COLUMBUS MCKINNON CORP Q1 FY2026 earnings call

• Orders grew 2% year-over-year, with project-related orders up 8% and EMEA showing strength. - Sales were slightly ahead of expectations due to delayed tariff implementation. - Tariffs had a $4.2 million impact on gross profit in Q1, expected to be a $10 million headwind to operating profit in the first half of fiscal 2026. - SG&A was down 5% excluding Kito Crosby-related expenses and other noncore adjustments. - Focus on vertical end markets like battery production, e-commerce, etc. - Progress on Kito Crosby acquisition, received second regulatory request, anticipating close by end of calendar year.

In the first quarter, orders were up 2% year-over-year to $259 million, driven by 8% growth in project-related orders, particularly strong in EMEA. Sales were $235.9 million, down 2% from the prior year, with short-cycle sales down 3%. Project-related sales were unchanged from the prior year despite 8% orders growth. Gross profit was $77.2 million, down $11.8 million year-over-year on a GAAP basis. Adjusted gross margin was 34.3%. Backlog is up $67 million or 23% versus prior year to $360 million.

• Reaffirms guidance for fiscal 2026 of net sales growth flat to slightly up year-over-year and adjusted EPS growth flat to slightly up year-over-year. - Tariffs expected to negatively impact earnings in the first half of fiscal 2026, with an impact of $0.20 to $0.30 on adjusted EPS. - Anticipates achieving gross profit dollar neutrality on tariffs by the second half of fiscal 2026 and margin neutrality in fiscal 2027. - Guidance does not include financial results from pending Kito Crosby acquisition.

• Macro uncertainty remains, affecting short-cycle orders. - Tariff policy changes can impact sales and margins. - Uncertainty around the timing and outcome of the Kito Crosby acquisition regulatory process.

Q: Couple of questions. With respect to the gross margin performance in the quarter, the down 370, that was a bit more punitive than we would have been modeling maybe it was just our model was off. But can you help parse out that 370 and what we should be thinking about gross margin cadence from here relative to kind of normal seasonality with 34.3% kind of being the jump-off point? And then I have a follow-up.

A: Matt, it's David. Let me take a start at that. And if Greg wants to add, he certainly can. We obviously saw 180 basis points of erosion at the gross margin line tied to tariffs as we cited in the prepared remarks. Additionally, from a mix perspective, we had a lower volume of some higher-margin products notably automation-related shipments. And then at the same time, the linear motion products that we're providing out of our Monterrey, Mexico location. Volume there is ramping, but from a volume weighted perspective, the mix was off given a reduction in some of those higher-margin products, and then we had a higher volume of some lower-margin products, notably the rail business showed strength in the period. In addition, we had a higher volume of some lower-margin hoist products that were shipped out of our Wadesboro facility. And so the combination of mix, the tariff impact and then lower volume, as you know, in the period, our sales were down between 2% and 3% year-over-year. And so the compare there is what would have driven that margin comparison.

Q: And then as a follow-up -- well, not necessarily a follow-up, sort of the tail end of that question is how do gross margins kind of using 34.3% as a jump-off point, how should we think about the cadence as we move through the year, also bearing in mind seasonal factors? And then I have a follow-up.

A: Yes, sure. So we have confidence in our ability to expand margins in the business. We do anticipate, as we said, that the first half will be muted by the tariff impact that we expect to continue into the second quarter. And as we are driving initiatives that enable growth in targeted areas and as we are executing to ramp volumes in facilities that we've been investing in, we believe that we'll see margin support in the shipment of those products as we progress throughout the year. Obviously, with a consideration for the third quarter where we would typically see a bit of a negative impact on margins given the number of shipping days versus the previous periods and the absorption requirements during that period.

Q: This is Will on for Jon. Congrats on the beat and the order strength. Can you dive a little deeper into the 1.1x book-to-bill and maybe break out how much of that is coming from price increases and how much is coming from ongoing demand strike?

