Gates Industrial (GTES) 4 Aug 232023 Q2 Earnings call transcript

Hello, and welcome to the Gates Industrial Corporation Q2 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. [Operator Instructions]

I will now turn the conference over to Rich Kwas, Vice President of Investor Relations. Go ahead.

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

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

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

now which X the our refer within to that reminder forward-looking Act. presentation, of the will meaning a Reform the remarks Litigation of provides include Private Securities statements Slide Please

that we obligation from implied to statements. update to described results and could other in we subject actual are have forward-looking such the our others, by expressed We statements those these include, SEC. matters statements. These that filings recent Form report risks XX-K Forward-looking with any on among cause in annual risks different make in most forward-looking disclaim materially be or to

you. Morgan of later Laguna many Conference. the We’ll be RBC forward the third meeting Conference investor with attending Stanley and Global in We conferences quarter, including Industrials the to look

Ivo. With that out of turn over way, the call I’ll the to

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

presentation. on Slide begin of the Let’s X

flow. our midpoint strong and solid profitability Our as QX the delivered cash well as achieved revenue global teams free guidance of results. We above

both automotive and of high fueled revenue our in the EMEA growth channels. single geographically nearly was The growth growth vertical core by year-over-year. digits organic led region Our first-fit with strength replacement X% across

our the however, growth expectations. of Our a little rebound impacted with high of period, year experienced short fell in China a nice prior core year-over-year COVID XXs business a

constructive globally second We continue somewhat above products realized the last end expansion the compared trends demand automotive exiting and to quarter demand across mixed more We end year. industrial and the the book-to-bill for our our margin from strong see solid We markets. in to remains see picture one quarter. market

Adjusted our basis exceeded XX% EBITDA normalized more and The expansion a supply revenues chain operating stability EBITDA points environment EBITDA fueled the XXX basis period. margin We year gross compared prior was expanded experienced to We delivered and on the a XX%. XXX greater margin. year-over-year increase by flow-through in prior relative from high points a to incremental benefited margin quarters. three

cash flow free of substantial represented improved to XXX% earnings generation as the normalize. prior continued increase stabilized Working the nice Our for million have free conversion net and operations contributed also were flow $XXX income, our quarter. the for quarter, cash and period. versus capital We year adjusted generated have levels a which highlights versus conversion to

flow to is delivered of Seasonally the half calendar as year, the cash in our half of strong For second of we bulk almost performance cash the usually our of first flow. income adjusted net XX% free free generated the the year.

from buyback we ratio from returning to benefit a updated successful $X.XX. our adjusted range range leverage May. share also repurchase our shareholders the a $XXX of decrease following to while million net The includes $X.XX ago $X.XX year on Our EPS our lower period in count our via at quarter outperformance, a share increasing from are second X.X times, the finished share to May. substantial in range $X.XX Based to

Slide Moving to X.

foreign year. approximately X% headwind to were translated year-over-year. versus the was quarter Changes in revenue total nominal core Second $XXX currency of prior which a million, growth

to compared was channels on-highway in Of both year-over-year, was construction diversified a healthy which revenue growth industrial solid Energy, QX by produced agriculture, markets XXXX. end the realized and The first-fit mobility. and and channels. automotive replacement personal offset double-digit softness growth across bit growth Our remain core choppy. industrial

was EBITDA period. $XXX XX.X%, an representing with was and compared the margin prior-year basis expansion EBITDA points Adjusted XXX of million adjusted

driven of improved chain. price compared the trend margin realization stability greater consistent due is expectations operational that Our to year. at our headwinds prior-year less in by the period, favorable to supply and A with onset the

adjusted expansion. the gross previously was year-over-year As margin by margin improvement mentioned, driven EBITDA

XXXX gross expect year-over-year the improvement as margin We of in second to show half well.

repurchase provided share growth EPS partially May, in operating Higher income was increased of the expense. accretion to offset $X.XX. year-over-year the was share contributed Adjusted per approximately EPS in $X.XX earnings executed interest The by net quarter.

