Gates Industrial (GTES) 9 Feb 232022 Q4 Earnings call transcript

Company Profile

Participants

Rich Kwas	Head of IR
Ivo Jurek	CEO
Brooks Mallard	CFO
David Raso	Evercore ISI
Michael Halloran	Baird
Jerry Revich	Goldman Sachs
Julian Mitchell	Barclays
Andrew Kaplowitz	Citigroup
Nigel Coe	Wolfe Research
Josh Pokrzywinski	Morgan Stanley
Jeff Hammond	KeyBanc Capital Markets
Damian Karas	UBS
Deane Dray	RBC Capital Markets

Call transcript

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Thank you for standing by. At this time, I would like to welcome everyone to the Gates Industrial Corporation Q4 2022 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]

of you President conference. begin Vice Kwas, Investor may Relations, your Rich

Rich Kwas

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

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

this call webcast is Our is morning and accompanied being presentation. slide by a

call, each On in historical included financial in which the in of non-GAAP believe section will evaluating this that useful presentation, are measures our we is our non-GAAP available earnings refer to are website. Relations of financial Investor measures release certain our and of Reconciliations performance. slide we the

Litigation the difference Please which the include statements refer expressed results within presentation, the remarks materially could forward-looking to statements cause risks provides in actual that those a Securities Act. X to statements. of will Slide by that our are such subject implied forward-looking Reform be now meaning or to from These forward-looking of reminder Private

that Industrial Tech We with Evercore Conference, meeting several annual These with and We'll others, described among update forward-looking matters most to over the look you. including Mobility be Citi the and conferences of We to investor Global Barclays month, many forward attending Conference. Conference, Select next the these Industrial disclaim recent SEC. ISI have statements. the and risks Industrial the other our filings report include, in XX-K Form make on we in we any obligation

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

Ivo Jurek

of our our professional position I Gates. He, everyone, as He's seasoned know, Rich. to with for taken Relations as a years you also to call has on you Rich here in well the as and Good experience like sell-side you, thank and this opportunity take many Investor the in-house. at Thank team. lead today. welcome would morning, joining

the presentation. that, With let's start Slide of X on

mid-teens was COVID-induced stronger than in Our the the fourth our channels. half than more was especially relatively offset in teams America Growth growth and during quarter. China. delivered second the quarter global slowdown core of expected North EMEA, the consistent and in across Underlying demand

Importantly, meeting of in our particularly Europe. improved chain orders the part balanced supply basis underlying year more the ease of of by the at in exchange revenues conversion fill exited weaker in quarter, demand. revenue with as Europe supply, a and contributed growth. better We position to elevated the latter and benefited the approximately rate points year-end XXX dollar The orders year-over-year in rates aged sequential inefficiencies

order We are be our pleased and believe made as should to conversion progress normalized teams have with XXXX the evolves. enhance more activity

prior profit expansion nicely volume incremental to growth quarter incurred impacted the modestly due in the consistent the which to in convert the guidance provided resulting was versus contributed costs improved past margin We orders, margin flow profitability Our with and year November, through. while performance.

price continue teams effectively to neutrality. to margin commercial global preserve Our

Free cash margin. of reductions. was terms, benefited inventory from and cash improvement as as the adjusted XXX% as Free margin was helped capital Our quarter working generation well income anticipated. incremental by excess improved to driven the in strong generate to net performance well very XX% outline a in higher flow

as efficiency are boosting conditions and flow increasing free chain intently moderate. on We capital supply conversion our focused cash our working

to Slide X. Moving now

core Our period. million, total represents prior revenue XX% which was of the versus $XXX year growth

the second XX% and general, as with demand core collectively our We XX%, growth through year-over-year. were year-over-year. all in trends grew of stable which Off-Highway by we experienced markets, rates In by double-digit approximately X.X% half in headwind led the approximately fill end followed nearly grew Energy personal improvements mobility, currencies Foreign which we our quarter. saw move market,

adjusted year-over-year. margin points and EBITDA XXX executed and $XXX quarter increase the basis well, an was translated Fourth of adjusted constructive. became which We more XX.X% million, an overall to EBITDA operating environment

we chain per not share are by encouraged quarter. are past fourth Adjusted challenges, earnings in the we the While experienced was stabilization completely supply $X.XX.

income was Our up year-over-year, contributing operating per significantly $X.XX approximately share.

headwind of tax than offset the $X.XX share more However, per improvement.

experienced segment. engines X line segment nearly an Mobility, Slide Off-Highway approximately for Similar to the XX% the and turn offset to expansion. by Please growth growth end enterprise, leading Transmission level were million and driven revenues X% Power headwind. highlights. The All produced core by in $XXX year-over-year, of healthy our markets top Personal Energy the segment FX quarter,

We grew Mobility Personal in and expansion XXXX. imbalance. cost year pipeline with about in the XX% opportunity exited Our price solid margin

Power Fluid FX Energy XX% impact including solid of with in and core being million, outperformers. Automotive, revenue and negative posted all realized We Our end growth segment Off-Highway X%. markets of growth $XXX the

investments future. continue dividends Power The Our gain sufficient made capacity is our Fluid XXXX, to growth contributing our the aspirations product market segment share innovation growth new products well to efforts development of expansion via in XXXX. to pay in support with and into new existing result core and

by segment included dynamics the prior to cost on XX% Our compared period. year fueled margin price nicely, a incremental improved improved profitability and higher revenues

I will turn Books? call for the Brooks color additional on to the now over results.

