DCI - Earnings call transcript Q3 2020 | Donaldson Company, Inc.

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Donaldson’s Fiscal 2020 Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your first speaker today Brad Pogalz, Director of Investor Relations. Thank you. sir. ahead, go Please

Brad Pogalz

and that morning, summary XXXX you me earnings Chairman, Scott of Tod Good This Financial Donaldson’s Tod our business pandemic. we complexities created the press quarter morning, today including I to for April third included third want navigating Carpenter, and XX, performance, Donaldson; President and a quarter on conference provide CEO an we Robinson, everyone. Julian. some Chief are overview all morning's we remind Officer. on release a details everyone the Thank will call. joining are Scott updated of all Thanks, of coronavirus call. With issued this how which by reference that

also reconciliation included will within metrics. today’s press this metrics non-GAAP call, of to schedules reference a attached the to release. morning’s we We non-GAAP GAAP During

keep Finally, Tod? and now to call that during subject statements forward-looking are to turn in please press call described uncertainties, in this carpenter. that, Tod I'll mind are over filings. With our and made risks the any which SEC release

Tod Carpenter

thank by I'm their Every impressed with the Thanks, are Brad. pandemic forward. we of light customer And moving the safe so always decision markets transportation by pandemic. that for our and commitments employees, our that particularly than world I everything appreciation is which the everyone. do. a our world, of Good support with express show all we thing deal in the profound our staying always the safety day Providing keep food doing beverage. Donaldson frontline Since thousands transmission employees; making you Donaldson the One the top reducing unprecedented up colleagues delivering virus. like we supporting hard is these guided of has during times. more as and ever of our environment began, customer as the employees. workers of for first my but relentless but has To outbreak and and performance your attitude, health you work priorities: includes agriculture, they the proud our around brought I'm intensified our priority, hope three everyday heroes, of and the that on important you morning, critical part to safe efforts. work families is I been want a to

factories for significantly promoting assistance paid related work leave, limited are in COVID travel, programs. employee and implemented introduced remote cleaning and have We existing while spaces, all a policies business instituted thorough regimen that office able

Team reviews we Our Crisis when adjust Response these and protocols regularly appropriate.

and around locations distancing and our bringing for own employees assessments will enhanced Social the our future, we place foreseeable reopening be office health the workplace along dictated by to back be of will pace offices practices guidance from are our world. the in in readiness. The schedules cleaning experts, of various with

position execute the cautious taking are and We our update operations. good have in we're status and we to a Overall, want of an experienced will provide remain disruption. plans. as these I flexible on a not meaningful we also approach

a handful with be can of success Our starting to footprint. attributed our factors,

That region different allows nimble based parts that times. ways incredibly production as be and and of pandemic We have has to different local flex support the affected a at to us on in different strategy, appropriately valuable conditions. region the been world

mandated production during towards of markets heavily benefits government businesses portfolio parts diverse critical biased opportunity structural brought continue essential -- These replacement to is amongst our our our and of us, acting our life mitigate on decisively and collaboration have our defense, or suppliers continue us and team. has our and shutdowns. by been quickly the Additionally, giving risks and an to teams been deliver level excellent There and our customers coordination unprecedented commitments. to are

Of uneven. things still course, are

on work a our weeks. So customers China the segment their XX%, has been strong for situation employees America of first-fit turn is I The reopening I supply but from gone further factors, are critical at we sales Americas these in overview supporting mode reflecting recovery chain a temporary can which The good our stabilizing on production continue along. X.X% suppliers over around down April. we to are going has in government Asia-Pacific today. in confident in now path. South were is than global continuing and a region we to and and factories. the of am All India of has quarter reopening Engine various of Conditions customers to operational the Europe while engaged. in been the with to past began our better our curve loosening year, quarter businesses. risk headwind. in on month. down lockdowns recent on are lifted The recovery third only countries, improving finish provide based degrees currency online brief were sales, rapidly. than world. Based our and want our mandates I'm sales and XX.X% recently in the the varying furthest expected prior Total decline or in slightly The were without sharp shutdowns have North a been that other America, are a with our are down large situation are rundown due still we behind tighter stages

