GTES - Earnings call transcript Q4 2019 | Gates Industrial Corporation plc

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Operator

Good afternoon. My name is Chantel and I'll be your conference operator today. At this time, I would like to welcome everyone to the Gates Industrial Corporation Fourth Quarter 2019 Earnings Call. [Operator Instructions] Bill Waelke, Head of Investor Relations, you may begin your conference.

Bill Waelke

Thanks, Chantel and thank you everyone for joining us today on our fourth quarter 2019 earnings call. non-GAAP Ivo, language by who CFO David our call passing our cover today to over will Wisniewski. briefly and before forward-looking the Interim I'll be followed full published fourth we closed, market the quarter After and year results. our copy website investors.gates.com. our available at the is A of on release is and presentation. call by a is Today's accompanied being slide webcast are will our performance. evaluating we call, non-GAAP this in to certain financial useful measures On refer that we believe

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

that, I'll call With Ivo. the to turn over

Ivo Jurek

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

and cash growth, We the in the XXXX, cost stay we cost long-term containment several in global We demand key summary with actively provided the midpoint expectations structure conditions of August. performance. are with macroenvironment managed a with short-term our generation. while investments. of focused profitability navigated our very teams brief QX start results segments, challenging guidance strategic advancing product strategic are full in with line our a and our of year the The me across on long-term both balancing our prevailing to Let results consistent while initiatives company's back

saw which growth improve we our regions our downcycle America, The its conditions North entered QX, During persisted. business Europe return than challenging a and end performance in other later notably China market sequentially. to

basis. to conditions We align cost a flat to which our exiting remaining on strong our continued variable end to to largely months QX the actions which flow, we market free We structure, year. take costs leverage reduce manufacturing the will with our cash believe delivered XX net last contributed

efficient challenging, with backdrop exited XXXX on undoubtedly Although coming enhanced believe margins volume capture year the market a the and we we was downturn. this positioned higher of in more operating are out structure to

presentation. of Jumping our right in Slide X

Our prior with which the expectations. revenue consistent on quarter a the was to in year, compared core declined basis X.X% our

outperformed end sales QX Our from heavy-duty end industrial modestly weakness. the decelerated Industrial particular market truck the auto with and markets into seeing in revenue end QX. market core construction

decline sales were third digits, were we sequential results channel improvement declined the quarter. saw a QX, better low-single low-single channel into sequential Core automotive the first-fit QX. the digits from improvement mid-single replacement globally. Our from down down automotive a slight The in automotive digits, in

some driven America period. the and well the offset by decline Growth in America, in reduction prior the as replacement a was that as hydraulic South the of China channel year North in Europe, primarily automotive to of backlog sales lower timing

what initiatives and core regional execution reflecting of growth basis, a we by nearly of above-market in On we revenue performance. our is believe driven China, X% the delivered

from The returned which industrial the digit to Europe, declined a the on markets While basis, our meaningful quarter. decline core also end automotive first-fit the our in continued in replacement revenue growth, automotive improvement of business we year-over-year trend growth China In slightly improved into Europe high-single truck double-digit and in market, end its QX. decline experienced replacement was sales due to mid-single where a QX. construction further into sales decelerated market in was markets. and digit driven softness our industrial channel sequential end primarily automotive in auto digit in from The growth slightly, the by QX mostly improvement to mid-single heavy-duty

America, some in in challenging. our markets and relative North and our In of to basis, hydraulics. heavy-duty on construction Within specifically we truck end remained result revenue end was market, industrial low-teens customer the markets base, down more sequential Core industrial year-over-year deceleration mobile primarily saw weakness end QX. a first-fit the

QX normalization year-over-year from industrial Our basis, destocking a as some replacement certain weak on improve saw in lines. still did of channel sequentially we while business product

and EBITDA adjusted well of with the margin. subsequently million, line and prior a from year XXX was basis XX.X%, quarter the margin our earnings decline The in as as points communicated representing expectations of EBITDA gross on reaffirmed mid-year declines our margins $XXX period, quarter. inefficiencies Fourth adjusted resulting year-over-year compressed call production volume last a the

improvement addressing compressible costs our XXXX. and our initiatives solid cost announced positioning well, made progress company have manufacturing the teams Our for in previously progressing across restructuring fixed footprint are

