GTES - Earnings call transcript Q2 2021 | Gates Industrial Corporation plc

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Operator

Good day. Thank you for standing by. And welcome to the Gates Industrial Corporation Second Quarter 2021 Earnings Call [Operator Instructions]. Please be advised that today's conference is being recorded [Operator Instructions]. I would now like to hand the conference over to Bill Waelke, Head of Investor Relations. you. Thank ahead. go Please

Bill Waelke

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

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

Ivo Jurek

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

of am strong outlined challenging overview face an with I of our begin with Slide our me environment. X. on performance operational Let execution in a the pleased

The created our further new strategic and their its resulted market our and market quarterly profitability. is Our across and pipeline continue market portfolio segments robust to record stages start order of contributed growth in opportunities year, remained revenue of initiatives nicely, share across that are gains is the growth. ratio significantly organic the progressing potential The growth are in These our to as of drive continued excellent growth increasing early X% industrial both delivering and products. are to present to of have quite most quarter. but moving freight. above investments call on in operating above headwinds supply throughout the our in resulting exiting underlying Inflation quarter not book-to-bill last and highlighted The And remain and another persists forward. business complex innovation raw our our initiatives also materials impacting demand the end conditions. chain, we trends our only

have expecting position of environment the and QX in in broad in ease maintaining not and inflationary half the actions, proactive year. near price/cost are positive term We pricing to the first a with been the responding

in availability as the labor In addition remain and materials, geographies capacity to certain inflation, of raw as well logistics certain tight.

generation an these our business and deleverage has to incremental and our the team lengths drove execution us of in cash to leaning navigate accelerated challenges The and combination global forward allowed these to outstanding agile operating We going was by of strong customers' at complexities, the Despite needs. support have free margins. our increasing been great pace. profitability flow

with midterm leverage strategies. our As target. our optionality, increased said as our we particularly accelerate range opportunities to to provides as growth in us future the net previously relates it course, presently is result, This, a of

date a will that, of our provide end on seeing we later in further trends let's presentation. raising detail more supportive markets, a in Brooks performance we the year are to and our move the our With of which detail. full As into guidance, result are again

performance Moving to revenue XX%. broad growth in $XXX end off-highway year-over-year of markets. million diversified end and and We top markets, Slide came recreation based in X. regions. growth of channels XX.X% including end we provided, industrial, core particularly was segments, at the guidance saw across and Total mobility of the up strong the This

Our business in automotive OEM also recovered the quarter. nicely

notable channel half was of strategically our of in in Sales coming the visibility also the remain grew XX% growth levels approximately From industrial levels total channel have, to reduce to year-over-year with the participation company distribution we relative from channels the which demand our low markets. end most significantly sales into partners year. However, seen. of to down we first as this continue the inventory replacement

million of result The expansion guidance, of above our efficiencies the our Despite compared margin points. from $XXX EBITDA higher a core of high growth the operating well margin production XXX% end of margin second volumes. year of the approximately representing a a productivity inputs, year-over-year restructuring volume prior from as the and backdrop. result of on as significant of benefits strong to and challenges adjusted a in complex the continued basis Our inflation activities against the incremental XXX we came basis, with associated was and quarter growth expansion XX% availability initiatives, delivered

the of Slide higher approximately saw clearly core XX% in $X.XX board, a compared revenue growth in our X driven operating performance Our with the per segments. period, of and were to increase each adjusted strong across significant the We very our prior highlights. year share the earnings income. segment quarter, by substantially

market by which the above growth our organic XX.X% core back Transmission the of driven initiatives products, Looking current of at Fluid quarter our and growth compare results reflect been performance X.X% our secular more Power has markets. in a primarily both perspective, solid meaningful our a XXXX, trends of second end revenue is in Across in and perhaps Power. from segments, new

number well markets us, supported Power for and by mobility Transmission. secure at exceptionally recreation Looking diversified a of The trends. and positive industrial performed end

