Atmus Filtration Technologies Inc. (ATMU) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The company shows a strong revenue outlook with a 10% to 14% increase, stable EBITDA margins, and a healthy cash position. The Koch Filter acquisition adds growth potential, and management is optimistic about volume recovery and maintaining share gains. Despite some concerns over input costs and geopolitical uncertainties, the overall sentiment is positive, supported by a robust shareholder return plan and strategic expansion opportunities. The market cap suggests a moderate reaction, aligning with a positive sentiment rating.
Key Financial Performance
Sales $478 million compared to $417 million during the same period last year, an increase of 14.6%, largely driven by the acquisition of Koch Filter.
Adjusted EBITDA $95 million or 19.8% compared to $82 million or 19.6% last year, reflecting improved margins and contributions from the Koch Filter acquisition.
Adjusted Earnings Per Share (EPS) $0.69 in the first quarter of 2026 compared to $0.63 last year, showing an increase due to operational improvements and acquisition synergies.
Adjusted Free Cash Flow $33 million this quarter compared to $20 million in the prior year, driven by improved operational performance and cash management.
Power Solutions Sales $439 million compared to $417 million in the prior year, an increase of 5.4%, primarily due to favorable foreign exchange of 4% and higher pricing of 2%, despite slightly lower volumes.
Industrial Solutions Sales $38 million, resulting from the acquisition of Koch Filter.
Gross Margin $137 million compared to $111 million in the first quarter of 2025, driven by incremental margin from the Koch Filter acquisition, pricing increases, cessation of one-time separation costs, and favorable currency impacts, partially offset by higher logistics and manufacturing costs.
Selling, Administrative and Research Expenses $59 million compared to $55 million in the prior year, primarily due to people-related expenses and IT consulting.
Joint Venture Income $8 million in the first quarter compared to $9 million in the prior year quarter, with the decrease primarily due to a $3 million expense in the India joint venture related to labor law changes.
Other Income An expense of $7 million compared to income of $1 million in the first quarter of 2025, primarily due to $6 million in transaction costs related to the Koch Filter acquisition.
Adjusted EBITDA for Power Solutions $86 million or 19.6% compared to $82 million or 19.6% last year, reflecting stable margins.
Adjusted EBITDA for Industrial Solutions $8 million or 21.9%, reflecting contributions from the Koch Filter acquisition.
Cash on Hand $210 million at the end of the quarter, providing strong liquidity for operational flexibility and growth opportunities.
Net Debt to Adjusted EBITDA Ratio Estimated at 2x for the last 12 months ended March 31, reflecting strong financial positioning.
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Operating Highlights
Acquisition of Koch Filter: Completed acquisition of Koch Filter, marking the first step in expanding into industrial filtration. This acquisition establishes an industrial air filtration platform and expands the portfolio into commercial, industrial HVAC, and high-growth markets like data centers and healthcare.
New Laboratory Facility: Opened a state-of-the-art laboratory facility in Quimper, France, to advance filtration technology and reduce testing lead times for customers.
Aftermarket Growth: Partnered with global and regional OEMs to grow aftermarket business and expand market share. Expanded product coverage in independent channels with new distributors.
Industrial Filtration Expansion: Focused on building a platform of scale in industrial air filtration through the Koch Filter acquisition and exploring opportunities in industrial water and liquid filtration.
Supply Chain Transformation: Enhanced customer experience by raising delivery and on-shelf availability metrics to all-time highs.
Leadership Development: Launched executive development and leadership foundations programs to build leadership capabilities and align with Atmus values.
Capital Allocation Strategy: Returned $12 million to shareholders through $7 million in share buybacks and $5 million in dividends. Plans for $20 million to $40 million in share repurchases in 2026.
Revenue and Market Outlook: Projected total revenue for 2026 to be between $1.945 billion and $2.015 billion, a 10%-14% increase from 2025. Power Solutions revenue expected to grow 3%, and Industrial Solutions revenue expected to range from $155 million to $165 million.
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Risk or Challenges
Middle East Conflict: The ongoing conflict in the Middle East introduces uncertainties, including potential impacts on input costs, the ability to sell products in the region, and broader macroeconomic effects. This could pressure commodity prices, particularly petroleum-based components like plastics, and may result in timing lags for cost recovery.
