Atmus Filtration Technologies Inc. (ATMU) 2026 Q2 法說會逐字稿

Hello, everyone.

Thank you for joining us and welcome to the Atmus Filtration Technologies Second Quarter 2026 Earnings Call. After today's prepared remarks, we will host a question-and-answer session.

(Operator Instructions)

I will now hand the conference over to Todd Chirillo, Executive Director of Investor Relations. Please go ahead, Todd.

Thank you, Piercy. Good morning, everyone, and welcome to the Atmus Filtration Technologies Second Quarter 2026 Earnings Call.

On the call today, we have Steph Disher, Chief Executive Officer and Jack Kienzler, Chief Financial Officer.

Certain information presented today will be forward-looking and involve risks and uncertainties that could materially affect expected results.

Please refer to the slides on our website for the disclosure of the risks that could affect our results and for a reconciliation of any non-GAAP measures referred to on this call.

For additional information, please see our SEC filings and the Investor Relations pages available on our website at atmos.com.

Now I will turn the call over to Steph.

Thank you, Todd, and good morning, everyone. Today, I will review our second quarter results and share details of our progress executing our four-pillar growth strategy.

I will also provide updates to our outlook for 2026.

Jack will then speak to our financial results and segment performance.

I am pleased to share that we achieved record sales in the second quarter and delivered strong results among our key metrics, including adjusted EBITDA. Free cash flow and EPS.

I want to thank our global team for their dedication to our customers and their efforts in delivering these impressive results.

Now, let me provide you an update on the integration of Cook Filter, our first industrial filtration acquisition, which we closed earlier this year.

Our team has made tremendous progress and we have exited more than 95% of the transition services agreements. We expect all remaining integration activities to be completed during the third quarter.

With the integration nearly complete, we are turning our attention to growth initiatives in our industrial solutions segment.

We continue to see value creation opportunities from Cooke Filter's deep industry experience combined with our filtration capabilities and global footprint, which will provide ongoing benefits for all stakeholders.

Let us now turn to an update on our capital allocation strategy.

Our strong cash generation provides us with balance sheet flexibility for both growing the business and returning capital to shareholders.

With this balanced approach, we expect share repurchases to be $20million to $40 million in 2026, aligned with our previous guide.

Looking forward. We intend to allocate surplus cash towards paying down gross debt.

This will position us for investing in future growth opportunities.

Now let us turn to our four-pillar growth strategy.

Our first pillar is to grow share in first fit. We continue to win with the winners by growing our long-term partnerships with leading global and regional OEMs across a broad range of applications.

We are leaders in filtration science with our latest generation NanoNet N3 filtration media and advanced testing capabilities strategically located around the world.

This allows us to expand our first fit customer reach across a broad range of applications and provide advanced filtration solutions for OEMs.

Our second pillar is focused on accelerating profitable growth in the aftermarket.

Our global aftermarket consists of thousands of customers across many applications.

We have dedicated teams located where our customers need us. We have developed a robust pipeline of opportunities and are working every day to bring our industry-leading Fleet Guard and Cooke Filter products to current and new customers.

Our third pillar is focused on transforming our supply chain.

We have launched Lean the Atlas Way, our lean-based production system.

The program includes implementation of standardized management systems and lean operating practices, which improves productivity and supports sustainable margin expansion.

I want to recognize our team in Mexico for becoming the first Atmos aside to achieve certification in lean the Atmos way.

In addition, our focus on relentless improvement has allowed us to continue raising our delivery and on-shelf availability metrics to all-time highs through the Atmos controlled distribution network. We have the right products for our customers when and where they need us.

Our fourth pillar is to expand into industrial filtration markets.

Following the acquisition of Cooke Filter, we continue to review a robust pipeline of opportunities with a focus on industrial air to build a platform of scale by leveraging Cooke Filter and creating value through targeted bolt-on acquisitions.

While our primary focus is industrial air, we remain opportunistic in evaluating industrial water and liquid filtration assets with the goal of identifying an anchor investment that can serve as the foundation as we build out our broader industrial platform over time.

We are focused on delivering long-term shareholder value through the disciplined development and execution of industrial filtration opportunities.

Now let us discuss our second quarter financial results.

Sales were a record $528 million compared to $454 million during the same period last year, an increase of 16.4%, driven by the acquisition of Cook Filter and strong performance in Power Solutions.

Adjusted EBITDA was $109 million or 20.7% compared to $95 million or 21% last year.

Adjusted earnings per share was $0.82 in the second quarter of 2026 and adjusted free cash flow was $67 million.

Also during the second quarter, we returned $18 million of cash to shareholders through share buybacks and dividends.

