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]

Core Viewpoint - Atmus Filtration Technologies (ATMU) has shown significant stock performance, with a 10.5% increase over the past month and an 87.6% rise since the beginning of the year, outperforming both the Zacks Industrial Products sector and the Zacks Pollution Control industry [1][2]. Financial Performance - The company has consistently exceeded earnings expectations, reporting an EPS of $0.61 against a consensus estimate of $0.52 in its latest earnings report [2]. - For the current fiscal year, Atmus Filtration is projected to achieve earnings of $2.45 per share on revenues of $1.66 billion, reflecting a 6.06% increase in EPS and a 2.16% increase in revenues [3]. - The next fiscal year forecasts an EPS of $2.53 on revenues of $1.72 billion, indicating year-over-year growth of 3.37% in EPS and 3.7% in revenues [3]. Valuation Metrics - The stock trades at 18 times the current fiscal year EPS estimates, below the peer industry average of 25.6 times [7]. - On a trailing cash flow basis, Atmus Filtration trades at 17.1 times compared to the peer group's average of 21.5 times [7]. - The company has a PEG ratio of 4.8, which does not position it among the top value stocks [7]. Style Scores and Zacks Rank - Atmus Filtration has a Value Score of B, a Growth Score of A, and a Momentum Score of C, resulting in a combined VGM Score of B [6]. - The stock holds a Zacks Rank of 2 (Buy), supported by rising earnings estimates, indicating potential for further stock price appreciation [8].

Financial Data and Key Metrics Changes - Sales for Q3 2024 were $404 million, an increase of approximately 2% compared to $396 million in the same period last year [7] - Adjusted EBITDA for the quarter was $79 million, or 19.6%, compared to $73 million, or 18.3%, in the prior period [7][26] - Adjusted earnings per share was $0.61 in Q3 2024, up from $0.52 last year [27] - Adjusted free cash flow was $65 million, compared to $50 million in the prior year [27] - The effective tax rate for Q3 2024 was 18.4%, down from 23.1% in 2023 [28] Business Line Data and Key Metrics Changes - The aftermarket segment continues to experience softness, but the company gained market share, offsetting some market weakness [9] - U.S. heavy-duty first-fit market demand is expected to decline by 7% to 12% for the full year, while medium-duty demand remains flat to up 5% [13] - Global aftermarket revenue is expected to grow by approximately 2% to 4% compared to last year, despite overall market declines [10][11] Market Data and Key Metrics Changes - The India market has softened, and China shows no signs of recovery [9] - The overall global aftermarket is expected to decline by approximately 2% to 3% due to soft freight activity and weakness in off-highway markets [11] - The company anticipates a revenue range of $1.65 billion to $1.675 billion for the year, reflecting a 1% to 3% increase compared to the prior year [14] Company Strategy and Development Direction - The company is focused on growth in core business and expansion into industrial filtration, with a balanced approach to capital allocation including share repurchases and dividends [6] - The growth strategy includes four pillars: growing share in first-fit, accelerating aftermarket growth, transforming the supply chain, and expanding into industrial filtration markets [15][21] - The company is transitioning to a dedicated supply chain network, with 85% of volume distributed through Atmus facilities [18][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in revenue growth opportunities despite challenging market conditions, with expectations for continued outperformance [10][11] - The company is experiencing downward pressure on volumes due to fewer working days and a decline in heavy-duty truck demand [33] - Management anticipates that both first-fit and aftermarket markets will be at the bottom of the cycle, with potential improvements expected in the second half of 2025 [40][41] Other Important Information - The company repurchased $10 million of shares as part of a $150 million program [6] - The transition from Cummins is approximately 80% complete, with expectations to reach 90% by the end of the year [8] - Onetime costs related to separation from Cummins are expected to total between $20 million and $25 million in 2024 [26] Q&A Session All Questions and Answers Question: Discussion on expectations for the fourth quarter - Management noted that revenue is expected to be relatively flat sequentially, with downward pressure from fewer working days and a decline in heavy-duty truck demand impacting volumes [33][34] Question: Visibility on 2025 margin profile - Management indicated that while they cannot provide specific guidance for 2025, they expect to sustain margin expansion achieved in 2024 [38][42] Question: Insights on international business performance - Management highlighted that all markets are experiencing downside, with India being the strongest but still softening, while China remains challenged [55][56] Question: Breakdown of onetime costs - Onetime costs for Q3 were $9 million, with $5 million in cost of sales and $4 million in SG&A, primarily related to IT and supply chain separation costs [49][50] Question: Organic expansion into industrial filtration - Management mentioned that while organic growth in industrial filtration is in early stages, it is seen as a spark for innovation, with a focus on acquisitions for significant growth [72][73]

