GTES - Earnings call 4 2023 | Gates Industrial Corporation plc

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Operator

Hello, and welcome to the Gates Industrial Corporation Q4 2023 Earnings Call. [Operator Instructions] I will now turn the call over to Rich Kwas, Vice President, Investor Relations. Please go ahead.

Richard Kwas

Good morning, and thank you for joining us on our fourth quarter 2023 earnings call. I'll briefly cover our non-GAAP and forward-looking language before passing the call over to our CEO, Ivo Jurek, will be followed by Brooks Mallard, our CFO.

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

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

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

Please by and our statements. recent forward-looking or the make the reminder filings the be risks described refer from These risks among Act. that X forward-looking which statements. XX-K presentation, to in most could with of in SEC. to of others, disclaim our those subject Reform that Form now to other to remarks materially Slide expressed such cause on These forward-looking different provides a any matters are results obligation forward-looking we've Private meaning We statements that Securities Litigation update include we these the statements report will within implied annual include, actual

you of it join New RSVP Day we Capital Ivo, over on sent can an turn next at be see. York will hope XX are a of the us we hosting I Before Stock many to Exchange. to afternoon March the Markets Instructions and informative week, for

our Ivo to review over results. call the to turn now Ivo? I'll

Ivo Jurek

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

Gates achieved. the review what XXXX. presentation proud what teams and we begin our in Let's I'm Slide X accomplished of of on global

environment year. expansion cash resilience and conversion fortitude for macro and strong delivered margin full demonstrated and Our the through an team uncertain

customers across to of to our portfolio. teams service fill expectations progressively levels product and global rates Our most meeting our customers' diligently returned work performance pre-COVID our

basis year-over-year collective team's execution adjusted XXX expansion us a margin. deliver in enabled point Our to EBITDA

an of points basis The ability execution, the and was outcome XXX in year margins. to We believe as the flow our XXX% we drive gross as by capital was share this environment. net resulting reduction while stronger our a a measured driver increase to in well improvement fueled and nearly of in challenging full and adjusted commercial cash business a XXXX. free increase important the leverage demonstrates quality operational through our XX% Importantly, manage of ratio EPS. Furthermore, via conversion resilience team's X.X in million helped growth returned profitability turn our shareholders repurchases in our $XXX year-over-year

guidance surpass most for Our company-wide the metrics us financial year. initial of allowed focused to our execution

stages benefits that We the our enhancing are early be in relatively organically focused and of delivering will anticipate over a performance multiyear initiatives horizon. returns executing shareholder on we enterprise

time cash extended deliver an generation. frame, demonstrated ability our flow profitability an to business Over and strong has

profitability focused the Day. forward now more are look these We enhancing Markets and enterprise details Capital staying on growth sharing to focused shareholder while topics on improving elevating our upcoming I at on returns.

in an returned the to year our performance industrial. automotive bit development. end a Turning has on fourth were The faced trends Top seasonality, positive demand accelerate expected. our to seasonality. a and we fourth Slide to from remained a was is business growth past-due anomaly our where Recall, demand choppy line backlog, conversion about the markets comparison of highlights. as and view, speaking, creating period, the X able quarter our environment we Broadly difficult outplaced quarter, in of normal as ago followed recent which, in

X. quarter remained the in above ratio book-to-bill Our

EBITDA translated The adjusted margins. XXX year-over-year our by XX.X% in an points. particularly from expansion The in basis was On recorded $XXX chain. initiatives gross supply by to the margin dollars a strong supported adjusted EBITDA basis in improvement adjusted adjusted EBITDA margin generated profitability we margin fueled of EBITDA, increase. a and delivered significant margin and We've XXX was front, of points year-over-year which represented increase our gross of benefits improvement enterprise million

Our revenue was favorable. considering and down mix was volumes year-over-year were less strong, performance that

free XXX% net conversion was the was the quarter primary flow our approximately profitability $XXX were cash Improved working million, fourth income. drivers management Our results. which adjusted capital behind and of

net Our flow trade as adjusted a free debt from year-over-year, percentage X.X ratio performance to X.Xx, EBITDA as lower working prior cash a a helped period. strong turn decreased operating reduction capital of us collections The year to cash improved normalized as benefiting environment. to sales well our compared the to

