Atmus Filtration Technologies Inc. Q2 FY2025 earnings call

4-Pillar Growth Strategy Progress - First pillar: Growing share in first-fit by partnering with industry-leading OEMs, though customer decision-making is impacted by trade/regulatory uncertainties. - Second pillar: Accelerating profitable growth in aftermarket via distribution partner growth and advanced data analytics. - Third pillar: Transforming supply chain with full control of distribution network after completing transitions in South Africa and Belgium, focusing on improving on-shelf availability. - Fourth pillar: Expanding into industrial filtration markets via inorganic acquisitions, reviewing a robust pipeline of opportunities. ### Capital Allocation - Accelerated share repurchase program in Q2, repurchasing $20 million, year-to-date total $30 million, with full year repurchases expected to be 1%-3% of current market capitalization. ### Separation from Cummins - On track for full completion of operational separation in the third quarter.

Sales for the second quarter were a record $454 million, an increase of 4.8% compared to $433 million in the same period last year. Adjusted EBITDA was $95 million, or 21%, compared to $93 million, or 21.4% in the prior period. Revenue contribution isn't broken down by product segment specifically in the transcript, but sales growth was driven by higher volumes (4%) and pricing (2%), partially offset by unfavorable foreign exchange (1%).

Revenue - Global sales expected to be in the range of $1.685 billion to $1.735 billion, up 1%-4% compared to prior year. ### Adjusted EBITDA Margin - Expected to be in the range of 19.25% to 20%. ### Adjusted EPS - Expected to be in the range of $2.40 to $2.60. ### Tariffs - Expect to be price cost neutral for the year, with pricing expectations around tariffs evolving based on market changes as of July 31, and incorporating a 0.8% impact currently.

- Uncertainties in the trade and regulatory environment affecting customer decision-making speed for first-fit business. ### - Fluctuating tariffs, which impact pricing expectations and need to be monitored closely as they can materially affect results.

Q: As I listened to your updated outlook, some of the commentary, it sounds like your pricing expectations came down a little bit. I am curious if you could just walk through how that's going to play out through the balance of the year, just your realization. And I'm assuming that's related to adjustments around tariffs, but I'm curious if -- maybe you can clarify if that played into your base price expectations, too.

A: Right. Thanks for the question. I'll just start talking around tariffs, you're right. I think most of that movement on price has been related to tariffs. In our last guide, we had guided tariff and pricing of about 1.5%. And I think this guide incorporates 0.8%. So the movement there on our expectations around tariffs primarily related to the change in tariffs on China, I would say is where that movement is. As I noted in my opening remarks, the way we have developed our guide in relation to pricing for tariffs is that it's as at 31 July, so I think what you can know is this will move around a little bit. We've obviously seen some changes since then with the 1st of August announcements and some of the additional announcements related to India. But right now, our outlook and guide incorporates a 0.8% pricing on tariffs. Our overall expectation on tariffs is to be price cost neutral for the year and through the quarters is how I would guide you on it. And so hopefully, that gives you a bit of a sense of the evolving landscape in tariffs. Jack, I might just ask you to talk through the sequential of pricing, is there anything else you would add?

Q: Can you just expand a little bit on the volume experience in the second quarter, that plus 4%, which I imagine was a little bit bigger number on the aftermarket side of things. And just how you parse the underlying base demand versus some demand that would have been brought forward just to understand the magnitude of that pull forward? And was that mostly just what you think was a Q3 to Q2 kind of event?

A: Thanks for the question. The way I would characterize the volume performance in the second quarter, let me start there with your question. It was very strong performance in the second quarter, and we were very pleased with it. I'd point to three elements really in explaining that bridge broadly speaking. We did see underperformance to our share performance in the first quarter. That was around timing of additional content gains that we had seen and seeing those being delayed into implementation with some of our customers. And so we were able to realize those share gains in the second quarter and really catch that up for the first half of the year. So really pleased to see that performance coming in where we expected is the first thing I would highlight. The second question -- the second point I would highlight in the share gains and [ difficult ] to parse out exactly what the value of this is, but there will be some prebuy activity inside that second quarter. We certainly had our midyear price increases in July. There's also a lot of uncertainty around the tariff environment with the -- what were pending announcements for 1st of August. And so we certainly believe there's some prebuy activity in that second quarter, and we'll see that even out over the third quarter here is the second piece that I would highlight. The way we've reflected our share in our full year guide is how we see it is really we see 2% share gain performance through the full year, and we see that solid performance continuing through the third and fourth quarters. If I just comment on the market side of that volume equation, as you will note, we lowered our guidance on first-fit. First-fit is a lower portion of our business. So we're running at about 86% aftermarket, 14% first-fit. And so obviously, it has a lower impact on us overall relative to the aftermarket. But those -- we decreased our guidance on first-fit market conditions significantly, 10% down at the midpoint relative to our previous guide. And that's really based on the activity that we've seen, the orders in the U.S. market in the second quarter and what we believe will be still a tough third quarter in particular, driven by uncertainty in the regulatory environment with EPA 2027 and somewhat ongoing tariffs. So really hoping to see some certainty emerging there, and that will allow us to review that as we move forward. Aftermarket, we expect continued challenging freight conditions, really in line with what we've seen for the year. We're not including any rebound, if you like, in aftermarket in our second half.