GTES - Earnings call transcript Q1 2021 | Gates Industrial Corporation plc

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Operator

Good day and thank you for standing by. Welcome to Gates Industrial Corporation Q1 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. now today, hand Bill would to conference I speaker your Waelke. Instructions] like the to over [Operator Please go ahead.

Bill Waelke

before over Thank you, who CFO. our language cover morning. will I'll the everyone, for Brooks joining non-GAAP us be followed and Mallard, Ivo our CEO, to this by briefly passing Jurek, call our forward-looking

next over to all. our turn the recent annual until to forward-looking in obligation XX-K to I within is actual webcast update by forward-looking market the may of or published investors.gates.com. release statements. believe slide available cause Act. SEC. most any be is subject we call could the that the Litigation will by this website Today's quarter call, would Form at accompanied that useful are Ivo. first materially other non-GAAP refer Before and in updated our today, these and include, is from forward-looking On presentation. risks to to being matters we filings others, in report remarks call, our of the implied on in evaluating like a financial statements, on opened copy release reminder results. is presentation, have the our earnings we disclaim A among measures we we certain now described risks and those Please statements historical in non-GAAP Reform performance. make call such which Private These Investor different that a our of slide if expressed refer forward-looking X now our We with not in section Relations include financial Securities to These available are measures website. to the of statements that be results earnings presentation, of Reconciliations are Slide the quarterly provides included which of will which the meaning our our at each

Ivo Jurek

on all our call. and joining thank first Bill. you us earnings for Good Thank morning you, quarter

Before the into growth, of record quarterly details, revenue more of execution. quarter X. let thoughts with achieving the outlined on me our quarter another jump Slide with begin operational high-level strong above-market level delivered I on of a a few combined We

excellent Economic building Our of in the solid business provided guidance start and expectations end momentum for to our that of we beginning is an markets, at across our significantly year. original to off performance most the updated quarter the is the exceeded resulting April.

We is business have that rise of inefficiencies are agile scarcity number our markets what from in seeing delivering the growth as to created COVID-induced as recovery above-market exited margin lingering substantial The complexities of evidence the are our success a as are from and resulting proactive, we these transitory with innovation teams pandemic are the solid and Our share have today to accelerating saw initiatives inflation we seen gains. investments in which strength as labor we the outstanding and headwinds, well continued the drive contributed steady economic material in logistics exit across tight quarter. raw Operationally, believe we to navigating growth our year-over-year conditions orders initiatives, productivity momentum the capacity. successfully expansion. and significant availability well supply and of as

end result which year are markets, we to presentation. will a full cover seeing in the guidance, are the start currently As our trends our of and year Brooks raising the strong later we our in

the to highlights to the our is corporate last environmental of the applications. Finally, from The products week. operations sustainability the customers' impact report community of own and to I Gates efforts full safety across for on outlined results. we designing our point a our would energized on our published our efficiency With extent report organization the to detail our employee of the that key like to of review the governance, to by the website focused in part progress. for move that, doing you it inclusion. future, and priorities to initiatives I health on detail let's related you more committed in I'm these engagement diversity environmentally-friendly our report. XXXX improve and would employees' sustainable minimize on encourage involvement, to more

mobility strength growth million from in most particular Slide to coming acceleration that all with industrial sequential was highlight in on-highway substantially where came channel, Sales included $XXX in channels of Total the XX%. early year-over-year will market on point I end most Moving in core regions. channels see and restocking. year-over-year significant and this improved replacement quarter markets, diversified into at across saw industrial, the we no we markets. revenue growth recovery, markets. notable and the evidence growth end and first-fit This end recreation the growth was year-over-year of The significant X. with broad-based

expansion was XX% adjusted million, combination quarter representing compared benefits $XXX actions a by first basis margin of and of to margin EBITDA execution. driven primarily points, of increased volume, margin growth operational gross and restructuring through year was achieved prior the the over XXX Our strong from expansion our improvement

disruptions delivered the costs, supply Our February. margin Despite of to we incremental solid approximately core basis. on than inefficiencies winter a execution COVID-XX more in as Texas offset XX% a costs and related well storm year-over-year additional these inflation, as

our Our this related adjusted prior compared increase driven year income income, was items favorable in quarter, some year tax partially were QX increase higher offset share of last significantly to year. and higher of nonrecurring higher an pretax earnings in QX per by the operating by of the XX% This expense period. to in $X.XX income