Specifically, for the automation is increasing centers, demand our in facilities, on an industrial and trends and uptime. industrial the driven in manufacturing by efficiency diversified benefiting distribution focus end accelerating from warehouses markets products

Our e-mobility. chain-to-belt initiative and also trend within this with to continues automation, quarter wins benefit beverage food warehouse design and processing key in from facilities, applications the chemical

seen with significant but wins We growth revenue key for range a focus In strong mid to over The is agriculture seeing only Fluid driven continue which accelerating XX% to on nearly year basis are trailing we recovery points term. Power. this segment across paper adoption growth respect Power innovation Power strong to XXX applications, driving expansion trend and we profitability, Transmission, somewhat by including mining, basis delivering we in continuing in of our business With design initiative pulp adjusted see new and our over market also name Power, this Transmission is X,XXX anticipate not few. this growing year the Fluid in we the is overall broad year-over-year. of believe products, performance a point and delivered then margin over EBITDA in of

seeing profitable Transmission solid we complexities while both benefiting reflect Power also the present as current excellent business. recovering higher second are performance with earlier segments volumes, of of Our first-fit operating some from over well In improvement of environment. exit our quarter and through summary, managing XXXX in less margin as the from the

for to support Our turn Brooks teams our demand the are the working over will to that, I are call our and Brooks? on they additional tirelessly customers results. experiencing. With color

Brooks Mallard

you, Ivo. Thank

very of automotive channels trajectory in their applications. our off-highway applications. mobility by core Sales performance. led delivering Now and growth Europe, with industrial mid America off-highway moving mobility on breakdown particularly by the replacement seeing growth. to all driven was digit continued growth core emerging channels, double growth markets regional developed the North In strong into delivered and was revenue Slide strong regions and channels, and markets We recreation, and both performance. X particularly automotive recreation, and also double with also and from primarily first-fit across first-fit growth similar digit end on-highway strong

XXXX, digit posted in industrial to accelerate applications performing All growth to experienced significant return from to line replacement with growth growth. continue having market of expectations. a impact China, of well. experienced core energy, automotive The XXXX, began our our channel most and in on-highway year-over-year QX also perspective, significant markets, From solid of replacement more COVID-related end an shutdowns QX double industrial teens in normalized and with growth. the the most year-over-year channel end high the experienced sequentially in automotive we including diversified

We particular as impact India saw in we applications of well Asia across America our and India all for strength performed half the double in roughly markets, highway in quarter. through South both in replacement. Lastly, core very manage off-highway digit and automotive East across on end shutdowns the growth businesses solid as well, while and

to additional the now build strategic the the for us last and and the working Slide quarter, generated from from end X.X at quarter items. year's key times leverage quarter, Moving procurement to balance of to normal seasonality second X of times. times In sheet flow second despite on X of the flow X free in detail raw range targeted placing materials. midterm our and strong in cash cash some we capital Net improved times X

with debt end our $XX of a We debt liquidity reduction at $XXX second since now also million repaid total strong million all secured late additional the quarter approaching of profile. an maintaining while December, the

XX%, of points. invested was Our capital return on a increase year-over-year XXX a basis representing strong

Based earnings a current raising healthy year X and guidance quarter outlook. our full Moving increase release. our to in significant are Slide with now the we our full after trends on first our updated year in starting again business,

for and is EBITDA in an core adjusted Our XX% the XX.X%. of updated growth to to of XX.X% expectation XX% margin revenue range

with positive includes despite that year reflect basis the significant inflation challenges cost dollar guidance strong availability. margins logistics on incremental full remain price and Our a we material expectation the and and the for will

to XX%, continue to our of the net to to flow to in range million free resulting further in than million be CapEx net cash conversion We improvements and expect $XX leverage. leverage. $XXX be greater

of million revenue reflects and to expect adjusted we be growth inflation, continued of currently to We of XXX strong are believe This to of year-over-year basis guidance, challenges XX% significant our QX, $XXX million. points performance $XXX EBITDA the the million the and XXXX be The seasonality. typical and represents midpoint. in million in $XXX to return at range $XXX of to more the manageable. the a expansion margin in range adjusted For EBITDA balance notwithstanding

some to certain balance it final the of thoughts. However, in year. customers regions, for for potential has dynamic COVID and turn will us, environment, potential over that, affect addition With to the worsening the over the our operating further situations suppliers the in to our back Ivo I