Financial Performance - Net sales for the three months ended September 30, 2024, were $403.7 million, an increase of $7.5 million or 1.9% compared to $396.2 million for the same period in 2023 [103]. - For the nine months ended September 30, 2024, net sales were $1,262.9 million, an increase of $34.5 million or 2.8% compared to $1,228.4 million in 2023 [112]. - Gross margin increased to $111.3 million for the three months ended September 30, 2024, up $8.4 million or 8.2% from $102.9 million in 2023, with a gross margin percentage of 27.6%, an increase of 1.6 percentage points [104][102]. - Gross margin for the nine months ended September 30, 2024, was $355.0 million, an increase of $27.9 million or 8.5% from $327.1 million in 2023, with a gross margin percentage of 28.1%, up 1.5 percentage points [113][111]. - Operating income for the three months ended September 30, 2024, was $63.2 million, an increase of $4.4 million or 7.5% compared to $58.8 million in 2023 [1]. - Net income for the three months ended September 30, 2024, was $43.8 million, representing a $6.2 million increase or 16.5% from $37.6 million in 2023 [1]. - The net income margin improved to 11.5% for the nine months ended September 30, 2024, compared to 11.1% in the prior year [143]. - Diluted earnings per share for Q3 2024 was $0.52, up from $0.45 in Q3 2023, representing a 15.6% increase [144]. - Adjusted earnings per share for the nine months ended September 30, 2024, was $1.92, compared to $1.82 for the same period in 2023, reflecting a 5.5% growth [144]. Expenses and Costs - The company incurred approximately $8.9 million in one-time expenses during the three months ended September 30, 2024, and approximately $18.7 million during the nine months ended September 30, 2024, related to becoming a standalone public company [99]. - The company expects to incur one-time expenses of approximately $20 million to $25 million in 2024 in connection with becoming a standalone public company [99]. - Selling, general and administrative expenses were $46.4 million for the three months ended September 30, 2024, an increase of $5.1 million or 12.3% compared to $41.3 million in 2023 [105]. - Research, development, and engineering expenses decreased to $9.7 million for the three months ended September 30, 2024, down $1.4 million or 12.6% from $11.1 million in 2023 [106]. - Interest expense for the nine months ended September 30, 2024, was $31.4 million, an increase of $16.2 million compared to $15.2 million in 2023, primarily due to the timing of borrowings [118]. - Higher working capital requirements resulted in a cash outflow of $81.9 million for the nine months ended September 30, 2024, compared to a cash inflow of $2.0 million in the same period of 2023 [127]. Cash Flow and Capital Expenditures - Net cash provided by operating activities was $85.4 million for the nine months ended September 30, 2024, a decrease of $61.9 million compared to $147.3 million in the same period of 2023 [127]. - Capital expenditures for the nine months ended September 30, 2024, were $38.6 million, representing approximately 3.1% of net sales, compared to $29.6 million or 2.4% of net sales in the prior year [129]. - Capital expenditures for Q3 2024 were $16.4 million, up from $10.5 million in Q3 2023, representing a 56.2% increase [146]. - Adjusted free cash flow for the nine months ended September 30, 2024, was $86.1 million, down from $122.5 million in the same period of 2023, indicating a decrease of 29.6% [146]. - Free cash flow for Q3 2024 was $54.3 million, compared to $47.8 million in Q3 2023, marking a 13.6% increase [146]. Debt and Financing - As of September 30, 2024, total debt was $596 million, a slight decrease from $600 million at December 31, 2023, with a weighted-average term of 2.9 years [134]. - The company borrowed $650 million from a credit agreement upon completion of its IPO to pay Cummins in partial consideration for the Separation [88]. - The company has a revolving credit facility capacity of $400 million as of September 30, 2024, with no outstanding borrowings [122]. - The company has a $600 million term loan facility and a $400 million revolving credit facility, with interest rates tied to SOFR [152]. - A 0.125% change in SOFR would result in a $0.7 million annual impact on interest expense based on outstanding borrowings as of September 30, 2024 [152]. Market Conditions - Aftermarket demand remained depressed in the first nine months of 2024, reflecting soft market conditions, with uncertainty regarding recovery [94]. - Overall supply chain conditions have largely stabilized from a year ago, with minimal disruptions and backorders largely recovered [95]. - Direct material cost pressures have stabilized, but labor impacts continue to affect the company's Selling, general and administrative expenses, which increased during the first nine months of 2024 [97]. - The appreciation of the U.S. dollar against foreign currencies had a slightly unfavorable impact on the company's condensed consolidated results of operations in the first nine months of 2024 [98]. Taxation - The effective tax rate for the three months ended September 30, 2024, was 18.4%, a decrease of 4.7 percentage points from 23.1% in 2023, driven by a change in the mix of earnings among tax jurisdictions [108]. - The effective tax rate decreased to 20.9% for the nine months ended September 30, 2024, down 2.9 percentage points from 23.8% in the prior year, driven by a change in the mix of earnings among tax jurisdictions [121]. - The tax impact of one-time separation costs for Q3 2024 was $1.6 million, slightly lower than $1.7 million in Q3 2023 [144].