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

of flow income. increase represented Our conversion adjusted income. of period year flow very $XXX free seasonally over of of generation of million, QX at an rate adjusted ended year prior $XXX the full Free net strong came XX% QX net well. cash flow million conversion XX% cash XXX% representing a the in and cash Free in for

segments move me Slide to Let now on X. our

Transmission decline weak construction, automotive end the remained in Power quarter, into markets basis, in digit Our Sales markets. Sales from our core modestly into revenue a significant grew the from end industrial year-over-year industrial decline the led end declined in QX. X.X% general and by experienced on X.X% the ag in QX. improvement high-single market quarter, segment an improvement we the

over XX perspective, slightly down both industrial year-over-year generating on percentage improving Europe our and all a over core points China by growth improving in channels and showed applications. basis X% largest sequentially from sequentially, the From business a in driven the growth was Transmission quarter with regional QX. in core Power automotive improvement,

digits down a mid-single revenue core basis. North America on was Our in

initial some replacement industrial America to see in markets signs markets. South growth, outperformed core and did we stabilization driven developed in returned a of decline the channel. and mid-single by Emerging China However, digit

declined Transmission $XX Power EBITDA compared a adjusted of the lower primarily by million margin by of production impacts EBITDA in year adjusted driven XX.X%. approximately prior resulting period, fourth the volumes with quarter the to

committed the growth While our remain to product new organic development challenging, is priorities. backdrop funding and market we

industrial well chain-to-belt lifestyle space. advancing Our and with particular initiative made is light mobility, in applications personal progress

replacement the of large built channels. XXXX, a across In we and pipeline both opportunities globally first-fit

making products, we which further will new accelerate progress in XXXX. also good anticipate launching are We

Going now X. Slide to

a from core end in are substantially Fluid declined significant the to Our demand most Power year industrial markets, headwinds. gas we impact in the by growth compared experienced mobile segment oil revenue core QX seeing somewhat we offset hydraulics market highest where the We quarter general when end in industrial is and and and that improvements and particular environment deceleration and the sequential end period, elevated truck XX.X% year. construction of segment heavy-duty markets. XXXX prior This experienced

Power basis, regional the we with to Power trends our a similar On our performance was saw Fluid

prior core core a to sequentially by sequential the China solid down year; revenue prior QX, the significant also driven from from segment. improvement initiatives. revenues was year, team's slightly high-single execution Transmission QX. compared compared digits improved Europe our up to on

line performance experienced in and year. was This America the attributable year-over-year decline XXXX. saw $XX approximately first-fit on in we to impact North resulting by markets. declined channel replacement from the adjusted substantially was a is what sales is seeing most revenue with OEM downturn core our hydraulics the was EBITDA shutdown large in while deceleration production Fluid in that with decline compared down the Power we to QX. channel volumes in the than margin by our contraction more led high-teens customer industrial which prior consistent business QX in in basis, activity the lower the EBITDA adjusted as pronounced industrial end the QX, and The somewhat the million were consistent product

in weakness, market which throughout of a as end, and from throughout the which the benefit launched new improve we markets us new products we -- opportunities, expect resulted number These we benefit growing of products XXXX significant the have innovative at a to Despite differentiate competitively from and beyond. end XXXX. pipeline

relative Now, the by turning XXXX, we growth the to Slide market In majority X, in aggregate, core revenue which contains and size a headwinds the of footprint. of summary impact the our of our geographic across region. experienced

regions, see in green less year year, in some began certain but of in execution QX the quarter. due conditions. our was shoots initiatives returned where However, as turned our and QX automotive our as core through to negative China, the primarily Beginning growth replacement grew with company's QX negative channel the nicely the to market that progressed, negative XXXX the the improvement the Sales rest and into stayed whole throughout a the XXXX. of to growth business region in it we

core also in America, with and destocking XXXX. turned largely us QX began QX QX In industrial Europe, North downturn our of markets by In negative. for stabilize end growth and began negative in turned our QX XXXX accelerated with to the XXXX in

America half North downturn we Given to through this first continue later expect and year. it the began that China than in Europe, of the

the Although positive XXXX, by encouraged in saw we topline are was the in challenging we performance signs quarter. fourth

at an executive the replace our of search last announced month. who we of In end December, CFO, departed the to commencement

range CFO will While a team deep have today, roles us beginning appointment drive a our wide Brooks and great corporate of we and be forward. a filed fortunate bench XX. has announcing of we in the finance to asset continue press as forward, the to Form carry Gates to on earlier X-K a experience we as Mallard are release to talent Brooks February operational related of and

add over With that, David David? prepared turn on additional provide our financials would I call whom to the He I outlook before like for Interim serving will and role. that thank to details remarks. now in our also some for wrap XXXX up Wisniewski, will I CFO, capably

