Atmus Filtration Technologies (ATMU) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Sales for Q1 2025 were $417 million, a decrease of 2.4% compared to $427 million in the same period last year, primarily due to unfavorable foreign exchange and lower volumes [16][26] - Adjusted EBITDA was $82 million, or 19.6%, compared to $80 million, or 18.8%, in the prior period [17][28] - Adjusted earnings per share was $0.63 in Q1 2025, up from $0.60 last year [29] - Adjusted free cash flow was $20 million, compared to an outflow of $13 million in the prior year [29] Business Line Data and Key Metrics Changes - The company reported a gross margin of $111 million for Q1 2025, slightly down from $112 million in Q1 2024 [26] - Selling, administrative, and research expenses increased to $55 million, up by $2 million from the same period last year [27] - Joint venture income was $9 million, down $1 million from the previous year [27] Market Data and Key Metrics Changes - The company expects the heavy-duty market in the U.S. to decline by 5% to 15% and medium-duty production to decrease by 10% to 20% [23][24] - The overall expected total company revenue for 2025 remains in a range of flat to up 4% compared to the prior year, with global sales expected between $1.67 billion and $1.735 billion [24] Company Strategy and Development Direction - The company is executing a four-pillar growth strategy focused on growing share in first fit, accelerating profitable growth in the aftermarket, transforming the supply chain, and expanding into the industrial filtration market [11][12][15] - The company is actively pursuing inorganic growth opportunities in industrial filtration, although economic uncertainty is softening M&A activity [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the evolving tariff environment, although the overall impact on end markets remains unclear [18][19] - The company anticipates a flat year-over-year performance in aftermarket revenue, with pricing expected to contribute approximately 3.2% to revenue growth [20][21] - The management is closely monitoring regulatory changes and their potential impacts on the business, particularly regarding emissions standards [75][76] Other Important Information - The company has repurchased $10 million of stock in Q1 2025, bringing the total repurchased since the program announcement to $30 million [6] - The effective tax rate for Q1 2025 was 21.3%, down from 22% the previous year [30] - The company ended the quarter with $183 million in cash and $583 million in available liquidity [31] Q&A Session Summary Question: Potential manufacturing transitions due to tariffs - Management indicated that they are not planning long-term manufacturing changes but are focused on short-term mitigation actions such as utilizing USMCA certifications and adjusting delivery routes [35][36] Question: M&A opportunities in the current environment - Management acknowledged that while the market has made M&A activity more challenging, they remain focused on building a strong pipeline of potential targets [39] Question: Revenue outlook amidst currency and market changes - Management confirmed that the revenue outlook remains near the midpoint of their guidance, despite market softness and changes in freight activity expectations [44][45] Question: Pricing expectations for the year - Management expects pricing to ramp up throughout the year, with a gradual increase leading to an overall expectation of 3.2% for the full year [50] Question: Impact of potential rollback of emission standards - Management is monitoring the regulatory review closely and believes they are well-positioned to support customers regardless of the outcome [76][78] Question: Shipping route reconfigurations to mitigate tariffs - Management confirmed that they have already enacted some shipping route adjustments and are continuously looking for additional mitigation strategies [85]