PKOH - Earnings call transcript Q2 2024 | Park-Ohio Holdings Corp.

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Operator

Good morning, and welcome to the Park-Ohio Second Quarter 2024 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 will 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. on risks release may the as XX-K, was relative the found company's of with which press XXXX, earnings well filed list and be uncertainties in XXXX the A SEC. X, March as in

Principles. and measures may as and Generally of a operations performance EPS on These basis. Accounting operating or income under Additionally, the consolidated adjusted metrics adjusted company continuing discuss EBITDA defined are Accepted not

and net For please of income to to adjusted shareholders EPS, common adjusted refer company's recent defined, income attributable a earnings operating income to release. reconciliation EPS the as Park-Ohio to operating EBITDA to

I President conference and would over Chairman, proceed, Please Matthew Mr. Crawford. Crawford, the now CEO. to turn Mr.

Matthew V. Crawford

announce record for quarter across everyone, especially continued in against the well in our accomplished second and improvement but execution revenue as businesses you of of as excellent results strong demand morning, We margins a of portfolio. this earnings. thank backdrop product operating quality most to stable and and morning's these overall our joining the Good excited for call. short-cycle We're mixed

proved relatively again some demand were Supply to markets end important and in execution. and handful business contributors. strong our group, in particular strength, once offset our and investments positive diversification Our Technologies Components of discrete Assembly defense short-cycle and businesses, in both aerospace be a softening with new

benefited a from Products Engineered group, long-cycle backlogs relatively delivery some improved business, see performance. and our While to continued elevated

picture, in our as expect business While year-over-year to and we in see we expect the very aggregate, half some second growth. variability our stable demand deliver

a goals both as and the sale progress perspective, continual make half our after of strategic, automotive free and year requirements see from our capital seasonal given in and cash some second the is change business flow lower to reduction last debt which meaningful assets. expect also mix We on

Pat. it With over that, to turn I'll

Patrick Fogarty

Thank you, Matt.

and highlighted and of in million. We which results, of by of of $XXX exceeded are EBITDA expectations share businesses second our with sales our our record million, $XX.X EPS were as pleased most consolidated per defined adjusted quarter operating $X.XX

sales improved million our Our Assembly and Technologies sales segment. our and quarter. to ago, record better-than-expected by strong results margins segment compared $XXX were of from last increased in $XXX driven Products and in results million Supply sales our Engineered Net $XXX margins a increased million Components record and X% segment in year

strength and our second resulted Our quarter increasing in in backlogs aerospace capital end in demand revenues defense continued converted our and improved business, certain notable sales markets equipment where being business in manufacturing fastener from sales. key growth strong market, with the proprietary to are

margins a to compared basis Our reduce XX% XX.X% and in the a pricing, efficiencies from consolidated up to improved XXX year-over-year year. increased gross quarter On year gross increase businesses. XX a result direct ago. margin was basis XX.X% of costs operating points of year-to-date second to are basis, points throughout ongoing efforts quarter, last The of gross our our customer each operational margin improve the

of value-driven implementation in continue We initiatives the margin improvement business. gross focus each on through to

to Our GAAP EPS adjusted of ago. our $X.XX the XX% was increased up EPS $X.XX of and in was compared year Year-to-date, $X.XX of last up XX% quarter $X.XX a same to adjusted XX% compared period year. EPS the

XX% $XX.X we ago. compared in an I to million the As EBITDA quarter, a of generated of mentioned, year improvement

XX% defined improvement in since EBITDA leverage our in in last months our increase of significant EBITDA of in was EBITDA EBITDA of and cash XX quarter, XX debt X.X% flow over XX-month free resulted basis, highest June totaled On have year. the over The the last net an is our margin sales, as As our since million. $XXX a trailing a XXXX. percentage margin which