review On grew Transmission points of was a growth first growth at at automotive million performance. year-over-year. was rates growth the QX core more increasing to rate end than XXX of high Slide The market with a Automotive of compared X% core revenue the we segment channels our $XXX and headwind. replacement Currency and In basis segment, the Power highest let’s similar for segment XXXX. X, posted year-over-year. fit teens slightly

in transmission’s Construction softer increased and partially EBITDA mitigated our adjusted and demand double-digit growth, personal margin industrial QX to XXXX. XXX points exceeded basis mobility compared EBITDA on-highway and core end diversified incremental XX%, by year-over-year, generated margin markets. Power

environment. from well operating and executed less Our benefited a team volatile

of on $XXX generated a Our revenues declined million. year-over-year Fluid core slightly basis. Revenues Power segment

channels core the and our Our and and growth period. both, replacement down year mixed prior first fit were slightly industrial markets it’s end versus in

posting core year-over-year. The relative outperformer solid construction was growth vertical a

compared with prior margin infrastructure performance benefiting elsewhere to investments modest Operating are resulted in was period. unchanged. revenue and occurring largely We the U.S. growing leverage year segment which from the only limited, core expansion in

our pass on to I Brooks details over the now that, call results. additional for will With

with channels growth I’ll significant our Please growth first that Core business automotive comped core delivering year’s last the X year-over-year the and growth and led Ivo. the by markets to occurred The the rates replacement core quarter induced second COVID XX% performance you, realized China EMEA. to China growth. was region. on-highway year-over-year review was in quarter. revenue turn our shutdowns fit Thank end as strongest both and Slide in and second by

Industrial core EMEA first revenues was replacement double expanded exceeding organically driver growth fit Both year. varied was compared last core prior EMEA growth and In aggregate, growth certain business revenues performance with and others. with year. digits XX%. primary last growth market auto in X% our in digits declined growth industrial increased versus the to core markets declines year. Automotive single core to compared the low

a modest channels the performance compared decline prior we America, first a revenue to saw core compared of record North year. a basis The decline last to replacement In year. fit and revenue levels experienced similar on

energy mixed in top overall and in a personal we demand softness core our positive East model. company's delivered end were market organic markets were variable and of good in aggregate, In diversified diversity with the growth backdrop, channel business consistent agriculture Asia and and the and industrial, with End core underscoring line construction performance. South our mobility. America and automotive, rates growth growth resilience

$X.XX On a approximately provide Other count per growth. expense per positive about XXXX. per net average Slide including benefit of share $X.XX income share weighted was Improvement share. second the headwind. operating earnings of items, X, an we earnings share the contributed per contributed X% adjusted in reduction, of walk from share quarter Higher a interest

and sheet cash summary flow to our Moving performance X, metrics. we Slide of balance show a

our for and a working from conversion well more our margin net adjusted free flow cash cash On above We conversion was is $XXX trailing capital. expansion flow Our basis, income. quarter million trade normalized second the benefited or free of XXX%. XX-month XXX%

company. ratio ratio leverage We quarter ended a for leverage with net in history turn net ago quarter the Our to declined by the one as our lowest publicly versus year traded X.X X.X a times. second

cash consistent returning generation strategy capital debt continue flow in as to strengthen balance a we our business, investing paying the to capital shareholders. allocation and execute us Our strong sheet to allows down balanced of

increased Our and capital points capital return year-over-year margin driven trailing XXX by XX-month on invested disciplined management. basis expansion

guidance. Slide Now our to please to XXXX turn cover X updated

a We to slower have the of expectation X% our in X% midpoint, stocking to mobility growth the core realignment trimmed largely space. personal growth year we our core demand to X% industrial from full to China for X% compared in year-over-year The OEM the previously. from X% guidance. revenue adjustment expect trends prior stems At in and X% range

narrowed at low and and range the the million the end upper EBITDA maintained $XXX XXXX have year at million modestly end. We at to our million guidance midpoint adjusted $XXX of full the $XXX

structure We cost lower expect markets in more greater gross revenues margin industrial from a to expansion driven stabilized offset operational productivity by half. second and expected the

incentive quarter. We compensation second in variable be continue in to expect half third headwind the margin XXXX, EBITDA of the will predominantly an

approximately to guidance our have raised exceed guidance free conversion which offset share, per year share repurchase interest partially adjusted of our flow forecast cash the share prior per [ph] of incorporates $X.XX have the share by above expense. our XXX% to a benefits conversion. net adjusted May's we to earnings higher XXX% per of $X.XX for We Further, range