Tariff Pricing Changes: Changes in global trade agreements and tariff pricing could impact revenue. While the company has taken actions to mitigate these effects, the tariff environment remains a risk factor requiring ongoing adjustments.
Logistics and Duties Costs: Higher logistics and duties costs have been noted, which could adversely affect gross margins and overall profitability.
Manufacturing Costs: Increased manufacturing costs are a challenge, potentially impacting margins and financial performance.
Integration Costs for Koch Filter: The integration of Koch Filter involves one-time costs estimated at $3 million to $8 million for 2026, along with $6 million in transaction costs and $10 million to $15 million in intangible asset amortization. These costs could weigh on financial results.
Freight Activity in Aftermarket: Muted freight activity in the aftermarket segment is expected to result in flat year-over-year market conditions, potentially limiting growth in this area.
India Joint Venture Expense: A $3 million expense related to a benefit obligation remeasurement driven by recent labor law changes in India has impacted joint venture income.
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Guidance & Outlook
Market Outlook for 2026: The conflict in the Middle East introduces uncertainties to the outlook for the year, including potential impacts on input costs, product sales in the region, and broader macroeconomic effects. These risks have not been incorporated into the guidance but will be monitored.
Power Solutions Segment Outlook: Aftermarket freight activity is expected to remain flat year-over-year. First-fit markets are anticipated to strengthen due to cyclical market recovery and pre-buy activity ahead of 2027 U.S. regulatory changes. Heavy and medium-duty markets in the U.S. are projected to grow by 5% to 15% compared to 2025.
Industrial Solutions Segment Outlook: Favorable market conditions are expected to contribute 1% to 4% growth. Share gains are projected to add 1% to 2% growth, and pricing is expected to provide approximately 1% revenue growth. Tariff pricing is expected to remain flat relative to 2025, with adjustments made as necessary. The U.S. dollar is expected to weaken, providing a 1% revenue tailwind.
Revenue Projections for 2026: Power Solutions revenue is expected to range from $1.79 billion to $1.85 billion, representing a 3% increase at the midpoint from the prior year. Industrial Solutions revenue is projected to range from $155 million to $165 million. Total company revenue is expected to range from $1.945 billion to $2.015 billion, an increase of 10% to 14% compared to 2025.
Adjusted EBITDA and EPS Guidance: Full-year adjusted EBITDA is expected to range from 19.5% to 20.5%. Adjusted EPS is projected to range from $2.75 to $3.
Commodity Price and Inflation Impact: The Middle East conflict is expected to pressure commodity prices, particularly petroleum-based components. Inflationary costs are expected to be recovered, though there may be a timing lag.
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Shareholder Return Plan
Dividend Payment: During the first quarter, $5 million was returned to shareholders in the form of dividends.
Share Buyback: During the first quarter, $7 million was spent on share buybacks. The company has $62 million remaining on its share repurchase authorization and expects share repurchases to be between $20 million and $40 million in 2026.
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Key Q&A
Q:Can you confirm if the pricing expectation for the full year remains at 1%, and explain why this is the case given rising input costs?
A:The pricing expectation for the full year remains at 1%. This includes base pricing actions taken in January and tariff pricing. The first quarter is expected to be the strongest pricing quarter year-over-year, with tariffs expected to have a flat impact for the full year. Input costs are being monitored, and recovery actions may be taken through supply chain adjustments or pricing, though there may be timing lags.
Q:What was the contribution of share gains in the quarter, and is there any update to the 150 basis points guidance for the year?
A:Share gains were about 1.3% in the quarter, aligning with the guidance. The company remains confident in maintaining the 150 basis points guidance for the year, supported by positive trends in first-fit markets and recovery in build rates and orders.
Q:Can you provide more details on the Middle East uncertainty and its impact on revenue and costs?
A:The Middle East conflict has three key impacts: potential cost pressures (e.g., plastics and petroleum-based products), sales in the region (2% of overall revenue, with a $4 million impact in Q1 not expected to continue), and broader business confidence affecting global demand. Currently, the company sees no significant impact on aftermarket markets but continues to monitor the situation.
Q:What are the opportunities and progress with the Koch Filter acquisition?
A:The Koch Filter business achieved 6% revenue growth in the quarter, with integration expected to complete by early Q3. The focus is on expanding into higher-growth markets like data centers and healthcare, leveraging synergies across distribution channels, and achieving cost savings and growth opportunities through collaboration.
