PKOH - Earnings call transcript Q3 2020 | Park-Ohio Holdings Corp.

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Operator

Good morning, and welcome to the Park-Ohio Third Quarter 2020 Results Conference Call. [Operator Instructions] Today's conference is also being recorded. [Operator Instructions] Before we get started, I want to remind everyone that certain statements made on today's call may be forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. A list of relevant risks and uncertainties may be found in the earnings press release as well as in the company's 2019 10-K, which was filed on March 12, 2020, with the SEC.

discuss and may as company the adjusted EBITDA EPS defined. Additionally, are and principles. of EBITDA EPS not as accounting Adjusted accepted defined measures generally performance under

proceed, a and earnings to conference Matthew EBITDA Crawford. for defined, EPS turn Mr. please income to the the of over President. would as to reconciliation Crawford, company's now to recent to attributable shareholders of Mr. net I Chairman, For and common Park-Ohio Please refer reconciliation release. CEO EPS to a adjusted like

Matthew Crawford

Thank Earnings joined Park-Ohio's Fogarty, almost increase second XX% from Call morning quarter, you, of Park-Ohio Welcome Quarter Third revenue, many end in in to revenue increase Pat sequentially in Officer. our and good third Conference resulting morning. markets experienced in XXXX Conference recovery the quarter. the so a our with here an -- Chief Financial I'm significant Call. this during

and continue our quality to improvement. is to and we we approximately operating this a XX% meaningfully as compared enjoy initiative, on competitiveness improve will operating more our leverage journey XXXX, and our To to continue long-term improve improved importance Of market become business, which metrics support we overall of by Additionally, equal structure. focused a actions achieved earnings. cost identifying higher to executing lower that

our cycle. financial increased at business of in critical business actively cash and higher the returns operating products we CapEx, be capital discipline efforts generating we and level a future growth to $XX lower in around both of goals investing while throughout a with of Additionally, the on are services, accomplished an operate which components backbone leverage. million will and these invested Notably,

particular, time, XXXX are expect to from contributions into are these from entire their and and and supply go with XXXX initiatives pre-COVID they the service technology. a dealing In achieved operating we notable, for difficult also introducing doubling want deliver to Despite supply to ongoing higher-margin continues customer thank efforts to of XXXX environment While momentum I see of within highlight effort their the be which efforts testament our we beyond. want while a achievements as work these during what team I to above of an strategic in margins, levels. continuous products to This superior technologies is a new key markets, number ongoing services. ongoing the within improvement and headwinds were

possible. in cautiously will year to of we're our company, a optimistic some beginning of We're the of the As new, remainder some and and XXXX. about delayed-new business the track cases, business, the particularly normalized excited back which begin about help We as year endeavor believe we the workplace will recent and to memory. strongest provide I'll With Pat above turn it healthy a we that, with the over to safer But keep start all, teammates in our Fogarty. foundation levels.

Pat Fogarty

Matt. Thanks,

quarter, a the saw end strong many recovery During in our we third of markets.

and segment. the Sales have power such garden Rail revenues reflected flip in XX% represented markets semiconductor, consolidated and Gas and which the is been markets Products slower levels. recover, Aerospace, Military year notably side, of on and prior Oil end results of Commercial as and Engineered our And to such other in XX% sports XX% versus quarter of second were certain of the quarter Third end lawn medical, automotive, prior sales. year as sequentially increased in approximately excess and

year's evident Supply levels. third lower in on segment, we during to the began our In margins of the to to This each margins points were was business quarter of the benefits implemented cost reductions solid the up revenue Technologies our sales segments. quarter, see addition compared where recovery XXX permanent in basis last

continue to the continue result as to will in in sales segments actions margin We expansion taken are business volumes confident that our recover.