Brooks Mallard

Thank you, Ivo.

exception experienced core our the of We Slide our major the X to breakdown geographic Moving and markets revenue with growth regional double-digit China. all performance. now in of

overall relative rate regions. growth quarter in from largest strength our North America and benefited Our fourth EMEA,

quarter more XX% Automotive all In end and North Off-Highway in Off-Highway revenues by grew markets, nearly strongest each Energy America, The than by the our The growth year-over-year. grew core realized EMEA each and with markets in more region led delivered XX% year-over-year. we XX% year-over-year. of increasing core than double-digit the with growth

rate solid raw an catch-up experienced Mobility Our to the quarterly customer materials XXXX. growth we of XX%, some by nearly business demand. grew highest growth and Personal aided was improved supply in Overall and

performance rising line top COVID due decline to infections related China year-over-year quarter. shutdowns the a Our during posted to

India with growth were and trends well, and East supply America in our improvement delivering Asia accretive chain In we rates. and growth performed Finally, the markets pleased fundamentals. core South aggregate, in

Slide X, flow we details performance our On sheet. cash show balance and on

adjusted of higher income order quarter. supply million, helps our Our stabilization flow turns was conversion contribute improved which the inventory the to net free year-over-year. cash and chain of was for XXX% $XXX The

net to declined improvement the third X.X a times leverage Our and relative quarter. represented meaningful to

quarter, the XXXX. we improve a existing in to capital our March the set denominated maturity During ABL our issuing an a in term with by structure ability remain our replaced dollar to strengthened new in future. loan our in sheet confident and paying mature We of balance XXXX. off further loan This revolver

first full and quarter. X Slide to guidance our year now Moving and on views the

for growth to in Within year-over-year. flattish versus the initiating framework, factored guidance For X% to range be volume that of are core XXXX, we have X% we XXXX.

part part of year year, We of demand anticipate continue improved That the of providing our in because supply the trends see in said, visibility. to will rebalance customers chain the levels the reliability. we latter early near-term their solid inventory

EBITDA about initial XXXX in year-over-year. At XX EBITDA is million. Our a guidance basis the to this the point in range adjusted increase guidance implies of midpoint, million $XXX $XXX adjusted margin

$X.XX and adjusted is priority year. flow XXX% coming adjusted working be Our cash to per expect net is XXXX we of earnings capital share efficiency $X.XX approximately to per free for a in high Improving income share. the guidance

$XXX quarter, to total range first million. relatively a we and flat revenues million be of in anticipate the to For $XXX

core We to unfavorable FX. be offset by growth expect positive

headwinds business estimate China our includes growth Our impact. COVID and the from suspension Russia of core

EBITDA XXX year-over-year. to to We points basis expect our points margin XXX increase approximately basis

expected and share earnings adjusted Next, our per are X, nicely rate. Relative higher XXXX. an share non-operational forecasted such year Core in our expected growth adjusted XXXX, on chain, to from contribute Slide headwind effective fiscal provide wall we supply to expense per earnings items about improved as and by is growth interest XXXX and conversion a to earnings $X.XX Productivity should an per a XXXX. to higher in XXXX share. was affected which tax add

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

Ivo Jurek

On XX, I summary to Slide view. brief a Brooks. would like Thanks, provide

would I challenging our We points. environment. in highlight following quarter, to while the execution fourth Specifically, through like managing pleased were a business the with

typical Our to on to operating incremental improved our performance. moved XX% and sales leverage closer

a generation flow quarterly record. cash was Free

are by landscape it cautiously slowly to the heal that and over improving encouraged the continue course will XXXX. We operating optimistic of

Price have should during we XXXX. inflation intend admirable. margins, protect Our expectations versus cost margin escalate commercial our on trends basis, equilibrium to in and efforts a is team's been

That customer anticipate inventories to we experienced and We year. order will said, begin solid through trends we exiting QX the move normalize through as January.

We about economy, and are cognizant global but in in XXXX. the pleased of risks execution the the our with prospects optimistic

XX. Slide to Turning

are like would as Before the review we performance we on our questions, to shareholder returns I and to opportunities future. drive to we enhance focused pivot your the take

continue reliability efficiencies operations. to chain our in enterprise and productivity focused ranging measures We're material with of from that First, margin we supply optimistic improvement effect can intently bears driving to we across activities. are to accretion several raw manufacturing operational it the our incremental the bolstering our drive supply the resulting on on

are complexity the see customer begun projects we XX-XX returns business our from we reduction our In accelerating above second and enterprise in below Second, by our auto half of the minimizing streamlining part have complexity of our portfolio line across deployment. XXXX, the initiative. early product as and to of and replacement the initiated

portfolio We rest years. implement next XX-XX expect over to of the our across of the couple

