Atmus Filtration Technologies (ATMU) is expected to deliver a year-over-year decline in earnings on lower revenues when it reports results for the quarter ended March 2025. This widely-known consensus outlook gives a good sense of the company's earnings picture, but how the actual results compare to these estimates is a powerful factor that could impact its near-term stock price.The earnings report, which is expected to be released on May 2, 2025, might help the stock move higher if these key numbers are be ...

Core Insights - Atmus Filtration Technologies Inc. has strong growth potential due to its ability to expand in core and adjacent markets, as noted by JPMorgan analyst Tami Zakaria [1] - The stock price forecast has been raised from $44 to $46, maintaining an Overweight rating [1] Financial Performance - Atmus Filtration earns over 80% of its revenue from the aftermarket, yet its valuation is currently discounted compared to peers [2] - The planned move into industrial filtration is expected to narrow this valuation gap over time, aligning it with direct filtration competitors [2] Strategic Initiatives - Management is confident in offsetting potential cost increases from tariffs by adjusting prices in the aftermarket if current exemptions are removed after April 2 [3] - The company intends to implement flexible pricing adjustments to counter any tariff-related cost hikes [3] Regulatory Environment - The possible cancellation of the 2027 NOx regulation is unlikely to significantly affect this year's industry outlook, but it may lead to a more balanced production schedule in the coming years [4] - Atmus Filtration expects the NOx regulation to still go into effect, although the extended warranty requirement might be eliminated [4] Growth Projections - Management aims for organic revenue growth at approximately 4%, which is expected to generate a 25% incremental margin [5] - Further growth potential is anticipated from significant wins with major OEMs and acquisitions in the industrial filtration market [5] - Estimates have been adjusted upward due to the latest foreign exchange rates [5]

Industry Overview - The Zacks Pollution Control industry is expected to grow due to strong demand for air pollution control products driven by rising greenhouse gas emissions and health risks associated with it [1] - Stringent regulations and emission standards globally are anticipated to further boost demand for industry participants [1][5] - The industry includes companies providing filtration systems, waste management solutions, energy recovery devices, and other products across various sectors [3] Major Trends - There is a strong demand for air pollution control systems due to rapid urbanization and increased greenhouse gas emissions from the industrial sector [4] - Growing public awareness of health risks related to air pollution is contributing to market growth [4] - The expansion of infrastructure projects in developing countries is increasing the demand for pollution abatement technologies [4] - Strict government regulations aimed at reducing ozone layer depletion are expected to sustain demand for pollution control equipment [5] - The rise of alternative energy sources is negatively impacting the demand for industrial emission-abatement products [7] Current Industry Performance - The Zacks Pollution Control industry currently holds a Zacks Industry Rank of 89, placing it in the top 36% of over 250 Zacks industries, indicating solid near-term prospects [8] - Over the past year, the industry has underperformed compared to the S&P 500 and the broader Industrial Products sector, declining by 3.8% while the S&P 500 increased by 19.8% [11] Valuation Metrics - The industry is currently trading at a forward P/E ratio of 17.69X, which is lower than the S&P 500's 21.53X and the sector's 18.36X [13] Key Companies - **Energy Recovery, Inc. (ERII)**: Focuses on energy efficiency technology solutions for water desalination, with strong growth prospects in desalination and industrial wastewater sectors [15][16] - **Donaldson Company, Inc. (DCI)**: Engaged in manufacturing filtration systems, benefiting from strong aftermarket demand and performance in aerospace and defense markets [18][19] - **Atmus Filtration Technologies Inc. (ATMU)**: A leading designer of filtration solutions, expected to grow due to effective pricing and a strong global presence [21][22] - **CECO Environmental Corp. (CECO)**: Provides solutions in industrial air quality and water treatment, with growth supported by strategic acquisitions and rising demand for air and ventilation products [24][25]

