Amentum Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 8, 2024

There are 11 speakers on the call.

Operator

Greetings, and welcome to the RBC Bearings Fiscal 20 24 Third Quarter Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Josh Carroll with Investor Relations.

Operator

Please go ahead.

Speaker 1

Good morning. Thank you for joining us for RBC Bearings Fiscal 20 24 Third Quarter Earnings Conference Call. With me on the call today For Doctor. Michael Hartnett, Chairman, President and Chief Executive Officer Daniel Bergeron, Director, Vice President and Chief Operating Officer Robert Sullivan, Vice President and Chief Financial Officer. Before beginning today's call, let me remind you that some of the statements made today will be forward looking are made under the Private Securities Litigation Reform Act of 1995.

Speaker 1

Actual results may differ materially from those projected or implied due to a variety of factors. We refer you to RBC Bearings' recent filings with the SEC for a more detailed discussion of the risks that could impact the company's operating results and financial condition. These factors are also described in greater detail in the press release and on the company's website. In addition, reconciliation between GAAP and non GAAP financial information is included as part of the release and is available on the company's website. With that, I'll now turn the call over to Doctor.

Speaker 1

Hartnett.

Speaker 2

Thank you, Josh, and good morning, And welcome. Net sales for the Q3 of fiscal 2024 were $373,900,000 This represents an increase of 6.3% from last year and I am happy to report this is within our guidance range on revenues. The Q3 of 2024 sales of industrial products represented 65% of net sales with Aerospace Products at 35%. As a footnote, over the past 5 years, revenue growth at RBC has been compounded rate of 16.8%. Gross margin for the quarter was $158,000,000 or 42.3 percent of net sales, again within our range.

Speaker 2

This compares to $146,000,000 or 41.5 percent for the same period last year, an 80 basis point improvement. We continue to see year on year improvement in gross margin as we continue to strengthen operational performance and improve both absorption and methods in our plants. This quarter, because of fewer production days leading to lower overhead absorption, margin is normally the lowest of the year. It's historically bounced back in Q4. There's no surprises here.

Speaker 2

We see this effect every year. Overall profitability continues ahead of plan year to date and to reconfirm, we expect to finish the year in the low to mid 40% range on gross margins. Again, our hats are off to the RBC team for this performance. We all understand that we are in business to service our customers to the full extent of our abilities with high quality and service levels is always our first priority. More than 70% of our revenues are from products where we are sole or primary source.

Speaker 2

Our customers have learned over the years they can trust us. When they come to us at the last minute in crisis, we perform for them. Adjusted operating income for the period was $75,500,000 20.2 percent of net sales compared to last year $71,600,000 20.4 percent respectively, a 5.3% improvement. Free cash flow was a strong $70,900,000 Debt reduction continues to be a priority and is progressing as planned. We achieved $550,000,000 decrease in debt since the acquisition of Dodge in November of 2021, 27 months ago, and net debt to EBITDA ratio of 2.5 over trailing 12 months, down from 5.65 in fiscal 'twenty 2.

Speaker 2

RBC's record of EBITDA growth over the last 5 years now stands at 19.4%. Adjusted EPS diluted was $1.85 a share. Adjusted EBITDA was $109,500,000 or 29.3 percent of net sales compared to $103,300,000 or 29.4 percent of net sales the same period last year, a 6.1% increase. We continue to make continual improvements in the execution of our business and are excited to see a robust acceleration in demand for our products from industry leaders in the aircraft, marine and space industries. We look forward to a March year end with revenues finished finishing in the $1,550,000,000 range.

Speaker 2

On the Industrial business, during the quarter, the Industrial growth was minus 0.6% overall against some strong comps last year. Last year improved supply chain performance allowed us to ship orders which were late to customers, creating a bulge in sales and distorting year on year comps by a few percentage points. We now have well performing supply chain on the industrial side, so the environment has changed and orders late to customers' request are back to normal. Dodge revenues are up 1.4% year to date, down in Q3 minus 0.3 percent and we expect to be up again in Q4 a few percentage points. RBC Classic Industrial sales were down 1.4% during the last period, driven solely by softness in semiconductor machine makers.