to continue we aggressively areas. growth highest our Third, in invest

robust. grew pipeline XX% revenue approximately is organically in and Mobility Personal XXXX Our our opportunity

industrial verticals. applications, investments expanding and are We in new in products especially

get expect further on you overall few as such, without our enterprise. As OEM the diluted affecting participation we our profile to years continue over of revenue, the selective execute mix strategy should the next to automotive growth

our cash Lastly, avenues and consistent suppliers a improve we global is increase balance our sheet. primary continue of value. associates are Gates delivering free strong thanking on finish to conversion order focused their I'll support. and for one highly control and partnership to by shareholder in sheet balance flow effort the our for We valuable their our within to customers believe

back the now call the I'll over turn that, operator Q&A. begin the to With to

Operator

open. David question is YOUR Evercore is [Operator Instructions] The Raso YOU’RE line of from first

David Raso

I Thank mentioned where might the you Hi. Thank be how where organic the And rebalancing of, levels the better probably for supply supply that? of cadence The a as you're are your want time. of into for can the you. dovetailing they'll you Yes. answer the improving by inventory chain, customers helpful. comment down a be versus It better given very little sense us even your that chain. growth quantifying inventory you the customers at today would think year give sales move toward about with to

Ivo Jurek

continue Look, demand. would we say levels strength from perspective, line in very the market with macro. overall the inventory we I that David. seen resilient underlying We've aware morning, Good a pretty presently, and have to see in the the markets, the inventory be of to

reporting POS and very, from our on overall to and happening close paying focused we staying monitoring very macro attention what's the global are the distributors so closely. largest We very are in

Now in last I've we on somewhat that call, performance, uneven see replacement indicated market. the industrial particularly the

bit while reaccelerate a spoke are America month, bit North in unevenness see order seen QX. in finally Europe. month, like one trends a we deceleration, in you next little little may of you some to about So feel starting in that the And We've nicely.

the stabilizes, shrink, lease time the we feel presently, there the reduced. will So the be a in aware very but as that to are of with starting level channel, start to in believe of chain fact we we that inventory inventories level channel comfortable supply

half account we taken are is likely guidance. our in that the into that to the And year, that in have and second our is we so see what view of

on the Brooks over of cadence I'll growth. to core turn it

Brooks Mallard

Yeah.

still headwinds have we the have China going first then what's of relative and we think also suspension lap I And the our business. over Russia the to in on. half So of

headwinds continue the rebalancing growth core second as inventory. so some the we to Ivo And see in in half. we then, expect of the first to said, And that's half, more when of have

No would number the to -- different through one the the that growth as different be from but next, or year. balanced move core just the relatively I through things expect that quarter kind core we growth to headwinds So impact the the numbers year. offset hit big of

David Raso

Thank you very helpful. much. That’s

Operator

is question Baird. of next Michael Your Halloran from

Your open. line is

Michael Halloran

Good Hey. morning.

Ivo Jurek

Good morning, Mike.

Michael Halloran

the certainly in there assumption in where In all there what of that, year, markets maybe left market start words, softens Ivo? embedded of back just Is approach kind back the is of the half understand trying little of off. through demand the conservative to how that other visibility. backlog more Maybe the underlying timing. the bit end inventory I about thinking given to of lower commentary. you And year in normalization the you like take half end that guys a the context an look put then a you're

Ivo Jurek

Yeah. Mike. Great,

mean, we have be. anticipate energy mean trends have are I plentiful to well and on automotive -- things like And questions. believe in for of trends like levels, very fleets, bodes really on I have global we great constructive those while are included view we our driving believe replacement. think that, reasons, unemployment for obvious people will replacement what those more obviously aged an We automotive low the we I people reasonably that market market end and and appendix car jobs. our that the

are to cash try embed as they little conservative going started to we believe second particular maybe in year think half I way the in ensure have or flow. improving, natural customer of inventory being a a supply And on the to We chains the that decent a deliver activities. are that

think So in a that's for everybody. part I been that, tough XXXX

end we in reasonably the as well. second have that anticipate we what And about think pragmatic being are we I about the been half. markets open-minded so And

Michael Halloran

for Obviously, in stability of chain that it's margin to you're that follow-up on saying the more the And and emerging margin cadencing supply you're Maybe the Thanks a how to closer hear just side. like put thinking year. seems that. about at year was on by side. the the It through just normal. back the half the encouraging time there context question

maybe expectation you're the some be of some to a going through thoughts year piece, little the bit on? of And the is year. the there's than cumulatively, better volume Obviously, as for stuff supply that side work a internal given some the might trends the the dynamics cadence there. just working different to But ramp bit little maybe revenue in a on on chain the is given imply, you

Brooks Mallard

QX about midpoint But through through you second that as the relative we the was a of points, year kind points midpoint, comps more the to basis of of full us number element bit comp -- up XXX certainly, think the if year-over-year. XXX half supply you in will offset gets it, improvement year, at I of year, is be SG&A, to Well, the Yeah. has variable move we think guidance, basis margins of the as the you move through be gross to will year move that to basis by stuff. little And 'XX then year, tougher. the some which our points our from year-over-year. some which over XX headwinds had of as chain the

because It's relatively we the quarter year comp through balanced as move the through first easiest the us. is year the for

And gives to a issues the so relative first comps then in comp that supply kind chain us half. the of bit weight easier a the half. give to little second more bit more the And little

year. relatively balanced it's through So the

Michael Halloran

Great. Really appreciate gentlemen. it,

Ivo Jurek

Thank you.

