Atmus Filtration (ATMU) 2 Aug 242024 Q2 Earnings call transcript

Thank you for standing by and at this time, I would like to welcome everyone to today's Atmus Filtration Technologies Second Quarter 2024 Earnings Call. [Operator Instructions] I would now like to turn the call over to Todd Chirillo, Executive Director of Investor Relations. Todd, please go ahead.

Thank you, operator. Good morning, everyone, and welcome to the Atmus Filtration Technologies second quarter 2024 earnings call.

and we Chief Disher, today Financial forward-looking involve today, and Executive will call materially and Kienzler, could Jack Officer. Certain risks the have results. Chief Steph Officer; be affect On expected that uncertainties information presented slides our Please affect referred for the that and to non-GAAP measures for a on our disclosure refer on website call. the of to risks any our our results could reconciliation of

website see please pages our SEC atmus.com. the and Relations our information, filings available Investor on additional at For

Now Steph. I'll over to turn the call

you, and Thank Todd, good morning, everyone.

quarter Our another end performance, delivered see team we softness many strong global of our even of as in markets.

the an some our growth On on quarter, update update to provide an strategy. Jack our insight on will the will details performance. today, provide financial call then regarding outlook our provide and the our performance additional in for I year

announce employees a first important hard for dedication a recently and deliver quarterly quarter, strong This our ongoing shareholders to of months. global part total has an a to Whilst opportunity Capital thank listed second company. to value. we the take I important all During us our milestone dividend strengthen more work reached consistently. and return program. as year shareholder last share positioned an repurchase to to an their of XX our publicly over is the milestone, is to is X this commitment want significant our important performance sustained

in year, was stand-alone Adjusted the quarter Adjusted $XXX $XX EBITDA $XXX and increase quarter same per free in free to million X%. Adjusted cash million or one-time of to in flow adjusted second of million. XXXX. delivered performance $XX share We last XX.X% Now excludes period. compared quarter compared $XX financial the XXXX, period of million the items. approximately million the year. period and $X second same of for for earnings outlook Adjusted quarter flow for were the $X Sales strong the let's results and second or separation-related EBITDA XX.X% last during $X.XX one-time cash turn excludes to was costs our an second updated $XX in prior quarter. financial the million million was million

me Now beginning with our let global insight some the first provide into markets, aftermarket.

second positive Softer a inflection. freight during we activity see continued and yet the have to quarter,

However, performance and U.S. China while market remains our expected. the offsetting strong, contributing some remained of to beginning slow is In is growth. sluggish. Demand market strong the markets weakness to as in volume first-fit India,

our on-highway established with represents positive across factors, It of prior our a I this the be our revenue to occurred to start revenues. strong XXXX our and from value overall metrics share in is market is up flat an aftermarket At the level, year, our for from of we are and number expecting by outlook, declining destocking, global customers in repeated guidance for outlook recovery. to a chain. Compared with tailwinds to in of considering ahead We aftermarket a of aftermarket both the third-party will and Looking which predict approximately and input challenging including timing global off-highway, the aftermarket high market XXXX. reflects X%. performance range a to not global XX% which

regarding me guidance. Let assumptions this further provide detail some underpinning the

X% of to aftermarket for markets global our be to in X%. expect down We the range

we accelerate to business. we Offsetting win strategy and year of seen freight global point. not through to are activity continue new expected and positive expect outperformance across seeing year-over-year markets. off-highway, we mining as to and softness, We than is yet freight balance a Overall the the have be world agriculture the growth softness are expected. In in previously declines our still in construction, experiencing weaker turning activity continue market our

our expect be X% destocking an the outperformance aftermarket related benefits additional growth revenue market to contribute will year-over-year. growth. to X% revenue to of Adding We

destocking XQ provide our as year-over-year through recall additional normalize. may increase. were You in an from customers Pricing XQ X.X% also is XXXX supply expected to chains

our of unchanged the with view medium-duty XXXX market. declines expectations. Let's market. to market In line half are second the the now we modest U.S., first-fit where We in the turn in our is in improvement industry anticipate seeing heavy-duty of

our for We contrast, to up in flat for to year. are XX% conditions markets, the to off-highway truck medium-duty on-highway we India full X% and market are in maintaining remain heavy-duty the expected our is for weak continue X%. Demand in at remain to in while levels. U.S. both trucks the raising be down guidance truck, outlook to strong In to China

of We including partially a business quarter first-fit the OEM the global market to expected wins, in business last announced expect some our filtration offset weakness fuel business. of we new

global in all be now are prior Taken with we our to $X.XXX together, range guidance sales up to $X.XXX of expected an raising the in a to range year X%, billion billion. flat compared to revenue of

continued half strong the performance the and carry benefits year. expect of first We through to our operational performance

