GTES - Earnings call 3 2023 | Gates Industrial Corporation plc

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Operator

Ladies and gentlemen, good morning. My name is Abby, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Gates Industrial Corporation Third Quarter 2023 Earnings Call. Today's call is being recorded, [Operator Instructions]. And I will now turn the conference over to Rich Kwas, Vice President of Investor Relations.

You may begin.

Richard Kwas

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

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

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

in Global visiting meeting the with to will the turn Baird quarter, way, of Chicago, as internationally. call in I'll many We balance be California, to the Industrial of the you. With Ivo. of out forward as well we that the and look During investors attending over Conference

Ivo Jurek

today. you morning, you, for and Good joining thank Rich. us Thank

of X Slide Let's the begin presentation. on

a Core Our global our revenues operating markets. the performance quarter. third year-over-year adjusted strong translated teams as guidance QX share, was outperformed with earnings automotive to results, executed which revenue well, delivering end industrial record for midpoint, and per consistent

our in Our year-over-year EMEA we generated when replacement replacement expectations China growth. markets our to Asia Demand our growth channels. Regionally, offset East and the declines updated channels providing spotty positive trends. was demand and after India focus of top is quarter. Globally, outlook first-fit softer and mitigating the second strongest and the our last support largely growth core posted impact line in OEM on relative

in reducing X continue the our due and quarter, make global and at remained service to book-to-bill progress to backlog, we Our improving customers. our levels past

by year-over-year EBITDA of fueled in the XX-XX The year chain prior XX.X% year compensation to revenue end by expansion. expansion margin period, across gross higher quarter, our chain as less continued involving and partially was XXX contributed best basis environment last supply organization favorable several practices but productivity, gross well variable of compared implementation point the initiatives increase and an XXX enterprise-wide more relative despite benefited Our in and to our was our stable supply basis mix. increase adjusted was performance, as the costs. The the market points margin channel a offset to margin

cash incremental XX% income. to million about represented $XX future. QX pleased to our advance and are free are but We satisfied, the profitability, of flow our initiatives performance intend with approximately in the was improvement drive adjusted not various our conversion to net and

free well conversion guidance stability working strong in our cash with to of year. our to and for solid Seasonally flow Our trade performance, capital, higher outcome. XXX%-plus contributed result the a speaking, us this coupled margin was sets the achieve

fourth the free for generation. quarter typically flow cash strongest reminder, our quarter is a As

versus lower at of to $XXX quarter the a midpoint $X.XX, guidance. of EPS EBITDA outperformance, turn raised our period. Due to a our prior our we to the are Also, million compared prior million, midpoint finished ratio leverage increase by adjusted our third net adjusted guidance raising or we have of XXXX year an Our quarter the X.Xx, previous $X guidance. X.X from

reiterating are and our X. move year conversion. Please We to cash free guidance flow sales full Slide core for growth

Third quarter and were reported down with core total just year-over-year. $XXX growth growth revenues million, of X.X% slightly

margin. a geographic expansion enterprise-wide higher regions. XXX was expanded share the our note, was our driven currency our supply replacement adjusted to of points industrial business $XXX and first-fit first-fit. we combination Gross basis channels, up and our relatively we a markets percentage $X.XX, increased was quarter. Currency XXX a to the and and spots, included experienced Transmission expense. points segment compared Broadly, business. Globally, year's Automotive period. Regionally, business prior and important mid-single earnings headwind industrial a EBITDA driver realization, compared last Foreign our XX.X%, of we by a held mid-single-digit contributor. On digit year-over-year. bright than compensation XX% X, core range, generated stable higher was basis favorable was growth, the segment, our revenues than year-over-year higher automotive, OEM The and versus the operating price XXX million expected. core single industrial both the our points stronger decline changes chain were digits, period. In variable was year, than to slightly first-fit the up to margin EBITDA in on replacement X per million, gross prior basis, points. low little EBITDA year-over-year year although Relative across provide Power buffer the of the better against mid-single-digit business contributed third adjusted margin from in industrial points margin benefits overall basis demand approximately last weaker improved the growth core by X% all of markets. Adjusted choppiness growth our year Adjusted ongoing EBITDA replacement was margin environment The over end demand core almost year-over-year. growing was performance. growth almost growing On-Highway experienced In was basis China majority adjusted and income from initiatives. Of globally, in XXX show with most of increase approximately energy $XXX Slide and replacement

