Release Date: June 04, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sales increased 6% to a record $928 million.
- EPS increased 22% to a record $0.92.
- Operating margin reached a decade-long high.
- All three operating segments demonstrated growth and profitability.
- Strong performance in mobile solutions with a pretax profit margin hitting an all-time high of 18.4%.
Negative Points
- Sales in China decreased 32% year-over-year due to weak demand and timing of Chinese New Year.
- On-road sales declined 6% due to lower levels of equipment production, particularly in APAC.
- Off-road sales declined 10% as agriculture markets remain soft and business in China continues to be weak.
- Life sciences segment's full-year profit margins are expected to be down low single digits.
- Operating expenses as a percent of sales increased to 20.1% from 18.8% a year ago, largely due to higher people-related costs and acquisition-related expenses.
Q & A Highlights
Q: Can you elaborate on the full-year outlook for operating margin and why it wasn't raised despite strong performance?
A: Operating margin for the quarter was 15.5%, a 130 basis point improvement. We expect another increase in the fourth quarter, maintaining our guidance midpoint at 15.2%. We feel confident about a 60-basis point improvement for the year, hence the guidance remains unchanged. — Scott Robinson, CFO
Q: What has changed in the life sciences segment that led to a reduction in the growth outlook?
A: We had the backlog to support our previous guide, but some product deliveries were delayed more than expected. Additionally, there was more cautiousness in incoming orders within the bioprocessing side. — Tod Carpenter, CEO
Q: How should we think about CapEx over the next two to three years given the growth outlook?
A: We expect CapEx to be at a maximum rate of 3.5% of sales. Our industrial and mobile solutions businesses are well-capitalized, and we will continue to invest in life sciences within this range. — Scott Robinson, CFO
Q: Are we moving back to a more historical pricing environment with input costs in check?
A: We have returned to a more normal pricing behavior. While some inflation has abated selectively, we still face headwinds in commodities, freight, and labor, necessitating a careful approach to pricing. — Tod Carpenter, CEO
Q: What should we expect from operating expenses in the short to medium term, especially in life sciences?
A: We will continue to invest in life sciences, which will keep expenses elevated in the short term. Over time, as the business builds, we expect expenses to normalize and potentially drive company averages lower. — Tod Carpenter, CEO
Q: Is the disk drive business back to a more normalized level of revenue?
A: Yes, the disk drive business is back to a more normalized level and is growing. We are hiring again in our manufacturing plants, and customer expectations are ramping up. — Tod Carpenter, CEO
Q: Can you elaborate on the reduction in the on-road guidance and which markets are softening?
A: The softening is primarily in long-haul trucks, particularly in the US vehicle manufacturing market. There are also headwinds in China due to program fits and starts. — Tod Carpenter, CEO
Q: What are the near-term revenue opportunities in bioprocessing?
A: We have a broad portfolio including disk drives, food and beverage, and vehicle electrification. The headwinds are mainly in bioprocessing with Univercells Technologies driving revenue, while Isolere Bio and Purilogics are still pre-revenue. — Tod Carpenter, CEO
Q: How is the incoming quote activity on the equipment side in the industrial filtration solutions (IFS) business?
A: The quote activity is slightly elongated but still strong, with large multimillion-dollar projects in dust collection. The business remains comfortable and consistent with the end of the second quarter. — Tod Carpenter, CEO
Q: What is the status and outlook for revenue contribution from the Medica stake acquisition?
A: We are developing tangential flow filtration for bioprocessing with Medica. We do not expect revenue this year, but likely sometime late next fiscal year. The technology will support bioprocessing and improve yields in cell-culture processes. — Tod Carpenter, CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