Financial Performance - For the year ended December 31, 2024, Atmus generated $1,669.6 million in net sales, $185.6 million in net income, and $329.5 million in adjusted EBITDA[13]. - The Company reported cash and cash equivalents of $184.3 million as of December 31, 2024, compared to $168.0 million in 2023, an increase of 9.0%[301]. - Net income for 2024 reached $185.6 million, compared to $171.3 million in 2023, marking an increase of 8.0%[296]. - Basic earnings per share (EPS) for 2024 was $2.23, up from $2.06 in 2023, representing an increase of 8.2%[296]. - Total assets as of December 31, 2024, were $1,190.3 million, an increase from $1,088.6 million in 2023, reflecting a growth of 9.4%[300]. - Total liabilities decreased to $962.9 million in 2024 from $1,007.9 million in 2023, a reduction of 4.5%[300]. - Operating income for 2024 was $266.2 million, up from $248.4 million in 2023, reflecting a growth of 7.3%[296]. - The gross margin for 2024 was $462.1 million, compared to $432.7 million in 2023, indicating a year-over-year increase of 6.5%[296]. - Cash provided by operating activities decreased to $105.4 million in 2024 from $189.0 million in 2023, a decline of 44.3%[303]. - Total current income tax expense decreased to $56.9 million in 2024 from $65.1 million in 2023, a reduction of 11.8%[387]. - The effective tax rate for 2024 was 21.0%, down from 24.3% in 2023, driven by a favorable change in the mix of earnings among tax jurisdictions[388]. Sales and Market Position - Approximately 68% of Atmus' net sales in 2024 came from leading OEMs, with Cummins accounting for 17.6% of net sales[23][24]. - Atmus estimates that approximately 86% of its net sales in 2024 were generated in the aftermarket, with core markets representing 60% on-highway and 40% off-highway[25]. - Major customers, including Cummins, PACCAR, and the Traton Group, accounted for 17.6%, 16.5%, and 12.2% of net sales in 2024, indicating a stable reliance on these key clients[381]. - Revenue from the United States was $782.3 million in 2024, up from $746.5 million in 2023, while other international sales reached $887.3 million, slightly increasing from $881.6 million in 2023[378]. - The fuel product category generated $720.2 million in 2024, a growth of 2.1% from $705.2 million in 2023, while lube and air categories also saw increases to $326.8 million and $288.6 million, respectively[380]. Cost and Expenses - Material costs represented approximately 61% of Atmus' cost of sales in 2024, up from 57% in 2023[35]. - Research, development, and engineering expenses for Atmus were $40.6 million, $42.5 million, and $38.6 million for the years ended December 31, 2024, 2023, and 2022, respectively[41]. - Research, development, and engineering expenses totaled $40.6 million in 2024, a decrease from $42.5 million in 2023, reflecting a focus on cost management[360]. - Capital expenditures for 2024 were $48.6 million, compared to $45.8 million in 2023, reflecting a 6.1% increase[303]. - Operating lease costs increased to $15.7 million in 2024, compared to $10.5 million in 2023, representing a growth of 49.5%[397]. - Total lease liabilities increased to $40.1 million in 2024 from $26.4 million in 2023, indicating a growth of 51.4%[398]. Investments and Patents - Atmus has over 1,200 worldwide active or pending patents and over 650 trademark registrations as of December 31, 2024[38]. - Investments in equity method investees amounted to $84.9 million as of December 31, 2024, compared to $84.8 million in 2023, indicating stable investment levels[382]. - Dividends received from unconsolidated equity investees increased to $25.5 million in 2024, up from $19.8 million in 2023, showcasing improved returns from these investments[383]. Risk Management - Atmus' interest rate risk is primarily related to a $600 million term loan facility and a $400 million revolving credit facility, with a 0.125% change in SOFR potentially impacting annual interest expense by $0.7 million[278]. - Atmus' foreign currency exchange risk is managed through financial derivative instruments, with no material impact expected from a hypothetical 10% fluctuation in currency rates[275]. Corporate Governance and Culture - Atmus' leadership team has extensive industry experience and a proven track record of driving growth and innovation[30]. - The company has a diverse leadership team, with three out of seven directors being female and 38% of the executive team being female[58]. - The company emphasizes a positive safety culture, aiming for zero serious injury fatalities and adhering to international standards for health and safety[55]. - Atmus' annual variable compensation plans encourage collaboration and align employee performance with overall business results[52]. - The company is committed to inclusion and diversity, continuously seeking to attract and retain diverse talent globally[58]. Compliance and Accounting - The company maintained effective internal control over financial reporting as of December 31, 2024, based on COSO criteria[283]. - The company adopted new accounting standards in Q4 2024, which did not materially impact disclosures or financial results, indicating compliance with evolving regulations[373]. - The company operates as one reportable segment, with performance assessed based on consolidated net income, ensuring a streamlined approach to resource allocation and performance evaluation[362]. Shareholder Returns - The company repurchased $20.0 million in common stock during the year[305]. - Cash dividends declared amounted to $8.3 million, equating to $0.10 per share[305]. - The company authorized a $150.0 million share repurchase program effective July 17, 2024, with approximately $130.0 million remaining for repurchases as of December 31, 2024[417][418].