Speaker 2

Normalizing for semiconductor sales, RBC Classic Industrial revenues would have been up 3.6%. In a word, our industrial business is performing well and is in the steady as she goes mode. On Aerospace and Defense, Commercial Aerospace was up 16.5%. The Aerospace and Defense sector was up 22.5% overall. The constraint here is not demand, it's production.

Speaker 2

We are working to expand manufacturing assets as well as increased in biomaterials to fuel the continued 20 plus percent per year on year expansion across many facilities that service these markets. As explained in prior calls, OEM defense includes components and assemblies for jets, missiles, helicopters, marine valves, satellites, rockets, and it's up 32.7% year over year. Bookings overall in this sector have been very strong. We now have over 60 contracts negotiated and signed with a value of approximately $1,000,000,000 Additionally, we are in a position to grow this metric substantially again by mid year. Finally, the aftermarket was up 26.1%, main drivers, jets, helicopters, engines and marine.

Speaker 2

As you can see, the aerospace market is strongly accelerating with increased volumes quarterly. Demand drivers here are defense and of course large plane builders, the submarine and weapons OEMs and their supply Despite the news otherwise, we are building 7 37 materials at the 42 per month rate and new orders to RBC are inbound at about the 47 per month rate. We don't expect this change to this situation to change materially at this time. On the 787, our current build rates are 5 per month now and 7 per month by April. That's an important ship to us.

Speaker 2

As you know, Airbus is pushing the 320 ship build to exceed the monthly rate of 70 in 2024. So in summary, just to go over the highlight reel, Q4 sales were up 6.3% for the period EBITDA, dollars 109,500,000 up 6.1 percent from last year. EBITDA, 29.3 percent of sales, up from 26.7 percent in Q3 of 'twenty two Adjusted net income of $60,000,000 up 12.4 percent. Debt pay down since November of 2021, dollars 550,000,000 Trailing EBITDA to net debt 2.5 versus 5.65 in fiscal 'twenty two and well over half of our revenues are to replace products consumed in use. Full year guidance Revenue range, FY 'twenty four, in the $1,550,000 range and gross margins will be in the low to mid-40s.

Speaker 2

Regarding the Q4 of 2024, We are expecting sales to be somewhere between $405,000,000 $415,000,000 range. And I'll now turn the call over to Rob, our Chief Financial Officer for more financial details.

Speaker 3

Thank you, Mike. SG and A for the Q3 of fiscal 'twenty four was $63,900,000 compared to $56,800,000 for the same period last year. As a percentage of net sales, SG and A was 17.1% for the Q3 of fiscal 'twenty four compared to 16.1% for the same period last year. Other operating expenses for the Q3 of fiscal 'twenty four totaled $18,900,000 compared to $18,800,000 in Peershell. For the Q3, other operating expenses included $17,700,000 of amortization of intangible assets, dollars 100,000 of restructuring costs $1,100,000 of other items.

Speaker 3

For the same period last year, other operating expenses consisted primarily of $17,400,000 of amortization of intangible assets, $1,200,000 of Dodge TSA costs and other costs associated with that acquisition and $200,000 of other items. Operating income was $75,200,000 for the Q3 of fiscal 'twenty four compared to operating income of $70,400,000 for the same period last year. Excluding approximately $200,000 of restructuring costs and $100,000 of transaction related costs, adjusted operating income was 75.5 $1,000,000 or 20.2 percent of sales for the same for the Q3 of fiscal 'twenty four. Excluding approximately $1,200,000 of acquisition costs, Adjusted operating income for the Q3 of fiscal 2023 was $71,600,000 or 20.4 percent of sales. Interest expense for the Q3 was $19,300,000 compared to $20,900,000 for the same period last year.

Speaker 3

For the Q3 of fiscal 'twenty four, the company reported net income of $46,600,000 compared to $36,300,000 for the same period last year. On an adjusted basis, net income was $60,000,000 for the 3rd quarter compared to $53,300,000 for the same period last year. Net income attributable to common stockholders for the Q3 was $40,800,000 compared to $30,600,000 for the same period last year. On an adjusted basis, net income to common stockholders attributable to common stockholders for the 3rd quarter was $54,200,000 compared to $47,700,000 for period last year. Diluted earnings per share attributable to common stockholders was $1.39 per share for the Q3 compared to $1.05 for the same period last On an adjusted basis, diluted EPS attributable to common stockholders for the 3rd quarter was 1.85 share compared to $1.64 per share for the same period last year.