Ivo Jurek

Thank you, Brooks.

on delivered Moving now end takeaways. outstanding summary quarter a few presented strong unique and results second challenges. anticipate half underlying and in in on We our key the and to new trends that initiatives the drive a Slide of with second year, the progress our We capitalizing operational to further environment X markets demand products. favorable an

closely are as We our well suppliers chain by monitoring and bottlenecks, faced challenges COVID-related supply as customers.

the environment and operational dynamic labor and fundamentals offset support navigated of incremental on are delivering growth. complexity well, fronts, market number While margins. executing and a strong volume, we successfully chain large increases above business agility managed remains in the to We inflation, strong supply demonstrating

of now focus down multiyear our more on end to with total profitable, to markets higher exposure applications, XX% continues Our growth industrial automotive to revenue. approximately effort OEM company's resources

of Finally, increasing the to and they growth have providing I organic opportunities that, us more growth effort allowed the forth our these our targets. results, flexibility now am to and opportunities the selectively has sheet, deleverage to turn excited will ahead beyond to put balance I'm our generation of around our continue strategies and proud our accelerate over to as the teams well. very I cash begin operator to the we Q&A. globally us outstanding deliver about With call profitability

Operator

Citigroup. comes line from Andy from the of [Operator Instructions] Kaplowitz first Your question

Andy Kaplowitz

quarter mid-single by high at outperforming this year, so above of and But potentially this guided single Ivo, Power in low market Gates recorded its digits end digits. Power beginning you Transmission, you digits. Fluid markets the growth to was

of think drivers types just So give in growth? continue to up still your base above above given initiatives, you And can you more growth ramping these us actually you the market you could rates? at do early are organic you a little market Gates drive on color said think of the

Ivo Jurek

chain-to-belt. of Many there, on we having I about that spoke strong believe I adopting new a for primarily QX the of more these are technologies. enabling a And organic growth value of have underlying our we being in us believe focused aiding they share personal the We I secular believe to the products commercial in performance mean, while. spoken are focus end is prop I have new they our the our tailwinds. acceleration segments before. those initiatives gain new primarily products by been very driven calls that across product both frankly, which strongly future. and are And markets of making runway came also initiatives both about we end that applications conditions supports mobility. and innovations, on of we we for that our products, spoke the investments adoption markets. think and the The key is on the highlighted very, about in have very of strong take and number our have are and market above-market that I've that initiatives, a our our described good

So we're the of we growing And continuation not continue these quite term believe the be business market demonstrate as to we of only longer to 'XX, our certainly as about we of to objective. X% have very above our able in can midterm excited the consistently trends. but kind outperform over X% highlighted consistency positive nicely that

Andy Kaplowitz

And to forward? reflect you're your takes to and color that still than for us you the maybe incrementals the and lower then little going XX% QX. in year give puts expectations seeing It margin little you're more like a looks close can a

for expecting price still dollar. inflation you're dollar the that mentioned You

then at range. much is dilution So least gave range the more XX% of that does quarter? versus like points resume at you're XXX incrementals a margin your end QX And you assuming us basis into last high normalized it margin look how the that in of range

inflation Gates in incrementals able that range to 'XX persists? that XX% So suggest deliver if confidence should does that be into even

Brooks Mallard

very our pleased with overall. we're So incrementals

mid-XXs look you in of the If our to normalized we're kind incrementals low volume at in QX, range.