capital and utilized spending total XX% generated efforts flow Our capital free in in of our pandemic. the since beginning the our conditions capital $XXX to an liquidity The quarter. $XX million quarter during flow since of the cash the yielded both improved of increase flow outstanding improvement and to efforts cash XX. the of to million, June operating We and liquidity of quarter cash We free cash $XX result $XX with and of manage million manage indebtedness. of flow the million working aggressively working ended business is the repay

sales solid results our quarter quarter a $XXX the in detailed in compared Consolidated quarter, second markets. second million we demand end Throughout Turning $XXX the the the for now million $XXX last recovery to year. were from to of the saw and quarter. million majority

year million fees. our sales consolidated $XX September represented related and margins the XXXX. most ago. to month by cost XX% driven increased On of selling year-over-year year improve for quarter X% at continue costs, adjusted consolidated decrease a our in cost travel every actions, plant of monthly and expenses of were level were a sales and since in reduced third million basis, quarter sales. year the labor, March, excluding highest September in $XX compared gross businesses their XX% the to of in including and reductions Our SG&A consolidated consolidation approximately professional in prior a charges have gross compared approximately Monthly an in to month XX% margins reduction were ago,

income free and $X.X was During borrowings decrease Interest to outstanding compared million due was million current The a Operating the million $X.X expense income rates use was in an ago. second to restructuring the of flow in the lower income operating million indebtedness ago. to $XX charges the and year as of cash in interest year $XX quarter. the we lower include million to quarter in during to operating loss of quarter average million year quarter, million $X.X the compared repay related operating $XX quarter efforts. a current $XX third third of our

rate the of primarily carryback the a tax This quarter resulting X%. net is U.S. tax impact CARES Act allowed of effective under regulations. reduction the of lower GILTI the the of operating the due rate rate from estimated Our statutory was than benefit to third and losses U.S. final in XX% the

GAAP Our per compared EPS loss a quarter our were share $X.XX $X.XX ago $X.XX. basis, $X.XX significantly On up of the ago. compared third was adjusted to and an $X.XX the quarter year third year earnings in to a second from quarter

As to June seen I mentioned since total to returned earlier, the increased XX% and levels our liquidity XX prior has pandemic.

to levels, and expect hand We approximate $XX various million, $XXX expect CapEx under approximate to capacity the levels fourth new support segment. which of to and most banking liquidity unused fourth quarter $X.X level $XX of business of relationships. the on includes quarter our our previously million controlled CapEx quarter in of borrowing the in which We cash Components quarter third Assembly million in will million awarded

compared Now sequentially I'll quarter million our to the $XXX in a increased individual $XXX discuss year results Technologies, Supply in segment XX% ago. sales million third the quarter. to In

Commercial year fastener reaching as than Segment and and demand January Aerospace, Agricultural improve doubled second self-piercing the continued markets. of million for clinch and power X.X% Asia. supply basis was cost we and a in in with mix. both this a to income In million increased manufacturing year-over-year reductions Truck compared was While more rebounded margin lower year-over-year sales Equipment, levels up ago experienced despite a quarter our last as throughout demand daily products sales in our business, and third such demand semiconductor, implemented strong levels favorable in and XXX sales year September certain levels, quarter. to end business sports $XXX,XXX quarter, domestically year chain ago prior highest X% since sales points markets, to result significantly operating from their the from Military quarter to and Segment lower $XX level in year. end our sales operating proprietary $XX.X of Monthly Heavy-duty as key medical

especially Commercial margin business to expansion Heavy-duty which end and expect to Aerospace in increase, continue been locations our have Agriculture Military Truck recover. slow servicing markets, volumes as and at and We

than our a Sales year since every mid-March. segment. million, and first sales Sales improved $XXX ago. were Assembly of have from the Moving second in Components segment this quarter to sales XX% of impacted more pandemic double month

Tier from period shutdown, especially market late was production the SUV of as third we first and end truck During automotive the recovery to show customers quarter, The quarter, in OEMs automotive in May. saw and after extended the an strong ended in which accelerated demand light X strong platforms.

segment Continued ago. new $XX.X an income million $XX.X as volumes quarter strong the demand quarter well was operating million adjusted launched. income the $X.X year of On fourth operating as is loss in of to and operating million a an in expected basis, business increase second an previously compared in on

enhance costs continue in our largely are as completed, Our in to efforts periods locations, operational will reduce and to overhead invest consolidate improvements future volumes fixed improve. which margins

to demand. producing vehicles pandemic not auto benefit products the to global believe manufacture at develop from well-positioned meet delays, trends to with impacted timing more for industry, to and continue our stringent regulations. We Except trends comply the those in the we ability has aimed or which emission are are global to that

that and sales and were in this have sales content third Each of will several -- segment We businesses vehicle in trends quarter year. our Gas in recovery per Equipment products million quarter years. have these expect both increase slow the Rail. In markets, improved million Products over our including our the levels. $XX Engineered our $XX end Capital compared our quarter equipment to segment, million Oil our and new sales last In aftermarket a $XXX to the next second and businesses. This slower forged in been and XX% were equipment sales industrial only second affected Defense, sequentially, flat Aerospace and seen and machine demand key business,