Speaker 3

Turning to cash flow, the company generated $80,500,000 in cash from operating in the Q3 of fiscal 2024 compared to $60,900,000 for the same period last year. Capital expenditures were $9,500,000 in the 3rd quarter compared to $6,500,000 last year. Free cash flow conversion this quarter was 152% and 116% for the full 9 month period. We paid down $60,000,000 on the term loan during this quarter, leaving total debt of $1,260,000,000 as of December 30, 2023 and cash on hand was $71,600,000 I would now like to turn the call back to the operator for the question and answer session.

Operator

Our first questions come from the line of Christine Liwag with Morgan Stanley.

Speaker 4

Industrial was flattish in the quarter. And then also you're looking at your 4th quarter outlook revenue, it just seems a little bit lighter versus what you've seen so far through the year. Can you give us any color regarding what's driving these pieces? How much visibility You have and if there's any downside risk to your updated 4Q revenue outlook?

Speaker 2

Well, I think in terms of the aircraft and defense side, Christine, the visibility is really good. It's really a matter of making it and we usually do a pretty good job there. So there's we don't see a lot of risk there. And on the industrial side, The visibility mainly the visibility And the driver there is largely Dodge and Dodge is a company that really doesn't have the kind of backlog or contract relationship with its customer base because of its customer base as we do. And so we're always extrapolating based upon economic demand and economic forecasts, what exactly Dodge's sales are going to be.

Speaker 2

So, If there's any risk to the upside or to the downside, it's probably coming mostly from Dodge.

Speaker 4

Great. And then I know it's already here in February. So based on what you're seeing out of Dodge, What's the pace of ordering and I know it's more of a brick and fix type business. What's the pace that's driving that? And I guess In terms of industrial revenue, PMI now is trending higher.

Speaker 4

Is your outlook then for this quarter more conservative, Mike?

Speaker 2

Yes, I hope it is. I would say that here we are in February and Dodge's business is performing very well. So, we only have about 6 weeks to go. So, what could possibly happen?

Speaker 4

I guess on that, I'm sorry, I'll sneak one more in. The 1st 2 years of the deal with Dodge, you've always talked about the years of the factory And with the margins where they are, you've clearly done your job there. So can you give us an update where you are in terms of

Speaker 5

On the revenue side, as we talked about in the past, we just don't have a lot of overlap on our OEMs. So we're starting to see some nice traction there. We've been training the Dodge sales team on RBC product and we've been training the RBC team on Dodge products and we've been doing that both domestically and globally, and we're starting to see some traction from those events. And I think that would just continue to be accretive to the top line over the next 3 to 4 years as the sales engineers get up to speed on these different products and these different OEMs that they are visiting. So from that standpoint, We're feeling good on the margin side.

Speaker 5

I think you already kind of addressed that. Our gross margins for the 9 months were up 220 bps and 160 bps fell down to EBITDA. So, we're definitely again leverage off the investments we're making on SG and A and we're definitely getting the benefit from the synergies on the cost side and the SG and A side with Dodge. On the cost side, I think we still have some nice synergies still coming through for 'twenty five, 'twenty six and 'twenty seven on our in sourcing efforts that were kind of long term goals for us and those are moving along nicely. We're actually building out manufacturing facility space in Mexico to give us more capacity for U.

Speaker 5

S. Products in the United States For Dodge, so that's going to be hopefully accretive to the top line and to gross margins. And we continue to work on consolidation in our SG and A to see what other costs we can continue to drive out between the two divisions.

Speaker 4

Great. Thanks guys. Thanks for

Speaker 6

the color.

Operator

Thank you. Our next questions come from the line of Pete Skibitski with Alembic Global.

Speaker 7

Nice free cash quarter again. Thanks. So maybe just to start there, I had a question on inventory. You guys built a lot of inventory back in 2023, I think because of supply chain issues, both a little bit more slowly in the first half of this year, but it looks like working capital was really kind of de minimis growth here in the Q3. So should we expect your inventory needs to slow going forward?

Speaker 7

Maybe your supply chain is becoming more predictable maybe, but just was wondering if that should that growth should slow going forward even as your revenue growth particularly in Aerospace?