Now let us turn to our outlook for the Power Solutions segment.

In the aftermarket, we are starting to see signs of health in the overall freight market, including higher spot rates and increasing optimism for improved freight activity.

However, we have yet to see a significant inflection and therefore continue to expect the market to be relatively flat year over year.

In our first fit market, the US EPA has provided the industry with some regulatory clarity surrounding the implementation of 2027 emissions standards.

The agency has proposed allowing current engines to be sold into 2027 with a non-conformance penalty.

While this is expected to ease some pre-buy pressure, customers have indicated a stronger second-half driven by improved market conditions and a cyclical recovery.

We are already seeing the benefits of this cyclical recovery in our 2Q results and have good visibility through the end of the year.

We also expect continued market share gains in both aftermarket and first fit through our multi-channel distribution strategy, improved on-shelf availability and winning with new and existing customers.

For Power Solutions, overall, we expect volume growth in a range of approximately flat to 2%, inclusive of global market and share gains.

Additionally. Pricing is expected to add approximately 1.5% and foreign exchange is expected to be a tailwind of approximately 2%. In total, we expect Power Solutions revenue to be in a range of $1.82 billion to $1.865 billion, which represents growth of approximately 4.5% at the midpoint.

In our Industrial Solutions segment, we expect favorable market conditions and strong performance to continue, with total revenue to be in a range of $155 to $165 million.

Taken together, we expect total company revenue to be in a range of $1.975 to $2.03 billion, an increase of approximately 13.5% at the midpoint.

We are narrowing our full year adjusted EBITDA guidance and now expect to be in a range of 19.75% to 20.25%.

Lastly, adjusted EPS is expected to be in a range of $2.85 to $3.

In summary, our team continues to successfully execute our four-pillar growth strategy and provide the protection our customers need and value most.

I want to thank all at Smithsonian for their strong performance in the first half. I remain confident in the ability of our team to continue to deliver for all our stakeholders. Now I will turn the call over to Jack.

Thank you, Steph, and good morning, everyone.

I also want to recognize our global team for delivering another quarter of strong financial performance, all while successfully navigating challenging market conditions.

Sales in the second quarter were a record $528 million. Compared to $454 million during the same period last year, an increase of 16.4%. Power Solutions delivered sales of $486 million, compared to $454 million in the prior year, an increase of 7%. The increase was primarily due to higher pricing of 3%, higher volumes of 2% and favorable foreign exchange of 2%. Industrial Solutions sales were $42 million, resulting from the acquisition of Cook Filter.

Gross margin for the second quarter was $154 million or 29.2% compared to $131 million or 28.9% in the second quarter of 2025.

The increase was primarily due to favorable pricing, incremental margin from the acquisition of Cook Filter, favorable foreign exchange, higher volumes and the cessation of one-time separation costs.

This was partially offset by higher materials and manufacturing costs.

Selling, administrative and research expenses for the second quarter were $62 million compared to $57 million in the prior year.

The increase was primarily due to people-related expenses and information technology consultants.

Joint venture income was $8 million in the second quarter, flat compared to prior year.

Strong performance in China offset weaker markets in India, which has been impacted by the Middle East conflict.

Other income expense was unfavorable by $1 million compared to favorable by $4 million in the second quarter of 2025.

The increase in expense was primarily due to foreign exchange losses and the non-operating gain that did not repeat.

Excluded from the adjusted results are one-time costs related to the integration of Cook Filter, which for the full year is expected to be in the range of $3 million to $6 million.

We also exclude intangible asset amortization resulting from the Cooke Filter acquisition, which is expected to be in a range of $11 million to $13 million for 2026.

Total enterprise adjusted EBITDA in the second quarter was $109 million or 20.7% compared to $95 million or 21% in the prior period.

Segment adjusted EBITDA for Power Solutions was $101 million or 20.8%. Compared to $95 million or 21% last year.

Industrial Solutions segment adjusted EBITDA was $8 million or 18.9%.

Adjusted earnings per share was $0.82, compared to $0.75 last year.

Adjusted free cash flow was $67 million this quarter, compared to $36 million in the prior year.

Now let us turn to our capital deployment strategy.

The combination of strong cash flow and continued robust adjusted EBITDA performance has resulted in an estimated net debt to adjusted EBITDA ratio of 1.9 times the trailing 12 months ended June 30.

We also invested $13 million in capital expenditures for continued growth, and we returned $18 million to shareholders consisting of $13 million in share repurchases and $5 million of dividends.

As Steph highlighted, we will continue to strategically deploy capital through investment in growth and paying down debt to provide balance sheet flexibility.