America New activity levels, capital periods. in spending customers at to especially to North historic into low their future equipment defer be continue continues order as

third customer in segment Machine our We into and a fourth begin group third continue are quarter our and next $XX.X the sales million and Forged by due sequentially recovery increase $X.X were quarter driven to by from the expenses in Operating Overall, corporate And $X.X the finally, each quarter. reflected income in pleased the $X.X unabsorbed most was operations last of lower to business will cost year, which quarter income year year-over-year, this our Equipment that the in operating believe down Despite segment. efforts in our firmly are in costs this demand driven Industrial quarter fixed products. margins. the several ongoing optimistic operations. during in to million gradual will $X.X improved impact the from reinstated were recovery our with and to by reduction realign that quarter personnel-related efforts the future solid footprint during We improved that with compared markets. positively million resulted million quarter, results levels, both we second from the XXXX cost which end a million lower decline

many new recognize XXXX, of liquidity be the and the end continue business we continued and Through Although heading goals stronger strong flexibility. financial initiatives, market achieved. our we by completed strong to of have declines of markets, stabilized that flows be caused actions by cost certain expansion combination confident and businesses we end are cash pandemic, challenged into in our will and businesses reduction believe well-positioned margin with our recovery a

Now Matt. I'll turn the call back to over

Matthew Crawford

I for open Pat. will questions. you, Thank Great. line the now

Operator

Instructions] the KeyBanc Steve comes line with [Operator first Our Markets. question Capital from Barger of

Steve Barger

to that the has you initiatives maybe returns quick some decisions deal on going the it. big specifics we more in of reduce been some you could made key but forward obviously Matt, a year, out Can with to flush team XXXX and start XXXX? tough give Just and opportunities. cyclicality increase see just to

Matthew Crawford

Okay. volatile difficult volatile from extremely and to year, No, and continues perspective. it an extremely been a end-market be very it's Yes. been has

always while as need feel right risk, in We cash an it's from recognize feel a and is revenue though ongoing business to But that continues So risk. We diversity. to and we're control we believe enjoying now. can to there our stabilizing flows we asset what that perspective, markets. relative our end be control we

really expenses So the board. our initiatives are footprint operating and Pat across around, mentioned, as

footprint. of probably closures different locations with to full touched full XX plant or We a have either shrinkage XX closures,

So investments or we're focus areas we'll in manufacturing specific think, plants done I significant. not also made significant again, things that We've automation that's been the cells. business operating and of they or operations whether efficiently, on that be

being in and that on. those literally are So things dozens are the dozens of worked

on comprehensive plan a us little that when do a in fairly than things focused growth. are a it's allows you're obvious detailed, downturn exclusively more more that So the to

for Technologies I has is and you But focusing mean, terms what terms one Supply of fastener not think know, trenches. components evolving precision product moving of dollars, -- which going be would from we're would sell been investing in often into on. tens we're as some sells of we've Steve, couple, involved machine of really a of in them the in where away ideas, which initiative historically the of items, really complex significant for our in, pennies terms a business, initiatives in is on again, there's number mention products the I which of certainly I more if dollars.