increased about And So XXX the from of I of FX increase volume. half have that XX%. from cost about to headwinds, for in recovered comp dilution about variable kind And SG&A customer the think accounts half came of bps we overall price had then XX% then really and different of came then incremental and on related with that that incrementals.

overall incrementals. we the were very with pleased So big even gain, with volume the

bps going If full year, the full see incremental you to look dilution. the at we're year, about XXX

between going core So and XXs, those to to kind got kind and of split and customer-based it's some comp and kind almost norm and then the inflation normalized incrementals then be in SG&A of XX% logistics. high variable are our volume price you the evenly for and of costs bps that FX, return on XXX of SG&A increased

incrementals you And right in. XX% what middle so XX% where we the our a really QX, really coming of bit volume to that fairway And feel little much elevated incrementals through. also of incrementals on said elevated to real flowing year-over-year. got good with are volume about growth when the kind in feel makes We're just on remember going so and you then good about quick those forward. the we we have had tougher And we

in And half we of back to are a normalized numbers year, so incrementals those little those the elevated bit talked the about. closer

Operator

Nigel question line of Research. comes from next Your Coe from the Wolfe

Nigel Coe

to question. follow last up with Just wanted that

neutrality, -- inflation all of you aspect? the or are definition price/cost the define So material sort you just including There's out raw freights aspects no and when there. wrapping it clear in was

that, there's equation, then So pricing. question maybe again, pricing channel. to you're on oftentimes, what really on lag seeing just OEM is contrast spirit And helpful. the and the OEM And a of just that the the be compare price versus would

that if wondering you're there? just So seeing lag

Brooks Mallard

about we think and raw freight. we think overall when for the unit So about inflation, for really per materials both cost

that. and don't include inefficiencies things the look we it freight Now of what inflation, of constrained just the year-over-year. like the we But don't include relationship we don't cost see maybe include we supply is with some and chain at you labor in

we rates again? was price. logistics then compare question materials, that of part So What your and second to the

Ivo Jurek

activities were lags pricing inflation inflation is the the behind little is worried the We about QX lagging spoke inflation. frankly, leaning. OEMs OEM reasonably the have we that And you're always elevated taken we forward the well. a to believe the partners seen earnings the been from it, about it We've and to more that pricing have about but distribution channel channel right, we the And are albeit pretty we've able we we pricing pricing offset into creeping it, in call and as well positioned done. slightly that be

Nigel Coe

mentioned you quarter? Maybe but the i.e., position more restock of remain -- chain color partners there, low? Did inventories fulfill is great. you channel you the be color, where low. are constraints, during touched a And any lower any then how in kind want you just get low that'd demand, Ivo, can't on very And supply they your to

Ivo Jurek

remind the that point -- this which in data and have we at time, point America again, is biggest everybody North I’d our data sales in correlated on market. strongly sale point also of is most that of our Based

of frankly, partners whether that demand keep low and would commentary All more the channel to that from the inventory products track comes to all customers. commentary of partners that or our that they even on levels the we the their from from are seeing suggest from all presently. struggle have would to for distribution all patterns inventory side with they have OEMs, up our or channel like they levels not demand are quite that our is that Well, indicators the compared it customers, the again, a the comes the

that inventory. like I have would more So would tell to everybody you

very a in quarter that keep also the doing second book-to-bill for that the to mentioned strong did have can row. up. I've very we are had a best again, performance. We terrific quarter, strong We we

to We get that like are build but more and to we indicate not people than did a backlog would business would backlog supply. can that you we

Nigel Coe

one building normal guidance but hate maybe ask and question, I be that mean point that's XQ, about could now, stronger that than a normal curious but if just for suggest more seasonality? just backlog, does to embeds seasonality right your that on XQ I possibility?