Xx. target achieving net We our under make progress to of leverage goal solid continue towards

total Moving a core year At realized majority double The of by impacted softness backdrop Fourth core energy the revenues America. anomaly of seasonality markets to prior declined X% down positive on America, our an declines foreign QX period. in while accelerated year's the recovery less lines digits end favorable industrial single to currency globally, Total On-Highway year-over-year year. and and by were than little down channel I a driven Slide digits, in South a level, product in million against continued certain prior demand growth it year-over-year low of basis first increased quarter X. inclusive the X% versus basis. the revenues $XXX year-over-year, were prior on in Automotive the post about North EMEA effects. core industrial

Fit profitability Gross in gross quarters. expansion higher grew SG&A offset low prior was declined the pleased by weakness First on and partially XX.X%. Adjusted year-over-year in EBITDA XX% general year-over-year digits XXXX single margin associated in digit are spending. replacement times continue advance adjusted Overall, lead channel core normalization with the core made we The double we initiatives. industrial improvement exceeded experiencing Industrial was margin Global our China, revenues year period after and the quarter. $XXX million, past enterprise was as versus In inventories. the channel fourth of over margin revenue to EBITDA few

interest a last income higher to and expense $X.XX count. year-over-year. up tax XX% share Relative and operating reduced lower Adjusted share year, contributed per earnings by augmented was $X.XX, share

agriculture contributed X, X% prior revenues about Currency year-over-year review we Power $XXX results. we more comp growth couple Slide the expect backdrop. segment industrial, weakness Personal about let's inventory, Mobility growth and On In more the and down through personal quarters Automotive, mixed. compared of million. high Industrial replacement basis segment, mobility. single Energy revenues. single were against revenues markets growth. by excess growth anticipated Transmission and continues in a to low in our followingirst-fit weakness offset revenue XXXX. before In decrease grew in diversified On-Highway generating XXX digits than the The construction similar generated reaccelerates. work to were our the of and end to was growth in mid- range. low to both market grew Core single-digit year with was points of digits a core And QX

anticipated to and margin design operating prior about our in strong relative stayed win better in resilient digits performance space this low industrial year-over-year. flat, quarter. market. about than Core are China delivering improvement growth Our activity segment the about revenues growth this single on and year, declining was in increased an we segment, XXXX significantly was first industrial in The in optimistic prospects. increased over year-over-year midterm Global replacement XX% last and business faring

XX/XX. chain including phase as are initiatives well commercial yielding from the initial as efficiencies traction supply benefits, enterprise our of Additionally, first

basis, fell revenues revenues Power segment about $XXX produced core On million. a Fluid year-over-year. of X% Our

Power softness to end Relative of by in X Automotive single more performance. core currency neutralized heels overall performance, industrial. to increased of low on enterprise while Industrial was industrial than decline. within our QX points cost We end from most weaker. was segment. percentage agriculture segment the Foreign Fluid a revenues points basis the digits prior versus diversified focused first-fit EBITDA growth Power almost year-over-year management and margin experienced the initiatives. a optimization decreased contributed footprint markets, remain growth energy in segment's notably replacement to on mid-single-digit our and compared core bit outperformed, XXXX. industrial markets year adjusted Modest benefits XXX other Fluid

and projects Capital throughput fulfillment these our details process our the manufacturing increased hose optimization in costs in our Markets are that will at strategy further product anticipate result lower share in enterprise in of Day. footprint South and expand of industrial hydraulics We'll more America in-region-for-region and projects lines. strategy. March India high-velocity We We about completing

results. I will to for comments our Brooks on further over the Brooks? call now pass

L. Mallard

region, Thank begin on I'll with declines mid-single-digit you, a by X experienced overview. highlighted regions we year-over-year Ivo. to EMEA starting comparisons. impacted brief difficult Slide Regionally, America performance and most and and our by the core X North revenue discuss in

exceeded prior versus China slightly We realized down year, business South core America. growth revised our in positive our While expectations.

over both In first-fit. we XX% replacement America by America, revenues teens revenues to were year-over-year. more slightly prior we comparison. growth experience in declining in channels North China year-over-year EMEA in started Trends and remains percentage in Automotive core countered expanded better automotive solid, last declines as year-over-year than single-digit with approximately EMEA, an year year. period, and high high in performed declined XX% demand divergent decrease Industrial to favorable industrial. the we industrial. automotive similar more In the On-Highway experienced augmented fourth by stability North mid-single year's Diversified China a In compared general, versus increased digits quarter. and the exited

relative with South were energy East year on in the while America flat automotive, strength digits, prior grew on-highway, benefiting basis. relatively core revenues Asia's from mid-single and a

earnings share. year's stronger reduced operating adjusted bridge Of the fourth share from modest show of high last tailwinds. interest this share note, in adjusted benefit approximately expense a the the performance we X, I per count. per share $X.XX Lower Slide -- contributed earnings reflects Relative to was to contribution company. were Shifting last a other the earnings primarily quarter fourth and per year, for quarter's tax quarter. to