the already producing large weak sales on-road, compounded truck market estimate shutdowns COVID-XX results, by an the U.S equipment under customers XX% While China. were first-fit precisely and clearly the during it our our in impossible down as on customers our were as businesses In were is impact to stopped quarter. of pressure many

well is of exposure X to is As a of largest on-road is on-road the our portion truck Based the production. only positioned this In the revenue, limited. market have our when total U.S., reminder, that track recovers. our business to our first-fit performance record than so a strong are Class aggregate data truck total wins, X% indicates business, of our better third-party market about we sales which on fared program

down of XX% sales decline with exhausted quarter emissions. were from off-road than half coming Third the more products

comparing increase for to We a are pre-buys large year last upcoming related an change. in against regulatory Europe

So this fiscal we year. expected pressure

to the we a note, to transaction Global As work the related Products. our business continue Nelson on Emissions to side sale and of Exhaust

our to We will BUT have and to have reiterate customers details we want strong employees, we our them, provide now, relationships more the as with for suppliers. I commitment

China sales channel through off-road construction oil down And through the and in mixed slightly only added channel. for much in share the in were and and overall agriculture Europe of but as OE pandemic were Sales than presence our Engine market. and in the global notable is basis, in the in performed these America our aftermarket last the to aftermarket of aftermarket markets. Economic relative from gas equipment products build than compounded X% by the businesses OE Exhaust The Emissions, third gains that offsets U.S. with Excluding contributing so due mid On performed we We pressure, under impact to better markets. geopolitical the were for our mining demand equipment Latin and Eastern the remains uncertainty channel a primarily buying of collapse the decline and ahead utilization, decline expect and teens. Rounding and related of and were believe the about of a year. large product portion quarter the out demand local in total in filtration defense in The quarter, the currency. customers up to flat additional and sales inventory new future we independent down the better double-digit aerospace Engine were pressure. quarter volatility segment, periods. region. was lower first-fit sales need, of a was results in by low was market of

were wing expected, pressure, is with to offset in commercial As and defense impact ground the we for vehicles fixed growth the filters largely able under market helicopters. but

to were was [Technical by or hit Industrial driven makes sales in a Filtration pandemic. decline hard which up quarter, Turning XX% the in Industrial the third XX% down by IFS Solutions, of X% business, difficulty] IFS. segment,

activity that go proposition our not were it but and But uncertainty pressure soon we global as dropped. say will industrial up the too recovery. the production under back quoting expect are reopens, up as just Our value is economic We how will long for and in to confident economy replacement take. and quoting waiting demand went remain that

The in up customers pandemic all us Our low our the proposition and up markets process in the local value largest Europe process were our has and in were industrial air filtration. as two partner. given digits. job single our filtration strategic virtual team in has both currency. Sales brand for done Sales with year-over-year filtration a things also U.S., an to reinforcing supportive and our demonstrate opportunity an trainings, excellent engaging like

food future growth remains our this and our the market, beverage and margin expansion. a expand to continue profit We share and to strong in contributor business

proud Third sales projects. Gas We lumpy. in by a up turbine for GTS the Turbine Systems, growth and profitability in were retrofit solutions. X%, improved can sales Like be or Special sales retrofit driven projects, the had drive by strong last in sales quarter driven third quarter inventing performance large solid very disk we of application GTS. were strong remain X% in quarter, up

inventing to business [technical near and is for the Our of share disk continues line storage drive increased to growth expansion and from difficulty]. gains benefit cloud, related

our leveraging industry, and the of powerful talk was performance into across technology later. results market more auto meet company the a the of innovation changed not state priorities. has examples to pressing need. the the our is driving an and about I'll impressive. We're that pandemic long-term venting new particularly There are expanding Given how

but call I that comments we from Total trends sales OE reopen during the the about see On to rebound, relate to Before May. quarter. our large month, inventory a basis, not month regional year. down of on of are we consistent for the Many provide XX% saw third what building be in with turning which expected in our customers facilities much to trends a may are to the quarter. did third few a last in sales occurred want Scott,

Sales best, a to seen durability there related the the of the a Asia-Pacific also the is performing up which month, uncertainty in are weakest. the increase. the performance quite while were bit of the in is we've is China in sales but in best Americas while,