$XXX third related million. the by improvements revenues of to QX quarter, expect For flat SG&A as is in margin million range compensation. we to expenses variable be the higher are $XXX to gross Adjusted offset to to compared be estimated XXXX EBITDA margin in

over With to turn will Ivo. that, I it back

wrap closing questions. On Thank Brooks. you, before up Slide XX, with I'll comments your taking

progress obtained the the and first are year. we pleased in of half our the First, with results margin

operating Our to throughput as improved will half EBITDA XXXX, first margin and margins. our of rates the approximately in productivity We the by year-over-year XXX anticipate expanded points continues led gross basis normalize. improve environment

the in second build to benefits the expect half. We

at the the slightly expect maintained year midpoint we expectation environment such, As a versus XXXX guidance less better performance and the EBITDA prior second half. for encountering demand while favorable adjusted our margin our in

are this into the this by in completing facility a We end calendar we project existing process China in Furthermore, footprint. year. of anticipate consolidating our of

enhance We initiatives will have underway of and of profitability number that the long-term a company. now actions the

on year. first cash cash at we free our for quarter conversion XXX% a adjusted a half significant exceed XXX%. basis, track On amount in net and our to income Second, the generated are of flow conversion trailing of four the stands

net free our generation flow substantial reduction. cash is driving leverage Third,

of We a X.X a approximately expect decline end which year XXXX. the year-end with the represent net would times, ratio from leverage to

to million shareholders accomplish our and firmly can We excess that to we accompanied balance cash be returned Notably, May’s cash having opportunistic of capital consistent by sheet shareholders. that utilizing while diligently via intend believe repurchase. share improvement to to $XXX returning plan stay

during the thank associates their for major our ERP commitment your Before Global quarter disruptions without to a I Gates to executed upgrade XX,XXX who dedication and the want team, North any America moving business. the questions, especially to

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

question the Halloran ahead. line Instructions] of from of Baird. Please comes [Operator Mike go Your first

everyone. morning Hey,

Morning.

Morning.

to recovery about the just curve back want about bit point. as half seeing this the and through talk we're Maybe of the how at Just think you inventory, of walk to more the the channel get stress markets kind a in we inventory little year?

still is I'm Yes. Good the question, balanced would point the Look, I out come first data the that demand there. it's Mike. I'll inventory – and back the quite out to morning, demand. that taking

a So in the situation are indicates the actually fairly good data solid underlying with and balanced, demand. reasonably a point-of-sale shape the reasonably inventories still that is

So channel. we are happening with on the constructive fairly what's

destocking, that's what's course, that, that half, been Of anticipated we going the the have associated to we second believe the with we segment. some and choppiness have Industrial seeing in particularly certainly in industrial happen,

some that would I channel as some logistics and Power example. ag see in an destocking and applications Fluid say the and distribution applications for like associated destocking, we

doing as that a our just are in shortening, is to customers the to channel we a our their as stabilizing have times have is to feel also the chain be going normalize lead We as been business. supply movements and inventories well, in resulting there

So not products imbalances sells and us a with channel in really right partners sales out. are our – any not the – seeing we of our we to are channel business, nutshell, now, seeing

here. some but of in So been seeing. what color maybe a markets a little of long winded, the that is end we with little And and happening weakness bit more some vis-à-vis have the

Ag in seeing in out Look, space. I'd And particularly horsepower the smaller a there. equipment. on OEMs, mobility There's we been well I OEM most think are reasonably stocking personal that say prominently, that's lower realignment documented that an activity

the has that seeing the And that. again, some down of are over I we three last warehouse to some quarters. automation kind So as two of slowed space, of said,

that how kind of that's of represent some our obviously, it. America, with there. we're industrial is So in biggest I would And North business and seeing

the revenue that. where you puts cadence margin of laid And you good the the certainly for what prepared out the the twofold performance I in on more static in. quarter remarks, to A the things, side question. Appreciate takes. – understand relative came in and sequentially

thinking margins have margin you add will do demand then as are positive one. regardless how exit about of – think track drive environment. how segment know You the the you're that you about gains you help Could we mix do exit you What might that year? think this progresses? and with the think ability secondarily, you by how I very And the rate? to

level think So next how setting a looks maybe for just implications rate you bit and the of little that and year. exit

with start the question second me Let the of first. part

half expect that be gross the to back We year. is in variable going comp; of margins especially out improve the a headwind. in We continue to called QX to