Financial Data and Key Metrics Changes - Sales for Q4 2024 were $407 million, an increase of 1.8% from $400 million in Q4 2023 [19][29] - Adjusted EBITDA for Q4 2024 was $78 million, representing a margin of 19.1%, compared to $71 million and 17.9% in the prior year [21][33] - For the full year 2024, sales reached $1.67 billion, a 2.5% increase from $1.63 billion in 2023 [22][35] - Adjusted EBITDA for the full year was $330 million, up from $302 million in 2023, with an adjusted EBITDA margin of 19.7% [22][38] - Adjusted earnings per share for Q4 2024 was $0.58, compared to $0.49 in Q4 2023 [21][34] Business Line Data and Key Metrics Changes - The company outperformed the aftermarket market by approximately two percentage points in 2024 [13] - The new NanoNet product portfolio was launched, enhancing technology leadership in fuel filtration [11] - The company completed the transition of its Belgian warehouse, achieving 95% transition of the distribution network from Cummins [15] Market Data and Key Metrics Changes - The U.S. heavy-duty market is expected to be flat to down 10% in 2025, while medium-duty production is anticipated to decline by 5% to 15% [26] - In China, weak market conditions are expected to persist, with low visibility into recovery [27] Company Strategy and Development Direction - The company is focused on a four-pillar growth strategy, including growing share in first fit, accelerating aftermarket growth, transforming the supply chain, and expanding into industrial filtration [10][17] - The capital allocation program includes share repurchases and dividends, with $20 million repurchased in 2024 [8] Management's Comments on Operating Environment and Future Outlook - Management anticipates a recovery in freight activity but acknowledges uncertainty regarding timing due to fluid global economic conditions [24] - For 2025, total company revenue is expected to be flat to up 4%, with adjusted EBITDA margin projected between 19% and 20% [28] Other Important Information - The company incurred one-time costs of $4 million related to restructuring actions in Q4 2024 [20][30] - The effective tax rate for 2024 was 21%, down from 24.3% in 2023, due to a change in earnings mix and one-time foreign tax credits [39] Q&A Session Summary Question: Can you provide insight on EBITDA margin and its future outlook? - Management indicated that the 19.7% EBITDA margin in 2024 was above guidance, with expectations of headwinds from foreign exchange and input costs impacting future margins [46][50] Question: What is the outlook for aftermarket and first fit growth? - Management expressed confidence in a 2% growth in aftermarket revenue, supported by committed business and new partnerships [56][58] Question: How are you managing tariff exposure in manufacturing? - The company has modeled various scenarios regarding tariffs and has implemented pricing actions to mitigate impacts, particularly from China tariffs [96][100] Question: What is the status of your industrial filtration expansion? - The primary path for industrial filtration growth remains through acquisitions, although initial product launches are in early stages with limited revenue expected [108][110] Question: Can you discuss the first fit market assumptions, particularly in China? - Management expects continued weak conditions in China, with a range of flat to down 5% for the year, but is prepared to scale if demand improves [126]

Fourth Quarter and Full Year 2024 Earnings Call February 21, 2025 Forward-Looking Statements This presentation contains forward-looking statements within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995, including, without limitation, those that are based on current expectations, estimates and projections about the industries in which we operate and management's views, plans, objectives, projections, beliefs and assumptions. Forward-looking stat ...

Company Performance - Atmus Filtration Technologies (ATMU) reported quarterly earnings of $0.58 per share, exceeding the Zacks Consensus Estimate of $0.53 per share, and up from $0.49 per share a year ago [1] - The earnings surprise for this quarter was 9.43%, following a previous quarter where the company reported earnings of $0.61 per share against an expectation of $0.52, resulting in a surprise of 17.31% [2] - The company achieved revenues of $406.7 million for the quarter ended December 2024, surpassing the Zacks Consensus Estimate by 1.51% and showing an increase from $399.7 million year-over-year [3] Market Outlook - Atmus Filtration shares have not appreciated since the beginning of the year, contrasting with the S&P 500's gain of 4% [4] - The current consensus EPS estimate for the upcoming quarter is $0.61 on revenues of $434.6 million, and for the current fiscal year, it is $2.52 on revenues of $1.71 billion [8] - The Zacks Industry Rank indicates that the Pollution Control industry is currently in the bottom 29% of over 250 Zacks industries, suggesting potential underperformance compared to higher-ranked industries [9] Estimate Revisions - The estimate revisions trend for Atmus Filtration has been unfavorable, leading to a Zacks Rank 4 (Sell) for the stock, indicating expectations of underperformance in the near future [7] - Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [6]