markets industrial Energy, were construction increased, global On-Highway core and double-digit Our mixed. low a revenues all on range the in basis.

this and through the However, experienced Mobility continue work in we first to We Personal continues through half dynamic declines to of the mobility inventory believe Industrial. business Diversified anticipate industry-wide destocking. XXXX. We

win plays positions in the activity once resume and strong space robust, to remains design us Our the growth mobility personal inventory overhang out. application industry

business declining business softer than approximately transmission expansion in fueled on softening industrial core a the period declining single a by year-over-year. Despite core more performance bit environment. chain more normalized trends, anticipated, margin generated prior the supply XX% replacement a versus industrial resilient were top Our line digit first-fit, low was China than strengthening sizable year our basis. Overall, revenues we

more Our Power to margins and agriculture that Fluid expansion. I Fluid declined core about revenues and relatively was gross positive a core declined X% offset more for with diversified segment similar over generated than Automotive in increased realized mid-single as segment our Power basis. and digits the XX channels. EBITDA across of mid-single declined growth core digits call on basis XXXX. adjusted margin declined versus first-fit details year-over-year. pass but $XXX of results. decreases by neutralize revenues industrials. Construction slightly Industrial will revenues QX compensation the year-over-year, Brooks? higher million growth, On-Highway on year-over-year Energy points than benefits also now Brooks replacement revenue expense variable and additional

L. Mallard

Thank you, Slide let's on core region. Ivo. our review details Starting by X, revenue

third in digits, by EMEA, automotive in led performance revenue Our about X%. growth replacement. quarter by In led which increased core the grew was EMEA, double mid-teens

approximately also positive, These Construction On-Highway delivering were in similar in high year and more Industrial. trends energy period. Automotive on-highway and Diversified X% versus prior increased by single the Ag. North Mobility, and and America than was Diversified Our offset accompanied single-digit growth. solidly business revenues low were core Industrial by growth digits, declines grew XX%. core decreased

Asia in year-over-year demand consistent channel expectations. than replacement more declined with weak, Industrial relatively multiple our revenues on However, a year-over-year and core both we than double delivered and most verticals, the our core demand we of headwinds Overall, channels. In Overall, growth declined core good business in in XXXX. East demand growth revenues basis. digits, than replacement in experienced mitigate our America Mobility to and revenues nicely verticals. delivered helped and performance continues end industrial experienced about the automotive. other but market, replacement in which XX% the pressure first-fit and India our with realized contributions Agriculture, industrial overall trends in flat positive stronger global Industrial supported notably, channels. channels On-Highway was be Personal expect by to be China, the rates automotive in our softer South We both growth positive, and OEM-based from replacement slower were now China expected.

Turning a X. solid gross reduced bridge interest Net offset to operating share headwinds results by $X.XX earnings benefited We year-over-year of share balance earnings approximately in were our position. flow We X. challenging we and growth sheet pleased global environment. Shifting with count per our share, per stronger per performance. ability margins to share. our adjusted driven approximately summarize demand benefits Slide same to performance were expense cash by year-over-year deliver Improved $X.XX the Slide our amount. performance of by Overall,

adjusted of second income. $XX On year million the margin supported net our moderating Our working performance. the expansion free quarter trailing approximately is cash conversion period, trade Year-over-year versus for cash XXX%. XX-month basis, capital free XX.X% conversion flow flow and or the prior trends was a

to X.Xx the period. prior Our turn and decrease relative net X.X a declined ratio leverage year to

term In its points, savings. amended cash estimate $X our basis will with our of reduced we we positive pleased XXXX are million impact interest performance by approximately annualized spread generate and addition, loan on balance generation sheet. Overall, and our we which XX our

