GTES - Earnings call transcript Q2 2019 | Gates Industrial Corporation plc

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Operator

Good day. My name is Jerica, and I will be your conference operator today. At this time, I would like to welcome everyone to the Gates Industrial Corporation Q2 2019 Earnings Call. [Operator Instructions] It is now my pleasure to turn today’s program over to Mr. Bill Waelke. yours. is floor the Sir,

Bill Waelke

call Thank you, our briefly us on our passing for our here who today along thanks, quarter XXXX everyone, with the before second language will David and joining to earnings Ivo, non-GAAP is Naemura. today CFO, forward-looking and over call. cover I

are webcast of by investors.gates.com. this available on is certain slide historical closed market in our Today’s of our the non-GAAP this the financial will included and measures release that measures of financial is we published website. presentation, our call, we accompanied second refer in website the at and of in believe quarter presentation. which On Reconciliations slide After Relations earnings to available afternoon, release useful results. a call the Investor performance. being section are our A is evaluating copy non-GAAP we each our is

now our statements implied the actual those provides Litigation be of to update to meaning make all. risks we forward-looking call, if forward-looking with to of Act. the annual Private in Please statements our the quarterly answers X report until earnings that We among most that these could or include, statements risks from our the subject results statements. materially filings be we updated SEC. These which by any forward-looking forward-looking Ivo? These and expressed recent in which and on matters include such others, remarks have at to obligation Reform other different next described may Form presentation, not Slide within refer disclaim XX-K that are Securities reminder cause a will

Ivo Jurek

us you afternoon, Bill. you, everyone Good Thank for thank joining and today.

last not second come we our at results quarter did the call. time of in earnings expected Our as

As impact we today, well our the earnings. seeing additional along what associated as our I’ll on markets are on move the presentation providing color be in as we

Day this take commitment like long-term would we delivering I the objectives start, opportunity February. to strategic to Investor our to I Before in our reaffirm at discussed

We believe right driving in so. growth are our in the do place have and to firmly committed strategy the to business we

significantly portfolio, of are way We investments. benefits we our of capabilities on the product to our invested in to product evolution and realizing drive the organically have the development those

We added the our of we growth the to consolidation to will are products to on less-efficient the geographic backdrop, place. capacity positioning they while have growth pressure components footprint. in our evolving of production these market support sustainable of future. of the put facilitate Both remain additional given our results new business firmly And our in objectives and drive

material, Now quarter second Slide X came we quarter presentation in with progressed. the the of lower to demand moving environment our than as decelerating our revenues expected

the departure compared prior declined to in the QX. we Our exiting saw X.X% from which quarter a was revenue trajectory the year,

their of Our these industrial North the with X.X% conditions, year-over-year positions partners, market the continued revenue many agriculture industrial to end response softening recalibrate channel experiencing in markets decelerated, and America, market inventory decline. declined In the largest our in associated to particularly end replacement core QX.

market were channels our automotive the mixed additional in the Sales quarter. channels. revenue industrial de-stocking we first-fit channels into end experienced, in that replacement replacement Despite the outperformed in

North building business, portfolio well the weather. in to revenue Europe decline. single leading where on saw broader as we In challenging to largely continued digits, unfavorable high America, experience offset largest we a distributor coverage. due economic conditions are the in uncertain product We which These market with the continued is as automotive our declines growth our high-teens down the replacement outlook and China modest

programs. sensitivity experienced previous in This around Europe environment timing combination a of of generally by program quarters. our first-fit double-digit As automotive year-over-year increased market with the new in what weakness, driven we seen business have we was and and two anticipated, China our consistent declines pursuit

first-fit end China see in increased market towards deceleration the some of did the we Although automotive quarter.

if As excluding I the we said, have the this performance the And largely we anticipated. on quarter been impact, basis. growth core at look first-fit automotive of would core in down was X.X%