Company Performance - Atmus Filtration Technologies (ATMU) reported quarterly earnings of $0.61 per share, exceeding the Zacks Consensus Estimate of $0.52 per share, and up from $0.52 per share a year ago [1] - The earnings surprise for this quarter was 17.31%, following a previous quarter where the company reported earnings of $0.71 per share against an expectation of $0.58, resulting in a surprise of 22.41% [2] - The company posted revenues of $403.7 million for the quarter ended September 2024, which was 1.31% below the Zacks Consensus Estimate, but an increase from $396.2 million in the same quarter last year [3] Stock Performance - Atmus Filtration shares have increased approximately 76.5% since the beginning of the year, significantly outperforming the S&P 500's gain of 25.2% [4] - The current consensus EPS estimate for the upcoming quarter is $0.52, with expected revenues of $406.42 million, and for the current fiscal year, the estimate is $2.34 on revenues of $1.67 billion [8] Industry Outlook - The Pollution Control industry, to which Atmus Filtration belongs, is currently ranked in the bottom 17% of over 250 Zacks industries, indicating potential challenges ahead [9] - The performance of Atmus Filtration's stock may be influenced by the overall outlook for the industry, as historical data shows that the top 50% of Zacks-ranked industries outperform the bottom 50% by more than 2 to 1 [9] Future Expectations - The trend of estimate revisions for Atmus Filtration is currently mixed, leading to a Zacks Rank 3 (Hold) for the stock, suggesting it is expected to perform in line with the market in the near future [7] - Investors are encouraged to monitor how estimates for the coming quarters and the current fiscal year may change following the recent earnings report [8]

Financial Performance - Net sales for Q3 2024 were $404 million, a 1.9% increase from $396 million in Q3 2023[3] - GAAP net income was $44 million, or $0.52 diluted earnings per share, compared to $38 million, or $0.45 diluted earnings per share in the same period last year[6] - Adjusted EBITDA was $79 million with an adjusted EBITDA margin of 19.6%, up from $73 million and 18.3% in Q3 2023[5] - Net income for the nine months ended September 30, 2024, was $145.5 million, compared to $136.5 million for the same period in 2023, reflecting an increase of 6.6%[29] - Basic earnings per share for the nine months ended September 30, 2024, were $1.75, up from $1.64 for the same period in 2023, an increase of 6.7%[31] - The company reported a net income margin of 11.5% for the nine months ended September 30, 2024, compared to 11.1% for the same period in 2023[32] Revenue Guidance - The company raised its 2024 revenue guidance to a range of $1,650 million to $1,675 million[2] - Adjusted earnings per share for 2024 is projected to be between $2.35 and $2.50[2] Cash Flow and Operating Activities - Cash provided by operating activities was $71 million, compared to $58 million in Q3 2023[7] - Cash provided by operating activities for the three months ended September 30, 2024, was $70.7 million, an increase of 21.0% compared to $58.3 million for the same period in 2023[35] - For the nine months ended September 30, 2024, cash provided by operating activities totaled $85.4 million, down 42.0% from $147.3 million in 2023[35] Free Cash Flow - Adjusted free cash flow increased to $65 million from $50 million in the same quarter last year[8] - Free cash flow for the three months ended September 30, 2024, was $54.3 million, up 13.6% from $47.8 million in the prior year[35] - The adjusted free cash flow for the nine months ended September 30, 2024, was $86.1 million, a decrease of 29.6% compared to $122.5 million in the same period of 2023[35] Capital Expenditures - The company incurred capital expenditures of $38.6 million for the nine months ended September 30, 2024, compared to $29.6 million for the same period in 2023, an increase of 30.2%[29] - Capital expenditures for the three months ended September 30, 2024, were $16.4 million, representing a 56.2% increase from $10.5 million in the prior year[35] - One-time separation capital expenditures amounted to $5.1 million for the three months ended September 30, 2024, compared to $2.2 million in the same period of 2023[35] Assets and Liabilities - Total assets increased to $1,218.1 million as of September 30, 2024, up from $1,088.6 million at December 31, 2023, representing a growth of 11.9%[26] - Total current liabilities decreased to $368.3 million as of September 30, 2024, from $375.0 million at December 31, 2023, a reduction of 1.8%[26] - Long-term debt decreased to $577.5 million as of September 30, 2024, down from $592.5 million at December 31, 2023, a decline of 2.5%[26] Stock Repurchase - The company repurchased $10 million of common stock under its $150 million share repurchase program[2] - The company repurchased $10.0 million of common stock during the nine months ended September 30, 2024[29] Tax and Margins - The effective tax rate for Q3 2024 was 18.4%[6] - Gross margin was $111 million, representing 27.6% of net sales, compared to 26.0% in Q3 2023[4] Other Costs - Other one-time separation related costs for the nine months ended September 30, 2024, were $26.9 million, with no comparable figure for the previous year[35] - The company experienced one-time working capital inefficiencies associated with the transition from intercompany settlement terms with Cummins to standalone practices[35]

Atmus Filtration Technologies (ATMU) is expected to deliver flat earnings compared to the year-ago quarter on higher revenues when it reports results for the quarter ended September 2024. 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 November 8, 2024, might help the stock move higher if the ...