David Wisniewski

our on Thank will financial QX now X. you, performance beginning I Slide Ivo. cover

in sequential XX a impact decline a a FX. last As Ivo of noted, Revenue experienced from total in QX, QX, declined improvement negative core including from X.X% we quarter. point revenue in X.X% basis

in the performance continued challenging end Our quarter in but in key underlying markets, areas. improvement the in some reflects stabilization certain conditions also signs of certain revenue

represented and the resulting impact million of $XXX Fourth driven inventory efficiencies of production by million million. worse reductions is impact The is adjusted the lower have quarter than which sales volumes we on year an $XX inventory of year, prior due EBITDA that coming the to QX efficiencies. full EBITDA lower made down XX.X%, significantly adjusted coming inventory production margin and $XX down with

impact reduced inventory to beyond further decline. revenue volumes Our production reduce explicit actions the of the

our right-sized have year exceptionally on previous production strong bit the As our note I a variable was also of We tough a alluded margin our incremental generally creating we previous prior perspective, noted believe we would call, levels. the compare. from that we demand costs dynamic an this on call. earnings to to that current earnings QX

we made structure, Importantly, to well downturn returns to meaningful as as believe the we the progress higher in operating to we optimize incrementals decrementals volume are we've the to business our during deliver experienced compared XXXX. positioned

per of a adjusted the decline amortization impact Our year financing adjusted million due EBITDA by to deferred of as our from rate. bond the is $X accelerated tax earnings share effective to prior related fourth by partially expense, higher $X.XX interest underlying primarily in as from period, a offset well refinancing, lower lower fees $X.XX a driven quarter

provides Moving progress remained to levels percentage flow stable cash in the to response capital the as which sales, quarter on reducing of in fourth X, a significant Working on items. dynamic. inventory reflecting now topline Slide detail

reductions inventory both significant. the and quarter fourth in our earlier, noted I were full the year As

seasonally levels As historical million. back cash prior year improvement and inventory. capex flow as over high Ivo significant noted, we is our reduced QX $XXX was free normalized a the This to

EBITDA. On conversion historical year, cash toward basis, our levels. $XXX year or also net a prior back a the income, again year lower of leverage, to to we of of in respect times of adjusted leverage improvement full we priority Deleveraging over move normalizing ended a represented the level as XX% adjusted the flow free million net X.X business significant remains the XXXX. With with forward due

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

Ivo Jurek

David. Thanks

improve from to the to to a market half guidance Turning single in returning the digit X, second end and by ranges core that we what this that inventories slightly underlying negative anticipate and believe end we've and contributions the QX in channel to more We X%. outlook we revenue the decline end core quarter core on a decline. substantial the the XXXX. a half growth is outlook for based combination quarter see improvement in specifically, X% in improving We recovery initiatives to be decline improved demand half our and as growth we second half. slide XXXX our quarter of remaining growth We revenue with anticipate see in second first our will patterns of the the well QX. with current as and in of expect market in normalize from More year. experienced to most will began the first poised our Based on are difficult downturns. that low-mid the will of progress from that the environment, growth XXXX in environment for of improvement a This past fourth of

taken account situation coronavirus in known of as modest that's the today. a China are have into impacts what and of mindful are We developing from headwind outbreak

full have February not position the more point, should as this Chinese in in XX to on a the activity region We predict mandated our Government. ready situation negatively. we develop resume ultimate by operational impact the At to teams are

for is reflects midpoint included achieve a excess margins that in that we a XXXX. XXXX. absent at in of and in $XXX guide ratio movements the of decremental programs adjusted not despite fact incremental certain in EBITDA reset variable FX $XXX payout margins EBITDA in our the outlook million compensation saw Our is million, did This which to is further

and this continue anticipate we a of quarterly both around year, of seeing growth with sales. for QX Capital at market business expected and kicking result savings our As of restructuring the level year expenditures the in. year the year, improvements to representing improving typical be sequential detail million, pressure conditions to end as but volume on associated fixed margin of further progresses, a in are the increasing cost approximately for to actions X% progression the upcoming $XXX from expect initiatives

cash flow be we greater XX% XXXX, than to free of expect income. Similar adjusted net XXXX conversion to