Slide flow sheet. to and our X balance results and Moving cash

in fourth seasonality. free or XXXX XXX% trade margin effective on conversion. robust and adjusted income. quarter free conversion XXXX, consistent flow with We flow capital capabilities $XXX free of Strong cash our QX performance cash conversion million normal business. adjusted supported Our cash-generating of was net management income highest flow the the delivered cash for quarter was XXX% for the the net strong of underscoring working

from QX XXXX. of leverage ratio declined Our X.Xx net to in X.Xx

a authorized of $XXX have new repurchase to plan up million. We stock

the Given down our cash XXXX, by at pay a strong of debt our intend position end end quarter. first to we the of of portion the

year, generation this to our will payment. we debt further it builds look to As cash apply

to end XXX XX%, return increased XX-month since highest XXXX. Our capital year-over-year points the trailing of invested our basis level on

We our of continue achieving goal toward midterm XX%. to make progress

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

and half to inflation in improving and of core inventory pockets are as There revenues demand we impact trends initiating core slower for we be pricing half. we of first a our to XXXX. framework, up that demand X% rates have XXXX to second XXXX, abates, Within growth. For of expect destocking lower in that are factored environment the softness the in range guidance to X% relative down

Looking trends We about we improve to be taken end in pragmatic down market half, end anticipate markets a the begin have second exposure, we our to at in view demand but the our revenue expect half as XXXX. year. of year-over-year

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

per per Our share per guidance the $X.XX adjusted net flow of XX% in anticipate $X.XX share to We adjusted delivered share. in XXX% XXXX. XXXX in earnings is income free after to cash we exceed range our our conversion of

X% we be about $XXX year-over-year million the midpoint. be anticipate range first quarter, core revenues to the million of to revenues the at to and $XXX down in For total

estimated is a be QX. currency tailwind Foreign to slight in

in quarter, range XX basis first expect the XX basis QX compared to to increase to adjusted the our For EBITDA of margin points of we XXXX. points

share show midpoint. to year-over-year we walk XX, earnings a per our adjusted Slide On XXXX

slight the items that, Ivo. headwind revenue We With I to that turn by back our it nonoperating benefits fully initiatives. core be decline expect will from from impact from enterprise will over offset and

Ivo Jurek

while will offer a in questions. our operating to intend before environment. In Thanks, substantial forward. encountering to our environment. were build of pre-COVID to of perform and a and economic a a levels. I'm conditions, strength margin our we team was your underlying underlying taking nice XXXX, an able moving XXXX for way, had able upon to proud I mix summary normalization returned the perseverance and choppy Brooks. ability In strong model, On to the showcase demand which of internal our from business brief deliver improvement We Slide uneven to We of benefiting XX, the initiatives finish operations a team have their

of underlying XXXX, we we As risks, but many macro opportunities there enter we believe are the as are mindful well.

conditions, more taking a viewing second are of has approach We followed environment of to in half. half business been normalization year pragmatic XXXX, gradually a the challenging business the to due front improving

in in are While for operations activity, business of improvement we the long the our firmly we control business control term. improving cannot of broad-based timing

As we productivity, enterprise further we our about and in of continue optimization of are areas momentum such, footprint thoughtful making in our to business. initiatives build the investments XX/XX. Moreover,

customers As of well environment our engineered priority rates our the our is to commercial operational as maintain and levels at evolves, tight mission-critical as to of portfolio service the highly business stay front close end comprehensive fill products. proximity to optimize

innovation, We are making growth initiatives. to engineering competitive empowering our to and the them material investments position and of analytics ramp of people execution the in science up portfolio while our improve our process with better equipping

Gates Newsweek we good stewards in workplaces focused the diversity are of employees. one in that of for a stakeholders, most recognized second greatest America's the On for recently investors, communities row. and being operate our all year We on for as our note,

I my to nearly XXXX. as forward gratitude for and our XX Markets Gates work for and more And take business priorities. XX,XXX to where the finally, New about our in like we to look I enterprise reminder, initiatives employees Before their extend is March accomplishments scheduled your upcoming York, globally questions, Capital Day hard a would sharing in