Both our segment a Revenue Moving of X and XX% Slide basis, grew segments results delivered Transmission in the including highlights. growth on segment terrific year-over-year of to nearly in on reportable XX%. quarter. core our Power the

initiatives, on- estimated low and personal off-highway by Our replacement across channels. which strong growth and Sales those led our the into first-fit applications. by growth mobility primarily growth by augmented outpaced in our above-market Power further Transmission markets, the diversified Sales segment. drove but end were showed double-digit were was execution on in channels industrial industrial,

continued our XX% Our Fluid considerably in XX%. improved benefited first-fit in diversified growth revenue segment Similar the Power new year-over-year in and Power and with from Fluid Power strong of by the revenues applications. year-over-year, which inflationary Sales restructuring execution the significantly in by Power, Power business, to including basis approximately primarily EBITDA our off-highway was core performance. replacement both volume, and our of the QX higher deliver points Transmission operational high also single-digit primarily nearly particularly replacement points basis industrial performance end and These new segment's growth In segments, of adjusted very the design coming had helped over performance chemical benefits saw XXX approximately such nearly in Power Company. key growth the products was organic food Fluid solid products, driven led to our showed improved provide end wins significant growth. name from XXX Across in increased by Fluid growth by Segment Transmission, estimated and spray, channels have logistics, above-market also from in as products, have year-over-year numerous new We in into processing, offsetting margins XX% most increase stationery channels. QX over new segments infra above-market pressures. and both accelerating penetration rail been with beverage, to markets. markets applications industrial of sales from few. our great we a our our meaningful base industrial segment, progress a grew introduce, for that Fluid Power mobility applications Transmission, initiatives. which revenue in chain-to-belt growth In our increased long-term revenue our while XX%, we of Power opportunity XX% personal year-over-year, secular believe

growth to the markets, meaningful market commercial over deliver see did many market continue and base we quarter robust across while initiatives in recovery While organizations innovation are the above solid growth delivering our performance and end results. our

performance to growth. will great the growth over a top Brooks? future new both support that, across as turn products With guidance. I margin wins truly design for now summarize, of update the and to to Brooks some line terms further and our additional as color to segments in well expansion and call So

Brooks Mallard

Thank you, Ivo.

continued sales diversified industrial, growth. experienced channels, year-over-year our particularly double-digit both across our on China growth Now ag a significant double-digit Growth posted impact outperforming. applications, In in to on accelerate continuing into improvement channels, growth China lapped from to by by board. trajectory, and in applications. single-digit sales and breakdown From worst the experienced X core primarily with growth Slide sequentially strength end in markets. replacement for channels strong into COVID solid China America up markets, industrial Europe, strong ag we're and core also the XXX% was an gas, in performance. emerging significantly also replacement North markets driven first-fit all applications. was delivered driven core improvement by in led show of particularly automotive The continued year-over-year. the market the the approximately perspective, construction of oil and Sales diversified and revenue we to shutdown industrial regional growth. the and total our moving last and across replacement year solid All automotive into except regions, with growth end industrial channel their the automotive both high where in and year-over-year the growth accelerating was with significant We diversified most industrial first-fit in

the India and Lastly, well negatively. things did develop range are end performed in double-digit off-highway strength prepared our to on-highway markets We significant any applications. continue East very with quarter India and impact from growth all Asia particular situation across more see scenarios for but both business a in in in core of and the should COVID worsening not