XX expect adjusted XX.X% our to EBITDA adjusted EBITDA and XX.X%. raising margin basis to are points of deliver We margins

raising adjusted expect outlook to EPS also and $X.XX our of to $X.XX. now range the are be We in

to announced Now shareholders would like turn the I in to we to return capital July.

a our return our to ongoing program high-quality strong quarterly business and shareholders. now million of invest the commitment allows our declared value. $XXX generation to initiatives $X.XX in authorization capital to first announce part to dividend return strengthen repurchase cash of We of The a and customers, solutions announced capital growth share this strategic to program. of share ability total shareholder pleased are our us We as comprehensive deliver

execution for remains with for strategy, you our capital I now the will the provide deployment X growth which of update. focused on pillars an priority Our of

share Our first in to pillar grow is year. first

the U.S. win platforms vehicle standards. to continue emission with the associated We XXXX and new with secured EPA have winners

products to Fuel our solve Fleetguard in industry-leading leaders ability our These challenges. Ventilation. continued to further customers' provide are Crankcase and filtration wins customers and our We support Filtration demonstrate

the aftermarket. growth is pillar second Our accelerating focused on profitable in

of our by customers they with aftermarket We when our providing share Fleetguard are the our where products technology-leading and need them. growing

to allowing our us continue around teams the pursue Our of globe, expand aggressively to business. the share business aftermarket new

have Filtration our raise protection industry-leading campaign Science uptime. provide brand how demonstrate We and products Fleetguard to and launched our awareness recently

Our chain. our third is supply transforming pillar focused on

on as facilities, have year. up by improve We availability fully our distributed on-shelf Atmus we dedicated are the of own through Over we volume continue substantially end being our stand our warehouse of is to distribution track network of on dedicated facilities. Atmus XX% all the volumes the to and

We efficiencies purchasing organization. continue costs our and investments automation in to in drive out through

the we been expect to cost our of adjusted and guidance, the performance points midpoint of supply adjusted EBITDA this demonstrates focus component Our EBITDA At end results on key XXX of the chain expand basis has a expansion. our XXXX, margin transformation our of continuous reduction. since

pillar fourth expand into is industrial Our filtration to market.

build and We continue review opportunities. M&A are primarily pipeline and inorganically, focused to our we on growing

about the industrial While bring to excited in us, a are potential taking we targets. possibilities will we are approach filtration evaluating disciplined

we Our on creating move we shareholder are when value, we acquisitions with and focus on forward will remains deliver this long-term confident value. can

continue progress. to keep We you of informed our will

detail. financial results will discuss more our Jack in Now

in many year, was our of by pricing increase to of share. Gross X% of everybody. the financial global approximately and performance. second $XXX the We gains you, and margin last in We second compared million, quarter an strong $XX X%. outperformed volumes market of through increase of million $XXX markets higher for quarter to XXXX. an in approximately delivered compared sales were of same The of quarter period Sales X%. million $XXX million Thank primarily good during driven increase the another Steph, morning, was

our quarter million in from XX.X% to $X last XX.X% the stand-alone Cummins. Joint $X million to for to volumes the same the addition costs increase same for period resulted In $X excludes primarily in also period million, the one-time driven team million from to the higher Selling, compared and and period. an functions quarter $XX quarter, benefited and Adjusted prior in we income flat research second million $XX year. second were venture was by $XX costs. lower in people-related of prior performance. $X increase over This compared of for and EBITDA or own of in second our pricing, commodity stand adjusted expenses continue the XXXX quarter up EBITDA year. or million to consulting as our we administrative million costs The the separate the was