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

Operator

Your comes first of the Instructions] Research. Coe Nigel from with [Operator line Wolfe question

Nigel Coe

flow margin execution fill and production, cash congratulations Maybe good on that. in Really gaps. the so just

of you be markets in Brooks, to the 'XX. expected think I mentioned end half down

inventory down the during of then thoughts So you're of quarter, I'd versus impact end the be And dynamic? curious seeing the sort adjustments why on sellout sell-in markets. the any

Ivo Jurek

the of think U.S. the a Yes. I Nigel, of globally. 'XX terrific had as in to have year -- and of we some see it's view quite put kind we let for weak couple of years, remain that's predominantly end that appendix more or anticipate has in than well. as a On-Highway anticipated of negative and terms XXXX ag me this. challenged in normalizing but but and we conditions. in managed are going market 'XX Look, take we the it industrial half to well, run We've On-Highway been we well, that in in while. On-Highway a demand, strength China predominantly Obviously, just less the will a has seeing was quite a industrial for the the in And of feel more challenged while, in and the second 'XX. in Off-Highway been be internationally

is then So of over diversified half until kind certainly into last don't back on year. and diversified quite the and and industrial, some mean, has distribution where puts it's in been there. And we year, that the discrete I sometimes industry takes anticipate choppy been weak. logistics the or improving not automation, quite of automation, it the

aged market end there in to So carpark grow. well. the The dynamics are taken are a grow, aged as view car robust. we've strong. replacement market, continues to park that positives muted but some of quite I reasonably end mean continues market, remains automotive The quite market China

resources, the the quite obviously, drivers the such, of oil And and demand remain underlying optimistic mining and energy so we remain about underlying conditions and gas, So then positive. market.

Personal last underlying one Maybe is reasonably market on the actually on okay. the Mobility,

of to And in believe sometimes middle of and very of You broadest kind stronger. amount economies, going out design largest the amount wins the fore should and strong is exiting presently exposure that we had year dealing we in seeing itself we've coming gets front well front still start underlying very overhang the of are the design dissipating and in -- have of should of And developing maybe that start end of other I bike as personal particularly see growing -- market QX, in is the been well. mean, overhang seeing a has we us of market of for the parts the as have some wins. post-COVID we to a work mobility the electrification of QX, as as But we believe start that the you inventory. significant in start new that that an you kind with to

backdrop, guidance are what takes, believe puts to a but And quite positioned well managing presented are deliver in for XXXX. So not we and we that our we be well. fantastic would

Nigel Coe

Thanks, terms and of initiatives. the driving is That's the Slide question Ivo. sort cost of And enterprise terms kind follow-up that bridge well. initiatives. I could of just you wondered that what's guess out a $X.XX we And that some should of if in think $X.XX just cost my you any XX, of bit on I little on to then as achieve great. build of maybe from margin the provided in color of

L. Mallard

and Nigel, Yes. COVID, give related right, I'm challenged the so little to of there gross the by were since people Brook. for if the their like out margin about get other we reasons. This trying governments were you talked that hands then those them about being the to and were driven were different stuff -- resins entirely improvement, and getting challenges And And were talked because polymers this right? that we and on those is there is history that. going remember, business a to getting

our the bit our back the So some terms gross stacked on little it's gross a really some we've caused expectations line margins enterprise were. of them, and in some headwinds, us of raw we've and in quite margin XXXX, what materials those we needed, operational come a through getting efficiencies challenge that and of progressively work that and through of we initiatives top seen as with

and mix, basis gross quarter, of around you comes cost had normalization the is out, points some was bps that a XXX We and margin XXX gross couple about out fourth margin basis volume about about really XX/XX, of productivity, think of if points the initiatives freight hundred piece our stuff done. enterprise so of then material probably and cost And pricing strategic balance, between from the headwind, we've which probably tailwind. the

And course a of those helped so of direction combination gross to. drive just want that have the in margins over the things happened that XXXX that have we

Operator

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

Julian Mitchell

seasonality. wanted just Maybe the to look at

So you've on. commentary the half Slide and XX on some about got so

that, of proportion related sort think sense in price the you'd should a as of just EBITDA any very how kind earnings or So expect I is we assumptions, of to And the I year? half the the understandable. first more mentioned wondered which of perhaps, muted much of

within last what guide, price sales So the core the is just tailwind versus year?