X are midpoint, year on basis invested XXXX per quarter's increased driven XXX guidance Our year-over-year and capital to capital return raising expansion full outperformance. earnings disciplined trailing turn our for investment. Please by account Slide EBITDA the adjusted largely our updated XX-month third XX.X%, to guidance. margin to we and share to At review points adjusted

full year our maintained guidance cash growth have flow core conversion. free for revenue and We

the we lower quarter, in core revenue million, For decrease of a trends, a over revenue at are dollar on million $XXX which year-over-year the X% current anticipate toward we be business the fourth half incorporates revenues to the range. the $XXX tracking of to little midpoint. Based of range

fourth Ivo. EBITDA margins will We points partially by SG&A. With by the XX in it of higher gross expect improvement profitability adjusted I that, year-over-year back drive with increase to over to expansion, basis range to XXX in offset good to turn margin the anticipated quarter, fueled

Ivo Jurek

wrap questions. XX, your before I'll Thank with you. On up taking brief summary Slide a

with dealing operating our year-to-date, while with have the another quarter to and softer we strong basis to our this Year-to-date, with generated intend pleased a through year demand. performance increase quarter, of normalization point margin chain are gross the We the performance third finish pressure. of year, margins. The gross while in improving year-over-year have and translated XXX stronger volume margin, experiencing environment mild improvement, supply

productivity Moving you service, advancing Furthermore, capital chain in projects initiatives forward, opportunities are evaluate levels supply organizational would our continue We XXXX. on our operational and provide details to to and restructuring working we footprint that to optimize with enhance additional enterprise-wide these we structure. our intend efficiencies.

by on Second, net leverage the a and decline We ratio improve are we to continue experienced in further track reduce our to nice ratio. QX year-over-year year-end.

to impact of of year-end May. relative a represents our target ratio via X.X returning net turn to the repurchase million leverage Our reduction in and XXXX, our share $XX in XXXX includes shareholders, X.Xx

see We for highly focused years, surplus our shareholders on we levers to of in reduce opportunities cash potential couple and continue over and the available. create believe to opportunities term. the debt multiple We are to value near generate have next

questions, that, XX,XXX With moving our the Before ongoing dedication Q&A. take I now over serving your and thank associates to to I focus operator begin the for turn will opportunity to global Gates call to back to want their the the the to customers.

Operator

Instructions] will from Andy [Operator We take Citi. question our Kaplowitz with first

Andrew Kaplowitz

thinking us 'XX. as about industrial start to to you're to you more markets turn color you give how can Ivo,

industrial first destock this there? positive of in sort maybe a destock that talk I we 'XX. in are could you were could think I half industrial. And early said channel. the where on about And And But maybe thinking your of think you you year you in in 'XX? call the to elaborate turn can could last

Ivo Jurek

And way Andy. Look, the for that going playing industrial question, the Yes. that we believe Thank anticipated. the say itself year. anticipate I weaken also X exit China your we that certainly stabilizing that 'XX didn't are years we've we you bit what is, it's activities that underperformance. may China, be little to think a anticipated I after throughout weaker I would of as is that out, but playing almost out

start degree Andy, finished industrial of that back possibly our the QX, stability seeing should So is in we are look, of focused markets, QX the and terrific just view in how have 'XX we on 'XX. But year, a and call. half more we some next markets about we'll execution lot the this those to on of a our markets on certainly say earnings view

Andrew Kaplowitz

Totally in more of this margin in that margin a maybe forward, color a in fair, price just seen years. little Transmission but segment cost Ivo. And of to you're point, you've versus about Power and that highest also moving how thinking is the terms couple

in us of you much initiatives. but color talk preview impact supply Any about how tell 'XX, helping more us I can told more it's think you programs? that. chain maybe a how on So XX-XX these mentioned you'll maybe You you?

