels the volatile performance a in of environment.

exceeded further to results our initiatives. We strengthened financial strategic made guidance. expansion progress generation margin respect with Our our delivered and and cash strong significant balance sheet

hard and work, I want effort their to quarter. thank tireless for across our contributions enterprise to teams positive the the

attractive core business verticals. committed for our capabilities and experience, an culture creating future strengthen We employees, growth drive are long-term customer excited our in engaging about to and and delivering differentiated and micro a the investing winning to

better a we million across expected and our our project with in on In results. factories. process revenue, the of our higher execution range our delivered an shipments level overview exceeding third business quarter I'll end high systems begin than $XXX guidance of of QX, of

up XX XX.X%, of was XXX year-over-year, XX%, XXX and to basis. sequentially. and up points on year-over-year XXX million gross sequential and up Segment income points points a improved $XX achieved margins points We margins segment

cash our and to driven above $X.XX, by higher performance towards compared and midpoint the working The $X.XX performance profile select by of Adjusted and been was exceeded potential income on margins. $X segment million As strong income in was customers demonstrate by across also to our guidance, the strategy the crisp EPS driven margin guidance and illustrate expectations, in value midpoint conversion business. long-term period, the operating process we've create focusing applications. quality segment our serving by revenue

cash nine quarter. target a debt our low QX continued ended at have we We free times CapEx, months, Looking ago million. $X basis, the debt X.X now X.X company to our in the with end leverage down at and reduction from flow. energy flow investment was of This in of million evidenced as position financial on a by remain free cash reduced we including strengthening $XX times, near range. power net of total gross facilities. We Through $XX and year by generated committed of million net

included power team his business strong and Larios X% along managing José job, solid performance also operational running are growth in the doing to exceptional sale expansion versus the year. the prior with the process. the EBITDA energy, of delivered the diligence of margin a growth due order of They and With process. sale the in that quarter are respect stages latter and divestiture an the we while

priority investments to macroeconomic -- After we excuse plan attractive to that to further we divestiture higher the after reduction that new simplify and uncertainty. structure organic to return given As proceeds intentions particularly to the ramp development our we debt level engineering return R&D productivity, me product of modernize are of our a the cost portion evaluate drive use and plan prioritize flexibility global proceeds, current manufacturing, efforts. of facilities, while a most our further for shareholders the geopolitical up ample and maintaining --

revenue, revenue XXXX in progression and the income evident when to QX in pivot income. in initiatives sequential This on to year. our is underscores revenue. project and the supply restructuring pricing chain Our cost higher focus execution, taken net you at flat and QX, savings points quality inflection XXX segment of and revenue look segment -- expanded quality earlier improved from margins benefits from From operating of on actions

beverage, orders process improving system past new XX double such value dramatically delivered the the our They funnel teams XX to of and third months, liquid over food beverage in project on delivery. has dairy, fine nutritional refocused in on opportunities foods. beverages fermented profitability and higher food applications execution margins income XX.X% by while segment of on in in team as who the the been QX. achieved driven was record improvement nearly selective and This quarter, The

consumable applications, the through require installation parts. to equipment. solutions cycle we They design of our an many world-class process expertise attractive wear life spares service process the of process and and the of these deliver propositions In initial also annuity stream from high-value components, provide the providing customers of and

value have and large a after-market projects contrast, proposition lower In dry dairy potential. lower

end dry have the material we no At category. backlog in there projects that the dairy QX, were backlog. reduced methodically of Given in this

increasing the a backlog environment, level. teams Despite in in the remain to especially I'm extremely consistently headwinds. higher selective of proud on our of macroeconomic delivered team at continues demand yielding QX, ability higher level challenging light our margin to orders, the our of perform quality performance and for a

base, dollar on and our revenue margin we further demonstrating higher QX, to and quality performance income commitment a segment operational steady lower improving performance. expect In revenue

XXXX. This now going by slide orders. QX, Turning orders to shows segment back to quarterly

customers our lines. decisions ongoing channel five Over trade and product capital our our and discussions. and past particularly order dynamics to slowdown from global the for reflect led industrial in the have quarters delays These partners trends tariff spending short-cycle

broad-based total product XXXX X% QX, down a across variances, reflecting and XX% order decline and concentrated orders organic regional orders from Looking China. lines, were on the down million, $XXX million, but were in U.S. the specifically a $XXX year-over-year perspective sequentially. Industrial flat year-over-year, focusing at

sequential down were America, industrial In with historical the and a Pacific, order saw we'll as orders next for orders in are an two we North in encouraging consistent The dehydration us X% QX be in we bellwethers trends traditional American And lines latter Overall, a equipment. in for closely in somewhat seasonality. QX to watch. trends to prepare and due is for order Asia basis, North sequential uptick watching slowdown Europe, year. product orders tools On mixed. in uptick mixers, hydraulic were

orders In Asia decline X% in our led Pacific increase $XXX million. partially orders. aftermarket a modest component year-over-year segment, This This with QX Food Beverage by in and was process orders. growth offset orders systems, growth by global grew was in to

led encouraging basis, orders Beverage. flat On in X%, again process grew see to in that Asia a a Component by to orders area in sequentially, orders Pacific, were and sequential of extent and stability very system Europe. lesser Food

$XXX relatively intend to Following million, steady three consecutive to the continued with environment, $XXX in given quarters for plan and we in million XXXX. the range prudently macro uncertainty orders of

guidance year QX and expectations, and strength full the our for of for organic EPS. revenue better results on modestly range of guidance our raised revenue, to low on continuing EBITDA, we the Moving operations, the end

adjusted between adjusted just over million million, $XXX of targeting now $X.X EPS EBITDA billion are revenue, per we of midpoint, $XXX the approximately share. and At $X.XX with and