And quarter. improved basis, an to income operating adjusted second $XX million. on in the operating $XX.X Consolidated XX% increased to XX% income million

basis and were and SG&A and In performance income Interest year-over-year, by million continued $XX improved Engineered strong Supply in Products approximately driven costs both sales higher XX% profit segment. XXX in improved million the higher during expenses points to current compared margins addition, margins Technologies operating rates driven the net year. in quarter $XX periods. last of interest in totaled sales $XX.X by year. our million

reduce the Our tax effective and tax credits rate benefits from and which initiatives ongoing effective research other rate reflects planning worldwide. tax development was to quarter, XX% our in overall tax the

these reflect As expected a effective strategies. our tax to and impact we of tax full year result, the to have rate XX% XX% lowered between

projects. the working capital increased we support of sales businesses, driven levels. $X equipment completion the and of the we capital timing growth half driven certain in to free cash operating to in of During years, strong million, cash second by primarily used and quarter, working prior capital lower strong expect operating the year, continued Similar flow to EBITDA by of and due

$XX $XXX approximately of of on million capacity XX, and June borrowing totaled various our million and unused strong arrangements. which be banking to hand continues at liquidity million of $XXX under cash Our consisted

our Supply generated a representing the record sales Technologies net to quarter, of segment X% year-over-year. increase now second Turning in results. $XXX million

also heavy-duty and We sales Average distribution continue the markets. construction, to several strong end truck, see electronics led in key consumer and by off-road a daily electrical in increase in market. aerospace the XX% customer in improved markets, end demand sales defense

global in robust. sales our fastener be to for products addition, manufacturing proprietary business grew continues XX% In demand our year-over-year as

the many trend and in consumer rest equipment slowing Although the positively, revenues expected markets to end is end the markets throughout in demand certain semiconductor, agricultural continue of year.

$XX.X an margins business. products, the record of XXXX of basis million. year ago. and million, X.X% improvement the points a from XX% $XX by points totaled a record XXX demand higher-margin was this The in increase segment business Operating basis, $XXX a operating profitability operating strong compared higher increase margin was quarter income were an an On XXX to supply driven segment the our our in of Operating year-over-year. in period. in costs and fastener continued year-to-date income and basis sales sales of X.X%, chain in proprietary was were X.X% Operating a million in an increase lower

-- million in year-to-date results OEM on lower in liquidity on in proprietary sales platforms. revenues strong sales our lower certain programs $XXX partially pricing increasing The continued In million were this year legacy end-of-life The in $XXX a by I'm product strong was and driven our which decrease margins, business compared in volumes and segment on other sales reflect the quarter Components sales industrial higher-margin to expanding growth and programs, year-over-year unit manufacturing the offset ago. business. sorry, quarterly segment, growing product fastener focus our Assembly the supply and our

volumes costs were product Segment to programs, adjusted initiatives operational on operating automation rubber $X.X capacity. margin in was ago. of improvement efficiencies, the initiatives, pricing, continue mixing year segment, sales initiatives. On such offset income quarter scrap million $X.X and a Key basis, margin more X.X% reduction margins increasing customer on ago, low-margin enhance future increasing than Profitability million we this In which income the products million quarters. a operating which and products, pricing the improvement decreased year-to-date second margin through to in by certain to compared operating several include resulting improving X.X% implemented a $XXX times, compared from to ago. a reducing will $XXX as processes impacted increasing expansion operating cycle implement lower unit from and profit million was year year our

group. demand and Products higher a segment, and both strong resulted in In year America by equipment and sales $XXX Europe. Higher increased Industrial our industrial from record to $XXX in Engineered the new a ago, capital primarily sales our business Equipment sales driven Machine of million in were Products equipment million X% Forged compared North Group our

Europe in compared while sales equipment and year strong a of sales new XX% parts North quarter, XX% aftermarket grew services sales Also, grew in Asia the were stable aftermarket prior year-over-year, North America to quarter. During and America year-over-year. in

quarter, XX. the and compared strong continues equipment $XXX be equipment million, December approximately an backlogs During million, to bookings on of second backlog increase to totaling X% new were $XX

weaker year-over-year increased for our driven volumes forgings, by Products Revenues in aerospace on unit Forged offset products increased which and industry, impacted our into sold results. than demand Machine business the more defense which rail X%