Moving items. free sheet and income. cash detail our Slide represented flow first quarter additional of cash adjusted and $XXX flow on LTM net now an key million X balance some On XX% basis, our of to

first normal quarter, the had cash a we For outflow. seasonal

investment working Our which receivables, increased capital. strong higher drove sales our overall in performance

the to the We as converted expect for to year of additional our balance the improve are over cash receivables those generation year. cash this overall

leverage to improved of from X.X X.X turns turns Our for quarter net end the the at XXXX.

goal we at net midterm our that and by leverage is expectation current end Our X the be Xx XXXX. between of of should

represents return of working basis our growth points to capital a XX% was in solid on XXX invested Our an despite to capital and improvement investing QX. compared support

updated now to with year Slide Moving and outlook. X our starting full

execution activity initiatives impact possible globe. on our the trends progressively current COVID-XX anticipate we our the strong business, as and improves at regions, will of remain the balancing in demand of some around Looking economic

full As year our we raising a result, guidance. are

the adjusted expect range margins. the XX.X%, Our of EBITDA XX% XX%. an margin to now is We to at incremental updated of to increase expectation the X% revenue $XXX million compared of midpoint in our previous be for range strong XX% core over growth to to reflecting XX%,

to million XX%. $XX We million cash continue of be $XXX to expect the to greater be in to than conversion and CapEx free range flow

year. revenue year. For we in expect full improvement want overlook EBITDA the materials, total countries we range or QX, of our potential remain are for the aforementioned in the external that of affect $XXX in revenue year-over-year confident of basis situations certain be that I to to million manageable, to and million our million, million don't midpoints. points, further notwithstanding, concerns we logistics inflationary our COVID our the while Limited suppliers labor We of pressures, certain representing customers price balance significant through. worsening the of to raw and will year, managing be the availability in outlook at growth offset XX% and over $XXX $XXX expansion adjusted challenges XXX margin to for our to the inflation of the The us, $XXX have respectively, and and and believe range remainder the the are

challenging back Ivo dynamic, to that, effectively operating remains support turn the our final for to it demand will the it in date, guidance and our I to thoughts. update. some While to constructive environment navigate addition outlook, ability With over

Ivo Jurek

Brooks. you, Thank

are The Moving summary to leave X like above-market Slide making now few business in have would our positioned to accelerating takeaways deliver and key growth. over we investments the market today. you years our the to the several growth sustainable is on past been with. I a believe We

through expanding improvements. productivity margins are We

focused execution large the operational is strong Our a delivering operational strong incremental on margins increase in volumes supporting against and challenging backdrop.

demand us the set accommodate navigate open supply manufacturing current now recovery, early model planning We assist enabling is We through experiencing. positioned on supply on focused now chain better are for to the and leaned in-region, in are which in our for-region regional throughout will present supply manage recovery, issues. to of heavily the production and through to XXXX system investments the we've And in managing and our our Gates complexities. global remain infrastructure execution environment the demand which chains made business us challenges. kept operating we We tools

and the to the their over plan, capital thanking for which future business focus cash Finally, ahead to Gates begin that, more teams allocation. the an and turn around delivering will would are optionality flow solid now conclude generate by continued provides outstanding I like With our call in Q&A. we to continue to globally back the of perseverance operator deleveraging some quarter. the I

Operator

first Your Damian of Instructions] comes with [Operator question the line from UBS. Karas

Damian Karas

markets the and end I wanted So quarter end give you But update trends. of second recent ask quarter nice seeing us the you and Obviously, different quarter, about since momentum regions an plan. some guidance. order the you've trends Ivo, mentioned you the across you thinking about to provided could you been kind maybe through of just the

Ivo Jurek

regions I Damian. I've my particularly QX continuation we certainly outlined It's continue of that want I to certainly we But incremental labor chain that regionally. contemplated OEM broad both their particularly on saw facing and end of frankly, been with see the we availability the our mean, Thank you in frankly, your What associated associated quite updated positive and trends the continue all so across, segments. to for the India as same reflects strength in headwinds, with prepared we reported do note see the our well-reported rates, trend supply in well to are in obviously, have of think I we April, dealing And as be very will some challenging frankly, auto more guide. in in question, that broadly demand order the strength throughout with United customers Yes. seen issues States in issues remarks, our demand COVID. and that, as specifically decelerating we've the

some make very concerns we want incremental out bring is there So did are that marketplace. also although demand I'll of that it reiterate not strong, would forward if the we to sure remiss the in the