Speaker 2

Well, I think The inventory growth that you saw previously was mainly driven by Dodge and their supply chain. And so, we've kind of dialed that back, and it hasn't responded as well as we wanted Wanted to see it respond. So we're going to continue to dial it back and sort of get Dodge more into the steady state turns that they demonstrated in 2019. Those dollars into the aircraft business because of the demand there and the lead time on materials. Lead time on materials now is or our types of materials is Typically average 50 weeks and then but it actually doesn't get delivered for till 60 weeks.

Speaker 2

So you have to be really you have to be long on your planning for materials for these businesses. And I'd expect the dollars just to stay reasonably constant, but shift ownership.

Speaker 7

Yes. Okay. Makes sense. I appreciate that. Maybe just moving to revenue.

Speaker 7

I want to make sure I understand. Mike, did you say you expect industrial revenue up about 3% in the 4th quarter? I just want to clarify, I feel like that would presume aerospace is sort of Flat it sequentially if industrial is up about 3%.

Speaker 2

Yes, I think I said aerospace or industrial would be up a few percent. And Yes. Where is the Aerospace in the Q4?

Speaker 3

No, Aerospace is anticipated to continue to escalate as we move forward sequentially. So I think industrials We'll be up a couple of points maybe, but the Aerospace will continue to grow as we continue to deliver.

Speaker 7

Okay. Okay. We're talking industrial up year over year or sequentially?

Speaker 2

Sequentially.

Speaker 7

Okay. Okay. Okay. Let me one more question for me. I'll get back in queue.

Speaker 7

I think, Mike, last quarter, You talked about going through your planning process for Aerospace and Defense and you were talking about 20% type growth as I recall. Just wondering if anything changed there. We are under kind of an extended continuing resolution on the defense side. So I'm not sure How the visibility is going there? And we've obviously had some MAX issues, although it sounds like for you guys that hasn't impacted anything.

Speaker 7

So Just was wondering if you're still feeling good about 20% type growth in 25% for A and D?

Speaker 2

Trying to think why I wouldn't feel good. I think it's going to be in that neighborhood. It will be between 1520. I don't have the 'twenty five plan in front of me and I don't remember all the details of it, but I think it certainly is Nothing is backing off. I mean, it's a matter of getting the materials And training the labor, for the most part, we have the capital equipment, although some of it's being augmented and then executing.

Speaker 2

And so I think we'll be in that 15% to 20% neighborhood for several quarters.

Speaker 7

Okay. Okay. And have you guys seen any big labor challenges in terms of getting the people you Anticipating?

Speaker 2

Yes. We are always being challenged there. It depends It depends on what part of the country you're talking about. But certainly in the Northeast here, That's not an easy solution. We've brought some innovative solutions.

Speaker 2

We've planned with the growth in our population by plant has to be in order to meet our plans and we are out recruiting people and doing interesting things in order to attract people to our planet. It's pretty dry here. We're being successful, but it comes at Great labor investment. The Southern California, it depends upon exactly We're in Southern California, your plants are. And I think for the most part, we're okay there.

Speaker 2

We're fine in Mexico, in all the plants in Mexico. And we're pretty good in the South Carolinas also. So I think that the major pressure is pretty much in the Northeast. And we have people working on that.

Speaker 7

Got it. Okay. Appreciate it, guys. Thank you. Yes.

Operator

Thank you. Our next questions come from the line of Andre Madrid with Bank of America. Please proceed with your questions.

Speaker 1

Hi, how are you guys? Good. So I know you said material on 737s 42 with new orders inbound at 47, but with the recent announcement of the production freeze, the FAA imposed production freeze,

Speaker 8

how are

Speaker 1

you guys thinking could a more prolonged freeze impact what moves out on your end? How can we think about that? And is that something you guys are kind of factoring in the moment? Or Is it really not of concern?

Speaker 2

Well, right now, we're Listening to Calhoun's conference call and trying to understand exactly what his direction was. And we've concluded that this direction was to maintain their rates, their planning rates on the MAX. And that's kind of what we came away with. So We're doing the same. And I think Boeing is in a tough place.