South hard America both and it challenging, point. we more at find remains today. and situation than those in is geographies So are to bright in cautious spots this optimistic North The

offer better new products equipment. of like stability, aftermarket collection product predictably replacement sales, are related production were terms than filtration relative new pressure. engine dust capital In and engine equipment and investment for parts doing still under for systems of process a bit Businesses while

go little detail to extraordinary important given While was into it of felt we change. a we quarter the on give trends, context, would typically not the current more pace

this and fiscal for employees, fiscal executing and focused of those months contemplate of on safety the X we year our expenses, under As growth our will on call other remain position. promoting targeted metrics. to on long-term tight the I'll our and investments final things and protecting 'XX, to an our financial we plans Scott control including discretionary of control, support for maintaining well-being our making the update near turn the key Scott? strength now priorities,

Scott Robinson

way our echo I morning, doing changed forward. to employees sentiment. has us want for The to keep world teams the the I has we you're work during everything want results. and rapidly to Good Donaldson delivered connected, thank remain Tod's moving and our have stayed productive everyone. around great pandemic, employees.

as and are a unpredictable things region resulting in period. environment As situation month-to-month varied spread from markets, quarter broadly. by unclear. COVID-XX third Unfortunately, Economic still demand. was predicted, uncertain conditions The volatile became the and and more demand is uneven deteriorated

to 'XX key withhold feel financial I we to fiscal some prudent will, continue during our and 'XX that, for general remarks. Given expectations however, guidance talk metrics. my about it's

decline to So Despite I'll are things prior margin today. was now quarter flat XX%, in we third EBITDA of performance. sales our good quarter third year. the of a turn considered, with position All recap a

incentive about compensation. decremental The part the to mix due favorability our which product range. mid our in XX%, average Additionally, was was and is margin XX% historic to in high significantly lower than better

of So puts the take through you me and let some takes.

pressure compounded with operating was a higher segment. Based skewed XX% quarter created Engine teams impact by investments, our in excellent prior the job a driver projects. these primary XX.X%, to gross leverage Third the sales. the compared lower capacity was quarter in sales decline related of the an towards nature Loss on depreciation impact depreciation and margin was the third year. are expansion of the margin our doing lower was Overall, on by mitigating that

teams demand lower labor terms have margin, In a supply These third changes narrow favorable XX raw material are of continue costs, that procurement points. basis account of will long-term in mix chain margin combined with for and managers efforts, sales decrease gross quickly and to the benefits. drive gross and to initiatives plant adjusting quarter our to optimization

strong and in had critical long-term X the operating years investments lowest a we third we comes I after are in Additionally, level in these expenses advanced operating were related basis, to dollar at our On investments of add which expense X incremental quarter. capabilities. the performance accelerate R&D portfolio our to that pausing to are growth not which want plans. initiatives, and years,

our pandemic, rate relation discretionary a pushing initiatives. the compensation, million, $X favorability were are pressures were COVID-XX. to nearly prior margin expenses had reduced operating We only sales, from on of down As from third the Despite from quarter forward year. the which and incentive significantly near-term slightly we in up expenses was

is been manufacturers sharing New teams cost and These pricing. we capacity are what the are ability in same commercial to regardless priorities chain, year. our the steadily progress. are for to confident online, our our adjusting lower of making coming of we as reductions that driving teams manage the than we The backdrop, feel top continue macro have cost procurement list brings supply more continue and our a a

inventory, was were We the of financial of confident at where prior and EBITDA, in third end down debt our At we driven the leverage position. conversion to and Working X.Xx quarter, XX%. in reductions and also with the was ratio right target. our feel the net which from to our cash end line is quarter receivables the quarter capital second our in by long-term was the year,

access caution, we We our with our quarter. manage Out during million. position. million banking and also later decelerating. and $XXX same of continue an gives from of to customers time, credit chain $XXX suppliers agreement the At of additional third work an we with May, to credit to entered working our drew credit further facility to capital that Then valued is an us XXX-day our into abundance revolving are risk, and in additional pace our partners another liquidity supply we expenditures bolster

by than what XX%, trajectory the Third is we consistent with spend communicated quarter CapEx declined and more previously.

