Columbus McKinnon Corp (CMCO) 2026 Q2 法說會逐字稿

Good morning and welcome to Columbus McKinnon's second quarter fiscal 2026 earnings conference call. My name is Ludy and I will be your conference operator today. As a reminder, this call is being recorded. I would now like to turn the conference over to Kristy Moser, Vice President of investor relations and treasurer. Please go ahead.

Thank you and welcome everyone to our call. On today's call, we will be covering our second quarter fiscal 2026 financial and operational results. On the call with me today are David Wilson, our President and Chief Executive Officer, and Greg Rustowicz, our Chief Financial Officer.

In a moment, Greg and David will walk you through our financial and operating performance for the quarter.

The earnings release and presentation to supplement today's call are available for download on our investor relations website at investors.cmco.com. Before we begin our remarks, please let me remind you that we have our safe harbor statement on slide 2.

During the course of this call, management may make forward-looking statements in regards to our current plans, beliefs, and expectations. These statements are not guarantees for future performance and are subject to a number of risks and uncertainties and other factors that can cause actual results and events to differ materially from the results and events contemplated by these forward-looking statements.

I'd also like to remind you that management will refer to certain non-GAAP financial measures. You can find the reconciliations of the most directly comparable GAAP financial measures on the company's investor relations website and in its filings with the Securities and Exchange Commission. Please see our earnings release and our filings with the Securities and Exchange Commission for more information.

Today's prepared remarks will be followed by a question-and-answer session. We respectfully ask that you limit yourself to one question and one follow-up question. With that, I'll turn the call over to David.

Thank you, Christine. Good morning, everyone. Our team delivered results in the second quarter that were ahead of expectations as we capitalized on record backlog and saw stabilization in US short cycle order activity. We also made meaningful progress on our operational improvement, tariff mitigation, and integration preparedness initiatives.

I would like to thank our entire Columbus McKinnon team for their dedication and continued focus on performance and execution. Net sales increased 8% year over year to $261 million with growth across all product platforms as short cycle demand stabilized, and we accelerated deliveries from Q3 to meet evolving customer delivery requirements.

Sales were up broadly, and we delivered volume growth in both the US and EMEA, our two largest regions. Adjusted EPS improved $0.12 cents sequentially to $0.62 cents in the second quarter, reflecting higher sales, margin expansion, and continued cost management.

Margins improved sequentially driven by improved absorption on higher volumes and the early translation of tariff mitigation actions. As expected, year over year, adjusted margins were down due to tariffs and sales mix impacts in addition to an incentive compensation accrual release in the prior year.

Last quarter we estimated the net tariff impact in Q1 was approximately $4.2 million. As price increases begin to replace tariff surcharges, it is becoming more difficult to calculate net tariffs specific impacts. Nonetheless, we estimate that our Q2 net tariff impact moderated slightly from Q1 levels.

Despite the constantly evolving tariff landscape, we continue to expect tariffs to be a net $10 million headwind to operating profit in the fiscal year. Given the latest developments, however, we now expect this impact to spill over into this quarter, and we are now targeting the achievement of tariff cost neutrality by the end of fiscal '26. We still expect to achieve margin neutrality in fiscal '27.

Orders were $254 million, down 3% year over year as the prior year benefited from three significant project orders totaling over$ 20 million within our precision conveyance and rail businesses. While our pipeline of quotation activity remains healthy, the weaker economic landscape in EMEA and AIPAC is resulting in slower conversion for project orders.

In the US we saw order growth of 11% with strong performance in both project-related and short cycle categories, reflecting a strengthening demand environment, the stabilization of US short cycle volumes, and the implementation of price increases to offset tariffs. Over time we expect lower interest rates and megatrends, including reshoring, automation, and scarcity of labor to drive incremental demand.

We are capitalizing on our leadership positions in end markets with notable tailwinds such as aerospace, energy, rail and transportation, metals, heavy equipment, and defense. We also remain focused on the vertical end markets benefiting from secular growth trends where we have been building a leadership position such as battery production, e-commerce, life sciences, and food and beverage.

Our backlog is a healthy $352 million up $34 million or 11% versus the prior year with increases in all platforms as we've continued to execute on our commercial initiatives.

Strong execution to meet evolving customer delivery requirements resulted in the accelerated conversion of Q3 backlog into Q2 shipments. As a result, the current quarter backlog came down 4% year over year, which is expected to impact Q3 sales volume. While we remain laser focused on the performance of our core business, we continue to advance integration preparedness for the pending acquisition of Kito Crosby.

We have established an integration management office or IMO, that is executive led and reports into me, as well as a board subcommittee that will provide governance and oversight related to integration initiatives and our performance versus plan.

The IMO will be comprised of dedicated executive and cross-functional leaders from both companies to ensure the realization of our combined company integration and synergy objectives. This will enable core business leaders and teams to focus on ongoing business activity, operational performance, and improving customer experience.