Our cash flow allows us to take this balanced approach for both growth opportunities and returning capital to shareholders.

In closing, I want to thank and applaud all of our teams around the world for all of your hard work and dedication in delivering a strong first half of 2026.

Now we will take your questions.

We will now begin the question-and-answer session. (Operator Instructions)

Quinn Fredrickson, Baird.

Hi, good morning.

Could you guys discuss, Steph, maybe how aftermarket and first fit revenues performed in the quarter and also give us an estimate for how much share gains contributed in Power Solutions and whether any change to the year for your assumption there?

Thanks, Quinn.

Great question. And let me start with, I guess, as I was saying in my prepared remarks, our team delivered a really strong quarter. In the Power Solutions segment, overall record revenues of 16.4% on the same period last year. And in the Power Solutions segment, delivered revenue growth of 7.1%. And as Jack highlighted, that really was broken down between 3% price, 2%. Volume and 2% FX. So, if I take that volume growth year-on-year and break that down as requested into aftermarket and first fit performance, what we saw in aftermarket, I would say, is still flattish conditions. So, if I give you a view of aftermarket around the world, a reminder that aftermarket is 85% of our revenues within the Power Solutions segment.

And within that, about 50%. Of those revenues in the US. And so we are seeing stronger sentiments in the US and in Mexico, but as I look around the rest of the world from an aftermarket perspective, I would say Europe and the Middle East and Asia Pacific outside China, we are still seeing subdued conditions. And so that balance really gives us a flat aftermarket outlook and also flat aftermarket through the quarter.

We continue to deliver strong gains with our customers, and I continue to see us within the range of 1% to 2% for our share gains outlook.

If I turn to first fit market.

We did start to see the cyclical recovery in first fit markets that we have been anticipating and was previously incorporated in our guidance. We started to see that uptick in our business in the second quarter.

And we do, just as education for you, we do see that uptick in our business ahead of the vehicle OEMs.

The APT data that we often refer to with vehicle bills is about four to six weeks.

We are about four to six weeks ahead of that in terms of the supply chain cycle.

And so we started to see the cyclical upturn in first bit markets here at the end of the second quarter. I would say it was a balanced performance in first bit between market improvement and share gains through our ongoing strategy of winning with the winners.

Thank you, Steph. Jack, could we get an updated. View on price cost expectations for the year? And I think you said maybe 2% price. Is that the right way to think about for the full year? So it sounds like you would have taken some pricing actions in July. Could you just clarify on that?

Yes, absolutely. So, from a pricing perspective, obviously, we continuously assess our pricing and make strategic adjustments where necessary, both in terms of gross pricing as well as. Rebates, and rebates can drive some of the timing nuances. We saw good price realization through the first half, just over 2%. Our full guide is 1.5% for the full year, and that reflects a mix of carryover from prior year as well as some new pricing and obviously anticipates a moderating price realization environment as I think about the year-over-year comparison in the third quarter and the fourth quarter.

As I think about that comparison as well, obviously there is some rollback of certain tariff pricing that occurred last year that we have continued to implement or remove as policies change.

As always, we will take a balanced approach to pricing and share gains and are certainly doing that over the balance of the year.

As I think about some of the cost dynamics in the second-half, we continue to. See some elevation in our cost base associated with some commodities, and a lot of that is driven by the ongoing conflict in the Middle East.

That is probably the biggest kind of headwind thst is embedded in our second-half. And as you look at the first half, year-to-date margin compared to the second-half is one of the contributors leading to the implied softening second-half compared to first half.

The other dynamic I would just call out as you think about. That margin walk is not only are we experiencing some commodity price increases associated with the conflict in the Middle East, thst is also contributing to weaker overall conditions in India and therefore leading to a lower joint venture income outlook than we originally anticipated at the full year.

So I think the combination of those hopefully helps you bridge kind of the first half, second-half dynamic and get a better sense of.

Price cost dynamics as we move through the year.

David Ridley-Lane, Bank of America.

Sure.

Thank you very much on for Andrew Obin.

Just really quickly on the Middle East, since you mentioned that, did you catch up on any of the lost sales from first quarter?

And what is embedded in the guide that you catch up or do not catch up in the second-half?

Thanks, David. Good morning. So, we did not fully catch up the Middle East in the second quarter. The conflict is ongoing. As I think we talked about in our first quarter earnings, we were uncertain as to how the conflict would play out. So, we are still seeing underperformance in our expectations of our Middle East business driven really by market. Is how I would describe it.

We are anticipating it recovering into the second-half.