L. Mallard

Yes.

second So I first. first kind typically, EBITDA XX-XX little a perspective, sales half. a an versus is be we're seasonality in a it's split. question we And then I more numbers more hold of front-end perspective, from mean, perspective, XX-XX of Those from think of from a EBITDA a the speaking. from mean, bit It of kind to sales half tends perspective first loaded. XX-XX be a going comparison. historically more terms to

little So an the the split, of the on And side. a just about more which things better XX-XX XX-XX year. loaded expect kind do from maybe back-end I bit EBITDA then follows -- that throughout talked of a to kind because get perspective, we progressively just that we sales

normally we from little but half not pattern see divergent second a from seasonality to a see bit bit follow-on see meaningfully the is a expect than we're there where in little So we going would perspective. to sales of a more what historically,

rolling as perspective, on and see normalizes over look, little freight on you price a start is bit side. pricing inflation to deflation the kind of materials, actually inflation-based the really a From of the

through pricing the lot XXXX. that done our around low our really items value as versus is So we terms in of and we Having move pricing single-digit of strategic expect XX/XX velocity we've pricing a high-velocity work items. that, around said low

move to to what XX muted have opportunities so XXXX, but it's margin we compared make. drive to kind pricing, throughout been. improvement enhancement of we as all continue make And through look we'll SKUs to as margin we at quarters look X different to the And network. definitely drive will hundreds by that thousands value going the we of lever a last at be to that our still Remember, SKUs of

Julian Mitchell

follow-up just then And margin my around year-on-year. the

year XX think So I your I a think, you've -- midpoint whole it's in at in similar for up quarter, the bps first as the up, guidance.

that as wondering just you margin better year the forth, go through leverage or and volume wouldn't year the the you through So destocking if so well? accelerate as as the expansion we increase get why fades see

L. Mallard

about, half tell a of seen is that back in volumes. us taken the in pragmatic we've XXXX, the right? what kind mean going models as we've I year, volumes think view look, decline talked of Well, that we we've of different for these -- got terms of happen volumes we to the

if that pragmatic be initiatives, better, through of so to margin working view enterprise enterprise Look, volumes The And things we're fall volume accelerate, taken a to we of right? on if the we've that. get agnostic. initiatives are on stack top expect largely able

feel So good about pretty we that.

And so additional volume drive the business back. will gross inflect and comes as [indiscernible] profitability additional margin, will

Operator

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

Deane Dray

start can with China. we Maybe

some a And such kind but the with there what out brush, through paint that, you're This down to shown was the it's sequential to and on mixed just take real you in it plays it near to on been China. you still modestly, in markets want improvement because range country. did but Everyone us seems of end what not as to think depends same have but exposed of best really all there's the long it over it estate, performance the quarter, how definitely see term. color you

Ivo Jurek

Deane. you, connected in Thank Yes. well pretty Look, China. we're

great have China, business optimistic long and in about our we the in are we a and We term. business it for like China,

forecasting that [indiscernible] not to recovery go going recovery a have certainly and We it's a as seen time. from 'XX, we gradual gradual in to are

deliver And really us to I it is gradual quite improvement or a you for nice OE probably Auto continues year. we right. of going that about what still franchises there. seen delivering So with replacement think terrific kind continuation replacement not happen we are the in of or or the that the auto even is Whether really growth mid-single-digit sober is is in doing to the in anticipate China well. and have We QX growth and challenges for rate auto there.

that quite remains So robust.

We has in much 'XX. terrible really a which to On-Highway, stabilizing Construction challenged is of recovery been and years steady see output China diversified are industrial X excavator in is in very equipment starting after stabilizing.

some China, again, and a we great we're takes well, and of anticipate So puts which that to in going doing to performance slow in is auto our continue see team steady and out theme.

Deane Dray

Yes. That's great to regarding see. And consistently then it's the second you've broader the ability a demonstrated question, free And flow. just strong question cash -- CapEx.

pay Day, more done I optimization talk more you're footprint making here. at some at You've broadly, this the just enterprise about debt down Analyst and investments a it level, project. going you're to high CapEx know but the And

inputs just making? you inputs share the kind just you're be but morning. got each Again, What deploy know analysis an share Just thinking the of for on if Day, more this kind these going at IRR where -- there you us assumptions I you how that some Is detail at the when Analyst you facilities. project? and as have of the could key to our are some with of here you look that of you may broadly, resources that and it's