L. Mallard

don't in did say more Transmission what remember, as product the we XXX XXX we back on line. year, some you impacted that much the we by of move is themselves by Andy, profitability should we if that saw if the that we into we to points But margin line headwinds you half of had through gross last said remember, get product basis Power XXXX. was the line XXXX. And of correct about headwinds

gross I because And power bit apart break impacted. were margin the a they more transmission versus and it's if probably heavier so the on side, little FP,

that really seen bps in -- this chain XXX, normalization back the of XXX -- have from midpoint XXX, tailwinds You we've half supply of the 'XX. at that about of

of Now by XXX bps offset volume to that's on XXX and headwind about mix.

started offsetting some that's we've of the replacement tailwind. XX seen bps. starting initiatives of you stuff done, chain on So to just seen strategic the have say to and because were that, to that about really the side. particularly about XXX the volumes, lower productivity get bps And XXX of normalization. we've mix, lower we've then XX-XX, then That's pricing supply that industrial see And I'd XX

you of And that XXX we're gets to of the kind all seeing second in roll so of the XXXX. you that margin and improvement XXX bps that up, gross to half

up you. So frames hopefully, of kind it that for

Operator

question from next Halloran our take will We Michael with Baird.

Unknown Analyst

for on Mike. It's Penn [indiscernible],

much internal ahead the Following think when regarding structural productivity about additionally, then environment chain of chain? And do up supply of there the the relief you and proactive more relief external and typical much being the initiatives supply how challenges, regarding of question on Andy's we course you see some some the prior from how this think on business, do this about actions, of ongoing more versus actions? maybe from

Ivo Jurek

that 'XX, we chain. kind the have normalization supply we the we Look, believe been of of exit as through

the will of XXXX performance So normalized with the of last the half year second of of in performance fully exiting. be a kind chain supply offset

So normalized. we that's believe that,

the going we we EBITDA, kind we're that frankly, demonstrate Look, to delineating, of certainly productivity and ongoing we've have to to as starting targets to lots then we validity how and enterprise we're and that initiatives the delineated spoken productivity-based of more that of and we about items get believe XX% deploy able still on believe the the our kind on of through we've ongoing self-health, our be own there more well are items. XX-XX opportunity of actions as that of structural both, plan,

updates. you the continue we'll to provide So with

teams, we half the have for us believe our of second proud very well are positions this XXXX. quite year, of and We executed that in that,

Unknown Analyst

longer-term Maybe over level, kind M&A that view the obviously, time? back gears term, think philosophically, coming of do about time that part And, your to how do back switch of maybe allocate the restarting into we of of terms be growth over below more Yes. where if think longer engine algorithm. How play X.Xx as Super time resources helpful. you and and company targets and leverage looking M&A as we to get you you'll contributions over markets? some in

Ivo Jurek

below that deploy us substantial a to a is all to believe capital Yes. quickly commitment strategic manner. that we Xx. our more will cash robust capable of tremendous opportunities. positions we well our We Look, get very below are and committed a that in have reasonably very shareholders. we we business deliver to leverage made that generating generation foremost, very level, cash We've very, reach of The to first have Xx. Once flows to capacity

ton opportunities We have pipeline. a of in the

We the we that for are delevering biggest our we a business, going seen taking we all that extremely come shareholders have decisions. be believe to to reality starting frame. deliver those making to deploying But can incremental share disciplined. the reset is a on will and not account We and more still capital into complete M&A of potentially benefit is definitely be to buybacks, valuations,

believe are disciplined. growth, as to well excited very be We but that, of to be that's about as opportunity a it. profitability big improvements, going future drive We we'll very driver very,

Operator

take UBS. with Karas Damian We'll our next question from

Damian Karas

destocking. So the I out know you've called Mobility

Just third you're you the wondering there's just able your an quarter much thinking kind quarter, of behaviors of inventory the that how demand, fourth were sense maybe if sell-through any just the activity and And versus could if you destocking will. if on headwind in overall quantify -- to really way us give kind about of sell-in a guidance.

