- Earnings call transcript Q3 2022

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Operator

Good morning and welcome to the Gates Industrial Corporation Q3 2022 Earnings Call. All callers are in listen-only mode. [Operator Instructions].

As a reminder today's conference is being recorded. It is now my pleasure to turn the call over to Bill Waelke, Head of Investor Relations. Mr. ahead go Please Waelke.

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. third forward-looking Ivo Thank cover our

published Before is website our available we quarter A our market the today, copy results. on at third opened of release investors.gates.com. the

we evaluating being is presentation. call and website. refer our statements forward-looking report Ivo. accompanied are by have available With our to will non-GAAP to slide described morning subject the within Please slide by these statements. matters include, statements results that filings measures of included release others, which or non-GAAP cause could from we are slide expressed that, These risks to in These call, that the X XX-K which of Reconciliations over earnings Our a most we Private on Reform recent I'll things the On actual this in and presentation, historical a Act. forward-looking make those the among remarks Relations the financial implied statements. Securities in is materially webcast obligation SEC. update any will to measures certain is to annual with our forward-looking Form to turn we different other believe Litigation in Investor our presentation, reminder We disclaim such meaning be that risks this are each of our of financial refer in the provides that useful include performance. now and of forward-looking section in

Ivo Jurek

morning, for Good and Bill. today. our joining you, you call thank Thank everyone,

role opportunity Bill is be quarter's company. structure With our completion company helping to a over of IR of years moving we we and on up thank that, a will further at begin, his to so. making about month transition a begin to different the over presentation. public four I'll the this Bill three Gates as would new operationalize investment slide or and for next role relations the upon in support last take announcements this the stand I earnings cycle, like leadership Before and on

Our book single executed that environment global operating core rates remained more our while that challenging. with ratio an well order stable teams of delivered The positive was to incrementally well for bill demand and high across digit underlying products most and above a facing [plus]. remain largely markets, our growth,

stays backlog result ordered of Our elevated disruptions, as well stable primarily availability as incremental labor and as a material raw challenges rates.

profitability in a quarter. Our sequentially improved

elevated inflation inflation input specific remained than a was moderated The in we higher energy And quarter While costs. it overall. of petrochemical certain and expectations. acceleration our notable saw areas, in

However, to provision. in the quarter a the margin pricing cost we have actions price exit implemented allowed neutral us

quarter. While engineered fourth of the disruptions we situation we to some highly supply supply particular, associated with anticipate continue continuing in the and inputs improved, polymers chain face in availability the

their to additional to well disruptions are effects. inflation the moderate these next expect we outlook for and XXXX we incremental impact, While reflect year, updating of that as as

later details initiating largely we demand phase current of uncertainty, supportive, The the optimization light the of footprint macro in plan. Brooks in remains our which market end the are of cover presentation. Although next will

mission levels of well-positioned. XXXX, a business our believe we anticipate prepare with is will supplement the the products. We prevailing our we to year demand backlog enter critical that As robust starting

inflation believe also we elevated a options We cost levels with pricing position price and seen. we the will of in expected have positive are benefits incremental carryover offset that

any headwinds to we XXXX. experienced have substantial reduce impediments will in easing the of Finally, supply chain

X.X% of total growth rate revenue our core highest end saw growth headwind of the by core with offset growth in slide now Moving our all X%. X, markets in $XXX with of FX industrial. to We approximately was million,

activity delivered construction to also included highway Our field. another increased continues business Ag robust. the energy remained solid quarter mobility off in applications of end in growth our and and end from benefit the market market

Third per $X.XX quarter XX.X%, material escalation costs sequential XX the adjusted chain a representing year FX controls and pricing points. Adjusted improvement $XXX were EBITDA cost prior energy was performance or quarter. of flat solid disruptions margin million, to input by share and basis supply were negative globally. offset Incremental earnings in of impact and

slide Moving X segment now to our in results. level

revenue Our XX%. core growth million quarter, in of power revenue negative a segment $XXX impact and of X% including FX of transmission had

Excluding almost energy also of disproportionately the the All had shortage was X%. growth. was segment, impacted suspension over segment core the within strongest growth the of our growth, with of which the inputs. entirely regions petrochemical by The set market industrial the business core by showing and positive in led mobility end was Russia, highway