Ivo Jurek

us, with think we level need is into very I strong very what account baseline great we the mean, revenue results that that a QX, record to in came from for in take I strong incrementals. of

We than But I out there tremendous is to side. playbook still there's want it's fulfill. also are everybody headwinds there customer we and dealing of it side our more and is on our we as just as with, on our can amount executing demand are on remind that much that particularly

they products would have although products I to as So like bills they more semiconductors, there. like get if as much to manage us, just they'll cannot they build their from out mean more

challenges. logistics is chain So demand it dealt to although we COVID, India. It challenges, problematic. challenges, yes, still here. is in what QX, COVID that strong, in frankly, worse want And QX guidance. anticipated. business was with was supply It's move it our great labor we than anticipated beyond in result by posted a with little highlighted conservative far our first-fit although we've what worse than automotive I've frankly a we've And

have that seasonality, of of into I account uncertainty. for account year. still Taking second the the there's very half So the guidance have strong lots a taken that and we believe into we

Operator

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

Deane Dray

able getting growth more can as internal your M&A element playing might funnel One your the the you six paid What's leverage of pivot look well? offense? down hitting ahead And that to deployment and in that Is faster time. target Is opportunities? first debt step to now investments you positive capital really up be like? has there an are the your been this of there half months surprises in

Ivo Jurek

long Absolutely. company. But for again, remains our the growth doing right thing that the term everybody frankly, over with, supporting priority the remind I deleveraging the for the company and long-term balance over

that projects. opportunities, we're very and prioritizing or as highlighted so opportunities. funding return have speaking, They, I generally the best on about strong be of And organic we out and is on strategies those investment those optionality returns past pipeline best set those. active. have year excited will That strengthening balance We half to our of opportunities through sheet, accelerate supports of does the there pretty create -- that on organic M&A. investment our course, The

we adding the creating think don't that are we it term surprise long those However, M&A, to expectations but selective and very very on stretched. opportunities in table I our in be disciplined will remain portfolio strong. the focused shareholder are seller in be will disciplined you, very and value. and pretty They will capability through very And general all

Deane Dray

your of question, I be secular And faster maybe next mover. just happening does it us one on to was trend, it you as term. of then and these does to product clarify, a what size a was maybe this percent? year, -- share and becoming happening in Can is this for near chain-to-belt it's it's that contribute is calculation second another show introductions it's in is could needle the And going up conversion, thinking like whole part to positives well? guilty chain mix there gains but just your win, any of belt And really on-the-horizon new

Ivo Jurek

excited $X market are And and particularly everybody, gains, to that it's growth opportunity, is when a remind to a we growth. very and opportunity really and we long the a are does share deliver I 'XX investment how our near during course, the time. some in community We over what adjacency to call believe Despite be with very very we period And felt problems. are our for will and mobility, couple organic very billion Of our incremental and a in us I'll customers us to fact to revenue diversified Transmission, the of in adding it during $X of performing very for kind personal it our added solve has TAM back Power our really, for think nicely come to years those that in show nice strong that of more doing particular, the normalized I drive will strong do I we for very chain-to-bill that our for well, take opportunities. QX to shared think about it both believe us. addition will our And opportunity believe generation time a we billion we in we that that XXXX industrial and that it and long-term cycle. it's opportunity but becoming of earnings we nicely a

So it of clearly, great to the our execute short growth that be but on. runway anticipation will supporting It's term, opportunity continue for we company. us a history to very long for see

Deane Dray

Just calculations in new to show clarify, introductions? up product does it your of

Ivo Jurek

It does, Dean.

Deane Dray

Yes, I sure. would I wanted be think would. just it to

Okay.

Operator

next the Halloran line of Baird. from from Mike Your question comes

Mike Halloran

an up normalization low think currently. own supply still you following little talk perspective. at little your thoughts bit is X, channel look embedded good talking doesn't and demand or channel seem to in when Maybe your above how here from still question. bit, internal a starts be bouncing year? That balancing chain, some a partners on just momentum. So do a just is cadence and about think you or you when earlier next into out that Obviously, Inventory normalizing and you guidance to out

Ivo Jurek

steel what's to and amount in as regions, also, predominantly still visited material availability are with incredible Longbeach I particularly -- supply pretty high-precision of I raw of specific challenging, frankly us. and And resins, mean going of challenging I precision two well. congestion most America challenges North Board very, the look, very associated materials on the dealing sources to of try mean raw some there significant for a there's the is we probably to that name there's labor with, US. And understand it's in

you it from source quite factory. got can from can't A the So on where port get material, raw the you occasions B your to you point point to get it

maybe we start believe We anticipate through we And to second impediments. and center year. front should will certainly take those the half we that us that with seeing challenges some itself those some time work the easing believe will remain that it of XXXX So of through.

