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01/09 22:06
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
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.
Net Sales Net sales increased 8% year-over-year to $261 million, driven by growth across all product platforms, stabilization in U.S. short-cycle order activity, and accelerated deliveries from Q3 to meet customer delivery requirements.
Adjusted EPS Adjusted EPS improved $0.12 sequentially to $0.62 in the second quarter, reflecting higher sales, margin expansion, and continued cost management. However, year-over-year adjusted margins were down due to tariffs, sales mix impacts, and an incentive compensation accrual release in the prior year.
Orders Orders were $254 million, down 3% year-over-year due to the prior year benefiting from 3 significant project orders totaling over $20 million. However, U.S. order growth was 11%, driven by strong performance in project-related and short-cycle categories, as well as price increases to offset tariffs.
Backlog Backlog is $352 million, up $34 million or 11% versus the prior year, with increases across all platforms. However, current quarter backlog decreased 4% year-over-year due to accelerated conversion of Q3 backlog into Q2 shipments.
Gross Profit Gross profit was $90.2 million, up $15.4 million or 21% year-over-year, driven by higher sales and a significant reduction of $11.1 million in factory consolidation and new factory start-up costs. Adjusted gross margin contracted 100 basis points year-over-year due to tariffs.
SG&A Expenses SG&A expenses increased $13.9 million to $70.3 million on a GAAP basis, including $9.9 million in acquisition-related costs and $1.1 million in business realignment costs. Adjusted SG&A was up $5.8 million to $59.2 million due to higher sales volume, incentive compensation accrual release in the prior year, and foreign currency translation impacts.
Operating Income Operating income was $12.2 million on a GAAP basis and $25.2 million on an adjusted basis. Adjusted operating margin was 9.7% in the quarter.
Adjusted EBITDA Adjusted EBITDA was $37.4 million in Q2, with an adjusted EBITDA margin of 14.3%.
Free Cash Flow Free cash flow was $15.1 million, reflecting growth in earnings and working capital improvement, even as $2.5 million of acquisition-related deal costs were paid.
Net sales: Increased 8% year-over-year to $261 million, with growth across all product platforms.
Adjusted EPS: Improved $0.12 sequentially to $0.62 in the second quarter.
Backlog: Healthy $352 million, up $34 million or 11% versus the prior year.
U.S. market: Order growth of 11% with strong performance in both project-related and short-cycle categories.
EMEA and APAC markets: Weaker economic landscape resulting in slower conversion for project orders.
Tariff mitigation: Progress made; targeting cost neutrality by the end of fiscal '26 and margin neutrality in fiscal '27.
Operational improvements: Significant reduction in factory consolidation and start-up costs, contributing to higher gross profit.
Kito Crosby acquisition: Integration preparedness advanced; expected to close by the end of fiscal year. Post-integration, sales expected to exceed $2 billion with top-tier margins and strong cash flow.
Tariff Impact: The company faces a $10 million headwind to operating profit in fiscal 2026 due to tariffs, with impacts expected to spill over into the next quarter. Full margin neutrality is not expected until fiscal 2027.
Economic Landscape in EMEA and APAC: Weaker economic conditions in EMEA and APAC are slowing the conversion of project orders, impacting sales and revenue growth in these regions.
Backlog Conversion: Accelerated conversion of Q3 backlog into Q2 shipments has reduced current quarter backlog by 4%, which is expected to negatively impact Q3 sales volume.
Acquisition-Related Costs: The pending Kito Crosby acquisition has incurred $9.9 million in acquisition-related costs, adding to SG&A expenses and impacting profitability.
Macroeconomic Volatility: The company is navigating a volatile macroeconomic environment, which poses risks to operational execution and financial performance.
Section 232 Tariffs: Recent changes increasing Section 232 tariffs are expected to cause residual cost impacts in fiscal Q3, further pressuring profitability.
Tariff Impact and Mitigation: The company expects tariffs to be a net $10 million headwind to operating profit in fiscal 2026, with the impact spilling over into the current quarter. They are targeting tariff cost neutrality by the end of fiscal 2026 and margin neutrality in fiscal 2027.
Revenue and Sales Growth: The company has updated its full-year guidance for fiscal 2026, now expecting net sales growth of low to mid-single digits, up from the previous guidance of flat to slightly up year-over-year.
Adjusted EPS Guidance: The company reaffirms its adjusted EPS guidance of flat to slightly up year-over-year for fiscal 2026.
Short-Cycle and Project-Related Sales: Short-cycle sales increased 7% due to stabilization in the U.S. market, and project-related sales increased 8%. Pricing is expected to accelerate over the next few quarters as backlog is worked through.
Market Trends and Demand Drivers: The company anticipates incremental demand over time driven by lower interest rates and megatrends such as reshoring, automation, and labor scarcity. They are capitalizing on growth in end markets like aerospace, energy, rail, transportation, metals, heavy equipment, and defense, as well as verticals like battery production, e-commerce, life sciences, and food and beverage.
Backlog and Sales Volume: The backlog stands at $352 million, up 11% year-over-year, but current quarter backlog decreased 4% year-over-year due to accelerated conversion of Q3 backlog into Q2 shipments, which is expected to impact Q3 sales volume.
Kito Crosby Acquisition: The company expects the acquisition of Kito Crosby to close by the end of fiscal 2026. Post-integration, the combined company is projected to achieve over $2 billion in sales, top-tier industrial margins, and strong cash flow performance, enabling reinvestment and deleveraging.
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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