Operator

Revich question is next Sachs. Jerry Goldman from of Your

Your line is open.

Jerry Revich

that in drove acceleration quarter. Hi. I'm talk quarter? quarter, Nice if saw of could wondering Yes. morning, the the we about everyone. just any end that you first markets And is which into EMEA momentum the Good in continuing that?

Ivo Jurek

a almost us Mobility. and markets, was strong But mean, Jerry. end very Mobility Thank the Off-Highway Personal XX% in Look, performance solid. Yeah. of Europe Off-Highway kind driven Personal by it Energy, XXs. predominantly in of very was frankly, and all our Europe up I morning, are Good year-on-year. you. for

overall auto automotive Our replacement, driven the up was teens, by strength in business in automotive replacement.

there any frankly, Europe. isn't so blemish really, And in

quarter. it And was really so terrific a

benefited auto some somewhat Now from catch-up.

secure to raw to a backlog, opportunity and age on to auto had PT on were gave up the materials us that the particularly the I little discussed prepared we in space able my some remarks, As more side. catch

was and team has quarter quite very January, well. terrific just maybe very just a very I market and strong follow-up -- mean so remained well end resilient January question, the that the as demand executed And the

Jerry Revich

And of above if are in revenue that first full get what's I more the which alone you a the midpoint, 'XX, about mind? unpack terms you embedded outlook, because you volumes bit flat? low the assuming of in don't midpoint the flat just singles, more So there at X% say year then the in Super. can in half growth just think core volumes, be high and would should of itself you pricing doubles can cadence pricing range of of

Brooks Mallard

ramp look, on costs, of our you on the see to of As year on second have the cost the price a as I of material going probably quite price moving price first on be what's is half in the see with a you're little a are the higher inflation seen. as seeing target, bit freight some Well, hot with costs, going side. signs what's opposed somewhat energy where a steeper Certainly, Yeah. But the Jerry, half. we we as inflation, moderation right? cost, as and as it's we things also that, like of not -- will think we little

it So 'XX in than to 'XX. be we price in lower expect was

a think And half had going volume range. from what the price the then flattish, can the also well low do of that kind also price affect first headwinds growth the remember And lower numbers to kind if be would to mid-single of said. have than perspective. that's And as to you be digit is you to we in But then going to China is there. I continue the you I kind Russia in the the the to core are expect that and of volume math, some of 'XX,

Jerry Revich

take discussion. We'll the But over. appreciate that thank you,

Brooks Mallard

Yeah.

Operator

Mitchell of next question is Your Julian Barclays. from

open. line Your is

Julian Mitchell

Good Hi. morning.

of growing cash you free XXXX, cash about up the if out guide and $XXX free a could embeds in wondered think guide the up million but I CapEx bit net is not a sort much flow parse flow Just because little bit. is income,

Maybe something working a liquidation free it Is solely the you it the cash the whereby about else? working main more through inventory the capital drivers of half think of kind $XXX to similar do million second that phenomena? much coming And customers, any that capital. like that? down sense your or looks So year? it of of within all Is it's how is

Brooks Mallard

Yeah.

I think relative the income particularly to on GAAP look, XXXX, versus tax. tax, side, moving are some in So net parts there cash

to kind in of year-over-year, strip by improvement We So got think to primarily out. you've see certainly working capital inventory. driven that going we're

tax significant is to is going everything cash piece flowing it. of up through, tax but kind in versus drive the tax a cash part 'XX tax versus from the reduction. big we year and along a the then GAAP a the And with the what's that's as the inventory move else flow it, in cash GAAP one big of So generating of piece additional is of tax 'XX to next,

Julian Mitchell

And sort of free million is $XXX that of of is cash there any much cash at increase, how that quantifying aspect? way all tax

Brooks Mallard

mean, mean, you And And was cash then look kind to is year-over-year. you I perspective relatively of of to effective unchanged when up going back in get at digits. to percentage -- look our XXXX. rate I it's a from for then tax Well, XXXX mid-single XX% kind taxes XX%

So kind math you of that. can do on the

Julian Mitchell

a then seeing of and of what you're QX, down the digit helpful. Is in looking I down was the more secondly, understand as thinking one obvious you're just wondered the for sort and again Ivo. China, China, and suppose, in it assuming sort there. in at up when Maybe second volumes maybe of single the it how QX balance whole. a then us year. reasons high bit I for about half? But And That's you're help QX last in year

Ivo Jurek

very Julian. rolled point, reopening then, restrictions impact from the full the the then shutdown Look, was of very second COVID and in obviously, first the great XXXX that January year a in. China. It's and in end tough infections in China -- Shanghai and challenging Obviously, Yeah. shutdown quarter was with

then into COVID, -- pretty the couple Firstly, impacted right by weeks, pretty still of New significantly Lunar you first Year. rolled and