We flow million. are holding cash million of free our $XX the range in guidance to $XX

costs, we also navigate while approach for as to we long-term to take intend with look our strategy. ensuring next year, the balanced through a we growth, As proactively environment, line near-term our manage in demand we business investing

We've previously begun executing X% to announced on cost productivity our X% goals.

to cost structure. opportunities our evaluating we're simplify addition, In global further

at over opening to, And remarks. turn this concludes Jaime. I'll call my time, That the

Jaime Easley

Marc, $XXX with the the related I'll good was everyone. Thanks, year, headwind. starting a nearly currency, million to all X% results revenue segment begin Industrial. prior X.X% quarter and down was to which QX morning, third with

Organic with growth was XX margins XX%. Segment shipments, which flat revenue of in to up essentially to organic million lower points the level offset pump on revenue declined year, prior mixers. modestly income $XX a

The margin prior compensation, as a year. the higher of were variable level offset revenue, by benefits. normalized These quality net improvements a improvement compared to of incentive price was driven partially and by

year-over-year, basis. XX% an declined Orders on organic

reflecting months. XX described, across broad-based our was As decline past the all of lines, impact global the this the product Marc slowdown over industrial and

of Food X% to and down million, the Beverage, on revenue Organic headwind. large or level from dairy period $XX Moving dry a X%, revenue was $XXX to was lower in year-over-year. a declined Currency million due systems. revenue X%

throughout aftermarket was our growth, was strategy mid-single-digit consistent higher partially quality in revenue sales. and to of a drive The decline offset This business. component with is systems by our in anticipated and organic

and of comprised systems, nearly component approximately related aftermarket quarter, was of represented of two-thirds of processing. third one-third liquid Beverage the and comprised sales. Food was revenue revenue mostly Revenue to and In

dry in to of segment X% margins $XX systems only The lower of from XXX million XXXX. down income contribution level of was from revenue XX.X%. flat year, revenue the and at QX was in the revenue, XX% Despite QX, prior to expanded XXXX, points large

higher revenue, to offset incentive benefits. half were taken was and first in compared These improvement prior margin The pricing the improvements variable from quality driven compensation, by by of normalized partially level of a a year. savings the actions cost as

liquid forward. X% And level is on organic to performance aftermarket. grew of margin driven customers. is Asia global by indicative an our modest and systems, process in Pacific growth, believe this of basis We value going proposition achievable Orders in

per reported growth to of relating of ongoing long-term a strategy. per primarily asset to operations. share, we held-for-sale, of now And continuing $X.XX corporate fees from charge $X.XX, a non-cash, professional Turning $X.XX, as share earnings our impairment enterprise classified related included This plan. to development

XX% tax guidance. effective net assumed our as provision the a rate of $X.XX, compared to benefit And of the in tax in

Excluding these per $X.XX items, was from continuing share. operations adjusted EPS

of the a matter. operations, per $X.XX. per discontinued a share impairment of we a loss of related a non-cash to This share. settlement And In $X.XX reported $X.XX charge charge includes legal

and value to fair less was to charge the business. on of net sale based cost of in process impairment The reduced operations fair carrying assets quarter. the the third value, conclusion of sell The at indications the received of developments estimated value, discontinued

a of receipt revenue file power substantially XX-Q We The our later projects disclosures will that nuclear terms of related expect on long-term are to and And this related item. additional recognition today. of series in it have settlement production, our payment. certain complete to technologies, to legal

further XXXX our This divestiture the our The inclusion of claims results, warranty items, our progress of and portfolio the in our commitment obligations. executing are beyond customer, the these by process, from releases transformation. company ordinary settlement indicative on QX, to

of the with orders expansion Power operational up highlighted in quarter, team business, In by solid our and with year-over-year. and and Energy X% line of margin a expectations, terms his delivered growth results José EBITDA

a about Moving decline we are X% XX% revenue, continuing assumes basis, approximately on to organic currency This about operations prior million QX guidance, X% $XXX a XX% decline. on to headwind a revenue to the and targeting a of year.

Food double-digit over At the the segment decline in in a are revenue experienced of level, dry short-cycle systems. the a XX level organic we organic And reflecting reflecting lower mid-single-digit activity, and Beverage, from months. a industrial, targeting last slowdown large in decline

are basis year. points over the segment dollars margins Despite QX growth expense, million. $XX consistent XX%, and XXX corporate and with income, the and we prior revenue modeling decline, XXX and XX% We're up at targeting around between to

expense, $X This business. $XX cost rate. is adjusted is million $X.XX our and support $X.XX million Power a to expected interest per between be and includes approximately assumes range of EBITDA and million of of Adjusted million $X XX% $XX tax EPS share. the to and This Energy

end had Gross leverage debt versus quarters first was Taking debt cash $XXX XX% QX, on our year. of or a $XX was million reduction hand, at $XXX the the million through million the prior three position, of look million, of net X.X at this year. financial includes This and brief $XXX times. down we of

schedule until can maturity we the right senior all including XXXX. instruments debt have our our of no slide, maturities staggered. notes. required of Note you are principal side On the our see payments And that material the