XX margin as of capacity, petrochemical new $XXX production expansion revenue points. the strongest XX% products the quarter, was of of on automotive The respect start across of the to with teens, material from well quarter of high challenges, growth highway had including industrial on negative growth impact new costs. core in the input by core growth business replacement. Power fluid the to off shortages, raw first profitability. primarily FX over energy related and applications. innovation as impacted of solid a FX inefficiencies We continue and also highway and key saw to operating the saw highway in a transmission in XX% and end Despite X%. these coming with pay segments in Prior in investments of with Our markets design million growth escalation negative performance wins off basis incremental and performed up with well in power segments sequential all segment

of now additional call color year-over-year to our basis strong fluid generated material segment the a expansion XXX low Brooks margins much I to Our exposure results. for with margin to will and on availability quarter in inefficiencies over less power Brooks? segment points. challenges startup delivered turn

Brooks Mallard

you Ivo. Thank

Moving we in the delivered and regional breakdown remained X regions. growth broadly now to slide stable revenue our core core performance. demand and of Underlying all

due are solid deliver all in growth suspension had the In and year double four supply our industrial drive we our past dues our Backlog reduction in From digit the China, the we to that growth COVID perspective, digit in ex-Russia. growth sales highway end in engineered growth availability X% EMEA end the headwinds, by to industrial anticipated America mobility North solid saw highway. in markets, We and all growth the by quarter. OEM remains challenges and energy as We of and in America, quarter. issues, on core shutdowns core we double Russia. in automotive labor polymer in to remained off led supply core to a business customers. energy, channel despite replacement markets in resulted polymer core nearly elevated impacted to North as tracking saw off trends also within in operational and and business Demand delivered led supportive, disruptions the ability well highway, have largest

the a highest where had from decline acceleration QX. all growth, demand driven market rate automotive the is Our in first large we end which quarter. the representing core across solid, positive in fit remained COVID saw business growth markets Underlying in in China significant the

the and varied results Asia quarter. had South and America Lastly, our East in in businesses India

to America of continues all as We core diversified by growth off growth double saw delivered and in see another modest chain and times. East Asia led highway. core South longer XX%. industrial region growth the markets, with disruptions saw energy performance and digit strong we In across India, supply lead

performance overall ongoing our in we operational are face the as with execute to We pleased continue disruptions. of

now items. to balance key on slide and details cash Moving some X flow and sheet

declined times below supply of to in QX in Net times was at to the $XX a from QX and at began even million, we XX% three or Our free second year. a deal from with stabilize conversion rate increase as the chain to X.X representing of times in to working as cash expect we to X.X the continue net leverage capital significant quarter flow leverage continue quarter end investments see challenges. the

now and full to year our Moving guidance. slide X

overall impacted we the which X%. seen situation, modifying of revenue our Accordingly, X.X% chain are core we While we environment the anticipated the to be demand to negatively volumes. now for not constructive, expect growth, which largely production have outlook supply remains our range our has in improvement in

anticipated We updating lower share of EBITDA earnings also per production volumes adjusted than incrementally inefficiencies. negative are adjusted as operational the our reflect inflation, and greater outlook and impact well FX, higher as to

$X.XX adjusted million, adjusted with expectation per $XXX range to EBITDA share in the per be now $XXX to million of range for $X.XX is the expected in earnings share. of Our

them we nature, our free these supply through believe than with anticipate to to take temporary originally we With conversion and we pleased of continued in be income to issues. do flow, largely how executing are XX% they respect we normalize. expect to While anticipated see the adjusted to external net due chain longer are approximately issues, it are cash

mentioned to now Moving footprint Ivo X earlier. optimization plan the slide and

approximately costs continually our in reducing operating $XX of restructuring addition approximately have annual spending XXXX in and to strengthen we to the we model before, and million million achieve $XX involves As and savings. stated opportunities in XXXX balance for look in of the plan costs. simplify phase to This

two the some first a and run payback total savings for Ivo XXXX hit We less final in than I to full cash see it turn years. thoughts. With will that back to expect of the rate of half ultimately of over