So little coming we seen is but very activity January, in activity have the back.

comps. for So sake say, of XX% see digits that I then QX, QX to the rebound And the the you're going anticipate a is maybe we conversation. high-single would in still in of strong be pretty we predominantly year-on-year, because going of anticipate that just to down, kind

of year very QX last indicated. as was I weak, Obviously, have

going be we is the that's from positive year to and in QX will impact start in China how China. the volume-wise February develop. the anticipate But half see for about we year, had So of see really going but can should unusually a the before getting need comp we to second that we to more normalize actually confident

Brooks Mallard

let on cash me follow the up thing Yeah. of one And flow, on too. kind

seen I think a what the working remember over in increase the what's past driven that's XXX%. cash is you couple also below we've conversion to and capital, have of years, significant

And we're is the you as certainly it in better XXXX, fact improvement capital most of going that to in on I think just part of so to you're in the couple get drive years, much that while not last have conversion. working increasing as the significant going

Julian Mitchell

Great. Thank you.

Brooks Mallard

Yeah.

Operator

question is of Your from Citigroup. Andy next Kaplowitz

is line Your open.

Andrew Kaplowitz

morning, everyone. Good

Ivo Jurek

morning, Good Andy.

Andrew Kaplowitz

a supply in last expected. in these think think inefficiencies do QX? of reasonably headwind there polymer in headwind supply XXX you the there inflation. lessening guidance impact clear that to mentioned size I is about quarter, still the way supply. is guys? of still The of number for terms basis a chain points at you quarter, you that bakes sounded last than And headwinds and What on points top I 'XX clearing chain Even you came faster you know pessimistic gradually start 'XX? basis And line. But especially for XXX inefficiencies on just quickly, you to polymers said to

Ivo Jurek

very still. challenged the have Look, Andy. challenging quarter. really from chain QX Thank better, started the mean have I has on question. very material but for call. QX gotten Yeah, we we that suffered was as definitely slow a supply. of October was supply really outlined raw the recovery very, you we

October it QX. actually look, our make or as more seeing on in And been are have what into to suppliers were we call, but it to reliably, our I said get similar able less we it to says, factories. able XQ So more was the not

us the move second indicated facilities little saw It of I've as bit in cost so prepared fit. half we the in we a money, able as were actually QX materials into the remarks. the of to And

was flow So the movement. slightly improvement by that conversion impacted margin through

However, were of point demand market that in we at what that able needed and have that to line much performance strong with more able very underlying everything to time. resulted been that we QX. And kind in in we the in do get

Andy, my but transportation. of seeing are engineered that in vis-a-vis gradual through these in factories real cautious getting we having to highly we year as need half means a somewhat is suppliers' improvements -- anticipation, of So the ability them improvements the we're still resins, get first the our about normal make predictability to it in the

believe some So normalized believe get to going going while midyear XXXX. don't that be we still that there's just impact better. we're exit to until significantly anticipate I of limited it's we we

Andrew Kaplowitz

That's about, last you PS you footprint And million improvement then have you initiatives 'XX give these And helpful, are productivity that then more major and $XX rationalization walk talked supply of in chain you in quarter, Ivo. initiatives. into your Can plan. think, I $X.XX areas? what from mentioned your a color

I said from 'XX plan what in your could think 'XX, entail? little you is plan impact limited elaborate in benefit any impact a the this in more you on there might with but bigger walk? it And would have

Ivo Jurek

XXXX. on that to the come of again, I'll we kind seen improvements, Look, have in the Yeah. productivity back performance

whatever in facilities these know. enough your more getting you you difficult well obviously, raw as very the keep overhead up to to it factories becomes are operating, productivity importantly, struggling actually that of absorb materials So But on all when normalized the any to you programs to Lean, here. be call to Six system flavor your that get kind the standard GBS able it, have, you like we Sigma, call, traction

back if we anticipate start And we a have kind we as more of get the past. rhythm productivity do the operating normally, in pretty normalized can aggressively we much that of that factories driving so the into demonstrated

so ability revitalize, headwind the if the your would, productivity give kind would to you efforts. you actually And of

quite optimistic. So we are

the opportunities. a the have of our executing strong focused biggest pipeline are very intently productivity on accountable and teams projects on We we and holding book in

I'd not from that QX roll benefits really said major restructuring to anticipate on going programs to what We say from the on until consumed restructuring. P&L changed call nothing's programs our cash are and we about some be restructuring into XXXX. still

Andrew Kaplowitz

Helpful. Thanks.

Ivo Jurek

Thank you.