$XXX revolver in strong our we have divestiture. cash We're further our financial and over million a -- Beyond have position. between revolver, I'm of over liquidity cash sorry, today. to the liquidity million on and strengthen hand hand flexible of And we expect our and position $XXX on following

the, ROIC reached broaden point, will Once of organic organic proceeds, shareholders business to intend allocation return a capital prioritize well we've as towards as both debt ongoing reduction redeployment along emphasis shifting to a shareholders. and growing the evaluate and we to return attractive As we our through that with investments. divestiture our inorganically, with opportunities,

exciting and by our continued new our products as time acquisition strategic grow opportunities investments well investing in is for In we high-ROIC journey. to of to preparation, build positioned we've the targets. opportunities We're This funnel create our business. SPX investment value to approach an phase to including facilities, innovate modernize our of next FLOW

Marc I'll With closing that the for call over to remarks. turn back

Marc Michael

the leading our market by growth Clearly, growth with in solutions strong Thanks, a expertise future. industrial process where sanitary technical enterprise within well and Jaime. we are global brands excited and with expertise, -- building capabilities about and positions. where verticals We're micro is valued recognized applications supported focusing attractive We're trends. highly premier secular and

The projected financial and with attractive is clearly double-digit near-term mid-teen delivering margins of ROIC. more profile goals EBITDA

growing cycle streams, X% achieve and cash convert can we revenue organic attractive high-quality a believe As an we industrial X% we focus through to very at rate. on growth

our yield This business We're exposure today and ability strengthen in for consistency cyclical our divestiture, to ample broaden us to will and a that creating position predictability in in will following the financial strong should profile forward. dramatically markets commodity capital performance. and risk be our allocation. going lower greater further The

In significant enhance business, point focus. our closing, for XXXX customer our structure we operating portfolio represents simplify execute as and our pivot strategy, a our

business level the quarter our third demonstrating challenging-demand we've underlying strategic performance transformation. in The the value cash a Our also in to made underscore ability team results and of our highlight the execute strong of quarter the conversion margin progress of environment. on our while

allow Our the throughout cycles will strong flexibility on to the financial capital in position return invest our to opportunities. business with highest economic us invest

working to with long-term a to external growth targeted front, our drive partners develop map in On the road verticals. strategic detailed micro is team various

with and and groups emphasis and of support teamwork model around velocity our to organizational with strategy, core design higher our customer and focused vitality. enterprise a building we innovative In level of be driving operating intimacy, enabling continue capabilities on product cross-functional accountability,

demand balanced to deliver ensuring business we approach proactively our XXXX, a we through we world-class environment, costs experience levels customer at we manage take double-digit drive plan near-term while to investing a manage for long-term at growth As intend and as the appropriate ROIC.

business value want about across and our enterprise the to for and hard contributions I remain thank partners our to to and We're quarter. creating for as the effort customers our excited employees. tireless their the long-term committed teams well future positive as work, shareholders,

prepared morning. this That the concludes for we'll call time, at open our remarks this up And questions.

Operator

with from Thank first the of you Stifel. Nathan [Operator comes line Our Jones Instructions] question

is Your now open. line

Nathan Jones

morning, Good everyone.

Marc Michael

Nathan. Good morning,

Jaime Easley

morning, Good Nathan.

Nathan Jones

of that last know on that off fairly comments Marc, customer an enterprise strategy, to focusing cross-functional intimacy I'd all a like on to start accountability, some there work team it's kind around of call. levels high short fairly encapsulate your in answer of of I earnings stuff. difficult

But in very change the improved execution the transformation within that has I of organization kind company. important the and cultural your been think within

culture benefits it continue the about within could you the it us benefits about, maybe that give How that. what are? shareholders? How And What results improve you've a do more gone customer? little it your How So to color to can your how you employees? benefits organization?

Marc Michael

on on the our okay, important closely key best we've over -- customer verticals that's to years emphasis, pivot the been and with that that saying, company markets four started spin. and an until emphasis micro functional XXXX taken and this to it's more started products, working and up and teams and the enterprise an together since the we've Yes. really we on deliver our last the been work effectively can possible. across looking capabilities where actually over we the the key we customers experience serve strengthening Nathan It step entered really

includes number of That a areas.

to about. make difficult talked some decisions had we So we've as

on provide we've is done. to historically of front would some back customers and I of some that So our that the a includes can velocity done things say areas that in also it value and calling describing way it we're the factories as But business we've exiting focusing more big on we into invested it. the different

factories of all way through accelerate We we to the a the that look customer the all at end. through engage until areas and then various the through the the third-parties starting product and elements all we service again help, streams the product have first with speed service with value when way at shipment invited to in and we to the how of each ship we've

standpoint important early emphasizing renewed step. and we're From funnels company vitality the our the on value just is stages that's and in vitality and teams NPD products, a in are an lines building focus new really looking at the product around engineering,

of steps the a punch the And customer we're point of to that's all are. the taking that kind then as I'd we really back emphasis key why is come

it's customers we a that be to and way the service differentiated to in have We emphasis really have. able

So looked back inorganically, shareholders into ramping make get around focus into brought that business, back deploy opportunities we a capital cash invested into return up. on good capital the organically investments as how the has for really we've to and and Jaime return is

value this So us lifting lot excited it's this really how point really the lot to a start pivot of of this effort, going were we've is have with journey hard whereas get we why to last the hard create years, customers describing of outcome a for a could opportunity as now a our and different preserve case the we to value worked to we're to heavy several now, stage about forward, over you our we creating and start a really for really to and make shareholders.