$XX resources. Adjusted with establishment last information of believe We continue be in end the these earnings per XXXX technologies, centers functions such to to XXXX by results be the complete costs quarter related the $X.XX to of increased May costs $X.XX human of has million and was second and share will quarter reflect Cummins higher substantially to requirements. Free capital year. These year. higher million primarily of of cash one-time range separation cash million in million related in comingled previously $X prior interest $X compared related from The at to this usage to $XX was cash compared in this a million issued of distribution working XXXX. in was flow our Cummins free $XX our in expense been million capital previous compared $XX flow for to expenditures a year. the quarter adjusted primarily The year. debt Adjusted full to the as IPO from

$XX complete year. expect of one-time also the We in by be expenditures million end XXXX will $XX the to range of substantially to capital in be million and this

on the cash move flow $XX also Cummins' second for relates our to intercompany from settlement XX-day the separation, million to last Cummins full with in payroll standalone terms As adjustment prior on practices. reimburse with working adjusting our capital to them quarter, historical processing the we consistent this noted practices. are and associated call, In with and inefficiencies free terms is we we behalf

cash as the taken have we over funded As these incurred. are obligations process, payroll

of effective was by by second compared of The and change expect of XXXX. in mix driven We million. quarter approximately of rate decrease and the was mostly $XX XX.X% year to be tax XX.X% impact inefficiencies this a XXXX foreign expect operations. will U.S. between third in the The quarter complete year a for earnings full these the

and it to quarter value. million $XXX million the ended the credit to cash of our operational hand, full on total provides strategy our with us facility. our flexibility the combined on execute availability Now sheet revolving growth of deliver let's and $XXX with shareholder We turn balance

liquidity. $XXX million have available of We

the during of of XX XX. In Our growth and ended efforts and momentum has we cash adjusted for their in trailing closing, thank our performance XXXX execute months second all quarter June the global strong a to ratio team dedicated I X.Xx debt our EBITDA as our net to continued for resulted accelerates position want of strategy.

Now take questions. your we will

Instructions] first the comes question with line from of And it today Joe Fargo. like O'Dea [Operator Wells looks our

EBITDA up $X was it that on EBITDA really was performance revenue, up $XX in quarter. million. Clearly, good Jack, looks the million sequentially; like

And the more? in price, So what on you as kind the like in of could related, talked then does to EBITDA you volume margin cost. saw that particular, And But back year. side? doesn't bit it half that you of a down cost the stay and implies break the look strong guide little

So any bridge details there?

start Joe. I'll the Maybe on bridge, sequential

So story. Volume I volume bridge say, basis to as converted benefit. really it's which was the total million about up second quarter, point we a in a would revenue, the really, first to $X XX primarily from quarter about

standpoint of as In absorption would we the manufacturing the we hours some in the an of towards to second also quarter. we across addition footprint back and in our performance plants production really expect that, terms half we levels. softening And in the had saw strong benefits from year, some as look

pieces. have did really that's we So -- a moving few drove other what

recall, in you a to to second repeat in the half, second in plants some just quarter, But the perspective turn you first mostly, it I'll talk it headwinds story. bit the performance a about volume of story really warranty. if did from the half not and of half which strong was want in a little quarter had the first and If kind quarter overall. Maybe and really first second the tailwinds freight from we Steph,

Yes.

great. think I that's

very outlook, on relative much as first volume talked volume of about my the related. off is in half associated to the in Firstly, the and margin market second we think drop I really driver I the see a

big with or were expecting freight positive and in that now. on freight X half we're versus decline, decline in But first of line So really on activity, now addition say But time we've been been firstly the XXXX. and is in of early half to freight a for now some I first-fit drivers in it's long would which in discussing the expectations. the later side, turn previous turn decline we the second that, volume year activity. aftermarket subdued the the activity, broadly to aftermarket XXXX perhaps and We've by into seeing

So really, outcome. I implies volume environment. acknowledge margin that second driving margin first a challenging drivers is half, leading certainly to half relative decremental it to lighter the a that

incrementals and delivers of XX% it. year-over-year this certainly delivered how as in guide, midpoint about our a and that thinking have adjusted strong still We well implies I'm incrementals EBITDA is strong