Damian Karas

think where any great makes Would of Got taking this, your inventory sense. below I that but normal evidence you it, know that haven't necessarily for this don't sense I you stated are? normal place. say levels have you restocking or visibility demand? on what's And you of into kind significant of seen level currently

Ivo Jurek

we significant And America Europe we reasonably in particularly good think in point-of-sale we demand have seen based The that have I channel. not Look, -- from customers that underlying that believe to OEM the the that's inventory low. track actually upon they occurring their is are there end reported own been we users. remains low we patterns. the are inventories very macro some struggling Certainly, mean, I data that of a that ultimately visibility, in very North and the quite that's indicated commentary as large suggests large any that inventory by seen build and restocking the closely, our well. to data out support certainly don't have

So is fundamentals significant we orders necessarily business seeing and quite substantially and driven order underlying with by that artificial I overall demand the the not pattern. are that strength believe

Operator

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

Jeff Hammond

kind you're One, A on, North the as about first-fit in of maybe seeing us, kind is mix a just and or in dynamics of little Is just that? good what's mean, I'm order couple you obviously, the the the outpace very just first but that And are you just of I that give And to outpacing else. America think anything is quarter. incrementals much headwind what rates? lower, kind questions. then versus wondering mentioned of the how comp growth continuing

Ivo Jurek

it and OEM and majority favorable they OEMs more to but a started going the first-fit see QX is be with performance 'XX we QX, to in in outpaced has our seen the in it's bit of little channel. particular shut than replacement outpacing the with of as production, vast their in down more have year, pronounced certainly in QX QX channels Jeff, last indeed of

terms you channels. we I going stronger year-over-year, much substantial XX%, itself in growth of challenges So of to I mix North quarter sort are America, performance comps, quarters. reporting I replacement That than more the brings if couple that. we to to nearly able growth and, in being think strong have in QX very last strong so had extremely that that about think you're obviously, of In the being support be rebalance said, -- terms first-fit think last a see of frankly, over of mean,

growth, more demand continue We very to orders North ability to fulfill by strong our America, see than Jeff. it's in and growth those driven

support quite we have our that And looking the they are frankly, as teens as balancing remains overall prioritizing growth making rate customers do I our I in that America be think And well. I the that So to very products terrific was we that low are year-over-year. sure wouldn't of necessarily customers, North the that there still, ability strong our all with actually performance ordered. get demand environment think

Jeff Hammond

demand on good kind think Okay, purely your wondering And what from is coming great. initiatives color to then the in ability how versus just outgrowth, new some term. the product is your of fulfill much near I'm versus differentiated competitors of you product the just and

Ivo Jurek

the for outperformance going that some you, we that is through you Look, globally. pandemic. been quite reliable have partner channel question. well sense my our for I we've a Yes. our of fact And with is thank seeing Thank we are that that the operations that kept customers the think especially

market share. gain more it a of that, more market share through that's a reliability permanent to and supply, So is my sense of probably some of of reset is

longer-term markets our we very secular that the of on have to deliver and constructive a to a end continue that attractive we markets that market amount to for about new well our there, growth are to these calls the substantial will out wins more very to we've last us starting products, had up see On very end with markets show across for outgrowth And future. been the look, we numbers. of the drive speaking business. broad-based, design in into earnings continue And nice that prioritized we've I believe end couple years, now recovery over the

we So and that P&L. accomplish seeing constructive up have what about now been we're the able actually showing very in to

Operator

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

Deane Dray

positive of hoping the more was did you'll both chain positions? you come industry about update the And us of color supply unfilled on increases equation, some quarter? some put Do kind the of And has through? labor short a side, I stockpiling, be if in rubber but price/cost in of of that in Take the raws, the equation. some just it through price supply, year. have sides kind on we'd couple because for up the sides color your get of highlight you more the the you What being then What of pricing could. like planning times. both you're natural about different to anything see

