EnPro Industries (NPO) 6 Aug 242024 Q2 Earnings call transcript

Hello, and welcome to the EnPro Q2 2024 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to James Gentile, Vice President, Investor Relations. Please go ahead, James.

Thank you, and good morning, everyone. Welcome to EnPro's Second Quarter 2024 Earnings Conference Call. I will remind you that our call is being webcast at enpro.com, where you can find the presentation that accompanies this call. Eric Bruderek, President Chief Executive is Officer; Chief Financial today Joe and Vice me Vaillancourt, and our Executive Officer. With President and

including and non-GAAP not Chief presentation the risks be involve this Eric call, call, filings are measures. in Officer. are my with we our the and call of not we undertake uncertainties. that included uncertainties, unforeseen to today's XXXX we the will appendix this providing described the reference over be making to excludes during historical a measures number year During call nature. We risks these to friendly now full the the do that that will and comparable Executive GAAP on is Tables Also, in obligation forward-looking forward-looking statements. It that will non-GAAP guidance, historical statements pleasure of reconciling facts and any in measures those materials. these are to SEC. Also statements update turn considered from our a to These Vaillancourt, which financial note impacts President number Eric? reminder a

our profitability the EBITDA and for Technologies quarter, for includes Sealing adjusted in Thanks, morning, good everyone. strong we first XX% segment, Thank of improvement with Technologies. quarter EBITDA segment adjusted sales the our the and narrowing second the in year in exceeded sequential the for us both in Advanced well margins time. Consolidated James, and performed today Surface full as you review XXXX. We provide an and that results second joining update for outlook

that shined areas worked this soft business. Again, agility quarter, of even results to as demonstrate certain people persists We are demand the compelling pleased with team's hard these balance our quarter this achieve the in very as for the their inherent colleagues in and like outstanding would variety company the our across ongoing the macroeconomic to company's X,XXX thank our well ability execute performance. commitment a to portfolio, to scenarios. the EnPro and in of We profitability contributions

second the my quarter our the balance detailed adjusted excellent segment the AST, we to Now outlook turn segment discussion performance. delivered sales performance on Joe I during will our both Operating the review, Technologies XXXX. and in over the After and for results to was second quarter. EBITDA. Sealing of for a improvement of more sequential call in At

semiconductor of continued the soft, of beginnings remains for capital we the growth market semiconductor equipment, While recovery. particularly have seen in the pockets

margin Sealing in aerospace actions the than as point more AST segment adjusted Food were believe EBITDA XX% commercial Europe. quarterly to AMI Technologies, effectiveness results behind continue cost low in exceeded nuclear particularly of strength vehicle from the OEM contribution this us. In mix, strategic pharma segment. sales remains We increased performance weakness and industrial and factors pricing segment and the is offset well Favorable and in demand in although contributing also choppy, Asian QX, chain supply control, to during markets. record as

Sealing positive strength segment. reflects underlying continued profitability the of and in momentum Our Technologies the

organic growth in continuous created growth. applied profitable foundation compelling and a investments for aftermarket on characteristics, opportunities focus Our improvement differentiation, incremental engineering has

Additionally, competencies safeguarding in we opportunities in continue to adjacent environments. build markets pursue upon our critical that strategic core

business outlook precision our of improvement XX% term, certain year-over-year. and multiyear very the we XX.X% grow declined strategy segment position remainder the gives Technologies sequentially on outlook for growth we confidence segment will AST long-term revenue and performance refurbishment in-chamber XXXX. Long the executing us and coding Surface with tools value solutions, Sealing our of segment, the margins our both in to critical are and pleased our drive that We semiconductor basis as process Strategic as in expansions for continue the with markets AST's that improved advantages are and our Advanced continued essential chain. segment, AST showcase XXX improvements operational our of the and constructive. In provide key Areas proceed customers technological Technologies with cleaning attractive of investments efficiency initiatives growth brighter in a Adjusted growth, and such for remains points EBITDA that supply growth. sequentially. to capacity focused

in Our balance both sheet strategic pursue as a to and remains growth excellent we shape of through organically opportunities, continue variety acquisitions.

headwinds. pleased and with quarter despite macro our performances, second well-understood We our half first are

our drive Joe? execution forward. We capital expect continue as allocation and strong to discipline value-creating to we strategy