Financial Performance - Atmus reported net sales of $407 million for Q4 2024, a 1.8% increase from $400 million in Q4 2023[4]. - For the full year 2024, Atmus achieved net sales of $1,670 million, up $42 million or 2.5% from the previous year[11]. - Gross margin for Q4 2024 was $107 million, representing 26.3% of net sales, slightly down from 26.4% in Q4 2023[5]. - Adjusted EBITDA for Q4 2024 was $78 million, with an adjusted EBITDA margin of 19.1%, compared to $71 million and 17.9% in Q4 2023[7]. - The company reported GAAP net income of $40 million for Q4 2024, translating to diluted earnings per share of $0.48, up from $35 million or $0.42 per share in Q4 2023[8]. - For the full year 2024, Atmus posted a GAAP net income of $186 million, or $2.22 per diluted share, compared to $171 million or $2.05 per share in 2023[14]. - Adjusted earnings per share for the year ended December 31, 2024, rose to $2.50, up from $2.31 in 2023, reflecting an increase of 8.2%[39]. - Basic earnings per share for the year ended December 31, 2024, were $2.23, up from $2.06 in 2023, representing an 8.2% increase[35]. - Net income for the year ended December 31, 2024, reached $185.6 million, a 8.0% increase from $171.3 million in 2023[28]. Cash Flow and Capital Expenditures - Adjusted free cash flow for Q4 2024 was $28 million, down from $30 million in Q4 2023[10]. - Cash provided by operating activities for Q4 2024 was $20.0 million, a decrease of 52.0% compared to $41.7 million in Q4 2023[41]. - Free cash flow (non-GAAP) for Q4 2024 was $10.0 million, down 60.8% from $25.5 million in Q4 2023[41]. - Adjusted free cash flow (non-GAAP) for the year ended December 31, 2024, was $114.5 million, a decrease of 25.0% from $152.4 million in 2023[41]. - Capital expenditures for the year ended December 31, 2024, were $48.6 million, an increase of 6.1% from $45.8 million in 2023[41]. - One-time separation capital expenditures for the year ended December 31, 2024, totaled $15.0 million, compared to $9.2 million in 2023[41]. Assets and Liabilities - Total assets as of December 31, 2024, increased to $1,190.3 million from $1,088.6 million in 2023, reflecting a 9.3% growth[31]. - Total liabilities decreased to $962.9 million in 2024 from $1,007.9 million in 2023, a reduction of 4.5%[31]. - Cash and cash equivalents at the end of the period increased to $184.3 million from $168.0 million in 2023, a growth of 9.1%[32]. Future Outlook - Atmus expects revenue for 2025 to be in the range of $1,670 million to $1,735 million, with an adjusted EBITDA margin between 19.0% and 20.0%[5]. - Adjusted earnings per share for 2025 is projected to be in the range of $2.35 to $2.60[5]. One-time Costs and Expenses - One-time restructuring costs for Q4 2024 amounted to $4.1 million, with no such costs reported in Q4 2023[41]. - The tax impact of one-time restructuring costs for Q4 2024 was $1 million, compared to $2 million in Q4 2023[39]. - The company reported one-time expenses related to Information Technology, warehousing, manufacturing, and Human Resources separation costs[39].

Company Overview - Atmus Filtration Technologies (NYSE: ATMU) is a leader in designing and manufacturing filtration products under the Fleetguard brand, offering a wide range of products including fuel, lube, and air filters [1] Investment Philosophy - The investment approach emphasizes fundamental analysis, focusing on financial health, competitive positioning, and management quality to identify undervalued companies [1]

Industry Overview - The Zacks Pollution Control industry is positioned to benefit from increasing demand for air pollution abatement products due to rising greenhouse gas emissions and heightened public awareness of health risks [1][4] - The industry includes companies providing innovative filtration systems, medical waste management solutions, energy recovery devices, and other products across various sectors such as automotive, healthcare, and construction [3] Major Trends - There is a healthy demand for air pollution control products driven by rapid urbanization and increased greenhouse gas emissions from the industrial sector [4] - Stringent government regulations globally are expected to boost demand for pollution control equipment, particularly in Europe and the U.S. [5] - The addition of oil rigs in response to geopolitical instability is likely to increase demand for pollution control services [6] - The emergence of alternative energy sources and electric vehicles, while beneficial for the environment, poses challenges to the industry's growth [7] Industry Ranking and Performance - The Zacks Pollution Control industry currently holds a Zacks Industry Rank of 78, placing it in the top 31% of over 250 Zacks industries, indicating strong near-term prospects [8][9] - The industry's earnings estimates for 2024 have increased by 2.6% over the past year, reflecting positive sentiment among analysts [10] - Over the past year, the industry has grown by 28.6%, underperforming compared to the broader Industrial Products sector and the S&P 500 Index, which rose by 28.9% and 31.4% respectively [12] Valuation Metrics - The industry is currently trading at a forward P/E ratio of 26.46X, higher than the S&P 500's 22.65X and the sector's 21.8X [14] Key Companies - **Tetra Tech (TTEK)**: A leading provider of consulting and engineering services, benefiting from U.S. government infrastructure priorities. The stock has gained 28.2% in the past year [16][17] - **Atmus Filtration (ATMU)**: A designer and producer of filtration solutions, with a 72.4% stock increase over the past year, supported by effective pricing and capital allocation strategies [19][21] - **Donaldson Company (DCI)**: Engaged in manufacturing filtration systems, with a focus on innovation and growth investments. The stock has increased by 16.3% in the past year [23][24]