We remain enthusiastic about the strategic combination of our companies, which will scale the business, enable synergies, expand customer capabilities, and accelerate our intelligent motion strategy over time. Following integration, we'll be over $2 billion in sales, delivering top tier industrial margins and strong cash flow performance that enables reinvestment in our business after deleveraging. Our team continues to prepare for the closing of the acquisition as quickly as the regulatory process will allow, and we now expect the transaction to close by the end of our current fiscal year.

I will now turn the call over to Greg to review the details of our second quarter financial results and full year guidance.

Thank you, David, and good morning, everyone. As David shared, Columbus McKinnon delivered strong results in the second quarter, even as we navigated ever changing tariff policies in a volatile macroeconomic environment.

We delivered the second highest quarter for sales in our history of $261 million, up 8% from the prior year, driven by higher volume, pricing, and a favorable currency translation. We drove sales growth across all platforms led by our lifting and linear motion platforms.

We saw pricing accelerate in the quarter and expect previously announced price increases to ramp over the next few quarters as we continue to work through our backlog. Short cycle sales increased 7% as we've benefited from higher US short cycle orders as the market stabilized after the uncertainty caused by tariffs.

Project related sales increased 8% as we converted backlog to revenue on some larger projects in our US precision conveyance and rail businesses. Gross profit of $90.2 million increased by $15.4 million or 21% versus the prior year on a GAAP basis, driven by the benefit of higher sales as well as a significant year over year reduction of $11.1 million in factory consolidation and new factory startup costs.

On a GAAP basis, our gross margin was 34.5%, and on an adjusted basis, our gross margin was 35.3%. Adjusted gross margin contracted 100 basis points year over year due to the previously discussed impact of tariffs. While RSGA expenses increased $13.9 million to $70.3 million on a GAAP basis, this included $9.9 million in acquisition related costs incurred for the pending Keto Crosby transaction.

And $1.1 million in business realignment costs. Excluding these items, adjusted RSGA was up by $5.8 million to $59.2 million on higher sales volume, and incentive compensation accrual release in the prior year, as well as the impact of foreign currency translation, which was 1.1 million of the increase.

As a percentage of sales, adjusted RSGA increased 60 basis points to 22.7%. However, normalizing for the change in incentive compensation costs, adjusted RSGNA would have improved as a percentage of sales. As a result, we generated operating income of $12.2 million in the quarter on a GAAP basis and adjusted operating income of $25.2 million.

Adjusted operating margin was 9.7% in the quarter. This resulted in adjusted EBitda of 37.4 million in Q2 with an adjusted EBITDA margin of 14.3%. The GAAP income per diluted share for the quarter was $0.16 cents and adjusted earnings per share was $0.62 cents.

Adjusted earnings per share decreased $0.08 versus the prior year driven by the impact of tariffs. Free cash flow in the quarter was $15.1 million, reflecting growth in earnings and working capital improvement even as we paid $2.5 million of acquisition-related deal costs.

Finally, we are updating our full year guidance for fiscal 2026. We are increasing our expectations for net sales and now expect growth of low to mid single-digits for the year, up from the previous guidance of flat to slightly up year over year. We are also reaffirming our adjusted EPS guidance of flat to slightly up year over year. As a reminder, our fiscal 3rd quarter is our seasonal low for both sales and margins given fewer workdays due to the holiday season.

Our guidance assumes approximately $10 million of tariff-related cost impacts to the business in fiscal 2026. Fiscal Q3 will see residual cost impacts due to the timing of tariff recovery initiatives and recent changes increasing Section 232 tariffs.

We expect to be profit dollar neutral on tariffs by the end of fiscal '26 as we implement our mitigation strategies. As a reminder, our guidance does not include the impact of the pending Kito Crosby acquisition. We remain enthusiastic about the pending acquisition and our ability to achieve our stated long-term objectives, including synergy, realization, and delivering.

While we continue to navigate a volatile macroeconomic environment, we remain focused on our controllables, including operational execution, cost control, and driving our commercial initiatives. Operator, we are now ready to take questions.

Matt Summerville, D.A. Davidson

Thanks, a couple of questions. You obviously ported, the sales goodness you saw in the quarter, through the guide for the remainder of the year, but you didn't do the same for earnings. Can you talk about kind of the pluses and minuses that didn't allow that sales goodness to kind of flow through and maybe the answer is the magnitude of pull forward it sounds like you may have had into the quarter. And if that be the case, can you help us kind of understand and quantify that and then I will follow.

Sure, yes, Matt, good morning, and you kind of hit the nail on the head. We had revenues that were pulled forward from Q3 into Q2.