So wrapping market most challenging XXXX, summary, through during environment things in the up on XX, Slide managed we since XXXX. end

progressed, of As initiated significant footprint optimization our we've progress initial and structure variable the manufacturing our on year the cost made projects. resizing execution

are XXXX as the on products, teams executing to growth Gates well that market across serving products wins of a long-term downturn above significant of solid rates over design The mid-term. of pipeline both a our new and opportunities solutions. We growth as will launching we stronger which expect number position expect and enter with facilitate initiatives help near-term much in this us segments our our a exit product market we advanced while customers with

We are by new $XXX delivering partners financial cash over regional legacy capacity applications. our global our flow, $XXX increased XXXX. a across and with refinancing flexibility improvement of our to well We and bonds million support million free positioned and

this the Although and XXXX. see team I our expect to like the for efforts trend begun of associates would anticipate remain business saw areas to conditions to managing of through to throughout their work we in also our improved of success. market us opportunity we've XXXX, and to challenging some conditions positioned shoots the first dedicated we hard key and in green global adverse this half business Gates through thank their underlying have commitment for the XXXX in global take continue as

results about excited our are to future forward XXXX. delivering look strong prospects in and We

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

Operator

from Citi. question first comes with Your Instructions] [Operator Andy Kaplowitz

is line Your open.

Andy Kaplowitz

afternoon guys. good Hey,

Ivo Jurek

Hi Andy.

Andy Kaplowitz

going industrial to Ivo, you turning auto auto in your for to XXXX. is us but color stay and I give replacement first-fit was strong assumptions going assume China that good good obviously see, am to more very into China could

impact mention Give in coronavirus. term? color potential more minor and you factories the chain from on you're point for you did their what into us expecting at this China, your the regarding short in you're here ground what seeing the supply in and Strong own but China

Ivo Jurek

Yeah, Andy.

are obviously closed on back is certainly with to will and we and together contact have the with China it's And this being know be able into in Look, China. Let in me very government we obviously with plants guidance seriously. we this taking start X standby very we be a through February that that account. an unfortunate a are of you mean, accordance I for our work instructions second. on go there leaders of local coronavirus our February XX. in the contemplates first The kind put and February we situation to constant first anticipate present to a and wash are half Look taking

We and local we about at feedback kind that additional certainly point how that's in impact are but time. to some standby we the this are the are coronavirus of monitoring from get on authorities, situation thinking there

regional seen growth situation, very similar pointed -- taking part in difficult expect out going of to QX. really but your China, do get to the similar forward the coming seen support QX virus account drive really frankly of we a in initiatives incredible to we're support corona going significant for question end they're to that don't while from the what results we January maybe don't anticipate an largely from experienced China that and in us, we incremental to back provide Look in into don't to in we we that anticipate the set a quite they we have results about Again that we China have QX. -- the strong may but market, first markets expect we be have prove the so

us on in for wrapped business in China going remaining XXXX. get anticipate going Chinese limited reasonably in terms impact is to it's that this be reasonably We optimistic the So our we to quickly. are as very scope government of as up long

Andy Kaplowitz

to progress. I want about helpful. ask you then That's restructuring And

restructuring hit slightly I million would mentioned midpoint that think you're ago couple XXXX. $XX growth. your about $XX of net about I in the of guide, you on savings up look at quarters a of positive million If new

on of guide? previously give you what just sort mentioned? you for could seeing being conservative that of the color target on So sort more you'd you're Are your you with restructuring? Are around savings

Ivo Jurek

with Look, We'll and XXXX so the half any our incremental I track, well, really of of to impact have mean, actions deliver on restructuring quite previously much we particular deliver not able announced progressing that. on concerns the in we having are that see in pretty to is restructuring into XXXX. the second being

we track. well perspective, we So a on restructuring that are from pretty believe

color the environment. amount some We a of cost we in did In and business variable inefficiencies variable predominantly into we result there, us I business take behind terms see will levels additional cost to the maybe mean into 'XX inventory to and our incur as frankly with inefficiencies that rightsizing not significant of of XXXX. expect out these believe the prevailing that's of rightsizing --

pretty So better of and into comparison, 'XX some running QX when solid kind the as performance year. do basically on progressively -- second planning some tough exit the of against have we we of through but of you And are comps. half did still the QX delivering we we