Eric, you, everyone. morning, good and Thank

the decreased now our primarily results go ongoing performance. segment declined year, of In second in the softness of compared driven in and semiconductor. into to prior organic second quarter sales lower AST Let's due X.X% million the the X%, sales $XXX.X to details quarter, by

by of continued largely growth. Growth and that for markets products from adjusted corporate $XX.X Second year, second with $XX down the pricing, of the a period. $X.XX ongoing share almost of improvement to improvement expansions basis XX% key initiatives of million structure Adjusted to and $X adjusted approximately while Last the we Adjusted points. increased the of per chain year equity drove made XXXX, remainder million the due strategic due favorable of markets, EBITDA the new a year-on-year. other increased continuous and $X approximately of by volatility that long-term margin supply XXXX to ago. plans EBITDA incentive prior diluted price demand expense this impacted in expenses along in compared and factors of $XX.X unfavorably was variability mix, performance of quarter to under Corporate lower certain thereafter. soft earnings and initiatives expenses improvement EBITDA quarter. In share current resiliency to in incentive valuation the XX.X% XXX million corporate offset plans was efficiency. million on awards capacity expense compared experience eliminate quarter discipline year, million continuous changes XX%, of mitigate impact year corporate driven will mark-to-market the increased Favorable

flat. Sealing and steep vehicle nuclear the of declines soft in and actions aerospace food in Technologies pricing Asia. sales industrial sales and performance. revenue $XXX segment Strength million were in X%, of markets, AMI, over demand discussion strategic commercial contribution and general a offset and to sales pharma in increased Moving essentially OEM improved from organic

Our aftermarket critical to differentiate. segment positions products the innovative show stability and as solutions of nature continued this in our

in EBITDA Adjusted the quarter, up AMI increased than second gains, mix adjusted second pricing, the and XXX margin the during from period. profit segment For basis Strategic was aftermarket XX%. points. segment improved drove growth quarter, contribution more supply XX/XX chain discipline EBITDA XX.X% the the segment's

XXXX, For the of Sealing delivered first segment half XX%. above EBITDA margins adjusted

markets. segment patterns of remains first to see expect European since year, said our beginning year, return in we we generally stronger this That where said, in firm have the the underlying general we the half. a As and normal to seasonal domestic industrial demand

in products performance. New and new aerospace vehicle our platform for in Auto-Torq market, commercial wins are incremental like commercial segment's future the drivers

continued our generation sustainable and markets. strength in We exploration power space expect also

various the our about pull to excited profitably Sealing are transformed We levers will grow the segment. team Technologies

now to Turning AST.

of million year-over-year $XX.X on Second modestly around down up a basis. quarter and XX% sequential were sales

nodes. soft spending solutions our semiconductor we equipment precision during certain saw such leading capital supporting in While persisted cleaning continued edge areas, the business, quarter, growth as second

and second in Additionally, the quarter overall we growth sources while the and advanced equipment right. In strong secular coatings the reduction the points resumes and signs consistent semiconductor adjusted evolve basis semiconductor of last saw capital as segment suggest segment The recovery of trajectory. solutions magnitude recovery is targeted invested sequentially. position continues variety growth spending second year, of the long from a timing that XXX in in was primary profitability. year-on-year. overall progressed. market term, in market an EBITDA downturn, quarter, a more move to Market decline in XX% XX.X%, down well the forecasts the to a that around but will AST EBITDA driver the we capacity up the expansions from Throughout decreased year-over-year position Adjusted margin of was as have volume refurbishment

in XX% of addition, performance initiatives of The continuous slowdown. we a number a margins EBITDA the excess segment the market we through maintained challenging and adjusted consistently Overall, are optimization AST are In the with better position segment segment's during segment improvement long will pleased term. environment. that has pursuing

Turning to flow. and cash the balance sheet

net first working flow trailing year-over-year compared Free approximately down cash Our the year. ratio was tax million, last $XX.X our at year following EBITDA. Xx extent, stands a to payments the XXXX the adjusted to capital million cash of and, Timing of of were leverage of AMI $XX.X January in half higher from reduction. in last purchase drivers XX-month lesser primary

year, to flow we we expected For exceed the expenditures million. to approximate year, the started expect free we capital million. continue $XXX cash to $XX When

year growth of delivery will Some push on lead based spending into and this next schedules. times supplier

growth. to of about continue organic growth opportunities be long-term excited We as drive pipeline high-margin to we invest our

broaden assuming that steady In in payments around dividend, with quarter, while a net our financial quarterly through share state, strategic $X.XX XXXX strong initiatives, capital our ratio have and paid flexibility we to X.Xx. We half, the organically no acquisitions both a totaling acquisition execute returning to million. year-to-date activity second a the to we per $XX.X shareholders. at exit expect capabilities, leverage second In

rate previous in remains used million expect respectively. The by sequential capital the back million equipment and In $X.XX, $XXX of $X driven magnitude to approximate XXXX advanced XX%, per our our XXXX, $X share sales sales guidance view of continued primary the to consideration and at AST, growth time, be we in to for shares $X.XX, our $XXX flat we diluted adjusted full we we back and in narrowing normal node between factor improvement calculate we now to $XXX outlook and into factors half. versus for The outstanding coatings segment normalized total seasonality to adjusted of half half. in where share slightly a Taking now range per critical of mid-single-digit certain to year some are Moving XX certain cleaning semiconductor diluted second million, adjusted earnings continue Technologies, the to revenue ranges, view view our previous expected expect and growth. to and half, EnPro million. Sealing our EBITDA now to product guidance. our firm the the and that return In demand low earnings in know guidance the and million in $XXX first tools. better in than see stronger approximately a is of the current this all the business, to demand also expect in-chamber versus lines, compared shorter-cycle refurbishment improvement at earnings We to recovery from is tax adjusting

and the positive We continue call comments. backlog commercial will the turn in vehicle closing back demand. I will now to for help offset to strong Eric mix see that weakness OEM continued