Ivo Jurek

the still guide which much term, to frame XXXX absolutely. CapEx Look, very within of long for revenue. X% Yes, guidance the we for is of what is our X%

to through of ceiling investments. we're going be that anticipating the So breaking we're not our

NPI our focused on process while to material science, gives in investing we're in productivity biggest We manufacturing forward. driving are also and and we that are engineering leverage ensuring opportunity very equipment that the investing us much

project So of are IRRs any in excess these generally And we on as speaking, you important very obviously, IRRs do. said, that XX%. are

very So good projects. are those

about India. of we prepared that us great look, talk set ahead footprint remarks, of of it's the in have highlighted optimization I that in opportunities we When have a

We happening in positive. infrastructure is heavy-duty see very there, on India, demands equipment, is the in are builds very the bullish for happening are what that which we that

opportunities we out there stay Brazil contemporary not set ensure been broadly, ready about of vein, right we manufacturing tariffs. is opportunity believe and with want feel our leverage has thing operating that we in unique kind more to midterm, of over But the ultimately we dynamics, very to as India we then I have highlighted like do. projects be maybe there. we has got so to making to on we a that want high of being similar that pragmatic say we that our local be customers China. quite to And capitalize to that see we you And just done to close the robust, the proximity the growth, know, with couple are Those you sure manufacturing would NPI we've very we are processes, ourselves and organic position where can our situation the accelerate a can which, and insignificant. in that

peer industrial growth, with high premium set. the line very multiple organic much have delivered in We

L. Mallard

thing projects, every give if within these as year. CapEx said this to X% remember, times they even to that before, is, guidance working optimization we're initiatives on that multiple footprint you The bigger on enterprise still and these well of add I'll Yes. one we I've fall the X% some

So initiatives in ramp what basis. an can handle a to CapEx we to capital feel is all these given investments our work any up well spending the all of and abnormal level year-on-year framework on need we don't within these year, the enterprise

Operator

Kaplowitz of comes question Andy the from line Citigroup. next with Your

Andrew Kaplowitz

then wanted obviously enterprise in of I And flush how talked bit a they in are more initiatives they kind linear? about little you ramp up 'XX, to factory just -- Brooks, just out terms optimization. of the

You've into instance, go in 'XX, have more you $X.XX. of you And talked kind productivity. XX/XX 'XX? that for even of do at it an equally about Is impact split when look we as than

L. Mallard

Yes.

let a parts bit little -- so a careful lot be So to here here. of because yes, there's I me moving want

the more things. be in definitely I cost toward And XX First the more enterprise and I XXXX, initiatives definitely lean of type in factory than some the those more of productivity we'll side, all, are optimizations. material our XX, will think through think outside working footprint

to a stack in And volume material volume the and more factory so tough, terms the to down a better of work then And nut We're and our some. customers out tough driver is that's as to the definitely to XX/XX is to productivity get going up. going it's lean start But crack. factory big right? of as from value we're we back, driving really mean savings demand strategic going end in I be will when well. towards productivity in pricing going do terms side the a environment comes

cost on summary XXXX the So of I of say would the toward kind is enterprise weighted initiative in that material side. definitely more

Ivo Jurek

in optimization, obviously, should start that so seeing lots the notification optimization some you that from -- footprint footprint projects of there. we the -- restructuring 'XX, said, of we'll some forth a are of bullish pieces Brook And with number talking and about, about. should anticipate more the be moving as again, And employees we benefits we that of so be beneficiary terrific 'XX quite on of and of on a

Andrew Kaplowitz

view flattish destocking Is Very you on? helpful just sequentially QX, you to but that auto supposed big mentioned in look historically, anymore. sort you where going if have this your guys. production in versus for is is pragmatic is not for keeps seasonality QX. At want sort question of decently be you as first-fit anything that around And the to is QX? of global midpoint, QX, else then I you it guys, go to are guys again know, versus of always QX -- guidance already QX down think there at a Or I almost kind like I back just a the

L. Mallard

view a from nuance taking we a Well, on to mean, here move pragmatic volume. a Yes. I I -- think QX, we're there's you QX have as

have as we bit is partially FX, by tailwind little we QX. a from and that's down, to of because offset So volumes a FX move QX

And so how view first play more think out it's a really pragmatic of of demand based is going the to environment the to on XXXX. we half

best visibility go so what's really to we on with in terms going And right of that's have now demand. the