Mike Halloran

a then And follow-up.

your You of the went decent seeing percent at how that trends auto to but a here total way reduction look of times certainly revenue. OEM exposure, about talk multiple keep you as out

of the you exposure? well reducing where So should specific look strength in you're think term about of kind a And indicator in then as as maybe does timing businesses in other balances the think be there of should that, greater you And that aggressive secondarily, One, more the that broader optionality some we we out? at? here question twofold seeing is kind point a segment, that to does that maybe the here. sort on short around that give how or

Ivo Jurek

and Mike, I next next think community community -- the to with time base depth provide we update analyst that together update. kind I we would in time get capital investment like address get an this we and on of a

taken in strategic a segments will reduce the automotive. pivot But our more address of we breadth. exposure we've depth to pretty and there So OEM to that

the executing excited about we're being total the quite trends that years from been three public a of of have during about company company. going XX% over electrification on We XX% That down also IPO became That about now. on. exposure we said, to is there some since revenue

the had in We wins new design have quarter. a number again of

we revenue. more company the percent And so where investments. that’s towards that substantial business making of a to of in And kind we're execute and automotive replacement of the believe focused we a place. continue term, we pivoting are going not total and remain as digits side high well is our on are bad in being to maybe But over single automotive long much first-fit

vehicles-in-operation We the VIO, coverage. are building strong portfolio EV coverage the of of

like the continue think we we in will how measured I that and we with so be desired sit And we automotive where execute outcome where sit overall, of OEMs. we on to

Operator

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

Jeff Hammond

you dynamics? running the seems And it a recovery recovering more see. how versus that the we don't thinking faster then lot if or supply are it's to a or I how versus a I like America. I you if little can know better cycle else if on And if Power? see or robust PT where into just chain PT North Fluid more to than Europe 'XX is wanted in is you're One, a read outgrowth trends recovery get just -- of like that's the seems wanted I to just It just couple like of frame sense else there's that? pick kind just anything better ahead.

Ivo Jurek

We last and early and with as execution share material We leaning Europe market raw of our frankly, operating has dividends there believe pleased as year has very performed. played with staying our availability that and business with gains. QX are ourselves how forward accelerated in has our growth then prepositioning

very, very pleased performance. that are we with So

Going about as back comp. quickly still second FP versus in Power very recovery. Fluid not as XXXX view Transmission our stages the business Look, early Power is to your that of we the question growing

from our at that of so shared, I quite significantly still recovery seeing not in was markets yet. all about of are recovered the of total company know example, think, And energy are those being list maybe it we one levels. revenue. the across the that year, very We although nice energy XXXX chart I or below beginning improving is that as fully you X% improvements markets. can end But an frankly, which,

taking believe bringing we see, in early nice impact was we it poised the de size. share FP. a we see, -- we that very innovation are recover to seeing still are to of is minimis that and that, all to And So continue we that the that the amount What a everything data of from in markets from again, not foray. are market we innings

Jeff Hammond

availability you'd still hope think get there. And start your as or the a and to any I you improvement big think issue then the is I better problem for was one, last some labor starting to that you? in see Is US, out called bigger a that