current operating income was ago. And to profitability to sales Compared XX% the an in operating The quarter. driven million on adjusted income year-over-year and primarily year first the million basis, almost the compared $X.X in increase million doubled, by a improved income segment quarter. increased Group. quarter, Equipment operational margins, in $X.X higher our this improvements the During was in operating year-over-year in reflecting to $X.X significant quarter, Industrial

forging sales operation In X% business, increase flow-through our profit Machine Forest in margins was the isolated from Arkansas. in our year-over-year offset by lower Products

to million million And year to $X.X Machine sales In personnel $XXX an approximately including margins downtime compared actions changes increase Forged expenses during a Products both reduce operational income And several million business. the sales corporate and improve ago. the to efficiencies. in this were taken the Adjusted production our million $XX.X in X% of of quarter in in have results year-to-date, $XX.X to due year-to-date improvements to year ago, net were the segment plan a this compared XXXX with decline $X.X totaled was compared lower period, finally, operating periods. period. X% to the equipment and increase We million

to results our X% year-to-date strong, have in year but guidance, range full results expect to were revenue demand in end we our respect due slowing certain exceeded our year-over-year Overall, the to growth second With X% from our now stable to expectations. markets. quarter and

adjusted expect to improvement EPS defined. as continue in year-over-year and We EBITDA

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

Matthew V. Crawford

much, the you open very We'll for Great. Thank questions. Pat. now line

Operator

[Operator Instructions].

the question Stonegate. first with Storms Dave of from Our line comes

David Joseph Storms

guiding could line. Just might any guidance. great. an importance maybe like previously you're and X% I guidance puts coming between guidance? lower on hoping this seeing put as of or in that to be Are lower top on be some at looks know takes Really color the end we higher outsized mid-single that that with on here have markets that the end? and digits. end would Anything you for start the X% the of any were previous you could It there

Matthew V. Crawford

great question. a it's Yes,

seeing more I is of of that broadly described in strong. capital our side view are the the different book are be to industry think we business-to-business, very that a manufacturing of . Where consumer-facing. customers continues -- business sort

are to the now, lot a is predict little What it's an Wall that play, too disconnect between right think consumer-facing extremely in where it be you automotive any powertrain, all of business to hard the read touch that to things quite Street aerospace where I electrical. problematic. matter, see positive, is regardless doesn't continue from at what described, connected There's as of candidly. but reshaping that unusual market much parts you pockets level are Again, but at a and for more of a it Journal. we difference high strength steel the defense, So they're fairly in

shrinkage. the those are difference between And -- versus those growth double-digit double-digit

would So our I meaningfully describe as don't forecast different. that I know

delicate, the want that year. feel but the have to I than in to downside, do having little call, feel this appreciate don't will, and in think suggest Everything I way if more particularly the when last said ago half in did a the weren't a the side. that risks stronger or we had negatives the here that, that positives just we'll X on no second have outweigh months strenuously consumer feels aggregate, you the we prior -- we to we

David Joseph Storms

to strong quarter's quarter, really categorize sustainability looking driver company. How really helpful. Engineered in had an I kind performance the then know Products? that important Engineered bottom. Understood. at this you've EP the of past just And is very Products, That's top mentioned for in you a of the would it

Matthew V. Crawford

about a think I'll to -- easy the part. Pat give I Let that me bit answer while

a of recognize sales quality that side. both driver a sales In us business, been It's and really assets, margin of in earnings this we it's on quality the those will company a business, Products some a business for around For long-cycle be, of been nice and on most bit while, traditionally OE. a periodically should, business. in the this has diversification leader also also particularly the best and and side, terms aftermarket the that Engineered brands of that of is and have lumpy, segment, again, the been but has unique we versus some our have for of nice a earnings of

late chain little easier that due changes little lack sacrificed in become we've as knowledge, switch. get calls, are or not prior of a supply because have challenging, geopolitics through. some how products. better, while discussed still to they in retirements, We continue and we that execution of challenges day, to we things source And every These they're you but a work that a

It It's is demand that an a issue. issue. hasn't journey execution been been So underway.

of spent meaningful of training. meaningful in have dollars changes leadership. personnel. in terms there changes We've terms made We in We've made

from to continue this attack We all levels.