Ivo Jurek

middle overall, the earnings X. from destocking Mobility with substantial continues to market strong are able very weaknesses see mobility to you about There quarter's of guidance we've overall, -- call despite overall, in that itself for And some the the next to in discussed is me in a so space that is have a as embedded start at let right? deliver our we of the rather But very performance end the So see, Personal specific did category. view our -- indicated Look, of substantial maybe that Yes. that book-to-bill take as equipment QX. We going out. itself overbuild out. the our play work book-to-bill to we very second to it's have remains been year --

our with future. continue we we mid-term Mobility, products, the outperform tremendous have that the on in continue programs give So market dynamics reaccelerate And well with into outgrow continue destocking are the very can quite underlying deliver targets. still the pleased teams that delivering. plays are the how us Mobility, to we services we Personal out markets to a we itself we the And backlog opportunity We optimistic franchise, that are our the deliver. we believe the our new of will to in and believe growth to once that

Damian Karas

Okay. fourth And that lapped about is and and line, you're of there or initiatives getting most quarter already here then forward, a top you going the have you've on positive price thinking of kind the taken? has that that still uplift basically pricing faded

L. Mallard

still look, No, Part of look, it we're come is I Part price. somewhat. there, still down carryover it to continue, XX-XX. And would say that freight there's inflation going from getting side, start last we're cost year. seen to on you've certainly, right? So out is of the

Some just saw, to we for of chain deflation. straight as productivity opposed the and is that supply more, that us headwinds

On the material was side, we're rate really a were when lower than still it seeing inflation, albeit seeing much at we ramping.

inflation. And out environment. seeing the kind thing seeing it very play has of out past amount across moderating you're significantly labor and you're there here inflation more a would I the over couple pronounced I the gotten, think, So is, of years, throw broader other of

to to kind we're for to with -- continue you increases, to we're continue if XX-XX. so go we're offset continue up, price out and going add all going to things of going price price to And inflation, those

got we've think the it. dynamics of of those into pricing the pieces are And all as future. head good kind out we we So

Operator

from We David will take question our with ISI. Evercore Raso next

David Raso

or guide? million, toward than is so the low comment about a revenue. far total below a see fourth And you organic the tracking curious, what little quarter guide, down $X Can far was down noted, revenues less that. you tracking are end you made bit -- I the of but what the give is us maybe the have in of the sense within implied put I the so is even

currency just fourth in sense, Just the I'm trying trying do to the that swinging to get positive back a up. a you to So square see quarter?

L. Mallard

Yes. Yes.

we're back out the And what really how made a puts that to in seeing of we're return comment terms it think couple if seasonality, takes you been right? of and and over and the look, So reason seeing more so quarter. significant we years, by is, plays past seasonality just is, normalized there's the

a more And so we've and seasonality. QX, what normalized QX moved we've return to as just through seen is

Now, more seasonality, China that? what what little Industrial Does The there bit robust. little could anything. implying we'll normalized bit have But that a more start to recover plays is than to how a more, see seasonality normalized uptick is just out. we're

tailwind FX X.X% a have We in QX.

that's sales. I at piece looking other think total terms the probably you're in of

David Raso

you segments, get the both with within down the quarter? segments And And handicap the think would enter about sense to expect year, to thinking of how fourth you're X, be of trying of bottom the first to just year-over-year had how first we Are half sales those where of half a if negative the the destocks in about we the organic declines? so in growth you into next 'XX. organic sort

Ivo Jurek

in being well. better Personal able order capacity to are by So leveraging QX, little a we utilization with in reasonably I China the QX, that say and and flow keep Mobility. PT is SP, weaker more would up affected

about guidance. I we about say, QX. maybe think embedded impacted I what So And PT -- being would would that's in in more think we've