Ivo Jurek

are pretty would much cadence. in that I thinking normalize. again, remarks, Yes. to prepared to recovered the suggest on have operational of the call, start And And as probably back level we about I pre-COVID the Andy, as operations also said people

predictable levels fact underlying in been advantage And Our want with we more to that's that the have taking how demand. service high ensure more our we fulfill that have is. we customers really of that what should you an how think demand times to just are order opportunity are the Lead much in of And gives and just kind line it. remain everybody normalizing. about

Operator

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

Jerry Revich

you is expand bit the I'm plan cash because if with just generate Would free works. year. Brooks, set about you for more the deployment mind. just $XXX buyback million and hear a this But to you over could coming can love talk on leverage little flow to stock you're pretty don't down. on Obviously, in growing, more that significant EBITDA naturally capital wondering if

L. Mallard

Yes.

look, So words just said, I'll we -- take the mouth. of as you out your

levers generated of to medium-term that deploying primary be our continue reward we right, you flow, in leverage, to said, debt. substantial substantial out, pull term. And And X.Xx we vector means Having to shareholders. we're that's to our to goal us because year move down continue so to us for we capital the amount and to our capital short free deployment we are cash in to make going pay we flow a cash of which going have want sure of just As toward year to here going the terms avenues in generate all that open said that, medium right?

And stock $XXX authorization and I the to short repurchase would debt took as But shareholders out through million. the we'll here reduction. term. still on so reward we're say vector a also medium primarily And focused for that help we use

medium-term profitability improve us reduction to we improvement But to in get is turns. way available target deployment. of X.X want leverage to we our a sure avenues capital have and of make to all terms Debt to that

Jerry Revich

within I the do Brooks, M&As last it cycle? didn't folks hear attractive how saw you And you in M&A context, is that today bolt-on the versus mention we

Ivo Jurek

sheet way interest at look so stock we XXXX, feel kind some presently, what line our free is very opportunities, that always deploying industrial that commitments And of group can There we and we but benefits much significant flow. with in capital. like. more cash expense in our peer best about believe mean generate the our inexpensive looks I to that's made of lower getting we've that that a in balance premium be Look, Yes. are

X that And XX And the be think of surprising kind so I signaled of levers months. to none term. those in should would over markets be have the short the we that would last to what and the communicated

be leverage, some we very that cash to feel to And do as said. doing dramatically great we So the we on M&A, down appear, enough be substantial we'll pretty markets returns stay generate coming to our would to out and going we is opportunities to generate true and that. able able some it and that

be a start are in good we of X very now to these of all capital potential shape deployment. avenues about to thinking able So

L. Mallard

turns. to dry Right. leaves that flexibility to lever our on to way And would as as gunpowder terms to too, paydown That deploy I debt reward do in say, capital going maximum is we best get also us of focus X.X primary our to shareholders. in whatever whatever

Operator

Your line the Evercore David comes ISI. from next of with Raso question

David Raso

Sorry still I'm sales I if trying year-over-year. organic the missed this, make sure of but the to understand cadence I

the cadence just play is down back sort the is -- like of of trying second this that So it's looks get my in idea it in the to the quarter question. down year, I'm I of could of X%. sense the up quarter, for in first if out, the downsized X year the first maybe a is half for X%

L. Mallard

Yes.

to of look, expect throughout -- a not progression not we would you going we're quite -- to if there the at forecasting things quarter So be yet. we're look year. getting I better say second

guidance, first X%, volume second inflect. X%. come And things to how so we've seen remains quarter view in quickly quarter a perspective. pragmatic does from we've It it be minus a our minus given We taken think

so to continue will think as better. taken we update we'll things get view better, that's and and we've good us. year. will for if pragmatic faster, improve But a we Margins things get And faster the move through

David Raso

the personal to first half we clear, the you beyond half be that that, earlier I'm year, the give return on of or which to But to the set of above some continues about the guide growth the destock expect of the I'm one us sense to sense be get level when below? trying the quarter? a mobility And segments, can in business if you was fourth the just on do the segments X growth? perspective do which I second to just think then on though, comment business between be third follow-up, you will do thinking cadence? Because and kind trying company we return to the think

Ivo Jurek

I outlined QX. we taking half, the Yes, guiding growth David, we prepared where into it's as we at anticipate And have I'll state anticipate significant in should the the we mobility after the destock. or rather inventory of start recovering did X quarters in remarks, I natural leave it mean second are a our X that. that about second year half modest in that And personal account of

that's framework outlines an market and So probably take a that's give it you. to probably a really a you with a and develop we've performance, the I that And model. leave end amount with of you good should on ability look would where provided