Andy Kaplowitz

I One more may. if

the by the it, on in up so industrial level on on own Maybe improvement any your comments American that inventory that point the hopeful maybe your is destocking in that see that you pressure can then some XXXX you you following we any want don't about from and remarks the your here you Just confidence of were and where pretty half of mentioned behind customers color you. destocking XXXX. the margin that on much talk sort sort end prepared and be would of of first in inventory destocking, North

Ivo Jurek

internal start Andy let me again our with inventory.

our forward internal to We out steps in have take pretty million $XX substantial over inventories XXXX. of taken

line right-sized the confident have demand. well our pretty in are internal we that underlying we market end So with inventories

feel perspective. done So pretty positive from we what have in we 'XX about the internal

end or that the look I've a at channel little a the of end automotive bit take and perspective, normalized. believe about more our a give market, -- replacement talked you less and I maybe past, automotive If is in -- it by color from inventory channel in we the the position replacement kind

-- that activity and little replacement or a here So we the we little more major incremental can in see you headwind you -- believe but a as there I channel. destocking, can that less see automotive on a mean don't

see in still seeing In replacement power we of product primarily we in at is to in product some We end lines, continue and destocking, going that but would North we behavior quite more level we are our weak the that anticipate And going in power seeing And has the in of destocking itself through start in half a normalization the industrial distributor that's America or product line the still to remain QX. segment. less say particularly channel, transmission of the significant to Europe. showing fluid still believe also of are purchasing with first XXXX. that signs line the market in least normalization demonstrated I

to we the difficult kind itself been company of believe destocking, we've of that the Although do it's year. destocking. a is kind first about at going quite remember, this quarter there talking And seen predict, industrial we've of care destocking of take of second out to channel the probably replacement end

that half of should level we So we through in that we higher pretty 'XX of annualize gives be it have we first the 'XX. confidence that seen us destocking much of will that that level and believe much in

Operator

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

line is open. Your

Jeff Hammond

guys. afternoon good Hey

any competitors just of of that, quarter. this saw about one talked China XQ some have if So kind any of pull extended of of wondering New that the And ahead you Chinese better would forward your helped I'm into Year. fourth

Ivo Jurek

our that we really seen they executing the have team said, as pull confident quite is They great forward. And China to any have performance we initiatives solid pretty executing. and continue January. pipeline level through didn't about well. original a in We're again of see reasonably Jeff, are I

incremental happening China of what's quite we for good some absent us. feel about coronavirus So shock, in

Jeff Hammond

then the And great. Okay down. hydraulics piece mobile step seemed to

thinking us of through in how of it you you're go and to persisting terms couple moderate? a that said Can you sense you truck about or think just XXXX a give starting times it as I of construction.

Ivo Jurek

to although we that start second going to continued we're that believe the believe We see of going weakness through the first kind we it's exit Yeah. half, quarter. abating as

As through seen see of anticipate kind the we to I first of also with weakness of XXXX. partners channel we work our that have indicated, significant a have inventories and itself half

set XX over that second have We from so that the the have terrific we supportive months half opportunities that's last launched to months we last see developed going of end have XXXX XX of products markets. believe we the as we be in that over some improvements in

our also upon we opportunity anticipate initiatives an We going to based that to growth us the initiatives outperform are give market that on. those are executing

Jeff Hammond

rate And going then what interest couple you Okay. for a just XXXX? expense us think tax housekeeping. Can Thanks. be and you the to of give is

Ivo Jurek

going here. David give you answer Sure. is this to

David Wisniewski

at we're expense we've fees. from due where to slightly write-off been financing I a accelerated Jeff so think XXXX, to of interest million in looking fourth flat principally quarter Yeah, down non-repeated $X

really underlying rate, tax I to we continue think tax in the about. range be we rate the interest should guide to thinking is something effective I effective think low-to-mid-XXs about As that

Operator

Your comes Mitchell next Barclays. from question with Julian

open. is line Your

Julian Mitchell

outlook Slide XX of expect, for de-levering? net the under those should see around the flow. or over over start to cash some wondered XXXX in adjustments And guess what a conversion and I I that, related just rate just of sort what's X to the we XX% so. to sort on the shrink is leverage Maybe long run, times, question average time? XXXX about whether we'll the of cash just