Operator

Dray We our Capital RBC with Markets. next take Deane from question will

Deane Dray

normalization. line, an on don't pricing, phrase I'll I by product to then start lot give proceeded you to fabulous color love Andy's you with in a restructuring, supply specific we and answer of Brooks' how observation strategic chain question. Brooks, give that detail

you've really got those details. I appreciate So

to free your that in flow where own same fourth inventory, maybe the own might on have cash you so would how that because level and out quarter want precision strong of play your I the already destocking, quarter. an releasing now And ask, buffer boost

own do buffer of your -- inventory? you and just then how expect the release overall, Just

L. Mallard

Yes.

And Deane, we to the raw down come we've year. supply on we've our start inventory. But seen we issues found had our far, last is is of is what dues as released service some finished working optimized improvement past chain to through what's improvement our as in so the we talked flip levels in that what worked way initiatives we working making led materials on, we've So and the Ivo the inventory side, we've the goods some on the chain we're about seen supply we're sure which had. of

So profitability, capital our cash has been year, flow working capital this flat. management, relatively strong improved

we're be much sure that for additional And try shrink so we how but that gets time, net-net manage able basis, inventory making we get use that the we're to raw material you a that the think same We take we're to we had cycle the it, a inventory between going of and out as downturn. when balanced during the finished when can goods buffer the called and that. outcome. best to to on it the to drive upturn, we approach to prepared volume At

Deane Dray

on helpful. for say what limited real then can Ivo, you That's about And you know I are restructuring. future

are And us you've of is in you directionally, payback of some that reaction these previously? done you restructuring so what more you fourth my limitations frame wouldn't for is actions? quarter, the there's if restructuring and for some get earlier just that looking with kind this why types could doing also in and there. But started first timing And recently maybe

Ivo Jurek

Yes. your you Thank for Deane. question,

assets, closing and quarter, at is million The some firmly efficiency other have that going believe, to we our can about we to that complete, by desire facilities activity, this our the that for optimizing the that's I've reductions available in as been China some drive nicely know, China vocal to of annualized improve operate. the year. On footprint. have we sources approximately that and position of our are $X you pretty us of improve we further we restructuring, we will will anticipate efficiency announced Deane, our completed some set end savings less nearly where we think continue project We business our franchise footprint to the and I of believe our additional we one areas of mix, earlier of to this next the that incremental better So in more skill restructuring give year. and have some efficient steps labor, direct require

of more So these after we our globe. made these in announcements while all able of we have to any the and haven't employee publicly notified make to infrastructure we announcements, time, discuss working be are across feverishly to this

do have believe effective a running can manner. execute of certainly opportunities, that the projects and in we to incremental we going we of So the that's lots efficient an simply and That's business set midterm. become to over

delivering target So mid-XXs midterm. believe a we our ourselves the that deliver put we are that very be committed to in mid-term to that margins. of EBITDA over And to have we position able

Operator

And will Julian next our we take from question Mitchell with Barclays.

Julian Mitchell

top I thing one the line. And on just wanted to with back circle

you very for a Mobility, them have Power inventories versus yesterday. see kind down there or when it seems already, the you get OEMs like bullish example, the construction suppliers so mixed maybe picture You've the Ivo, just broadly large if something when were numbers, about thinking And example, with in not Hydraulics, Helios for I and dealing say, Cat super those to wondered there orders some Americas. I who such in Personal year Parker and your in for cutting emphasized and of business, forth. yourself, headwinds Fluid look equipment, in of Volvo, at outlook then as next what sounded on China, the

specific on those OEMs, Fluid of any it of together. So yes, into sort piece be can Power that perspectives? curious tricky But large machine it kind to