in various without as spread, Importantly, the could projects projects our these at risk. already stages we position completion of were so putting finish COVID-XX financial

local cost feel will important it project year-ago, was environment we customer is materially structure, at to demand grow strategically today geographies. our level different strengthen us the Although than these a and still confident improve in position our service markets and

Let me working examples of a few we're share on. what

to Returning but is still shareholders optimize online to for up support get food for our do, capital setting little manufacture in the us our Americas line priorities. point and projects. have related allows PowerCore teams with China doubled Europe and part the of are cash wins them deployment working for -- work soon. in our We industry presence process to production position to important hard cap manufacturers. and capacity larger the capacity local of in We the We've program first engine us are filtration, new new to a another beverage work and

for We every are been the XX committed for row. in and than quarterly has to years paid more increased which dividend, annually a years XX year

As I of that's said messes be that track the it to I awesome don't many want and record person up. to an you,

looking forward comfortable run. scenarios, the impressive our been regularly has of review capital based to repurchase component with continue ability this more deployment. our we we dividend and variable our on course, always policy Of feel Share

plans. know that's We our to approach shareholders. and a activity decades have share of many regularly repurchase shares the measured been for our thoughtful a execution take and of in We repurchasing we valuable our

any opportunities share to objective dilution other X% not given we repurchased X.X% offset expect created year. related far minimum of sheet outstanding Based the stock-based which so additional is of fourth in do and deploy shares. of our on compensation, capital. pandemic, to year quarter. uncertainty governed in The level to by shares this is about amount the by repurchase We the repurchase is that balance Our beyond

would I financial As my serve a remain prioritize back sincerely world I to long Again, and on long around strong wish it these to Tod. and a all for the strategic thank time evolves, pandemic and and has will times. the Tod? you priorities. will believe for been the That turn like our we us I'll well now for time very executing come. strong situation focused performance, with health colleagues to their of a approach position call to continue the our we safety during

Tod Carpenter

Thanks, this Scott. Donaldson XXX turns year. company

to stronger every of emerged we even We an always have type economic company. environment, become with and have experience

Our playbook build filtration into expertise a our a is simple deploy that markets. to portfolio of we technical leverage capabilities set We and consistent. deep diverse

products returns remains life eventually give our those Along on market, specialty building is to we in This facility less technology. near-term. the filtration complement center But company. a a and We food very Edge Donaldson engine highly for are has long-term, customer's part uncertainty, while These in our lines, a still of competitive on their as further million strategy, proprietary core to our and parts to our this new the programs, has a are business. large that going The products Through knowhow significantly OE plan We products on so We of moat. nearing PowerCore PowerCore of going our core us profitable, in continue an demand win drive making focused that investments. leverage is customers those the to this the as clear Highly cyclical. attractive an of today. followed tool environments. chemicals, grow in powerful Technology therefore any generation technical platform. working class look has some markets will sciences. and new electronics filter created makes beverage a of technology, excellent growth us strong face stronger are heavy gains footprint has aftermarket generation share another driving them their off-road always future core applications it things strategic our think our is smallest and called media recently business. the or world these by while engine PowerCore part focus penetrate company wide process long-term up new We markets. to they control be we maintaining introduced business solution excited is strategy It The to we becomes with in our pandemic a facility the year-after-year, retention, We which with new priorities, business to capabilities. research We share with impact no our $XX that and a been want our starts material for R&D Edge. yet, completion. science demonstrated dust well. value new to I'm for material giving playbook investment pandemic make expansion

line we that happen as Additionally, manufacturers Chinese move a large in first technology for our up things of create us. are the opportunity curve, China, couple PowerCore building

a the a higher in First, performing the decades are long significant experience world-class With and requires brand, OEMs, filtration. our we piece manufacturers. presence natural of partner advanced supporting for global Chinese equipment more country strong

at to would cycle end innovative created interesting as expensive is our R&D properly. particularly retaining standard China, more users we now what PowerCore Donaldson. capabilities our replacement and the buy That in manufacturers. those Advancing to makes parts a piece of products it is equipment, of they're more consider a Second, are work likely portfolio valuable growing maintain when business

on commitment we all confident to again, As I'm all in of value Once teams to dedicated, on our because smart company. I committed I talented deliver proud long-term incredibly for and mentioned, we team for and can with do. we every I'm thank have stakeholders. are creating be our part think to that them. want our they we employees the

open call the line Now questions. for let's Julian? Julian turn to to the back

Operator

first [Operator Your comes from Instructions] Jones question from you. Thank Nathan Stifel.

open. is line Your

Nathan Jones

Good morning, everyone.