tell So meaningfully what is a underperforming. historical I you that from perspective, business still would is underperforming,

So mean improvement would it a again, medium we to suggest but but low the bar, see meaningful expect in we don't term. a that bit I maybe, to that expect it's continue over lumpy, could business to be

Patrick Fogarty

this Pat. Dave, is agree comments. Yes, Matt's I with

business. get into to as planned They their with be I improved when been of those . The been double-digit in approaching performance backlogs faced the segment in think business, Equipment The right and challenges seen the to strong. consistent our have is look continue as a We income now, been meaningful operating have throughout where that has have you EMA in our bookings performing the operational Group. of we of happen lot margins a that Europe The quarter-by-quarter. underway. forging our at result. business we're improvement have things is that been pretty group. our point good And we've The are acquisition Industrial to strong. in backlogs transition isolated

mentioned, on expect disciplines all all customer As in business across changes we've and the and board our made plant to going that business but only meaningful floor, not across the continue Matt leadership, base support forward. to aspects of the

So mentioned. we improvement levels and there, that historic to back to get Matt expect those

right little we're direction in and bit we continued feel color, heading So but expect we the that gives there, improvement. a you more

David Joseph Storms

Understood. That's color. great

Operator

you. Thank

KeyBanc Our next with the Markets. line Capital comes from Steve Barger of question

Steve Barger

areas? think think in accelerate of you value actions for remarks, increased not percentage I on is pricing provide. the can Pat prepared mentioned low-margin And you priced those lines. price you that portfolio product his What in some do the .

Patrick Fogarty

And going especially last over we've to Steve, side to customer is the The has that proven our the of yes. and to labor about of the Pat. as this much years working we're few still material been answer has Yes, talked look able experienced we been to price all for is business. base. And across inflation that been to raw driver customers that. we've we've was improvement, we've increase margins the within coupled pricing get increases be permanent, to segment lower But . for towards material efficiencies, Not value-driven but which as mature automotive to Gap] understand. a continue will in a with are than pricing, of what ways volumes expected Gap] product be improved [Audio operational [Audio that recover

Matthew V. Crawford

that news was across Steve, I opportunity, exists limited. in that demand some as aggressively. like on eye that automotive you it products, in market, there's think while pushing -- very stable in early front I volatility was there's I past, complex addressed know, are learned in areas a thoughtful pieces us pricing had the leadership more nonetheless, keep focused on and portfolio much certain that on the was we've particularly it, to lessons we that pains, allow Supply from the the the losses. And freight. caused an a described, And such the Technologies opportunities much good business Pat silver got in of the keep circumstance. board the if of as some think more to keeping ongoing The always segment thing additional on is, across and as inflation the a we've ourselves that a COVID, would the an mover and to say lining But

not meaningful -- positive of prior I So have . have said been opportunity the don't a it the it dynamics with I as for years. I agree would as couple the think in Pat, is that, Having in way. changed

Steve Barger

Yes.

that new As you than think flexibility about you're of the have historically? you in business more and there that quoting, do thing you escalators vis-a-vis did sort

Matthew V. Crawford

the and always of automotive -- that's I deemphasizing of cycle, marketplace contractually, to tell the doubt relationships. pressure through an asset can evolved challenges us in earnings having you and the is business, sales, that some worse design is at that's to have is question. I that through is interesting that its Yes, worst. lot model of where products no more customary been a There's the business from and talked And a earnings free a in cash of make again, a this about or quality earnings part the sustainable changed I think sustainable that, flow it. there business

the that supply So the in there's basis has evolution no no, favor. doubt been

in been favor. has mix business Our our

that, always best are They the said deal world, hands Having we the biggest, sophisticated the companies out. want with most deal. always in their

make we that our be And last need meet cost discussed, in and can and pure implementing have of tools middle. is years reducing serve, lot the we've footprint sure think continue I the implementing we what as in it. spent time we and to preserve software a to restructuring Whether them be few and reducing they So do that it technology. to we whether new over

in Our all meaningfully attractive that's today business all awarded terms to And get about. accretive positioning model. our what right? pricing business our about, better business of is at new to what That's it's that's it's

reduced think because, a second little it little of but and as serve. XXXX margins. the focus in to we're on to as see needle going bit we move because new begin business, cost blocks half you our these part a and is Part the I of So the bit we described, different, of into it marketplace see better that to is