Ivo Jurek

Brooks. Thanks,

on by Gates macro customers the and strong Moving global slide they for XX. continue deliver in to now to like as would performance suppliers up of put our the challenging and thanking the face in wrap to grit, our determination their our environment. partnership effort associate summary I

managing enterprise. on been drive continuing uncertainty remains, stay across incremental significant in we and While improvements to our has control focused what our

pivoting the secular while drive and proactively well-positioned business material, continues we the are are industry and opportunities. with Given simplification of accelerate, to trends sector next projects challenges efficiency in and to of of associated into business base optimization, the to our positive demand future labor, to footprint ongoing the raw we The capture logistics future. phase these

to now continue and and over towards will strategy. in the direct the giving confidence turn our in midterm growth NPI simplification that, back us innovation markets, business executing to With call higher Q&A. We I'll end the operator margin to begin investment upon

Operator

Citigroup. from comes you. Kaplowitz Please question Andy go Thank from Instructions] Our ahead. [Operator first

Your open. line is

Andy Kaplowitz

morning, Good everyone.

Ivo Jurek

Andy. Morning,

Andy Kaplowitz

any that your instance, us one. large personal mean, But supply demand, of mentioned to demand slowdown have in end you any over in have more for constrained well? significantly seen Ivo, any weakening as seen seem mobility, color doesn't We it on I channel bigger inventories markets? you is you maybe still like give still bill know book you're by of chains. significantly

Ivo Jurek

maybe say even said, Sure. so you Look very the markets you demand we account as into challenges I globally. then in Personal prepared what actually better taking remarks, anticipated mobility would the the see stable. quite have is my in remained would that strong. see I

be say a more our backlog related to perhaps industrial the If little business. our as have destocking to perhaps into bit more continue additions there's been of It's my seeing in, of replacement. segment replacement rolling We that's choppiness some revenue less is we the that of QX. in to lack to in of would year mind, that a of one pace areas some of related substantial choppy, the somewhat ability that or start We at area our of do treat there, a weakness on impacted with but end we've industrial channel anticipated, softer, and the most I one backlog.

So nicely. very America solid as Asia America East North that is would very is doing well. is Latin fine. China I and strong, recovering is outside of very,

at inventories that's point my So underlying with my it's remain mind, that that an demand certainly for the inventories situation. the change, can market but I but recognize think everybody time. We channel the would in that less us elevated, not Channeling and more this or that in that demand. line issue of in feel in not

And so from a reasonably right. all think demand it's perspective, I

Andy Kaplowitz

year and/ QX given chain guidance? it And point quantify possible to any is could suggest this are how in you get your as much better efficiencies Ivo year? visibility the more that into to production you polymer then And supply Are late you supply of chains, availability toward go or 'XX? it. go hurting as in did new getting you QX, in you Got

Ivo Jurek

Yes.

an a it's that say and kind of of associated XXX to of it the shrinking would use. points lack side ability the get materials really and secure that, ability line, comes mean, improvements is to good supply fact are materials, to say I'd I inefficiencies top polymers. in issue. lead look a metals is source I quite basis time not raw probably of that's are number the metal And to right. we So a When our particularly we those seeing see do to with primarily in the that business, on are And

I polymers think able the customers’ to run rate story. that spottiness a secure to The need kind We supply. we actually of business. of that's are bifurcated is issue our support the

So lose you the two get that production late then you polymer and you very And committed or you weeks the vis-à-vis may but the anticipated may of output. ability your you it days get issues supplier significant set of need, to not for than that tries has

for it so somewhat, headwind headache be believe we the for and us, big that it optimistic into of are issues, cautiously QX And less a say polymer, we more us. a I would polymer improving is the could do that that

us should that be ask you is But not and the polymers But I also side. the Andy. I'll that of 'XX from inflation for that didn't on headwind I'll polymer also say certainly So know a say question less abating.

And see it. continue to we with And we in polymer keep that a taking we account on price we for pricing roll more particular. up that to out increases so are are inflation into

Andy Kaplowitz

the Ivo. color Thanks. Appreciate

Operator

Suisse. Our line Please comes Jamie next open. Credit from question ahead, from Cook go is your

Jamie Cook

morning, are relative quarter you'd I'm the revenues the fourth third margins, than understand quarter from One, be the to good the just growth considerably comparable. to questions. the two Hi, trying it fourth quarter quarter. like third are and to the expect looks margins guess But down better core I

this Andy's replacement big for that So just business? how to industrial your there. understand like you second that Thanks. did were the Can And What European trying that weaker? then question to Q&A into just you was in cadence that said is the us continue my business understand declines quarter? help