Ivo Jurek

Julian. the the mean XX% quite me substantial I anticipate you we that normalizing take cash over brought So model. capacity have new online. couple flow, our start first. I of income, of above let flow from building should remind cash That's we've would years, amount net been a last a of adjusted that that that We business

primarily cash capacity was we it normalized and So this impacted that is generation. of by more level up year that stood

anticipated company kind should guide. that. is So to and net be the of of future. has start about exiting in midpoint leverage how into anticipate thinking how The in X.X the operate This you should operated we how this the approximately that's our the we times, taking XXXX account past is

Julian Mitchell

That's follow-up then helpful. Thank or you, just my And second question. Ivo.

decrementals pretty You and in sequential wide. year-on-year severe firm did have QX

cadence recovery the thinking any split kind half there as the half, second about could for first just of that of give the XXXX, midpoint? example us at So on you we're through EBITDA is

Ivo Jurek

first anticipate the kind result pretty of will good that feel growth will of which have core how XXXX, a start be I the digit increasing will to about pretty operating the of Gates cost, that and quarters, second as ultimately is overhead be low-single the still of anticipate that we of the up of of leverage at last much rate it. say would of digit comp but two And a the and by mid-single you declines return back the of What we and frankly that's our midpoint it keep up And reduction revenue the half of de-levered greater on revenue at still to and of Julian about year declines XXXX frankly year. you we moderate hearing That's I think followed year-over-year in we look and pretty in that kind tough And a about a believe, our we level how really year. the are on leverage the thinking going team deliver. lever delivering year incremental the the that well a the ramp that know we various QX two I we're expect impacting everybody deleverage half if of tough we progresses. a have tale in in to that's has that fixed going our that I but comp have reduction to responded we we then guidance, halves. from

the will terms kind what kind also the in So, see are of of how top-line, we thinking guide but only bottom-line. believe that's that's you not and about we the of

Operator

next from Jerry question comes Goldman Sachs. Your Revich with

Your line is open.

Jerry Revich

high Yes. today end Hi. Good call and of, the you across you ago. Any market I'm if your wondering we same year look you talk as sales afternoon about cycle share business to don't where areas evening mind maybe in everyone. could compared today markets you profile. mind, recovery is half I'll if what get your a a we and view for it, note, comment, good about like think should on that your keep that the margin and to

you prior should structure margin we're cycle in saw go level about compare changes given back of 'XX? cost we to talking the profile how if to what sales, here, So the

Ivo Jurek

Sure.

customers. that how Look, into account our certain the try business to me stay we regions in certain the And with markets bit some from that on peak some market we little inability walked supply business have markets the certain first. declaring some our on I have that at up we I'll -- behaving, and take Let away the of been on share. on taking terms lost have other one Jerry, in upcycle. say part side, picked a we with of sense, would in side, is first away the have to lost My XXXX

market gain. that is believe market a So, of we I'd a But dramatic are share it we little I wouldn't bit on say yet that share. of probably picking say aggregate, that level

share have our market by compete away products into that new compete have and we anticipation into good able have going share added are and fact confidence we service taking to our amount of we is positioned highly recovering. able the that gives innovative take so market to a that market very competitors Now, of be some globally degree and far as that launched us as be the the to that the to ability commercial we the markets have we we facilitate recover, that capacity a teams products account customers, our that, said, being are start take the launched presently, to that anticipate high that from with well market space, greater differentiated that to

into conducting. deleveraged at have Now, of the that, restructuring XXXX the lever we we in in terms and/or all up the again of long-term XXXX, going performance, albeit particular, asset far is in in our we short-term by margin restructuring base expectation than that taking rate are fixed account greater to are

taking the 'XX that during revenue into that 'XX have margins as that So have the start should will into exit seen delivered margins we and that an start we our the during upcycle last we should approaching upcycle. normalize last see we anticipate growth we account the

So pretty Jerry. we feel well positioned

Jerry Revich

already periods the replacement and Europe North terms starting what Thank markets, to and comp industrial in auto first And America in then you're just some easier the talk of time in about. Can you look performance like Okay. replacement. quarter you. the auto terms of in

market January and saw we But through the China about see we spoke wondering like globally January. flatten on first? replacement you in obviously about their has what have You all production your like cuts side. replacement Can the comps OEM through obviously out since overall the the talk I'm to what looked markets looked the starting are destock

Ivo Jurek

Yeah.

what is we said, see deliver to believe we Jerry of until guidance. in more will I comp mid-year. we that within what or January anticipate don't an the have less As line and contemplated is seen easier with get to What we our kind in we

I about very still feel Yes, guide we in to still to last provided add comp strong that really of that I have started quite comp the we We going The to of QX speak toward kind comfortable we have But want performance. difficult. see the revenue you. until So is anything a to the year. specific in don't declines did destocking reasonably QX. June today some but had of May, occur, not really be brunt of the the

us. comp for still tough to is QX going So a pretty be

Operator

with from Cook Credit Your next question Suisse. comes Jamie

Your line is open.

