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01/09 22:12
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call presents a mixed picture. The pending acquisition of Kito Crosby and operational improvements are positives, but the flat sales and EPS guidance, increased expenses, and tariff impacts are concerns. The Q&A highlighted uncertainties, particularly in gross margins and acquisition impacts. The stock reaction is likely neutral due to balanced positive and negative factors.
Orders Orders grew by 2% year-over-year to $259 million, driven by 8% growth in project-related orders and strength in EMEA. Short-cycle orders were down 4% due to surcharges, price increases, and the impact of tariffs.
Backlog Backlog increased by $67 million or 23% year-over-year to $360 million, driven by longer-cycle project orders offsetting softness in short-cycle markets.
Sales Sales were $235.9 million, down 2% year-over-year, attributed to a 3% decrease in short-cycle sales due to tariffs and slower macro recovery in Germany. Project-related sales remained unchanged despite 8% growth in orders.
Gross Profit Gross profit was $77.2 million, down $11.8 million year-over-year, impacted by lower sales volume, mix, and $4.2 million of tariff-related impacts. Adjusted gross margin contracted 370 basis points year-over-year to 34.3%.
SG&A Expenses SG&A expenses were $64.1 million, up $3.7 million year-over-year on a GAAP basis due to $8.1 million in acquisition-related costs and $1.1 million in business realignment costs. Excluding these, adjusted SG&A was down $3.1 million to $54.8 million, improving 90 basis points to 23.2% of sales.
Operating Income Operating income was $5.5 million on a GAAP basis and $18.5 million on an adjusted basis. Adjusted operating margin was 7.8%.
Adjusted EBITDA Adjusted EBITDA was $30.8 million with an adjusted EBITDA margin of 13%.
Earnings Per Share (EPS) GAAP loss per diluted share was $0.07. Adjusted EPS was $0.50, down $0.12 year-over-year, primarily due to an unfavorable $0.11 tariff-related impact.
Free Cash Flow Free cash flow was a use of $21.4 million, reflecting normal working capital seasonality and unique items such as $4.1 million in acquisition-related payments, $3.1 million in higher cash taxes, and $3 million in tariff payments.
Intelligent Motion strategy: The company is advancing its Intelligent Motion strategy, which is expected to be accelerated by the pending Kito Crosby acquisition.
Order growth: Orders grew by 2% year-over-year to $259 million, driven by 8% growth in project-related orders and strength in EMEA.
Vertical end markets: Strength observed in battery production, e-commerce, food and beverage, aerospace, oil and gas, and rail projects. Increased defense investments globally and in the U.S. Department of Defense were also highlighted.
Tariff impact: Tariffs negatively impacted gross profit by $4.2 million and gross margin by 180 basis points in Q1. The company expects tariffs to be a $10 million headwind to operating profit in the first half of fiscal 2026, with mitigation actions targeting cost neutrality by the second half of fiscal 2026 and margin neutrality by fiscal 2027.
SG&A expenses: SG&A expenses were down 5% excluding acquisition-related and non-core adjustments, reflecting disciplined cost management.
Kito Crosby acquisition: The pending acquisition of Kito Crosby is expected to scale the business, expand customer capabilities, enable synergies, and accelerate the Intelligent Motion strategy. The deal is anticipated to close by the end of the calendar year.
Tariffs and Policy Uncertainty: Tariffs have negatively impacted operating profit and margins, with a $4.2 million impact to gross profit and a 180 basis point impact to gross margin in Q1. Tariffs are expected to remain a $10 million headwind to operating profit in the first half of fiscal 2026, with margin neutrality not expected until fiscal 2027. Policy uncertainty and evolving macroeconomic conditions are also affecting short-cycle orders.
Macroeconomic and Regional Challenges: A slower-than-expected macroeconomic recovery in Germany and evolving macroeconomic conditions globally are impacting sales and operations. Short-cycle orders remain sensitive to these dynamics.
Supply Chain and Volume Pressures: Lower sales volume and mix, along with tariff-related impacts, have reduced gross profit and margins. Factory absorption has been negatively affected by lower volume, and there is an unfavorable sales mix.
Acquisition-Related Costs and Risks: The pending Kito Crosby acquisition has incurred $8.1 million in related costs in Q1. Regulatory approval processes and integration risks could pose challenges to achieving synergies and scaling the business.
Free Cash Flow and Working Capital: Free cash flow was negative $21.4 million in Q1 due to working capital seasonality, acquisition-related cash payments, higher cash taxes, and tariff payments.
Revenue and Sales Growth: The company reaffirms its guidance for fiscal 2026, projecting net sales growth to be flat to slightly up year-over-year. Project-related sales are expected to benefit the remainder of fiscal year 2026 and beyond.
Tariff Impact and Mitigation: Tariffs are expected to negatively impact earnings in the first half of fiscal 2026, reducing adjusted EPS by $0.20 to $0.30. The company anticipates achieving gross profit dollar neutrality on tariffs by the second half of fiscal 2026 and margin neutrality by fiscal 2027 through price adjustments and supply chain modifications.
Adjusted EPS Growth: Adjusted EPS growth is projected to be flat to slightly up year-over-year for fiscal 2026.
Market Trends and Opportunities: The company expects stabilization in short-cycle demand over time, driven by industry megatrends such as nearshoring, labor scarcity, and infrastructure investments. Strength is anticipated in vertical markets like battery production, e-commerce, food and beverage, aerospace, oil and gas, and rail projects.
Kito Crosby Acquisition: The acquisition of Kito Crosby is expected to close by the end of the calendar year, scaling the business, expanding customer capabilities, enabling synergies, and accelerating the Intelligent Motion strategy.
The selected topic was not discussed during the call.
The earnings call presents mixed signals: strong U.S. order growth and backlog increase are positives, but overall orders are down. Gross profit and free cash flow improvements are offset by tariff impacts and increased expenses. The Q&A reveals management's cautious stance and lack of specific guidance, with uncertainties around tariffs and acquisition delays. Despite some positive trends, these factors suggest a neutral sentiment, especially without market cap data to assess potential volatility.
The earnings call presents a mixed picture. The pending acquisition of Kito Crosby and operational improvements are positives, but the flat sales and EPS guidance, increased expenses, and tariff impacts are concerns. The Q&A highlighted uncertainties, particularly in gross margins and acquisition impacts. The stock reaction is likely neutral due to balanced positive and negative factors.
The earnings call reveals a challenging financial performance with declining net sales and EPS, increased expenses, and negative tariff impacts. The Q&A section highlights concerns over tariff impacts and unclear management strategies, leading to uncertainty. The acquisition of Kito Crosby and synergies offer potential upside, but weak guidance and financial metrics overshadow this. The lack of a share repurchase program and no clear positive catalysts further contribute to a negative outlook. The stock is likely to see a negative movement between -2% to -8% over the next two weeks.
The earnings call highlights several concerning factors: declining sales and EPS, increased expenses due to acquisition costs, and significant tariff impacts. Guidance indicates further sales and EPS declines. The Q&A reveals uncertainty about managing tariff impacts and competitive pressures. While the acquisition and backlog offer some positives, the overall sentiment is negative due to weak financial performance and guidance, lack of shareholder return plans, and competitive challenges. The lack of clarity in management's responses further adds to the negative sentiment.
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