Nathan Jones

like follow-up of we'll and the end around question Energy advanced before Thanks capital for probably probably and the on sounds the well year my redeployment fairly Power of that. is And potentially It is that. here. something hear

inorganically. and You're going reinvest good both capital of and deal very have flexible a structure organically a there to to capital

describe verticals? work, market, to the you're capital most kind the market, where time used setting go being to comes looking M&A frame to Do guys the what places deploy are. that of rates resources lot to to when of been into to those re-enter more at ready you And process yourself? the and attractive identify segmenting looking going of What at you doing the you're kind for hurdle best the have know I be time aggressively? of kind be a

Marc Michael

Yes. Sure.

Nathan maybe active Energy. and process mention firms. I'll an process Power several the So divestiture with It's in first,

due place quarter. job in The progressing in in a is we group We are and meetings performance as are management, mentioned everything fantastic and well. continuing is diligence management delivered are they the that team José good overall and with doing his and

where going we're be be balance to different and to our it sheet in to really way. capital regards a we're As our position redeploy with in balance a pertains to much again in sheet, going with healthy

said really as several And part focusing an make. be how and the through investments times, that do of invested remarks, we return going prepared is on we I to we've throughout mentioned capital on important

it's that's market so, a we're the doing really work leading support And firm and space will largely be in helping important now work that right us at concluded the with that time, evaluate the opportunities to want good going the year end areas to going to we're have for capital. we and has -- the think really deploy we that of sight some line a of been ongoing

for both the mention And rates, products can speak into teams I on of things just looking we're and get capital additional good accountability year areas and the in hurdle to be deployment verticals And that on good going responsibility maybe, maybe for we'll return. this two how I'll a working those key micro make next have around have we've this organically also establishing we'll inorganic look year opportunities an We're that Jaime based a throughout together investments. to Again feel I will it growth is to opportunities. position that, let at look associated areas assessments, strategy. to the putting to well-defined would and and been at be some that. with

Jaime Easley

Yes Nathan.

on So, a working the investments. of team different is variety

so we investments we the value-creation to kind And as organic model, business. through first of walk within look the would

organic investments taken over to the six that's the chance ROIC push way months to our And as way of and three through so, the last into pipeline about we we investment think really overhaul we've through. concepts working the the

all be to is micro other the the see think to work how the -- to think expect teams that about and are it way be how as and going micro of the improvements the front hurdle than the and inorganic described part opportunities just teams organic verticals, for get as time rates which opportunities, the lines, within from look we opportunities on the the that the what that higher create the cost those be about those is our we regions, expect those returns on value the we that. would of So is going would Marc organic we inorganic quicker to growth about we to then inorganic and verticals, think product margin our opportunities those synergies, side,

front be of think the would we the So have the an that years are what and value just and WACC time that but we'll we to duration create, acquisitions think these in the in or ROIC on investments. that's depending about it those knowing and the to say of hard as can those about of which price that thinking of not probably take it's above -- now, us, to we'll apply exactly framework number our the

Marc Michael

see capabilities so the returns micro get opportunities with our we're verticals, mention inorganic and disciplined thing good on we're with that strategy we product and today. we core core lines looking that one business would in very our is operating around in in where be assessment at we'll our I other line Yes. and and familiar

to margin, an that growth level. so, of good can expand really see we'll that where and in opportunities at important an laser-focused we're be we as not there at growing as that's but are Jaime areas opportunities, opportunities outpaced those anticipate looking mentioned, will uptake very that And be would I I only on verticals that think

about an that's deploying be we of how important to think So, part inorganically capital going too.

have efforts the us. work with third-party that's been the and doing maturing And firm that with Ryan again, the Mlingo process supporting that going been that all with is Vusa well on has

to journey not really we five years about return the start thinking shareholders. are how going into where for and our to in the about period, to So, create XXXX good great about XXXX we're the next we're phase can up thinking this the next feel we month in and set get of outstanding XX we this a over three again

Nathan Jones

detail. for pass I’ll the fantastic. all it on. That’s Thanks

Marc Michael

Nathan. Thanks

Jaime Easley

Thanks Nathan.

Operator

Thank you.

Our next question Halloran from of comes the line Mike with Baird.

Your now open. line is

Mike Halloran

Good morning, everyone.

Jaime Easley

Mike. Hey

Mike Halloran

on, got it seems we you on you So, markets despaired thoughts like side happening it deceleration trends the side up had as end the aftermarket help some trends some right see the in F&B one, XXXX? look of little how on market? the a and Sustainability to then you're Industrial forward you move where year. side, by some thinking Asia heading project as on about fine give we components of either kind a Can

Marc Michael

Mike. Sure Yes.

has First, to the kind over several $XXX the quarters. been of as overall, we've range last in trend of mentioned, million the $XXX million orders

than other going Europe the to have seasonality tends and What mention the based of caveat regions regions talk of would one some the holiday to tends I see markets. in place QX, in be the the the periods and we I'll kind on just it quarters lower take Europe. that across Now, in to and that between year the

loss indicative overall areas or participating. feel but more environment. We we're as environment. markets, that's not the just where in you happening QX, again a in market stepped macroeconomic the see Industrial, down any global what's share we First slower don't It's it that feel of there's in

several to see we move the as is Beverage, that in which quarter. aftermarket through as watching be our last relatively good it's closely, combined we'll components see. and you Food quarters, been the So, both stable over and on And -- business in can

a in with Some better the performance components. aftermarket performance slower in little

systems come some in QX been too. more pretty opportunities it's through we and some in steady developing QX. there, through we some expect see those to And came And of in

see thesis those is on high how topline markets quality could get we profile. bit be swing key end of that message the regards. about we'll aftermarket in our both the less we business. revenue, core the margin overall, business, really profiles revenue the of that being around and we're good So selectivity bearing do more selective a to now our in continue But and think in be And I systems this a approaching item components so markets around right as are some and and about what that

what overall it to it some across we go regions America Europe, was kind the see was in across I to kind was I give of seasonality. slow if with a overall. the weaker as and was It just was the regions, mixed F&B sense mentioned North Industrial So, single-digit a the across low was in of stabilized of but range that softer, product and see encouraging lines. bit

and the stable. kind when of that components F&B it digit. in aftermarket, encouraging see was together were Industrial North to sequentially business combined And America grew kind of mid-single

quarter. as through in here that roll we So, watching of we'll the fourth be kind