We are company. still standing a activities standalone into separate the with Obviously, And Cummins. as from we cost up company see establishing structure expect a to that and horizon. goes the separating growth

to don't if be see in you volume like. taking half cost related Hence, directly really decline the margins really the expect So out, we in the story. short-term second is to you

this year I we the the what a at the are in for I components to color into in the you're growth destock seeing pricing situation. about I think visibility aftermarket think, aftermarket Those that guess is good it. think market. you, And of rest and related place on, Got helpful some wanted think of point, touch then is in and comp Steph, details. I would about the when that to really

And seem so it so would the more related and swing trends. to be like market factors outperformance

And visibility half think you how of that the about have the of the so you market, market continued the the about outperformance the could year? into versus into and back you talk variability just

strong feel So -- in that we've we in that our half talk the here aftermarket. we that let continue through second assumed the in we that first the do about see way that. me demonstrated share in and We outperformance. half, will in we've guide, And the believe confidence have outperformance

continuing trend. that's at -- that this say is so I'd And

the of variable that the lot little is is activity when think There's more for a around that. the does us just unknown a freight in really turn. I uncertainty market

experiencing. I think it's we're that certainly a prolonged downturn period

happens now, half we've that the year so into XXXX. back And right of assumed

I what's to and freight our not taken activity, and plays how of XXXX, we're think we're guide. recovery that's see a view going of we've inside out. in that to just But that's downwards see much a that that still in going pressure question implied

our next comes from JP Zakaria Morgan. the question with And of line Tami

Very nice quarter.

So a of questions. couple

aftermarket before. on up that following question Just from

expect be how So genesis do in versus to X% down first this my than X% you much is, in the X% the the you was the question back of year? the to half decline global expect to aftermarket worse globally The half? X% aftermarket

the the together. quarter. different fourth second half. We say quarter. I down slightly with that our at for destocking I X the Tami. saw the X% at see acknowledgment and playing first that And the the Yes, in still out the it's second destocking positive I'd spread really half you, customers at is Great was in dynamics going out that that broadly last a to market did our half. that the and on X% start in pacing speak the aftermarket under playing so X%. got the year What year, to here midpoint. and thanks guess that customers X% strong We to offset about downturn, just in throughout through quarter, here strong offsets downturn in X% second by to would then club in first in more half you've destock we're in role between

at the Similarly, the half. conditions, on that's X by So declining more favorable offset destock dynamics play. in market tailwinds second

very That helpful. is

it, guide, sales the to of full-year look X% the to growth question first get about down, seen guide, I the at So be the versus the revenue the to guide, the needs half half. follow-up you've midpoint when in is, year-over-year back call

you're date? are that back to year-over-year? seeing expecting the you Is to down quarter half trend So be

decline. that right, first-bit of the the is And Tami. That's big market driver

the but truck that implicit been Class year-over-year. in or decline the So certainly guide, has driver of that's X our particularly heavy-duty big trucks, in

question And our line comes Mason Rob with Baird. the of next from

and Again, a nice aftermarket Steph circle work to just business. Jack. the Maybe back again

are the for So I'm market the worse. And maybe aftermarket just X% so year like bit outlook little conditions a clear, in flat full up to you to again, sounds from raised flat it to the X%.

it's So in international, little you're whether or Could products leans share for domestic more there, where share, a your color please. particular? on-road versus color are outlook. in Just terms that in more it you off-road just little put better a sounds of gaining whether it like around gains more

comment just I'd on overall. Certainly, Absolutely. the

I comments complete a in opening think give to aftermarket. it tried more picture you've crafted this on We've our right. time

may the So caught flat X% the have The ourselves only. a give comprehensive revenues. calls story we tried X% got of of now flat of aftermarket I And really think to bit a up view more reflected flat in previously between X%. the to market the to view little comparisons a to we've versus

were think aftermarket activity. assuming positive between by down. conditions a saying you of midpoint, to push a market we've so what completely we're So decline X%, inflection about freight the X% X% it's we market X% in in driven midpoint now sort out a down, seen. of that if That's a It's of previously of a of

just would market it, gains that's I perspective. a in to America see Very our describe of aftermarket share in network, the So to North is both story. We've ongoing access would driven, I of it. a improving really where products. the our a continued how to link It's the geographic characterize would I combination strong distribution activity say, from

how characterize much building to capability are our a service we've our stronger a of building is on wins. that You aftermarket, on really these brand to with product the awareness Fleetguard factors my And very be the been we in and broadly comments I that new heard those distribution able opening presence in how deliberate of products greater filtration campaign coupled combination think with that protect. would science