Deceleration quarter Looking the first at with by all and in the across line impacting quarter. both end in year-over-year automotive the and in our the core the led down industrial expected offset markets, experienced decline end specific Modest the market single-digit truck sharpest decelerated in our North than offset in in was in was as a heavy-duty single Europe, decline quarter first-fit as in was combined the progressed. which markets, with we revenue other automotive the QX revenue all overall regional experienced performance the our which continued line mid-single-digit quarter. and was strong the first-fit saw growth business. deceleration the decline core a results, nearly end what in by we China, quarter. high in low automotive replacement of agriculture was also basis. a decline on partially digits saw more by well The significant market, businesses end first the oil challenges with America, channels. decline, revenue In core In growth as in agriculture We weakness, replacement our gas

stabilization. of showed signs China QX, Exiting

market, QX particular, pronounced began The more construction change from we to in see the region, economic QX. the East in in our deceleration was Asia end spillover effect situation However, trajectory. a most China. in a weakening In saw notable

first by end market as Korea quarter Our high in construction the in from second single-digit market end as general quarter in industrial primarily well decline in the Japan. deceleration weakness was a driven the

margin points adjusted year of second was $XXX quarter With decline XXX a prior XX.X%, profitability, respect representing million, EBITDA period. to the our basis a of from

the gross impact our market from from some long-term consistent first our headwinds revenue As the levels and align additional taken to additional impacted in in saw we gross margin-driven, QX investments margin decline organic of actions environment. in by the inventory made decline with anticipated, and was support margin that long-term this quarter growth output in the strategy. We saw

evolution new capitalize opportunities as on growth enable see as well will of future our confident and we industrial the to business in facilities are these profitability. enhance for significant the our portfolio investments We our in

effect magnifying they the contraction these our are margin having declining of near-term in However, market conditions.

second period quarter from the the $X.XX Our lower year decline adjusted primarily per adjusted share was of prior by a earnings $X.XX EBITDA. in driven

of QX out resulted view Power have in revisiting conditions year. the we momentum uncertain $XXX period and investment our LTM despite cash market line Fluid was of EBITDA. the Excluding us the million free prior The our flow with adjusted negative in QX in largely lower our capacity, of full experienced coming year

Given market a is our may saw cycle believe conditions that a full and essentially reflect to year are remains it to our July. QX if or persist these business for exiting we reset operates We, pause period. on outlook the short-term and an a is of it that indicative appropriate therefore, unclear more conditions extended basis, environment market in mostly subsequently short book-ship

under continuing focused perspective, challenges the long-term and While environment. mindful to the what operate managing course this business with acutely of control in our is of we on a near-term are

cash to we a maximize a mitigate margins flow result, number generation. in actions As free the of are taking and decline

David operating in position previously expand us announced detail productivity cover which upon initiatives expenses, to In moment. help in G&A compressible our and investments and addition accelerate program restructuring will our a managing footprint and to more costs recent

committed remain the We de-leveraging to business.

our level this cash free As year. reduce adjust generating capital flow anticipate our working we substantial we a capital and expenditures, amount of

due remains build a leverage Our market Xx of to the expect to no longer high this bringing stated year net it goal in although we conditions. change priority, achieve

operating we line the stabilizes. However, the ability capital our are as de-leverage the business demonstrated with current structure have comfortable and top to

currency on including core our headwind. revenue to beginning Power X.X% Slide now declined declined our the X.X% segment revenue quarter, segments, a X.X%, while X, Moving in total Transmission foreign

largely Our markets the decline performance line with Transmission largely From a the were due business to quarterly in first-fit declines in end-market underperformed broad-based. was again markets I covered. China. developed in Power regional trends Emerging perspective, expected revenue automotive in

associated approximately XXX EBITDA by by in prior points second to year basis Transmission by FX. the million period. The $XX year and contracted primarily quarter as the the driven inefficiencies well adjusted EBITDA compared Power period lower compared manufacturing volumes the to Our adjusted margin prior resulting declined as

mindful product portfolio of our environment, evolution we order advance we in the are business continue While will organic of the in growth. to our invest to prudently

range We wide are confident our across that growth. markets the significant to opportunities of future industrial we contribute meaningfully will see a end

with a revenue quarter, our core segment X.X%, compared of X.X% revenue X.X% decline prior a On acquisition XX year to Slide basis declining and total FX point headwind the including by had a Fluid benefit. X, Power

strength strongest our with line total in performance led growth regional South also mobile the end-market basis, revenue Fluid a was in Power company. equipment Fluid in Power markets. Our America, by that was On of core broadly

by of Brazil. Korea, East Middle in India. markets in in rate and general business growth decline the the East highest quarter our gas Our emerging modestly was and Asia Core business grew by weakness led in revenue and in growth driven oil in industrial in Japan