Joe. Thanks,

of profitability our to in are We markets. reported demand delighted the have weakness face strong certain of in

deliver we and no our critical leading-edge attractive our with drive better opportunities us flow today. cash and generates lives. Thank environments for that high-margin to margins Every portfolio be and returns, you several advance critical again strategy safeguard balanced is applications time day, There EnPro. for a long-term and of solutions meaningfully our Our customers growth. part joining to impact

welcome We questions. will now your

is [Operator question Instructions] Steve Our Sidoti coming Ferazani first from & from Company.

margins. ask Sealing you're some are -- you still you your to expanding the the about are Should -- Obviously, on want I challenged. I margins. generating mean, markets First, strength end noted still of those

is cost as a sustainable really some in broad much cuts are of question this kind that? it's there sustainable environment? maintain pricing you how question, the big Can mix but... that I may How came And of that is is general, know in that revert? well? So there

very The broad very, answer Thanks, ways. on you is a well we variety Steve. I'll answer. execute give of big a

chain and We good. our volume price. the are expect to supply had savings, We very some hold down mix

our right from typically XX-XX been aftermarket now. shift see commercial OEM, XX-XX, about but You mix vehicle down, are sales the has OEM it's

margins, propping So with aftermarket up business. it's commercial much better vehicle that

well is strong businesses in of it that good have and variety execution. environments, We just really perform a really

Our to way. sales continues the focus drive on aftermarket

noted, performed quarter, plus extremely you in with the We second or Yes, I'll in minus Sealing sustainably that little XX%. Steve. We in bit margins add, as at think range. XX% we're a well,

that and slightly seasonality really quarter. sustainably second that where our the think teams margins. range about general, than feel half Sealing come first lower the will for are softer been strongest we're the be historically or has talked our we We XX% about plus in will quarter the in slightly margins. minus execution delivering, and But that good with half Second we

some of been new better about know of you've give us you how products on be is market a given that meaningful sense contributing? Or Auto-Torq. might Is much assuming that it Can pretty contribution? excited get I'm not I the of necessarily size material? these. that pricing whole you

it by limited better. business market year, the and That product time. incremental, material. it be today, ramp We're even It's I up the excited over much we next call but how but produce will will wouldn't is for can

certain future key as we that on side it's in gas like opportunities generation kind components Yes. invest in very power platforms add, growth this in both very with exploration. sustainable and continue growth of auditor. to pleased Eric we're I'd But indications also and And in noted, in we've at been for seeing point. commercial there. to successful early natural We're critical on the -- incremental space aerospace and in nuclear also incremental

Are margin end those better markets?

best-in-class Generally, we've of a we where We segment, rate advantages really press best strongest. yes. the we want up we're want have growth little kind continue the the kind to and bit the And to strong to as of transformed show margins. where to just invest kick

terms quarter. That's we're getting meaningful and size, into meaningful but accepted market. the the in in in product nice got the this ways we not So order any sense WavePro our that of for a

in factor a the X/X segment again, And aftermarket we're excited that the super about. position is governing

Excellent. AST I could If it over. turn turn briefly before I to

mean, this the And whether quarter. -- the In the some be more I a the saying know right. of give actual market conversations, changed? customer terms we've guidance, whether of heard can have sources of slower sort might earnings the of to the recovery? specific the all cited recovery around profile little bit And a versus sense for higher calls you been timing they have conversations you I But

-- about has pretty more significant where think recovery say I almost of happening as a and we're customer focused is that destocking. less underlying kind the And thinking conversations continued we're would industry kind on couple kind if where to we're of of execute of its strongest. I about after the years, a what's semiconductor about

driving for But You've substantially, utilization is sources. of underlying which those still underlying statistics some seen capacity light. memory is growth increase market external prices

follows. are seeing still So term, longer where -- little dynamic strong as drive gets we capacity variables continue that Not on you absorbed, higher, we're And slower platforms, we're in capacity that spending of in kind semiconductor strongest. to in the positions have units pricing generally that where statistics new to capital industry utilization a recover. very that, bit invest

it. right out There's really build to utilization, a capacity has a to little the right. just but customers, slower. just a We're to the down of some of bit with lot seeing the It plans that's being them little Nothing ordinary. come