Operator

Your is Nigel Wolfe Research. next Coe from question of

Your line open. is

Nigel Coe

everyone. sales midpoint back guide Good it are from I where like the have a looking just pretty pronounced obviously, normal more flat versus sequential history Maybe detail. to just that we basis, Thanks. with the Off-Highway XQ want bit to XQ a XQ, go for the uptick the at -- in morning, pretty a season. looks at into

just you're as help basis. sequential maybe talk should FX what well. So planning for also a mean I be from about a

if of about So news offset backlog maybe the I'm good in that's just chain curious the supply whether on here. that XQ, kind we and saw that conversion I'm asking

Ivo Jurek

Good morning, Nigel.

rather anticipate. substantial quarter on on I Look, start you Russia That's I would of the XX%, exit. headwind think the question. great full a indicated, a seasonality that offset performance better of normalized growth organic and as a it's with, would I've gets China the about by down have enterprise the that and kind you

gets biggest but better, anticipate if the counting are I dramatically headwinds get we say it, And better on would I that it seen that in two So those January. suddenly that would calling are China we in obviously, under our and guidance. we the haven't pole are

And I going in to think that to it's very recovery V-shaped difficult predict a see suddenly China.

I then say declare able see the and a stability as a are become couple to until supply on a that bit first repeatable probably to we chain being gun XXXX. two of shy we that little victory those would throughout we certainly still And chain on quarters issues, bit of are pragmatic I little supply are a issues. said, the facing So of

Nigel Coe

Okay.

going is mean well, Just have China to correct? I be worse an but bit and as Russia little would China, maybe clear, XQ in the impact Russia be to a been Q-over-Q,

Ivo Jurek

Yes.

Nigel Coe

Yes.

Okay.

Ivo Jurek

catch said in a to outperformance nice my of I that we in Nigel, an would of little in up some as remarks, bit in orders have in really and given had delivered Europe, on a Europe kind us past due But particular. have prepared Transmission, we Power that's

above one, remained in remained because to I QX -- flow happened everybody the for the of to order book-to-bill while very that catch-up. Europe what exactly in would So just caution robust extrapolate and

Nigel Coe

very if XXX% conversion, capital you follow-up around which But have”. that's And a deployment, capital? of No, you the deploying to plus my is clear. opportunities stock And is flow? I then during that are to your buy you've seeming get deployment. see then capital mean I the in really cash back do are delevering maybe you good the kind mean of “problem problem with year? to you plan, got

Brooks Mallard

Yeah.

get We ended So as look, business. we've to want delever the were continue in year. leverage. midterm times X.X the below We we to to the made a three to commitment

to And generate interest, so cash to the debt, of continue continuing short interest, as lot This we're going to of cash, reduce down generates lower term. GAAP in business reducing that leverage certainly some over a by pay lock cash. we

the for not allocation, capital debt we our different always to and out only we're going to pay and gross though do down leverage, opportunities well. The what back us, reduce pay shareholder debt to but We is best. going figure our the at to look continue believe as need

focused And think term, short the in on. so I that's we're what

Nigel Coe

Okay. That’s Thanks. helpful.

Operator

from of is Josh question next Stanley. Your Morgan Pokrzywinski

open. is Your line

Josh Pokrzywinski

guys. morning, Good Hi.

Ivo Jurek

morning, Good Josh.

Josh Pokrzywinski

mentioned on of few you I past if it, a how strong You that wanted, finer total -- just a book-to-bill backlog? stand orders, missed can point today mentioned us down. you what And through Just apologize maybe kind work you You the on due think, was? I but I that. just if walk times, put

remaining Just of magnitude? order the is sort what's any of and

Ivo Jurek

Yeah.

back in from some Look, So quarter, past you, there. our order question. taken to and due backlog trimmed backlog strength jumping the nice backlog start Josh. particularly up a Interestingly Thank of chunk of enough, Europe, in pretty on we've we've the aged flow. in the great January, past

So QX X.XX. approximately was book-to-bill

one. above remained backlog eaten slightly the continues It two past elevated. it to We've remain So down.

better don't our business, hold of we to the And got that the to backlog, we having we only elevated backlog see with materials just book-to-bill to properly really Clearly, age customers. like aged backlog not period. we but not like have an a of as but a some flow recover ensure orders, up only not we can -- flow to keep also that of through raw with

of for these remain a reality both us. So still

through. So still we challenges have to work

Josh Pokrzywinski

supply that then just improvement, more orders. element kind this Got on well. surge there's if that So anything guess door. chain discussions or of of like you're of just in as effect, quarter, fourth And the had it. within your solid the able anecdotally to That's bolus the seen wondering get chain customers supply the your are kind customers right? you've Presumably, the is I'm you've out the qualitatively, some helpful. I product

you're can sort that on strength of more the representative everyone order of, is Like, supply. seeing the hey, get side

through product more of a by through down like but you pulling -- changed. or guess, supply chain back I of this pulling any we've whole, to never kind demand what the would through supply or are volatility demand been of they're up any as Again, really hard like just Like helpful. lot So comment sort quantify, there but dictated a chain? seeing in is be

Ivo Jurek

spent I all watching that talking robust. varied I'm all our the general Yeah. the are is at This quite the receiving order particularly with. is trends trends it indices watching region. really, and dealing The the bit still point in volatility that macros with feedback customers to situation quite seeing, a cognizant are we obviously, the think very we I are reasonably time the that And and, by the that positive. there this being frankly, time our customers but the But of of out remain and of is that crux

to folks just sure want about it we understand of we when just America a North And kind from so not perspective. are looking that we talk market at demand, globally, make underlying that

you strong are demand the places as and North very that an case not like in China, America, have may Ag, example, in and On-Highway in may Construction a those large while be trends right? so And markets,

channel. So what point uneven. of is the happening at would this industrial it's said we say in couple are it I industrial choppy, watchful and times, in the I that's in time, Again, diversified very that replacement a Josh,

some in may you very very it trend we end But up I'm You have reasonably month. on ensuring far, have But line then miss so and may general. solid it's month, weak don't a just focused very, been positive that we a calling wrongly. and

Josh Pokrzywinski

it. Got luck. of Best it. Appreciate

Operator

Hammond of Capital from KeyBanc next Your is Markets. question Jeff

is open. Your line

Jeff Hammond

guys. morning, Good Hey.