our variable to again offset bps about of SG&A by million. $XXX improvement, to up points XXX back QX comp basis XXX margins think then on looks SG&A. about And XXX to that gross XX what the million you margin being bps when about $XXX the So gross up half with variable in in the year, comp, like, with

margin toughest maybe happen improvement. our that's a bit so thought last with on priced year supply And the inventory line going in gross remember, margin through to little the terms ahead the to of chain in we year. of was some relative really And highest last in of saw of quarter QX disruptions second gross as half where the flow some what was we

expect you're we expect if we year. into opportunity see let looking if have then On to my margin what margin let mix to – me move see is for. as to question, see next answer your we to me So can improve, I and continue gross gross

softness in the personal of you be our some improve. business. bit operating So the seeing a When stuff, stuff performance second a mobility overall, we're mix. is our some softness at of on going headwind some higher-margin is higher-margin to of to our continues the of industrial look little the But half in

through share. to earnings still able we're So maintain even to guidance offset our that flow a and and EBITDA per little get

little headwind margin of on gross a perspective. performance the net-net, an So operating from second by mix in better offset bit half,

answer where question? about margin good are pretty your feel a we that from perspective. gross So we Does

when my progression Your poorly looking for it side. look by out you down by was was super the some... break and I, XQ helpful, worded I segment? mean was at does how by – but XQ, margin I is laid then on for – mix, I you've that answer

We We out in total don't guidance terms. give it just segment. laid only by

Appreciate it. that. for Thanks Okay.

Yep.

Kaplowitz question of next go Your from the comes Andy Please line Citigroup. of ahead.

Hey, morning good everyone.

Morning, Andy.

Morning.

that XX% guidance. expected and the give could Ivo, on mentioned little little seeing the China, in more was than what a us for you You growth a worse color of the reason you're core by you but region? lower part

difficult you talk Is on could seeing there there? America. else about outlook mentioned for anything or that year? what down of the the personal ground happened And So your then you're it North turn in and a the sort rest over there the mobility of comparison you

on had happening Look, we second our Yes. companies. reporting around what's No, obviously, kind at looking the vis-à-vis great. terrific some of China, competitors quarter, there performance out of and quarter a

hold But bit what second it to seen. little a So I that stronger than really we down is were I a further And say well. would executing speaking, slowed recovery we've China if that team anticipated, anything, feel that little really, going as exiting quarter. the take is have frankly we

low anticipate flat second kind So imply we up what be the which robust to the as going that digits China now of single that recovery as full the thought. is in is to be year going we not half for would to

Auto obviously, very well in of as both side of the kind I the on strong, OEM on side our look China you at segments, franchise. mean if replacement the And is as

industrial surveys. more China, performance see And certainly, is strong industrial look some some little performance. think associated in more some mean, But in And take again, of I of there the I with the you is think – And of taxing of a kind mobility see line I mobility, externally we reported. bit in that export terms with personal rebalancing. personal channel the at you numbers on our on just data, that a what very question it's is activity weaker. automotive the

So weakness the over But in in, headwinds remains months, the of activity we lots equipment of our that robust. has some market. was have been incredibly short-term to end seen the some creating say design consumer that that's roll I'll and built last kind there of XX

that a very opportunities million a all-time in We opportunities that's have at we rate, pipeline. of those high of pipeline $XXX converting high at nearly are the

we and very mobility. of our QX, in for to significant So midterm a we laid deliver number we've programs very awarded down were that confident on in personal that to our continue are ability objectives

ups a stated and strong will future mobility, but downs obviously, there – be in I of for business. that some So very it's I the think deliveries the very, prospect quarterly and in

half headed you you of – [ph] is mentioned And price you that? working then XXXX, the enhance of And into trending and talk Gates seems you confirm a that go it forward. into cost XXXX? Ivo. you as XXXX on as profitability thought, like than could Maybe second could you're versus some can you that number helpful, of better you then Very initiatives into head initiatives but about these

Did cost the Andy, question? in it's Rich. about you part the of ask price first

Yes, exactly.