Ivo Jurek

as remain do it kind Labor markets very, sick companies. reporting think we're having versus of the I of are be significant COVID that best to but center, campaigns sat think that is very very the are our are out recruiting quarter. of remain and being supplemental -- there. don't to abilities, may past is I the the benefits going vacant of to staffing we this of success fill think in And where lots May that and But states we perhaps some long tired as able undertaken and have positions. in some starting you that April, already from front conversation for guys I the I They the tight, of all think our I hearing think

a start to still US. particularly willingness that we impacting from is So bit headwind conversation the less back those. little But people's the to work, think of seeing I COVID come should in a

Operator

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

Jerry Revich

last semiconductors we increased your today versus are just supply much 'XX a sense versus so a could get footprint the cycle? not your how chain, just ramp constraint if about we're Ivo, ability products into manufacturing looking I'm and 'XX, of can capacity areas assuming up other the at manufacturing folks have you wondering can talk production to much in Obviously, the supply changes If ramp your footprint. how to you big in your 'XX. for customers, up for

Ivo Jurek

of Again, Jerry, I will we've the significant I sit provide on good feel But that our end update -- earnings with we where investments 'XX. made will cycle. the from we during standard We better QX think last capacity. a pretty cycle QX in on call away about stay 'XX.

raw themselves We see also supply of through. that and hopeful kind we anticipate work chain will the material shortages

And this are of out we position they Fluid on have advantage Power that components, well for start of significant situation feeling that that's steel better on and discussed, biggest brings And working that. would are believe resin than As customers in taking in I are very far we're a Again, again, so of 'XX. coming what and on side, the 'XX reasonably us. these really more where the our of for And areas end materials should foray control constructive of precision through year, to through. in most all that the us believe both other the on half hopefully we on customers We some our managing of that the impact these of the I us particularly second market. about raw 'XX don't are manufacturing. boat

Jerry Revich

footprint, year the into we to today? production, at next running ask shifts get out more Is pretty And ramping your different about same maybe much we're two beyond? up in So need way. it that or say you're of that across to if shifts a to talking fair production

Ivo Jurek

optimistic capacity complexity recovery the we're progresses. market we, various place do But running Jerry, on generally as and good the of a you know our it comment plants, of and that so the in labor availability speaking, so about not utilization we because locations, geographies, forth. feel on and

Jerry Revich

margin lastly, the wondering, just a of overruns kind getting impressive about parts is the How recovery. one to as level XX% that you cycle, performance to to tail you of a incrementals the with the think as And concerned the year cycle? pretty a saw like being end in time I'm that how get you essentially at the last challenging might over to sustain we margins folks cycle cycle high new expand are are of this essentially year parts we really overheating footprint environment, in your XX% confident opportunity we're even of of demand can footprint? and

Ivo Jurek

compliments Jerry. Many there,

frankly, can hopefully, in me the company around becoming to -- public look, let innovation that done them. and realigning start and footprint, the capture manage of I our building But a able company work positioning ranges of discussed. we lots So with being incrementals in since decrementals to all we've have

opportunities at of challenges address from that side and the give very significant hold. is certainly, away the incremental stay dealing for level to XX% of reinforce spoken see the investors very set the to percentile the think, that probably on And I and happen environment, It's incrementals XX we XX%. I are the decrementals trying to future. difficult, that very, our we taking kind of being ahead going of what's everybody. in confidence the we've hopefully, should despite delivering would And in us operating strategy that dynamic we're So about normalized very level with.

we well I positioned. are think that

job an are possible doing shareholders. delivering that's returns commercial Our and in needs teams outstanding for and everything doing strong operating to our customers’ support our

a able piece EBITDA on out are objective delivering about about $X term future the and And quite a feel we the that XX% of business. plus target optimistic mid maybe target so ago, to quite there. Look, believe good you the that. billion, put long there. to what that have deliver in kind of still have So we're with while we last be that midterm to we had we that we over the have done And

into are with progress future. teams our to pleased quite are the as report continue We and we'll we through executing how

Operator

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

Julian Mitchell

Maybe understand second just my maybe the growth China in XXs for So a China now the of two QX. in what you are dialing you're questions trying guidance? the across global to QX QX? what little was growth, keep right high segments focused. low seeing within in in help half your us I year teens overall think, in there after And the