Brooks Mallard

price pricing into at the and a went announcements became our lot of QX. side, of on and QX So effective out really in end the QX

so side, come looking we both that get we're pressures into revenue. inflationary think at pull bps is, you're full when balance year. what additional additional offsetting we're as what full that So look going price overall little those inflationary When but XXX about the normal that's dollar-to-dollar the the of on on given, additional the the to and getting incrementals, what we kind -- our of at some I a dollar-for-dollar logistics say full increases on everything, you on come see. any we're and on more about cycle. kind year to price flow-through We to make but from of see not would see, specifics the because guidance offset see of we side will normally and dilution just material our inflationary and for getting incrementals forward out, were getting our and QX, sure able our that it to without would in price bit our we're pressures price able of And you you're -- we've dollars

So it how lay I out. would that's

we've supply manage well been to terms constraints In supply, material overall. through able of pretty

that that there's in this as things around. with bigger alluded a we've cost availability earlier Of is Ivo labor with to dealing move of been you Probably little and course, you the expedite U.S. bit associated things, the issue

biggest And so one through you with. that's dealing of we're right on know if don't have the the that we're one any that. managing Ivo, color I additional kind now, probably that

Ivo Jurek

I said. that's well think Yes,

would metals been the frankly of the inflation that that chain. up bring second that particularly had, will we've that storm resin, believe those start been to I all certainly on driven to biggest that hit havoc more think frankly, seen the way -- year operational. black. in And the facilities we in in question half get But chemicals have February maybe has back chemical of of in supply we the Texas you normalizing I into the with, seen have side, going part we've has the and components, the carbon that's the and that, as

be certainly brands into pricing. of we inflation very that with think the So to We top and that our taking positioned. in focused with continue strength, frankly, that are the to pricing materials we forward ensuring demonstrate strength continue ability, to the business announcements raw our the on of that we were on market, believe and offset any leaning we well will

Deane Dray

because as he really sized inflation, dollar-for-dollar the what happens when do increases also That's I some margin there helpful. and you get And the was his it. ask you price to answer, on in Brooks already said dilution to about

it's there answer the right. perfectly All the and So I appreciate understandable. precision and

now? it. because -- this question waiting growth on conversion the have have just a this momentum quarter and are this big we that the we want we to of comp? how is it easier from this on critical is hitting in mass, an meaningful is this it me So I jump just more make chain, it Was belt for it sure context. get in been second reaching just want -- in for was that Is a to XX% here perspective I meaningful?

Ivo Jurek

Thank significant such Yes. cables. initiative this for gearboxes technologies out available power we transmission chains, while highlighting That's and the there. been the we market Deane. as today a a fundamental is there introduced alternative you since have question, Look, for very out for

to this Our products are that reduced discussed, have more maintenance, significant we value focus now more labor. that back out they're of these of more you e-commerce desire your conversions drivers question, we they're have With respect in supporting and only them. seeing all to are on they ESG they address proposition for efficiency initiatives, that that's efficient. for us the is of kind and of warehousing improve market. combine when even drive to help a a with accelerating availability accelerate logistics. everybody's trends there to automation world's quiet, Look, maybe the secular underlying progress but sweet is to demand spot sweet the these are also safer, And there lightweight, for not And and around challenges look, increased spot some operational that heart to are several coming real

that And It's certainly, we a able design in to of robust a us deliver the what's able not with goal do from very growth going frankly, a top we build is in frankly, we on. what reasonably above now. what I of the the anticipate this If market to it's design have initiative. been for And long-term of That growth incrementals our deliver But we this base have stated good terms wins, see XX% of have help from product on Again, introductions with these well rate. will about years wins to driving base. the quarter. for that is our the acceleration growth talking small you some is of initiative. been layer every couple that's to of simply business to don't been industrial opportunity base the