Power Power performance end Fluid applications. decision we the Power. to facilities $XX million significantly attributable our Power declined growth decline Our under-penetrated initiatives XXXX, to priority EBITDA the to were compared our XXXX. in of adjusted organic Fluid of Fluid comprised by have market primarily is segment, invest new the portion segment where resulting QX Transmission approximately completed lower the which and in largest we and to investment high margin in opportunity, in remain volumes large a EBITDA Similar adjusted core of XXXX. a In The took late at industrial

market expand our a capabilities in We that new a our in invested of have innovation. to to as as products enhancing value-added has a geographic amount substantial of our pipeline historically development bring well footprint presence seen product not to

this conditions company. possible, decision changes long-term ago, the years a despite nearly opportunity the in that for did with market was we When this recognition made so we X being

remains Our belief and potential our opportunity the future growth unchanged. market in

new Although the them has channels. a with first-fit we of replacement number seen both current with adopting have market traction early customers been our products, in and the meaningful environment helpful, solid globally not

investment the of our be in products headwind, meaningful drivers will our Although we as footprint a to and these be near-term market the expect stabilizes. growth new

remarks. it over I to additional that, turn details wrap before on for I will financials With some prepared David the up our David? now

David Naemura

on acquisitions. beginning X.X%, cover declined will Slide performance a from FX financial X. Ivo. X.X% impact Thanks, now total impact a positive including I in negative and Revenue X.X% our from

end noted, the industrial quarter, channels QX, deceleration we replacement through primarily in Ivo As in markets and the saw general. in

some context, a discussed growth did QX we our on see that in seeing progressed call, quarter of improvement as some we overall March. mixed with additional the last month earnings As but the

environment The some the that we we by particularly of North our in expectations. stability resulted QX, adjusted This in second through saw and exited notable April, EBITDA in followed July. coming a in we in June. exiting deceleration continued saw quarter and As quarter May below America, revenues

due The to gross of primarily couple margin a factors. was amplified pressure

established our First, stronger the responding now cost exiting XXXX. we continue demand declining with QX in of we that to to actions we sales our had are much are facilitate footprint to cost further environment structure as experiencing. adjust environment We and began adjusting demand the

revenues I Secondly, with $XXX of this I performance when the later the additional touch more year revenue prior EBITDA XX.X%. margin adjusted response and are to levels comparable presentation. we our will plans represented actions taking million an in in restructuring record on quarterly all-time discuss lower of

associated SG&A impacted that decline the the offset EBITDA in of result inventory by decline was quarter reductions margin point adjusted decline the share, volumes margin margin XXX as the during decline basis The which a our referenced impacted lower well quarter. the $X.XX with quarter. Our adjusted net in compared margin. by adjusted EBITDA to second prior gross per in impact year earnings with adjusted gross EBITDA I being reducing in The was as partially the declined

independent Moving the supportive entered over optimization moment investment environment, this other by more market a the announced of in facilitate adjusted demand support past substantial program years, the take X, been me the Slide the enabled We manufacturing a to completed notable, and to we intended of XXXX EBITDA to of initiatives just a investment restructuring having more something few since our conditions. growth in a of improvements year. contraction our midterm. implement footprint recap let has We to the progression productivity the and

identified activities with first quarter, of environment. progressed entering a conditions. we clear response, more to a our the inventory market we challenging we through to were align it implement the market As began prevailing became output In and and number

margins in the that case. negatively impact last On our these QX, call, earnings actions which we was would communicated

through conditions our were pressure margins. the on putting moved we second quarter, further, end market However, it as the that was increased apparent decelerating

accelerate recently now completed announced near-term expand headwind, is to restructuring allowing us previously a and program. growth investment our Although the

restructuring was this reflects expansion we in our cost our see fixed You’ll that intended manufacturing back-office as last slide in that SG&A footprint remove the distribution to broader and introduced the of structural as quarter, which functions. well

of We rooftop cost while in annualized are estimate will an case, the the would of consolidation next some incurred we announced accelerating acceleration the XXXX, thereby of be be most to in in incremental expanding spend benefits that This is million. achieve will $XX pulled that finalizing and impact still remains annualized to result plan, result that original while the We results total targeted may plan organization to planned of additional cost of $XX million this that in And year. forward $XX restructuring activities accelerating and the actions previously and, XXXX. savings the also in being the communicated benefit million. our last the quarter addition of of approximately predominantly