Speaker 2

I mean, They have customers who need the planes and who are screaming for the planes. They have a long backlog. They have just now getting their supply chain to perform for them and I don't think they want to tie a knot in it at this point and slow everybody down. So I think they're going to be using some working capital in order to bank some of these components. And if it's a year, it's what 150 planes, well, didn't they have 500 planes on thearmac at one point in time and have all that working capital tied up there.

Speaker 2

It seems like 150, which you're only buying you're only stocking the components would be small change for them. They certainly can afford So I think they don't I think their options are limited and I think they have to maintain rate.

Speaker 1

Understood. Got you. And then pivoting again to industrial. I know it was touched on a little bit already, but Maybe to get back in and just really clarify, how much of the softness do you think could just be attributed to diminished end market demand versus Actually, it's just because it really doesn't seem like there's anything on your front, but I might have that wrong. I mean, how much can you maybe just talk broadly about the demand drivers long term on that side of the business?

Speaker 2

Yes. Well, on the industrial side, we saw We see markets of mining and metals performing pretty well for us even during this period. Food and beverage areas, these are important areas for us. That's doing pretty well. Oil and natural gas is doing real well for us.

Speaker 2

And that's been offset by what we consider aggregate and general industrial and semicon. So I think aggregate is a big one. It's an important one to us. It's very dependent upon this. It's this infrastructure bill could be a big aid to the aggregate business.

Speaker 2

And so, we would expect We'd expect a little pickup in the overall industrial demand through FY our FY 'twenty five and that's kind of what our budgets are based on. And so that's how we're making the call.

Speaker 1

Fair, fair. I see. I'll leave it there. Thanks so much.

Operator

Thank you. Our next questions come from the line of Steve Barger with KeyBanc Capital Markets. Please proceed with your question.

Speaker 9

Thanks. Good morning.

Speaker 4

Good morning,

Speaker 9

Steve. Blake, for 3Q, if I assume your EBIT margin in Aero and your corporate expenses were pretty similar sequentially, It suggests the industrial margin was down maybe 300 basis points versus 2Q. First of all, is that right? And second, is that just from revenue being down Is there a mix in there? And how are you thinking about 4Q industrial margin?

Speaker 2

Well, I think the industrial margins were down and I think it's mix driven. And Based upon the way we forecast, it's mainly a Dodge issue. And basically the way we forecast Dodge going forward, it's hard to tell exactly what that mix is going to be. So I suspect it will be no more deterioration than it was in the Q3. And so Worst case, we have some pickup.

Speaker 3

Yes, Steve. I'll give them to you right now.

Speaker 2

So you'll see it

Speaker 3

in the queue later. But the Aerospace margins, we had a really strong quarter. The margins were 41.2%. So they continue to escalate as I've talked about in the last few calls. Industrial margins were 42.8% this quarter.

Speaker 3

But I kind of want to go back to what Dan said earlier in the call that for the 9 months gross margins are up 2 20 basis points for the full year consolidated. So We're well ahead of what we had said earlier in the year and feeling really good about it.

Speaker 9

Got it. Thank you for that, Rob. Some other industrial companies have been guiding to a softer organic growth environment for the first half of twenty twenty four calendar and stronger in the back half. And I know Dodge is the back log basis business, but how are you thinking about general cadence of industrial revenue through calendar 'twenty four? Is there anything different from what you'd expect from your own normal seasonality?

Speaker 2

We're not seeing it. I mean, we're off since the 1st January, the industrial bookings have been Very encouraging. So, The economists predict one thing and it seems like the economy does something else. So, I don't think anybody The GDP growth that we saw in the Q3 or was or we're projecting it Earlier. And so I think the yes, I think we're just We're just steady as she goes.

Speaker 2

As I said earlier, we're taking it 1 month at a time.

Speaker 9

And so if there is weakness in industrial that you're seeing right now, it is on the Dodge side, whereas legacy, I think you said is more stable or was up year over year while Dodge was down?

Speaker 2

Well, the legacy business is more like the RBC aircraft business in that it's servicing OEMs principally on an eightytwenty basis. And so there is long term POs and there is contracts and there is all that sort of thing that ties it together. And so it's much easier to forecast it.

Speaker 9

Got it. And just one last one. As you look across the M and A landscape, are you seeing more industrial deals than aero? And what are the relative sizes of deals that you see across the 2 segments?

