MSA Safety Incorporated Q2 FY2025 earnings call

• Strategic actions: Published 2024 impact report showing 40 million workers protected; implemented targeted price increases in Q2 and built tariff mitigation pipeline; backlog conversion similar to last year. - Capital allocation: Disciplined growth-oriented approach focusing on organic growth, M&A, and cash returns to shareholders. R&D investments support innovation, M&C acquisition added $11M to Q2 sales and expands TAM by $500M. - Product performance: Detection saw mid-single-digit organic growth led by fixed and connected portables; Fire Service organic sales declined mid-single digits; Industrial PPE organic sales down low single digits with fall protection growth.

In the Americas segment, sales increased 2% year-over-year on a reported and organic basis, with double-digit growth in Detection offset by mid-single-digit contraction in Fire Service and low single-digit contraction in Industrial PPE. Adjusted operating margin was 29.1%, down 220 basis points year-over-year. In the International segment, sales increased 4% year-over-year on a reported basis (with M&C contribution and FX tailwind) and decreased 4% on an organic basis due to mid-single-digit decline in Fire Service and low single-digit declines in Detection and Industrial PPE. Adjusted operating margin was 13.1%, 330 basis points below last year.

• Full year low single-digit organic growth outlook. - M&C expected to add approximately 2 points to full year revenue growth and be approximately $0.10 accretive to adjusted EPS. - FX translation impact of 0% to 1% tailwind. - Interest expense expected to be approximately $29 million to $32 million, including acquisition.

• Macro uncertainties affecting demand. - Tariff impacts on input costs and margin pressure. - FX headwinds, particularly in Latin American currencies. - Timing of NFPA standard affecting Fire Service order pace.

Q: Just curious as to how you're thinking about timing and disbursement of AFG funding. You mentioned it before Fire Service. Just looking -- it doesn't look like those awards have started rolling out yet. So just kind of wondering any ideas to how the funding environment has changed?

A: The funding is approved. We expect the AFG funding releases to begin here in August. They haven't yet, but the expectation we have is that they'll come through sometime in August. They have to have those done by the end of September. So typically, the sooner they can get started on that, get some of those tranches out to the customer base, I think that helps. But the funding is approved, fire departments are just waiting for its release.

Q: Just how do you guys feel about fourth quarter seasonality? Is it being influenced by lack of SCBA shipments or detection backlog conversion?

A: Typically, our fourth quarter is a strong quarter for us. I don't think that's going to be any different in 2025. So we would expect that to be the case. It typically is a strong quarter in the Fire Service. It's typically strong in detection. And I would say that you could expect that for 2025 as well.

Q: I hopped on a little bit late. So if I'm asking anything that said, feel free to have me go to the transcript. I guess, first off, M&C TechGroup, I see it's going to be accretive to EPS. I just wanted to see -- make sure the business as it stands today, is it also accretive to margins?

A: Sure, Mike. Thanks for the question. The margins of M&C are relatively similar to overall MSA. So it didn't have an impact on margins in the second quarter, and that's what we'd expect for the remainder of the year, really relatively neutral on margins, but we do expect about $0.10 of accretion for the year in EPS.

Q: Just wanted to circle back to Fire for a minute, if we could. What are the overall elements of timing that you're watching around the new standard? Just wondering, are there milestones that you say, gee, okay, this has happened now. We think it's going to be 3 months from now that it really ramps? Or just wondering about that, how you think about that?

A: Well, it's a -- thanks for the question. The NFPA standard change, it's a government approval process. So we -- there's a couple of key milestones we look at. First of all, when is testing completed, right? And once testing is completed, that certainly is a milestone that we can validate, okay, they've got the next key stage that you will walk through the process. But -- to be fair, we know when our testing is completed. We don't necessarily get complete visibility on some of the other categories for competitive situations or any of the discussions they may have. There are some discussions that they would be -- that would be privy to them and NFPA. But by and large, when you see the testing completed and you recognize that you've got what you need, this body, the NFPA will go through a process where they'll need to validate the approvals, then they'll have to get all the documentation done. And that takes some time with the government. So that's why we don't have specific line of sight. But based on historical context, it tells us that we would expect that approval. It could be any time between now and the early 2026, which we kind of talked about, I think I did a call in May as well. And we continue to believe that. I don't have much better clarity than that. We tried to put a finer point before, and we've missed it because it is the NFPA and they've got processes they have to work through, quite frankly.