Ivo Jurek

Good morning, Jeff.

Jeff Hammond

math, it like do seems XXs. I if really, So are incremental margins the high

in we that this I something quantified the much is maybe wondering the else if in is 'XX the of much in wanted supply of that getting really understand issue I'm around how how better confidence and Just from guide. in headwind a And And chain $XX in million issue. versus polymer right had to number that reverses there. think 'XX the of kind

Brooks Mallard

Yeah.

signs, woods QX, of as encouraging not we're said, the Ivo I think, work were out some we through there but as yet. So

cost, less core our that to X%. about margin mostly the through. see maintain said at we that EBITDA as we as think expect growth it's would you trying 'XX, through price is We margins to to move from midpoint and neutrality we've we're move If as 'XX fall on

we be to to about. talked improvements partially SG&A that see higher that by expect from variable some comp. initiatives chain supply productivity then improvement offset expenses And from significant related the And will and Ivo

you're the improvement margin So the from through that the terms as not partially by be then productivity way SG&A will offset year. supply And from I think chain some thinking about move we the only of in well. as right improvements, it higher gross but

Jeff Hammond

you side. the industrial, And you're this, equally on market it digit Thanks. for just then industrial. for industrial think about back just if down talk, And the PT the outgrowth. just and Ivo, FP choppiness. diversified low-single And I mentioned between one, and Maybe seeing Okay. two,

Ivo Jurek

one Look, an Yeah. it's next think and reference best more demand, up. way right? the Up and maybe down just Jeff, it month maybe maybe uneven next really time. than down Again, is to month I

from the we that robust. now, see remain is So right sell-through very, customers what very

And as in think capital. comfortable mean, will weaker is concerned see work some more order with I times, getting people movements that everybody lead start that not I by demand. you somewhat driven about necessarily flow,

have have side, sure the don't seen inventory they on on too but one demand yet people weaker have don't they are other I side, that, And the again, POS making think much just reports, not from we too little.

a rebalancing market the of And continuation so there -- in happening what in is the is channel.

there's that the to able people that one everything also more as say to I very demand they that’s also which materials result generation are just So in need, an being And because -- raw could that said, opportunity area very, are we that but watching. getting case instantly would throughout wasn't simply get people probably are higher XXXX.

So you of maybe that situation industrial we want be there we market should we equipment. are should to reasonably infrastructure we the the in automation to building and call like, you're particularly equipment, as positives that also balanced And be to lots throughout XXXX, it what replacement you don't any potential dramatically, anticipate view construction robust. right? mean market. uptick miss don't of industrial want in lots where conditions the we going And a investment remain need to our down lots in I are one of have while

And Gates markets those are all good for really Corporation.

we So but line, is about to what about these optimistic being be with some the with trend are we indices realistic of are want ISM that also on. underlying happening reported and

perception what I that our of kind say is. would that's So

Jeff Hammond

changed something outgrowth big the speak out, side. And mobility has you've I just a industrial assumptions. that called about on but opportunity the to been maybe know

Ivo Jurek

you. Thank Yeah.

I of this I we our Again, on are look, exited spend and $XXX at how XX a times kind to driving is mean, exited I of run an $XX think million perfect not XXXX, of time in it X.X we kind I'm we that the mobility, but years. was of in so much in business, that a of million everybody kind portfolio. rate, remind kind -- going [indiscernible] year of organic example of evolution So growing kind

to rates XX market years, and of times mobility pretty space expect next to catching generate to our quickly we OEM kind Now we the in very deliver growth growing continuing contribution size the about auto in at that an don't over up where the X.X end we be as are example. optimistic of mid-XXs

strong very to had Automotive Fluid very to pipeline capacity robust the an participate build well. in Fluid innovation I've our an Ag, of opportunities. our end market, chain Certainly, of we've with continues that, business very of And area And markets, to also outgrow that's I've with highlighted we Heavy-duty, Obviously, America, a opportunity in Power an in those where robust. the predominantly Construction, participate belt area spoken we Power. our Industrial underlying continues Power to very replacement markets. Jeff, business, the but us available are strong about North growth electrification. That's Fluid then business with give side where as

that and couple outgrow speaking, years, globally. end And of capable outgrowing demonstrated certainly the years generally to market. last it's last our over about very we years ability are three So the the we underlying are confident we've markets of our five

a providing you long-winded maybe maybe color. a So little more answer, but

Jeff Hammond

Thanks. Very helpful.