Speaker 2

I'd say the industrial sizes are in the $100,000,000 to $200,000,000 kind of range is what we've been seeing coming by. And some of the aerospace businesses are larger than that. And they sort of come and go. We're looking we're a little picky about exactly what we want in our space. And so, I think during the Q3, we worked very hard on 1 and sort of missed the grade.

Speaker 2

So we're all recovering from disappointment this quarter and looking at other potentials.

Speaker 9

And just to clarify, those are deal sizes or revenue?

Speaker 2

Revenue.

Speaker 9

Got it. Okay. Thank you.

Operator

Thank you. Our next questions come from the line of Seth Weber with Wells Fargo.

Speaker 8

Sorry to just go back to the guidance question again for the 4th quarter. I guess to have industrial revenue up a few 100 basis points sequentially, That implies on a year over year down kind of mid to high single digits. I'm just trying to tie that together with your commentary about the January bookings being better. So would you expect 2025 Industrial to be Less negative than the down kind of mid to high single digits that is kind of implied by your Q4 industrial revenue. Does that make sense?

Speaker 8

Or is that how you're starting to figure anyway?

Speaker 2

I think the 4th quarter industrial revenue As we said, we'll be up a few percentage points based on what we're seeing so far in the quarter. There doesn't seem to be much difference about that. I think the is the issue of the aerospace I'm

Speaker 8

sorry, I'm trying to just discern year over year. I think you're talking sequential improvement, but I'm just trying to think of that on a year over year basis. I think sequentially up A few percent translates down, I don't know, 7% or 8% year to year or is that not the right math?

Speaker 3

That seems very high. I don't suspect that it's going to be down 7% to 8% year over year.

Speaker 8

Okay.

Speaker 1

All right.

Speaker 2

I'm a year over year guy too, Seth. And yes, I think the industrial revenue year over year is going to be up a few percent in the 4th quarter.

Speaker 8

Okay. All right. That's Super helpful clarification. Thank you. And I just wanted to go back to the comment around the Mexico capacity add.

Speaker 8

Can you just I apologize if you've talked about this more in the past, but is that replacing Are you moving capacity from high cost markets to Mexico or is that just incremental capacity and what will that be serving? Thank you.

Speaker 2

Yes. Well, we just completed we expect to complete this quarter a plant in Tecate, that's about 100,000 square feet. And that will be pretty much earmarked for the Dodge business. And so we will move manufacturing from the U. S.

Speaker 2

To Mexico for Dodge for the purpose of opening floor space in 1 of the Dodge plants where we have new manufacturing equipment arriving and no force space to accommodate it. And so, we're sort of playing musical chairs there with 1 of the Dodge plants. And so the new equipment that's arriving in the plant will be for increased volume on product lines that are very successful, but constrained by production. So That's the first phase of Tecate. That's our first phase.

Speaker 2

Our second phase will probably be for lower cost manufacturing of some of the Dodge products and maybe some insuring,

Speaker 8

That makes super helpful. It makes total sense. Thank you for clarifying that stuff for me.

Speaker 2

Yes.

Operator

Thank you. Our next questions come from the line of Pete Osterland with Truist Securities. Please proceed with your questions.

Speaker 10

Hey, good morning. I'm on for Mike Schmoller this morning. Thanks for taking our questions. First, just had a question on raw materials. We've heard about some tightness in the bearings market stemming from lack of material availability and just wondering if you are seeing anything like that, Whether any challenges procuring materials or any additional cost inflation, just any color there would be helpful.

Speaker 2

Yes. Well, I mean, in Aerospace and Defense, materials are more exotic than not And difficult to get if your planning horizon is short, You're going to be buying it from 3rd parties at extremely higher prices. So you're planning horizon needs to be long and long is probably 60 weeks. And the special grades of stainless steel are and that's really the only way to acquire them. And overall, I think in the Aerospace business from what we hear from customers that keep coming to us is that bearings are really hard to get.

Speaker 2

And so that's kind of music to our ears. And that's part of the reason why we're generating so much, so many contracts with people to supply them over a longer term. Unfortunately, It takes us a long time to get that material. So to turn that into revenues isn't the most immediate thing, but It turns into revenues over time. And very often customers are willing to pay a premium If you have to buy steel at a from a 3rd party at a high price and are more than willing to absorb the price difference.