Q:Do you expect Power Solutions volumes to turn positive later in the year?
A:Yes, volume growth is expected quarter-over-quarter throughout the year, with stronger performance in Q2 and first-fit dynamics driving growth in the second half. Share gains are expected to remain at 1%-2%, and aftermarket performance is assumed to be flat year-over-year.
Q:What is the expected growth for Koch Filter for the rest of the year?
A:The full-year guidance for Koch Filter is 1%-8% growth, with a midpoint of 4%. Q1 performance included 1% price, 2% share, and 3% market growth. The company expects market growth to remain around this level.
Q:What are the cross-sell or growth opportunities arising from the Koch Filter acquisition?
A:The acquisition provides opportunities to expand into adjacent markets, target higher-growth end markets like data centers and healthcare, and leverage synergies in distribution channels. Cost synergies of $4 million are expected, along with potential sales upside through collaboration and shared expertise.
Q:What is the outlook on tariff recoveries for the year?
A:The company continues to pursue avenues to mitigate tariff exposure and aims to remain price/cost neutral. Refund mechanisms for tariffs are being established, but the timing and market treatment of these refunds remain uncertain.
Q:What is the potential impact of higher diesel prices on costs?
A:Higher diesel prices are being monitored as part of overall input cost dynamics. The company is in a watch-and-see mode and may react through pricing or supply chain adjustments if necessary.
Q:Was the aftermarket performance in Q1 surprisingly light, and what are the expectations for the rest of the year?
A:Aftermarket performance in Q1 was impacted by stocking dynamics and timing effects. Q2 is expected to be the strongest quarter for aftermarket, with improved volume performance anticipated throughout the year.
Q:Review of Unclear Management Responses
A:Management avoided providing a clear timeline or specifics regarding the timing and market treatment of tariff refunds, as well as the exact impact of higher diesel prices on costs. Additionally, while they acknowledged monitoring input costs and potential risks from the Middle East conflict, their responses lacked detailed contingency plans or quantifiable impacts.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Atmus Filtration
Atmus Way
Industrial Solutions
Investor Relations
Middle East
OEMs
Power Solutions
Solutions segment
acquisition
aftermarket
agreement
air filtration
alignment
conflict Middle
filtration challenge
frontline leader
highway
industry
laboratory
market Industrial
market share
platform
pricing
product
program frontline
recovery
service
skill
tariff
technology
testing
uncertainty
update
world
ATMU Transcript
Atmus Filtration Technologies Inc. (ATMU) Q1 2026 Earnings Call Transcript
Positive5-1
The company shows a strong revenue outlook with a 10% to 14% increase, stable EBITDA margins, and a healthy cash position. The Koch Filter acquisition adds growth potential, and management is optimistic about volume recovery and maintaining share gains. Despite some concerns over input costs and geopolitical uncertainties, the overall sentiment is positive, supported by a robust shareholder return plan and strategic expansion opportunities. The market cap suggests a moderate reaction, aligning with a positive sentiment rating.
Alkane Resources Ltd (ALK:CA) Q2 2026 Earnings Call Transcript
Positive2-13
The earnings call highlights strong financial performance with record gold production and cash flow, improved cost management, and robust EBITDA. The Q&A session reflects management's strategic focus on growth and liquidity, with positive sentiment from analysts. Despite some uncertainties in market indices and expansion plans, overall guidance remains optimistic. The stock's market cap suggests moderate reaction potential, resulting in a positive outlook for the next two weeks.
Atmus Filtration Technologies Inc. (ATMU) Q4 2025 Earnings Call Transcript
Positive2-13
The earnings call highlights strong financial performance with increased sales, EBITDA, and EPS, alongside optimistic guidance. However, the cautious outlook in certain markets and flat EBITDA guidance tempers enthusiasm. The Q&A reveals growth opportunities in data centers and strategic investments, boosting sentiment. Despite some uncertainties, the company's proactive approach to tariffs and cost management is positive. With a market cap of $2.39 billion, the stock is likely to see a positive reaction, within the 2% to 8% range, driven by strong financials and strategic initiatives.
Atmus Filtration Technologies Inc. (ATMU) Presents at Goldman Sachs Industrials and Materials Conference 2025 Transcript
Neutral12-4
ATMU Slides
ATMU Report
Frequently Asked Questions
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