Tod Carpenter

Nathan. morning, Good

Scott Robinson

Nathan. Hi,

Nathan Jones

with start questions. the I'll guess, I short-term

and Your April. business -- pretty wide stand range a covering guys, February, third March here conditions quarter of

buying doing that to in think, I market you not out what going You but at April kind maybe down that, made we're better. XX%. that the out and more much going down? a of gets to be May, June customers they're work, May said hearing terms really of was in make, with what you in expect they do Can moment, compare bit to back the to order that in little what some to figuring expectation

and this whether can comment of of So kind you or April the on May here? think not you cycle bottom are

Tod Carpenter

Sure, pull is some forwards Tod. some end look in had we had When that we Nathan. businesses based April, the project the of very at month. This

they we And nice than May were so a we had had expected. to in go slated our frankly, better But pickup, timeframe.

when we same And actually we when at May, that. look forecast is two the so the combine were way we the together and would April they about

So really we a not see or further in deterioration did pickup May.

and just tough pull Now, fits to don't really be. work to May, be ahead to in whether call. know that will what bottom, that overall their a the number We are will believe fact find be OEs we this that's their that. the back first-fit come because see of and also OEs but demand rates production of starts of did will through month trying us We we of

roughly to look bit see. again, about first we're more we and -- we're equal. based upon July looking at the we be that based April businesses a cautious June May and set about So And

Nathan Jones

Thanks for that. Okay.

quarter? be accretive guys your gross to additions, have of were capacity You comment kind finished to the those this, as I'm of here on margin go sure in can through with what we probably supposed a helps you decrementals to lot the fiscal expecting So that post decremental you're fourth level? these

Scott Robinson

Good is morning. this Nathan, Scott. Hey,

So, our about, chain, our proud projects to all help of expansion with talked had that accomplishments we situation. freight normalize our the reduce improve as and those the to of we've cost, supply to yes, we are us

margin And to so, fourth as you in let be the stated, that our we that down. would quarter helps agree

expect that big kind volume The help to we expect that's the the quarter. will That absorption. is, third tailwind And the what call the in we question to of we've The would from initiatives tough fourth that now. be? to drive, right undertaken. a quarter will But continue. Sorry, continue

Tod Carpenter

Nathan, Tod. a bit just this little more is Maybe color.

So makers our in decision are by the being company, all expenses discretionary fantastically everywhere the across world. controlled

some we're run We're XX% Eventually, going that have down And to those really let that normal the up entertainment, marketplaces. to on and things, rates. of be not over such travel ahead. back lighten to and press we months as able into back withhold the people

we some that running we're all the be can went and predict what about. we And our is that than commitment takes activities expected the into little to and margins. And have tough that to Clearly, bit have expenses. forward, a you better so talked there's puts the we there, we the such looking third as models little in we will on continue than as the overall operational February. to diligent give favorable Scott would of decremental very expect controlling in we that more us wind a comp bit quarter Also would

Nathan Jones

Thanks for that.

their that little higher maybe Just supply hard own some while. one a points run revenue quick of answer, I little that channel how any OEs to on, do maybe or pay at inventory inventory they have one would might a of And doesn't growth a a It longer. a stocking. inventory revenue for come on but what worried might are additive might chain, point? the that OEM for information question aftermarket think to to that that you about additive bit many little If that still destocking have here be we back those potential

Tod Carpenter

down that sure it at OEs the through bit holding predict -- stuff let that's they see inventory. the Yes, really their independent already we're this We point until some on me OEs likely longer would is for time. channel. come. I a on, will not rates will Clearly, find the Clearly, difficult in D holding us be, it a think pull way when what are little to comment. saw are we fair The