And as Q3 tends to be a seasonally low quarter and then Q4 a seasonally high quarter, and so typically first half, second half tends to approximate one another in terms of top-line, but we do have the tariff total of $10 million that we talked about as a net impact to the year. Still being the amount that we anticipate for the year and a portion of that probably a few million dollars translating into Q3.

And so the combination of the pull forward, the tariff impact in Q3, and the roughly 20% increase in second half versus first half EPS, kind of is why we didn't raise the EPS guide on the slightly higher revenue and so. While we anticipate You know that we continue to make progress throughout the year and certainly we're laser focused on doing so, realizing those improvements and making that progress, we thought it was prudent to de-risk the second half of the year with the beats in the first half and you know focus on executing to deliver on the full year guide.

Matt, this is Greg. There's also another factor to it as well, and that's foreign currency translation. So, we're certainly benefiting on the top-line from a foreign currency translation, and it was roughly $8 million year-to-date, and it'll be probably a similar number in the second half of the year. And the margin on a foreign currency change is essentially your operating margin times the change in sales, so it's going to have less of an impact on the overall bottom line.

Got it. So there's definitely some moving parts there. So I want to understand, 34.3 was a gross margin in Q1. 35.3, I believe is what it was in Q2 on an adjusted basis, realizing seasonal factors. Timing of how pricing is rolling through and tariff mitigation. There's a lot of moving parts in the back half of the year. Is there a way that you guys can help us kind of triangulate on what the margin sort of cadence looks like from here through year end?

Thank you.

Yes, sure, and I'm happy, we'll obviously be able to catch up offline and clarify any questions, but I do want to say that in the second half of the year, if you think about margin performance and you think about our full year guide, the year over year gross margin impact if you compare prior year to this year. Would be approximated by the tariff impact of $10 million. $10 million on a billion dollars is roughly 100 basis points of margin erosion from a year over year perspective. There's a little bit of a mix impact in there as well, given the fact that we are ramping our linear motion factory in Mexico that provides very high, higher margin product into the into the mix.

Also as we ramp our mantra tech. Volumes, those are providing higher volumes, same in automation, but we're also managing through a heavy backlog of lower margin crane related solutions that we are providing. And so the combination of those factors, it's a mix. Impact as well as the headwind associated with the full year tariff impact that results in the gross margin outlook that we have for the business.

And Matt, I'd like to also point out, as that our fiscal 3rd quarter is typically our seasonally slowest. There's less work days. We have, the holidays impact that around the world, and we typically see margins flat slightly down in the 3rd quarter because of that as there's less absorption in our factories.

Thanks guys.

Thanks.

William, CJS Securities.

Hi, this is [William] for John. Can you talk to the sustainability of the improved short order activity in the US?

Sure, we were pleased to see that activity come back as we were forecasting. We knew that we had some disruption in our 4th and 1st quarters.

I think our channel partners leaned on their inventory and the kind of unsettled trade relations scenarios played out, but we did see the rebound happen in this quarter. It was robust and we were pleased with that, and we do anticipate that that will continue. As we advance through the 3rd and 4th quarters, we don't see any reason at this point that that would, go in a wrong direction. We do have some seasonal impacts in that in the 4th quarter with a lot of customers having year ends that are measured in December, they may manage inventory.

In a way that manages that down towards the end of the year, but if you look at the second half, first half scenarios, I think that we'd see, reasonable and continued level of demand for short cycle through the balance of the year.

Thank you and can you add some color around the project backlog and pipeline and conversion rate trends both in the legacy business and the precision business?

Yes, I mean really encouraged by the funnel of opportunities that we have. We have record level funnels in most categories of products. We're in very active and engaged conversations with multiple customers about, pretty interesting and significant opportunities. Those decisions around letting or, making decisions around awarding those contracts have taken a little bit longer than we would have anticipated entering our second quarter. And So, the timing of those projects being awarded is something that plays out over time, but we're encouraged by the project backlog that we have, as you can see that in the $352million or $351 million worth of backlog that we have.

And at the end of the quarter, but we, we're even more encouraged by what we see in the funnel and how those projects are playing out right now. We are seeing conversion rates, notably in Europe, given, some of the deteriorating macro forecast there taking a little bit longer to close if you look at it geographically than those in the Americas. But still we remain encouraged about what lies ahead.

Thank you very much.

Absolutely, thank you Juan.

Steve Ferazani, Sidoti & Co.

Good morning, David. Morning, Greg. Appreciate the detail on the call. Did want to ask about the timing of the Keto Crosby closing. Sounds like you now think it's going to be 3 months later. You've pushed it off before. I think all you had was HSR to clear any reason to be concerned here, any thoughts on the delay?

Right, yeah, no reason to be concerned. We've substantially complied with the DOJ's second request and we're working towards closing. We're trying to do so as expeditiously as possible, and we've made progress from a financing, integration, planning, and regulatory standpoint. As we've secured fully committed financing and completed the syndication of the bridge facility, including the $500 million revolver.