Operator

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

Jeffrey Hammond

broadening your some was seems EMEA maybe of better It weakness markets. growth there. like there's X

speak 'XX.. thinking into Just Europe to how you're about

Ivo Jurek

Yes.

market. kind Industrial of places that terrific. Germany plus continue core the flattish Diversified to weak going Italy is the remain Europe, and to as the growth still necessarily is from and all remains not Jeff, anticipation, like So negative to ag is news reasonably Other construction end flow LSD.

am that who I going term. to to it's short So get better predict dramatically

weak the progresses, that, start second getting and less that's So we anticipate to bad. half remain as maybe going somewhat

be And XX%. On-Highway, we anticipate is going to versus down

that other any with in. more participate fundamental I dealing So think, is we Europe, slowdown than region perhaps

Jeffrey Hammond

some at conversation. then And your was saw I of an certainly some on applications. liquid of houses strength and And cooling area Okay. and supercompute

rounding Just that if you a it's should can I'm we sure not something speak if wondering about. opportunity. if to get or error excited

Ivo Jurek

get both centers my you bit opportunity the excited great a about share water have conveyance provide will and in electric leak-free every side more a I sit couple I actually efficient every opportunity. data about actually cools cooling really when that a liquid and more dose. for the the But technologies that we little on chair, centers. will these helps data in of on We the hyperscale opportunity, about speak fluids that interesting pump If is of applications cooling to

of and time. being but I'm early of broad-based actually electrification have in new at for -- excited to not kind lots economy stages, have actually to interesting about industrial It's excited the what that we're are really term automation. of it. size prepared yes, opportunity we're in So point that technologies the lots hyperscale you adopted I this we from

in York. So share on more March we'll XX New

Operator

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

Michael Halloran

A couple questions. of

normal of anything sequentials from on just end from on part necessarily and here. you better X Normal here middle range. First, imply gets the last kind market -- time just doesn't look it guide the perspective. I an at sequentials of the the to

year. And perspective? you've your hit I'm midpoint the current that's range of the to even what So on improvement if just from just half of levels? at required versus the back float kind kind means gradual of commented in that really of curious the along

Ivo Jurek

in the we ] to we the of frankly, products a are then of to has of would half that of certainly, Yes, applications I think what demand And the demand for year say aligned we inventories well, be underlying QX that's of the comps easier right? the demand continuation back purchases service. Jeff, have very -- it, dynamics. And that the of is, quite feel significantly just going steady have and I much terms sic as as in So [ normalized part that normalization Mike to frank. the kind that as seen QX, underlying be

markets we be end we again, to that it believe require to And really being pragmatic foreright why to any guidance. pragmatic, So don't That's do. -- sure it's what view to we're in improvement put have are to guidance. world's an very the doesn't we early and forefront significant the quite econogmy about that but of we the is able a we again, going deliver believe making

Michael Halloran

how usage that is been for how how understand the expensive certainly of things, your identify the market go But and this other priority. a on bit are of able developed point? or to market the areas of and after about comes that the at side how invested pipeline the focused up, many of to side be then opportunity those in on stock it areas? out on is M&A comments You've your makes And some capital a if you M&A

Ivo Jurek

about front and talk develop mean Look, don't pipeline. a it we Yes. don't center, that because strong necessarily we doesn't

a opportunities, go in the that in X, can the capital, reduce X but the going pipeline forward maybe just quarters, as moves next you you ultimately believe further normalize going kind generating good strong a it's again, that's our is We deals, bigger start to take opportunistically stock the time strongest stock that, through that put got undervalued. -- everything just that and tough can believe if very our we've our company you're that's And compete X, where footings is of to thinking with on deploying have again, getting that. I valuation returns do, that because, to that it's to we stock of deploy undervalued. the issue is the quite shareholders of the best forward-leaning the just certainly that advantage and to and about we buybacks. And of what interest in to we And do debt capital over and want be share to is feel better, situation the

Operator

further time. to Rich remarks. There will at call questions this no turn I for are Kwas closing the

Richard Kwas

for everyone, today. you, participating Thank

me. please you great day. If have contact any Thanks, feel have follow-up free to and questions, a

Operator

for We you concludes call. conference thank today's This joining.

You disconnect may your lines. now

Gates Industrial (GTES) 8 Feb 242023 Q4 Earnings call transcript