Steve Barger

make less to to do favorable, think bid hurdle it? they have Do walk of I business to color. they take business? good do sense about force, tools that have And you when you an that's that away understanding the sure is doesn't the it need guess from new required as No, make rate Yes. your they sales

Matthew V. Crawford

no question. No, Yes. there's

ACG certainly, the the touch engineered components, from whole the the and and the process. opportunities the sheer executive agreements of a the where of get lot most size, orders of lot certainly technology of people is a some in size business most nature attention of complex the I pricing the Supply think and long-term team.

And our some some of best our are of opportunities accounts. smaller

there's tools that's accounts, end invest low So continue or But we it. name no to whatever that don't make have mistakes. you in there not we sure in identify heavily try processes where technology make to margin underperforming markets no, warehouses, business only invest to -- question continue we and that

you're important most I hitting portfolio extent tell would our the companies no, an point. orders you, contracts. absolutely, big think, with So get long-term to are And big and I -- of attention that

We are we're be orders to we I'm every better class And confident work meaningfully years that small from the day right I year were team like say as place be a to today, now, Supply given but some we're -- at I twice make our Technologies. good And we're in think even and to won't ago sure making. on than that a best-in-class, best ago. the going the we of makes or X a decisions, year X investments

again, I and feel address don't across comfortable lining want pretty we So do I pricing no, to a COVID, have board. to to say the silver but

death, this a As you of life stuff, a better little matter right? at and get

Patrick Fogarty

capital add go that at IRRs, needed. to very was business, we going sales and whether if hurdle return look I rates, at folks process or deep the when into run executive on there's with the capital, just look that teams we it's that

hurdle those are -- each rates described well of the within So and business.

an business. or with say would teams process within I that each So whether financial the the teams of it's the each sales within -- business evolving that's each been

very we . of So as board. across at opportunities kind we're look good at I feel about where the

Matthew V. Crawford

thing. I to say Steve, one last want

or not of again, or ability of seen our loss hurdle poor some a a underperformed, hasn't not a we of challenges And about of -- by we affected As of the saying because our bit I'm convert that's of we that Products. what have it we've of where retirements, the the It orders things been in rates. not think I'm mean, been I poor execution. has expected. sure understanding we but quoting visibility some And the so see Engineered knowledge, everywhere, to kinds issue. issue at pricing those it I'm

execution to an at we're and think get it's day. one trying I every again more issue better

Steve Barger

were some Understood. And said about company were talk of Can more quarter? the And Pat, in for orders Engineered this good bookings you parts you that? what Products.

Patrick Fogarty

Yes.

see, in to seeing of continue million. bookings several the really were most good and So the And Backlogs our we're both and strength. Europe $XX America across North operational brands the the plants. in where be quarter, in of that is sequentially, is believe sustainable through having with throughput improvements strong and the we the a and backlog at lot plants out are in good, we least it inefficiencies see saw takes the we a better

Steve Barger

question. my what expect heard guess cash good But typically flow be I in back for flow half the realization? you And better say Yes. you cash to that's last a free is. say segue did will I free you year full

Patrick Fogarty

on year-to-date, but I we did million. half And $XX million. comment be $XX million second to expect $XX flow free at No, that, we're not to cash

to are expect but laying those you now. for comfortable hurdles that right that I'm we So out exceed,

Matthew V. Crawford

going CapEx cycle sales, cash Steve, has through a business of the a say I'm XX% record average that changed the to our to results to XX% XX% flow having of our business permanently. but not sold perspective on about after from our achieving mix represented miss opportunity

saying from post good enough but we not sale. more are business I'm flow a a ideas, perspective have a fundamentally So we little cash may we model here, spend different