Yes. quarter, it quite in positive was obviously, albeit and half in Look, more It positive. second price/cost remains moderating. remains second positive

performing to are will is but significant see how a environment deflation, the to level half. operating we some inflation obviously price accordance continue in of degree. terms in in And with starting the going of not to to second be We

projects Longer-term

On the yes. longer-term projects,

to number So realignment. we've projects spoken in bring of a about to footprint of operational that terms we foray having anticipate a more

Shanghai. We of That's simply done into We facility in a anticipate of moving Shanghai in area it end year. executing of by existing have in in one closing China. will facilities ways project the be long that outside our the

a savings project. good that's So

the underlying that next projects we quite is catching obviously, that are believe set can more capacity to position demand And the that terms expect goes of to trends, as of where the profitability. of that up. deliver we number over that the XX/XX aligned kind derive give we've is continue demand point. going to initiatives our XX benefits opportunity to proceeding our a to be and and business of our us are we we projects we we'll incremental five lower a in for process spoken are anticipate a We be have months, as And with breakeven execute well. to incremental to of able number a number year in

confident that gross reasonably are we earnings. that expand So, can have into operating translate and our ultimately to profit we continue

Thank you.

comes of question line go next of Your the from Please Julian Mitchell Barclays. ahead.

to Thanks, morning. wanted sales focus bit. a the Maybe just good looking sort guide of on out

I digits. So, single implies quarter think year-on-year, your down sales guidance in are organic fourth low maybe the

So, could history, you And the think seen I public the downturn if just confirm only of context in I since came when that. that I’ve was we wondered you then about think think about terms you six of seven of sort next the about quarters, you. quarters long How sales. advising in longevity of to the fourth quarter? are that us downturn Thank starting in

good a last you the better when away, QX than QX and as disruptions, to was top-line set. that’s It those in last were year strong in really a chain we level supply go – terms as QX, of did and see started gives to to really we year. better Julian, we question. some QX saw Remember, disruptions we me opportunity and Hey, had an of started

you just was to driven this disruptions. the think whole chain year movement by comp supply and more half the back because so comping, the some externally there got between back you’re of to quarters in that And XXXX, half want of really, about of you some was to

the of growth single the that’s the of of a But of earlier, split around in to happen half in headwind expectations a how we’re QX most little how Ivo is more quickly guiding the So headwind year. perspective the recovery bps And on than low you the still overall through a and of half year, from look QX. core the question is at quick the personal of half QX, magnitude between the bit evenly lower there. bit when a piece It’s coming as from, on to of recovery the of pretty net-net, back digits XXX back mobility. right going that just in China. year. is recovery impact and little said the the The you’re back industrial industrial And

on then the let And question Ivo longevity answer of downtime. I’ll the the

different. performance. fortify is our every slightly would we Look, to downturn I that say continue

very think, the car of side stability see with positive you more the on replacement business reasonably we car aged as of aging associated that are discussed car other calls Fuel the performing business. people our fleet, growing executed, upon I in have is affordable. is There we well. based more. initiatives That some should fleet, have park driving trends automotive are

we I seen a that So initiatives, as we whatever for robust with slowdown move have some a we you combine I the past. maybe, we through than it the had organic our little have wish believe When certainly real of ball in more should growth that crystal you. performance perhaps good

Julian But lines the look job industrial indices some on a some from that do should do also trend activity. we bottom that those to speaking, start means track indices trend. at should generally and when reversing fine you when publishing the we of And they trend that seeing reverse start you all such the

a ability crystal flow. out but is know we continue Protect cash little feel a cautiously our I the to free I about answer, give profitability, in our maybe to optimistic clear you drive So, there. through whatever more didn’t cut future manage

where think sit. our And focus benefits. of early kind to on I we both that that’s is starting show

you. Thank of on helpful. maybe a then items. just following up smaller That’s And couple

on CapEx of you Just the interest this And revised the the expense year? said firmer a budgets Any any budget sort down XXXX. come think CapEx of bit second and half sort for I outlook then steer tax rate? for

rate, going pretty net the We expense And between we in were split XX% teens. an evenly a term QX, talk what euro right in with year, around perspective, full that’s kind interest interest so about talking down expense. be trending about interest tax total to that’s the line And high – bit. – quarter the should we’re our I’m – for is year. to pretty when said between fourth From but XX% lower the of of we last had be net we in in On earlier. our remember, evenly you up refinanced split year-over-year loan little

and there’s of higher there’s other rates Loan of so rates dollar-based of impact impact the the interest the then our interest B, And the the impact. on those half that’s higher U.S. Term and

second it’s third – half you in because there some there think, the So a first a what in and the third I about was the I QX. impact I those it of interest. Was half, interest half, is kind got in question? of get Did rolled I one? over Was – rates got tax