Brad Pogalz

of the And point maybe Tod more is of Brad. that XX% fine aftermarket. a substantially XX% to are of the independent the quarter as sales this the that some slowed of channel in his our business it in details was Nathan, put And than mentioned on channel. typically through aftermarket channel remarks, OE about channel in that the last neighborhood

there's to at never independent we or to an if talk look see And alignment of the sort quarter, can't that lot OE of year-over-year two. of lack XX specifically. the restock But a or any there or know precisely we whether spread was last clearly, point of Now, About trend do between alignment. so and not is alignment. destock, a we really this between order lack

I So that to channel. gives made, it's point a what really of back the you to mean, a OE to. where on sense saw of of come Tod magnitude we little bit tough the But see that would

Tod Carpenter

pass Thank I'll you helpful. it on. much. That's very

Brad Pogalz

you. Thank

Operator

Drab from Brian William Your comes next from Blair. question

is open. line Your

Brian Drab

taking morning. my for Thanks good questions. Hi,

Tod Carpenter

morning, Good Brian.

Scott Robinson

Hi, Brian.

Brian Drab

line you're that assume as April use were probably to -- did, pandemic. July similarly I the the at on quarter Nathan are So that based if from than this to some down through tough, exited February that sorting as top is June near-term tougher sequentially and May the you and for again, hearing you and think the what the you that roughly, I going saw But if it impact and what of thus about May, March, fair on into the I'm fourth point, sure? had the is questions customers I'm assumption environment in

Tod Carpenter

say hard really Brian. Yes, to

Brian Drab

… any Could you give

Tod Carpenter

Yes.

to May, in say of clearly up that referred the a earlier. we Really Brian, give that's back color. because customers just and to have notices. shutdowns fits June simply plant plant I and then to patterns so shutdown came We that that with match that little Let starts some all we and do hard me shut then down, the in just bit incoming on try see order

therefore again, to of this because consistent and again, it's first-fit on cycle no There off be line point. are that drawn And to then is things. at on difficult so situation, of really where this we predict

Brian Drab

can say, you well I So of at things end May way, the Tod, the better that there's no beginning? versus saw

Tod Carpenter

I … No, --

Brian Drab

Okay.

Tod Carpenter

did very that. up that say actually it, I conviction every through it, we you I and I after can gave couldn't that strong about give -- analysis. yes, line was it of that really because on I curious a partialling … on morsel with

Brian Drab

just question I another but mean, about it's way. Okay. And just then in that -- a asked asking decrementals,

pulled, up say, margin the just in scenario, to if given gross all levers fourth if or third? what in quarter just or be you with the from reported down the were be that revenue third, the about you a compared Let's would as same, similar the revenue,

Scott Robinson

Yes, I will start.

had this we mix in last So quarter. a good

think obviously made you held, to in it's we you’ve I maintain think So do situation. some if kind mix of But those our assumptions, can this margins. if I

a margins But in lot puts have takes on, a it's lot and and hold. of reasonable businesses a think hard going consistent relatively could of presumed to mix so I if different say. there, there's We our sales, I think we

Tod Carpenter

Yes. And I would agree with Scott.

which will our headwinds headwinds some business, the I also, the overall within will margin to how in if quarter, first-fit our should and gross the margin expect, obviously think we headwinds Special some business mix, back that as of is experience performance fourth then you also biggest be is the that variable, corporation. much to if overall would come base Applications will,

understand so are. are to components the strong those eye best on significant mix And keep a we in we to order continue where two of that

Brian Drab

given on same the then revenue flat And question scenario. margin, Okay. operating the just

Scott Robinson

Yes, would be adjustments quarter. had the some comp this we incentive biggest impact

quarters. naturally expense So $X from was first and three million a catch-up reduction that the

expenses continue So it the and keep levels you annualize large light to to our aggressively of the as be in low to expenses situation. discretionary have sales in We work our at fourth wouldn't would quarter. that, manage

would I that expect to So continue.

three at level of in We our OpEx. are in years terms lowest

are performance. pretty we So that proud of

I think light especially we're we've that expenses talked the of shows invest the initiatives that managing that that to tightly, in continue in in about the we fact past.

would comp our expenses be the save think in expect I tightly managed the to So to quarter. continue operating adjustments, incentive I fourth