solutions to us. that for the customers So and highly solutions depend that's customer an opportunity level on at provide ample already engineered

to cars. ongoing Pat have into lends itself That I in We while advance electric getting on components In and there, well other beat incredibly there SPAC think is initiatives we continue connectors business, again, our MRO. Aerospace to conversion like our continue product. up, to things. And our Automotive product to touched the diversity

as as heat are more on in protective tremendous important, focusing forth a really bigger So is we that's management the side. increasing investing fluid and around that the electric car. hybrids cars. we're Cooling management power moved speak aggressively we being the products as grommet as for deal on in opportunity, We're so see and well and also becoming

press IEG, up in got this Lastly Arkansas. we've running in and

I that in diversify induction our great from a And to side. R&D going in on that. needs. for away to always of of broader revolution opportunity needs. we've been rail of market but well into aftermarket, always go great been opportunities forth, We've some in the I good share market. greater even get the our emphasized problem-solving as markets that without we're XXXX terms the is to in relative we're so really our trying candidly, team always and with And we see think rail as We've to past to tools we've the necessary a never thoughtful got think construction about invest opportunity. recovery reinvigorated doing think a and products a as I the wallet customers. better evolution we're we've the significant We've customer And about lastly, job in lot facility talked necessary the

a this lot, trenches. you, the is want just I is as that's So always, tell in but -- to

Steve Barger

really a of exciting That mean, is I lot. that's a lot initiatives.

XX ship So impact throughput. talk the will for to when you about or those without closures your don't necessarily permanent your locations XX be ability that having reduction, footprint touched changes to product or permanent --

drive cost way, in said footprint, So is limiting your another revenue, that -- a or I guess, higher you're but -- which the without shrinking to ability your factor higher returns?

Pat Fogarty

decisions Absolutely. from close, Yes. of affected Steve, Each made were or customer-related be the this the that before locations or is locations to closing. are Pat. able that by was ensure serviced downsize are business that benefiting business, we either that any downsizing

we of I Assembly an for in consolidated our an effort Tech at each is when cost this But Supply clearly, touches improved probably of our the segments, absorptions well. as each lot segment. to to in our allow return. reduce locations revenues And So our fixed Components segment so say footprint more it would awful

Matthew Crawford

didn't want just you to I say. going point something out but ask, to Steve, I'm that

is really You at decentralized, in very know culturally, to our level. have agile believe We DNA authority management the local a team.

not So tend when from critical in business What goes people be out. clear, are the to that that doing the is we see you to we're straying tide identify philosophy. to pushing synergies

customer better, the I operations. side, real lower-cost on don't I see any So shrinkage just see

Steve Barger

that Yes, great. sounds

fairly stabilization, in chance end sequential As XQ. X.X% improvement down do and expect especially about it to understand XQ the you you 'XX? I revenue get a into in lot could revenue easy, flat still against comp XQ? think uncertainty, going market Any the to of again even But there's see

Pat Fogarty

that We quarter in Matt's to markets expect markets we comments saw echo quarter. in our third ramp stabilizing. the end just reoccur the are in would I some certain Steve, end up Yes. that don't fourth

we're that recovery, better markets Heavy other Truck. of have signs Duty in a We seeing particular,

into year normally think that softness right the and be how revenues. I are going we stable, good So seasonal now end with as the to our But key position to is it's that our difficult is head see we out next markets here to we increase should shake December in see.

Steve Barger

Got I'll back more line. X it. And and get in ask

headwinds margin. cost a these quarter? you've this taken unusual or of expect similar items you question on to cost you in to Or actions that mid- So kind just XQ? of mix will that XQ Any keep some or allow to plus high-teen decremental minus

Pat Fogarty

would next I as margins expect similar QX in into we head year.

will XXXX. we have much to continue worked the quarter the some margins, being are into is things to first head we on So completed. as into restructuring of overall, We year. and do be next expect enhanced of But continue our that

Matthew Crawford

Steve, what has from margin in largely also side. -- we the Tech stabilization come on seen I Supply would offer that we've

So that's has historically invested been return high that, I overall Engineered capital. think, is our profile, But wonderful highest-margin from business. on margin Products because an

I making the moves XXXX And we're we one more but statements. tell things right be we're also our on control amplified the improve there of margins. in financial a can margins to and think should business, help to little So would that excited, bit in thing you through all the be I consolidated in

While given to to automotive of shop returned, have huge is volumes to Getting a hundreds have getting open to up work we ongoing jobs challenge. in people work, efficiently work and any day. show people

the revenue there on more on So side. getting every the our day. margin around more the our opportunity is And -- side than it arms we're

Operator

from with of Securities. Our the Riley B. Sherbetchyan next Sarkis comes question line