CapEx. third the is with the And question

Yes, that secure our reducing I aligned we dramatically fundamentally equipment. more we’re Julian, some the of can CapEx. maybe going new our with It’s to believe that don’t to answer ability question. be

$XXX to number. of going Some the full believe that But the don’t somewhat good that million. to extended, on lead going still spend striking we’re we’re we be just times distance are and in

So an of reducing issue it’s not dramatically. CapEx

Your the from Josh next question of Pokrzywinski Morgan Please Stanley. line ahead. go of comes

guys. morning good Hi

Good morning.

are to question approach are I are volume just context we Or higher? versus are a in there’s say, cycle fairly differently. like decent close? the know Ivo, maybe the pre-pandemic Like Or seeing I of levels? And volumes guess I’d price you there. we today versus, like What on trends? of maybe price amount where slightly

how are we just the fundamental really last kind away on from volumetrically. set really level to far of trying slowdown So

would volume volumes just you was thought modestly question at somewhat down our lower for I prior thoroughly. on haven’t interesting But completely peak. And that mean, it’s QX, are an asked. it we I really than the – Look, Yes. I quarter.

is – as the that say of industry I that there. lower globally certainly the coming think seen ask in impact out quite that prior have first-fit I has lower So of very, most very mean it fundamentally, we rest kind I was rates a I probably pandemic. it’s industry is dramatically automotive is have would prior performing been mix, me, And you the from very strong. that that’s than the now biggest and kind think ag it’s of year, well, slightly year if you

of So rates the moderating. you see some

I strong, construction equipment, it’s Look, is States remain infrastructure on units some of mining than and the prior significantly quite quite certainly lower in here as activities to the we’re elsewhere, that United the oil peak. and think in continues and supported and as investments that on making business well gas

activities that indicator you underlying So, Josh. don’t I’m reverse I – mixed out. – things the say I at industry that I think that it’s point – is think any I there time, that the that a is there picture, wouldn’t that peaking is has that in I a think are specific that moderated may the and And last XX be months. seeing over have ISM optimistic as PMI with cautiously an start bottoming trends in that actually this

volume of – the I versus to like going that or with Is that it phenomenon price most not necessarily And revision is at here I’m really guess through pretty That revenue channel, seem representation? side? sense. volumes normalization, particularly not stable. more otherwise, pervasive things to one, makes fair and a price that sticky on least is not I sell-out the like seem a Yes. maybe related we’ll the sounds otherwise, work price, having a give not and like Because, guess, you’re overheated, but back

obviously, in our think you customers’ have I quite activities. still I trends fair. of see sellout lead actually times, normalization basically phenomena kind that what’s the happening impacting of positive I is very I in of mean, channel. think reducing mean I that’s – of that the that

think weaker. that that Josh. assertion a So, I I say China that’s would I mean, correct industrial is, activity

that in terms there. the personal side, definitely here. of volumes volume robust course, particularly we some very is kind weaker the said, of of so there, otherwise, you I of as there’s buoyant side and on business. reasonably activity again, industrial the but would say kind industrial so And And I Europe see activity channel would muted, remaining the say mobility of

terms I of and of of of not pricing. a kind really realignment and China takes. and to we deceleration trends, mobility personal industrial, a It’s really the seeing again, puts again, in the some So it’s what takes. in puts then think more It’s are underlying

it I what the the think rest of with onset anticipated of the year. is in we’ve line more at

you. Thank

the Your next ahead. Hammond Jeff comes from line of question of Please KeyBanc. go

Hey good morning everyone.

Good morning.

morning. Good

versus prospectively you XQ trying XQ? come? on got mobility was Just destock and happened rest destock. personal is it how a much it fair I’m just say Is of you the prevalent clarification in it to in in XQ in then to understand kind the more more of saw – much to how or is

Yes.