That the China. would our mixed and only -- down. also up in of and kind some components describe our had offsets. across were was some and in were Food systems China really orders aftermarket. business, in Beverage Industrial were board components as in bit then good I momentum but Good some not also a And

with And low saw up single APAC, -- across too F&B rest digits. we primary and modestly steady being systems some the then Industrial of kind improving stable systems and improvement driver of being mixed. a kind there orders aftermarket again of with bit being the being components

environment. more the said global business economic of front in it, components I of impacted the that with I would systems be Industrial and as from developing have and by it opportunity, mouthful Food stable there, and Beverage good us. up selectivity we to I even see So, but continues describe backed remain have consistent and aftermarkets kind kind for us, we and of geopolitical if a

Mike Halloran

the profile. on levels segments, the sustainable touched margin the think what is positive both as the there you about talk And we the obviously, from as you that's third then, you on sustainability anything revenue around look revenue on quarter? revenue of it quarter and saw to the briefly, impact seasonally, forward? swings And the Could you relative on is that in don't higher-quality look having the you focus just third but to margin

Marc Michael

see performance We're it's QX. margins answer QX a about XX% XXX short being anything continuing level now that's the with basis similar don't range in quality from I sustainable. start into and the revenue, The is achieving of of year of higher and points looking keeps the to worked it we've margins gross in up this on backlog since have that as

in how performance Industrial segment, the that It's -- additional we is really customers share position we space. more take markets improve and the in we again for what feel -- performance predicates and in the our provides going can that is forward, and what

then in continue opportunities. same and be we liquid to for food -- look components opportunities of to -- where business and selectively the to well, beverage the customers continue think And we service forward systems applies and business selective bit this the I aftermarket on

is that not So changing. playbook

the so and that working QX end that results QX, we're we we're quarters into playbook it's changing we've and starting year. in in for not move seeing and That's several to the that past now as been execute next to the

through improve to So that quite beyond and continue to work move I'd expect we frankly, that XXXX. into going XXXX to as we're

Jaime Easley

maybe I'll that. add Yeah, just Mike to

and question the remarks this of right the would segment. that's margin we expect in that in performance prepared the level we've think I said F&B

it level beverage our we've larger basis think a the out of the -- historically hit business about to types good important it's food of are of we the Marc beginning systems on. XXX that backlog of liquid and and are point systems seeing more -- I backlog from in nature the consistent The had and a is delivery the the also in year margins points. on it improvement systems

of any it I the relates as the a would that nature that. of backlog the to is so see stabilize in past we to particular think charges quarter, And going help

We've talked of throughout about year. a relationship bit here cost-price the course the

be going being that's I seen develop positive level really pricing believe within think a we've case and be last and continue organization late for capability around team of to year us. thoughtful since the I to And the that. on the

of that intimacy customers, insight think this, income our through the gross spending the types investments those the make we're to going we references are give expand more make maintain then and Marc I more customers, going time and of lines. and with going voice time to some us product over to would our to in investments to made And outreaches better but going customers, that's that margin to and us that new allow into investments segment development at we're expect to customer

of improvements Maybe we've supply Ty lastly going we've the of and factories, up talked is but excellence, starting to in Jeffers the made, through our that that show pathway and some here the are the his chain to is of that our margin I'd all point really line. execution team the factories changes out about gross

You've seen continue. that margin expect of that in to we gross this the and year consistency

Mike Halloran

answers. the Great. Appreciate

Jaime Easley

Thanks, Mike.

Marc Michael

Thanks, Yeah. Mike.

Operator

you. Thank

from next question Barclays. comes Julian with Our the of line Mitchell

now Your open. line is

Unidentified Analyst

[ph] everyone. for is morning, on good Jaao This Julian. Hey,

Jaime Easley

Good morning.

Marc Michael

Good morning.

Unidentified Analyst

but you quarter just just more Good with know to there's bit America held and what excited, weakness last. to wanted quarter of else morning. see, I this Can kind the into order North you relative what put Growth ask a seems well resilient? quarter some have about that being kind you talk there this industrial. I to numbers got single-digit of, up leading was next decline expectation? tougher on of up mid and maybe anything if

Marc Michael

The on quarter we've that indicating reasonably it lower of we're well And a up call. hold the the did we typically the is keeping business what part in Yes. close given see again Industrial the market. seasonality the fact been as in especially eye European throughout

improvement we our in to that America demand versus an we the businesses our shorter-cycle and of product business the always is product two what's in give happening we picking lines up, business, and markets were indication the regards our where of shorter-cycle us to, did associated business that -- business primarily first. of is because up hydraulics our closely our dryers see see that best it does rebounded was many our in dryers the be to look North mixers tend typically our pick QX those lines when one and and hydraulics Specifically in the with industrial

here ups development in the watching month-to-month we'll It's a through see of I choppy it be months. would still the and environment we'll bit a downs as So even QX. describe --