Operator

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

Julian Mitchell

to chain-to-belt what's at just the revenue the just for on of looking just now. informing for second context particular. in guidance the that understand wanted And thanks Maybe guidance year, half the better

mid-single of I or digit are the forwards of kind are mid-high think excess digit-plus maybe year-on-year the down it's in sort seem like up in ordering half. first seeing single sales Doesn't you half. implying half-on-half, pull second

So that As it when isn't seasonal second back assumption? pattern with for historically, revenue-wise, going we there half. what's behind of among maybe an do half help obvious what's clarify look auto OEs? first on second kind to Gates Is something half,

Ivo Jurek

Good set for Thank question. of Julian. the you items,

we even believe Let start of can't are kind normalized me more see frankly, certainly asking seasonality, are with, XXXX. And year anticipating I we we that normalized seasonally in which will backdrop that I think is stages early macroeconomic what a a of we that is very we presently. to are recovery, believe there in good thing. terrific But I market see also the and about

said, restocking there's we that think We the channels. included. And the of some facing, the I recurring us evidence I of are that most really face COVID seeing very still that participate are positive of no regions trends in the end as the markets challenges across in in is are all

The to XXXX certainly orders We our continue have very anticipate are seeing initiatives, acceleration of sales-related robust. due beyond. and that throughout those will been and growth we

have business automotive a do with that car XXXX. OEM is, break these dealing are that challenges anticipate I question, that navigate certainly in because what we the guidance, continue well, manage in have embedded in the course, we our challenges Coming been will to deceleration companies those semiconductor through but all of your challenges Of will there and we back believe through Julian auto challenges to look, we throughout frankly, all not we quite of XXXX.

to end anticipate challenged to get market they're that all I think that, solved that but market I they most going end get And that think better is XXXX. in in the become I that probably don't will is XXXX. going

hit I everything you an in. interest think I had

Julian Mitchell

outlook. Yes. question And on sheet balance maybe my the second

of an of of at seems that got be uses at maybe on free have up that the end levered and now for decline X.Xx of X sort this you've full what look of in to being you'll think year But maybe year. when targeting net That M&A how I after So we are sort you pipeline QX. Xx, the to more acquisitions? embed cash do returns you the cash optionality, flow

Ivo Jurek

Yes.

the me the out and to some Let cash optionality will give maybe flow. there, on I M&A you start it color then on additional and with to pass Brooks

in will more nice QX half, we to past, in And year cash point, itself second is seen quite over play seasonal it's progresses, bit. first yes, consume to into the the as I we out on remind again we quarter seasonally, speaking, naturally And Although QX, anticipate of have the going have we thing with convert so the a also in let's in then increased receivables see million $XXX-some-odd our generally our start in are but the and consumed XXXX. cash certainly in ourselves able year-on-year to growth receivables and cash same performance. your we that

So the with at long a look Company, continue very activities deleveraging balance term sheet and of the number will a but the have a for of priorities also what execute we we on, out significant M&A there. that have that, if to do pipeline I opportunities on the means it organic take we for look, solid

disciplined. very be We will

pun organic we growth a no all are and -- are them eight to hitting on good to We continue hit here. cylinders, in target very cylinders, our on shape intended

whatever we one that that very sure after with go we what's be feel very for. that disciplined happening is organically So going don't to business. we to M&A we're overpay can make And potential good about the

activities you to lofty we've that got and returns on shareholders As so long presently be over decent we generate to multiples the term. acquired our able reward the any inorganic know,

very sure will that very we and we is be. want robust, are also make here but believe So we to disciplined the pipeline that I

Brooks Mallard

for than better sets Yes. to which both an in and That to how our that want to on improve leverage our growing earnings. really there. it future then are from where business going in good line the of those peer of the made debt we're creates of in in there's overall on earnings we've And but cash M&A per And us down to at right to deleverage helps just Look, very be, improve our like follow prices, terms certainly it pay we there optionality it debt. idea that the path capital. is group helps continuing perspective, clear interest, allocate we the us or and terms the out want of debt option an paying If opportunities and through share. down we

set So what business. terms we've of of a got great do cash with opportunities the the in from we