That's very helpful that. color, appreciate Steph. I

the here, given guess, versus share terms allocation M&A, of front might you to of speak the the near my you strategy follow-up, your looking I just M&A have you how in in what guess, in pipeline? repurchases you Just be had right at I in of just expansion as term could capital

able the it's program. I for we most I XXXX. something know to Sure. was returns I've capital be of excited really to asked started this year about out launch been as

good that. feel So I about really

us think really we against tool gives comes really balance think obviously, give shareholders about allocation tools to program, business. And the investing As priorities capital we'll that return for to perspective our cash in the we I clarity. forward out, share stated and move M&A and is of do able from growth I now the as this repurchase the repurchase mechanics our be the how with program flexibility that. Look, the that able good us as this plays a of be alongside share as to more a to to

be think I program. we we have the place to able repurchase will what to to that mechanism balance great against now M&A create right us We'll it's tools clarity opportunities enough in the that act see this on shareholders. here and to the growth that opportunities a value obviously powder can give for share to is on in give dry deliver pipeline

it So now. that's how I'd characterize right

As give be color mechanism the out, now further this to quarters pleased place. but this, able to to obviously, in to have able be really play we'll

comes question the from of next line our And of with Andrew Obin America. Bank

Ridley-Lane adding distributors us your network? is on an progress on maybe independent on This the to just David give Fleetguard you Could Andrew. for update

of our market. We've the spoken many times strength channel about to

particularly what market I differs is and We world path across then strong the to would positioning across say. channel partners the U.S. have And that a

position Certainly, that we still further. those we got as to will like to U.S. I very as new much focus independent pursue we've build here Latin there's that expect in those second and other where that to half on look contributed the America, and and on adding has would those example. think there particular. And I been region focused leverage I growth a and U.S., been still we're in would we an And channels. in of aggressive emerging markets here independent in some the has our to more look our then to very identifying that the we've But certainly say in still some strong beyond. emerging opportunities in channel opportunities distributor say fueling largely in to partners, so channels markets And

Jack, point. now the And have comments? an that then just a aftermarket one clarification X.X% specific a the just Yes. maybe for price or guidance a quick for Does year was

activities David. the picture, that's in full Obviously, of aftermarket. So year the occur most the generally pricing

X.X% beginning the up that's of towards that heavily year. And aftermarket. is So from weighted X% the the approximately at

modest second for So the action that a very pricing half. is obviously, difference taken

the And line our Jerry Sachs. next question from Revich Goldman of comes with

a back of Jack, sequentially on on seasonality. to margins, up gross is this to I margins over pretty year, normal had just you well massive similar think come which step sales, the gross ahead XX% quarter,

the folks company what increases? about Is XQ? versus business guide, have So I that within continually And the it back have XQ record as as Is half price it of about beating think a the track accelerated obviously, new normalization public to then of a expectations. costs? you context

for unless sound tell you does something quarter. guide it of the the part like not So framework that's the there in recurring was me

that. back to Jack then Well, thanks circle step-up ask I'm going on margin I'll guide comments. to the the for maybe take on and piece

absolutely. Yes,

things Jerry, different play, was really Joe. I few describing a as So there's to at

there pieces from is of few pricing favorability. bits sequentially step-up there's a from then no and to perspective of volume a impact bit a QX QX. There is And sequentially. really So a

favorability freight, on to just all And to in evidence and of of ability really warranty, a same from strong the for contributed strength So the over last then cost strength our bit contribute piece balances is our half. healthy piece in the little you manufacturing same biggest on environment. elevated as both see That's bit a first inventory production can deliver materials, the in well. that taken customers little a probably to And of step-up. together which the our

what's favorability. volume a the And that half, of if in a the one-time. will, you As is standpoint. half there's rest from second then nothing really story just about first then There's we think one-time, collection

Yes.