And it is a smaller proportion of our business, as we have shared before, about 2% of overall revenues. We are seeing, as I talked about, subdued conditions through Europe that may also be related to the conflict. And as Jack referred to, we have seen challenges in our India business through the joint venture line in our P&L that. That it is also related to the Middle East conflict.

Got it. And then just on that point on pricing, first, can you confirm there is no tariff-free funds in second quarter results? And then how much of your -- I know it is hard to parse this, but when you.

Lower your prices just mechanically because of the tariffs coming off, how much of a drag is that in the second-half ballpark? Because I realize there is still a lot of moving parts around tariffs.

Thank you.

Jack, do you want to take that one?

Yeah, absolutely. So, let me first start with the tariff refund question, David, and then I can talk a little bit about what the implied pricing in the second-half is. As you note, it is a little bit hard to parse out, but I will do my best.

From a tariff refund perspective, as of the end of the second quarter of 2026, we received an immaterial amount of tariff refunds. Of course, we have applied for all the refunds that we feel entitled to, and we will continue to evaluate the potential treatment of those refunds as and when we receive them.

Including whether or not a portion of those should be allocated to expenses that we have already incurred and then what is left over in terms of customer refunds.

Overall, I would say we continue to expect the net impact on EBITDA from a tariff perspective to be substantially neutral.

As the tariff environment will continue to evolve with ongoing changes in policy, and I would just say that our strategy to address that. Remains unchanged. Of course, we will continue to avail ourselves of any exemptions so as to protect our customers from the impact of tariffs, continue to evaluate our supply chain and optimize wherever possible.

And then finally, obviously looking to pass that on the impact of tariffs through pricing. Overall, continue to be guided by cost-neutral principle as it relates to tariffs.

From a pricing perspective, I think I will just kind of talk about it in totality because it is really hard to parse out given all the moving pieces last year in particularly.

But if you look at the full year guide and then year-to-date price realization, you can kind of see price realization, as I said, moderating in the third and the fourth quarter compared to those same periods in the prior year, kind of between just over 0.5%, I would say.

Bobby Brooks with Northland Capital Markets. Your line is now open.

Hey, good afternoon team and thank you for taking my question.

So, industrial solution, run rate that quarterly sale level versus the Coke's 2025 flows when you acquired it to nice high.

So question there, is any seasonality that would make this an overlay of looking at this or qualitatively anything that drove through sequentially?

Good morning, Bobby. I am doing my best to make out your question. I must say, on my end, it is breaking up a little. So, I will try to summarize.

I think what your question is is related to Industrial Solutions revenues.

How is that performing? And is there any seasonality in regards for that revenue? So I will try to answer that, and I am not sure what is driving the breaking up at your end.

So Industrial Solutions is performing right where we would expect it to. I think broadly speaking, we have talked about 1% price for Industrial Solutions, 1% to 2% market share and really overall the market impact for Industrial Solutions being closely linked to GDP are around that sort of 3% level. Overall, the guide we are still giving is 1% to 8% for industrial revenues. We think it is pretty steady over the quarters.

So I would not call out any specific cyclicality in the quarters.

And we are confident and really pleased with the ongoing performance relative to our original business case assumptions.

Apologize for the breakdown.

And maybe just a follow-up there. You spoke to have 3Q integration piece and a shift to that.

Just wanted to give you the floor to speak to what might be some exciting growth in this so you can help for Industrial Solutions.

Thank you.

Yeah, I will take it. Thanks, Bobby, for the question.

So I think.

I think I interpreted your question as just a quick update on the Cook integration overall and then speaking to some of the growth initiatives that the team is thinking through. So, first of all, I would just say we continue to be very excited about the acquisition of Cook Filter and very pleased to see such a strong cultural fit with our organization.

As you noted and as we noted in our prepared remarks, we are through about 95% of the TSAs.

And will be planned to fully exit those TSAs here in the third quarter.

Overall, continue to be really excited about the growth prospects for that business and a lot of different initiatives that we are working through in a collaborative way with the Cook business. Of course, continuing to cultivate new market share opportunities through the build out of distributor relationships.

Launching new products to fill gaps in that coverage, as well as looking to expose the business to high-growth end markets, things such as data centers, health care, so on and so forth. And so the team's got a lot of energy around that. We continue to find ways that we can complement the already strong attributes that they bring to the table and excited about the future.

Tami Zakaria, JPMorgan India Private Limited.

Hi, good morning.

Thank you so much for taking my question.

Question on your EBITDA margin guide. I think you narrowed the range and the top end came down by 25 basis points.

Is that because your first fit.

Expectation is now better, so thst is a mixed headwind. Or how should we think about that lowering of the top end of the range?