QX so relatively was muted. no, So

customers, outlook on pretty in like that. second a side the and the in what aspect from much half they have personal really through kind end-user’s with both how managing things perspective terms the want through our it’s got that inventory. they’ve it’s And of mobility and our customers as in entirely product. of our inventory work and an managing And warehouse We of chain that’s almost good supply have, what they their and inventory really that

So it’s almost entirely prospective.

then for there. strength heard And you second about Europe made you see couple Europe. choppiness half how of but wondering this about the auto Okay. Do a Ivo, comments, thinking you’re We’ve just continuing? a little some

Yes.

very standout half a second there. So a was first, start outperformer. for XXXX Jeff, strong had with real performance Gates, me Europe of let We

Europe I a So comp half. we have in that very difficult say would second in

kind business the vehicles continues I’ve starting OEMs. quite other with the outlined be that believe from to improved continues output So the OEM that, underlying trends trajectory again, the that as we of and And with of auto used strong.

really that of reasonably our choppy. we you continuing good auto, sorry be And then, line, mean, you more with am continue can you it nicely or most is above industrial if trend for the couple that kind but can word a would, that the have And line. caution is are associated shape. have of I months in are and use feel months than I less two then choppy, So is, activities to one a trend of to

up real no there’s down. straight consistency So or line

side. we Europe so on cautious in And industrial particularly are pretty seeing we about what remain the

Thank Your Please of you. Evercore ahead. ISI. question David of next line [Operator the comes go from Raso Instructions]

currency what’s for impact the for year? question updated the Hi. Thank my quick you. on full the One modeling question. real before view Currency year,

QX mostly digits the but So half, it roll it’s very in starts a back low to in the favorable, to QX, modestly. half, very going when single over in back be is because

David, think year. the for about flat

year, the in slightly favorable back for flat the Yes, very half.

the the fourth full even trying get I’m needs little currency year, to quarter for though, less revenue the health probably in understand the What a to quarter. to third

you’re So comes about that weakest offline the the understand that’s seeing fourth talk on core, does segments X%, influence pricing math. when to you just where see we thought to given I’m the can the But quarter, implied down our impact the where exact organic XXXX? to it with Thank that how trying And greatest? do the what you. start

to started the you’ve to to and because door, and record got headwinds in the getting that more I So for of then I year-over-year, product you and said in we QX so And we QX. out because less chain XXXX. seasonally supply think think revenue back think look, catch comp about weak look, think, us I believe earlier, like quarter was a up got as I XXXX of yes, some was had the QX in half, it issues of a remember, the in QX

normality. it’s you to you split, the the look – at sales second think so, you expectations it’s XXXX I that to split, look of all at we’re half the versus at for a half, a EBITDA really kind much I return things normal the first seeing seasonality. And on about look those XXXX, think return not the When

where of outlier QX these was just all the I you think, more disruptions. saw

don’t lower anything seeing that number It’s in QX than of I of QX. you’re the there’s more XXXX. of think XXXX a function into core read QX of So kind to growth

Thank you.

line comes of the ahead. question go Dray Deane Please next RBC. of from Your

Thank morning, you. everyone. Good

morning, Deane. Good

Good morning, Deane.

a joined inventory. start, highlight on circle calculus it’s more destocking times comments late more about the verticals. lines, little multiple on off we’re times I lead to the lead some across all times lead the have perspective customers of know part seeing because I Hey, industrial please. across But hard could you burning to your the That’s bit the but compress, important an about homogenize lead that’s but now buffer if times. just your just kind you what product because on confidence wanted versus XXXX where stand I of to on back

of have lead Deane. where reasonable fluid times amount us, power times. Yes, power still I that we have the have for say portfolio transmission, a extended would our we normalized in lead And

work trying We capacity. despite by number still nicely normalize – lines we amount remain that nicely time that due power backlog in fact constrained exit added don’t to we past the guess we we as of We’re still of the transmission anticipate XXXX. I all down a have lead good transmission parts our reasonably hold across and of well, the will times

the a a through the So way of lines it’s mixed lines need reasonably some be, – kind all remain and will Deane, some where to of are XXXX. constrained the they picture, it’s of

helpful. like That’s can competitor shrunk terms Anything outgrowth times as just some change in a call any PT, follow-up, destocking. have you’d if of dynamics out lead then expectations? because commentary And also in that of about the competitive

outgrowth commentary would So be just and any competitive helpful.

we nicely automotive Yes, very the as to of well in the continues look, side. business terms on I’d vertical, AR as both say that the – OEM perform on

we we up, there, only have that’s keeping are output nicely nice So dividends. increased and paying not

not that the mid-teens share, indicate came I’m indicated auto are for we in as but we to market going quarter. taking not So

that’s And strong. so quite

I full think doing were PT. we right, impacted is getting the last that significantly again, but PT with disclosure, year most supply in polymer well,

the anticipate across on somewhat of comps are think And remain few somewhat just be lead so will I the favorable to that think elevated times going lines. probably we that I the But PT. that

you. Thank

Sachs. Your next question Please Revich ahead. go line Jerry comes of the of Goldman from

everyone. morning, Good Hi. Yes.