In charges the control. SG&A $XX in that and in have of acceleration In associated we recent any described. addition, anticipate million production incurred the we before million. $XX restructuring from larger costs of rightsizing our actions that I to we restructuring of with range structural year headcount be in XXXX of level this years, still We anticipate range would impact the that some

carrying we half of an as flow revenue by of first we provides over net shift inventory that as deceleration demand currently cash the experienced detail in QX. the Trade a exaggerated level key X are have percentage of experienced working Slide elevated on in increased items. capital because the LTM and we

a flow basis, is the on XX and year. free last higher the reflects months’ prior in of Our spend cash CapEx a therefore, presented portion

of below which was maintain CapEx With excluding prior expansion $XX ended CapEx the LTM our prior leverage, million on approximately our leverage of in despite had lower to year, a of we a anticipated the actually and the have of quarter, helped cash to first the operating quarter reduced levels the basis. QX an and offset only level by million as-reported is results. second net EBITDA a the year million with function the that QX, flow the year $XX at when prior previously free with This from X.Xx, last flat experienced In the down half we higher year $X than CapEx. ratio higher our than we some reducing year respect

observed we the that we the and July, through deceleration from that ago. the experienced has Given second quarter quarter view a environment believe what shifted our demand we in significantly

to Further, some we of continuing prudent core model, further. that through the to reflect year considering a full remainder is the business decline the markets it reflect end our X%. environment our to with revenue reducing of X% nature year our believe we this of weaker view, this guidance of short-cycle With decelerating are

second our worse takeout to further we to adjusted range inventory anticipated as $XXX about This of QX QX. growth points core reflects reductions high the easing margins than growth a are manufacturing core negative for basis to significant $XXX guidance decline. the guidance in half, reduction, revenue the of continued million lowering million. a in on implement and to QX the couple part in compare year X.X% reduced decremented reflects we hundred cost response with Based Our overall due EBITDA in revenue the

in require high production margin footprint consolidation of change fixed responding which in this model, we some additional and our revenue restructuring the section. of Given gross costs mentioned our to percentage level will our

we’ve current to in us long-term but subscale restructuring is certain the conditions have growth allow operations consolidate plan. to our some rapidly made noted, of Fluid will drag Power the support market negative Ivo investments component which a more our As critical

to Our in the actions to restructuring market and the execute will fixed continue to costs structural our then adjust cost. compressible environment plan remove current year

$XXX around greater year cash new a flow conversion still expenditures than adjusted are free we reducing target capital that full believe income. We have with of We XX% also of net will of million.

said the will in level priority ability achieve objective the a inventory high the Having change we conditions. and we the for from us time extended. to even present CapEx remains XXXX. reduce de-leveraging current the frame cash our of account to our business, the of the that, comfortable normalized under be into as we which generation when allows below levels, very objective not be in a the taking market levels particularly but Xx will this achieve beginning year, more to De-leveraging environment us, at Given leverage

a statement are U.K. have optionality to to comment late are that These to proxy which filings afternoon: required issuances for statement. in Form provide share wanted preliminary for are plan I on seen repurchases law, two statement proxy registration any course. SEC Under SX ordinary the and filings required. may you shares, a this being shelf shareholder and approval routine and Finally, obtain we made the why repurchase is is us

turn I Ivo. it that, will back over to now With

Ivo Jurek

Thanks.

is expected we Given the the had current market not play out envisioned. conditions, year as originally to

accordingly and have based on as of as our view our margin initiatives. full environment our the focused well execution current operational reset committed and the are restructuring We to year improvement fully programs

by continue we growth organic in in initiatives our will have We large progress ensure to we growth able potential. and this are capitalize are encouraged made to invest area on the to future

and to the the we while strategy and continue taking manage priorities by actions presented Our term challenges appropriate for to long business navigate the unchanged, will remain the conditions. current

tell, business. short-term in confident our remain we can you challenges, these As despite

unchanged. business, but Our fluctuations important replaced. be this critical shorter-term, and to basic market-driven products the applications will There roles remains tenet need in in play be

experiencing to we positioned markets, take We prospects. in long-term their we volatility some growth while we regions, advantage have are in long-standing and well high-growth of those presently presence are a believe