Brooks Mallard

Jamie. Hey,

first take me of the question. part Let that

margin of particularly in there's more the And up lag inflation low tends is go really polymer a think XX%. perspective, things. pricing through, to as is, digit a around bit. polymers of there So seen from rolling a range, kind to for One couple continue the side, we've and talked about, we little quarter-on-quarter the I that on double

the So first price rolled we'll that as for increases. our into we we quarter, price year get new out

you us cost then talked to about. kind then a operational a a little from seasonality that inefficiencies costing internal the QX think kind this of of is piece XXX, bit I the second is combination range in really always going additional from And efficiencies operational roll which be additional we've tougher in bips, of are perspective. both of and an external an perspective.

not profitability one are of the to up primary the I'll two the pick part. the next. let second drivers it's but from insignificant, those quarter decelerating So Ivo

Ivo Jurek

digits the choppiness Jamie we on single a in the Yes. replacement industrial mid said Europe. the saw than I we I quarter. thought that's decline. mean, in still different grew business

we X% of in softness I areas, represents is see off So about and business trajectory of just pulling the revenue. but certain growth, to want that is a say of kind

Jamie Cook

you. thank Okay,

Operator

comes Capital Please Dray Our ahead. RBC Markets. Deane next from from go question

is open. line Your

Deane Dray

you. and Thank the Bill him I want to everyone. thank And for wish help Good all all best. morning, his

Brooks Mallard

Good morning, Dean.

Deane Dray

it's cash can we flow above on give sense free the has sector everyone. line wide Hey, conversion, singularly your Gates XQ? Cutting of only sight not Can little like average. It's flow? it's free with been about a bit which you looks of XXX% a guide cash for start your this historical It phenomenon. a us is issue a conversion a

conversion forth? sight maybe just it's like not does and line to in look right receivables, of what so terms has heroic, backlog your happen, it So of but

Brooks Mallard

Deane. Yes,

was above XX%. our So at if QX cash conversion, you it looked

get to conversion to we QX starting want the company area be one there of we're then in had the that but getting back not we've closer. the been since cash And in be to where QX yet going So quarters in public. better we've is

quarter. I we've also in talked that about remember, last rolling Now the receivables bad got

so of makes about a the QX think million tailwind, favorable which to $XX And your we us I that's better. given bit talked little point numbers for a kind look

the back more we feel the of get stable when we're like starting year look to and So at normalized. more half you

start to capital be and working the to supply kind position. XXXX, less move as forward, big investment And the issues. head So inventory, we'll a of into back information with all being we this as the on chain much stable more we

So we in half are like where like half second guidance obviously, where great, we year from but second is the changing the of we the perspective. the are not really in of cash year conversion we a your

Deane Dray

the timing, the footprint two number under And it's out Good. I just the the plants? that at that look for can, you can color. of regions, extent optimization, flush plans for the Ivo the I appreciate If you then years. the payback, maybe

that So it be like estate, really real a quicker because does that's, payback. all not people, look would

So just some any provide color could and helpful. contacts she specific to be

Ivo Jurek

the you thank for Deane, Yes, question.

We call will provide in color Deane. greater next our

that We through located. [indiscernible] terrific payback. of those Gates are a breakdown announcements give approvals like here, a we to and real project. is some would facilities these before still the where And we get There working to regulatory facilities within you are a projects number great on

stated, of As a you you it for have the available cycle productivity just improvements we see our as of franchise. is still we continuation that and

the opening continue to couple we we now able of see to these fit, executing are do will So as to that we projects. seeing a start be

great have being to feel opportunity we the to them. able so And about execute

Deane Dray

And the have make color lastly, appreciate got announcements October? fully any but might missed to on you all just Good. first. extent I I those it,

Ivo Jurek

that less with has have think we what in QX. line in more kind or I look, of been Yes, seen October

I what outlined have supply headaches cliff industrial but chain still of year kind not falling said, again, And say would I with we that stable. spotty. spotty against in remain and QX. the dealing replacement the about bookings of off again, a So

able first our We to that. up are is which customer do the terrific. keep we that been have is time probably in really to able demand, with while a This

servicing original we're we guidance in So into eat are anticipated just a our up July. our are set when that we've But backlog service unfortunately, improving. not able rates to we

So October far. these runway and we our so executing And proud global that some issues how are of Gates or more executing seen and third working less the in really have through is well of the team we quarter.