Ivo Jurek

have we and that for delineated we the early Ag, have in seen have have seen you of call Thank signs your think weak, the Yes. reasonably construction in we question, weakness during we Julian. were I I have we -- that seen weakness equipment. Diversified mean Industrials the that

have we believe So But but going that in we you certainly opportunity top also We incremental have have of for guidance, in market I markets next persistent important been pretty to are pronounced these and a purview. opportunities said, take become we taking compress, right. as But embedded working that other be -- still more to the that market while through QX, mean, that is that, this while our we of opportunities future move amount in into forward only end we in that globally tremendous we the markets is believe stages that the can years. one share, absolutely year, performance. tremendous And being we hydraulics. you're more of players on not share. believe And the early X

being of also reasonably OE -- are our there reasonably applications, we the well look, the market optimistic and aftermarket have XX% the we're more that share. being sober to and more we comes So about but are from resilient realistic markets revenue as well, resilient and end generally out And we versus markets, being about opportunities the business are, speaking, take those more much as aftermarket. over also

So the while what market about like, also share. reasonably optimistic more we're realistic take markets that we certainly are look can we being

We have got positioned good the business well. We capacity.

for frankly, And We dividends for X a X over good that I us. results years. And to think really themselves. paying have the built the speak capacity last that's

Julian Mitchell

million-plus year. guide back just on I maybe wanted good that. cost $XX And Do year base. coming then the hear. wanted context that understand And to following dump on also just the discussion down just next year? sort next to Or CapEx? That's of we on was subdued this is cost into I my question, I guess, sort for your now. One, CapEx up of second

So question saying without that to can line margin XX%-odd top target kind are of because XXXX, restructuring? big the is in a EBITDA new Or of you a just more you of even get that dynamics? that

L. Mallard

Yes.

that bit. unpack a So let little me

something projects, it more like guided big So where back to of more the Were spot and creep even expense sweet look you to we've million restructuring more on might level. of side, up of or be kind at where that, to mean, I $XXX is been. is right there we still But depreciation in kind that if historically, the our level. that capital go

we projects And of term, then that to X.X% capital, money purview new So reduction, being with well. we and on, we're comfortable to longer that or handle there's if the of online that within well CapEx, come the kind new that need targeted things can new spend X.X%, but as ongoing think X% we cost that some capacity.

XXXX. question think the second to don't I get And cross of as there. on... into We'll when back we So part that necessarily that your bridge your we then pour question,

Julian Mitchell

The midterm.

L. Mallard

we more And is volume and we 'XX first. Look, feel where get flow Yes, good how the we cycle targets feel uptick really I it's where 'XX over to so is get ended And to and all, say, would that's things is, there. say get part there. a really where take to 'XX, at we through of it's midterm. first about you, at wouldn't EBITDA and probably and provided. we those have cycle stand get to tell XX% all how we've of I'll going improvement the there. than us there. Productivity to those 'XX, The I we is look that of together, right? right? good We what going When we 'XX. about of And through look go out we where get of how you you us part we there, EBITDA part take XX-XX relative -- of get part our then for how restructuring towards is

pieces answers all in get that your hopefully, so terms question, us And of the that there.

Operator

Jerry next question Revich from our Goldman take with Sachs. will We

Jerry Revich

the Normally, talk we down third quarter outlook quarter? the about outstanding they're fourth for margin had improved margins sequentially. an just You sequentially. Can

XQ, XQ And the any outlook that is an so view? there moving a to standpoint? pieces execute are room to just deterioration from allow wondering, given just Or market end I'm versus discrete implies the just that of drivers X-point

L. Mallard

I going downs normal ups issues what chain years, had X takes seasonality. We've and then and Jerry, past to and earlier, over the it's year. with more and I'm said pricing supply puts inflation back last go No. then and to COVID and

What SG&A, perspective. Having said we through like at looking variable move chain. XXX And so that, from from a is even in bps comp though weaker we're we're XXX of is things just normalized about normalized And XXX offset the the XXX talked margin seeing we're points that, of last margin a to as seeing that. a year. of been we've by and still and some improvement, gross perspective more to higher we've outlook of and line very part now top some what supply transparent both gross the seasonality demand basis

good sequentially, seeing But So look you still when at seasonality. it's it normalized improvement. just