We flow investment markets capabilities. past our our growing backdrop portfolio amount progress mostly commercial have free investments end to larger the over are our incremental expand in behind markets that we headwind, and well driving cycle. the us, providing With product directed the and opportunities. represent presence investments our by a generation our as our forward. as current our growth return industrial have continuing largest objective us the support strengthening the reach, the assist we typical to engineering broaden will business is poised confident organic geographic to pipeline our in couple of we encouraged opportunity, and be improve Industrial The is on to are significant more going of to the refresh a market and of This growth now levels to but will and path product-centric through the cash capital years balance end deleveraging revitalize seen sheet. of

We have quality And through execute to franchise. our through plans with team’s our of in experience are we business confidence downturn managing the cycle. ability confident the combined our and place in a before, in of the collective

turn Thank begin you, and to Q&A. we to operator over will the call the back the now

Operator

comes Julian first the Instructions] with question Your of [Operator Mitchell from Barclays. line

Julian Mitchell

Hi, good afternoon.

David Naemura

Julian afternoon Good

Julian Mitchell

It around the assumptions first I decremental as half. if be Maybe question in a for around XX% looks XX%, the the at second to operating just to level margin you’re those of sort guiding think,

efforts your does that’s part that and if to check roughly to excess wanted what quickly? clear inventories Just out on for try and embed correct under-absorption

David Naemura

It’s Julian. Dave. Thanks,

to to large new is of having is about are taking consider a us And you the $XX having half I’d once from where out what the underlying be level of second about a inventory revenue. we we’ll in dissimilar not we You’re the that an probably reflects adjustment first about XX%. that decremental had too experience right. half, in million make say what

cost direct decline manner So to decrementals. what labor in rapid negative we in revenue, the are response results remove having kind semi-fixed a the in that’s of and and in to

Julian Mitchell

conversion that And line. bunch just adjustments but XX% then of there a well, on question, a maybe the as year, free for of flow second understood are income adjusted that for cash I the Dave guide see net within that guide, rate

$XX are if maybe free cash relative months? for give what this in help the year could thinking So X for as million to flow any first you you number us that to dollar

David Naemura

we we – the be would moving think We lot capital. in think still range year. year, there’s a would around in working But would look, for the we million of Julian, be that $XXX parts particularly

Julian Mitchell

that with that’s big reduction And half? Understood. the second inventory in

David Naemura

Yes.

Julian Mitchell

you Great. Thank much. very

David Naemura

Julian. Thanks,

Operator

Revich Your next question line comes Goldman Jerry with Sachs. from the of

Jerry Revich

– wondering a than decremental better folks back afternoon. Yes, what margins in [Technical typically could for Julian just hi than to get you half bit that Difficulty] layer one that are decremental opting be are would decremental under worse And I’m gross level you for on like we’re And if margins. folks topic scenario decremental look not just have, we to XX%? obviously, good the more of to next margins that on margin just lower. XX% we brought So than as you margins year. the that the about think in dig you that for what savings Can the a result up? go And business pull you slightly to looking a expand in little might in levers cost of in

David Naemura

on within thanks. kind rather Look, us we costs, well. I are of pretty Jerry think how year costs would the take represent that the XX% adjustable out flexing quickly depending

somewhat set previously ourselves the get of variable the by new That’s off back do cost online. had any more our to said up had getting of fixed-cost always the now put was think of prior year anticipated are and trying The we year. And fixed-cost would year. look on we that what enabled we’re next to year as the for within base we’re components I we our current So, of we in next part that I is tough the less-efficient we holding more after will have the that’s plan our productivity books that we the a I the some than capacity to and beginning cost to of so of where result have initiatives but to over we’re the takeout, those as part consolidate go not base think control. year. costs address the back

Jerry Revich

in terms in trough. back were sales down in The there. run for just XX%, context, And rate the the of halfway ‘XX, your year is of half peak to

Just Difficulty] [Technical that you’re would margins margins fixed-cost hypothetically hopefully lower have kind decremental speaking, talking won’t the reductions what look you how demand if to from here that demand with we leg perform bad. if taking on another down next just in we decremental for that be sales? the for do But about, leg of And expect context, do conditions deteriorates?