Deane Dray

Thank you.

Operator

go Our Capital next question Hammond Markets. from Jeff KeyBanc from comes ahead. Please

open. is line Your

Jeff Hammond

morning. good hi, Yes,

Ivo Jurek

Jeff. morning Good

Jeff Hammond

Best of Bill. luck to you,

-- as on but basis think think you So wondering XXX there like, about and the you you labor And you're how that mentioned of the chain just away little about you improvement as any and goes the just well. just labor if into I supply looser, issues, think kind supply kind 'XX yes, point of talked a the market 'XX? labor seeing then of is getting of chain headwind that kind of to do XXX into comp much kind

Bill Waelke

Thank you Jeff. Yes. for Great, your question. great input

is the America So centers say the and look I I that labor distribution major still impediments. shortages, shortages, getting the is spotty. that we shortage don't in But that don't in labor particularly labor think North will the shortage better. labor to say intend

we We set our distribution are all centers got still that having the staffed and that the of right of difficulties at with need. we have all up, people we ensuring shifts

January probably to your improvement. going we we a should that enter gone the that's the end the second in able North evade by to it's position productivity sense in just lands speaking XXXX. labor, would in And America, is that I'm we biggest that, predictability the generally as be so QX issue that tell and I seeing start when second I seeing you on year, here facility. of X, half, not It's are or in of particularly of the front said. to lost but bips Out XXX that, as say the of reliability in supply, be our

and real be reliability getting to for start point say moving as as the B. the is has I focus you area us stability issue going as is that's for of greater point Logistics that seeing from been A would us. so the outputs, these logistics obviously, so the better. to across of So goods a That should things improving, across combination globally, of evade well

start first say that unreasonable evade. I'd XXXX, not the seeing of should So half year, this of the half it's you in first

Jeff Hammond

any it then contemplating pressure, as at And great. carryover there's you Okay, just inflationary And just [indiscernible]. you're XXXX, like think, talk still into sounds pricing about and 'XX. then

Ivo Jurek

of of back repeat half at end you up Kind that Can there. broke the the question?

Jeff Hammond

just pricing in I your thoughts [indiscernible]. are. year, the mean, Yes. next what

Bill Waelke

but you that I'm pricing of broke assume So what going year. just asking in you're kind still up the the end, to next is about at

again look a with done phenomenal pricing. job we've So

in schedule going a we're at we suggested, third the second margin We're all increases ahead We out of all after as be segments, customers. are the the year. we roll the got to the regions, actually half bit additional of and in at quarter, little EBITDA beginning year all of neutrality, going price that we've

specific we're have more been In little addition we're go And supply that probably some looking bit and some of areas a chain issues. at by more there. polymer going the impacted heavily to

kind our our in issue. price XXXX. really, with forward move are. very that pricing got sights, as comfortable of don't ability a we move our confident get we we the to think to as offset inflation continue We feel as issues, in is where square really we about we we've forward, and think we're see into big to And we So we

Jeff Hammond

guys. much, so Thanks great. Okay,

Operator

David Our next open. question line ISI. Please your ahead, Evercore Raso go comes from is from

David Raso

quarter how have you. organic communicated yet the next actions and growth thank pricing to I was pricing year Hi, they curious, is the seeing fourth of the you're much the now, channel? pricing that for been

Ivo Jurek

say that channel. communicated actions more year others. the than have forward. that And I areas are to through will So there some continue impactful been we that anticipate the pricing roll are for we to would them next

margin earlier we've are neutrality And said we than wise much now we've cost got price what more selected. being So Brooke as to anticipated.

the when and of not trajectory be trajectory seen inflation, particularly engineered And even certainly, polymer, petrochemicals it on on the up, also a to Europe. energy of flattening. we've So comes a escalation to continue polymers in costs

your that on clear and want Brooks in let price, pricing. just I on I'll chime specific to to your make So

Brooks Mallard

organic QX-to-QX is right, have price, most not So the headwinds. mean, talked headwind about still year-over-year Russia we price of of forget head have number headwinds, the Ivo right as material huge we the of to still being is right, let's most growth a has into I QX, we kind XXX FX still, that year-over-year. that's the XXX bips. then XXX bips, And of but also