Jerry Revich

what you're was putting guess all a and to market the on operationally that's posting, now folks the ebbs I differently base touch the third to in operationally, some to just markets, absorption couple of the margin in frame we where year. allowing areas of you improvement maybe the environment deal see then to I cycle tends time post-COVID volatility still Okay. in 'XX under results. folks end we're Can that can while doing be differently your looking Anything over chain of with from stand where this the quarter, XXXX these more it's in of on course up you terms supply Q eating years just you're terms off-line. And lowest with of margin you doing end touch us that types and interesting but posting operationally, ago? this of versus flows these exiting just

L. Mallard

that. with in back optimization, supply supply the we've come would necessarily comments on some operationally. What going through, like around as had on we've say, out and the some material is his we've issues and good done alluded that, year, worked different chain things and what through work the like I cost some that chain we've what's of to first, really as pricing things I on of unpack Ivo and projects from we in to though, kind up call, will different hard half the it's and say, around optimization XX-XX this of

that through of starting some line. the bottom is to flow to And

the next it, will X And the some line of through in think, flow years. we bottom to X to

is And cost both and so to material that perspective. perspective from painful while it, have set a productivity, go drive we're coming a help out to of going of we robust we really a was it think projects as through,

Ivo Jurek

X me also pitch product did our new let on years, Jerry, for have And vitality maybe we right? put the what over to the evolved a little last have driven asset both the during a higher X added have an the last into through from a we amount years. economic volatility up, perspective, worked And perspective base same time, over perspective. much business mix, our of of So cost X and geopolitical company we bit we here efficiency incredible

footing. have just on through, stronger believe things put the macro we start I starts stabilize. business that working itself the And as to So much

potential to demonstrate to of enterprise. able we positioned that think are this be truly much I the better

Operator

we from will Markets. final take Jeff our with And Hammond question KeyBanc Capital

Jeffrey Hammond

couple a have I quick of ones.

speak time, how Europe. And maybe to seeing has just you're just what I seeing just Just of to shrunk some We're for there? seen from I'm business cracks over the your any impact first-fit know auto Maybe but resilient. speak kind surprisingly peers. you've strike. then

Ivo Jurek

Yes.

the So to anticipate automotive continue Jeff, on Europe, thank Look, question. in better a we the you business. performance for

for So XXXX. Look, in well is both on channels, of the well replacement the see first-fit through as more continue the performing we auto certainly energy side, that on us Europe. to trends quite as stable, stability are end better, much the in and

fourth a now. in reasonably Europe, and for robust performance. Diversified Industrial, So quarters spoke that's choppiness also about And I supporting weakness probably

to So open and we've anticipated and that in pretty Industrial, about be weakness choppy of and pretty transparent pretty continues weak. Diversified the been that we've kind and

think from have than decades don't products, channels of a have portfolio we of that, are peers, that out the we a here. perspective, but very we little have business good little stability better over that built the a different I providing do through some that's the So replacement we and

the is reasonably We Look, auto okay. And in output. on Europe So weakness October. the we seen strike. anticipated recovery for pre-strike have

for a amount is and that such we that's impact that taken small have in account, our all America for the revenue not embedded guidance. it's that been material us, of small North OEM So really auto a into company but there's

Operator

And ladies Rich for closing the to will Mr. call and remarks. gentlemen, turn Kwas, now I back

Richard Kwas

Thanks, everyone, participating. for

If course can reached weeks. or Have of the future you have weekend. questions day, Thanks be any great in a again. follow-up that over the the

Operator

this you gentlemen, thank we and Ladies and for concludes today's your call, participation.

disconnect. now may You

Gates Industrial (GTES) 3 Nov 232023 Q3 Earnings call transcript