David Naemura

the Jerry, first without the about of cost of rate true. out all, one hold footprint. our trying our today of cost as realistic kind can of the can XX% we XX% for get see reductions potential But rest of to what to so reasons of leg fixed decremental manufacturing be we would the year we’re is that in as taking ahead we next of still

we’re position in next bit second a the little the and feet so, seen hoping hoping front market And we’ve in we’re exit a decelerate so beneath to been little well the and move of we the time for reactive more ourselves quarter, as here year year. by our we’ve get it bit

Jerry Revich

I’m Okay. a the to of you you’re your whether and performance in about quarter wondering for terms XQ aftermarket as the sales business in in what industrial guided could you’ve deteriorated as whole. that’s And lastly, if seeing talk

Ivo Jurek

Sure, seen quarter the progressed, Jerry. Ivo. definitely particularly We’ve deceleration anything This as ag-related. is

half. half and the deceleration the back of so, year And second looking at extrapolated the been have we pragmatic the for pretty

Jerry Revich

as And just to well, clear? be aftermarket Ivo, that’s in

Ivo Jurek

yes. both, That’s

Jerry Revich

you. Thank

David Naemura

Jerry. Thanks

Operator

line comes question the Andy with from of Your Citi. Kaplowitz next

Andy Kaplowitz

the I versus downturn just Hi wanted good to are afternoon acting. how you guys. about ask businesses and previous downturns Ivo, this

replacement those in to most first-fit resiliency One was think, attributes of past of that the the large lead downturn. I in But have as much cases would downturn. as in the some this its company business weakened businesses, the during

markets And businesses this why replacement toward your not resilient So North and more replacement visibility do cycle? think in particular this American point? what’s at European your been stabilizing have you auto

Ivo Jurek

Sure.

that QX to we’ve as are and through have and decelerate replacement you than moves, cycle, the businesses, seen see certainly the So, a as our first. in resilient, first But replacement more the well. to businesses reaccelerate tendency first-fit Andy, market businesses

will seen today. view we same are line couple this during in over have the our see that top so, And that market last that the is we we experiencing of behavior uncertainty recessions

Andy Kaplowitz

summer guidance, reflecting focusing that And Have the Okay. then think risk your in noise few guidance ag. for EBITDA stabilization could the Dave, here seen what just Obviously, revenue mentioned times. still QX. is exited And the is July? any and mentioned ag demand you get your still do over you you as the the on business that new You’ve there’s tariff-related year around you a worse? some

you So how much have in discounted particular? risk the ag, in

David Naemura

kind to, Andy, is China and reasonably what you July we know as that softened. at we reasonably the with first-fit deceleration, we’ve the incremental see the further half little as of June we’ve X.X%. maybe close. the plus saw consistent really of you back a the referred in why hasn’t the this include call in close July automotive year. end as year That softening deceleration, through as in cause we’ve we extrapolated been of, bit We cause the which further of had coming industrial And a environment. June. in what has Ivo that saw the of did it’s year, But to rest extrapolated markets, to saw was rest that of rather said, look bit negative we that But we

So that the industrial end a in bit of deceleration of markets. environment plus some little

Andy Kaplowitz

us the quite you part, any that see of give Is market. resilient. on and just it market Maybe been more to replacement. obviously auto you new itself? It’s could about just color Do Ivo, And on sort ask you wanted Chinese continuing? that your strong that resiliency I in product related

Ivo Jurek

Sure.

that positive side grew the to cities, and So, the approximately buildout should positive of cars car we business the presence very China. deliver in AR of to in or the business is look, by in in X, foreseeable XX% see strong with normally base for of future, The Chinese Tier driven solid confidence continuation expected a And of growth dynamics I in distribution installed gives X portfolio us for use with coverage growing mean X the continue parc. to attributes our of continue that QX. us business

Andy Kaplowitz

Thanks guys.

Ivo Jurek

you. Thank

David Naemura

Andy. Thanks

Operator

question next Capital Dray of comes with the RBC Deane from Your line Markets.

Deane Dray

Thanks. Good afternoon everyone.