And we'll pursue permanent financing as we've advanced toward closing, and we're taking full advantage of the time that we have between now and close to make sure that we're preparing for day one readiness. And so, we've established a full-time dedicated integration management office.

We've established a governance structure with our board around oversight and we're working with a group of external resources to make sure that we're wrapping the expertise around this that is necessary to allow for us to accelerate delivery of synergies and you know deliver rapidly post close, but also to make sure that we have good business continuity and we don't disrupt the core business and enable the resources that are focusing there to remain as focused there as can be possible during this transition.

So nothing to be worried about there just working through the process and anticipate a closing by the end of our fiscal year.

Fantastic. Thanks for the detail there. I'm going to kind of combine a couple of my follow-up a couple of different questions, but they do link, strong cash flow this quarter typically second half is much stronger than first half on.

The reversal on working capital. Just want to think about one, how you think about CapEx and cash flow for this year based on your earnings guidance. And two, given that you're pushing out the deal close, not you aren't, but the deal closed by 25% and you've had the strong cash flow, are you changing where you think your leverage will be post close?

Yes, so let me start off with the first piece of it, which is where we expect CapEx, and that'll be in the 10Q that gets filed this evening, and we're expecting with where we sit today roughly $15million to $20 million of CapEx for the full year.

And we are quite pleased with the progress we've made from a cash flow perspective and from a leverage perspective, we're talking about big numbers here from a financing perspective. And so even though we expect to drive substantial free cash flow in the second half of the year, we're comfortable that, with what we've said earlier that it's going to be in the high fours roughly when we close, but clearly. There's that can move, a 100% of a point.

Okay Thanks, David. Thanks, Greg.

Absolutely, thank you, Steve.

James Kirby, JP Morgan.

Hey, good morning, guys. Most of my guys' questions have already been asked. I'm just following up on some of the questions on the US. I was a really strong quarter with orders and sales of double-digits. You mentioned some industries in the prior remarks, David, aerospace, energy, but just wanted to dig deeper there. Are there any subsectors you're seeing particular strength or weakness in the US and how are we looking into September and October here?

Yes, James, we're seeing robust demand across most end markets as we look at the US Certainly heavy equipment, steel, playing a significant role in driving demand. Aerospace is strong. The Department of Defense is strong, and even automotive is, picking up, I think, as there's a little bit of rebalancing in terms of ice engine versus.

E-Vehicle as well as tariff impacted production plans and so we provide solutions into that space that are picking up as well. So feeling good about the level of demand that we're seeing here and anticipate that as we go forward, the tailwinds around labor scarcity, the need for improved production or productivity, automation, as well as some of the trade related impacts will play a benefit, play a role in helping to drive demand in the US.

Okay, that's helpful. And then maybe for our second question, maybe a high level one on what you're seeing lifting in North America and especially as it relates to the competitive environment, just broadly speaking, I assume peers are doing the same thing as you guys are doing with price surcharges, so maybe if you just speak high level on the dynamic in the US in the lifting space.

Yeah, certainly, we are obviously focused on executing our strategy, and we have, been disciplined about improving customer experience, improving our operational performance to meet customer expectations. We continue to make progress there and we'll continue to do so through the balance of our year and as we head into combining with Kito Crosby.

The competitive landscape is one where, our competitors are disciplined and they tend to Follow, a similar path to the path that we're following. We try to be leaders in the space, but obviously we compete against good companies, and they, they're taking similar actions as you had indicated relative to tariff mitigation plans relative to making sure that you know we're looking at our supply chains, we're looking at tariff codes, we're looking at the opportunities to rebalance production where we can and. I think that, we're in a position where we're clearly focused on doing what we can to execute well, earn more of our customers' business, and grow our share in the space, and we continue to remain focused on that as we head into the balance of the year.

Got it thanks David.

Thank you, James.

Thank you and that concludes the question-and-answer session of today's call. I will now turn it over to David for final remarks.

Great. Thank you, Ludy and thank you to all for joining us today. In summary, we delivered a solid Q2 with 8% sales growth as we execute on record backlog. Our tariff mitigation actions are beginning to take effect, and we are confident in our ability to offset impacts over time.

Our performance gives us the confidence to increase our full year revenue outlook and reiterate guidance for adjusted EPS. Our demand pipeline remains healthy, and we are focused on executing our commercial and operational initiatives to deliver results for our customers. That focus, combined with effective cost management and strong cash flow generation, positions us to deliver shareholder value over time.

We also continue to make progress towards the closing of the Key to Kito Crosby acquisition and remain enthusiastic about the value the strategic combination will unlock for all stakeholders as we more than double revenue, deliver top tier industrial margins, and generate strong cash flow, enabling rapid delivering.

Thanks for investing your time with us today. As always, please reach out to Christy with any questions.

Thank you.

Thank you and ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.