So I then the say of be going material XX% core also priced. supply growth got XX% would issues. really of kind of to that organic you to Russia remember But volume to points is headwind, that related XXX basis

David Raso

give actions degradation quarter about And for next I think But charge you next guidance? does clarification, noticed know year our correct? not margin communicated margins the want restructuring fourth trying how we incremental one for that on year, assume you pricing that include about any should and today, the if you you've the in further Is what think don't chain, let's guidance to in 'XX. supply to in shoes, no were

Brooks Mallard

is restructuring add bag. mean, I Well, an

when we're so through of to some and take to be of are things going we're the charges. And those going still where some timing working announced

I probably perspective, cash for be deminimis. a from think But I sure. know that will it don't

So Does that our answer that really right now. contemplating we're your question? guidance in not

David Raso

framework, highlighted obviously about the the you're sounds incremental like a think for again, on next 'XX because you some what thinking carryover well fourth if have currency event. thank for as us as just you But about. it quarter thinking were year. some but savings regarding pricing, give clarification, Yes, And about incorporating

think we if wasn't any in sure So about can 'XX. savings it

on trying kind great looking at can we of So how wrap about know I not a just if it Thank incremental quarter top 'XX. you fourth margins, line, sense thoughts that a to together, can to get margin, you. of just the for seasonal it's all quarter price the own for have margins our just carryover, just like think

Ivo Jurek

adjusted July. I as out, stress still David, set Look guidance we can certainly get in you associated financial a XXXX, we and we planning seen incremental that mean, better. I through chain disruptions that driven you and appreciate going the on, it our very some we would see, a that forth, headwinds labor predominantly volatility and will appreciate, are And with for by have that supply all we so substantial FX in and right. that think I so anticipated more

a would anticipate better the after And more So small do savings effectively about amount next we defer call. year. I half get probably you and we're we restructuring of after going conversation 'XX will back QX. of from we our our anticipate QX to inform a what Look, the vis-à-vis

David Raso

I And for help Thank luck. you. best you appreciate that. all and your Bill, of thank

Bill Waelke

Thanks David.

Operator

next open. Jerry your ahead, Please go question from Sachs. Revich from Goldman Our comes is line

Jerry Revich

everyone. Yes, hi, good morning,

Ivo Jurek

Good morning Jerry.

Jerry Revich

operating results higher impact you strong for Ivo. thinking And what's about I'm folks pricing from are going those, pricing actions to challenges just can the commodities, we're the are see to folks aggressive third with able and that that folks potentially spoke so costs you on logistics But about conceptually about offset to go and to you more talk taking a with just have business quarter the pricing guidance you position conceptually a so for the of you offsetting offset not not market with inflation. that a current pricing how you based we're not inflationary keeping on think the call? only you as that about stance 'XX? but on

Ivo Jurek

Yes.

let framework me of kind Jerry, here. me So correct let the

the price uptick for freight perspective. So costs definitely we from in getting inflationary are an

and also haven't that covered, flows and of operational then is getting both So external energy impact terms we in freight. What And of price. margin of frankly, the disruptions started the fully our through quite some we've that we're incorporate to into framework our causes dilution. some material. in and fact, are getting internal inefficiencies, We're getting causing some volume then

offset perspective we frankly, pricing price we're think right is and quite a getting of from from EBITDA that's margin to the efficiency we're inflation to operational And and neutrality. the not So volume more get getting kind then What an perspective. approach take.

Jerry Revich

Yes.

So of saying thing. course, the I you same are and

thinking getting more But how facing other are other and logistics right in aggressive of just to inefficiencies environment what pricing facing. we And from you're offsetting push folks zero the the points And essentially and market I'm hard two about so being what supply you position, is this to a your policies material given COVID further just pricing need wondering, companies right this other operating disruptions? you're given And everybody's place challenges. the for really inflation. pricing risk and to are

Ivo Jurek

take me it different Jerry, So let little tact. a

we issue. We lack something inflation manufacturing the There's we with inputs. that for. just that's Again, are disruption, facilities that that the dealing got logistics with price see supply we've is that across the pay our issue been of that including the don't issues. inflation fully deal are in and of we not should to macroeconomics, not our and energy customers in recovering is all the This our and those believe something has

to that, take perhaps, down, into a we more in that highlighted through continue belief. inflation such the the of a for we anything inflationary that price materials availability despite We until have account see we slowing popular else. driven raw But evading that across than QX And will being operationally do are said, that continue that headwinds not taking environment our inputs. all of to is we time