David Naemura

Good afternoon Dean.

Deane Dray

we you pricing? And of competitive there, start responses behaviors get can Can competitors. please. in responses any out anything, talk here? Maybe about sort we pricing observed you different of have downturns Oftentimes

Ivo Jurek

start over of compression would much we somewhat have market the to I to the competitive backdrop couple particularly more in market, that last we seen Europe, say, Deane see where more quarters.

so, more be terms less competitive China, compression there, or pricing North So we And tremendous we in with America, in see in really it’s honest that yet. you. to of pricing threat competitive, haven’t becoming seen

Deane Dray

And but Understood. the but the it an on? this, when next may the factors And opportunity what forward about like pull the actions accelerate sounded some and like talked would not you why year and have being would it year, was sounded do restructuring more missed be of these gating of layered What’s of to tentative. that I then restructuring contingent further? you plans this this, there restructuring

David Naemura

foreign associated particularly lines. of will think, you definitely I we the a look as jurisdictions be Deane, just put would some it, the of complexities of in with some the moving tentativeness, little to, and execution the around

have it as risks some we push that will we these in careful some of that to can, as of we also projects. but recognize inherent we be hard So, are taking

Deane Dray

also think in there’s in you references decelerate came or I missed it think remarks are prepared Andy’s geographic those markets to up Got assuming Were further. that particular questions because it. here? that this And from worsen some answer your you verticals then I

Ivo Jurek

half. primarily going second further. decelerate particularly America, We decelerate markets, driven in North have it’s by going further And are into anticipated that, ag, to to industrial

Deane Dray

Got it.

Okay, thank you.

David Naemura

Deane. Thanks

Ivo Jurek

Deane. Thanks

Operator

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

Jeff Hammond

good guys. Hi afternoon

Ivo Jurek

Hi Jeff.

Jeff Hammond

as from inventories just little a learnings like guard you demand we kind are of seems enter given versus maybe off the landscape? by caught XXXX normal got where you trying you just down you I’m like destock, drawing So, a you XX where get take I million. if called inventories sense then think think It were? [Technical inventory levels any And your, your from of you’re assessing out Difficulty] seeing like the here. just and distributors destock, to do the

Ivo Jurek

Jeff, our replacement can and of the we to seen is would that it Europe America stocking the we probably roll channels half. particularly I of say the to but sense that good that, a sense predict our have North first through closer destocking automotive In you in in So, although are is itself end through beginning. the and is than imagine precisely, difficult working that as amount

have industrial sales much in where particularly the channel, an versus destocking the out. acceleration the We more destocking been seen America in has pronounced of North

roll into early second sense presently. towards of half. our particularly America And are North a our in the is stages of as in readjusting so, position the stages are or inventory lower kind the we channel And that more of in probably we industrial level visibility customers earlier destocking

Jeff Hammond

back just your Okay. mix low within I then, think, kind the that double-digit give declines And guidance suggests a for versus what half. high single-digit, looks Can sense of aftermarket? of you us like OE

David Naemura

the say incremental of not most we’re the Jeff, we giving first-fit related more both side. the I I going would to be deceleration would the and to rather aftermarket channel, seeing deceleration so on it And is say are by industrial. a guide but

Jeff Hammond

put given one about the leverage? one reason considering back buyback is And you’re just last comment basically the on mean about the not do out thinking repurchase, those Okay. you stock? you’re of because that filings the just then you Or how buying like and I think

David Naemura

about long-term and in and talked are with give the unchanged. business course any ordinary the filings done the being the Those associated business, the that our de-leveraging to of what’s not growth Yes. while doing do health they’re remains We’ve current priority for of and to in that the optionality us business future, right plan.

Jeff Hammond

guys. Thanks Okay.

Ivo Jurek

Thanks Jeff.

David Naemura

Thank you.

Operator

back this call I There for closing will time. at now questions over the remarks. further turn are no

Bill Waelke

joining for call. on the us everyone, you, Thank

available for As website. team press evening. is the Relations always, follow-up Investor the the contact a the any here or good on release Have questions on using info

Operator

conference your Thank disconnect. you and may you call, concludes participation. This now for today’s

Gates Industrial (GTES) 12 Aug 192019 Q2 Earnings call transcript