Ivo Jurek

focus been Our markets and are as well industrial China executing for our significant extremely diversified for teams highway area on a The and business there, very of well growth well are playbook. our which particularly is and have performing we on there industrial initiatives. performing applications, our

end and see to in industrial automotive in replacement channels We very both growth continue markets. strong the

China. quite COVID And we're pleased out China out in of into COVID happening everybody came the what's remind and came that I'll first first. with So

rate So implied I normalized we account growth strong rates it's see are that our normalized that more very And to the for is is, good growth everybody strong digits. into double the would numbers, in those performance. high have say, low normalization China performance to second single of frankly. taking digits half in know to for China printed perhaps our like numbers

Julian Mitchell

second second rate color adjusted tax of sort adjusted rate a in and should tax Maybe medium we calculation us And then embedded rate, around help the the amount. on sort please? fair half tax that just of expect EPS any the term adjusted one, moves a understand what's

Brooks Mallard

some So we favorable in adjustments QX. had

think I year that low XX% XX% to tax opposed to full more rate thinking XXs. we'll we're kind or see going to range lower our typically to as XX%, to that's of the the overall for XX%

term, low the rate that expect For XX% longer to we hold.

But to XX% rate will lower items. see based the this little longer term. year a So for we XX% on those onetime bit

Operator

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

Gustavo Gonzalez

This is actually Josh. Gonzalez on Gustavo for

topic, just expectations you order of the for half? how to of to of can And first sort your spread does magnitude So to price compare cost the in second that go the the up back inflation sort frame of half?

Brooks Mallard

it as perspective, in and of from we X%. QX of year, to a was so just just the price be expect for north well, what So was X%, that north

to EBITDA tougher price overall so get of went volumes kind price a saying 'XX, year-over-year bit comps a perspective, the half little as the dollars. on maybe in more the though up the back of of Now in percentage or of incremental even side it's the year. we're bit plus that percentage. But overall is for as minus EBITDA slightly said XX flat, a terms bps a full the I headwind before then the From little

the of kind into on you that. can So math back

Gustavo Gonzalez

follow-up. just last one then And

of So solid then of ramp to from capacity sort here? year a this Is of pretty CapEx. growth posting or we should this you're line investments CapEx kind expect more top of but reflection in reiterated of kind past

Brooks Mallard

just organically. We've great we that investments can got quick. So make of real lot a

make. really rate organic that investments return and the highest investments just through how about execution the of and Our pipeline. we are stuff typically the can get It's you much the timing can

gives going million for drive And so CapEx top in opportunity why lot and a $XXX the of that's investment line. lot environment opportunity CapEx, the normalized for that's bottom us a a that of $XXX both million, growth to line of

that's is through can get This of so same. all the And kind we just It's really a it is. normalized. what

Operator

Cook comes Jamie question Suisse. from the Crédit of last line from Your

Jamie Cook

quarter. quite Transmission one, were during the I of my impressive questions Most been Power the have margins just answered. guess

to just get think Fluid can onetimers color on Power period of sort were Transmission? closer or do we over of So that we help the any And margins there that? sustainability that what Power time then

Ivo Jurek

proud the products innovation the being was Power and Transmission. coming the that frankly, execution would sort quite of new suggest performance primarily We're the volume and of I deliberate on growth on the showing that through and results. And again,

recovery, Fluid the we're again, Power, On early Jamie. reasonably the in

again, account. and trajectory our normal fulsome up going through is seasonality As we that going margin starts anticipate continue taking the to market recovery, more into

Operator

further There questions at time. continue. Presenters you are this no may

Bill Waelke

forward to November. in right. you And All update for as providing your Thank interest. you look with always another everyone we

Operator

conference for concludes call. participating. This today's Thank you

disconnect. You may not

Gates Industrial (GTES) 9 Aug 212021 Q2 Earnings call transcript