Ivo Jurek

for you And it. inflation, how offset think should think will I that's And inflation. that we about

Jerry Revich

a And improve? what availability best that just range give do operational today or there a Is you sense Ivo, polymers the tight on components that tracking your improve? Can challenges might on when us sense when etc? you're of

Ivo Jurek

improve XXXXs I we real of large facilities goods first start we earlier, half, logistics reasonable the second thought of I and reliability, mean, and globally. kilograms would is is been seeing mean, better, that we August not seeing improvement September the thought call this and probably Jerry, I half moving not predictability we would, clearly of of in say moving sorry, of And the small July, both amount XXXX, boxes think we I are said are reliability Again, availability October. availability issue. I of but to are should has are a in right I and as moving will which Again, in that that Jerry, quantities, abatement issues. of of getting again, I polymers is not XXs perhaps it a when to going Well, I call. And the arrive was that

the performance. in and to look, and I improvements we as single improvements source, take a supply investments work tremendous a of almost constrained when and vis-à-vis have we 'XX, product line our take of out see overly lots supply have mean, NPI, that in that's segments, our level amount have timeframe, it of polymers and segment, you we see think in SP of 'XX making in seen chain. And material so, that will we be I'll highly really we investments say same dependent engineering seeing in not paid about you is you our at making I So, think in 'XX, science your have reliability, engineered done look What these a chain logistics you that off, been, issues.

strong a level We quarter same non-existent terrific seen disruptions we through, level growth the got that and have filtering behold, is we have we shortages of because there. almost profitability not and of limited Lord got and

all we process incremental in segment. on the investments see are rolling now frankly And that significant our of, done power investment more we in making thing same in impact, NPI making We're PT. innovation. You into We're transmission doing that efficient of capacity. the have

to these needed. PT raw and through the needed have will engineering to supply polymers We an in out, coming we broader that highly when And ourselves see as chain we have are delivered benefits have level feeling we opportunity the same constrained material production the much that FP. very in lots support availability needed, of where confident cycle, of giving

Jerry Revich

thank discussion, the Appreciate you.

Operator

is next line Mitchell your ahead, Barclays. question from comes open. from Our go Please Julian

Julian Mitchell

decline margins? thanks first squeezing each firm Bill all few the bips last XXX how for and You could understand here. two QX that And that to Any on aspect the of around in color the wide. segments? the capacity to trying affects help just any have color sequentially in give the the years. just on Maybe Thanks question segment for me the you

out you're more in the reduction think sort So Is some you're on I power, capacity adding there because and as in well. capacity both of adding power capacity there's in divisions transmission? then inefficiencies fluid centered PT, taking you're more are

Ivo Jurek

end questions capacity other take the front on attributes. the Julian So let of the me

also product where our So growth the focused are a rather PT capacity backlog that growth, and substantial and do lines, tremendous we in on adding is really, predominantly backlog. we in see fast of amount

So developed. there. particularly the tremendously, dramatically and in our continues wins, industrial our grow worse escalate tremendously. design grow to to continue chain past backlog and quite mobility associated to with better personal continues Business that space And due for or

of manufacturing PT industrial frankly, our are business. have a we automotive capacity micro capacity improvement that that that refreshing, specifically substantial on sub on markets power in the towards we focused new end fundamental capacity is us transmission and a productivity. is belts, drive gives segment The developed and in V So process, our

that areas we So those say capacity. are where adding the two I are would

are about moves capacity. as really, will shouldn't you really moves our We extinguish think that

not are We capacity rich.

growth our to And extinguish We is of keeping our not with business capacity. are a desire presently. really

as will call where cut segments internally through that you think of how reduce business. think we kind is to reduce desire that should our the you give the about give a you how impacting the will on be all complexity color will footprint. we drive can next projects so of various Our our our approvals, that of and I delineation productivity, our announcements and it. of complexity of more that's get of clear about of be and the business they we these our earnings all quarter's And And

Bill Waelke

just know are. from into I But to performing conclusions part into that. really the and guidance of get question, by of drivers the about segments. segments you And they're get can the what the want take each account the into Ivo don't and But want forecasting draw don't how I own by your what segment. to we we said think first