Instructions] is Oppenheimer. [Operator next Ian Our from coming question from Zaffino

This on is Isaac Sellhausen for Ian.

just maybe areas I positive some side? turn could the on Just seen It any seen a the sequentially? quarter? follow-up on AST. Could areas far you on guess, as that yet you've started just in you trends like if know you've as to I reflection you just noted. you you've corner things capital seen equipment some sequentially that, but have the growth the touch touch moving commented of on few that sounds second improvement past a that

very doing and whole is business cycle. well the cleaning Our had throughout

basically grown that's every quarter. So

of continues be that strength. source So a to

recover starting I a is we're there. it getting where to little call green orders or bit. business would here new shoots coatings some Our

little chamber We up see momentum. picking recovery. again, just some of parts also of a bit end it's our But a gradual

look long-term for it's not well have be for things this and A stick. hockey very we're positioned consistent, get recovery very we slower So but we a through good. once and little would growth than liked, to still

those the as entail? as improvement as us Understood. in of what sort segment. the you you've then far just investments are well? in Could And with growth again you've of about we investments the as far U.S., in sort Asia where And Okay. that talked initiatives then as made continuous those investments the and remind

a this Our It online. testing about expected. ready is significant. you We of bit It see than if may come which earlier to investment just Arizona little be even will revenue year, ramping up, and would be will. be will

invested also We in Singapore.

just there both in in invested we're we're waiting expansion, and to well business key positioned take for off markets, So markets there. for

improvement you is owned what in we're When it's tackling. don't of as businesses those efforts basic me, just Sealing It's system. same haven't We continuous at just really and look -- just EnPro terms in long. do not the in doing -- we just to Technology, blocking thing In I operating AST.

see a consolidation. So facility you of bit little is what

You're for of moved utilization a seeing better activities, people, some of equipment utilization around narrowing machining lean being our footprint bit. better and little

execution. So continue it's chain will, that supply way, of everything. if time. It's bit There's you little little good bit a just of will bit is It's basic anything. price, and to the getting of a not a team improve little And over savings. EnPro

Hammond today from question from Capital Our is Jeff KeyBanc next coming Markets.

mean, -- AST on sequential point a on finer put improvement. I Just maybe to

to Just at to as -- is XQ should bit a that? XQ? to XQ XQ we little than Or stronger look being it similar

about we talked over coming quarter, first out right, as expected slight first we Jeff, of improvement Okay. the quarter really a quarter. second

year. I think of to gradual year. gradual than coming looked year little improvement we'll rest half more than sequential like we improvement quarter-over-quarter still a that but half where going into through kind second back the the of more mid-single-digit of the through this see the a it see into Definitely continue the of the quarter-over-quarter year, bit

as We continued into advanced Eric through about, see we nodes, our there, business, of continue talked and see strong refurbishment good some performance the concentration moving our to cleaning growth cycle. as bit starting in bounce refurbishment a period. recovery work pick and and again, here to there. in-chamber and strong versus just gradual up it's strong a given And any tools little are more back And

for really doesn't and in what seem U.S. seeing hearing Sealing, just Maybe back U.S. helpful. we've truck, think about of outside kind the cycle. talk PMI building short the softening I half? you're And like weakening of kind just short and it in that. been cycle Okay. That's of then Maybe you're

We're seasonality. this Jeff. seeing that We're point, in our at building not normal

If in seasonality still at the We're you about usually over model. XX% still in nuclear, look in what that's building we're first the half, second XX% strong time, into our in And half. strong the very space.

of there. vehicle some part there's and commercial is mix good also So things The it.

demand Our still pretty is strong.

a just normal building we're now, seasonality. right So

Yes. any And I in any significant would add, or not destocking stocking direction. we're seeing inventory

Our still and firm the in now line feel half. we into distribution head is second pretty and as things with demand, order right demand

last just then on And CapEx. Okay. one

assume you I And what $XX anything that million, you is? that I you I'd thought said think think guess, into you do 'XX? short, fall number falls

next Yes. in growth standpoint to strong it's this pipeline segments. I we that both the organic a leak that of chain get side in a the just talked and heading supply or on invest just for And magnitude really were And ability a looks mean of to right towards the bit like at execution some year into the us executing our suppliers' little in million. spending It an year. little time. the bit. X have opportunities plus may year, of minus we equipment We've about timing to of into $XX

So really most to behind. about that committed we're spend excited of feel still we're lead going growth long-term and investing XXXX the likely to is just timing It's a little. projects, prospects extremely those into

end any closing the to I'd over floor James turn to further for We comments. reached session. question-and-answer the like of our back

everyone. your Thank Have you great a interest. day, for

teleconference today's conclude does That you. and Thank webcast.

time, line disconnect today. day. and have wonderful a We thank you at for this your may You participation your