Good morning, Tami. I will pass that one to Jack.

Thanks, Tami. Good morning.

So first of all, I would just say we have seen really strong operational execution through the first half of the year. I think year-to-date margins at about 20.3% from an EBITDA perspective over the first six months, so really pleased with where thst is at.

I will start first, Tammy, maybe just bring to life performance in the second quarter, and then I will speak to the balance of the year and a couple of the moving pieces.

As we noted, the second quarter, we saw the benefits of pricing, volume, FX, and then partially offset by higher material costs and manufacturing costs.

In addition, we had a small amount of elevated incentive compensation costs in the quarter. As we are outperforming the plan. And then finally, down in the other income expense line items, a couple of non-operational items in Q2 of '25 that did not repeat this year.

Let me help you then kind of bridge to the full year guide.

As our guidance implies, we have more favorability in the first half as you think about year-over-year comparisons in the form of pricing and FX than we will in the second-half. So, those are a little bit of a moderating lever to pull, if you will.

Secondly, we expect the ancillary effects of the Middle East conflict to persist for longer than we originally anticipated, really driving inflationary pressures associated with raw materials like chemicals, plastics.

And then as I noted, I would just say that the other impact from a second-half perspective is. The Middle East conflict impacting JV income, most notably in China, and so you will see that we lowered our outcome a bit on JV income -- sorry, in India, I apologize.

In terms of mix to your question, Tammy, I think obviously there is a little bit of a mixed dynamic with strengthening first fit relative to aftermarket, but I think it is a combination.

Understood. That is very helpful. And I wanted to get some clarity on the Industrial Solutions segment.

If I look at the EBITDA margin for that segment, it is sequentially down on almost 200 basis points. Is that seasonality? If not, what drove this sequential decline? And how should we think about that segment's EBITDA margin for the back half versus what we saw in the second quarter?

Yeah, I will take that one as well, Tami. So, look, year-to-date margin performance is about 20% if you average the first quarter, second quarter, and that continues to be our guide. And so thst is how I would have you think about the third and the fourth quarter.

As second quarter margins took a sequential step down 18.9% and below that full year guide.

Really, I would say thst is driven by some.

Some one-off impacts that drove some inefficiencies that we expect to be one-time and not repeating in nature. To bring a little color to that, it is a little bit of operational efficiencies as volumes moved around and some inefficiencies associated with the transition off of the TSA, some redundant expenses. So, we remain confident in our full year guide for that business and think it is just a temporary nuance.

Kevin Urich, Wells Fargo.

Hi, guys.

I just wanted to double-click on the North America truck aftermarket market. How have your expectations changed from the beginning of the year and what are you seeing currently?

Good morning, Kevin. Thanks for the question.

Look, I would say our guide remains the same actually as we came out from a market perspective on aftermarket in the U.S. Certainly, we are reading what I am sure you are reading, which is improving sentiment.

And that gives us a lot of optimism is what I would say, but we are not yet seeing that translate in at least the visibility we have at this stage, and we do not have a lot of forward visibility in aftermarket orders. But in the visibility we have at this stage, we are not seeing that translate yet into an uptick in outcomes in market conditions. So, the way we see it is really flat year-on-year aftermarket obviously will continue to deliver share gains.

As we have got previously guided to, but not significantly changed from where we started out the year.

Understood.

Thank you. And then maybe going back to the Middle East conflict, is there a way you can help us think about the margin impact on the quarter, the moving pieces there?

Thank you.

Yeah, so I would think about again, I highlighted some of the commodity cost impacts.

You can imagine it takes a little while for things like that to work through the system. And obviously, we are doing our best to mitigate the impact of those. So, it is a bit more of a second-half dynamic, I would say, than a Q2 dynamic.

And it is one of the drivers, if you will, of the step down in the margin percentage outlook in the second-half.

If you look at our joint venture income year over year, it is flat compared to the same period last year.

And I think really what that is reflective of is a strong market in China, not only in the second quarter but in the first half and then some corresponding weakness in our India market, which is driving a bit of that lower joint venture income.

Again, originally, we had kind of.

Built in an assumption, I think, like many people did, that we would see some resolution of that conflict in the second quarter. And obviously, thst is not been the case. So, we will continue to do our best to mitigate those ongoing impacts, not only at the cost line, but also trying to get product to our customers.

There are no further questions at this time. I will now turn the call back to Todd Cerillo for closing remarks.

Thank you, Piercy. That concludes our teleconference for the day.

Thank you for participating and for your continued interest. Have a great day.

This concludes today's call.

Thank you for attending. You may now disconnect.