China bit APAC the mixed, North stand mixed. period, a rest look back at was was was out was a America So as a bit past Europe XX-day mixed of bit again Industrial and we a and the

America through North see to to we and good improvement watch as move some having quarter. continue we'll So that the

the factories too on. is of execute concept wanted that profile and to about to this of do more we I is core thing the focused work XX% going really mention One we what team that to look business as of our Ty and business profile they're now doing this as are in factories through our our and velocity have

and we'll able So quickly with to reduce accordingly more again also shorter-cycle serve backlog customers lead and better. our times convert be business,

also. we that's being execute important orders this receive us a backlog quickly think better though a faster as in to forward more of we going that that will And execute So more and put them is business quickly through cycle an concept. move our quarter concept in -- we position

Unidentified Analyst

then guys. back been good tailwind And turning for it. you Got to a Pricing has margins.

any customers? pushback given looking they've in increasing coming the ahead, that's as rapidly year, tariffs forward? seeing are from you is sustainable maybe think not you do price as Just your where commodity down, been going past Just

Marc Michael

the been stay chain able to continuing been the a supply point price There's it's to and good organization to of done lot help We're to work price. cost Yeah. cost and our just ahead evaluate cost. of not been offset we've in

with initiatives tariffs associated stay our of So the price us inflationary that's chain in improvement the performance and curves. are helping margin ahead supply

on and the forward, or cost more on which And monitor our ones make chain commodities product see, pricing are positions. inflation supply teams lines price look are experiencing to the front, continue that same tariffs better the look and to accordingly at achieve been and pressure they've from we'll we As on maybe going front. the working the playbook adjustments

I we'll targeted to do pricing continue initiatives. with So and going be our really -- both forward,

Unidentified Analyst

Got it. Thank you.

Marc Michael

you. Thank

Operator

Thank you.

the from Barry comes line of Robert Research. question with next Buckingham Our

open. Your line now is

Robert Barry

Hey morning. good guys,

Jaime Easley

Good morning, Robert.

Marc Michael

Robert. morning, Good

Robert Barry

solid quarter. Congrats the on

Marc Michael

very much. you Thank

Robert Barry

wanted you crisp made was just it think before execution. it a I the about I to think clarify the backlog. comment I

I year entering at it was segment the think think But I XX. only up is margin bps. the XXX year-to-date,

up puts think? the year more strong price cost been So that and pretty was given what Why has backlog there? how are and the the good isn't entering I takes

Jaime Easley

that Robert. Yeah. I'll one take

into you're So to at year think we're the backlog we to we of we backlog that's And looking if still QX, out and which cost/price the I the play over see you margins wouldn't charges some performance, the the coming year have I entered course go as as then the in go and back full backlog you'll would -- discrete the that relationship back into seeing that continue you as remember year. of quarter, been expected if QX. to the we that explain think exit in had

Marc Michael

The I'd that Yes. developing too still in to backlog too. has add change the just mix year. been throughout overall the

also and while dairy dry our that's the of the time, in we've in the developing period systems on year margin taking been way down too. application business for course of throughout different a Now a of we're terms focusing been expectations profiles this

consistency QX, with the more of profile margin in we starting the that we're the of dealing I during, and margin half more expect year. backlog. indicative things we've going QX is what that describing forward some trend experience and still and terms to increase had of think profile margin we higher-level that in versus first the in So were been as We

Robert Barry

forecasting Got it. Got in improvement it. And I nice guess you pretty XQ. a are

Jaime Easley

you. hearing trouble having we're Robert,

Robert Barry

also of Yeah. observing a increase was pretty XQ? in I expecting that nice kind just think also I you're

Jaime Easley

We are trying.

Robert Barry

of dry So, out dairy backlog. I earlier think said is now the you

be to end the proactive no how Or at year? end Just some at strategic? you of deemed there being anything things there's know well. other and like clear, as year, the in Do heat backlog the I de-emphasis products you anticipate as been exchangers be longer that's much might

Marc Michael

Yeah.

have dry on do taken these backlog. in the that be minimis projects XXXX maybe more we in the revenue to and dry And have gone in in amount have still the dry backlog. smaller de we is much The now through orders we've the Just overall dairy as of in from terms nature that's XXXX. dairy, specific larger the been

of dry has less order Overall, for systems been business. intake, order the intake our systems the XX% total than

the that been in that's back XX% So, now intake if and we've and what dry, been and that's change describing go order a have where a XX% XX% in is year. or big given systems that could Beverage obviously Food historically, you only

ones So, implications strategic and execute we them. described looking that taking smaller reasonable be as the can profiles part dry take a to some on But customer application much and be going orders will to and targeted we've forward, margin business -- still we'll have opportunities.

work can the On years emphasis business. our applications, be we perform two feel there exchanger Beverage the of so do applications heat on areas more now as to go performance the But, to in side we selective then in the such Food backlog still we and business, back there. heat support service exchanger on have still business improving orders aftermarket continue and better switched and where HVAC our about we applications and and to you taking we'll focus if ago,

business have still they smaller than will the there, been those parts of So, historically. be at much level but just a

Robert Barry

taking more sounds you are profit. and are there orders it strategic And Right. like any makes

Marc Michael

right. That's

Jaime Easley

good that markets got be those growth that right. the making we've capacity of and margin in would some in that confidence will markets. we're and into the markets we strategic the capabilities within work doing And back That's sure tie and the those in