Julian Mitchell

then my And China. just enough. Fair follow up on

downs. I think the was shaped a early you that not China after back in had insightful having Shanghai a perspective summer V lock recovery very the

digit China today? that So the recovery assessing single slope in of How growth quarter QX. you you the are in had low

Ivo Jurek

a it's we probably think see in I improvements. Julian, steady QX. recovery. to We going digit anticipate I mean, see that growth think single that I month-on-month

And the rollout almost set are the a and so so of every remind that of with But it'll and out impacted let's of zero is see ourselves there coming getting China definitely policy it's new be. this city day COVID a better. bit you challenges getting maybe quite of that

will are cautious in we that to And is dramatic see that of more zero truly going lifting we China. business what's less what anticipation going the that you're don't that recovering in growth we line anticipate about So require going with anything happen in And China. policies COVID and is was. certainly any occurring our to to it's don't the that just be or I feel see actually

it are that but it challenging. occur, still hopeful We is far so will very

Julian Mitchell

you. thank Great,

Operator

comes Baird. ahead. Halloran Mike question from next Our go from Please

line is open. Your

Unidentified Analyst

Hey, on for good Mike. [indiscernible] everybody. It's morning,

Ivo Jurek

Good morning.

Unidentified Analyst

morning. Good

of limitations that delivery causing maybe just been, little and on have on the quick not of a bit some the approach. causing you things. back Just suppliers for what take are a It's Can different your there's they're the that of I'll highly question understanding engineered color my suppliers going many very maybe some chain side that spottiness discussion their supply seeing a little on issues? provide to a of polymers. these and

Ivo Jurek

large a you extremely you inputs. number processing. the Look, I not And factor the in it the that with petrochemical of is these suppliers very biggest are know energy feedstock intensive. core challenging the may to suppliers And global think there extremely see conditions a as energy companies may a of incremental dramatic ultimately know, the numbers or with that industry that probably call escalation fewer subjected then is are that of Europe is associated dealing that frankly and facing of gets

ability much they elsewhere. supply process you restrictions, certainly that and used try set to ultimately, And, post-COVID. scramble attributes from that's with Russia, see feedstock and while as that's some think And of so of material past ramping to in the in I one are that that Europe, more driving to get now particularly the their come the they desire

So I And of demand refined attribute. big and specialty mean, would a for there's it's attribute hey, then say from the look, that's I lots market end is, polymers. perspective, second petrochemicals

And are so, we with dealing that.

these out. are polymers We of some engineering

this. around engineering are We

generally is tasks. that appreciate, simple We products critical, operating are an over speaking, in hazardous and As you that can produce mission not harsh and environments.

we've engineering more thoughtful substituting So, these be effective or out of materials to about these things got with solutions. very

PT side solve. mission products SP done on critical and complex Now, applications. hazardous to And we making progress the as operating But we obviously, have well. are also side. it in great the and challenge Those that harsh is from

Unidentified Analyst

bit, fit you. trends. provide a helpful little a what gears a divergence super first, is first Thank is two maybe of a like Ivo. And color on color Can market of little It seems applications specifically? That bit. in there you're seeing bit those after switching between you

Ivo Jurek

Sure.

channels. in growing in a What and So the all I out the strong side is up, went Russia, would continues had it point we've it mean, business I single grow mid most through fit and first replacement very our to replacement teens, of of went in digits. businesses is that to try

you XXX higher. about if been would think basis So kind growth of of points about it, have ex-Russia course

would most of and come of channels. growth, have kind replacement digit So through that double the low

replacement the quite business well Russia absent doing actually is So too.

Unidentified Analyst

help. all Thank Ivo. thanks, And Got it. you helpful. Bill That's super your for

Ivo Jurek

Thank you.

Operator

to questions for over like the in turn no Jurek back closing queue. further remarks. any would to We I Ivo now have call

Ivo Jurek

replacement for early the Thank share enjoy about and you truly will QX. Gates forward call. here making thank much we very February them Well, announcements certainly We'll post Bill's our Again you and but support here Bill's us the plus joining last I appreciate opportunity years. in I our at for for over the to holidays. earnings having you with additional role look QX the four be miss results

Operator

you Thank This concludes today's conference your participation. for call.

You may now disconnect.

Gates Industrial (GTES) 4 Nov 222022 Q3 Earnings call transcript