Speaker 2

So I would say there's a lot going on in our business right now with regard to supply chain.

Speaker 10

Very helpful. Thank you. And then just turning to industrial, what are you seeing within your distribution sales channels in terms of customer inventories, are they generally right sized or have you seen any signs of destocking activity there?

Speaker 2

Yes. I mean, we haven't seen much destocking. As far as I can tell, they're right sized to a little bit heavy, but not they are not overwhelmingly heavy. Great. I'll leave it there.

Speaker 7

Thanks for

Speaker 10

taking the questions.

Operator

Yes. Thank you. Our next questions

Speaker 6

My first question is on the industrial market. Just if you can provide some color on how the trends Diverging between original equipment versus aftermarket sales growth and potentially how is January trending? That would be helpful.

Speaker 5

On the industrial side or

Speaker 6

On the industrial side, correct.

Speaker 2

Yes, Vivek, let us refer to our charts here for a minute. Yes,

Speaker 5

I don't think we would have that on how we're trending right now, right, because we'd have to break that information down, how much is coming into distribution, how much coming in to OEM. But Rob, I think you have the industrial OEM and the industrial distribution for Q3.

Speaker 3

Yes. So the industrial OEM for Q3 was $79,400,000 effectively flat year over year And industrial distribution was $165,300,000 So again, very close to last year. So it's not as if one was diverging, if that's your question.

Speaker 6

Yes. No, that's definitely helpful. Thank you. And then, I noticed on the food and beverage market, you said it's going on well for you guys. And we are hearing from your peers that it was actually one of the softer markets for them.

Speaker 6

So just maybe wanted to zoom in on this end market and Why you are seeing better trends than some of your peers? Is it more market share driven or is it product offering?

Speaker 2

Yes. I mean, I don't think we can speak for our peers, but I would say that, we spend It's a priority for us. So we direct a lot of attention to that market, both in terms of calling on customers, identifying problems, problem solving, product development, new product introduction. So, it's active for us. It performs well for us, But we have to work at it.

Speaker 2

It doesn't it's not on autopilot.

Speaker 6

Great. Thank you.

Operator

Thank you. Our next questions come from the line of Pete Skibitski with Alembic Global. Please proceed with your questions.

Speaker 7

Yes. Thanks guys. Couple of questions on margins. One of them, gross margin, it sounds like if you kind of hit your mark for the Q4 gross margin, It sounds like for the full year fiscal 'twenty four, you'd be up at least maybe 1.5 points, call it, Roughly, so I'm just wondering for fiscal 'twenty 25, do you see the ability to move it up another point or so on the gross margin line?

Speaker 2

Well, I think it's very encouraging. I don't think that the margins on the industrial side are going to do much better, maybe they will, but there There's not a major mechanism there that's going to drive that, that I can see. On the aircraft side, there is a major mechanism in that as volume increases. We still haven't gotten to the 2019 level of absorption in our aircraft plants. So our aircraft margins are still trailing what we measured in 2019.

Speaker 2

So as that as the volume increases in most of the aircraft the volume is increasing and it's increasing at a rate that as we talked about Getting the labor and getting the materials and getting the planning straight is challenging. So that is leading to better absorptions and better absorptions obviously lead to better margins. So we'll see that that mechanism improve our performance next year in this quarter.

Speaker 7

Okay, got it. And then just Rob, I just want to understand one thing. I think when you talk about industrial in the Q3, I think you were talking about EBIT of around 42,000,000 And so I'm just trying to understand

Speaker 3

Go ahead. Yes, I was talking gross margin percentage. So, 40 2.8 percent.

Speaker 7

Yes. Got it. Got it. Okay. Not a problem.

Speaker 7

Thanks, guys.

Speaker 2

Sure.

Operator

Ladies and gentlemen, there are no further questions at this time. And I would like to turn the call back over to Doctor. Hartnett for closing remarks.

Speaker 2

Okay. Well, I think that completes our conference call for the Q3. Appreciate everybody's questions and Participation and we look forward to talking to you again in May. Good day.

Operator

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

Remove Ads
Powered by Quartr
Earnings Conference Call
Amentum Q3 2024
00:00 / 00:00
Remove Ads