A: Yes. Well, happy to do that. So obviously, encouraged by the funnel and the continued book-to-bill strength at 1.1. Orders growth year-over-year was about 2%. And I would say that somewhere on the order of about 1% of that might be from price. Obviously, we have price increases that go into effect towards the end of a quarter. And as those phase into the new quarter, there's obviously a stickiness that takes hold and then the translation of that into the backlog. And we think that we probably got about 1% of that 2% from price.

Q: And then can you provide an update on Kito Crosby acquisition and where you expect leverage to be post close? And have there been any surprises either negative or positive in the process?

A: Yes. Let me start and ask Greg to take the question on the leverage part of it. But the acquisition is advancing in terms of preparedness for close. We've received all of our regulatory approvals, but one final approval. As I mentioned, we had a second request from the Department of Justice related to our HSR approval, which was anticipated in a pretty standard part of the process. We're working constructively through that process and are anticipating that we'll be in a position to close that transaction by the end of the year. We are working in parallel to obviously make sure that we're ready day 1 for a successful integration. And so we're gearing up with organizational adjustments and analysis and planning around those integration elements and the ability to support those with an executive-led integration management office and governance structure around that, that involves both the senior leadership team as well as our Board to ensure that we execute well. As you know deals that are done exceed because of successful integration, and we're making sure that we're prepared to deliver on the targets that we've set out for the deal and we'll be measuring ourselves on a weekly, monthly and quarterly basis in terms of our ability to track to those and reporting out on those on a quarterly basis to you in these calls tracking savings synergies more broadly and debt repayment. And that might be a good place for me to hand off to Greg and ask him to talk about the leverage position plans from there.

Q: I appreciate the detail on the call. I wanted to ask, and I know you noted the project orders you're picking up, a lot of those are long-term projects. Trying to get a sense of how much of that is in fiscal '26 guidance? How much of that's really going to be an impact next year? And how much of that's multiyear?

A: Happy to answer, Steve. So we believe that between 70% and 80% of our current backlog is actionable in this year, and the balance of it would extend beyond that time frame. And so obviously, we continue to work with customers on their delivery schedules and there can be shifts both out of the year and into the year based on the way that their site readiness is progressing and we're working to see if we can level load that backlog as well because as you can imagine, projects can be lumpy based on their delivery dates and you'd like to be in a position to level load improve operational efficiency and leverage capacity for level loading. So we're working to try to do that with those orders. And where we can, and we've been successful at striking revenue recognition support for overtime accounting treatment, we've done that. And so about 70% to 80% will phase into this year of the $360 million in backlog that we have and the balance will come out of the year, and we're working to move as much of that into the periods that we can leverage to be more level loaded as possible.

Q: I know you guys didn't give formal 2Q guidance, but maybe just for a top line, are you expecting kind of the 2% down in 1Q to be improved in 2Q? Or is 2Q going to be the low point kind of in the year for top line sequential growth?

A: Yes. So Q2, we would typically anticipate a progression to the positive from Q1. And as we look at the book-to-bill that's growing and our efforts to level load that production throughout the balance of the year, we would anticipate that we'd see progress as we enter Q2. And in addition, as you know, we've implemented price increases that should have an impact in a more meaningful way as we go through the balance of the year. And so without giving a definitive guidance answer to that, James, what I would say is that we do anticipate a progression from Q1 to Q2 from a revenue perspective.

Q: I know you mentioned that the price surcharge went to place July 10, I believe. Is there another planned coming up? Or is that dependent on tariff developments that happen with China and Europe?

A: Yes. I think we're going to continue to monitor how things develop and obviously, we'll be agile and responsive. We believe that what we've done to date accommodates the current assessment of the impact to our business and the appropriate pricing actions. We've been thoughtful and surgical with the way that we've put those price increases in place, looking at it from an 80/20 perspective and making sure that we're moving the business forward in the direction that we're trying to accomplish strategically. But we believe we've taken the action we need to take given all the information we know today, and as we learn more, be responsive if there's a need for further adjustments.