Robert Barry

for Yeah. just I lastly me. guess

like You two think segment margin to top for mentioned detail by get big is do this picture. prudently Probably the into these picture framework about there, point. decline line end-market orders right point you kind just or single-digit Marc, I think, much especially too a organic want of Just the XXXX. way low expansion? big to But Industrial earlier at planning XXXX given don't think of and maybe

Marc Michael

Yeah.

show of say, XXXX, headwind of half the and first year. XXXX up in that of so part the the in half we first from look towards executing million I'd mention we to these thing kind keep during headwind let's of is between, that's a of that of were dry $XX we XXXX, if that $XX think dairy couple have in and I mind One things. big that will a projects with being will a first million half

projects a carry It's it a margin ourselves didn't just that can in place keep so keep reminding them. marker it's with to So, thing good mind. just actually to those -- much

line top okay. drop with associated that So, that's

factors. year? next we've can to key then other we factor talking how Industrial line shape move kind be XXXX the The start you about and get the of those the through sense been into and point and up And given I exactly quarter develop fourth two do could where that develop swing look of at markets as think I think would orders a

gross as are far QX we've in to intentions margin in as the then we're with margin the seen And we've will work a been about We're on margin focused QX grow to on our gross February, as we'll more going and gross in margin our to that and be but line, margin. achieve continue what really our we'll expansion. continue it to want of talk part a is and what consistent to concerned, describing

going are -- we're to would the too, to efforts I be mention cost important other opportunities to considering. we're line well out cost us going just as that cost be also the at working the And X% as on on X% to

that expansion We'll though to define little opportunity get February. we there. more specifically want think when to a I there So, margin will be

Robert Barry

Fair Thank All very That’s enough. you. helpful. right.

Marc Michael

You bet.

Operator

you. Thank

comes Our the next question of Brett Vertical line Linzey from with Research.

Your open. line is now

Brett Linzey

good morning, Hi, guys.

Marc Michael

Good morning, Brett.

Brett Linzey

P&E the back Hey, come just proceeds to to question. wanted

inorganic Sounds leaning versus you're towards a like remarks and in prepared repo. organic investment more bit your

you to those and repo organic M&A backfill lost live at earnings? up You've with give pipeline. the had organic do to to Could through some investments? to look of Or some is, guess plans start you evaluate are time as you and what us that between might the of willing And before sense a make those you just least split to kind roll inorganic? the I question the look like

Jaime Easley

one, that take I'll Brett. Yeah. Yeah.

So on decision-making investments is we through the the our way model. ROIC work through

closer is our are the teams CapEx our long-term sit have don't really we quicker P&E here, to around the from would rates, more as to around money and also say to the looking product the investments business. and on about customers with door the strategic light get So, spend towards et to are that get cetera. But customers less we factories how then to We've we line organic thinking on being green of how modernize investments not NPD given that understand are that making waiting organic error funded funded, out divestiture we investments. think we end-market being demands, I

And to CapEx product. the allow efficiently, our thinking of then, internally how maybe on operate line capabilities, to that about also investments digital also, us will and cetera more the IT et improve

to continue it position, that different our is a stability work of the and company now, of post financial that we'll relates sheet use fund all to investments. So, the of as those continue and ongoing and kind P&E to to balance just be type

and return doing in address what remaining look proceeds, we the that shareholders and from do that to point situation and right of when X.X expect aggressively. the need we we're out, load the now, leverage get comes that is think there And in when debt the Now, the we're to there. proceeds to at going think do. going EBITDA then, around just process, be we'll is pretty mechanisms look the we your that the but, that's We consider to Right to the I so. are and see kind to at will a do first just at we what once times amount to of time point, this, thing and prudent delever to look determine

Brett Linzey

how X% explicit X% net you then the productivity netting some here we should X% R&D that as And to obviously of a some Okay. over quite NPD quarter? ramp think the in become stuff in shifting come of we to it below Got for And time then, get it. to about you've then that does of some And productivity, time? the Did that and had QX. against sort think X% through target X%, strong kind just to to Thanks. X%? about margins number

Jaime Easley

Yeah.

earlier to announced, itself. was business. What in I that that X% we volume was go streamline X% time, program and of to and for is we back are to that that related a not programs related finalized. intended now back the the those solutions X% a year framework if we that as So, At X% future the say announced to in the to would process our

Our amount mobilized saw those. the QX. that ramp on begin been teams we'll what needs of to very minor towards We the are end a of into happen have and to to do teams executing begin begin will aware and up QX

around line. expecting Looking, what the we're team's investments. margin to will X% that piece the kind is The be We're structural the the be from on forward of, two-thirds expecting broadly X% that roughly of some initiatives so from line then functions the about coming that productivity, to benefits net thinking one-third is will sourcing savings, gross and come factories. of the maybe strategic cost going more through SG&A

going we about we're us of make some investments communications, analytics, we're get excited types those going to to are data grow, customer, some done of that try So to around voice the with the program. of allow initiatives really to once

you savings think phasing those. as The about

when seen And then coming to of observed think, in or guidance I we're for the we of with now, start. expecting you XXXX. and phase place year. run-rate still We'll think be good specific next in February the savings I those through, P&L, model could in so. that, coming get be it's a full XXXX through the But into XX% more will

Brett Linzey

maybe just Okay, then, and follow-up. great, one

or Pac Asia chunky calling Were any and orders order in double-digit You Europe. large small-medium system noted process size these worth out?

Marc Michael

that we've medium-sized small been selectivity describing. to into more fit were They profiles

Brett Linzey

quarter Nice guys. great. Thanks. Okay,

Marc Michael

you. Thank

Jaime Easley

Brett. Thanks,

Operator

Thank you.