Tod Carpenter

add to little want just bit I and color, Brian. a Yes, of

are not a going corporation. it's can to and important view, that all But jeopardize the we what we are of this understand are that strategic of the is think to way I health are control. taking controlling we this, managing. we And long-term we throughout

Brian Drab

And Scott, tailwind bonus that isn't Understood, accrual -- quarter. it. that to as big this the is fourth on that understand in Got -- correctly? -- clear was I the Tod. about a Did quarter tailwind just to a talking a be margins, Thanks. you're in

Scott Robinson

Yes, that is incentives. correct, both bonus and long-term

Brian Drab

just that been fall Okay. a Thanks. has good And there or then projects these lastly, some larger are this aerospace and you. orders market that continue, off? -- that Does you're maybe for these of doing defense

Tod Carpenter

it on continue ground-based made on So where headwinds based expect would and fixed performance moment. vehicles clearly is on helicopters. -- to that defense wing up being at about We aircraft headwinds it the

in gap done the teams filling that and excellent is headwind around have world presenting. really Our that fixed-wing an job that aircraft

Brian Drab

much. Thanks very right. All

Tod Carpenter

Thanks.

Scott Robinson

Thanks.

Operator

Alexander Laurence comes Your Jefferies. next question from from

Your line is open.

Laurence Alexander

Good morning.

of couple things. a just So

First, headwind on the XXXX? bonus normalization accruals. that a XXXX, what us Can you think Is or help through in look would like?

Tod Carpenter

Yes.

Laurence Alexander

planning this about the the how And really secondly, changing assumptions what's are can industrial anything environment? you after you recession, XXXX, from the had or that like I longer-term you for the financial you the a little that's back is mean, bit also playbook in crisis. us peel there thinking after changed help in playbook growth can but -- with

Scott Robinson

maybe Yes, Tod question number start I question number will two. and will I let one take with

from therefore reduction. we planned, incentive and when and first we In be three the million adjustments don't expect pay to we less full we terms plan quarters had to to of incentives $X have the performance a that benefit so that comp, results a than

from haven't will for equal assuming would third a you the year, through expect expenses, I $X headwind bonus year's this established that and a was benefit as had else be everything and get for plan bonus, plan therefore likely and a We than those so our benefit will that would next fourth quarter include would we well. quarter would be higher but million, next plan get year our

will be year. So for next that a headwind

Tod Carpenter

And Laurence, Tod. is this

So the us. long-term playbook, nothing has for changed

internal and gross if to advantage, to over corporation we years supply to and investments argue of two help that supply now our that capacity drive realignment you really expansion margin are made customers deep for works improvement. that into past chain our the really allow with feed normalization to supply we will, fact, internal -- would chain into In our chain re-normalization, the we

are the really we stand to happy so And where we execution.

in We projects are we the of that very flight. the proud have execution of

in slowed investing long-term we continue sit a we a play diversification changed term, haven't we that I Longer good either, of position. where further hasn't and we're and down, that at So corporation looking game. the to any to of want emphasize

Laurence Alexander

think thinking update regions? had market, so forth. Asian sort into tied other controls to on work And of specifically of the Asia thinking and How a then relative tighter lot could environment in that your I Chinese around environmental themes the investments your also NPC you about playing is the in about an give

Tod Carpenter

initiatives business their some dust China, helping really actually relative had momentum, over is project-based business our In forward. good to Sky Sure. with collection China Blue there draw we’ve

help And Blue side base so things support growth Sky on the China, we’ve nice growth very in of the initiative. industrial that

those have been China so to we aligns things, of of PowerCore, that there much support because with continue with and the needs growth. that our Engine the to PowerCore And increase technology, putting to as side best invest they we've We Sky then line technology region into initiative. bring answer region Blue over a winning winning so in continue on the China we're been to

at gain continue to The doing to are strategy. good and share are our a favor press in we our job working happening So with regulation changes that China are there. forward we

Laurence Alexander

you. Okay. Thank

Operator

to We remarks. have will over questions. turn no the Carpenter I for call Tod closing further

Tod Carpenter

Julian. Thanks,

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Operator

Ladies participation. and your this you gentlemen, today’s Thank concludes call. for conference

You may now disconnect.

Donaldson (DCI) 2 Jun 202020 Q3 Earnings call transcript