Jerry. morning, Good

about that it’s You that supply just on Can because drag year? gross margin of the And up impressive a margins down Was this pretty on I’m – volumes? chain talk you your year-to-date are hi. impact another first on year? your thinking there to should that. hear We’d getting in but about clean feel the it of because was comments XXXX completely supply the tailwind, doesn’t it like half chain’s love the better, we be XXXX still performance is folks versus wondering,

Yes.

some of we growth back and they the operating they a be the They They chain that’s better last of normalized half, of in in were than face more in they of year So driving the core the of if then the year better the And we gross margin headwind our QX. then in talked than first were And environment, were the half and margin – about better Certainly, of progressively performance, headwind bit in is get supply XXXX. half back in in saw maybe the little mix stabilization a remember operational XXXX. we QX the where in in drag second better that were gross second better things anticipate the you the back half little better. they’ll half they’re we had. of performance QX what’s improvement.

it So to see we get year half normality. head in about continue second initiatives of then gross with hopefully it the we expansion to margin to talked expect pivoting And XXXX. returning to we’ve the better into the that as complete

first we’re comp? to North normally which had translate in that comment lines not low outlook Super. on mid-single comps XXXX organic like can think you comment prior year-over-year tough just going XXXX America. you that seasonality, ask growth, to Obviously, would normal be digits. stocking yet, the cadence? it I’m feels comment given regarding up if first quarter just what just I seen there’s And in top talking hoping the your fourth, the to the some From I first to but on quarter of you on we’re quarter we wondering Brooks, returning but

look, the to thought the It me stay and in as gross China – would some to line probably see is it trying away feels moderate, from so top I we think, you’ll inflation a to think pricing I that. largely you’re like bit little developing I’m moderate But XXXX, Jerry, half. talk margin. second is really like see the going mobility you get to going longer recovery Look, it then impact we which in

So we be we see see the roll moderate. some few seasonality out initiatives. as you And normal But from But that in cadence make next gross we’ll kind of sure said everything to I’m to return before gets pricing guidance. of you let expansion, our XXXX margin we as you’ll normal and quarters, I hopeful through and see. when we’ll move to to back wait to our sure have we XXXX. expect know

you. Thank

Your Suisse. Please line next question ahead. of Cook from the of Credit Jamie go comes

as longer inventory cash you normalize to of starting sort But Obviously, at the look you’re of your of inventory Hi, good follow-up. projection the capital about do sort history? is you supply morning. at chain, flow over Most terms the of my on chain, opportunity sort world know, strong – the for inventory wondering thinking just one just with Thanks. year. term the as the front supply how versus you working in keep or changed. levels would Just of higher I’m

We’re material already side. the take particularly raw out on starting to inventory

we XX at And our cash And time goods, demand. already But the forget, you improvement so customer on would improvement. expect trailing our side. additional as adjusting see continue side, let’s But to raw to raw our supply the on some based conversion. look months, some not as, we’re adjust chains finished material we’re on materials, seeing XXX% chains again, as supply normalize, normalized if lead we we’re

and over which the to believe is cost rolled starting We're step for cash through XXX% in we've QX inflation well. a as the record more comps up some normalized, the conversion So business and aspect on QX, over are generating of flow again. a of is at cash for receivables as the I this

to in, back expect to So generation some more. a no, see inventory already were to bit seeing little perspective. normal. We all then But from to we cash we improvement expect return continue some see favorability an would

you. Thank

time. I'll remarks. are There for to questions the turn this Rich further Kwas call now over closing no at

for participating. everyone Thanks

a the day you any of If follow-up rest have weekend. a out. great Have free to questions, please, reach – great feel feel and

abruptly]. ends [call today’s concludes This