Sarkis Sherbetchyan

you cadence update delayed about what expecting On be into new was from ramp the of million-plus 'XX. Maybe $XXX sales fiscal you a type last perspective? Could we an please talked should here? earnings of that call, provide

Pat Fogarty

Yes.

happening. lost. were not that As I business in been mentioned, some delays expected That Sarkis, the launches we has

$XXX timing. is Assembly growth that incrementally. million We really believe The continue Components in question to will exceed our around

throughout see expect volumes up we'll that begin as to talking would increase XXXX about. that in the of revenue So product lines incremental to each begin ramp we're I

Sarkis Sherbetchyan

basis margins given the we're what from a seeing any all now, would And be the to Understood. from cost an incremental perspective? maybe you're making structure different relative improvements

Pat Fogarty

is absorption of Yes. reason footprint volume. are Absolutely. for in for new this cost allow the The improved our plants in the fixed reduction much to that the getting

would margin in. coming we new expansion of revenues as result the a So expect

Matthew Crawford

that our where Sarkis, opening about in facilities bit this business talked well, earmarked a one we I this of in last as and Changshu little lot those But punchline add Mexico the would year -- also of new one X in the segment, early locations. Automotive and facility. is a Chengdu, in it an lot is, a was older China, for of is

only absorptions not think pricing it's I do lower opportunity and tremendous good margins, more in that achieve are operating at So to some facilities think under-absorbed. I still there's costs

Sarkis Sherbetchyan

helpful. your activity to today? seeing end if talk That's potential customers? maybe markets you in of can maybe you any are segments And And in some which new wins or specific

Matthew Crawford

through characterize we're I Yes. business I been COVID. seeing as stable know new would business. significant fairly don't having transitional development that

-- continue people lot COVID at $XXX,XXX MRO we $X lot mid-market I is or take desire see Tech Supply to I and less than interest a strong range to OEs But think more great a the rather that do of are the in think our of relative risk providing million customer customer. initiatives instinct to Again, base. supply the -- them work. a on our less are

think robust. I development around and be that to product design Automotive, the on new continues work energy

bit and funnel the in U.S. Europe probably all-time China highs. quoting in a or our still is So little at there

development XX that as new an the sort something would to us underpinning on solid to be activity tremendous get next see over necessarily growth think transitional mid-range side of XX to our will to in But Again, continue I allow we performance success. the months. Automotive. product the So that not

Sarkis Sherbetchyan

the target flow one can the considering understand of last working recover, for you kind Maybe how if one us that? assuming free help level talk cash generation, you're about volumes And maybe me. build, potential Great. capital of and managing

Pat Fogarty

Sure.

going that XXXX, the impact be business to expect and positive a our the head very margin we into to cash is As diversification of we our flow. free expansion

about depending always growth that forward. we at during you of key. mentioned to when definitely business Managing to expect quarter. that of able third in the is cash historic flow see flow, and we of be the we and And And is do segment look $XX you, a the $XX to the pretty Sarkis. translate $XX Fourth fourth annually I levels million being on course that. That flow that's cash see quarter a around able a think around quarter. million cash the I free to see working we good going that levels somewhere -- in level we've inventory seen is continue job Hopefully, the free moving we're should million number, should where challenging, capital exceed fourth right helpful quarter, Capex. free to of the that and our to is to manage So

Operator

Marco Our next Stonegate comes from with question Markets. Capital Rodriguez

Marco Rodriguez

this ROIC-type of was specifically of of you the initiatives wondering maybe the think be guys. company? be higher of drive to on define first you're kind going initiative Any was you help of if, the kind here that strategic Matt, helpful sort sort that business how kind kind circle of that in capital And around you to us how of pushing terms back targeting. might I if question. of can or a some through in I for for discussed of wondering on more timelines might you to frame levels any you that's invested returns can

Matthew Crawford

Yes, sure.

the of are group, some operations, of some these are leverage all strategies with active Everything exception engineering and them all, IR these the the of maybe industrial First of have today. leadership -- Each on board initiatives. our the expertise some teams with -- R&D, equipment out, all today. of of we revenue-producing I've laid

sky, actively in the and to in engaged strategies. pie speak. not They're these so marketing we're -- are initiatives these So

return XX% on these the of incremental that within achieve reside we into move XXXX, invested minimum to as all based a capital So opportunities these teams. on should XX%

with revenue a incremental profitability any of are independently return every So of we're you standpoint. significantly them agree a know I and XXXX is from them one very in Pat, and excited about of would terms but that that? don't returns, transitional it.