Operator

Your of next question is UBS. Karas from Damian

Your line is open.

Damian Karas

Hey. Good morning, everyone.

Ivo Jurek

Good morning.

Damian Karas

Good morning.

that So for I year. underlying out you've the assumptions this appreciate laid market

a key headwinds calling I business, Just just helpful give given and of that be walk Automotive kind just worth you it a or any that is expect you would are Yeah, the you for for year. that further this provide about color thinking maybe us the out. tailwinds really around pretty auto assumption, if the globe for you're auto? just significant perhaps guess outlook could how on

Ivo Jurek

Yeah.

is revenue you our recall, less So Automotive as presently. than business OEM XX% of

don't slightly certainly going output we be I globally. look, production that fall so, overall in call that increase category individuals a And is of OE net the to will significant positive. anticipate the the into Auto

maybe more X%. thinking in very presence. America, to some where are line have in we Certainly North of We little X% recovery

Europe. to take and, account interest increases of improved new Similarly, prices in the production the into in folks account challenges of output vehicles you have you take automobiles that some also the going have new rates. buying frankly, But to into are when

up that should demand to you see you see affordability be may will kind of slow know, of I'm of the builds carmakers is not producing, I the capable index that don't economist. more view some while digit. OEM our in mid-single globally, So end market But Auto decay an

America. And automotive anticipate that frankly, we very to going dynamics And similar is fleet, miles then replacement. are very low-single miles. We we driven, well should a market an employment growth. in rebound see a strongly. Obviously, high car aged trend of bigger maintaining digit more is Positive North vehicles. People end China believe Europe. that for certainly folks high levels driving business in bodes their Very

last some the have two to they frankly, transportation. drive more in an you people think reports of expense three the starting are even I can years to already it over that see of at significantly driven than, public

XXXX business strong should So particularly replacement setup the the situation as normalizes, supply for this chain, for is in positive Gates. for automotive very net the a be

Damian Karas

inventory that normalization all this you're that a And then on distribution the expecting call color. Appreciate additional later Understood. follow-up year.

XXXX it of And headwind adjustment? much you would into is I guidance it, do transient a with -- missed if bleed baked related how you you've as something that that? view but quantify that the a could of more or to Sorry in likely

Ivo Jurek

I Damian, think it's very forecast. to difficult Yeah,

The their very if occur POS going going approach optimizing and/or to just focused anticipate are it's view when year. trends. certainly, it guidance, our to it into as owning that our on half that Again, to should will have and We probably focused us, capital we will spill that. Firstly, to XXXX. occur, trends going all on intensely our second it our supply remain is the with cautious but probably levels. embedded being And And very you repeat positive, certainly I POS. we folks I'll at are leave that the or are in anticipate be one in working we for monitoring should is chains normalize, the

Damian Karas

you. Thank Great.

Ivo Jurek

Thank you.

Operator

Markets. Dray Deane from is RBC question of last Your Capital

Your open. line is

Deane Dray

morning, special welcome to Thank and you. Rich. everyone Good

Rich Kwas

Thanks, Deane.

Ivo Jurek

Deane. morning, Good

Brooks Mallard

morning. Good

Deane Dray

Covered lot ground of a Hey. here.

quick of ones. a couple Just

First, your news the didn't was hoping Ivo, with about impact you I you the good in mention operations earthquake. it, but of have Turkey

Ivo Jurek

Turkey, a Yes. with the Obviously, asking. our for prayers in event. folks Thank you devastating are

earthquake. a the distance of the of in are not operations actually, near, area. all impacted We the from reasonable is very epicenter are away which fortunate is We our

impacted. for raising so none But that been our you and question, thank Deane. suppliers of have very much And our the asking nor facilities,

Deane Dray

in you just share lastly, Good. That's And mentioned Fluid Power. Thank great gains to hear. you. then

new guide? talk you embedded can broadly, Just contribution the the in and about from what's products

Ivo Jurek

Yes.

So as contribution new we up. have our revenue drive of percent as of a discussed, we products continue to

with exited Power. of XX% in XXXX Fluid have over Power Fluid We in vitality

And to so NPI will you surpassed our we're in question have Fluid So our get we certainly the you maybe that objective We Transmission. where that the of kind highlighted to of Power In kind portfolio. vitality in aspiration as XX% recall, follow-on is PT, is, across XXXX in Power. mid-teens. by

past, And our So as PT. well. highlighted in I've go are ways laser-focused in as good progress the now still PPN, very that revitalizing making we're portfolio to in we on we on have

Deane Dray

Thank you.

Rich Kwas

Deane. Thanks,

Ivo Jurek

you. Thank

Operator

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

Ivo Jurek

call earnings in joining of couple very for much our during we Miami. XXXX conferences of our and us you next the Thank some QX look to for shareholders forward seeing

you We are progresses. Thank with speak any we'll and welcome you, on to questions next follow-up as our the call. time

Operator

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

disconnect. You may now

We use cookies on this site to provide a more responsive and personalized service. Continuing to browse, clicking I Agree, or closing this banner indicates agreement. See our Cookie Policy for more information.