Steve Barger

of yes, questions. of I mean, the that's point on some kind my pricing

other challenges where the low-margin structural there's You I -- think that. to pricing do to better. by have whole business, And becomes portfolio to opportunities exiting there are

of You provide guys customers. lot your to a value

to doing become are has it? getting the If why compensated, you're not adequately question you

Matthew V. Crawford

the today. to tomorrow be to we going than today acquirer. year, And than and I we're last were said, are we as better preaching better we're You're

real in those driver, again, Technologies necessary but we this decisions. and but area, highlight But are a details, different continue in is to key I well made, that. ways. to as And investments devil of done at is making improve. again, would, particularly some we've the to the making use we your expect made a point we've it and do the . The technology couple So strides Supply of absolutely

So to we little area. a was got this businesses your to out a too we've got fairly. get difficult. one where hard more that of little ability, in And point a more a little was we've very leverage, business more And damn structurally, just that moved is opportunity paid

Steve Barger

Exactly. sure that better Yes. I'm you with sleep gone.

Matthew V. Crawford

customers big and we to thing the them. do right are got by Our and tough

a isn't line. this straight So

Operator

next Jamie Our question comes Wilen with from Wilen the line ] of [ Management.

Unknown Analyst

You us versus talked on defense And up with little give how in about new and characterize business the business of the could longevity aerospace projects, would the your picking side, that? existing pickup the business? of the on customers margins clarity these these you're a customers, you projects? you new Are existing

Matthew V. Crawford

has kick sure a to thing I'll Yes, off. say. Pat I'm

and One some that's of news. product a about touch good portfolio. additional the large aerospace things of seeing nice percentage activity and it does our in defense,

significant particularly have Engineered capital in and discrete for forth. our related so like building So defense, ammunitions seen equipment groups we in to opportunities Products things

So very discrete there.

felt our and you on well, particular, area a and those aerospace for would side the years and know defense became X that as was model Technologies service an Supply that in adjacency ago, aerospace appreciate brand. or Also but great our this side X may customers that we

chains, to during their great their more We times. improve But the that of little they're sort difficult has And trying that supply a and so I now think had grown bit fostered to reorient and place. bit business we're a in nicely. a supported

the So technology. we've supply of in seen benefit there

So I we've improvement seen impressive those sustainable think, and and, fairly a in diverse areas.

Patrick Fogarty

we X componentry suppliers, Jamie, Airbus those the side and Class tier different opportunity the supplying the And types higher supply business, we're commercial of to on end OEMs market about business, this various growth into margins. the their is technology than The programs. supply product, mentioned other are Matt the margins C Pat. to. think typically more and product is of

in States but that continues Europe, not we're So here seeing also tremendous for only the and products. throughout grow, business those opportunities to

Matthew V. Crawford

deliver how and about should that talked should while, levels grade significantly Forge there talked get to at seeing past a our gets because aerospace we the talking lot which broader at highest portfolio, alloys When it due impacts a I about the whole about industry struggle Airbus We have of and to or the were and Group. was our Boeing. highlight the -- for to unable forge,

little bit. a improved have chains supply Those

we're some now those orders. able to of So convert

see this don't want this as I side, industry in it and be supply see only that beginning flash commercial the that just as issues, we is the on chain sort I I to a a again, it. So side and see pan. their out an is in defense reinvesting support there to as to

Operator

back There are this like to . at floor time. to no questions for remarks. management I'd further turn closing the over

Matthew V. Crawford

in happen. That's how the it's about. for the nice to time and to this and is the quality again what you to time, Thank your today, work me room every really margins free means again, pleased you But results. there's Steve, of all evolving, our want at improvement and day aggregate a come about I thank that make higher improvement. of plenty expect on very deleveraging, And same for people with all we business and of we're, opportunity sustainable which Park-Ohio gave of for the opportunity us to cash earnings, continued business talk flow continued side. model better family

and I a we're this Thanks, right nice and . where in direction. going, think So the is great have a day. that's step

Operator

This teleconference. concludes today's

your . your wonderful disconnect may day. a for at participation, and lines have you Thank time. this You

Park-Ohio (PKOH) 8 Aug 242024 Q2 Earnings call transcript