Our Global. next Seaport of line from Liptak question Walter comes the with

Your line open. now is

Walter Liptak

guys. Good morning, Thanks.

Marc Michael

Good morning.

Walter Liptak

on questions, consistent, couple Were orders pretty quarter? around sector the to I ask more through order America trends. Industrial the wanted especially a North and especially in

came are is Or into North things slower, America? during through okay, in getting it the is fourth? was now it And America Or -- But North the we're around the stabilizing quarter. weak. the international that

Marc Michael

Yeah.

of mixed, previously. on still up range. And as bit the saw in again America I sequentially mentioned, kind orders in As Industrial what was a mid-single-digit North was we it described

overall our dryers to We heat kind growth, of QX, exchangers, saw versus business, pumps tick had And mid-single-digit sequentially. and a but kind netted little we mixers our and up. of slower performance our and in hydraulics then,

can product our pleased were Again lines. business that. hydraulics of we vitality, short-cycle economic and our given see indicator particular dryers those to be more of So an the nature

need order requirement a them they that have customers When And market up quickly. quickly. to to set we're respond there,

rest I really mixed line-to-product it's what with of across, just Industrial, product would go globe you As environment softer the say the from a about line. results

the describe That's as as China, would Europe how Asia Pacific. of rest I and well

around as So, forward, hopefully the modest stay some start if improvement, North will that to can to globe. a the through America move And good follow see And rest same we that stable. we'll start be trend sign. of then, see

Walter Liptak

Thanks the tariffs. said, Good. you color. from comments customers, where I there saw also where Was wanted they or that about, -- for anything ask to specific with Okay. demand?

to business, kind where were general more a Food I thinking and the able can a about you correlation international? guess, find to malaise Beverage they as a -- I'm between or the link where two, of just opposed

Jaime Easley

we point global do tariffs this specifically U.S. to reverse components coming leading Chinese Yeah, U.S. I up particularly the and from the and was think that, our affected by Yeah. been Walt, some China. of we business believe said the tariffs, what of has tariffs, some

that on products making think an for we decisions be had of have going the would the in U.S. retaliatory coming out as Chinese tariffs that's, product who making into Americas, CapEx China. be some customers, the So that and on constructing influence had would our

The that we fairly significant on components did encouragement closely. business. continue impact see here in some And we'll But that's be watch one a of quarter our that, would pretty U.S. to stability been us, year-to-date.

Marc Michael

that, we've for including kind QX, and bit I And Industrial the slower on just of North additional of that was markets, recovery describing, from one overall until were we you. this what and sequential is pressure just Food And think, up Beverage comment in a America as Yeah. seen so in macro-environment. just the

kind And of it's again choppy.

watch it. that plays a continue So out, have where the troughing. guess to hopefully I Industrial to But all we're landscape. point see across we're reaching we we'll to how got

things we kind our our been back But news margins, even controlling of in as things new looking we're good the organization the investing into and can expanding describing, environment. control operations doing, this products, our more improving at that is which we've and difficult the we're

Walter Liptak

some And is, guys strategic the the solutions and a Okay. dive talked a one you deeper external about into partners doing part of front business. process last for me the

call. missed have I and it -- may wonder earlier the in I So

expected could a But How more And just What's you to alluded do I goal programs if wonder you things. from those what think, are? of I think take? couple us provide you that? color, they'll a the with bit little long

Marc Michael

Yeah.

for in So, sanitary the industry. the looking them verticals we're months we've And working -- as at firm the six so. the working this with industrial call taking as And been or it we're last the well verticals. with leading

And then, and gaps kind to at technology, triple of where potential look access customer we or may clicking different a of and identify our way areas way into micro in where double verticals and either exist, and a better level, apply in current channel. can technology identifying more those to

so, to teams through for organic the pipeline on. building is -- work what And an as we're we're working that, to

opportunities much access to organically. create us inorganic or directions well be as do what's customer technology around it's As a may gaps too of stretch and helping where ideas the the

our the this process. the return the forward. years. And our two that we -- an be of and concluding going be at capital It lot on work year. on playbook of been the will a is into what extension of will way Walt really how past it looking end really I things that deployment the capital of on we've high would think invested well we're at for about describe this So, and working It's

the of kind aftermarket process. returns very good we now best good narrowing annuities. profiles, was areas we really And in down it's can the for beginning. to dynamic so we're next three-to-five-year It investment, -- a believe over good broad-based very the time growth So horizon, it markets, margin where get was that

Walter Liptak

Mike, this its to... or M&A's of opposed benefits growth organic the as And

Marc Michael

And broader hold investors the to out backdrop the how what we see for year the and on of Investor what want half longer-time a of horizon. Yeah. of in Walt. do, that's we It's It's two. the do first on we that where. is a combination an will year But next a give combination two playing to the Day,

Walter Liptak

All great. right, thank Okay, you.

Marc Michael

Thanks, Walt.

Ryan Taylor

appreciate We our We're we're Thanks all detailed This now. right That thoughtful and the to responses by questions -- over call. is Ryan. conclude Walt. the our for time going the team. call

to answer follow-up And we next have. and performance analysts Stuart I be will day to across all thank for shareholders of teams questions just any you want your our the world quarter. the available appreciate the time. for time. the in Talk And may strong to

Jaime Easley

Thank you everyone.

Operator

and gentlemen, for this call. you Ladies concludes today's conference participating. Thank

You disconnect. may now

SPX FLOW (FLOW) 1 Nov 192019 Q3 Earnings call transcript