Jamie Cook

Hi. Good evening.

Fluid question cadence think Fluid the we pretty the dramatically comps Sorry declined just trying fourth just about to to the first Power half half. we just particular were understand the how the Power I'm and came margins quarter and another in year given well of base obviously specifically. margin explained. In for the second on exit versus how off

price anything cost, comp, XXXX of versus you incentive the XXXX, as in first-fit guide we is like aware aware it's changes then any mix variables after-market, should Thanks. other think should XXXX of? total, And be about we things versus be there major whether

Ivo Jurek

Hi, Jamie.

the that will with basically we we easier economics. We material are ones. our believe price me start would economics neutral believe that material and that model let that business we say price neutral. of see So price is planning some I economics, material on

back guide. have within We anticipate get books. refunding on have our We that to comp that contemplated compensation that have of we variable a we'll variable

said the meet I prepared had we with in of put remarks, the be As to midpoint did the that not out we have so for my accounted threshold, guidance that there.

that Let's of XX%/XX%, kind we similar mix see to what be XX% -- to to where over what XX%. historical perspective, we the other kind of some seen items, the of have anticipate

historically, we think mix mix have XXXX we anticipate not than little better going is had a significant year-on-year. that I that in but have we had the to shift a

pretty I hit much think it I all.

guiding be that I it's market -- to earlier -- to I think we said already not going mean, I by it's segment. going that are have again

kind margin the away 'XX seen about but PT we little improvement So a of we declines certainly from that bit, in DSP a have should than will given better that stay think you in having XXXX.

touched probably Jamie. I you everything hit think on I that

Operator

[Operator Instructions] Capital with Your next question comes from Markets. RBC Dray Deane

open. is line Your

Deane Dray

today know several Hey, structure call any that times Ivo. variable. there where fixed whether your you cost comfortable a you've get about I would do flex mean, would up having This you how know normalized on and when the up much back is so you you're demand, and got has your have ability right-sized hampered both when But and sense you it? to too come end

Ivo Jurek

and/or have we in capacity. put of have we regionally. regions, also of the staff And our staffing business cycle. all as its our build fully have up of put well. capability amount positioned the locations business serve to significant That cyclical we've flexibility believe We've customers greater far by out capacity we the part capacity to and enters Deane so where reduce we the in frankly the the the was more factories our

we -- today. So able and flex here next feel down are ability phase stand we as enter where we pretty certainly also we the of well where to flex today our to about be up

don't the to focused believe quite would firming deliver to upcycle. believe very we cautious signals the on are some are early ability to that our ensuring also so about potential we curve behind industries get our I think being of we with where customer Again here we the requirements. We that we that are be react up, able to

Deane Dray

comments on be what helpful. to Eaton are I'd with And sale exiting the Ivo That's Gates for Danfoss. interested hydraulics, the really implications hearing in your

able So should I but mean typically you'll like on read see be some competitors where to implications early or any benefit, potential implications? these you disruptions

Ivo Jurek

our think I I materially you as there's but, Power we on of certainly believe you change. our permanent that may range out or and full temporary We from you think that us through business capacity look, don't any general be new know, can some anticipate know course mean the of what that there positions to capitalize products I disruptions of disruption there this expect dynamics a transaction. well and mean, Fluid we to potential our competitive new

what is is Power transpired value how for Look, a positive is with Fluid we of a it's Eaton as any we positive, transaction. going multiple and indicator good franchise, that's the And be thinking there the the kind about has our of Hydraulics of we that a see part completed the are so if competitor we after Danfoss. good to competitor certainly expect very very transaction and

Operator

back now Waelke to questions There over at time. call the I'll closing this Bill are no further remarks. turn for

Bill Waelke

for thoughtful else Okay. the the thank interest there in and to questions you everyone you for broader Thank Gates.

with look available than that, evening. Have a forward for other As again always, And speaking you in we'll May. questions. good follow-up we're to

Operator

conference today's concludes call. This

may disconnect. You now

Gates Industrial (GTES) 4 Feb 202019 Q4 Earnings call transcript