as seeing prudent guide the guide -- made. point into in we're still declining So a I here and comments positive this a guidance might aftermarket the guide half, on not our in and and he our up truck on versus environment -- is position. We first-fit a downside head the activity freight and believe really just second Class production take previous our on the inflection driving X guidance declining relative

that, would don't in characterize of of with I been associated a So that, margin the I certainly say. performance see it, would terms we've And flexibility lot I have from term can take company in Jerry, I commitments the on short Cummins. to costs. separating brand-new up, standing capable a that we're while the out way discussing a organization that we're deliver fixed our

not And to so markets we're sort we pull out And the positioned term. see certainly that of of to is intention short continue do so to want be very we long-term We're to frankly. here through that no talking recovery position a business be a our to growth. for we large in that content and continuing in fixed cost and to cycle want cyclical, the well aftermarket really grow about, business

the the years, tell set what comment pipeline may M&A months? capital the on, to XX given wondering on hey, then authorization, robust and I policy? and the couple than you up thought couple that of we One over from does follow past over Super. can just of of buyback of XX over dividend your to less opportunity past is the M&A us we we've if about I'm franchise. be stock And the industrial next opportunities can for appreciate was separate the build Cummins it. And deployment the big part the out the filtration years business Okay. discussed

overall shareholders returns that will view of be always to of part value creation. the shareholder capital We our mix

a be share buybacks. Obviously, balance to that around so present modest opportunistic And expected this the be a gate with on doing opportunities always being in and we a of somewhat feels dividend time. year based doing is world the themselves. M&A return good It to program out the that that of flexible the of and

it. balance of really they to as opportunities in able so M&A an could that be from capital in to investment presented perspective balance this returns wanted we capability be So buybacks the share invest we to

will continued making do at we And to good there, of strength pipeline. continue those, In M&A really it's terms with processes enter say return. on looking premise so. of we we growth's not for balance a are and to muscle I'd industrial our M&A to certainly our that's not the diligence to work into to foresight returns and very progress. sake. look our shareholder our to number of growth We've business is the progress much opportunities here, through grow our building shareholders. But is opportunity And we and the increase are to filtration driver overall

so taking And it's -- which find targets the it. to describe exactly taking we're would I is right for us there, how time

and Jack. Appreciate it, Steph

of our the And with next Instructions] from [Operator question comes line Bobby Brooks Northland Capital.

to wanted Just kind buybacks. click of the on double

it So than opportunistic is programmatic. more buyback the like sounds

that much, am it maybe a M&A and approach programmatic both reading maybe how flex a be factor Just a the into or and given that swing your with buyback I into maybe commentary be will mix earlier base what swing leaned have on [indiscernible] opportunities too of you like? into is M&A buyback harder looks would with the

be way is be that a in look cash place. to beyond, be of and share to it's a able in good act coming describe shape to hold I framework priority get get opportunistic the M&A we'd framework options. I be good to you out There'll is a to view and level that. I the gate. now way But the our a that we certainly, right that on our communicate we to it expect XXXX more then on that that And look of us base balance a adding is then way programmatic build go based as could to And opportunistic there'll to as looks And forward. to we be to think shareholders. exactly able think programmatically it, as clearer what now, should right to we have more against able place to return we'll an in

the That's us the color. raw great maybe business? could maybe -- costs. raw Could what remind to remind X are material lower And most Got in you us just important just tailwind it. then costs you obviously, quarter material was the

hand that I Okay. Jack. to

Yes, absolutely.

the steel, So Bobby. is I mean, biggest

index year we for And do for seen a a overall our expect so the along we've but bit, favorable the impact little bumping business.

would be of as the tracking kind to as about our overall the you like about number you a other lag thinking and As that. financials, to index. reminder, about The is our of packaging, products. if think impact movement there kind a that things small you're and a relative And in about index media, resin there's next of quarter then will, categories, X-month a plastics lag

is all that we And the questions today. have

Todd call for to back So turn remarks. over I will closing Todd? Chirillo the now

you. teleconference continued for your all concludes you in That interest. today. our participating Thank Thank for

available As be Relations Thanks, and Investor and after again, concludes today's a the and And Thank questions may always, Thank you, great all have day. for disconnect. you team now call. for gentlemen, call. you your ladies joining, the that will Todd.