Operator

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

Ashok Sivamohan

Are there about is Jerry headwinds about here your XX%-plus were need Sivamohan you incremental leverage to the keep This typical to Revich. we operating into how recovery next if you're that margins for any on mind? talk continue to Ashok year? thinking from Can in

Ivo Jurek

Thank you your very for question. pleased incrementals are with we in QX. our Look,

have increase top well. are it QX again target incrementals, and they targeted the you XX% that on ourselves, with As unanticipated storm, incremental significant that was XX%. business the February our core in very The approximately we the quite on of to deliver. energy we we remind said, in so our over managed right When absorbed surcharges to we've associated core revenue consider leverage were the

track, excellent logistics significant well on through we keeping proud Very done challenges. our job programs to have what of inflationary of balance managing restructuring Our environment QX. teams with price in some done managing global the global as the have an as

QX QX, sizable inflation and with kind headwinds that you of rest the moving look, be we So we've on of in and and consider increase year, when the dealing revenue some to impediments, expect forth. remaining so on so year-over-year in about the some challenging quarter to as as the raising of most of the the very well talked COVID-XX the

years. of The we be that have line XQ, guide. with in last is here be as that, expect up targeting we done the to the kind way more XX% business midpoint three our think and have XX% XX%, to about of the over the two of of rebuild in our again in of we incrementals with would be that in to incrementals going that we to kind normalized revenue So discussed restructuring is over kind the that our

account into QX. of account in taking the that anticipate the incrementals we that anticipate revenue price when of to take approximately XX% deliver increase, the we kind will core offset so you restructuring And large dollar-for-dollar, inflation into savings,

again mid-XXs, of our midpoint incrementals we once middle the updated volume meaningful that when anticipate are the of take we kind like the that significant expectations offsetting account to of be For about higher fall-through low the the full ours. the XXX frankly, from in we basis no guidance. is of into earlier, driven year, And seeing, is our have higher and gross that expectations getting in from you again we to dilution right by that the increase in as inflation but with business discussed margin pricing points of volume expectation each the

delivering in are very, 'XX time and bullish incremental we of about very the frame XXXX beyond. in So strong very and kind margins

Although we providing of anticipate call, delivering will XXXX. on mid- get that we're low not to out our be be here high guidance any to as we incrementals that to going we XXs

Ashok Sivamohan

capital the come following high you're leverage can were the you your understood. And allocation of Okay, the how to about right talk along? up thinking on discussion, assets if end about range

Ivo Jurek

come, any to is provided think of an we we is The anticipated, comfortable business and do We that feel we would That of Look, profile are we we to and being can Xx that something very on returns, that. than -- haven't really to worry how we good we've plan Leverage kind true undertake. that right have said, business. we our clearly, generate of not get the when we important that think and IRR. us the guidance for that decide leverage We whether the would larger-scale that would ensure business. cash-generative we the issue any very would with X that that's is then to M&A about. earlier potentially it much of for opportunities level do that to is that level And discussed. really about would we right ROIC right like

Operator

with Your comes of Pokrzywinski next line the Morgan from Stanley. question Josh

Josh Pokrzywinski

follow-up put the you to growth if conversion, flow reiterating had And you XX%, chain XX% kind the requires just wondering, would that on have cash kind commitment. dollars would plan? Just capital kind percentage I Just tightness. of free imagine have than that, and at higher if guidance, that's be where be the should obviously, of thought the that of if then you prior than And higher, that falls if would the is guys the conversion, flow a cash wherever supply just similar sort some about free talked better any would prior. think more something that working around you of or below precision

Brooks Mallard

Yes.