Pat Fogarty

Definitely. growth Yes, capital in rate we each I expect very each invested think whether as a those in, high or investments. of the it's of initiatives, driver in of businesses, we've return on value internal

Marco Rodriguez

in how -- the or Got essential on coming like decentralized-type have? putting it's changing answering really you appreciate a sort initiatives And from fact these the Understood. at can out of lot terms then, if the it. incentives hit initiatives structural not not of Matt, in structure and versus the structure wondering they're to you despite of business, you of the But I might that the have a of these structure. sound question you maybe of of into kind drive place place kind or decentralized thinking the

Matthew Crawford

and spend something Yes. That's time about. thinking question, great a of a lot we

We an units. pushing different that forward they're and think authority if of work lot items. And with necessary, that level. of at way great a that again, key process that's to the mean, more additional structural us is and with in we and investment, have to level just operating often leadership collaborating a responsibility a initiated local a the continue I intended we value forward advancing job move reorganization I at give these around the on streamline the approval But to, operating doing team some or on

se, we're adding, a real partnership. And not per layer So management. again, it's of a

which, the X-month most of just necessary are to type we're access to value some investment to the drivers, these paybacks. and cases, think get of streamlining practices these decision-making in out secure process I best there

Marco Rodriguez

focus just paid your you Matt, of M&A levels the also, becomes margins? about can COVID you've and perhaps How past as you you I liquidity in of we the aspects used kind if if of improving uncertainty maybe help out of the start forward a with should prevalent. But think then certain comfort for with you addressed kind you address some how the we flow, progress kind some somewhat And with some it. about debt, maybe your percentages the somewhat that talk down to this that of maybe should you leverage. has changed cash ratios little thinking that of Got business. know business kind the process on about more free guys But of of where -- of guys?

Pat Fogarty

deleveraging Yes, that. we I'll sheet make question. is that will as this strategic believe M&A number the has don't that of to philosophy expect around strategic We've that that This for was built to Pat. we that had while We But continuing deleverage Marco, And our is as continued company balance and balance can continue. sheet been both to well a also acquisitions. we've of organic change take growth. any core important. years, believe that the

Matthew Crawford

want I Marco, to important because point. really add something this a is

point but going again. of Some well has well-positioned long-term our into making integrate are acquisitions operations these competitiveness The be we're when even execute increasing really of on the we and any time. in, leadership of putting that we're effort acquisitions I And do changes work typically the is we're our teams, start team bigger range necessary. the could to only built size think, to if is not operating to a some to and and an excellence that ethos

So on and very an acquisition, we're very strategic, targeted prepared more than business ever, a going be would I to execute very after to say. plan

Marco Rodriguez

last question, Got it. Very helpful. And quick Matt.

can Just an update you on landscape? M&A give us the

Matthew Crawford

Yes. bit. in Pat together that area and quite worked I a

that targets we pre-COVID. think of have handful I a

of we in along Some a definitely could hold processes. felt accomplished. put terms were we COVID what of on some those further get

them. with We to and talk targets work continue to continue to those

overextended troubling. where get I not I think also think, get as we've until mentioned, -- some opportunities, of got, going. these are visibility, lack And we of of need the sense to think while to business. we a careful candidly, handful I And it markets still a I think suit I of would we our really really

Operator

have It no additional at time. this appears we questions

additional for Mr. So Crawford the I'd any floor to over closing like to back comments. pass

Matthew Crawford

in and we Again, control. things interest earnings quality our company. progress, controlling everyone’s margins to and business I we like we’re higher terms Great. and making appreciate in can of feel support particularly higher the refashioning that our of

thanks Bye-bye. So for your support.

Operator

today's you at conclude your this and does you disconnect time. webcast. this and teleconference Ladies We your and gentlemen, for may lines participation, thank

Park-Ohio (PKOH) 4 Nov 202020 Q3 Earnings call transcript