generate cash. confident It's manage our little the dependent QX evolves going this the the said, dollars and I cash as dollars. on that? probably ability not and we're go working detail as be won't think way, At of I confident this above break higher So Irrespective, than we the how feel evolves of over cash overly would a more we're is our XX%. generates bit any things be a If with more higher volume move lot perspective, from volume generate any to to be And capital We're that. how able a year. the growth, XX% through be business in obviously, I in going -- go fairly won't by into say business number. to lot a in than we'll that's clearly, But equation the capital-intensive. well. through forward. year. to Ivo could the being We balance able the the a to Maybe. it somewhat minimum, XX% at driven through we I of

good way through year. the feel And some we been of confident balance outflows about our where in seasonality we the returning. We are normal feel we that's ability cash generate to So QX, today, operates. had but business about the historically, the cash

Josh Pokrzywinski

of industrial you'd that more strength end chain-to-belt first-fit phenomenon that wins Got out talk in pointed there can on replacement market it, some seeing the out applications Obviously, about that's versus you some clearly would helpful. there terms Any of replacement? context And out, of in then add be what that I or maybe that marketplace. within guess market. on a more kind the would you're general

Ivo Jurek

so Josh, of we're through channels, to the OEMs, chain-to-belt actually had a point now of design OEMs. we -- design out across both starting go lots let wins that that me the wins opportunities see number with have

through that through conversion personal of as areas to revenue replacing even in go over that all have robust we that highlighted processing, applications. ability design set we very you we've recreation are the some well, years, but OEM as and an a is You chemical the performance industrial us, calls as pharma, equipment existing incredible as not few, markets and the for beverage, for robust not industrial to just we And and and have recreation of that personal clearly, food an mobility on the logistics should name mobility not and design applications. back an applications the momentum very also applications, couple channel. think to And see see just in those, if last OEMs, stages of on above such side. goes had But wins we over replacement through about conversion generate of market as infra of the particularly

Operator

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

Eitan Buchbinder

Andy. Buchbinder on for This is Eitan

And in room segment? capacity, much your of quarter. you encouraging the expansion the to margin how was Fluid discuss So given improves? capacity for utilization see it's Can percentage Power there as added recovery a progressing during for what is further utilization recently

Ivo Jurek

Look, is Thank the you question. capacity utilization the quickly very rising. for

in think of capacity bringing I put that early time that during we're we all up still XXXX the have place XXXX, frame.

feel where available. sit of we good about how we room in have So we capacity much and terms utilization

to certainly have EBITDA to to at bps and In opportunity expand remind segments, from XX provide by what specific you opportunity reportable year also our margins terms guide reported certainly going that certainly we've on midpoint. for do expansion embedded a margin an we we our believe that. to today. the in but of to Power drive room continue further would that we I have And increased a further of margins, run midpoint not the again, Fluid have we we're

Eitan Buchbinder

helpful. That's the quarter. And during called throughout remarks, you first order the out strong momentum prepared

any you build there constraints? increased demand So backlog do realizing been driven that by normal? have supply visibility or you're And versus chain a short-cycle strong business, has customer any

Ivo Jurek

Yes.

incremental prepared remarks. backlog to not say point been that we very visibility normally you will would but rates Order And backlog have are I increased I have. would There's business, our we QX. again, have to in So certainly we a our back strong. again what

earnest. of latter and We the as terms gas frankly, as some of momentum, what mid-cycle And early and as are that that and across globe. certainly have applications optimistic the in cycle businesses starting about -- the the we feel automation quite see we businesses oil up well they to such cycle industrial recovery in in ramp the the across market

India, midpoint there the what certain regions pay being regions those that as to Now as attention we've said to headwinds, are I some again like got more I Asia, Southeast well mentioned, as said, that about automotive we the going our our of to the over challenges $XXX OEM remainder year. business anticipate despite challenges, million. we've guidance of But of taken for to is continue face those

Operator

And there time. at this are no questions further audio

Bill Waelke

Thank right. All interest your Gates. you, in for everyone,

update to the forward available for Have next follow-up we good any is questions, here second team the our quarter. always, look As and day. on providing a

Operator

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

disconnect. now may You

Gates Industrial (GTES) 10 May 212021 Q1 Earnings call transcript